IMPACT OF INTERNAL CONTROL SYSTEMS ON FRAUD PREVENTION AND DETECTION: EVIDENCE FROM REGISTERED NON-GOVERNMENTAL ORGANISATIONS IN THE WESTERN PROVINCE, SRI LANKA .

Abstract

This study primarily focuses on examining the impact of internal control systems on fraud prevention and detection in registered non-governmental organisations (NGOs) in the Western Province, Sri Lanka. Built upon the Committee of Sponsoring Organisations of the Treadway Commission (COSO) internal control-integrated framework, this study conceptualises the internal control system using five core components: control environment, risk assessment, control activities, information and communication, and monitoring activities. Adopting a quantitative research design, data were collected from a sample of 120 senior finance personnel in selected NGOs through a cross-sectional survey using stratified sampling and subsequently analysed using ordinary least squares (OLS) multiple regression. The empirical findings revealed that only the control activities emerged as a statistically significant and dominant predictor of fraud prevention and detection in NGOs. In contrast, the control environment, information and communication, and monitoring activities did not demonstrate statistically significant effects, while risk assessment was found to be marginally significant. These findings indicate that for NGOs within the Western Province, the implementation of rigorous operational procedures and physical safeguards remains the most effective strategy for the prevention and detection of fraudulent behaviour. The study recommends that NGO management and donors prioritise the rigorous implementation of operational control activities to strengthen fraud prevention and detection, thereby enhancing financial integrity and organisational accountability within the sector.