Internal Control System As A Basis Of Fraud Prevention And Control In Nigeria Financial Institutions (A Case Study Of First Bank Of Nigeria Plc Enugu Main)

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Internal Control System As A Basis Of Fraud Prevention And Control In Nigeria Financial Institutions (A Case Study Of First Bank Of Nigeria Plc Enugu Main)


This study examined Internal Control System as a basis of fraud prevention and control Nigeria financial institutions, using First Bank of Nigeria Plc Enugu as the case study. The study employed survey research design and sampled two hundred and respondents. Two hundred copies of questionnaires were distributed and only one hundred and thirty-three copies retrieved. Data were presented and analyzed using simple percentage method and tables. Hypotheses formulated were tested using 0.05 percentage. The result of the finding revealed that internal control system significantly relate to fraud prevention in First Bank of Nigeria Plc Enugu. It was also revealed that Internal Control System impact on the overall performance of management of First Bank of Nigeria Plc Enugu. It concluded that internal control and fraud prevention have a high influence on personnel need of the organization. The study recommended amongst others that internal control department must be closely involved at the management level where organization plan is formulated and information obtained about the direction of the organization.

Chapter One


1.1 Background of Study

It is feared that the inability of management to ensure effective enforcement of rules and regulation have rendered that operations of internal control system as the banking industry open to abuse.

The net effect could be that every on carries out his schedules off duties in any manner he likes which consequently gives those wishing to commit fraud their long expend golden opportunity.

Prior to 1952, there was no forms of Banking art or ordinance to regulate the establishment and operations commercial banks or a central bank to supervise the control of banking Nigerian.

During that time many banks were registered some of which never operated and over since that period, fraud his remained a permanent feature in our banking industry. This resulted as a loss of faith and trust in the financial institutions by Nigerians and consequently, under- development of the banking habit in country.

However, with the introduction of the first bank ordinance in 1952, and the central bank of Nigeria (CBN) Act in 1959 and other, subsequent Acts and Ordinance with their amendments over these years, used to regulate and control the activities and operations of financial institutions in the country. Frauds in financial institution have rather increased in magnitude and the methods used to perpetrate them acquired greater sophistication day after day.

Now with the introduction of modern procedures and advancement in information technology such as those in communication system, automatic electric gadgets and computer into the banking system coupled with the various precautionary measures taken by bank agent rather than taken nuclear dimensions and the size of sums involved increased at a geometric rate.

Anikpitan (1976), a banker of repute maintained that: –

Discoveries during investments shows that banks now take extra precaution for clearing a cheque because of rampant incident of fraud and forgery which a bank boss placed on the average of N1m per working day of the year in Nigeria. I. Ashimi (1976 p.6) maintained that: –

Fraud has become sophisticated as to make a forged signature on a cheque leaf look good enough for the rightful owner to think that it was his signature.

But a situation, as is being experience now, where incessant cause of bank fraud are being reported, could if not immediately checked, erode depositors confidence in the in nation’s banking system. Such a situation could also scare foreign investors from the country.

Ughamadu. N. in his article on celebrating bank fraud “In Business Times 29 July 1991 observed that: –

The logic for establishing a viable and enabling environment for any country will be meaningless if its banking sector is very porous to fraud.

Ojo A.T. (1982) emphasized that; As an open secret, financial institution do not have very large resources of their own in relation to the total resources at their disposal. They depend mainly on other people’s funds which have been entrusted to them because of the confidence the people have on them as models of responsibility and safety. Consequently, the confirmed existence of financial institutions rest delicately on the maintenance of public confidence. This calls for the establishment of an effective system of internal control, which among other things will help to ensure that the organization’s accounting are in accordance with the lay down procedures standard and statutory requirements.

To establish a sound internal control system, various organization adopt various device and methods based on their nature of business and the scope of their operation.

Internal control system requires a continuous check and re-checking of day-to-day activities of the business; in order to ensure the correctness and farness of the accounting records and to defects and exposing deviation when it has occurred.

Most financial institutions loose confidence of the people not only through fraudulent use of funds but also through some detect in fraudulent practices/or syndication of some dishonest staff facilitated by defeats of the bank internal control. There in therefore, a great need to eliminate or minimize the defects or loopholes and make money effective and operational to guard against the occurrence and re-occurrence of fraud in our financial institutions.

1.2 Statement of Problem

It is important to note that auditing is an exercise done in order to verify the accounting procedures undertaken by the auditors internal or external. Productivity can only be seen if a firm or establishment is well audited against financial misappropriation. In addition, auditing brings about sanity in an establishment. However, if an establishment has been audited but the pertinent question arises: has the establishment been audited on regular or routine basis? If done are there accountability misappropriations discovered in the course of verification?

The problem of this study includes:

  1. Robbers are employing scientific means of gaining access to the strong room (computer room).
  2. Incidence of bank fraud reduces public confidence in banking and consequently slows down development of banking habit in Nigeria.
  3. Fraud leads to unwanted loss of public funds and put the management of the affected bank on its toes.
  4. The rising incidence of bank fraud has created a lot of distrust between banks and their customers.

This study therefore tends to find out the influence of internal control on fraud prevention in Nigeria financial institutions.

1.3 Purpose of the Study

  1. To identify possible defects and loopholes (if any) in the system.
  2. To offer useful recommendation based on the findings on how best to prevent the occurrence of fraud through an effective internal control system
  3. To ascertain the degree of compliance of the bank staff with the internal control measures
  4. To examine the relevance and appropriateness of the presently adopted control measures in preventing fraud.

1.4 Research Questions

  1. How regular does the internal control system check the defects or loopholes in the system?
  2. Does fraud occurs in First Bank of Nigeria PLC Enugu main?
  3. Does the internal control measures the degree of compliance of the Bank staff?
  4. Does the internal control measures the relevance and appropriateness of the adopted control in preventing fraud?

1.5 Significance of Study

The study is significance for the following reasons:

  1. The result of this study would help to expose the level of fraud in first bank plc Enugu main
  2. The result would also help the financial institution especially first bank to see the extent of occurrence of fraud in the bank.
  3. The result would expose the fraudulent staff thereby preventing fraud in the institution.
  4. The result would also help the bank to access their overall performance through internal control check.
  5. Student carrying out research in similar area can make use of the work.

1.6 Scope and Limitation of the Study

The scope of the study is limited to “Internal Control as a basis of Fraud Prevention in Financial Institutions” with reference to first bank of Nigeria PLC Enugu main.

In the cause of the study, the researcher encounters some limitations which limited the scope of the study;

Staff Reluctance:

In most cases the staff of the used study often feels reluctance over providing required information required by the researcher. This result in finding information where the structured questionnaires could not point out.

Researcher’s Commitment:

The researcher, being of full time student spent most of her time on other academic activities such as test, class work, assignment, examination etc which takes average focus from this study.

Inadequate Materials:

Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.

1.7 Definition of Terms

Internal Control:

Internal control, as defined in accounting and auditing, is a process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.

Accounting System:

Royal Linlbery and Chon (1972) hold that accounting system is the total structure of record and procedures which discover record, classify and report information or on the financial position of a government unit or any funds balance account of a group and organizational components.

Auditing Procedures:

According to R. Glymme Williams (1974). He defined auditing procedures as acts to perform during the course of an examination. Auditing procedures are based on professional judgment applicable in the circumstances.

Audit Technique:

R. Glymm Williams (1974) defined audit technique as a method or details procedures essentials to express or execution in an art of science technique and procedures are classed related.

Auditing Standards:

These are measuring devices or models to which the audit must perform.


The Institute of Chartered Accountant in England and Wales defined auditing as

“the independent examination and investigation of the books, accounts and vouchers of a business with a view of enabling the auditor to report whether the balance sheet and profit and loss account are properly drawn up so as to show a true and fair view of the state of affairs and the profit and loss of the business according to the best of the information and explanation obtained by the auditor”.


According to Mali (2006) productivity is defined as the measure of how well resources are brought together in organization and utilized for accomplishing a set of results. Productivity is reaching the highest level of performance with the least expenditure of resources. It is the effective user of the factors of production to produce goods and services that means productivity is the output resulting from a given resources input in a given time.

Management Control System:

A management control system (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole in light of the organizational strategies pursued. Management control system influences the behavior of organizational resources to implement organizational strategies. Management control system might be formal or informal.

1.8 Organization of the Study

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

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

Chapter Five

Summary Conclusion and Recommendation

5.1 Introduction

It is pertinent to note that this research was aimed at assessing the contributions of internal auditing in the detection and prevention of fraud, thus the topic “internal control system as a basis of fraud prevention and control in Nigeria financial institutions”.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations were made which in the opinion of the researcher will be of benefits in addressing the challenges associated with fraud prevention in Nigeria.

5.2 Summary

The overriding purpose of this study was to establish the relationship between internal control system and fraud control in financial institutions in Nigeria. To accomplish this purpose the researcher developedsome research questions based on the scope and area of study which is First Bank Plc Enugu main. Internal control system, as a tool for management control an assurance service, represents more than a legal requirement. Timely detection of irregularities is important for all economic and financial market players, for all users of financial information. A well-implemented internal control structure and internal control activities conducted carefully and conscientiously could signal potential dangerous situations due to poor management of assets (this should include all categories of resources, including human resources) with negative, if not so disastrous consequences for the company’s own business and also with implications over the economic environment. Development, implementation and continuous monitoring of internal controls system and procedures are the responsibility of the entire management and not just the auditor alone. Premchand (1999) sees public financial management as the link between the community’s aspirations with resources, and the present with future, Management of every organization has the line responsibility for designing, implementing and monitoring their internal controls system. The study revealed that there is no regular review of financial transaction by management and adequate segregation of duties.

5.3 Conclusion

The area of internal control system is probably one of the most dynamic and yet important subjects to come to our attention. Internal control is currently at a crucial stage in its development as there is a growing demand for audit services. What has yet to be formed is a consensus among theory and practice. This research did not have the intention of concluding the discussions over this matter; however, it is expected to be one more element to help the formation of opinions and to diffuse other discussions on the subject. This study has made a first and successful attempt to establish the positive relationship between the broad attributes of corporate governance and internal control. The main limitation of this study is that it is just focused on a specific industry sector. Taking into consideration that the interest in this field of research is rather new, it is necessary that the future orientation of the academics as well as of the practitioners be focused on the evolution of those governance mechanisms which will limit these troubles. From the above it is clear, that internal control system develops ever-new approaches to internal auditing, devises new auditing products and services, and helps fulfill increasingly more complex demands that management nowadays faces. Related to that, it can be expected that internal auditing will be increasingly oriented towards advising the management on efficient corporate governance on management control.

5.4 Recommendation

Haven successfully completed the study; the researcher therefore makes the following recommendations that:
Future research should take a more focused approach by examining the matters reported in this research work in different areas of industry sectors and organizational size, and evaluate the development of individual elements and steps of the approach.

Management should ensure that there are adequate organizational controls and that each staff knows his duties and equally ensures effective segregation of duties so as to reduce interference in terms of funds; and assets management and controls.

There should be a good communication between auditors and management for a maximum of effectiveness of internal control, so that the management would be open to the proposed recommendations. It is very important for the auditor to properly diagnose a situation (it is ideal as the auditor has knowledge and receive complex explanations necessary to understand the work properly).

Internal control function should be strengthened more in order to provide reasonable assurance for all audited domains/activities, which will add value to the company. It’s more than obvious that this economic crisis, characterized by some specialists without precedent, will have a significant impact on the development of several areas, one being the internal control.

Taking into consideration that the interest in this kind of research is rather new, it is necessary that the future orientation of the academics as well as of the practitioners be focused on the evolution of those governance mechanisms which will limit these challenges.

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