Fraud risk management practices and operational performance of horticultural firms in Kenya moderated by firm size.

Abstract

Kenya’s horticultural sector is a major contributor to the economy, generating KES 136.6 billion in export earnings in 2024 and creating significant employment opportunities. However, the sector faces persistent revenue losses linked to increasing fraud risks. Fraud-related losses rose from 4.2% in 2018 to 5.0% in 2020 before slightly declining to 4.7% in 2022. Given that industry fraud losses are typically expected to remain below 2–3%, the 4–5% losses reported indicate a serious financial challenge, especially for firms operating on narrow profit margins. Therefore, this study examined the effect of fraud risk management (FRM) practices on the operational performance of horticultural firms in Kenya, with firm size as a moderating variable. Specifically, it assessed the influence of internal controls, audit and monitoring practices, legal compliance strategies, and electronic security measures on operational performance. This study was anchored on three theoretical perspectives: the Resource-Based View, Social Learning Theory, and the Fraud Management Lifecycle Theory. A positivist research philosophy guided this study, which targeted 236 horticultural firms in Kenya. Using a descriptive cross-sectional design, we applied a cluster random sampling technique to select a sample of 73 firms from different regions. The study focused on key personnel within these firms, including accountants, operations managers, and compliance managers, with a total of six respondents drawn from each firm, resulting in a total sample of 438 participants in the study. Data were collected using a structured questionnaire comprising closed ended (Likert scale) items to generate quantitative results. Data analysis involved both descriptive and inferential techniques. Descriptive statistics, such as means, standard deviations, and frequencies, were used to summarize the data, while inferential methods were employed to examine the relationships between variables. The results of the multiple regression analysis without moderation indicated that all FRM practices (internal controls, auditing and monitoring, legal compliance, and electronic security) had a significant positive effect on operational performance. This suggests that these factors collectively contribute to variations in the performance of horticultural firms. Upon introducing firm size as a moderating variable, the findings revealed that it significantly strengthened the relationship between FRM practices and operational performance. Larger firms exhibited stronger positive effects, which was supported by the significant interaction terms between the independent and dependent variables. This indicates that firm size enhances the effectiveness of FRM in improving operational outcomes. In conclusion, this study provides empirical evidence on the relationship between Fraud risk management practices and operational performance within Kenya's horticultural sector and further demonstrates the moderating role of firm size, showing that larger firms are better positioned to enhance the effectiveness of FRM practices due to greater resource availability. Based on these findings, future research should explore additional moderating factors, such as technology adoption, corporate governance structures, and organizational culture, and incorporate perspectives from a broader range of stakeholders.