THE EFFECTIVNESS OF INTERNAL CONTROL SYSTEM FOR DETECTION AND PREVENTION OF FRAUD THE CASE OF SELECTED COMMERCIAL BANKS IN ETHIOPIA

Abstract

The main purpose of the study is to examine the effectiveness of internal control system in detecting and preventing fraud in the case of Ethiopian banking industries. This research was used both descriptive and explanatory research design because it enables the study to clearly investigate the characteristics and nature of the study undertaken and the cause and effect relationship with explanatory and dependent variables of the study. The data was gathered from primary sources through the use of structured questionnaires. The total population is 278 employees. The components of the internal control system (Control environment, risk assessment, control activities, information and communication and monitoring activities) are effective in addressing or alleviating and preventing the frequent occurrence of fraud in different private banks of Ethiopia. The Pearson correlation result shows that from five explanatory variables (control environment and information communication) has no association since the p value of each variables are greater than 0.05. But the other variables like risk assessment, control activities and monitoring activities has a positive and statistically significant relationship with fraud detection and prevention. Regression result shows that from the variables which incorporated in the model control activities and Control environment are statistically insignificant or it doesn’t have a cause and effect relationship with fraud detection and prevention in the banking sector. The forwarded recommendations was the organizations should implement the right mix of technologies and prevention techniques and put additional controls in place, including rigorous approval procedures and careful separation of duties.