EFFECT OF FORENSIC AUDITING AND INVESTIGATION TECHNIQUES ON THE FINANCIAL PERFORMANCE OF DEPOSIT-TAKING MICROFINANCE INSTITUTIONS IN KENYA

Jared Mobisa Mosoti, Dr. Joshua Wafula, Dr. Andrew Nyang’au

Abstract


The Microfinance institutions in Kenya have experienced notable financial losses in the first 10 years since of the enactment MFIs act of 2006. Many of these have been occasioned by fraud which not only affects the MFIs, but the entire financial sector. In order to minimize the effects of these losses, these institutions’ deposit-taking microfinance have adopted the use of forensic auditing and investigation techniques that are used to investigate and deter financial improprieties. The study’s main objective was; to assess the effect of forensic auditing and investigation techniques on the financial performance of Deposit-taking Microfinance Institutions in Kenya. The study was guided by the fraud diamond theory. The study targeted all the Deposit-taking microfinance institutions in Kenya that were in operation between 2016 and 2020. The target population was 387 employees and managers of these firms that included: management and operations, Finance and credit control, Internal audit and Risk, External Audit, ICT, and Litigation departments of the Twelve Microfinance Institutions that were in operation in Kenya during the period of the study. The sample size was 281. The researcher used purposive and stratified Random sampling methods to select the sample. Both descriptive and inferential statistics were used in analyses. The findings showed that the micro-finance institutions used forensic auditing and investigation techniques in the fight against fraud. The findings further showed that the use of forensic auditing and investigation techniques have reduced incidences of fraud in the banking sector which have positively contributed to financial performance. The study concludes that there is a significant positive relationship between forensic auditing and investigation techniques and the financial performance of the deposit-taking microfinance institutions in Kenya. The study recommends that the management of microfinance institutions should invest more in auditing and investigation techniques and should implement the recommendations of external auditors

Keywords; Forensic Auditing and Investigation, Financial Performance, Microfinance Institutions, and Fraud Diamond Theory


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