ABSTRACT
The aim of the study is to appraise the role of
internal audit in the management of fraud with special emphasis on Zenith Bank
Plc. The main objective of this study is to ascertain the role played by
internal audit in the management of fraud. The specific objectives include; (1)
to examine the role of internal audit in the detection of fraud, (2) to examine the role of internal audit in
the prevention
of fraud and (3) to examine the role of internal audit in the control of fraud. The study used
chi – square for the study. The study used simple survey while the data used was
primary data. The study found out that internal audit has helped in detecting
cash theft. Internal audit has helped in detecting cases of money laundering
by bank staff and internal audit has aided in detecting ilegal transactions
committed in the bank. The study recommended that management should establish
and implement periodic review of internal audit performance to ensure that its
performance and value to the Institution is maximized and to ensure compliance with
appropriate standards and guidance.
CHAPTER
ONE
INTRODUCTION
1.1
Background
to the Study
At the heart of business establishment, is
the audit function; which is evidenced by the fact that all other departments
are linked with the internal audit department. The importance of internal audit
system cannot be overemphasized where a variety of requirements, processes that
are both manual and information communication technology-based (ICT) are used.
Organizations such as the banking sector
have recognized internal audit function as a tool for ensuring effective
workings of the internal control system. Okolo (2011) describes the internal
audit function as an aspect of control mechanism, within a business, manned by
specially assigned staff.
In today’s volatile business environment,
firms in Nigeria face a wide array of complex business challenges. These
challenges come in the form of regulatory compliance, litigation, competitive
market pressure, changing technology, investors demand, corporate governance,
business ethics and accountability. In a business environment, anyone given the
opportunity and the environment can commit fraud. The internal audit staff, in
a non-automated or particular environment, may be ill-positioned to investigate
fraud. It is established that an internal audit staff who is professionally
certificated with the right motivation and training can contribute to the
efficiency and effectiveness of the audit department.
Oseni (2014) reveals that an effective
internal audit function reduces overheads, identify ways to improve efficiency
and minimize exposure to possible losses. According to Lavy (2008), the
internal audit provides an independent and objective appraisal of activity for
management. Katz (2012) summarizes the core activities of the internal audit as
analysis of data, recommendation,counsel and information activities. He
argues that these activities operate to accomplish the mission of
organizations. Young (2010) finds out that the internal audit functions assist
management in achieving organization’s financial and operating goals by
evaluating controls, identifying weaknesses, and providing recommendations
through complete and unrestricted access to records, property and personnel.
However, in Nigeria, the audit function in
the banking sector has not been fully tapped; consequently, cases of errors and
intent to defraud and other fraud cases exist in the industry. It is therefore
no wonder that the distress in most banks reflected lack of effective control
mechanism of the audit function. The experiences of failed banks in Nigeria,
have called for the reinforcement of internal audit and the strengthening of
the controls system. This becomes relevant, given the fact that the banking
sector is critical to the survival of any economy. In the light of the above,
this study critically appraises the role of internal audit in the management of
fraud.
1.2 Statement of the Problem
The duty of detecting
fraud and irregularities lies with the management. This could only be done
through an effective and efficient internal audit system. But even with the
presence of the internal auditor some problems are still inherent in the
Nigerian banking sector that interferes with goal attainment. These include:
i.
Physical cash stolen while signatures are forged in cheques also
to steal cash. Out if untimely or inappropriate audit, there are cases of
monetary losses due to forged cheques.
ii.
Assets are either misappropriated or not accounted for. Due to
ineffectiveness of internal auditors cases of assets misappropriation sometimes
occur in the banking sector.
iii. Frauds
perpetuated are only being discovered after a long time. Internal auditors can
decide not to reveal the fraudulent activities of staff or management. Such
actions are mostly discovered by external auditors after a long while.
Due
to the above enumerated problems, there have been cases of errors and intent to
defraud and other fraud cases which exist in the banking sector. This has been
mainly as a result of lack of effective control mechanism of the audit
function.
1.3 Objectives
of the Study
The broad objective of this study is to appraise the role of internal
audit in the management of fraud with special emphasis to Zenith Bank Plc.
The
specific objectives include the following:
i. To examine the role of internal audit in
the detection of fraud in Zenith Bank Plc.
ii.
To examine the
role of internal audit in the prevention of fraud in Zenith Bank Plc.
iii. To
examine the role of internal audit in control of fraud
in Zenith Bank Plc.
1.4
Research
Questions
The following questions are stated for this study:
1. To what extent does internal audit aid in
the detection of fraud in Zenith Bank Plc?
2.
To what extent does internal
audit aid in the prevention of fraud in Zenith Bank Plc?
3.
What is the role
of internal audit in thecontrol of fraud in Zenith Bank Plc?
1.5
Research
Hypotheses
The following hypotheses are formulated for the study:
HOI: Internal audit has no significant role in
the detection of fraud in Zenith Bank Plc.
HAI: Internal audit has significant role in the
detection of fraud in Zenith Bank Plc.
HO2: Internal audit has no significant role in
the prevention of fraud in Zenith Bank Plc.
HA2: Internal audit has significant role in the
prevention of fraud in Zenith Bank Plc.
HO3: Internal audit has no significant role in
the investigation of fraud in Zenith Bank Plc.
HA3: Internal audit has significant role in the
control of fraud in Zenith Bank Plc.
1.6
Significance
of the Study
The findings of this work will be of immense significance to the
banking sector in Nigeria. It
will go a long way in enlightening them on the concept of internal audit as
well as its role in the management of fraud.
It
will also benefit other organizations. The findings from this study will aid
them to apply better internal auditing strategies or effective control
mechanisms in checking fraud in their diverse organizations.
It
will as well benefit the general populace. They will be enlightened on the
concept of internal auditing as well as its roles.
Students
and researchers will as well benefit from this study. They will widen their
scope from the information contained in this study.
1.7
Scope of the Study
Internal
audit covers a large area in every organization. However, this study will
concentrate only on the aspect that concerns fraud detection, fraud prevention
and fraud control. Other aspects of internal control will be considered in this
study.
1.8
Definition
of Terms
Auditing:Auditing is a branch of accounting concerned with the
efficient use of resources to achieve a previously determined objective or set
of objectives contained in a plan (Obazee, 2012).
Internal Audit:Internal auditing is the whole system of
auditing, financial and otherwise, intended to secure management information
and reliability of accounting records (Gbenga, 2011).
Bank Fraud:Bank fraud is defined
as the use of fraudulent means to obtain money, assets, or other property owned
or held by a financial institution, or to obtain money from depositors by
fraudulently representing to be a bank or financial institution (Daniel, 2012).
Internal Control System: This is
defined as the whole system of control,
financial and otherwise established by management in order to carry on the
business of the enterprises in an orderly and efficient manner (Beattie, 2006).
Bank:A bank
is a financial intermediarythat accepts deposits and channels those deposits into lendingactivities, either directly by
loaning or indirectly through capital
markets (Doolan, 2009).
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