| Abstract: | This research determines the effectiveness of the internal control system in mitigating fraud risks
in the case of Hibret Bank S.C. Internal control defined as a process that has been accepted by
the board, management and staff of an organization that provides reasonable assurance over
objectives, the effective functioning and reporting of the company, compliance with regulations
and maintaining the reputation of the company. The key aims of the research to test the
usefulness of internal control system in detecting fraud risk. Internal control system components
(control environment, risk assessment, control activities, information & communication, and
monitoring activities) were considered as independent variables in this research whereas fraud
risks were the dependent variable. Descriptive, explanatory and qualitative research methods
were carried out in this study. The primary data was gathered using questionnaire tool and the
qualitative data was gathered by interviewing five people within Internal Audit and Risk &
Compliance Departments. The populations of the research to be carried out were Hibret Bank
employees who were occupying a managerial job in both Head office and Branches located only
in Addis Ababa, and by using simple random sampling method 244 employees were selected.
The sample size used to obtain the quantitative data comprises 232 employees. The research
utilized both descriptive and inferential statistics in the data processing with the help of
Statistical Package for Social Sciences (SPSS) Version 25. The research established that the five
components of internal control positively and significantly contribute to the prevention of the
bank fraud risks at Hibret Bank. It was also found in the study that there is negative and strong
correlation between independent variables (the five components of internal control systems) and
the dependent variable (occurrence of bank fraud risks). This means that a increase in one
element of internal control system would result into the reduction of incidences of the common
kinds of bank frauds within the Bank. In addition to that the qualitative information indicated the
significance of the efficient internal control systems in mitigating risks of frauds along with the
necessity of the sufficient implementation, employee awareness, and continuous monitoring in
terms of the effectiveness of these systems. Therefore, the research concludes that the internal
controls as applied by Hibret Bank have a great role in minimizing risk in case they are
effectively utilized. Nevertheless, the potential is hampered by the ambiguities in communication
and unproductive monitoring. It is crucial to fight such areas which are led by qualitative
understanding of the matter along with the quantitative evidence in order to achieve greater
overall effectiveness in the fight against fraud. It can therefore be concluded that, all controls
unless well designed and implemented could provide room through which fraudulent practices
could occur. |
