Evaluation Of Effectiveness In Internal Control System In Banking Industry (A Case Study Of First Bank Nigeria Plc Aba)
This study exposed the researcher to the evaluation of the effectiveness of the internal control system in the banking industry. “ internal control is the whole system of control, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records. “Internal control system has the following element. Organization: The enterprises must have clear corporate objective, plan policy and duties of the employee should be clearly defined segregation of duties: Basic to the concept of internal control system is the segregation of duties of the employee to ensure that no one person is able to record and process a complete transaction.
Physical: These involve procedural and security measures designed to ensure that access to asset is limited to authorized personnel. Authorization and approval: All transactions require authorization and approval by appropriate and responsible personnel. Personnel: there should be procedures to ensure that personnel have capabilities commensurate with their responsibilities. Supervision: any system of internal control should have means of supervision by responsible officials for the day to day transactions and their recording thereof.
Arithmetical and Accounting; these are the controls within the recording function which check that transactions to be recorded and processed have been authorized and that they are complete and accurately processed. Internal control which can be likened to the heart which regulates the business, it helps to adhere to prescribed managerial policy, it also promotes operational efficiency.
Table Of Contents
- Title Page
- Approval Page
- Table Of Content
- 1.1 Background Of The Study
- 1.2 Statement Of The Problem
- 1.3 Objective Of The Study
- 1.4 Research Question
- 1.5 Statement Of Hypothesis
- 1.6 Significance Of The Study
- 1.7 Scope Of The Study
- 1.8 Limitation Of The Study
- 1.9 Definition Of Terms
2.0 Literature Review
- 2.1 Brief History Of Internal Control In First Bank Plc
- 2.2 Objective Of Internal Control
- 2.3 Element Of Internal Control-
- 2.4 Internal Control In A Specific Area Of Management
- 2.5 Limitation To The Effectiveness Of Internal
- 2.6 Components Of Internal Control
3.0 Research Design And Methodology
- 3.1 Introduction
- 3.2 Research Design
- 3.3 Population Of The Study
- 3.4 Method Of Data Collection
- 3.5 Sample Size
- 3.6 Sampling Techniques
- 3.7 Validity And Reliability Of Measuring Instrument
- 3.8 Method Of Data Analysis
4.0 Presentation And Analysis Of Data
- 4.1 Introduction
- 4.2 Presentation Of Data And Classification
- 4.3 Analysis Of Data
- 4.4 Test Of Hypothesis
- 4.5 Interpretation Of Data
5.0 Summary, Conclusion And Recommendation
- 5.1 Summary Of Findings
- 5.2 Conclusion
- 5.3 Recommendation
1.1 Background Of The Study
Every business unit has certain goals and objectives to accomplish, no matter the size and scope, management has the responsibility of establishing, maintaining a goal of its objectives.
The role is not an easy one especially in organizations that are large in size and scope. It is not possible to exercise first hand supervision of operations as such, the installation of internal control system as an indispensable aid to efficient management is inevitable.
According to Pyle, and Larson, (1981), Fundamental Accounting Principles traced the origin of internal control to the complexity of modern business techniques. Although effective system may be operated, in large companies, but smaller enterprises may have to rely less on formal controls due to personal involvement of management in the enterprise itself.
Internal control is very necessary for every business unit whether large, medium or small. It does not only increase the efficiency of business, but also helps to self-guard the assets and secure accuracy of the record against error. From textbooks and research work done by other people on this, it is generally accepted that internal control is an indispensable aid to efficient management due to the Fact that it provides assurance to management. It keeps management informed if the financial position is sound.
Internal control is as important as the organization itself and should be carefully designed and effectively carried out. Failure to do this results in creation of loopholes, which encourages all forms of fraud. At this point, it is necessary to define internal control. According to auditing standard guidelines, it is the whole system of control, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records. Internal control is divided into accounting control and administrative controls and it is elucidated according to Horngren and Foster (1990-1910).
- Accounting control comprises the method and procedures that are mainly concerned with the authorization of transactions, the safe-guarding of assets and the accuracy of the accounting records. Good accounting controls help increase efficiency; they help decrease waste, unintentional errors and fraud.
- Administrative controls Comprises the plan of organization and all management planning and control of operation.
First bank Nigeria Plc is one of the universal banks in Nigeria. It was founded in the year 1894, more than a century ago, by Sir Alfred Jones, a shipping magnate from Liverpool. The bank started out as a small operation in the office of Elder Dempter and company in Lagos. They render Universal banking services to the public, some of which are acceptance of cash lodgments and savings deposit. They were among the first banks that introduced western Union Money Transfer Services to the public. Another interesting aspect of services which the researcher found they render to the public is the Automated Teller Machine (ATM) services, which they offer to the public recently. These three services, you need not to have account with them to affect such transactions.
Telegraphic transfer is an aspect of transaction where by a customer or potential customer come up to a bank and request for a transfer of fund to another branch of first bank in another town which if affected by Fax and receives a spontaneous remittance at the correspondence branch. Equally they have the same effect of transfer, but in the case of draft the purchaser handles the drafts to the paying branch unlike the telegraphic transfer whereby the fund is already at the branch.
On a daily basis First Bank open more than fifty (50) new savings bank accounts, and their internal rate is as stipulated by the central bank of Nigeria (CBN).
1.2 Statement Of The Problem
Every financial institution strives for fair public recommendation, efficiency, strong management and profitability. However, with complexities in modern day business network, overwhelming introduction of information technology and other human Factors, these objectives seems unachievable except with the infusion of strong internal control system into the main stream of the organization process.
No internal control system can by itself guarantee efficient administration, completeness and accuracy of records. This could be attributed to
- Employment of incomplete and dishonest personnel
- Inadequate documents and records
- Lack of proper procedures for records keeping
1.3 Objective Of The Study
The aim of this study is to achieve the following:
- To review the major control measure that could be adopted by the management.
- To evaluate and measure the effectiveness of internal control system in the organization.
- To discuss the factors that is responsible for not achieving the goals.
- To recommend solutions that might help in combating identified problems.
1.4 Research Questions
The following questions were mapped out to guide the research, and answers from the questions will enable the researcher to draw reasonable conclusion.
- Does your bank have proper segregation and definition of duties and responsibilities at all levels?
- Are there limitations to the attainment of the objectives of internal control system?
- Do you think the system of internal control can ever be effective considering the limitations?
1.5 Statement Of The Hypothesis
Drawing from the statement of problem, the hypothesis for this study is as follows:-
- Ho: Efficient internal control system does not enhance
Adherence to proper procedure for authorization and approvals.
Hi: Efficient internal control system adheres to proper procedure for authorization and approval.
- Ho: There are no limitations to the attainment of internal control system in the banking industry.
Hi: Limitations exist to the attainment of internal control system in the banking industry
1.6 Significance Of The Study
- The researcher has in mind that this study will go a long way in helping especially management and student as this will serve as reference material for further study of the topic.
- To enable those in the field of academic to draw a strong conclusion about assertion hence, helping them put more effort in the techniques of internal control as indispensable techniques for efficient management.
- The perceived role of effective internal control system will help in minimizing the limiting factors of most business organizations.
1.7 Scope Of The Study
This research work looks into internal control in all ramifications, but rather limited to the effectiveness of internal control in Nigeria banking industry, as it is relevant to the overall organizational and economic performance.
Due to the difficulties in collecting the data and time constraints as well, the researcher divided to narrow the scope to First bank of Nigeria Plc, factory road Aba.
1.8 Limitation Of The Study
Although the study was a successful one, some difficulties were encountered during the course of the study (obtaining the necessary information) which affected the success of the study such as:
It took a lot of time to find out relevant materials and data on the subject matter.
Cost of transportation to the institution and other places that have relevant information, and data needed to carryout this study was high.
Reluctance to disclose information:
Some of the required information was not fully obtained because of the fear of exposing, confidential information and mismanagement of vital information.
1.9 Definition Of Terms
This is the “whole system of control, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensuring adherence to management polices, safeguard the assets and secure as far as possible the completeness and accuracy of the records.
This is concerned with effective output without unnecessary waste of resources.
This is concerned with doing the right thing in order to achieve the aim and goals.
This is an independent appeal but function within an organization for the review of system of controls and the quality of performance as a service to the organization.
The effective and efficient utilization of human and non-human resources to achieve organizational goals.
This is the process which ensures that financial resources are obtained economically and utilized efficiently and effectively in the attainment of the desire goals.
5.0 Summary, Conclusion And Recommendation
5.1 Summary Of Findings
In the course of this research, the effectiveness of internal control system has evaluated interviews, including face to face interviews and questionnaires have also been analyzed. To elaborate properly the analysis in chapter four, (4) it is clear that most of the element of internal control is clearly identified.
- Proper authorization of duties or responsibilities
- Rotation of personnel
- Physical control over assets etc
However, in spite of all these desirable elements the effectiveness of internal control system has not been achieved. The following factors limits the attainment of internal control system objectives:
- Human error, fraudulent collusion
- Abuse of authority
- Overriding of control by management itself etc
- Incompetent and dishonest personnel etc
The researcher found out that most of the characteristics of a reliable internal control system are in existence but the above mentioned factors limits the achievement of these objectives which automatically render the system of internal control ineffective. However respondents from the management cadre may maintain that internal control subsystem can still be effective in spite of the limitations. The view contradicts the findings of the authors who contributed to the topic of internal control. The authors view that the limitations to the attainment of internal control system effectiveness exist in every organization.
The conclusion reached by the researcher is not shared by the management of the bank. Having refused to accept that the presence of the above limiting factor render their internal control system ineffective in spite of the limiting factors to the effectiveness of internal control.
Whatever be the case, the fact still remains, no matter how designed and sound an internal control system might be, its effectiveness is always impair by some factors which also identified in this research study.
The internal control extends throughout the organization like the nerves centers of a person; the internal control system provides directions to all activities and monitors all units comprising a business organization.
It is a pity that in spite of all endeavors to maintain an effective system of control by the management, it has continued to be as something that does not really exist owing to some unavoidable.
It is worth mentioning that these factors can be minimized if not totally stopped by adopting some remedial measures as per the recommendations below.
Based on the findings the following recommendations are made.
The solution given in this research may not be totally welcome and as such management who understands the condition of its banks could adopt other measures, which may be considered useful.
- There should be a clear cut distribution ad proper definition of duties and responsibilities in order to avoid the undesirable situation whereby one employee receives cash from customers and also payout. It is possible for duties to be segregated without proper definition. Each workers job should be well defined so as to ease him/her from stepping into another workers responsibility of poor performance cannot be shifted. This weak point of one [person receiving and paying out money] suggest that the staff strength is not what it should be. Customers may also decide to make an alternative arrangement which may not be in favour of the bank considering time wastage in the bank. In this respect, it is therefore suggested that more workers be employed, who of course must be competent and honest.
- The management endeavor to see that duties are clearly defined and personnel periodically rotated. On the side of incompetent employee, even the best designed system of internal control will not work satisfactorily unless the people assigned to operate it are competent. It is here suggested that each person involved must have a level of competency for the work assigned and a willingness to assume responsibility for performances, although incompetence and integrity of employees are in part, develop through training programme. If this is done even fraudulent collusion will also be taken care of because competent workers will be able to detect errors whether innocent or intentionally, one honest Person cannot think of deforming the bank let alone colliding with others.
- Financial statements should be annually audited by independent auditors and the auditors should adequately examine all books of accounts and records. It is the duty of the internal control system to manage and so, should be done with due care. Any suspected act of fraud in any section found is reported to the management.
- Human error as identified early to be one of the limiting factors that bind the attainment of internal control system should be properly investigated. Where it is due to fatigue as a result of overworking, then there is need for employing more hands.
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