CHAPTER
ONE
1.0.
INTRODUCTION:
Banks
occupy a critical position in a complex financial system that supplies the
money and credit needs of the economy.
The unique characteristic of a commercial bank is that it also creates
money, and it is this particular feature of the commercial banks which distinguishes
them from non-banking financial institution.
However, all take part in the process of financial intermediation
whereby such intermediaries also provide considerable benefits to borrowers in
so far as there may be difficulties in locating potential savers who are
willing to lend appropriate amount of funds at relevant interest rate.
Banks’
ability to promote growth and development depends on the extent to which
financial transactions are conducted with trust and least risk. The foundation on which banks is built is on
confidence and trust, and where banks indulge in unsafe and unsound confidence,
such banks may collapse. So, for banks
to achieve objectives and as well as generating overall confidence, the
INTRODUCTION AND ESTABLISHMENT OF INTERNAL CONTROL must come in to promote
efficient operation. Internal control
system therefore serves as a sine-quanon for FRAUD PREVENTION. Internal control is a creation of management,
thus, the management retains sole responsibility for the establishment and
maintenance of adequate and functional internal control.
1.1.
BACKGROUND
TO THE STUDY
Banks play very important roles in the
economic development of any country. As
an important component of the financial system, banks channel scarce resources
from surplus economic units to deficit units.
Thus, to an appreciable and reasonable extent, they exert a lot of
influence on the pattern and trend of economic development through their
lending and deposit mobilization activities.
The efficient mobilization of savings and its allocation of productive
investment by financial institution, thereby promote economic growth and development
as well as achieving their objectivities, profitability and solvency. All the aforementioned benefits that banks
can exert on the economy as a whole can be achieved through an effective
internal control system and fraud prevention in the banking industry.
In the words of A.H. Millechamp (2000),
“Internal Control system is an independent appraisal function within an
organization for the review of system of control and the quality of performance
as a service in the organization.
The Institute of Chartered
Accountant of England and Wales (ICAE& W) defines it as a review of
operations and records, sometime continuous undertaken with a business by a
specially assigned staff.
Internal control, therefore is a whole
system of controls, financial or otherwise, established by the management in
order to carry out the business of an enterprise in an orderly and efficient
manner, ensure adherence to management policies, safeguard the assets and
secure as far as possible the completeness and accuracy of record.
Fraud, on the other
hand is defined by Anyawu (1993) as an act of deception deliberately practiced
to gain unlawful or unfair advantage to the detriment of another. The international standard on Auditing (ISA)
defines fraud as an intentional act by one or more individuals among
management, those charged with governance, employees or third parties involving
the use of deception to obtain an unjust or illegal advantage. Fraud may include: manipulation,
falsification or alteration of documents and records; recording transaction
without substances, intentional misapplication of accounting policies etc. just
to mention a few.
Therefore, the menacecalled
fraud has been a deadly disease that has infected many financial corporate body
particularly the banks which led to the recent reformation in the banking
industry in Nigeria, thus, involving the process of business combination in the
industry such as merger and acquisition whereby the infected banks are being
merged to and/or acquired by the healthy and sound ones. This reformation has obviously pointed
out. The enormous damage that fraud has
done to the banks, thus, the dilution in the financial strength of Nigeria
banks.
To combat this syndrome
of fraudulent practices, several measures have been identified as the way out
to minimize this act. Internal control
system is one of the many measures that are to be discuss in chapter 2 of this
research work. Internal Control System
has been the most single trusted and effective measures that can combat this
act of malpractices to the barest minimum.
Infact, the Central Bank of Nigeria (CBN) reported that the backward
development in Nigeria was attributable to the weakness in the Internal Control
System of the banks. Therefore, an
attempt to bring to barest minimum, if not completely eradicated, the spate of
fraud by the measure of internal control system gave rise to this research
study.
1.2.
STATEMENT
OF THE PROBLEM
Following the recent failure of
some banks that led to the reformation in the banking industry, the confidence
of the bank customer, that is savers of fund, and of the lenders of money from
bank has been lost. Attributed to the
failure is also the weakness in the Internal Control System and the prevalence
of fraudulent practices among staffs and management of the bank.
An
effective internal control system and good system of fraud prevention will
ensure efficient mobilization of savings and its allocation to productive investment,
thereby promoting growth and development, as well as achieving their
objectives, profitability, solvency and ultimately restores the lost confidence
of customers and lenders overtime.
However, the system of internal control is mainly the function of
management to establish such, and the ultimate aim of this is to minimize and
prevent the occurrence of fraud in the bank, thus
It
should be noted however that fraudulent practices in the banks is usually cause
through lapses or inadequacies which manifested in various ways. Therefore, there is need for the bank
management to ensure that the internal control system is very strong as much as
possible to cover those lapses and inadequacies which manifested in various
ways known to them.
1.3. RESEARCH QUESTIONS:
For the purpose of this study, the
following are some of the problem-solving questions that may come up during the
course of carrying out this study. The
following are the research questions which will aid the understanding and
efficient study of the problem.
(a) Does the Internal Control System have impact
on the overall management of banks?
(b) Can
the Internal Control Systems of bank ensure fraud prevention and detection?
(c) Can
an inadequate internal control system cause perpetration of fraud?
(d) Can
strong internal control system fish-out actors that contributed to incidence of
fraud in banks?
1.4.OBJECTIVES
OF THE STUDY
The general objective of the study
is to assess the impact of Internal Control System as a means to minimize and
prevent the occurrence of fraudulent practices in any form.
These
objectives of the study are as follows:
(a) To determine the impact of Internal Control
System on the overall management of Nigeria banks
(b) To
examine the impact of the Internal Control system on fraud prevention and
detection.
(c) To
highlight the major causes of fraud and actors that contributed to the
incidence of fraud in banks.
1.5.
SIGNIFICANCE OF THE STUDY
Establishment of an adequate
Internal Control and its effective review and assessment by the management will
go a long way in preventing fraudulent acts and practices among the fraudsters
within the banks and other third parties.
The usefulness and the expected benefit of the study to the banking
industry entail the following:
(i)
It will help in knowing and studying how the
principles of Internal Control Components or elements are used to prevent
fraud.
(ii)
The study will also
unveil the lapses and inadequacies in the bank open to fraudsters within and
outside the banks.
(iii)
The study will help to
review fraudster’s mode of operation and thereby recommend ways to avert their
operations through the use of internal control system.
(iv)
It will also result in
reduction in an attempt to defraud by the management and staff as a result of
lay-down expected punishment.
(v)
It will also enhance
customers’ confidence and trust in the banking industry as a result of strong
internal control being put in place.
(vi)
This study will
ultimately help in promoting economic growth and development as a result of
efficient mobilization of savings thereby enhancing profitability and solvency
in the bank, all of which are achievable through implementation of strong
system of internal control.
1.6. SCOPE
OF THE STUDY.
The
scope of the study will be limited to how Internal Control System will be used
as an effective means to prevent fraud, thus, an essential system have to be in
place before fraud can be minimize and prevented. Although, information from bank on internal
control and fraud are difficult to obtain since they are regarded as sensitive
issues which cannot be provided without caution because it is mainly to protect
the image of the bank and not to erode depositors’ confidence. On these circumstances, attention is focus on
Guaranty Trust Bank Plc., Lagere Branch, Ile-Ife, in order to obtain easy accessibility
of information. Also, it is believe that
this type of study will expose the inadequacy and lapses in the bank with the
presence of Internal Control system and this will be a possible suggestion for
greater improvement, not only in Guaranty Trust Bank, but on all banks as a
whole, other financial institutions and the economy at large.
1.7. LIMITATIONS OF STUDY
The study was confronted with many
problems, among these are:
1. Inability
of the researchers to get to the respondents due to bureaucracy.
2. Not
all the questionnaires’ distributed for administering was returned.
3. Insufficient
time on the part of the researchers to do proper evaluation.
4. Responses
were not given to some questions in the questionnaire regarded as internal
issues.
The following limitations had made
proper evaluation of Internal Control System as a means of fraud prevention
difficulty in Guaranty Trust Bank Plc.
1.8. DEFINITION OF RELATED TERMS
1. INTERNAL
CHECK: Is the aggregate of the
checks and balances imposed on day to day transaction in an organization
whereby the work of one person is verified independently or in complimentary to
the work of another.
2. INTERNAL AUDIT: Is an independent appraisal function
established by the management of an organization for the review of Internal
Control System as a service to the organization.
3. INTERNAL CONTROL: This is a whole system of control, financial
or otherwise, established by the management in order to carry out the business
of an enterprise in an orderly and efficient manner, ensure adherence
to;management policies, safeguard the assets and secure as far as possible the
completeness and accuracy of records.
4. FRAUDSTERS: These are the people who commit frauds.
5. FRAUD: This is a crime involving cheating somebody
in order to get money or goods illegally.
6. ERROR: This is an unintentional; mis-statement in
the financial statement. It is an act
done without the intention of committing the act.
7. IRREGULARITIES: This is an Intentional distortion of the bases
of preparing the financial statement. It
is act an error since it is a deliberate act and also not a fraud since
personal benefit may not be the objectives.
The end product of irregularities is fraud.
================================================================
Item Type: Project Material | Attribute: 112 pages | Chapters: 1-5
Format: MS Word | Price: N3,000 | Delivery: Within 30Mins.
================================================================
No comments:
Post a Comment