THE IMPACT OF INTERNAL CONTROL SYSTEM IN THE NIGERIAN BANKING INDUSTRY

1.0 Introduction

Fraud can be described as a conscious premeditated action of a person or group of persons with the intention of altering the truth and the aim of making personal gain.

In recent times, fraud in business has assumed as an astronomical dimension, not with standing the size or type of the business, fraudsters use highly deceit trick and intelligently cunning to defraud their prey.

The industrial entities visited by fraudsters, the banking industry is the hard hit. This is because apart from the size of the banking industry in Nigeria, their profit margin is astronomical even all the time of recession.

Secondly, the major business of banking industry is to buy and sell of money, money is the main target of a fraudster. This has made the number of fraud cases in the bank higher than any other business and also the amount of loot greater.

Naturally, no business will sit ideal and watch fraudsters loots its resources away, there will be effort made to control the situation. There are many methods adopted by business entities and the method that has proved very successful is internal control system, the internal control system comprises the plan of organization and all of the co-coordinating methods and measures adopted within a business to safe guard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency and encourage adherence to prescribe management policies.

This research work will prove that a strong and effective internal control system properly implemented will reduce the incidents of fraud in our banking industry.

1.1 Background of the Study

The internal control is a system which detects the symptoms of fraud in our banking industry.

The global economic depression which started to manifest in the late 70s hit Nigerian beginning from the early 80s and building up to this current 1990s. This coupled with the malignant social ill “The get rich quick syndrome” propelled many Nigerians into fraudulent acts.

As the purchasing power of workers continued to reduce because of double digit inflation, the fall in the gross domestic product and the deteriorating foreign situation has all forced the Federal and State Government to curtail their normal service obligation to their citizen thereby facing many people who fraudulent acts in order to make ands meets.

According to Nwankwo (2006:218) rightly pointed out in times of economic depression, company's profit and interest are squeezed, unemployment and inflation rates are high thereby increasing the level of fraud. This is so because the severe economic conditions affect both the business entity and it's workers and the society in general.

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1.2 Statement of the Problem

According to Ogwuma (2008:1) stated that of all the various problems confronting the Nigerian banking industry today, fraud is easily the most intractable coming from one of the most outstanding banking luminaries in the country, that statement underscores the major problem of our banking industry today.

As the main function of a bank is to buy and sell money, the bank thus becomes the warehouse where people store their money for safe keeping. However, if the banks are clouded with cases of fraud, perpetrated by both outsiders and the staffs of the bank, the confidence reposed on the Nigerian banking industry will be greatly reduced and this will lead to reduction of bank deposit from the depositors and reduction of business transaction from the investors.

All over the world today especially in Nigeria, banks have been wind up as a result of financial losses due to mismanagement and fraud, which has materially affect the banks existence. This result to paying off workers of that particular bank and thereby forcing them to low level of living and financial hardship in the economy.

Since bank sell money to their customers who need such money for their investment purpose, bank fraud results to huge financial losses and in most cases drastically reduced funds available for lending thereby reducing the nations invertible capital.

Furthermore the frequent changes in the economic of the nation which has also made it difficult for people to have enough funds to serve and as such have reduced the amount of money available to the banks for lending to users of funds and this in turn have reduced the invertible capital.

With this few problems listed above, one can easily see that the bank have a hard time trying to maintain their credibility in the eyes of the public and at the same time to have an effective control of their own assets and other people assets entrusted in their care.

The only way where the banks are forced to look up for help in safe guarding their assets is an effective and strong internal control system.

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1.3 Objective of the Study

The objective of this study is a follows:

1. To evaluate the evolution of the internal control system.
2. To assess the role of the internal control system in a developing banking industry.
3. To investigate the problems of internal control system through the means of internal audit.
4. To determine how the internal control system can be made effective and efficient.

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1.4 Research Questions

Some questions are developed by the researcher on the role of internal control system in our banking industry. The questions include the following:

1. Does internal control system has any influence in promoting of operational efficiency in our banking industry?
2. Has internal control system reduce the high rate of fraud in our banking industry?
3. Has internal audit help in investigating the problems of internal control system?
4. Does effective and strong internal control system help in safe guarding the assets of the banks?
5. Has the role of internal control system develop our banking industry?

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1.5 Statement of Hypothesis

For the purpose of the study, the following hypothesis will be tested.

Ho: Internal control system does not have any influence in promoting of operational efficiency in our banking industry.

Hi: Internal control system have influence in promoting of operational efficiency in our banking industry.

Ho: Internal control system does not reduce the high rate of fraud in our banking industry.

Hi: Internal control system reduce the high rate of fraud in our banking industry.

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1.6 Significance of the Study

The main purpose of the study is to reveal that internal control system is very important to both banking Industries and organizations in order to reduce the fraudsters in the industries.

It will enable the banking industries and every other organization to maintain their creditability in the eyes of the public and at the same time have an effective and efficient control of their own assets and other people assets entrusted in their care.

The banking industries and organizations will also find this study beneficial, since the significance of the study will make them appreciate the importance of internal control system in their respective industries.

Finally, the significance of the study will serve as a frame of reference for students and researchers for related fields who might conduct or embark on similar enquiries on this topic.

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1.6 Scope and Limitations of the Study

The study is designed to cover the impact of internal control system in the Nigerian banking system. It is intended to focus on industries and organizations with reference to the importance of internal control to the banking industries.

This work will have to examine the involvement of gathering and analyzing of data about problems and solutions relating to the industries in order to meet the current need of the organization.

This study will also have to examined the role played by the internal auditors and external auditors towards the importance of internal control in the industries.

This research work under the scope of this study, was faced with so many problems therefore it affect the comprehensive study during the period of getting research information.

In this course of carrying out this work the following limitations were experienced:

Finance:

Due to limited funds at students disposal, the researcher has no accessibility of some areas due to cost of getting to every part of research areas.

Time Constrain:

Considering the time limit, the researcher do not have enough time to research and elaborate more on the work. Another factor worthy of mention was the difficulty encounter in getting the right to do the research work at the right time and right place.

Problem of Souring:

Some of the respondents regard some questions are secret such as the main target of a fraudster which they regard as confidential and feel reluctant to disclose.

Date of Information:

Most of the information available to the researcher have been outdated and the current ones are not easily obtained, therefore the researcher sees it as a constrain to this project work.

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1.7 Definition of Terms

Bank:

Is a financial institution where money and other valuable items are been kept for safety purpose.

Internal Control System:

Is a process by which the policy made by the organization and all the coordinating methods and measures is been adopted within a business to safeguard its assets, checking the accuracy and reliability of accounting data, promoting operational efficiency and encouraging adherence to prescribed managerial policies.

Data:

Is a term used to describe basic “FACTS” based on measurement and recording something known or assumed as facts and made on basic reasoning or calculations. It can be said to be unprocessed information or raw facts.

Fraud:

Is the act of deceiving somebody in order to get money or goods illegally or the use of deception to obtain unjust or illegal financial advantage.