Internal Control System And Bank Fraud Prevention In Nigeria Banking Industry

Project and Seminar Topics with material for Banking and Finance

Internal Control System And Bank Fraud Prevention In Nigeria Banking Industry

Abstract

This study mainly focuses on internal control system and bank fraud prevention in Nigeria banking industry. 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 to the Study

Internal control, the strength of every organization, has become of paramount importance today in Nigeria banks; the reason being that the control system in any organization is a pillar for an efficient accounting system. The need for internal control systems in the organization, especially banks cannot be undermined, due to the fact that the banking sector, which has a crucial role in the economic development of a nation, is now being characterized by macro economic instability, slow growth in real economic activities, corruption and the risk of fraud.

Fraud, which is the major reason for setting up internal control system, has becomes a great pain in the neck of many Nigerians. It also has become an unfortunate staple in Nigeria’s international reputation. Fraud is really eating deep into the Nigeria banking system and that any bank with a weak internal control system is dangerously exposed to bank fraud.

In a nut-shell, the damage which this menace called “fraud” has done to banks in is innumerable and needs urgent attention. Therefore the attempt to put an end to this economic degradation, gave rise to the topic of this research study internal control system and bank fraud prevention in Nigeria banking industry with Union Bank Plc as a case study. However, this study is aimed at verifying the concept that an effective and efficient internal control system is the best control measure for preventing and detecting fraud, especially in the banking sector.

1.2 Statement of Problem

Considering the effects by fraud and fraudulent act as pointed in the introduction, the problem of this study is to effectively comb and curb the incidence of fraud. Yet they have not been able to stop bank fraud completely. For this reason, this research was carried out to help the banks in looking for ways of preventing bank fraud to achieve the objective, and this research work will be guided with questions.

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.

1.4 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;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

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.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities

1.7 Definitions of Terms

The following are the definition of certain terms used in writing the project which the research feels that there may not be so conversant with.

Fraud:

This is an act or cause of deception deliberately practiced to gain unlawful and unfair advantage such deception is directly to the detriment of another person or group of persons.

Fraudulent:

Means deceitful, a person who commit frauds.

Internal Audit:

Means an independent appraisal unit within an organization for the review of operation and service to management in a managerial control by measuring and evaluating the effectiveness of others.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain internal control system and bank fraud prevention in Nigeria banking industry. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of internal control system and bank fraud prevention in Nigeria banking industry

5.2 Summary

This study was on internal control system and bank fraud prevention in Nigeria banking industry. Four objectives were raised which included: To determine if lack of good internal control a major cause of fraud in bank, to ascertain whether banks with internal control system prevent menace of frauds in Nigeria, to determine if bank personnel commit fraud, to ascertain how effectively fraud control measure is in Nigerian banks. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource management, accountants, customer care officers and junior staffware used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

5.3 Conclusion

Related to the above is the fact that fraud will be difficult to eradicate completely. It is not surprising therefore that while several hundreds of bank executives and other staff are being incarcerated and imprisoned for fraud, others are busy planning and executing it; this is evident in the sharp rise in fraudulent acts in 2001-2010 as seen earlier, while several thousands are being dismissed on account of fraud, others who read the reports are coming up with newer, more sophisticated ideas to commit the very crime as well as the ever-tightening control measures being instituted by banks are being over-ridden daily, sometimes even by those who instituted them. Since fraud cannot be totally eradicated, then there is need to find ways of minimizing it.

5.4 Recommendation

Adequate Remuneration and Motivation

Banks should strive to remunerate their workers adequately to enable them to meet their basic needs, ensuring that they pay competitive salaries. This should serve as appropriate motivator, alongside other welfare issues such as promotion, giving staffers a sense of belonging so as to prevent segregation or alienation.

Exemplary leadership

Bank’s management should exhibit exemplary leadership and conducts that do not encourage fraudulent activities. This is in line with the views of Asukwo (1991) and Oyeyiola, (1996), that the top management holds fiduciary duty to act honestly and with utmost good faith, and exercise of skill and care in discharging the statutory obligations of the bank. The board has collective responsibility of the members to ensure that suitable security systems exist, there are adequate accounting records and facilitate the discovery of any falsification.

Implementation of Relevant Legislation

Government should ensure relevant agencies such as Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), National Drug Law Enforcement Agency (NDLEA), Economic and Financial Crimes Commission (EFCC) carry out their duties with minimum interference (Nwaze, 2011). Banking laws relating to fraudulent and other illegal acts should be implemented to the letter; devoid of favouritism or selectivity as was alleged in the implementation of the Failed Bank Decree.

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