Internal Control and Fraud Prevention in the Nigerian Public Sector: A Partial Least Square Structural Equation Modeling Approach

Abstract

Introduction: The Nigerian public sector has long grappled with fraudulent activities, which impede effective governance and socio-economic development. Numerous fraud instances, such as embezzlement, money laundering, and misappropriation of funds, undermine public trust and financial integrity. This study assesses the effectiveness of internal control mechanisms in preventing fraud within Nigerian federal ministries and agencies, focusing on the COSO internal control framework to enhance governance and accountability. Methodology: Using a descriptive cross-sectional survey design, structured 5-point Likert scale questionnaires were distributed across 43 federal ministries and agencies involved in governance oversight. A sample of 385 respondents, comprising accounting and finance managers, internal auditors, and forensic accountants, was analyzed through Partial Least Squares Structural Equation Modeling (PLS-SEM) to understand the relationship between internal control components and fraud prevention. Results: Findings revealed that specific elements of the COSO internal control framework, namely risk assessment, information and communication, and monitoring activities, showed significant positive impacts on fraud prevention. Information and communication had the most substantial effect, with a path coefficient of β = 0.416, highlighting the importance of clear and effective communication. Monitoring activities and risk assessment followed closely, with path coefficients of β = 0.221 and β = 0.213, respectively, demonstrating the role of continuous oversight and proactive risk management. However, control activities revealed a significant but negative relationship (β = −0.184), suggesting possible implementation issues or inefficacies in existing control measures. The control environment had an insignificant effect (p = 0.061), indicating that current policies and procedures may not adequately address fraud prevention. Conclusion: The study concludes that while components like risk assessment, information and communication, and monitoring contribute to reducing fraud, the Nigerian public sector must re-evaluate and strengthen internal control systems, especially control activities. Recommendations include enhancing communication protocols, bolstering control measures, and addressing gaps within the control environment to create a robust framework for sustainable fraud prevention. This study emphasizes the importance of an integrated internal control approach as a multi-faceted strategy for improving governance and reducing fraud within Nigeria’s public institutions.