Internal Control System And Fraud Detection In G. Z. Industries, Area 5 Iperin Gate Opic Industrial Estate, Agbara Ogun State

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Internal Control System And Fraud Detection In G. Z. Industries, Area 5 Iperin Gate Opic Industrial Estate, Agbara Ogun State

Abstract

This study was carried out to examine internal control system and fraud detection in G. Z industries, area 5 Iperin Gate Opic industrial estate, Agbara Ogun State. The study was carried out to find out the prevalent of fraudulent activities in G. Z. industries, Agbara Ogun State, ascertain forms of fraudulent activities common in G. Z. industries, Agbara Ogun State, determine the factors influencing prevalence of fraudulent activities in G. Z. industries, Agbara Ogun State, find out if internal control system plays a significant role in detecting frauds in G. Z. industries, Agbara Ogun State and ascertain whether the effectiveness of internal control system determines the extent of fraud detection in G. Z. industries, Agbara Ogun State. The survey design was adopted and the simple random sampling techniques were employed in this study. The population size comprise of employees of G. Z industries, Agbara Ogun State. In determining the sample size, the researcher conveniently selected 41 respondents and 35 were validated. Self-constructed and validated questionnaire was used for data collection. The collected and validated questionnaires were analyzed using frequency tables and mean scores. While the hypotheses were tested using Pearson correlation statistical tool, SPSS v23.The result of the findings reveals that the prevalent of fraudulent activities in G. Z. industries, Agbara Ogun State is high. The study also revealed that the forms of fraudulent activities common in G. Z. industries, Agbara Ogun State includes: duplication of purchase order (P.O.) and invoicing, use of fake seals on dispatched goods, stealing of packaging materials on transit and initiating multiple waybills for the same job. Therefore, it is recommended that there should be clear, consistent and comprehensive policies and procedures for all the activities of the manufacturing industry staff. To mention but a few.

Table of Content

  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Sample Size Determination
  • 3.4 Sample Size Selection Technique and Procedure
  • 3.5 Research Instrument and Administration
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Validity of the Study
  • 3.9 Reliability of the Study
  • 3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Answering Research Questions
  • 4.4 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • APPENDIX
  • QUESTIONNAIRE

Chapter One

Introduction

1.1 Background to the Study

Every organisation has a raison d’être, which includes making products or rendering certain services at a price. They have employees ranging from a small to a large number depending on their sizes. The products manufactured or services rendered are meant to yield profit in the case of profit-making organisations. From the foregoing therefore, there is the need for all organisations to adopt a good principle, practice, policy, structure and an effective system of checks and balances as these cannot be over-emphasized due to the simple truth that they keep the organisation moving along the desired lines as per the wishes of the owners while also protecting the assets of the business leading to today’s successful business continuity in just about any economy.

The safety of assets is a major concern for investors and stakeholders of companies, both in public and private institutions. This is because they transfer their control rights to the managers, who act in the best interest of the principal. This separation of ownership from control however, implies a loss of effective control by shareholders over managerial decision which brings about such concerns for their investments (Oguda, Odhiambo & John, 2015). These concerns are not however unwarranted, as such separation of ownership from control increases the likelihood of fraud occurrence. Fraudulent activities have a devastating effect on a company and as a result, companies need to adopt an effective mechanism to curb or prevent the occurrence of such activities. It is therefore important that good governance and accountability practices are adopted to achieve the organizational goal of safeguarding shareholders assets and wealth maximization.

However, an effective internal control cannot help an entity achieve all these objectives. It can only provide management with information about the entity’s progress, or lack of it, toward their achievement. A wide range of research has established that effective internal control system has a positive and significant effect on fraud prevention. However, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO, 2013), internal control system can only be considered effective if its components are present and effective for operations, financial reporting and compliance. The top management is saddled with the responsibility of ensuring that internal control system is adequate. Therefore, the attitude of such top management will determine the success of the internal control system.

1.2 Statement of the Problem

Fraud has assumed a wider dimension touching almost all part of an organization. Fraud is not limited to the financial sector alone, organization precisely manufacturing industries as a focus relating to this research exercise and organization not left out. Fraud therefore has an instrument with which it is committed, such instrument include the employee’s, consumers, debtors, the computers etc, which are used in the perpetration of the fraud. In trying to probe further why some of these fraudulent activities today are prevalent in many organization, Osaka(2013) claimed that the major causes are; dishonest staff, breakdown of the internal control system of the organization, ineptitude in handling cases of fraud in the organization, loose and ineffective security system in the organization and many more. It is therefore important to say that appropriate measures have to be introduced to minimize the problem.

Inefficient management and poor composition can encourage fraud in the industry. Ineffective management policy has lead to an increase in the level of fraud witnessed as well as lack of proper supervision which has lead to most of the fraud witnessed in the industries. However, fraud prevention has become an issue that some manufacturing companies find themselves faced with. Internal control is the tool which companies hope to adopt in combating employee fraud. In the light of the above, this study seek to examine internal control system and fraud detection in G. Z. industries, Ogun State.

1.3 Objectives of the Study

The major of this study is to critically examine internal control system and fraud detection in G. Z. industries, Agbara Ogun State.

By extension, this study will specifically;

  1. Find out the prevalent of fraudulent activities in G. Z. industries, Agbara Ogun State.
  2. Ascertain forms of fraudulent activities common in G. Z. industries, Agbara Ogun State.
  3. Determine the factors influencing prevalence of fraudulent activities in G. Z. industries, Agbara Ogun State.
  4. Find out if internal control system plays a significant role in detecting frauds in G. Z. industries, Agbara Ogun State.
  5. Ascertain whether the effectiveness of internal control system determines the extent of fraud detection in G. Z. industries, Agbara Ogun State.

1.4 Research Question

The study will be guided by the following questions;

  1. What is the prevalent of fraudulent activities in G. Z. industries, Agbara Ogun State?
  2. What are forms of fraudulent activities common in G. Z. industries, Agbara Ogun State?
  3. What are the factors influencing prevalence of fraudulent activities in G. Z. industries, Agbara Ogun State?
  4. Does internal control system play a significant role in detecting frauds in G. Z. industries, Agbara Ogun State?
  5. Does the effectiveness of internal control system determine the extent of fraud detection in G. Z. industries, Agbara Ogun State?

1.5 Research Hypotheses

  • Ho: There is no significant positive relationship between internal control system effectiveness and the extent of fraud detection in an industry.
  • Ha: There is a significant positive relationship between internal control system effectiveness and the extent of fraud detection in an industry.

1.6 Significant of the Study

The significance of this study is concerned with educating industries faced with fraudulent distress to restructure the organization from falling into liquidation because of weak internal control system. Practicing accountants and mangers will also find this study useful because, not only will it help to add to their knowledge, it will aid higher productivity and efficient remark.

1.7 Scope of the Study

This study is structured to generally examine the internal control system and fraud detection in G. Zindustries, area 5 iperin gate opic industrial estate, Agbara Ogun State.The study specifically seeks to find out the prevalent of fraudulent activities in G. Z. industries, Agbara Ogun State, ascertain forms of fraudulent activities common in G. Z. industries, Agbara Ogun State, determine the factors influencing prevalence of fraudulent activities in G. Z. industries, Agbara Ogun State, find out if internal control system plays a significant role in detecting frauds in G. Z. industries, Agbara Ogun State and ascertain whether the effectiveness of internal control system determines the extent of fraud detection in G. Z. industries, Agbara Ogun State. The respondents of this study will be obtained from the staff of G. Z. industries, Agbara Ogun State.

1.8 Limitation of the Study

Like in every human endeavour, the researcher encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. More so, the researcher simultaneously engaged in this study with other academic work. As a result, the amount of time spent on research will be reduced.

1.9 Definition of Terms

Forgery:

The creation of a false written document or alteration of a genuine one, with the intent to defraud.

Fraud:

In criminal law, fraud is intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent.

Internal Control:

In accounting and auditing, internal control is defined as a process affected by an organization’s structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives. It is a means by which an organization’s resources are directed, monitored, and measured.

1.10 Organisations of the Study

The study is categorized into five chapters. The first chapter presents the background of the study, statement of the problem, objective of the study, research questions and hypothesis, the significance of the study, scope/limitations of the study, and definition of terms. The chapter two covers the review of literature with emphasis on conceptual framework, theoretical framework, and empirical review. Likewise, the chapter three which is the research methodology, specifically covers the research design, population of the study, sample size determination, sample size, and selection technique and procedure, research instrument and administration, method of data collection, method of data analysis, validity and reliability of the study, and ethical consideration. The second to last chapter being the chapter four presents the data presentation and analysis, while the last chapter(chapter five) contains the summary, conclusion and recommendation.

Chapter Five

Summary, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on internal control system and fraud detection in G. Zindustries, area 5 iperin gate opic industrial estate, Agbara Ogun State. The chapter consists of summary of the study, conclusions, and recommendations.

5.2 Summary of the Study

In this study, our focus was to examine internal control system and fraud detection in G. Zindustries, area 5 iperin gate opic industrial estate, Agbara Ogun State.The study is was specifically carried out to find out the prevalent of fraudulent activities in G. Z. industries, Agbara Ogun State, ascertain forms of fraudulent activities common in G. Z. industries, Agbara Ogun State, determine the factors influencing prevalence of fraudulent activities in G. Z. industries, Agbara Ogun State, find out if internal control system plays a significant role in detecting frauds in G. Z. industries, Agbara Ogun State and ascertain whether the effectiveness of internal control system determines the extent of fraud detection in G. Z. industries, Agbara Ogun State.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 35 responses were validated from the enrolled participants where all respondent wereemployees of G. Zindustries, Agbara Ogun State.

5.3 Conclusions

Based on the findings of this study, the researcher concluded that;

  1. The prevalent of fraudulent activities in G. Z. industries, Agbara Ogun State is high.
  2. The forms of fraudulent activities common in G. Z. industries, Agbara Ogun State includes: duplication of purchase order (P.O.) and invoicing, use of fake seals on dispatched goods, stealing of packaging materials on transit and initiating multiple waybills for the same job.
  3. The factors influencing prevalence of fraudulent activities in G. Z. industries, Agbara Ogun State includes: ineffectiveness of internal control unit, loading of scrap, high level of staff dishonesty, staff advance payment restrictions and workers disloyalty to the organization.
  4. Internal control system play a significant role in detecting frauds in G. Z. industries, Agbara Ogun State.
  5. The effectiveness of internal control system determine the extent of fraud detection in G. Z. industries, Agbara Ogun State.

5.4 Recommendation

Based on the findings the researcher recommends that;

  1. Management composition should be efficient enough to check and control fraud.
  2. There should be clear, consistent and comprehensive policies and procedures for all the activities of the manufacturing industry staff.
  3. Remuneration should be received to meet up the present standard of living.
  4. Recruitment should be through a more rigorous and aggressive examination and not on nepotism.
  5. There should be punitive legislation against perpetrators of fraudulent activities in the industries.
  6. Among all, since it is discovered from over research work that fraud hardly succeed without the connivance of an insider, it is therefore advisable for industries to put proper systems of internal control to check fraudulent members of staff.

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