Abstract:
The main purpose of the study was to establish the moderating effect of government regulations on the relationship
between internal control system and fraud prevention in baking sector. Structured questionnaire was used as tool for
data collection. The study was based on all banks registered and operating in Kenya and the questionnaires were
meant for branch managers, operations mangers and cash managers in head offices of all banks. One hundred and
seventeen questionnaires were distributed and officers from 33 banks out 39 banks returned fully filled
questionnaires. The questionnaires were analyzed using Structural equation Model (SEM). The findings indicated
that the government regulations have significant moderating effect of control environment and risk assessment.
However, there was insignificant moderating effect on control activities, communication and monitoring of
activities. The study suggested that further studies and analysis should be undertaken to establish those legislations
and regulations that should be enhanced, abolished and also establish need of new laws to enhance the functions of
internal control system.
