The Role of Internal Controls in Fraud Prevention and Detection: A Case Study of Domestic Banks in Palestine رسالة ماجستير

Abstract

This study aims to investigate the relationship between internal controls and fraud within Palestinian domestic banks. Its primary goal is to explore the reality of fraud cases, their causes, and the connection between robust internal controls and their efficacy in both preventing and detecting these crimes. This study is one of the few that specifically investigates the reality of fraud in Palestine. To examine this cause-and-effect relationship, the research adopted a descriptive and causal design and mixed-methods approach (quantitative and qualitative). Data were collected from a sample of 67 employees selected through purposive (non-probability) sampling to ensure a demographically diverse population based on variables such as gender, age group, and educational level. A total of 67 questionnaires were distributed and all were returned valid, yielding a 100% response rate. The findings aim to provide valuable insights for Palestinian banks to strengthen their control environments and enhance their resilience against fraudulent activities. This study results confirms that there is an increase of fraud cases within Palestinian local banks, driven primarily by a lack of customer security awareness, greed for quick profits, and the expanded reliance on electronic banking services. The research reveals a significant discrepancy between reported and actual fraud cases. The study also highlights the impact of technological advancements and political economic challenges, such as Gaza war. And reveals that Palestinian banks effectively use a comprehensive internal control system, including fraud risk assessments, customer awareness campaigns, and employee training, to prevent and detect fraud. VI Additionally, the findings affirm a strong, negative relationship between robust internal controls and the propensity for fraud, highlighting that a multi-layered defense strategy is crucial. This strategy encompasses technological measures like two-factor authentication, continuous control monitoring, and advanced detection systems, which together form a resilient framework for safeguarding banking operations and mitigating the evolving threat of financial fraud. Based on the study's conclusions the researcher suggested that banks need to enhance fraud prevention include developing comprehensive anti-fraud policies, establishing a dedicated specialized monitoring team, and implementing advanced AI-driven detection systems. Furthermore, strengthening both customer and employee awareness through targeted training, enhancing technological security measures like biometric authentication, and enforcing stricter operational controls such as transaction limits are essential. These integrated measures aim to create a robust, multi-layered defense system to significantly mitigate fraud risks.