Fraud in the banking industry in Kenya A case of commercial bank of Africa, Kenya

A Research Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement of the Masters in Business Administration (MBA)This study sought to assess fraud in the banking industry in Kenya using Commercial Bank of Africa (CBA) as the case. The objectives of the study were: to establish the causes of fraud at CBA, examine the types of frauds committed and determine the appropriate strategies for prevention and control of fraud. The study utilized a descriptive research design using CBA bank as the case. The study was conducted during the months of February and March 2014 using all employees of CBA with Nairobi County. A population of 68 employees representing 33% of the populations were included in the sample size using a stratified random sampling technique. Data for the study was collected using an online questionnaire for cost and convenience to all the respondents. However, the questionnaire was pretested for errors and relevance. Data collected was analyzed using SPSS vs. 20 for means, frequency distributions, standard deviations and modes. Analyzed data was presented using figures and tables for ease of interpretation and elaboration. The study found that, fraud in CBA was accorded very high priority. The major causes of fraud in the bank were availability of opportunities for fraud, rationalization of fraud acts and pressure to commit fraud. Opportunities for fraud were present due to relaxed internal controls and accounting systems, inadequate supervision of subordinates, disregard for customer due diligence requirements and poor personnel policies. Secondly, this study found that employee fraud was the most common fraud in the bank while third party fraud was second. Management fraud in CBA was very low. Some of the forms of fraud identified include: cash theft, use of forged documents, cards fraud, letters of credit fraud and impersonation. Further, this study found that there were very effective strategies to prevent and control fraud. However, the most effective strategies for prevention and control of fraud are: use of ICT tools such as passwords and firewalls, strengthening of internal controls and systems, encouragement, communication, rewards and recognition of employees, performance management, improvement and hiring systems and policies, use of expected and unexpected audits and use of analytical tools. The study concluded that the most dominant factor influencing or accelerating fraud in CBA was the availability of opportunities for fraud. Further, the establishment of an ethical culture within the organization structure was critical in fraud management. Secondly, this study concluded that employees are the primary drivers of fraud through forging of documents, opening and management of fictitious accounts, claiming unearned benefits and computer frauds. On the other hand, management was the least contributors to fraud in the bank. The study further concluded that the most effective strategies for prevention and control of fraud were use of ICT tools, use of analytical tools, use of audits, strengthening of internal controls and application of customer and human resource management systems in the bank. This study recommended that banks should implement systems and structures that reduce the opportunities for fraud. In addition to strengthening internal control systems and structures, banks can use ICT tools to reduce opportunities or instill punitive measures for employees engaging in fraud and fraud related incidences. Secondly, decentralize the functions of employees and ensure there are adequate authentication and control structures and systems in place to reduce employee fraud. Furthermore, employees should be regularly rotated between departments. This study recommends that ICT should form the core backbone for the prevention and control of fraud. This is because ICT can be used to track, identify and report cases of fraud