Effect of internal auditing on fraud management in Kenyan state corporations

Abstract

Internal auditing provides expert assurance and advisory services that enhance governance, risk management, and control processes. Effective internal audits help organizations achieve their objectives by evaluating control systems and improving accountability. According to the Institute of Internal Auditors (IIA) standards, fraud management involves assessing control systems (Standard 2130), defining audit objectives for fraud detection and prevention (Standard 2210), evaluating fraud risk elements (Standard 2320), monitoring corrective actions (Standard 2500), and reporting detected fraud promptly (Standard 2600). This study seeks to analyze the effect of internal audit services on fraud management in Kenyan state corporations. Specifically, it examines the effects of financial, compliance, operational, and forensic audits on managing fraud. Grounded in Agency Theory and Routine Activity Theory, the study adopted a descriptive research design targeting 280 respondents from 165 state corporations. Data were collected through questionnaires and analyzed using multiple regressions. The findings revealed that financial audits (β = 0.205, p < 0.05), compliance audits (β = 0.209, p < 0.05), operational audits (β = 0.381, p < 0.01), and forensic audits (β = 0.073, p < 0.01) significantly influence fraud management. The study concludes that internal audit services are vital in strengthening fraud detection, prevention, and accountability. Policy implications highlight the need for greater auditor independence, enhanced training, and technology-driven auditing tools in Kenyan state corporations. Future research should explore private-sector and regional comparisons using longitudinal designs and advanced analytics to improve understanding of audit effectiveness in fraud management.