Internal Audit and Fraud among Insurance Companies in Kenya
Abstract
Fraudulent activities continue to pose a major threat to the sustainability of businesses and organizations worldwide, undermining financial performance, operational efficiency and stakeholder confidence. In Kenya, the problem has intensified, particularly in medical and motor insurance, where industry estimates suggest that up to one in every five medical insurance claims may be fraudulent. Despite the presence of internal audit functions within insurance companies, fraud continues to escalate, raising concerns about the effectiveness of existing internal audit practices. This study sought to determine the effect of internal audit on fraud among insurance companies in Kenya. The specific objectives were to assess the effect of competence of internal auditors and scope of work of internal auditors on fraud within insurance companies in Kenya. The study was anchored on the fraud triangle theory, agency theory and the theory of internal control. A descriptive correlational research design was adopted. The unit of analysis comprised the 61 insurance companies in Kenya, while the unit of observation included the 61 internal audit managers. A census approach was employed, and primary data were collected using structured questionnaires. Data analysis was conducted using the Statistical Package for the Social Sciences (SPSS) version 25, applying descriptive and inferential statistics, including correlation analysis, linear regression, and Analysis of Variance at a 95% confidence level. The findings revealed that the scope of work and competence of internal auditors had a significant positive relationship with fraud detection and prevention. The study concluded that strengthening the internal audit function plays a critical role in minimizing fraud in the insurance sector. Insurance companies in Kenya have made notable efforts in enhancing staff competence and defining comprehensive audit scope; however, improvements in audit coverage and timeliness are still required to ensure sustained fraud mitigation. The study recommends that insurance managers strengthen internal audit capacity through continuous professional development and broader risk-based audit planning, while policymakers should enforce standards that promote auditor autonomy and professional competence.
Keywords: Internal Audit, Fraud, Competence of Internal Auditors, Scope of Work of Internal Auditors
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