INTERNAL CONTROL SYSTEM IN NIGERIA DEPOSIT MONEY BANK PROSPECTS AND PROBLEM (A CASE STUDY OF UNION BANK PLC)

Abstract

This study mainly focuses on internal control system in Nigeria deposit money banks. Internal control plays a significant role in the Nigeria banking industry. Internal control are policies, procedures, practices on organizational structure implemented to provide reasonable assurance that organization’s business objective will achieve and undesired risk event will be prevented or detected and corrected based on either compliance or management initiated concerns. The researcher uses survey design hence, the use of questionnaires, personal interview and observation in data collection. Hypotheses were formulated and analyzed with the use of chi-square test at 5% level of significance. The findings revealed that bank with internal control system can prevent the menace of fraud and a good internal control system has a significant affection on fraud detection and control. The study concludes that Lack of good internal control measure is a major cause of fraud in various banks and recommends among others that banks in Nigeria should pursue and effective internal control measures to prevent fraud.

 

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Banks are very important in nation; they are the backbone of the nation’s economy.  Functions of the bank according to ezeuiji (1997), including money creation, acceptance of deposit from the customers, provision of facilities for domestic and foreign remittance, help government in implementing monetary policies etc.

According to the operational standard (guideline). Internal control is defined as the whole system of controls,, financial and otherwise, established  by the management in order and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records.

The function of internal control system include, the detection  or safeguarding of business asset but despite the fact a that  all bank have internal control system, there have been a lot of problem in the banking sector. Ranging from bank liquidating to defrauding the banks, many bank have been liquidated example of such bank include savannah bank plc, national bank plc (although it is now being resuscitated) merchant bank Nigeria limited Nigeria internal bank limited mention few.

According to central bank of Nigeria (CBN) annual report over (N16 billion) sixteen billion naira was defrauded from the banking sector, also recently a bank was suspended from the clearing system by the central bank of Nigeria (CBN) because of mismanagement of banks resources expert have given reason as to what causes banks distress. According to ezeudiji (1997) one of the causes of bank distress is the internal control system problems include poor or lack of proper authorization of loan and contract, poor loan recovery, failure to collect proper collateral security, management override the control e.t.c.

According to koroye (1989), it bank internal (detective in any significant way) that audit should be decline outright opinion  must be qualified as strictly as possible. It is because of two main reason.

1.2     STATEMENT OF PROBLEMS

Internal control system many organization, including bank is very important because it ensure orderliness, in the organization, advance to management polices, early detection of error and fraud, protection of assets e.t.c.

Internal control system problem have led to closure of many banks in Nigeria, ezudiji (1997) thereby making depositors customer to shareholder of such bank to loss his or her shares. It is inimical to nations economy because provide 90% of the capital employed in Nigeria. Due to the following problem it leads to the following question.

Does bank operation carried out in any orderly manner and follow the procedure laid down. Does transaction recorded accurately and correctly.

1.3 OBJECTIVE OF THE STUDY

The objective of this research is basically aimed at the following:

1. To determine if lack of good internal control a major cause of fraud in bank.
2. To ascertain whether banks with internal control system prevent menace of frauds in Nigeria.
3. To determine if bank personnel commit fraud.
4. To ascertain how effectively fraud control measure is in Nigerian banks.

 1.3 RESEARCH QUESTION

This project has been able to provide answers to the following research questions

1. How does banks operations can be carried out in internal control system?
2. Are they benefits of internal control system to the government, public, students and researchers?

• Does transactions recorded accurately and correctly?

1. Are the problems facing by internal control system?

1.4 RESEARCH HYPOTHESES

Hypothesis One

HO:   The lack of a good internal control is not a major cause of fraud in banks.

HI:    The lack of a good internal control is a major cause of frauds in Nigeria.

Hypothesis Two

HO:   Banks with internal control system cannot prevent the menace of fraud in Nigeria.

HI:    Banks with internal control system can prevent the menace of fraud in Nigeria.

1.5 SIGNIFICANCE OF THE STUDY

From all experience, fraud is unique in terms of the system of planning and execution.

Knowledge of the various ways which fraud have been perpetuated in the past and foresight or anticipation system considering the past can facilitate an adequate internal control design that can be efficient and effective in guiding management in the prevention and re-occurrence of fraud. If it is agreed that majority of fraud are born by the bank, then banks should pursue effective internal control measures to prevent fraud. The research work therefore is designed to help to get acquainted with various frauds and their method of execution with the view of gaining sufficient knowledge to enrich individuals and collective experience in management and prevention of fraud.

1.6 SCOPE AND LIMITATION OF THE STUDY

This study examines the nature and prevention of bank fraud in Nigeria banking system and is based on knowing how good internal control relates with the prevention of bank frauds in the Nigeria banking. The study is based strictly in Nigeria banking system and more emphasis is based in Auchi, the research work uses a time frame of 5 years (2009 – 2013) using a sample size of 75 for effective result. The researcher encounters some constrain which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities

DEFINITION OF KEY TERM

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

INTERNAL: it is the affairs and activities within a country.

CONTROL: is the power to direct influence or limit something e.g. fraud, error, and to safeguard business

SYSTEM: it is a set of things working together as a mechanism or network, the prevailing political or social order.

INTERNAL CONTROL SYSTEM: This whole of control, financial and otherwise established by the government in order to carry on business of the enterprises in an orderly manner, ensures stick firmly to management policies the completeness and accuracy of accounting records.

MONEY: it is anything which is generally acceptable for making payments or in the settlement of debt.

DATA: is a term used to describe basic “FACT” based on measurement and recording something knows 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.

1.9 ORGANISATION PLAN

This research work is divided into five (5) main chapters and each chapter has the following content:

Chapter one is the introduction consisting of the statement of problems, research question, objective of the study, research hypothesis, significance justification of the study, scope and limitation of the study, definition of key terms, and organization plan of the study.

Chapter two is the literature review consisting of the historical of the case study, concept of internal control system, classification of internal control system, reliance control, types of internal control system, objective of internal control system, environment of internal system, requirement for effective internal control system, application of internal control system. Chapter three is research methodology consisting of the types of data, research design, sample procedure and method of data collection. Chapter four is data presentation and data analysis and finding. Chapter five is summary, conclusion, recommendation and references.

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