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

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


Abstract


This research work was on the internal control system as a factor of fraud prevention in Nigeria financial institutions.

However, for a more detailed study a case study was carried on first bank of Nigeria plc enugu main.

This study necessitated because of the increasing wave of bank fraud in Nigeria in recent times as reported by the Nigerian dailies. Therefore, we need to investigate these reports in a financial institution is to confirm that there is an effective internal control system.

All aspect of this work is very relevant in one way or the other to the Nigeria banking industry, as a whole, and for those who may be interested in carrying out further study in this topic.

The research designed is a descriptive research which requires the selection of respondents from a population. The population of the study is made up of 43 staffs. 30 (thirty) persons were used as the sample size, which is 69.7% of the entire population.

Data were collected through the distribution of questionnaires.

The method of statistical analysis include the use of table, percentage analysis and the significant test of two means was used in testing the hypothesis.

From my findings, it was ascertained that banks have the best internal control system in Nigeria. The internal control system is both effective and adequate.

The management of bank should be at alert so as to eliminate any loophole or defect that may arise in their internal control system.

It was also discovered that the major cause of fraud is the employment of dishonest staff. The fore staff qualities like integrity should be ascertained before employment.


Chapter One


Introduction

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

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.

1.3 Purpose of 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 Scope of the Study

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


1.5 Research Questions

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

1.6 Statement of Hypothesis

  1. H0: The present internal control system in financial institution is not appropriate in the present world of technology and sophistication in First Bank of Nigeria PLC.
    Hi: The present internal control system in financial institution is appropriate in the present world of technology and sophistication in first bank of Nigeria PLC.
  2. H0: The present internal control system in first bank of Nigeria PLC is not effective.
    Hi: The present internal control system in first bank of Nigeria PLC is effective.
  3. Ho: The present internal control system in first bank of Nigeria PLC cannot prevent fraud.
    Hi: The present internal control system in firs bank of Nigeria PLC can prevent fraud.

1.7 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.

Chapter Five


5.0 Discussion of Findings, Conclusion and Recommendation

5.1 Discussion of Findings

The study examined the internal control system of the financial institutions as it relates to the prevention and detection of fraud.

The study was specifically undertaken to assess the effectiveness of financial institutions internal control system for prevention of fraud.

The information obtained form the study indicated that First Bank of Nigeria Plc Enugu main undertakes various internal control measures to detect and prevent fraud such measures are adopted as follows;

  1. Proper control over the custody of the bank vault by at least two Bank officials.
  2. Effective periodic check by inspectorate department.
  3. Periodic rotation of bank staff.
  4. Periodic review of records and accounts by sectional heads
  5. Limit to amount of loan and overdraft granted and proper authorization of such
  6. Periodic review of Bank operation or activities by external inspector.
  7. Regular review of the accounts of Bank staff.
  8. Regular classification of dormant account
  9. Review of fixed deposit accounts.
  10. Check of the foreign exchange transaction
  11. All bank instruments such as bank cheque, draft, certificate of deposit etc are under the control of at least two bank officials.

Other control measure adopted by the banks which were identified in this study includes:

  1. Arrangements to ensure that all vouchers and instruments carry at least two signatures.
  2. Segregation of functions
  3. Retention of passport size photograph of bank’s customers within the bank.
  4. Maintaining a signature and containing the signature of the bank customers
  5. Call order – where figures recorded against voucher/document are confirmed by checking the entries against the voucher/document.
  6. Use of regiscope camera to take the photograph of person withdrawing large sum.
  7. Installation of close circuit television to check the activities of the bank customers and of the bank staff.

The findings of this study suggested that in the present world of technology and sophistication in the method of perpetrating fraud, the present internal control system in the bank is adequately effective and capable of controlling and preventing fraud.


5.2 Conclusion

Having come to an end of this study; it is the opinion of the researcher, that for accelerated banking development in Nigeria there should be a sound basis for internal control system. By this, I mean that the system should be appropriate, adequate and effective.

Also, the management of the First Bank of Nigeria Plc Enugu main should be at alert so as to discover and eliminate any possible loopholes; that may arise in their internal control system.

Since the perpetrators of these frauds are always discovering now ways of carrying out tier activities, the management of the bank should also try to establish the research and development department that will ensure regular research and review of the operations of the internal control system; to keep pace with the increasing mental sophistication of the society.

This periodic review, in addition to staff qualities are seen as bedrock in maintaining a sound system of internal control.

Furthermore, the study has proved that the present internal control system as practiced in financial institutions are appropriate, adequate and effective with regard to the prevention of fraud.

However, more operating movements are still vital to make it more effective. Finally, I am of opinion that with careful application of recommendations of this study, the internal control system of our financial institution will be made more effective. This will reduce the economy loss suffered by the banks and their. Customers whenever there is a case of fraud.


5.3 Implication of Research Findings

First Bank of Nigeria Plc Enugu main has a well established internal control system 100% of the respondents to the questionnaire accepted that there is an effective internal control system. The major responsibility of the internal control is to measure and evaluate the continuous effectiveness for the internal control and report to the management if there is any deviation.


5.4 Recommendation

Based on our findings in this study, the following recommendations because apparent to eliminate the problems encountered by the bank in ensuring strict compliance with the internal control system for prevention of fraud in financial institutions.

i. Increasing the Staff Strength of Financial Institutions:

Financial institutions are increasing and diversifying their areas of operation, day after day. However, adequate provisions are not made to increase the staff strength of the bank understudy to take account of the increase in operations.

The implementation is that they overlook certain rules in their attempt to meet up with work in the little time they have I recommend that the financial institution should increase their staff strength. This will help to reduce the work load of the staff and allow more time for the procedures involved in any transaction to be fully applied. This will help to ensure strict compliance with the internal control measures and eliminates the problems of insufficient time arising from large volume of work performed by two staff.

ii. Recruitments of Professionals in the Field of Banking

One of the major problems that hinder the strict compliance to the internal control system of the financial institutions is that of insufficient professionals in the field. Some internal control measures adopted by banks are not strictly complied with, because of the lack of adequate knowledge of such control measures. This problem will however be eliminated where professional are recruited to maintain the key position of the bank.

It is therefore, my opinion that the bank should recruit professionals to take up key positions as they will help to ensure strict compliance with the internal control system.

iii. Provision of Additional and More Sophisticated Equipments in the Bank

The result of my findings showed that some financial institutions do not have sufficient equipment to improve their checks against fraud. Such equipment should include computers, closed circuit televisions, regiscope cameras etc. where they are available; they help to place a check on the perpetrators of fraud.

The unavailability of the equipments creates a gap in banks internal control system. The bank should therefore make provision for such equipments to be made available in sufficient number. This will help in the strict compliance with the laid down internal control system.

iv. Providing Assistance to the Bank Staff in Solving Some of Their Personal Problems

The bank should map out strategies geared forward providing assistance to their personal problems. This will create a sense of commitment in their staff. They will have a sense of belonging; thus ensuring strict compliance with the banks internal control system.

v. Call Over

The bank should ensure regular call over of ledger. The branch manage should try to be involved in the call over especially as it concerns the general ledger and sight draft register. At the end of every call over exercise, the ledger checked and the jotter should be signed by official carrying out such duties.

vi. Dormant Account

To avoid any fraudulent attempt on them, dormant accounts should be subjected to regular balancing. Also, they should be kept under lock and key.

vii. Proper Maintenance of Open and Closed Account Register

In order to ensure an effective control over the open and close account. These account registers should always be maintained so that the number of line account in the bank can always be known.

In order to minimize the issue of missing ledger cards and other books o accounts, efforts should be made to Control the movement of ledger cards and other books of accounts. Staffs should stopped from carrying ledger cards and other books of account from one section to another in the name of balancing or going home with ledge cards or any other books of accounts. This can help in minimizing the chance of manipulation.


5.5 Limitations of the Study

This study concentrates solely on the financial institutions and focuses on first Bank of Nigeria PLC Enugu main.

A very detailed research work was not possible as a result of some limitations such as:

  1. Shortage of time and financial constraint
  2. The major part of this limitation is as a result of secrecy of banks in Nigeria. Banks in Nigeria do not let out information to people /outsider easily especially researcher. This is because other people can make reference to the research work and use the information against the bank.
  3. The sample size required:- To reach the quality of the people required for the study took quite time and, of course, when some were reached, they turned out to be interested to help out for want of time may not help.
    However, the researcher was finally able to reach enough samples size whom the questionnaires are administered.

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