Determinants of fraud prevention among Small and Medium Enterprises in Nairobi County Kenya, moderating role of internal controls

Abstract

Fraud remains a significant challenge for SMEs, with Sub-Saharan Africa accounting for 18% of global cases and Kenya the highest in East Africa, causing revenue losses and business failures. The overall objective of the study was establishing the determinants of fraud prevention among SMEs in Nairobi County, with internal controls serving as a moderating variable with specific objectives being to establish the effects of organisational culture, organisational commitment, whistleblowing systems, and human resource competencies, and to establish the moderating role of internal controls on fraud prevention among SMEs in Nairobi County, Kenya. The study was guided by the Fraud Pentagon Theory, Agency Theory, and the Fraud Management Lifecycle Theory. A post-positivist philosophy and quantitative explanatory design were adopted. Data were collected between February and March 2026 via structured questionnaires from 400 SME owners, managers, and employees across key sectors, achieving a 100% response rate, and analysed using descriptive statistics and multiple regression. Findings showed that all determinants positively and significantly influenced fraud prevention, with organisational commitment and whistleblowing having the strongest effects. Internal controls had a direct effect but did not moderate the relationships. The study highlights the importance of ethical organisational culture, employee commitment, whistleblowing, and competencies, recommending stronger governance and supportive policy frameworks for SMEs. The study contributes to knowledge on fraud prevention among SMEs by demonstrating that organizational culture, organizational commitment, whistleblowing systems, and human resource competencies significantly enhance fraud prevention in Nairobi County. It further establishes that internal controls have a direct positive effect on fraud prevention but do not significantly moderate the relationship between the determinants and fraud prevention. The study also extends the Fraud Pentagon Theory, Agency Theory, and the Fraud Management Cycle in explaining fraud prevention within SMEs while providing practical guidance for managers and policymakers. A key limitation was difficulty in accessing updated SME contact information from the Public Procurement Regulatory Authority database, leading to the adoption of snowball sampling.