INTERNAL CONTROL SYSTEM AS A TOOL OF FRAUD PREVENTION IN NIGERIA FINANCIAL INSTITUTION

CHAPTER ONE

Introduction

1.1 Background Of Study

It is feared that the inability of management to ensure effective enforcement of rules and regulation have rendered that operations of internal control system as the banking industry open to abuse.

The net effect could be that every on carries out his schedules off duties in any manner he likes which consequently gives those wishing to commit fraud their long expend golden opportunity.

Prior to 1952, there was no forms of Banking art or ordinance to regulate the establishment and operations commercial banks or a central bank to supervise the control of banking Nigerian.

During that time many banks were registered some of which never operated and over since that period, fraud his remained a permanent feature in our banking industry. This resulted as a loss of faith and trust in the financial institutions by Nigerians and consequently, under- development of the banking habit in country.

However, with the introduction of the first bank ordinance in 1952, and the central bank of Nigeria (CBN) Act in 1959 and other, subsequent Acts and Ordinance with their amendments over these years, used to regulate and control the activities and operations of financial institutions in the country. Frauds in financial institution have rather increased in magnitude and the methods used to perpetrate them acquired greater sophistication day after day.

Now with the introduction of modern procedures and advancement in information technology such as those in communication system, automatic electric gadgets and computer into the banking system coupled with the various precautionary measures taken by bank agent rather than taken nuclear dimensions and the size of sums involved increased at a geometric rate.

Anikpitan (1976), a banker of repute maintained that: –

Discoveries during investments shows that banks now take extra precaution for clearing a cheque because of rampant incident of fraud and forgery which a bank boss placed on the average of N1m per working day of the year in Nigeria. I. Ashimi (1976 p.6) maintained that: –

Fraud has become sophisticated as to make a forged signature on a cheque leaf look good enough for the rightful owner to think that it was his signature.

But a situation, as is being experience now, where incessant cause of bank fraud are being reported, could if not immediately checked, erode depositors confidence in the in nation’s banking system. Such a situation could also scare foreign investors from the country.

Ughamadu. N. in his article on celebrating bank fraud “In Business Times 29 July 1991 observed that: –

The logic for establishing a viable and enabling environment for any country will be meaningless if its banking sector is very porous to fraud.

Ojo A.T. (1982) emphasized that; As an open secret, financial institution do not have very large resources of their own in relation to the total resources at their disposal. They depend mainly on other people’s funds which have been entrusted to them because of the confidence the people have on them as models of responsibility and safety. Consequently, the confirmed existence of financial institutions rest delicately on the maintenance of public confidence. This calls for the establishment of an effective system of internal control, which among other things will help to ensure that the organization’s accounting are in accordance with the lay down procedures standard and statutory requirements.

To establish a sound internal control system, various organization adopt various device and methods based on their nature of business and the scope of their operation.

Internal control system requires a continuous check and re-checking of day-to-day activities of the business; in order to ensure the correctness and farness of the accounting records and to defects and exposing deviation when it has occurred.

Most financial institutions loose confidence of the people not only through fraudulent use of funds but also through some detect in fraudulent practices/or syndication of some dishonest staff facilitated by defeats of the bank internal control. There in therefore, a great need to eliminate or minimize the defects or loopholes and make money effective and operational to guard against the occurrence and re-occurrence of fraud in our financial institutions.

1.2 Statement Of Problem

The problem of this study includes:

Robbers are employing scientific means of gaining access to the strong room (computer room).
Incidence of bank fraud reduces public confidence in banking and consequently slows down development of banking habit in Nigeria.
Fraud leads to unwanted loss of public funds and put the management of the affected bank on its toes.
The rising incidence of bank fraud has created a lot of distrust between banks and their customers.

1.3 Purpose Of Study

To identify possible defects and loopholes (if any) in the system.
To offer useful recommendation based on the findings on how best to prevent the occurrence of fraud through an effective internal control system
To ascertain the degree of compliance of the bank staff with the internal control measures
To examine the relevance and appropriateness of the presently adopted control measures in preventing fraud.

1.4 Scope Of The Study

The scope of the study is limited to “Internal Control System as a Factor of Fraud Prevention in Financial Institutions” with reference to first bank of Nigeria PLC Enugu main.

1.5 Research Questions

How regular does the internal control system check the defects or loopholes in the system?
To what extent does fraud occurs in First Bank of Nigeria PLC Enugu main?
To what extent does the internal control measures the degree of compliance of the Bank staff?
How regular does the internal control measures the relevance and appropriateness of the adopted control in preventing fraud?

1.6 Statement Of Hypothesis

H0: The present internal control system in financial institution is not appropriate in the present world of technology and sophistication in First Bank of Nigeria PLC.
Hi: The present internal control system in financial institution is appropriate in the present world of technology and sophistication in first bank of Nigeria PLC.
H0: The present internal control system in first bank of Nigeria PLC is not effective.
Hi: The present internal control system in first bank of Nigeria PLC is effective.
Ho: The present internal control system in first bank of Nigeria PLC cannot prevent fraud.
Hi: The present internal control system in firs bank of Nigeria PLC can prevent fraud.

1.7 Significance Of Study

The study is significance for the following reasons:

The result of this study would help to expose the level of fraud in first bank plc Enugu main
The result would also help the financial institution especially first bank to see the extent of occurrence of fraud in the bank.
The result would expose the fraudulent staff thereby preventing fraud in the institution.
The result would also help the bank to access their overall performance through internal control check.
Student carrying out research in similar area can make use of the work.

…

CHAPTER TWO

2.0 Literature Review

2.1 Introduction

The review of relevant literature is the main topic of this chapter. A literature review covers theoretical and methodological contributions to a certain issue in addition to the state of knowledge at the time of writing. It provides information about the state of the art in relation to the subject you are writing about. It examines the body of work on the chosen subject. The literature evaluation in this study comprises the …

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TABLE OF CONTENTS
PRELIMINARY PAGES

Title page
Approval page
Dedication
Acknowledgement
Table of Contents
Abstract
CHAPTER ONE
INTRODUCTION
1.1 Background …
⋮
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
2.2 Conceptual Review
2.3 Theoretical Framework
⋮
2.4 Empirical Studies
2.5 Research Gaps
2.6 Summary of Literature Review
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Population of Study
3.4 Sampling and Sampling Technique
3.5 Validation of Research Instrument
3.6 Method of Data Collection
3.7 Method of Data Analysis
3.8 Questionnaire Administration
3.9 Ethical Consideration
3.10 Statistical Analysis
CHAPTER FOUR
DATA ANALYSIS, RESULT AND DISCUSSION
4.1 Introduction
4.2 Presentation and Analysis of Data
4.3 Re-statement of Research Questions
4.4 Test of Hypotheses
4.5 Discussion of Findings
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
5.2 Summary of Findings
5.3 Conclusion
5.4 Recommendation
5.5 Suggestion for Further Study
REFERENCES
APPENDIX A - “QUESTIONNAIRE”

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