Fraud risk management techniques and financial performance: the case of Savings and Credit Cooperative Organizations in Kenya

Abstract

According to Duffield and Grabosky (2011), fraud is a deceptive act that involves the deliberate distortion of the truth or the false representation or concealment of a material fact in order to gain an unfair benefit over some other in an effort to achieve something of cost or deprive a person else of their right. The objective of the study was to investigate the effect of fraud risk management techniques on financial performance of SACCOS in Kenya. The research aimed to identify the three aspects fraud risk management techniques which include preventive, detective and responsive techniques. The researcher used descriptive research design under the positivism research philosophy. Questionnaires were employed to collect data from a sample of 545 SACCOS, 176 deposit taking saccos and 370 Non-deposit taking SACCOS. The study collected quantitative data and analyzed it using descriptive analysis methods. Inferential statistics such as correlation and regression analysis were used to show the relationship between the dependent and independent variables. The three independent variables explain 77.6% variations in financial performance. The study demonstrates a great reliance on fraud risk management techniques to curb fraud occurrence. The majority agree that applying fraud risk management techniques, controls, monitoring, and reporting supports faster fraud prevention and detection. The study's findings are that most fraud risk management techniques are believed to be closely and positively related to the competitive advantage of Non-Deposit and Deposit SACCOs in Kenya. These findings have a positive impact on the fraud lifecycle theory. Fraud in SACCOS has reduced in Deposit taking SACCOs suspected fraud is at 7.3% while Non-Deposit taking SACCOs which is at 3.8% showing financial performance has improved since in the past couple of years. In line with the important findings of the study, recommendations for policy and practice were made. Non-Deposit and Deposit SACCOs rely heavily on applied fraud risk management techniques, which they have put in place following worldwide best practices.