Effective Internal Control As The Basis For Prevention And Deduction Of Fraud In Bank In Nigeria (A Case Study Of Afribank Plc Enugu)

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Effective Internal Control As The Basis For Prevention And Deduction Of Fraud In Bank In Nigeria (A Case Study Of Afribank Plc Enugu)


Fraud and forgery are gradually becoming daily occurrence in our banking industry., much as it around be admitted that they has always been part of our financial system. It is obvious that they are in lost assumes perplexity proportion millions of naira are lost through the machination of either account holder or bank official or account holder in collaboration with bank official. The offences ranges from falsification of entries forgery of signature of account holder or theft by bank cashier and customer.;

A most serious dimension has been adds to this practice by the so called taken fraud where by false message in respect of millions of naira are transmuted to form ficitions account oversea, cashed on by oversea collaborator and they by daring Nigeria of foreign exchange and creating an appalling image of our internal control system.

There fore the objectives of this work is to identify the result of internal control in a basils for prevention and detection of fraud secondary the project study various from of internal control as well as it effectiveness on Afribank plc and Nigerian banking industry as this has been use toward checking and preventing fraud in our banking industry. The researcher also delve into deterring the legal loopholes in the Nigeria legal system that facilitate fraud.

In studying then above problem primary data and secondary data were used. The primary source includes the use of questionnaire and oral interview while the secondary source include the use of questionnaire and oral interview while secondary source include test books article and other white up in various journals.

The analysis of the secondary and primary data was based on statistical distribute ion table of Francis, percentage, bar chart and histogram. Hypothesis were established and tested in conformity with accept reject criterion. From the funding the finding of the analysis recondition and conclusion were made.

Chapter One


1.1 Background of the Study

Even since the inception of the first three successful indigenous banks in Nigeria, the National Bank of Nigeria established on February 11th 1933, the Agbommagbe Bank (now wema Bank Nig Plc) in 1945, The African continental Bank Plc in 1947 and others subsequently established in the country during the period from 1952 when the first banking ordinance was enacted to regulate and control the activities of commercial banks in the country till present day, prand have remarried a permanent feature in our banking industry.

During the free banking era (between 1892 and 1952) there was no form of banking act or ordinance to regulate the stabilities shipment and operation of commercial bank. There are as it is presently supervised. Many bank were registered. Some of did not open their doors for business ever for a day while some simply collected customers deposits and varnished. This had resulted to the deprivation of our economy an as a whole the much needs fund for development and depriving individual the hard earned funds, this also brought about loss of faith trust on the commercial banks by Nigeria and the subsequent under developed banking habit in the country

However, with the introduction of the first banking ordinance in 1952 and the central bank of Nigeria (CBN) ordinance in 1958 to regulate and control the activities of commercial banking in the country fraud in commercial banks have rather increased in size, and method used by fraudster acquires greater sophistication day by day. Presently with the introduction or modern banking procedures ie improved communication system, automatic electronic gadgets and computers networks into our banking system coupled with various precautionary measures taken by banks. To prevent fraud in the banks fraud have rather taken unclear dimension and the six and form involved increase in a geometric progression. Other Amptiam in his articles obstacle o growth of baking industry saw that it was discovered during investigation that bank now take extra precaution before clearing a cheque because of rampant incident of fraud and forgeries the form of fraud has placed banks loss on the average of # 1m per each working day of the year in Nigeria Asimi kola in his own article “The cash economy phenomenon” also observed that fraud has become sophisticated as to make forget cheque book good the owner to confirm it as his own signature recently in the bid curb the grand fraud, CBN issued a directive to bank to increase it capital base to # 25 billion. Previously section a of the decree 1990 state that, the minimum paid up capital for bank is #50 million for commercial bank. This directive come up after several bank has been discovered to have defrauded it is customers mostly foreign investors. In this required .

Bankers in a bid to reduce the size and rapid occurrence of fraud in their bank now take adequate precautionary measure before clearing cheques drawn their customers accounts. These precautionary measures bring into focus another problem facing commercial banks,. The problem of time wastage in the banking hall. Ashimi Kola in his article also said that customer waits a minimum of about two hours in banking hall of Nigeria banks to cash their money. This is one of the most legitimate criticisms of the quality of bank services. The checking process is long and by the time a cheque is released to cashier for payment, the customer is frustrated and perhaps Rast asleep among feering crowd. This calls for an overhaul of the checking and control system. E above being the general situation of things in commercial banking fraud is there fore number one enemy to all concerned with growth and development of banks., the intention of this research work therefore aimed at identification of the fraud on Nigerian economy in general and on Afribank Nigeria plc Enugu in particular and recommend more functional measure that will help in the prevention and to reduction of fraud in commercial bank in Nigeria.

1.2 Statement of Problem

The focus of this study is to provide evidence bearing on the nature and factors leading to ineffective management in bank, also it actually evaluates the uneremental effect of FRUAD and finally shows INTERNAL CONTROL as a basis to prevention and detection of fraud.

1.2.1 Inadequate Internal Control System

Owing to perculias nature of banks in trading on financial asset and liabilities, there is high propensity towards fraudulent manipulation by both employees and those outside the bank to install internal control system that will help to eliminate stop and arrest fraudulent tendencies and ensure effectiveness in performance of its functions. It is the function of the internal control

Unlit to assist management in achieving effective. The consequences of lack of adequate internal control system in direct and financial term can not be over whelmed. Thus banking subsector has been witnessing as phenomenal increase in reported bank fraud ruing in hundreds of million of naira annually. These occur in form of computers frauds, deflation misrepresentation of document outright disappearance with physical cash by employees and outsiders and the re occurring problem of banks branch mangers granting credie over their discretionary as approval by the top management without adequate security hence resulting to losses and increased bad debt

1.2.2 Inefficient Ways of Transacting Banking Operation

Most banks operate business in such inefficient way that their target and budget becomes always unrealistic thus leading to negative result and poor performance. The end result is that while efficiently managed banks are seeking approved to open new branched the mismanaged ones are busy clamoring to be allowed to close unlivable branches one even close their door entirely. The problem of lack of economy and efficiently in operator is more serious than fraud as it is mammals of procedures. Recording of some transaction of bank by employees are not done in conformity with established standard hence resulting to back of unbalanced book and records.

1.2.3 Load Losses and Increasing Band Debt Portfolio of Bank

Increasing bad debt portfolio of banks inherent from high credit default by ,loan users has been giving bankers sleepless night as a substantial part of their income is row used as a provision against these debt in view of the requirement of prude ntital guidelines for licensed bank issued by the central bank of Nigeria in off Nigeria in 1990, in 1991, financial year, most of the existing bank will hinge portfolio after report losses or very minimal profile position ,after making the necessary provision are required by the guidelines.

It is because the continuous concerns of government and other regulatory bodies about the problem of banks and the serious need for effectiveness by their management that various registrations and directive were made in the recent time Recathly the CBN issued directive to bank for recapitalisation up to N25 billion, in January 1991 CBN issued circulated to all bank directors an information book lets (pocked Guide for bank Directors) Equally in 1991, the Bank and other financial institution decree was promulgated by government.

1.3 Purpose of Study

The principal purpose of lilies study is to identify and explain how internal control Adit could be used to check fraud and detect fraud. Using Afri bank plc and a case study

However, in more specific term, lies study scale to

  1. Identify to what extent adequate internal control is Afribank Plc
  2. Fund out the extent of ineffective way of banking operation.
  3. Determine the overall loan losses and increasing bad debt portfolio

1.4 Significance of Study

The usefulness of this study entitled effective internal control as a basis for prevention detection of fraud can not be over whole the researcher was motive into embarking on this study because of the positives result accruable from an adequate internally control organization. Equally the result of this study would be immense benefit to numerous group of persons such as Auditors, External Examiners, Managers, the Accounting and Banking professions, Regulatory bodies of banks and other operators in the banking system. When the society is corrupt, wealth an groritied irrespective of its sources. The desire to join the political and the ruling class may compel most bankers to throw professional ethic to the winds for praudul practices. This therefore makes study very important.

Acknowledgement of the possible causes of disease will assist a medical doctor to give4 adequate prescription for the prevention and cure of disease similarly, it will be pertinent to analyze and recommend directive, preventive and curative measure to check fraud and distress in banks. Indeed internal control machinery when installed can do this ,Also recruitment not based on sentiments but on personal integrity will prevent recruitment of weptomanaic, greedy and ungodly people in bank

It is believes that for effective management, management by example should be the watch word of every banker, be he a director, manager officer, supervisor clerk, or messenger. Everyone should be made to comply with the lay down policed and procedure in performance of any banking function. He who says people should not steal should not steal too

1.5 Research Question

This study is on appraised of internal control as a basis for fraud prevention and detection. It intend to cerate relevant theoretical concepts and relates them Adri bank plc in Enugu in a way that it would be helpful to those concerned with the management.

In a nutshell this theses is based on the following question

  1. To what extent are banking operation effective in Afri bank?
  2. How adequate is the attitude and perception of banking transaction
  3. What extent are FRAID AND IRRECULARIDES occures in Afri bank

1.6 Scope and Limitation of Study of the Study

1.6 The scope of this study is designed to cover management function of internal control will particular reference to Afri bank plc. This research work met a lot of difficulties First the bank visited was reluctant to gives out relevant statistical data on financial frauds occurring in their banks. None of these banks denied of ever being a victim of fraud this is non compliance.

Chapter Five

Discussion, Conclusion and Recommendation

5.1 Discussion of Result

This chapter presents the discussion of the result of the study, conclusion, implication funding, recommendation, suggestion for further research and limitation of study

Research Question One
To what extent are the banking operation effective at Afri Bank plc?

The result of this research question (tablet) indicate that both the senior and junior staff of Afri bank plc Enugu mean expressed their opinion as show below

Both of them SS and Js agreed this the four strategies comprising strong capital base prompt and courteous alternation to customers safety of customer deposit and trust and technological advancement are all applicable at Afri bank geared toward effective delivery service.

Research Question Two
How adequate s the altitude and perception of banking operation transations?

The result of this research question (table 2) cleany depict that both cadre of staff senior and junior as shown below expresses their opinion

Both SS and JS agreed that by providing 5 minutes transaction time customer oriented services, saving deposits account and other financial service provision of various from of loan and advances and mortgage services and the availability constancy services help to ensure that their attitude and perception of banking operation transaction at Afri bank remained adequate

Research Question Three
To what extent are loan losses and bad debts occuring in Afri bank plc?

The result of this research question (table3) indicated that both the senior and junior members of staff of Afri bank expressed their opinion as analyzed below

Both cadre of staff (junior and senior) agreed that proper assessment of the attributes of credit application using “ SCS of credit investigation of the credit application via reference.

Physical possession of them of security and signed irrevocable authority to sell as issued by the debtor to the creditor (Afri bank) and the effective data collectors policy are strategies adopted to ensure bad eurrent general low level loan loss and bad debts in Afri bank

5.2 Conclusion

The following conclusion have been drawn from the relevant major finding of the study

  1. That some of the strategies installed in Afribank to ensure effective banking operation include strong capital base prompt and courteous attention to customer, safety of customer deposit, and trust form major base of internal control and technology advancement
  2. The bank adopt a style of providing only 5 minute transaction time customer oriented financial service various form of loan and advanced and availability of constancy services to the public. These are geared toward ensuring that adequate banking operation transaction are provide to customer
  3. Again it was observed that adequate steps are always taken by the bank to discourage loan losses and bad debt such as through proper assessment of the attribute of loan appliance investigation of credit applicant physical possession of collateral and effective debt esilection
  4. As at present the extent to which these strategiesa are being applied in the bank is satisfactory
  5. In a nutshell the above strategies reveal the high standard of internal control put in a place to ensure effective management of resources at Afri bank plc.

5.3 Recommendation

The following recommendation have been made in the light of finding and discussion will relevant major conclusion which have been highlighted in 1,2,3,4,5, in this section there is emergent need to suggest the following action polices and steps geared toward ensuring the general improvement of internal control Audit function and effectiveness in banking management

1. Adequate Internal Control System

Internal control involve all type of check and balance both operational and financial employed by management to ensure a safeguard the organization asset. There fore, specific responsibilities should be defined for identifiable type of duty. There should be check and balances

2. Use of Operation Procedure Manual

Each procedure should be reduce to writing. Bank should have manual of procedure in order to promote efficiency among staffs, it is absolutely essential for staff to take their annual holiday during which a new hand must be allowed to stand in on relief duty. Except cases of collusion any misdemeanor are usually exposed or any form of intended fraudulent practiced are brought to light. Also employee should be rotated on a job.

3. Internal Control Audit Department Bank

Should try as much possible to have an internal control Audit department. It has been butlers by finding of this study that complete absence of internal control Audit service is one major cause of frauds to enhance its effectiveness of control the internal control Audit section should be responsible by a qualified account . Additionally he should be responsible only to the managing director or higher authority of the bank
An internal Auditor should be independent and must not be affair to exercise his authority

4. Management Should Dayt Particular
Attention to cash

Experience has shown that cashier and mean culprits in perpetrating fraud in banking sectors this their recruitment should not be bias it should be through. This is the key post in any organization possibly proper security or quartette should be requested from the applicant before being assigned to the post of cashier. In addition banks should arrange for a fidelity insurance to cover the activity of cashier during accounting period usually equally cash in transit is another insure cover which a bank should posed in order to cover the risk of loss of any cash in transit space movement

5. Adequate Record Mnust Be Kept

In addition the adequate record demand by companies and Allied matter degree 1990 the following are generally required record to be kept

  1. Record must be sufficient to show and explain the bank transaction
  2. Record should disclose with reasonable accuracy at any time the financial position of the bank at any time and record must be such that enable the director to ensure that the balance she or profit and loss account proponed by them gives, in the case of balance sheet a turn and fair view of the company stale of affair and in case of profit and loss account and true and fair visas of company’s profit and loss account

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