FRAUD RISK MANAGEMENT AND FINANCIAL PERFORMANCE OF

COMMERCIAL BANKS IN UGANDA: A CASE OF EQUITY BANK

BY

OBUA DENIS OWACH

20/MMSFM/KLA/AUG/012

Supervisors:
Dr. Saturninus Kasozi-Mulindwa
Ms. Kawasiima Christine

A PROPOSAL SUBMITTED TO THE SCHOOL OF BUSINESS AND MANAGEMENT

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD
OF A MASTER’S DEGREE IN MANAGEMENT STUDIES IN FINANCIAL
MANAGEMENT OF UGANDA MANAGEMENT
INSTITUTE

NOVEMBER, 2023
 TABLE OF CONTENTS
LIST OF TABLES........................................................................................................................iv
LIST OF ACRONYMS AND ABBREVIATIONS.....................................................................v
CHAPTER ONE............................................................................................................................1
INTRODUCTION.........................................................................................................................1
1.1 Introduction................................................................................................................................1
1.2 Background of the study............................................................................................................2
1.2.1 Historical background.............................................................................................................2
1.2.2 Theoretical background..........................................................................................................5
1.2.3 Conceptual background..........................................................................................................6
1.2.4 Contextual background...........................................................................................................6
1.3 Problem statement.....................................................................................................................9
1.4 Objectives of the study............................................................................................................10
1.4.1 General objective of the study..............................................................................................10
1.4.2 Specific objectives of the study............................................................................................10
1.5 Research questions...................................................................................................................10
1.6 Hypotheses of the study...........................................................................................................11
1.7 Justification of the study..........................................................................................................11
1.8 Significance of the study.........................................................................................................12
1.9 Scope of the study....................................................................................................................12
1.9.1 Content scope........................................................................................................................12
1.9.2 Geographical scope...............................................................................................................12
1.9.3 Time scope............................................................................................................................12
1.10 Conceptual framework...........................................................................................................13
CHAPTER TWO.........................................................................................................................14
LITERATURE REVIEW...........................................................................................................14
2.1 Introduction.............................................................................................................................14
2.2 The Conceptual Literature Review.........................................................................................14
2.3 Theoretical review on Fraud...................................................................................................15
2.3.1 The Fraud Triangle Theory (FTT)........................................................................................15
2.3.2 The Fraud Management Lifecycle theory............................................................................16

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2.3.3 The Financial Control Theory..............................................................................................17
2.4 Actual review...........................................................................................................................18
2.4.1 The role of preventive fraud risk management on financial performance............................18
2.4.2 The effect of detective fraud risk management on financial performance..........................19
2.4.3 Responsive fraud risk management and financial performance...........................................20
2.5 Summary of Literature Review...............................................................................................23
CHAPTER THREE.....................................................................................................................24
METHODOLOGY......................................................................................................................24
3.1 Introduction..............................................................................................................................24
3.2 Research Design......................................................................................................................24
3.3 Study Population......................................................................................................................24
3.4 Sample Size determination......................................................................................................24
3.5 Sampling techniques and procedures.......................................................................................25
3.6 Data Collection Methods.........................................................................................................26
3.7 Data collection instruments.....................................................................................................26
3.8 Reliability and Validity Tests..................................................................................................26
3.8.1 Validity and Reliability of Quantitative Research................................................................26
3.8.2 Reliability and Validity of Qualitative Research..................................................................26
3.8 Data Analysis...........................................................................................................................27
3.9 Ethical Clearance.....................................................................................................................28
REFERENCES............................................................................................................................30
APPENDIX: A.............................................................................................................................36
QUESTIONNAIRE.....................................................................................................................36
APPENDIX B...............................................................................................................................43
INTERVIEW GUIDE.................................................................................................................43
APPENDIX C : PLAGIARISM.................................................................................................44

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 LIST OF ACRONYMS AND ABBREVIATIONS
ACFE Association of Certified Fraud Examiners
BOU Bank of Uganda
CAMELS Capital adequacy, asset quality, management, earnings, liquidity,
sensitivity to market risk
CNP Card Not Present
COSASE Committee on Commission, Statutory Authorities and State Enterprises
COSO Committee of Sponsoring Organizations of Tread way Commission
FTT Fraud Triangle Theory
IFR International Financial Reporting System
IT Information Technology
RIB Rwanda Investigations Bureau
USD United States Dollars

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 CHAPTER ONE
INTRODUCTION
1.1 Introduction
Fraud risk management is a long-term process of planning, assessing and controlling fraudulent
activities through preventing, detecting and responding to fraud. This is integrated with
involvement of major stakeholders in designing and applying policies for eliminating fraud and
ensuring adherence to the policies. It is important to note that almost all businesses are exposed
to fraud risks (Nawawi & Salin, 2018). One can say that fraud is a deceptive activity which aims
at gaining benefit from another party (The Association of Certified Fraud Examiners -ACFE,
2018). There is a worrying trend of frauds among financial institutions both in the developed and
developing countries besides measures in place to combat frauds (Inaya & Agunuwa, 2019).
Frauds result into losses to financial institutions plus their clients and subsequently lead to
bankruptcy. Thus, management of fraud risks includes preventive measures, (controls to reduce
risk of fraud); detective measures (controls to discover fraud risk and misconduct); and
responsive measures aimed to take corrective actions and reduce the harm caused (Davis, Searcy
& Giles, 2010). This study examines the relationship between fraud risk management and
financial performance of Equity Bank (Kampala branch. The study's background, problem
statement, objectives, hypotheses, conceptual framework, significance, justification, scope, and
operational definitions was discussed in this chapter.
1.2 Background of the study
This section presents the historical, theoretical, conceptual, and contextual backgrounds of the
study.
1.2.1 Historical background
Historically, the concept financial management has evolved as a field of study and explained in
three broad phases; the traditional, transitional and modern phase which are in details discussed
below;
In the early years of the 19th Century, the traditional form of financial performance was observed.
This existed for four decades from 1900 to 1939 (Baliddawa, 2019). It used to explain the
concept of financial management from only the external point of view. This included investment
banks, borrowers and others and the financial decision makers existing within the organization
(O'Leary, 2016). This phase considered the events of formation, provision of capital, great

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financial expansion, mergers, reorganizing institutions and liquidation life of an enterprise
(Alavi, et al 2016). It started emphasizing long-term means of financing institutions and also
provided instruments and procedures needed in capital markets and the aspects of legality for
financial events. The phase ignored challenges of acquiring working capital and considered
external factors as the only factors in financial performance, which were criticized throughout its
period of existence (Dionne, 2019).
The second phase of transition existed in the 1940s and continued through the 1950s. In this era,
financial management was handled in a way almost similar to the traditional one but its emphasis
was on how to acquire the day to day working capital. The emphasis was how finance managers
can manage problems in the financial aspects. In this era of transitional phases, capital budgeting
techniques were developed and used in financial institutions.
In the years of the mid-1950s, the modern phase of financial performance and management
started. This phase integrated the economic and statistical ideas which made financial
management more analytical and statistical. Hence modern economic and statistical ideas were
used to make financial management more quantitative and analytical (Alavi, et al 2016). In this
phase, funds were rationally matched to their use hence improved shareholder’s wealth. There
have been significant advancements since then that led to modern capital budgeting, capital
structure theory, efficient market theory and option pricing theory, arbitrage pricing theory,
valuation models, dividend policy, managing of working capital, financial modeling and
behavioral finance. Finance is more challenging when many development ideas are expected
(O’Leary, 2016).
In Uganda, financial institutions comprises of formal, semi-formal and informal. In most cases,
financial institutions are monitored and regulated by the central bank. The central bank has the
mandate to supervise all commercial banks which are operating in the country. It also monitors
microfinance deposit taking institutions and forex bureaus following the Uganda Statute of 1993.
To achieve this, a number of acts and regulations have been formulated which include Bank of
Uganda Act 1969, Bank of Uganda Act 2000, Financial Institutions Amendment Act, 2016,
Mobile Money Guidelines 2013, Agent Banking Regulations 2017, Financial Institutions
Regulations 2019, Regulations for Licensing and Operation of Forex Bureaus and Companies of
Remittances among others (Balid-dawa, 2019).

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Risk management is routinely managed by the Bank of Uganda which continuously revises
guidelines aimed at supervising financial institutions against various forms of risk including
fraud risk. These guidelines position “corporate governance” as a fundamental fact that stipulates
the board’s key role in managing risks. The tone at the top is one vital means through which
fraud risk is managed in financial institutions and other organizations. Institutions have a drive to
devise a proactive strategy and leverage upon the principles of corporate governance to manage
risk (O'Leary, 2016). Effectively managing fraud risk entails putting in place controls that
measure preventive, detective and responsive mechanisms at averting fraud at an early stage; and
incorporating them within an institution’s strategic objective (Alavi, et al 2016). However, these
mechanisms or measures require keen focus towards managing residual fraud risk (Boateng et
al., 2016).
1.2.2 Theoretical background
The study will be guide by fraud management lifecycle by Wesley (2004) who describes fraud
management lifecycle as a network life cycle. Webster’s dictionary refers to a lifecycle as “a
series of stages in form and functional activity through which an organism passes between
successive recurrences of a specified primary stage” (1997, 1976, &1941) and also refers to a
network as “an interconnected or interrelated chain, group or system” (1997, 1976, & 1941).
The Fraud Management Lifecycle is made up eight stages; deterrence, prevention, detection,
mitigation, analysis, policy, investigation and prosecution. This theory suggests that the last
stage, prosecution, is the culmination of all successes and failures in the Fraud Management
Lifecycle. There are failures because the fraud was successful and successes because the fraud
was detected, a suspect was identified, apprehended, and charges filed. The prosecution stage
includes asset recovery, criminal restitution, and conviction with its attendant deterrent value
(Wesley, 2004). The interrelationships among each of the stages or nodes in the Fraud
Management Network are the building blocks of the fraud management life cycle theory.
Githecha (2013) notes that the theory is important because it vividly shows the stages of fraud
risk management in a sequential manner. In addition the theory also shows what institutional
processes should put in place for fraud to be effectively managed. The theory however does not
explain the drivers of fraud within the commercial banks. This theory assumes uniform cultural,
legal, and technological applications in the management of fraud. This theory does not attempt to
explain fraud management practices in an environment when such systems and processes fail.

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1.2.3 Conceptual background
Fraud risk management is considered as a process of identifying potential fraud risks, detecting
and preventing effects of fraud (Herron & Cornell, 2021). Ishola, Kenku, & Adedayo, (2021)
defines fraud as the distortion of truth to gain unfair advantage over another party that is, one
party communicating false statements to another party with an intention to defraud them (Vasiu
& Vasiu, 2018). Also, Mohamed, Belaja & Rozzani (2019) defines fraud risk management as
systems and processes in identifying an institution’s exposure to fraud risk, implementing
controls and procedures to detect, prevent and respond to them (Mohamed, Belaja, & Rozzani,
2019).
According to Bangura (2020), fraud detection is a crucial aspect of fraud risk management.
Fraud detection techniques are those activities and schemes put in place for the identification of
current or potential fraud in an organisation. Fraud detection should be included as part of an
organization’s antifraud strategy to discover and halt fraud occurrence and its effect at the
earliest possible time. An effective fraud detection strategy saves financial resources and protects
the going concern of an organisation and its stakeholders. Fraud detection and prevention both
have a significant role to play and it is doubtful that either will be very effective without the
other (Hussaini et al., 2019).

Response practice denotes those plans of acts that are prompted when a suspected act of fraud is
reported, discovered or, detected. Fraud response is a vital feature of the overall fraud
management framework. It provides stakeholders with a reasonable assurance that fraud
perpetrators are identified and suitable penalties are consistently meted out for such acts
(Adebayo et al., 2022).

Reduction practice; this refers to the identification of various causes of fraud and eliminating the
potential of such causes for fraud. Fraud reduction is a major objective of fraud strategies and is
often the least costly of all types of fraud management. It should be noted that fraud is an act that
can only occur when the right circumstance exists. Suryandari et al. (2019) posited that fraud risk
management is an effective approach to achieve fraud reduction, particularly through fraud
prevention.
On the other hand, financial performance is concerned with measuring how a firm uses its assets
to generate its revenues and assessing the financial health of an institution. Jahani, Abbasi, and

4
Talluri, (2019) noted that in financial performance institutions are meant to assess their financial
statements in order to achieve the effectiveness and efficiency of their financial management. It
is measured through financial indicators such as; earnings, liquidity, asset quality, and
profitability among others (Jahani, Abbasi, & Talluri, 2019).

1.2.4 Contextual background

Equity bank Uganda was introduced in 2009 as a subsidiary to Equity Bank Group Limited in
addition to other subsidiaries in Rwanda, Tanzania, South Sudan and DRC. As of now, Equity
Bank Uganda has 33 branches in the different parts of the country. The bank serves over 600,000
customers, has over 35ATMs, and employs over 700 people in its different branches country
wide (Equity Bank Group Annual Report, 2017). The amendment of the Financial Institutions
Act of 2016 by the Parliament of Uganda, paved way for the introduction of agency banking
system in Uganda in 2016 with the aim of increasing financial inclusion (Bank of Uganda and
the Ministry of Finance Report, 2017).
In Uganda, to maximize financial inclusion, Equity Bank Uganda was one of the first banks to
rollout the agency banking system in the name of “Equi Duuka” following its success in the
different subsidiaries of the Equity Bank Group in Kenya, Rwanda, DRC, South Sudan and
Tanzania in order to take its services closer to the customers and reduce on the costs of
operation. In April 2017, Equity bank launched its “Equi Duuka” to ease accessibility to
financial services with specific focus on low income earners and rural population. With this
system, the bank has experienced a steady growth in its accounts book with more than 400,000
accounts opened through agency banking out of the 683,000 accounts that were opened in the
period under review (Equity Bank Group Annual Report, 2018). Despite the fact that the Bank of
Uganda and the financial institutions have put in stringent measures to combat fraud risk and
other internal controls to manage its operational efficiencies, frauds have continued to occur. In
Equity Bank, fraud statistics gathered from 2015 to 2022 indicate that frauds have continued to
occur despite the fact that Equity Bank is tremendously growing in terms of customer base and
profitability implying that about 5% of its profitability is being taken away by fraudsters. This is
also evident in the huge loan provisions in their annual financial statements published yearly.
From 2015 to date, Equity Bank Uganda has put in preventive measures; notably frauds and
security awareness training, tone from top management, code of conduct attestations by new
staff, fraud and investigation policies and procedures but fraud has continued to occur.

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Some of the major frauds that have occurred in Equity Bank Uganda from 2015 to date included
Debit card frauds, Loan frauds, Card not present frauds[CNP], agency frauds, cyber frauds, teller
frauds, account takeover frauds and online banking frauds. Some of the eye catching fraud
incident cases in the public domain, committed by internal staff of Equity Bank were as follows;
Maxwell Lawrence Muyonjo has also admitted to having fallen victim to the fraud when he was
robbed of shs30.6 million through mobile banking, Rose Ahebwa lost Shs47m on her Equity
Bank account on 18th December, 2022. Cases of fraud at Equity Bank are not new. In 2021,
Edith Nakacwa lost Shs21.9m from her account, which was done using Eazzy Money App which
she never initiated (Equity bank, 2022).

1.3 Problem statement

In the banking industry, many frauds are perpetrated through falsified payment instruments.
Common fraud types include; Cheque fraud, computer fraud, Card fraud and Mail order fraud
that’s commonly referred to as internet fraud. Banking sector has been losing a lot of money
through fraudulent activities of which have an impact in their profitability (Egiyi & Eze, 2022).
Various efforts have been put in place by the Equity Bank to mitigate activities of fraud through
enforcing stringent internal control systems, preventive, detective and responsive fraud risk
measures to combat fraud risk, developing corporate governance policies, building capacity of
employees and implementing risk management strategies.
Despite the above efforts, there is still high number of fraudulent activities in Equity bank, fraud
statistics gathered from 2015 to 2022 indicate that frauds have continued to occur despite the fact
that Equity Bank is tremendously growing in terms of customer base and profitability implying
that about 5% of its profitability is being taken away by fraudsters. For example, Rose Ahebwa
lost Shs47m on her Equity Bank account on 18th December, 2022. Cases of fraud at Equity Bank
are not new. In 2021, Edith Nakacwa lost Shs21.9m from her account, which was done using
Eazzy Money App which she never initiated (Equity bank, 2022). This is also evident in the huge
loan provisions in their annual financial statements published yearly (Equity Bank, 2022).
Financial performance has been reported to decrease between 2018 and 2019 due to increase in
credit risks. The financial performance of the bank as measured by its return on equity (ROE)
was 28% which was lower than that of 2018 of 25%, a reflection of decline in financial
performance (Equity Bank, 2019). However in 2020, its financial performance as measured by
ROE also dropped to 19% (Equity Bank, 2020). It is evidenced that the institution has been

6
experiencing fluctuation in its financial performance. In the case of fraud, banks incur high
operating costs by repaying customer losses while bank customers experience a lot of time and
emotional losses that damage the bank's relationship with the customer due to despair and
confidence. Although a number of studies have been undertaken on how financial risks impact
on financial performance, there are few studies with contradicting results such as Afriyie and
Akotey (2012), Cucinelli (2013), Epetimehin and Obafemi (2015), Wanjohi (2012). Some have
positive relations and other negative findings. This study sought to bridge the gap by focusing on
studying the Effect of Financial risks and Performance of CRDB. It is against this background
that the study will examine the relationship between fraud risk management and performance of
commercial banks in Uganda, a case of Equity Bank.
1.4 Objectives of the study
1.4.1 General objective of the study
The purpose of the study is to examine the effect of fraud risk management and financial
performance of Equity Bank Uganda.
1.4.2 Specific objectives of the study
i. To examine the effect of preventive practices on financial performance at Equity Bank
ii. To determine the effect of detective practices on financial performance at Equity Bank
iii. To establish the effect of responsive practices on financial performance at Equity Bank
1.5 Research questions
i. What is the effect preventive practices on financial performance at Equity Bank
ii. What is the effect of detective practices in place on financial performance at Equity Bank
iii. What is the effect of responsive practices on financial performance at Equity Bank
1.6 Hypotheses of the study
H1: Preventive practices significantly affect financial performance at Equity Bank
H2: detective fraud practices significantly affect financial performance at Equity Bank
H3: responsive practices significantly affect financial performance at Equity Bank
1.7 Conceptual framework
A conceptual framework is a diagrammatical representation that shows the relationship between
dependent variable and independent variables. It illustrates the fraud risk management on
financial performance at Equity Bank.

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Fraud Risk Management Practices (IV)

Preventive
 Ethical culture
Financial performance (DV)
 Internal controls
H1
 Fraud awareness

Detective  Returns on equity

 Whistle blowing H2  Returns on assets
 Computer forensic  Liquidity
 Transaction monitoring
H3
Responsive
 Risk assessment
 Investigations
 Disciplinary action

Source: (Olaoye & Adebayo, 2019, COSO and ISO 31000:2009 (2018); CAMEL, 2018)
The conceptual framework explains the relationship between fraud risk management in
combating frauds and financial performance of Equity Bank Uganda. The independent variable
is fraud risk management measured in terms of preventive practice with subthemes of ethical
culture, internal controls and fraud awareness, detective practice with subthemes of Whistle
blowing, computer forensic and transaction monitoring and responsive practice with subthemes
of risk assessment investigations and disciplinary action; while the dependent variable (financial
performance) is expressed through earnings, liquidity, and asset quality. It hypothesized that any
changes in the independent variable will lead to changes to the dependent variable by the same
magnitude.
1.8 Justification of the study
Despite the fact that the banking sector plays a major role in the socio-economic development of
the country, it experiences a number of barriers related to fraudulent activities (Charfeddine &
Kahia, 2019). Maulidi & Ansell, (2020) stresses that fraud in the commercial banks of
developing countries is detrimental. Banks work as major depositories and a skeleton of the
payment system and flow of financial transactions (Shahbaz, Nasir, & Roubaud, 2018). Risks of

8
fraud have caused distress of banks to operate. Hence banks need to work hard to minimize
incidences of fraud in their operations, processes and transactions. Financial institutions have
started to adapt means of modern banking practices e.g. using complex data to monitor their
daily transactions. Though there is no single method for solving frauds, adopting modern
information technology systems (IT) is a good strategy to eliminate fraud risks in commercial
banks. Hence, it is important to understand how banks prevent, detect and respond to fraud risk
occurrences in commercial banks which makes this study useful.
1.9 Significance of the study
Management: This research will be beneficial to managers since it will investigate the increased
efficiency associated with using various fraud risk management approaches. These findings will
assist managers in prioritizing investment decisions about effective fraud risk management
approaches in the setting of limited financial resources.

Investors: The study will be valuable to present and future investors who intend to participate in
Banks since it will provide them with information of various fraud risk management approaches
used in the business. Before placing their money into a certain venture, investors must
thoroughly research all aspects of it.

Policy Makers: The study's findings will be of great interest to policymakers, notably SASRA,
in their attempts to discourage, prevent, and, at worst-case scenario, discover fraud in a timely
way, as the danger of fraud in banks may be reduced by following the proper processes. The
regulator must be vigilant in order to ensure that all Banks establish proper controls and
regulations, analyze their operation and efficacy, foster a positive workplace environment, and
sustain an anti-fraud culture.

The study will ensure the need to bridge the fraud risk gap towards fraud management and
overall financial performance of banking institutions. It will put forward vital strategies toward
minimizing fraudulent risks especially for various stakeholders such as investors, government,
insurance companies, banks and the general public.
In addition, academic institutions will utilize study findings to enrich learning skills and
competencies, and research to overcome fraud risk in the future. Also, the study will highlight
various measures to control bank frauds.

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1.10 Scope of the study
The scope of the study will be categorized under, content, geographical, and time scope.
1.10.1 Content scope
The study examines the relationship between management of fraud risk (independent variable)
and financial performance (dependent variable) of Equity bank Uganda. Specifically, examining
the roles of preventive, detective, and responsive fraud risk management respectively in
combating frauds, which affects financial performance of Equity Bank Uganda.
1.10.2 Geographical scope
The study will cover Equity bank, Kampala branches because of the major fraud occurrences
within Kampala branches. In addition to its accessibility and convenience of reach by the
researcher in data collection and also being less costly.
1.10.3 Time scope
The study will examine financial performance of Equity bank for the last four (4) years i.e. from
2019, 2020, 2021 and 2022 to appreciate the efforts by Management of Equity Bank to manage
fraud risk.
1.11 Definition of key terms
Credit risk: This refers to the exposure faced by banks when a borrower defaults in honoring debt
obligations on due date or at maturity. It is the possibility of losing the outstanding loan partially
or totally, due to credit events.
Liquidity Risk: This is the risk of the bank being unable either to meet its obligations to
depositors or to fund increases in assets as they fall due without incurring unacceptable costs or
losses.
Operational risk: This is defined as the risks which would generate volatility in a bank’s reserves,
expenses and the value of its business, which is loss resulting from inadequate or failed internal
processes, people and systems or from external events.
Financial performance: This refers to the subjective measure of how well a bank can use assets
from its primary mode of business and generate revenues.
Firm size Small firms have the likelihood to fail than big firms because small firms have poor
market experience, limited connection, and limited financial resources. Firm size is the most
essential determinant in a firm’s employment of public debt. The firm size is negatively related
to the probability of a firm going bankrupt.

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Profitability ratios indicate how effective a company is in generating profits given sales and/or its
capital assets and measure a company’s ability to generate revenue over expenses. The research
conducted on a financially distressed firm suggests that taking actions of adjusting the business
to increase profitability.

Liquidity, which indicates the firm’s ability to meet short-term maturing obligations, has also
been shown as an important determinant of corporate financial distress in various studies. An
increase in liquidity leads to a decrease in corporate financial distress. Similarly, studies have
indicated that there is a negative link between liquidity and financial distress.

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 CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter presented existing literature on the effect of fraud risk management and financial
performance of Equity Bank Uganda. A literature study was based on the following objectives
for instance, to examine the effect preventive practices on financial performance at Equity Bank,
to determine the effect of detective practices in place on financial performance at Equity Bank
and to establish the effect of responsive practices on financial performance at Equity Bank.
Literature will be drawn from secondary sources such as journal articles, policy documents, and
reports. The literature review chapter will constitute the theoretical, conceptual, the actual study
concerning the specific objectives of this study and the summary of the literature study.

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2.2 Theoretical review
The study will adopt Fraud Management Lifecycle theory Chepkoech and Rotich, (2017)
expressed the fraud management lifecycle as a network. Tawiah, (2017) describes maturation as
“a series of stages through which an organism passes between successive recurrences of a
particular primary stage”; a network as, “an interconnected or interrelated chain, group or
system” (Tawiah, 2017). These stages include; Deterrence, Prevention, Detection, Mitigation,
Analysis, Policy, Investigation and prosecution. This theory affirms that prosecution culminates
in success as well as failure. Failures may occur when fraudsters commit the frauds and they are
not apprehended and prosecuted while successful cases are when the fraudsters are identified,
apprehended and charged. Prosecution involves recovery of assets, criminal recompense and
conviction (Chepkoech & Rotich, 2017). Fadayo (2018) states the significance of the theory
because it expresses fraud risk management in totality at all its stages. In addition, it
demonstrates an entity’s business processes to manage fraud (Fadayo, 2018). However, the
theory does not express the drivers to fraud in financial institutions, but assumes social-economic
and technological traits in managing fraud; and does not explain environmental factors resulting
in fraudulent practices when an entity’s processes fail, which leaves a gap in the theory as well.
2.4 Review of the related literature
2.4.1 Preventive practice and financial performance
Preventive fraud risk management means avoiding the occurrence of fraud. In other words, it
involves efforts to reduce the frequency of fraud to zero. Prevention and deterrence measures are
less costly than the time and expense required for fraud detection and litigation (Alabdullah &
Maryanti, 2021). The best way to combat fraud is to prevent it from happening in the first place,
and to prevent it especially in the development of critical business processes. Fraud prevention
begins by identifying weaknesses in current organizational systems. When introduced,
enforcement controls will reduce the chances of fraud and warn potential fraudsters that the
organization is monitoring the business violently and in turn avoiding fraud. Therefore, it is
important to emphasize the prevention of fraud, as it reduces the chances of fraud occurring.
Human intervention measures that include surprise audit, fraud prevention training, employee
counseling programs, reference checks on employees, review of customers associate, limits and
approval authorities, are among the preventive measures of fraud in an organization (Alabdullah
& Ahmed, 2021). In an employee awareness training program, all employees need to be given

13
clear roles and standards and to be familiar with their ethical standards (Freddie, 2016). Other
approaches include employee flexibility and the involvement of more than one person in high
value payments (Abu, & Abu, 2020). Similarly, professional bodies like INTOSAI (2004)
revealed that fraud prevention mechanism should include segregation of duty (authorization,
recording, reviewing, and processing), limits, authorization and approval procedure, and control
over access to resources and records.
Nguyen, Ngo and Le (2020) have found that the risk assessment process can reduce the risk of
material misstatement in the stage of audit planning. The authors argue that the risk assessment
of fraud is an important part of the anti-fraud strategy as it allows key stakeholders such as
internal auditors, law enforcement officials and management to raise awareness of the risks of
fraud and thus mitigation measures can be taken. Fraud risk assessment is part of an anti-fraud
program that can ultimately improve the confidence of stakeholders in the organization which
may also attract investors, keep customers and lower financial costs (Apreku-Djan et al., 2022).
Organizations can adapt this approach to meet their individual needs, difficulties, and goals. The
organization conducts comprehensive fraud risk assessments to identify fraud and risk schemes,
assess their feasibility and value, evaluate existing fraud control activities, and implement
measures to reduce the remaining fraud risk. The identification phase is usually performed using
a number of tools such as internal organization records, insurance policy checklists, risk analysis
questions, flow process charts, financial statements analysis, firm performance reviews and
interviews among others (Wangu, 2021). However, AL Mamari, et al., 2022) argue that internal
evidence is presented as fraudulent as it is under the control of management. Fraud risk
assessments should also be based on external evidence related to business objectives. They argue
that external evidence is very useful in detecting fraud and should therefore be included in the
fraud risk assessment section.
An establishment's inside control structure is basic to the sheltered and sound working of its
hazard administration framework. Setting up and keeping up a compelling technique for controls,
including the requirement of authority lines of specialist and the proper division of obligations,
for example, exchanging, custodial, and back-office is one of administration's more critical
duties. Kiptoo, et al. (2021) in their study on Bank Frauds and Forgeries in Nigeria focused on
the causes, types, detection, and prevention of frauds and forgeries in the Nigerian banking
sector. Questionnaires were designed to collect data from 81 bank branches in the south-west.

14
Their findings revealed that the significant factor in play was the problem of the effective
internal control system and enforcement of strict adherence. They recommended that banks
should install effective internal control system and enforce strict adherence. In fact, suitably
isolating obligations is a crucial and fundamental component of sound hazard administration and
inward control framework. Inability to execute and keep up satisfactory partition of obligations
can constitute a hazardous and unsound practice and potentially prompt serious misfortunes or
generally bargain the money related trustworthiness of the organization. This study aims at
covering these gaps.
Preventive tools help the bank to avoid any form of fraud that occurs in the banking institutions.
It entails reducing the risk of fraud to a minimal acceptable level in order to lead to financial
improvement. Preventive techniques reduce costs of undergoing litigation (Mbugua, 2020).
Preventive means of managing fraud risks is the best approach in managing frauds in businesses
(Hakami & Rahmat, 2019). This starts from the stage of identifying gaps in the systems and
developing controls used in a financial institution (Stiernstedt & Brooks, 2020). Preventing
activities of fraud include collaborative activities done by technocrats in managing fraud risks
like skills building in preventing fraud, employee counseling, checking of reference books,
surprise audits, approval limits, and reviewing customer associates and also improving policies
within the organization (Hussaini, Bakar, & Yusuf, 2019). To implement such activities, the
bank will need to preserve authenticity, integrity and safety during financial transactions.
In relation to employee awareness, there is a need for employees to have clear roles and ensure
that the institution complies to ethical standards of conduct (Ishola, et al., 2021). Measures such
as rotating of jobs, and ensuring that not more than one employee is in large value transactions
(Bhasin, 2017). Hence utilizing technological tendencies like security systems, virus and
spyware protection, limits of transaction and password protection (Hussaini, Bakar, & Yusuf,
2019). Miskon, Bandara, & Fielt (2017) asserts that implementing control systems against fraud
like application systems, physical security controls and systems of access control among others
can have potential capabilities in managing fraud risk in a financial institution.
Baugh, Ege and Yust, (2021) investigated if and how the quality of bank internal controls
influences performance through risk-taking. The study discovered that banks that reveal a major
deficiency in internal controls take on more risk and perform worse in the future, including a
larger (lower) possibility of severe losses (gains). Additionally, internal control quality affects

15
both core and non-core activities of banks, since material weaknesses of internal controls are
negatively associated with the total assets, loans, interest income, and non-interest revenue
growth. Overall, the findings indicate that effective internal controls boost bank risk-taking, in
part by asymmetrically lowering downside risk while encouraging upside risk-taking, resulting in
improved bank performance. Creation of internal and external fraud departments for instance
external managers of fraud hotlines, ensures that the technological mechanisms are implemented
(Bhasin, 2017). Also, routinely improving policies and procedures, communicating them can
ensure effective preventive fraud risk management (Hussaini, Bakar, & Yusuf, 2019). Therefore,
banks need to enhance their customer relationships through continuous communication and
reassure their trust to their customers (Dimyati & Subagio, 2018).
On the other hand, Abisola, (2022) investigated the role of internal control sufficiency in
moderating the relationship between bank size and financial performance of Nigeria's listed
Deposit Money Banks. The findings revealed that the proxies for bank size (total assets, number
of workers, and customers' deposits) had a cumulative influence on financial performance and
internal control sufficiency was found to boost the influence of bank size on financial
performance as a moderating variable. The return on asset (ROA) was captured using a single
measure of financial performance and the study did not use other variables such as total asset
turnover, return on equity, and debt to equity ratio to evaluate the financial performance.

Internal audit provides an independent and objective review and advisory service to: provide
assurance to the CEO / Board that the financial and operational controls designed to manage the
entity’s risks and achieve the entity’s objectives are operating in an efficient, effective and
ethical manner; and assist management in improving the entity’s business performance. Internal
audit can specifically assist an entity to manage fraud control by providing advice on the risk of
fraud, advising on the design or adequacy of internal controls to minimize the risk of fraud
occurring, and by assisting management to develop fraud prevention and monitoring strategies.
An effective internal audit plan should include a review of those fraud controls designed to
address the significant fraud risks faced by an entity (Othman et al., 2022).
2.4.2 Detective practice and financial performance
In relation to detective fraud risk management, it involves quick identification of the penetration
of fraud in the financial institution. This is done by ensuring implementation of effective and

16
efficient plans so as to take corrective actions. Most fraud detections are managed internally in
order to discover the root causes of frauds. Hence fraud detection systems support the bank
internal control systems and processes to manage frauds (Hussaini, Bakar, & Yusuf, 2019). In
support of the above, Gathu (2018) asserted that when detecting a scam, it requires one to review
and test controls. On the other hand, using hotlines can be used to regulate the degree of a scam
statistically. In addition to that, measures like ethical training can guide bank staff on how to
avoid fraud and reduce losses caused by fraud (Hussaini, Bakar, & Yusuf, 2019).
In this regard, a KPMG (2013) survey revealed in the following order that, 39 percent internal
controls, internal auditor review and employee notification at 24 percent, 21 percent whistle
blowers, and 16 percent of tips from external parties are the most common methods used for
detecting fraud (Beckman, Michel, Munter, & Kaise, 2017). Thus, an effective internal control
system requires an understanding of the environment being controlled, automated information
systems, risk analysis, and control proceedings rather than manual systems that tend to have
several hiccups are preferred.
Furthermore, Prihanto, & Gunawan, (2020), pointed out additional ways of detecting fraud.
These include; fraud detection training, fraud software, increased attention of senior
management, internal control review, cash review, fraud hotline, and inventory observation
among others. Another crucial method mentioned was tips from individuals; ascertained by
Hussaini, Bakar, & Yusuf (2019), where he asserted that over 46 percent cases were reported
through tips from whistle-blowers, vendors, and employees among others. Despite efforts to
counter fraud, only detection methods are not enough (Brooks, Tunley, Button, & Gee, 2017).
Several institutions are reluctant to report fraud and reprimand the culprits (Hussaini, Bakar, &
Yusuf, 2019). This is because at times several fraud cases are undiscovered and not reported and
at times financial institutions also fear their reputational damage which subsequently leads to
loss of customers.
In addition, Halbouni et al (2016) point out that account reconciliations, electronic surveillance,
increased attention of senior management, cash reviews, fraud auditing, internal control review,
fraud hotline, fraud detection training, inventory observation, and fraud software are among the
effective way of detecting fraud in organizations. According to Adebayo, et al., 2022), over 46
percent of identified fraud cases are reported via a tip-off by an employee, vendor, or a
whistleblower. Regardless of the importance of detecting fraud in organizations, the commitment

17
to fight fraud in many organizations is not high (Button et al., 2011). Many individuals and
organizations are reluctant to expose and report fraud; while others pursue it through the civil
courts (Kassem & Higson, 2012). Most importantly, a lot of fraud has not been detected and it is
hidden in the official review. This means that the recorded statistics of fraud presented by the
police and related agencies only capture the tip of the iceberg (Buton et al., 2011)
2.4.3 Responsive practices and financial performance
According to Aloini, Dulmin and Ponticelli (2019), risk response entails formulating a mitigating
plan to reduce efficiently the impacts of the identified risks. Risk response infers to
determination of how to deal will with risks, select the appropriate strategies, determine the
required resources and time to deal with those risks. Risk response is considered to be a very
important stage in risk management because if it's finding the projects lead to create
opportunities and decrease the threats that indicate how well are the managers. To be specific,
the plan of risk response has the possibility to make the conditions which considered to be
essential for optimal identification of risk and evaluation, hence, the action of risk response
should be designed, classified and justified on systematic principle. Risk management in
improves financial management and assessment in an organization which greatly improves the
performance of that particular organization (Jacoda, 2020). The relationship between
organization performance and RM contribute to the evolution of the important subject of
fmancial risk management advocates for theoretical risk models such Value at Risk (VAR) are
used by banks to measure the risks. The study provided insight in the most successful strategies
banks use to handle fmancial risk. The findings of the study assisted Central Bank of Kenya in
formulating guidelines that enhance financial risk management in the banking sector. The study
also revealed that risk management is important to the commercial banks as they are able to
understand the risk management practices that contribute to financial performance.
According to Aloini, Dulmin and Ponticelli (2012), risk response entails formulating a mitigating
plan to reduce efficiently the impacts of the identified risks. Risk response infers to
determination of how to deal will with risks, select the appropriate strategies, determine the
required resources and time to deal with those risks. Risk response is considered to be a very
important stage in risk management because if it's finding the projects lead to create
opportunities and decrease the threats that indicate how well are the managers. To be specific,
the plan of risk response has the possibility to make the conditions which considered to be

18
essential for optimal identification of risk and evaluation, hence, the action of risk response
should be designed, classified and justified on systematic principle (Irawanto, 2018). This is
further reviewed by internal and external audit teams which may lead to civil action, warnings of
employees, disciplinary actions, court settlement, resignation and dismissal (Hamid & Nasih,
2021). Therefore, it is useful for every organization to equip itself with investigators of fraud in
order to respond to it. The fraud response team needs to point out precautionary and
prosecutorial recommendations (Irawanto, 2018). Unfortunately, implementation of these
recommendations is a difficult task for top management (Mexmonov, 2020).
In addition, Omer, et al. (2020) reports show that it is useful for institutions to evaluate their
values towards a formidable culture of risks in molding their decisions towards financial
handling. Through means of designing the best strategies, designing risk programs and
formulating protocols must be followed by actions which are in line with the strategic objectives.
In the long-run, the risk culture should leverage upon efficiency, being accountable,
measurement of performance and reward. Furthermore, Kokina, Mancha and Pachamanova
(2017) proposed four measures for assessing cultural risks. These include setting the tone from
the top management and involvement of the board in the means of classifying the culture of
risks. Their behaviors must be in line with the values of the organization, standards and
principles that are exemplary. Top management should have a regular assessment of risks and
setting of actions which are corrective (Hussaini, Bakar, & Yusuf, 2019). Human resources being
a major stakeholder in responding to frauds must have comprehensive knowledge on the risks
and their consequences to be able to take disciplinary measures on the perpetrators. This
component is embedded in the description of their jobs that sets the pace of ownership. Also,
effective communication draws the need to the flow of information about risk from the board and
top management to the staff (Hussaini, Bakar, & Yusuf, 2019).

Third indicator is incentives which mainly talks about the ability to motivate employees to
respond to risk. Motivation can be through remunerations, career advancement, and performance
assessments. These mechanisms need to encounter short, medium- and long-term interests of
banks and their customers. Thus, compliance and risk geared through the human resource
department should be aimed at stimulating risk management throughout the organization.

19
Okogbuo et al., (2015) finds that risk assessment is the process of determining risks that could
potentially prevent the program, enterprise, or investment from achieving its objectives. It
includes documenting and communicating the concern. Assessment process attempts to identify
the source and type of risks. Assessment involves the recognition of potential risk event
conditions in the construction project and the clarification of risk responsibilities (Wang,
Dulaimi, & Aguria, 2016). Assessment is the basis for analysis and control of risk management
and ensures risk management effectiveness. Maseko (2017) indicated that the objective of
assessment is the early and continuous identification of events that, if they occur, will have
negative impacts on the project's ability to achieve performance or capability outcome goals.
They may come from within the project or from external sources. Tchankova (2017) posits that if
appropriately performed, assessment ensures successful risk management as unknown sources
of losses escalate into unmanageable occurrences with unforeseen outcomes. The emphasis is not
only aimed at the incapability to 18 identify loss causing risks but also includes the incapacity to
determine opportunistic events. The effect of the non-identification of positive risks equates to
the effect of non-identification of negative risks.
2.5 Summary of Literature Review
The review of this study showed that managing the occurrence of risk requires preventive and
deterrent measures. This is because they are less costly, that expenses and time involved
especially in detecting fraud and in the long run litigation. Thus, it is important to reduce fraud to
acceptable levels. Also, it was found out that Fraud detection needs to be done quickly to
overcome the short, medium- and long-term challenges resulting from it. Therefore, fraud
detection strategies such as, planning, assessing, and monitoring need to be enforced to detect
fraud and make corrective action. Then, the study also reviewed that risk culture is a
fundamental attribute to managing fraud in the banking sector. This can be done through;
motivating staff, effective communication, top management and board involvement to drive
ownership of risk strategies. Thus, risk management should be a direct responsibility of all
members of an organization. Lastly, findings attested COSO tenets to manage fraud risk as
follows; developing policies on fraud risk governance, assessing fraud risk, designing preventive
and detective controls and deploying fraud risk activities, investigating, monitoring and
evaluating fraud risk.

20
 CHAPTER THREE
METHODOLOGY
3.1 Introduction
This section will involve the following; the research design, study population, sample size
determination, sampling techniques and procedures, data collection methods, data collection
instruments, reliability and validity, data analysis and ethical consideration. To ensure
representation of various respondents in the population, a simple random sampling technique for
general staff and purposive sampling for managers will be used in the research.
3.2 Research Design
A research design is the strategy, plan and structure of a research project (Sileyew, 2020). Cross
sectional design will be employed to obtain information from a large group of respondents just
one time, in a single session without any follow-up once the information is obtained (Sileyew,
2020). In supplement, the study will adopt a triangulation of both quantitative and qualitative
approaches. Quantitative approach will enable collection of numerical data in order to explain,
describe, understand the relationship. It will enable the researcher to quantify the views of

21
respondents towards certain variables and draw statistical conclusions. For qualitative approach,
it will help the researcher to better understand motivations, needs, processes, and rationale for
behaviors (among other things). It provides deep insights into a situation, and helps form ideas or
hypotheses for potential quantitative research (McCombes, 2023).
3.3 Study Population
According to Stratton (2021), a population is a complete set of all individuals who share a
common observable characteristic, and a target population is any group of individuals who meet
the requirements for a research study (Willie, 2022). Asiamah, et al (2017) asserts that an
accessible population is a subset of a larger population that is realistically available for study or
investigation. One hundred fifty (150) employees from Equity Bank and head office teams, who
mainly review processes, internal controls, and react to fraud incidents reported across Equity
Bank.
3.4 Sample Size determination
According to Mooney (2019), a sample size is defined as a subset of a particular selected
population. The study will use a sample size of 113 respondents drawn from a population of 150
employees. The Krejcie and Morgan (1970) formula will be utilized to determine the sample size
(KREJCIE & MORGAN, 1970).
Table 3.1 showing sampling size
Category Population Sample Size Sampling Method
Managers 10 10 Purposive Sampling
General bank staff 140 103 Simple Random Sampling
Total 150 113
Source: Equity Bank HR Staff Database, 2022
3.5 Sampling techniques and procedures
The study will employ both simple random and purposive sampling techniques.

22
3.5.1 Purposive Sampling
Purposive sampling is a non-probability method for obtaining a sample where researchers use
their expertise to choose specific participants that will help the study meet its goals. These
subjects have particular characteristics that the researchers need to evaluate their research
question. In other words, the researchers picked the participants “on purpose” (Rahi, 2017). This
will help the researcher select 10 key informants who are the bank managers. The researcher will
use her expert judgement to select participants that are representative of the population and are in
line with the research. To do this, the researcher will consider factors that might influence the
population: perhaps Socio-economic status, intelligence, access to education. Then the researcher
purposefully selects a sample that adequately represents the target population on these variables
(Thomas, 2020).
3.5.2 Simple Random Sampling
Simple random sampling is a type of probability sampling in which the researcher randomly
selects a subset of participants from a population. It makes sure that every person in a population
has an equal probability of being chosen as a respondent (Thomas, 2020). It is embraced because
it helps a researcher to efficiently pick a more modest gathering of delegate items or individuals
(a subset) from a pre-characterized population to go about as subjects for perception or trial and
error as per the objectives of their study (Golzar, 2022). The justification for adopting this
technique is to minimize bias and increase the generalizability of the study findings. When done
correctly, it ensures that your sample is representative of the larger population, making it more
likely that your research results can be applied to the population as a whole. This technique will
be used to select General bank staff.
3.6 Data Collection Methods
The primary data collection methods in this study will be applied to gather original data directly
from individuals, about the Fraud risk management and financial performance of commercial
banks in Uganda: a case of Equity Bank (Taylor, 2021).
3.6.1 Questionnaire survey method
Muhammad and Kabir (2018) assert that the survey technique is used to collect data from a
group of respondents by presenting them with a structured set of questions. This study will adopt
a questionnaire survey method. The primary goal of a questionnaire survey is to gather
information, opinions, or attitudes from the representative sample selected to participate in the

23
study (Taherdoost, 2022). The questionnaire will be closed-ended providing a list of predefined
response options from which the participants will select responses that suite their opinion about
the set statements. With the assistance of research assistants, questionnaires with closed-ended
questions will be distributed to respondents. This will be utilized to get their perspectives
comparable to the study's peculiarities (Mutepf, 2019; Linderman, 2023). The justification for
using this method is; that firstly, it is cost-effective for collecting data from a large number of
respondents. Secondly, the standardized questions allow for easy comparisons and analysis.
Thirdly, anonymity encourages honest responses on sensitive topics.
3.6.2 Interview Method
An interview method in research refers to a systematic approach used by researchers to collect
information from participants by asking them questions in a structured or semi-structured manner
(Sileyew, 2019). This method will be adopted to gather in-depth insights, opinions, experiences,
and perspectives from the selected participants. The setting for the interviews will be face-to-face
to answer the research question (Young et al., 2018; Ethami, et al., 2022). The key informants
who are bank managers will be the subject of interviews. This method will aim to delve deeply
into a participant's thoughts, feelings, experiences, and perspectives about the study variables.
3.7 Data collection instruments
The researcher will adopt a mixed method for data collection whereby self-administered
questionnaires and key informative interview guides will be utilized for the process of collecting
data as discussed below.
3.7.1 Questionnaire
According to Muhammad and Kabir (2018), a questionnaire is a method of survey data
collection in which information is gathered through oral or written questionnaires. The
questionnaires will be self-administered to the refugees to obtain the required information for the
study. The questionnaires will be adopted since they are easier to administer, less costly, and
timely and they allow the aspect of confidentiality (Budianto, 2020). The researcher will design
the questionnaire with sub-sections to include; demographic characteristics, Fraud Risk
Management (IV): preventive practices, detective practices and responsive practices and
financial performance (DV). The questionnaire will generate data for objectives one, two, and
three (see Chapter One, specific objectives).

24
3.7.2 Interview Guide
An interview guide is an alternative tool of data collection whereby researchers collect data
through direct verbal interaction while recording respondents’ answers using an interview guide
to supplement other data collection methods (Budianto, 2020). Key informants, such as
Stakeholders in charge of Refugees and human resources managers, who are knowledgeable
about the study problem, will be interviewed. It will enable the researcher to gather
comprehensive qualitative data on the phenomenon under investigation; this approach will be
taken into consideration. This will allow for more in-depth analysis and provide more relevant
information that could not have been obtained through the questionnaires (Wang, 2018). The
researcher will use the interview guide to have a professional conversation with the respondents
to get complete explanations of how they perceived the study phenomena.
The researcher will pre-test the instruments used to collect data to ensure that they met the
study's acceptable standards for reliability and validity.
3.8.1 Validity of the Questionnaire
The validity of a research instrument refers to the extent to which the instrument (such as a
questionnaire) accurately measures what it intends to measure (Kothari, 2008; Mugenda &
Mugenda, 2003). In other words, it assesses whether the instrument is measuring the specific
construct or concept it claims to measure and whether the results obtained from the instrument
are genuinely reflective of the underlying phenomenon Chetwynd (2022). The researcher will
adopt Yusoff’s six steps to quantify the Content Validity of the questionnaire as illustrated in
Figure 2 below.

25
 Step 1. Step 2. Step 3.
Prepare content Select review Conduct content
validation form panel validation

Step 4.
Step 6. Step 5.
Review domain
Calculate CVI Score each item
and items

Figure 3.1: Content Validation Procedure.

Source: Yusoff 2019

Procedure to perform content validity in research:
The research will define the constructs or variables that had to be measured within the
questionnaire (Yusoff, 2019). This will be followed by reviewing the relevant literature to
understand the key concepts, variables, and dimensions related to the study “The effect of fraud
risk management and financial performance of Equity Bank.”, to identify the important aspects
to be reflected in the questionnaire. Based on the literature reviewed, and construct definition,
the researcher generated a pool of potential items or questions that could be included in the
questionnaire. These items will be diverse and cover various aspects of refugees’ equal rights to
employment, refugees’ free integration, refugees’ free access to social services. Thereafter, the
researcher sought input from two experts in the subject matter. These experts will help to
evaluate the relevance and clarity of each item in the questionnaire. They can also suggest
additional important items. The Content Validity Index (CVI) will be adapted to calculate the
validity of the questionnaire (Yusosff, 2019)
a.) Item-CVI: This method assesses the content validity of each item in the questionnaire.
Experts rate each item for relevance on a scale (for example, 1 to 4 or 1 to 5), where higher
ratings indicate greater relevance. Calculate the Item-CVI for each item by dividing the number

26
of experts who rated it as relevant by the total number of experts. An Item-CVI score of 0.80 or
higher is often considered acceptable.
b.) Scale-CVI: If the questionnaire consists of multiple items that are meant to measure the same
construct (e.g., a Likert scale), calculate the Scale-CVI to assess the overall content validity of
the scale. This is typically done by averaging the Item-CVI scores for all items within the scale.
The study adapted Scale-CVI. Before conducting your main study, the questionnaire that was
validated was tested through a pilot study on a small sample to identify any potential issues with
wording, comprehension, or item difficulty. The researcher will finalize the questionnaire by
making necessary revisions based on the pilot test results.
CVI = Number of items considered relevant
Total number of items.
3.8.2 Reliability of the Questionnaire
The reliability of a questionnaire refers to its ability to yield the same data when it is re-
administered under the same conditions (Learnovate, 2022; Hassan, 2023). Reliability for
quantitative research ensures that the results obtained are not just due to random fluctuations or
measurement errors. It helps researchers ensure that the data they collect are consistent and can
be used to make valid inferences about the underlying construct of interest. To assess the
reliability or internal consistency of a set of items in a questionnaire or a test, the Indeed
Editorial Team (2023) proposed doing a stability test using the test-retest method on a 10%
population with similar characteristics to the study population small population during the pilot
study. Cronbach’s alpha reliability coefficient will be computed.
Cronbach's alpha ranges from 0 to 1, where; If alpha is close to 1, it indicates high internal
consistency, meaning that the items in the scale are measuring the same construct consistently. If
alpha is close to 0, it suggests low internal consistency, meaning that the items in the scale are
not measuring the same construct consistently. A threshold of 0.7 and above will be considered
reliable (Scribbr, 2019; Hair, et al., 2019). The administration of the tools will be carried out on
two occasions within two weeks with the respondents from Equity Bank.
3.9 Data collection procedures
After the successful proposal defence, the researcher will get a presentation letter from the
Uganda Management Institute (UMI) and presented it to the Equity Bank authorities for
endorsement to complete the study. The researcher will test the interview guide and

27
questionnaire on two respondents and a sample of ten respondents, respectively. The researcher
will make changes to the interview guide and questionnaire based on the feedback from these
respondents. As of now, initiates for research partner positions are prepared on moral
contemplations. After that, the researcher will get in touch with representatives of the Equity
Bank to negotiate a work-friendly schedule. Appointments will be made for the researcher to
meet the respondents and collect the data at the organization (Equity Bank). The researcher will
personally deliver the questionnaires to respondents, assisted by research assistants, after
obtaining permission from the Equity Bank authorities. The researcher will conduct in-person
interviews with the most significant respondents, which include a question-and-answer session.
From that point on, the instruments for the exploration will be gathered, and the data will be
recorded, coded, deciphered, and studied.
3.10 Data analysis
Data analysis is the strategy associated with bringing solicitation, plan, and importance to the
mass of information amassed. The research will use both qualitative and quantitative methods of
data analysis before the analysis of the data that is discussed in this section.
3.10.1 Quantitative analysis
Quantitative data analysis, which calls for employing both descriptive and inferential statistics,
will be carried out using the Statistical Package for Social Scientists (SPSS). Descriptive
statistics describe the characteristics of a data set. Descriptive statistics will be computed using
frequency distributions, mean, and standard deviation. Inferential statistics will focus on making
predictions about the effect of fraud risk management and financial performance at Equity Bank.
The data will be presented in comprehensive tables displaying the responses to each category of
variables after being edited, coded, and entered.
3.10.2 Qualitative analysis
The term "qualitative analysis" was coined by Borgstede and Scholz (2021) to describe a method
that "provides insights and understanding of the problem setting.". Narrative analysis of
qualitative data will be consolidated given how the outcomes connect with the exploration
questions. The researcher will collect data from a collection of written, oral, or visual texts (such
as books, papers, magazines, talks, and meetings) to identify patterns in written correspondence
to conduct Narrative analysis (Marsh, et, al., 2020; Luo, 2022).

28
3.11 Variable measurement
According to IvyPanda (2020), a measurement variable is an unidentified attribute that can
measure a specific entity and can take one or more values. It is frequently used for scientific
research. A variable that is used to name, label, or classify specific characteristics that are being
measured is referred to as a nominal variable. A nominal variable is the simplest measurement
variable in the two categories of categorical variables. Some examples of nominal variables
include gender, name, and phone number (Bhandari, 2022). A measurement variable whose
values can be sorted or ordered is known as an ordinal variable. They are constructed on nominal
scales by assigning numbers to objects to represent an attribute's rank or order. The independent
and dependent variables were measured using the Likert scale, which has five points (1-strongly
disagree, 2-disagree, 3-not sure, 4-agree, and 5-strongly agree). Since it gives a mathematical
score at each point, this scale was decided to measure the respondent's demeanor. In studies of
social attitude, the summated scale is also the one that is used the most frequently. The study
variables will be calculated in a predetermined order using the nominal and ordinal measurement
levels. The Likert scale will be utilized during the information assortment interaction to decide
respondents' sentiments and impressions of the formed factors. On a scale of 1 to 5, factors
addressed by emphatically deviate, dissent, not certain, concur, and firmly concur will be
measured using ordinary and plausible estimations.
3.11 Ethical consideration
Morals in research allude to the standards that recognize satisfactory and unsatisfactory ways of
behaving (Cammaerts, 2020). The researcher was aware of the significance of ethics in this
study, which prioritized honesty, integrity, and attribution.
Confidentiality and privacy: It refers to the obligation of an individual or organization to
safeguard entrusted information. The research participant’s privacy will be assured by the
researcher, who kept all the information safely locked up during the research process.
To ensure privacy, the respondents were informed that indeed their names were required, that
they have the right to leave questions unanswered for which they do not wish to offer the
requisite information, and that the study could not put the respondent under pressure if this
happens.
Informed Consent: The researcher sought informed consent before conducting the data collection
process. Informed consent for research requires that the respondents or subject must be

29
competent to understand and decide, receive full disclosure, comprehend the disclosure, act
voluntarily, and consent to the proposed action to which this study adhered.
Plagiarism: presenting someone else's work or ideas as your own, with or without their consent
by incorporating it into your work without full acknowledgment. All published and unpublished
material, whether in manuscript, printed, or electronic form, is covered under this definition. This
will be minimized by paraphrasing, citing, quoting, citing quotes, citing own material, and
referencing.
Voluntary participation: The research participants were informed that their participation in the
study was not to be rewarded in any way; it will be entirely voluntary. All the research
participants will be informed of their rights to refuse to be interviewed or to withdraw at any
point for any reason, without any prejudice or explanation.

30
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Abdullahi, R., & Mansor, N. (2018). Fraud Prevention initiatives in the Nigerian public sector:
Understanding the relationship of fraud incidences and the elements of fraud triangle
theory. Journal of Financial Crime, 1-18.
Abisola, A. (2022). The nexus between bank size and financial performance: Does internal
control adequacy matter?. Journal of Accounting and Taxation, 14(1), 13-20.
Abu Amuna, Youssef M. and Abu Mouamer, Faris, (2020) Impact of Applying Fraud Detection
and Prevention Instruments in Reducing Occupational Fraud: Case study: Ministry of
Health (MOH) in Gaza Strip (june 29. International Journal of Advanced Studies of
Scientific Research, Vol. 4, No. 6, 2020,
Adebayo, A. O., Olagunju, A., & Bankole, O. E. (2022). Fraud risk management and fraud
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Adebayo, A. O., Olagunju, A., & Bankole, O. E. (2022). Fraud risk management and fraud
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39
 APPENDIX: A
QUESTIONNAIRE
Dear respondent,
I am Obua Denis Owach, a student at Uganda Management Institute pursuing a Master’s Degree
in Management Studies (Financial Management Option) conducting a study on the topic “Fraud
Risk Management and Financial Performance of Commercial Banks in Uganda”- A case of
Equity bank. This questionnaire is intended to facilitate this study and we humbly request you to
answer the questions here as honestly as possible. The information provided will be used for
academic purposes only and utmost confidentiality will be exercised in the fulfilment of the
research study.
SECTION A: PERSONALDATA
1. Gender of the respondent
a) Male b) Female
2. Age of the respondent
a) 18-27 b) 28-37 c) 38-47 d) 48-57 e) 58 and a above
3. Respondent’s level of education
a) Certificate b) Diploma c) Degree d) Masters
e) Others specify ………………………….
4. Marital status of the respondent
a) Single b) Married c) Divorced d) Widowed
5. Respondents position
a) Manager b) Operation Manager c) Cash officer d) Teller
e) ICT Department f) Internal Audit Department g) Compliance Department
h) Security & Investigation Dept i) Risk Department

i
 SECTION B: FRAUD RISK MANAGEMENT IN EQUITY BANK
Use the scale below to respond to the below statements and indicate your opinion on each of the
statements given.
Strongly Agree Agree Not Sure Disagree Strongly Disagree
5 4 3 2 1
Statement 1 2 3 4 5
PREVENTIVE FRAUD RISK MANAGEMENT
1 Preventive fraud risk management means avoiding the
occurrence of fraud.
2 Prevention and deterrence measures are less costly than
the time and expense required for fraud detection and
litigation.
3 The best approach to fighting fraud is to prevent it from
happening in the first place.
4 Prevention of fraud starts with the identification of the
weakness in the current systems of Equity Bank.
5 Fraud prevention efforts and activities involve
intervention from human, technical, and improving
policies of Equity bank.
6 Employing preventive strategies prevent bank fraud and
preserve the integrity, safety, and authenticity of the
financial transactions.
7 Surprise compliance checks are among the fraud
preventive measures in Equity Bank
8 Employee counselling and financial literacy programmes
are among the fraud preventive measures in Equity Bank
9 Employee background checks are among the fraud
preventive measures in Equity Bank
10 Transaction limit approvals and authorizations are among
the fraud preventive measures in Equity Bank
11 Strong fraud prevention processes helps increase

ii
 confidence to investors, regulators, audit and the general
public in the Equity Bank financial reports
12 Strong fraud prevention processes helps to attract and
retain capital in Equity Bank
13 Senior Management of Equity Bank have strong
commitment to ethical business practices
14 Equity bank educate employees on importance of ethics
and anti-fraud programmes
15 Equity Bank develops code of conducts and its given to all
staff and its acknowledged by all the staff joining the
bank.
DETECTIVE FRAUD RISK MANAGEMENT
1 Fraud detection involves identifying fraud as quickly as
possible once it has been perpetrated.
2 Fraud detection strategies are plans implemented to
efficiently and promptly identify frauds.
3 Fraud detection involves mechanisms applicable both at
the various unit level and bank levels.
4 Review of access control, physical securities and test of
controls to analyse risk are the most effective means of
fraud detection.
5 Among the essential method of detecting fraudulent
transactions is embedding effective internal control
system
6 Internal account reconciliations is among the effective
way of detecting fraud in Equity Bank
7 Suspicious transaction monitoring is among the effective
way of detecting fraud in Equity Bank
8 Cash count and reviews is among the effective way of
detecting fraud in Equity Bank
9 Internal control reviews is among the effective way of

iii
 detecting fraud in Equity Bank
10 Fraud hotline measure is among the effective way of
detecting fraud in Equity Bank
11 Stock take of inventories is among the effective way of
detecting fraud in Equity Bank
12 Implementing fraud software and systems are among the
effective way of detecting fraud in Equity Bank
13 Many individuals and organizations are reluctant to report
frauds, and many also pursue it through the civil courts.
14 Recorded statistics of fraud presented by the police and
related bodies only capture the tip of the iceberg.
15 Exit interviews of employees is conducted in Equity Bank
16 Senior Management of Equity Bank rotate job
responsibilities
17 Equity Bank have automated transaction monitoring tools
to detect frauds
18 Equity Bank have embedded control procedures in their
anti-fraud risk policies, investigation policies and
procedures
RESPONSIVE FRAUD RISK MANAGEMENT
1 Equity Bank responses to fraud vary significantly
depending on the type of fraud being investigated.
2 Having numerous ways and mechanisms of reporting
fraud incidents in Equity Bank leads to effective control of
fraud.
3 Equity Bank recognizes the establishment of a fraud
response strategy.
4 Equity bank tone at the top defines multiple ways of
reporting fraud incidences on detection or suspicions with
in the Bank
5 Demotion is among the most effective means of fraud

iv
 response in Equity Bank
6 Internal Investigation is among the most effective means
of fraud response in Equity Bank
7 Referring suspected fraud cases to the appropriate
authority is among the most effective means of fraud
response in Equity Bank
8 Criminal actions on fraud perpetrators is among the most
effective means of fraud response in Equity Bank
9 Civil actions on fraud perpetrators is among the most
effective means of fraud response in Equity Bank
10 Disciplinary committee action is among the most effective
means of fraud response in Equity Bank
11 Fraud investigation as a response mechanism may involve
law enforcement interventions after internal fraud
investigations
12 Equity bank is equipped with internal fraud investigators
as a response strategy to fraud
13 It is essential for Equity Bank to evaluate their risk culture
specifically to measure the systems, values and behaviors
present in the Bank that will shape their risk decisions.

SECTION C: FINANCIAL PERFORMANCE IN EQUITY BANK

EARNING 5 4 3 2 1
1 Earning is closely related to profitability
2 It is the metric used to determine the scope of a company's
profit in relation to the size of the business

v
3 Earning is a measurement of efficiency and ultimately its
success or failure.
LIQUIDITY
1 Liquidity is the amount of money that is readily available for
investment and spending
2 High liquidity occurs when there are a lot of these assets. Low
or tight liquidity is when cash is tied up in non-liquid assets
ASSET QUALITY
1 Asset quality is related to the left-hand side of the bank
balance sheet
2 Loan quality and Asset quality are two terms with basically
has the same meaning
FRAUD RISK MANAGEMENT AND ITS IMPACT ON
FINANCIAL PERFORMANCE IN EQUITY BANK
1 Fraud preventive measures has a direct impact on financial
performance of Equity Bank
2 Fraud detective measures has a direct impact on financial
performance of Equity Bank
3 Fraud response measures has a direct impact on financial
performance of Equity Bank

In your opinion,
What can you say about the effectiveness of fraud risk management in Equity Bank?

vi
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
Apart from effective fraud risk management, which other measures can be put in place to
increase financial performance in Equity Bank?
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………

THANK YOU FOR YOUR TIME

vii
 APPENDIX B
INTERVIEW GUIDE

1. How have the strategies of preventing fraud in the banking institutions helped to improve
financial performance in Equity Bank?
2. How have bank fraud experts collaborated with technocrats in managing fraud in the Equity
Bank?
3. How is employee training and awareness helped in managing fraud risks in Equity Bank?
4. What are the existing systems and processes in place for detecting fraud cases in Equity
Bank?
5. How effective are these systems in detecting fraud cases in Equity Bank?
6. How does Equity Bank respond to fraud cases?
7. What are the procedures taken while responding to fraud cases in the bank?
8. In your opinion, out of the 3 fraud risk measures i.e. preventive, detective, and responsive,
which one has been the most effective in managing frauds in Equity Bank?

viii
APPENDIX C : PLAGIARISM

ix