Internal Control; A Management Tool For Control And Prevention Of Fraud In The Banking Industries (A Case Study Of Sterling Bank Of Nig Plc)

Project and Seminar Topics with material for Banking and Finance

Internal Control; A Management Tool For Control And Prevention Of Fraud In The Banking Industries (A Case Study Of Sterling Bank Of Nig Plc)


This study is aimed at the evaluation of internal control as a management tool for control and prevention of fraud in the banking industry. A critical assessment of Union Bank of Nigeria plc. Prior to this time, there has been unprecedented explosion of fraud in the banking industries.

But in line with the technological innovation of skills among the management and staff, some control procedures and methods had been implemented as a tool to control and prevent fraud in the banking industry such as recruiting staffs in required positions.

The data used in this research were collected from various source, which include textbooks, journals sources and internet. Questionnaires also administered to bank staffs and customers so as to obtain the required information.

The response from the questionnaires were critically analyzed and tested using chi-square (x2) since internal control is an essential tool for control and prevention of fraud in the banking industry, the tool include adequate record and documentation, physical control over assets and records, adequate separation of duties etc. if these tools are add reseed, there will be an efficient control and prevention of fraud in the banking industry.

Table Of Content

Preliminary Page(s)

  • Title page
  • Approval page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of content

Chapter One

1.0 Introduction

  • 1.1 Background of the study
  • 1.2 Statement of the problem
  • 1.3 Objective of thee study
  • 1.4 Research questions
  • 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 Definitions of term

Chapter Two

2.0 Literature Review

  • 2.1 Introductions
  • 2.2 Elements of internal control
  • 2.3 Objective of internal control
  • 2.4 Fraud and types of fraud
  • 2.5 Causes of fraud
  • 2.6 The effect of fraud and ways to minimize fraud in bank
  • 2.7 How internal control methods can help the problems of fraud

Chapter Three

3.0 Research Design And Methodology

  • 3.1 Introduction
  • 3.2 Research design
  • 3.3 Sources/ methods of data collection
  • 3.4 Population and sample size
  • 3.5 Sample technique
  • 3.6 Validity and reliability of measuring instrument.
  • 3.7 Method of data analysis.

Chapter Four

4.0 Presentation And Analysis Of Data

  • 4.1 Introduction
  • 4.2 Presentation of data
  • 4.3 Analysis of data
  • 4.4 Test of hypothesis
  • 4.5 Interpretation of results

Chapter Five

5.0 Summary, Conclusion And Recommendations

  • 5.1 Introductions
  • 5.2 Summary of findings
  • 5.3 Conclusion
  • 5.4 Recommendation
  • Bibliography
  • Appendix
  • Questionnaire

Chapter One

1.0 Introduction

1.1 Background of the study

It is pertinent in this research that the word fraud be defined. The advance learner’s dictionary defines fraud as criminal deception, act of this kind, person or thing that deceives”, on the other hand, fraud is defined by the auditing guidelines as a particular type of irregularity. According tot eh auditing guidelines this refers to irregularities involving the use of deceits to obtain an illegal or unjust advantage and may involve the following.

  1. Manipulation falsification or alteration of document
  2. Miss appropriation of assets.
  3. Suppressing or omitting transaction records
  4. Recording transactions without substance
  5. Miss appropriation of accounting policies.

Which every way one looks at it, fraud is an international distortion of financial statement for whatever purpose, the miss appropriation of assets, whether or not accompanied by distortion of financial statement.

Case of fraud are becoming a recurrent feature of fraud are becoming a recurrent feature of our financial system as recorded cases by banks and other financial institution continues to occupy a conspicuous position in the annual reports and account of Nigeria deposit insurance corporation (NDIC) . As a result, the issue of fraud has become a serious food for thought for many corporate bodies in recent times. Owing to this, much time is spent in the board meetings in an attempt to find solution to the persistent fraudulent practice among management and non management staff.

The frequency with which fraud occurs in any organization should not be over looked as it determines to great extent the survival and growth of that organization and if not properly checked can lead to corporate failure.
From the ongoing, the need to prevent and control fraud cannot be overemphasized. It has been noted that the prevention of fraud, error and comparable irregularities lies with in the province management supervision and other internal controls.

It could be said that board have not done enough in terms of printing a solid defense mechanism and administrative and internal control procedure as counter measure to ward of the persistent fraud cases in our financial system. The rate with which fraud is occurring in the Nigeria system is a sure indication of serious weakness in the internal control system.

It is in view of the foregoing, that this research study is being carried out. The study will find out among other things the important of an internal control system and the measure applied in such a system to prevent and to control fraud. The study is also embarked upon with a view to promote the setting of internal control system in organization.

1.2 Statement Of Purpose

It is a fact that fraud has become a recognize institution in the national and international financial systems and fraudsters, through their affluence are well respected in the society. The implication of this is that boards are now faced with the arduous task of how to control minimized the incidence of fraud which has now become a cankerworm in the society. Owing to the fact that fraud posses a serious treat to corporate growth and existence, management must make effort to check and completely eradicate fraud as it seems , perhaps enough has not been done imputing up a solid defense, mechanism to check the problem.

In view of the unsatisfactory situation mentioned above, the problem to be dealt with in this research is as follows.

  1. Weakness in the internal control system of union bank o Nigeria plc, Afribank and Eco bank.
  2. Problem encountered in adopting defensive measure to prevent and control the incidence of fraud.
  3. The effect of internal control system of ht above banks.

The study will be based on conceptual clarification of internal control to enhance its implementation by organization and general awareness to corporate bodies. Also the study will analyze the problems, benefits and importance of internal control. Finally, it is worthy to note that the absence of a good internal control system would lead to assets not being safeguarded due to inaccurate records as well as non compliance with management policies.

1.3 Objective Of The Study

  1. To highlight the use and importance of a system of internal control in the sources of financial institution with particular emphasis on union banks Afribank and Eco bank Nigeria plc.
  2. Identifying problem which financial institution encounter in adopting a system of internal control.
  3. To see whether internally audits as a department for ensuring strict adherence to internal controls in organization is still in relevant function.
  4. To see whether there are lapse of weakness in internal control in operation of the above banks.
  5. To find out if there is a relationship between the existence of sound internal control and the prevention of the occurrence of fraud.

1.4 Research Questions

  1. What is fraud?
  2. How can internal control be a management to control and prevent fraud in the banking industry?
  3. Has there been any effect of fraud in the operation of banks and other financial institutions?
  4. What measures could be adopted to minimize and solve the problem of fraudulent activities with the banking sectors and other financial institutions.

1.5 Statement Of Hypothesis

The following hypothesis has been developed to meet the requirement of this research.

  1. H0: The existence of sound internal control system in Fidelity banks does not enhance profitability.
    H1: The existence of sound internal control system in Fidelity banks enhance profitability
  2. H0: The segregation of duties in the bank does not ensure full compliance with internal control.
    H1: The segregation of duties in the bank ensures full compliance with internal control.

1.6 Significance Of The Study

The long run trend for cooperation to evolve into organization of gigantic size and scope including a great variety of specialized technical operations and numbering employee has made it possible for management to exercise personal first hand supervision of operations.

Management no longer relies upon report which summarizes the current operations in the organization.

It keeps management informed as to whether the company’s policies are complied with whether government regulations are being observed.

Internal control provides assurance to management dependability on the accounting data used in decision making and these decision made becomes company policy.

1.7 Scope Of The Study

This research is confined to internal control as means to prevent and control fraud in union bank Afribank and Ecobank Nigeria plc. The study will deal with the element of internal control in order to highlight the importance of a good internal control system in banks and other organization. This importance and that of internal audit as a means to prevent fraud will also be highlighted in the research to ensure that the system is well understood for strict adherence by management .

1.8 Limitation Of The Study

In this study, the course of carrying out this research encountered a lot of difficulties and was constrained in many areas among which are:

Data From Banks:

The problem of getting the managers, staff and customers of two banks to answer questions in the proposed questionnaire in many cases, information given by both banks and the ones from internet are not simplified. That is , the are very difficult to understand.

Time Constraint:

In the aspect of theoretical and practical of this work the researcher being a student had to apportion her time so as to carry out concurrently with other academic assignment.

Financial Constraints:

The research was constrained by creating of materials and other expenses , however, in spite of the limitation . effort were made by the researcher to utilize the limited resources at her disposal to ensure that the work is successfully completed.

1.9 Definition Of Terms

1. Fraud:

Is an irregularities involving the use of criminal deception to obtain for instance an unjust or illegal advantage

2. Bank:

It refers to a financial institution were money, money worth and other valuables are kept for safe custody.

3. Bank Services:

Simply refers to all such transactional obligations . such as acceptation deposit, etc which bank renders to customers

4. Automation:

The use of machines to do work that was previously done by people or saved mental and manual labour example, the use of computer in banking services.

5. Customers:

Is an individual or organization who transacts business with a bank or and financial institutions.

6. Strategic Management:

This is an art and science of formulating and evaluating cross functional decisions that enable the organization to achieve its objectives.

7. Nigeria Deposit Insurance Co-Operation (NDIC)

Nigeria deposits insurance cooperation is responsible for providing deposit insurance and other related services for banks.

8. Financial Assets:

These are claims against real (tangible asset) and investment which are commitment of the resources in securities (intangible assets) traded in organized money and capital market.

9. Internal Control:

These companies the plan of organization and all the co-ordinate method and measures adopted within to safeguard its assets.

10. Accounting Control:

These are the method and procedure use in an organization in safe guarding their asset and reliability of financial records.

11. Administrative Control:

These concerns mainly with operational efficiency and adherence to management policies.

12. Dual Control:

It is a security devices which underlines all internal banks safe guards.

13. Miss ¬-Appropriate:

It is an illegal adoption of money or property belonging to some one else.

14. Data:

A raw material input in the production of information.

15. Management:

It is an act of controlling and running of the activities of a business or an organization.

16. Chi Square:

A test of statistical significant which test one of how well your model of expected distribution for the observed distribution.

17 Hypothesis:

A guess or assumption about a certain problem, or set of circumstance reasonable supposition that may be night or wrong.

18. Validity:

The state of being logical true.

19. Auditing:

It is an official examination of business and financial records to see that they are true and corrects.

20. Employees:

An individual who is being paid for work done.

Chapter Five

5.0 Summary, Conclusion And Recommendation

5.1 Introduction

This chapter is the concluding part of the this research project and it sub divided into five sections
Section one of the introductory part where as section two deals with summary of findings, section three deals with conclusion while section four attempts to suggest further areas of research to subsequent researchers on the topic section five deal with recommendations.

5.2 Summary

This study uncovered the following that union bank plc was incorporated in 1917 with office at Lagos, Jos port Harcourt as Barclays bank.

In compliance with the directives of government of Nigeria that all companies including banks must be incorporated locally

INDIGINIZATION DECREE: there its name changed from Barclays bank plc. To reflects its Nigeria status as the Barclays bank of Nigeria with head office in Lagos in 1968. As a result of ownership of share by federal government of Nigeria, consequent upon the Nigeria enterprises promotion decree in 1979. its name was changed to union bank limited.

The bank became a public liability company on Nigeria stock exchange in 1991 and changed its name to union bank of Nigeria plc. The bank is during time and this is as a result of the existence of sound internal controls.
The control are set by the board of directors and their compliance is ensured by the internal audit department which attempt to uncover fraud and whose sound operation is also dependent upon soundness of the internal controls, the internal audit reports of managing directors, and this does not hamper the operations of the department .

Management does not attempt to override and controls in operation neither are their any areas of internal control measures which the internal audit department is not satisfied with. Also that the internal control audit department is free to express its opinion out the performance of the management.

There are problems of implementation of internal controls. The study also revealed the overlapping function inhibits internal control and there is a correlation between interview controls and fraud occurrence.

The existence of internal department is a relevance decision in the bank and this is done to the fact that the department prevents fraud occurrence as much as possible and it ensures compliance with internal control measures set down by management.

Two hypotheses were developed and has been tested statistically as follows:

  1. The existence of internal control has enhanced union bank of Nigeria plc in efficient performance.
  2. The segregation of duties in the bank helps to prevent fraud and test (i) and (ii) prove the existence of internal control as a relevant factor in the performance of union bank of Nigeria plc and existence of internal control as an insurance against fraud. Also segregation of duties in bank helps to prevent fraud.

5.3 Conclusion

This research was asked at the examination of the role and effects of internal control on fraud occurrence and prevention.

Various literature related to the subject matter were reviewed. This was done to enlighten the reader on the subject matter and also sharpen his mind in preparation of what to expect in the core chapter which deals with analysis of data in which various findings were discussed.

The researcher project discovered many issues which later brought out in summary in the concluding chapter. Various recommendations against the background of policy formulation have been made. It is now worthy to note that this findings and there accompanying recommendations are not peculiar to union bank of Nigeria plc alone neither do they apply to only financial institutions but to all other organizations both in the private sector and public sector.

It is the researcher fervent hope that this research will go a long way in helping the organization correct the appropriate abnormal associated with the subject matter as impetus to subsequent students f auditing who find themselves into this topics .

5.4 Recommendations

Due to the foregoing findings the researcher made the following recommendations

  1. Union bank of Nigeria plc should ensure effective implementation of all its internal control measures.
    This is very important as it tends to enhance the efficiency of the internal audit function thereby in effect enhance the bank operation performance.
  2. The bank should also ensure that the function of the various department do not have into each other that the internal control in operation are not tampered with.
  3. Since the existence of internal controls enhanced the banks efficiency, it should always review its existing control to be in line with changing circumstance such as the computerization of operations. This will ensure that internal control do not loose out to technology.
  4. Since the existence of internal audit helps to prevent fraud and since the independence of the auditor (internal) is very necessary for assiduous discharge of the arduous responsibilities of the department, the management of bank should make the staff in the material control to stay abreast with modern methods of operations by stepping up training programs.

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