– The Impact of Internal Control System on Prevention of Fraud in Commercial Banks –
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Abstract
Internal control systems can be described 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.
It involves the control environment and control procedure, all the policy and procedure adopted by the directors and management of an entity to assist in achieving their objectives, including adherence to internal policies.
The safe-guarding of assets, the prevention and detection of fraud and error as well as the completeness and accuracy of records, with the timely preparation of reliable financial information (Benjamin, 2011).
It is necessary that every bank must have an internal audit department to ensure that accounting systems provide an efficient means of recording and reporting financial transactions, providing management information and protecting the company’s asset from fraud and misappropriation (Achibong, 2013).
One of the most effective systems for detecting fraud is internal control, which is a system by definition, operating in the same environment as the fraud itself and serving as an effective, formidable adversary to the fraud scheme and that the definition of internal control, described as a process, framework, or function, do not touch upon systematic concepts (McShane, 2012).
The most widely used definition is that of the Committee of Sponsoring Organizations of the Tread way Commission (COSO,ICIF, 1994):
A process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: Effectiveness and 2 efficiency of operations, reliability of financial reporting, compliance with applicable laws and regulations. (COSO, ICIF, 1994).
TABLE OF CONTENTS
Title Page…i
Declaration….ii
Certification ……iii
Dedication………iv
Acknowledgements……….v
Abstract ………..vi
Table of Contents…..vii
List of tables……x
CHAPTER ONE: INTRODUCTION
1.1 Introduction…………..1
1.2 Background to the study……3
1.3 Statement of the problem……5
1.4 Objectives of the study……….6
1.5 Research questions…………..7
1.6 Statement of the hypotheses…..7
1.7 Significance of the study…………….8
1.8 Justification of the study……….8
1.9 Scope of the study………………8
1.10 Definitions of terms …………9
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction…………10
2.1 Conceptual frame work………12
2.2 Theoretical frame work…………….15
2.3 Literature on subject matter………20
CHAPTER THREE: METHODOLOGY
3.0 Introduction…….30
3.1 Area of study………30
3.2 Research design …..30
3.3 Population of the study..……31
3.4 Sample size determination…….31
3.5 Instrumentation……..31
3.6 Limitations of the study……32
CHAPTER FOUR: DATA ANALYSIS, FINDINGS AND DISCUSSION
4.0 Introduction….33
4.1 Findings of the study……34
4.2 Test of hypothesis…………44
4.4 Discussion of the findings……48
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction……49
5.1 Summary of findings…………49
5.2 Conclusion..…………49
5.3 Recommendations..…………….50
5.4 Proposal for further studies…………51
References………52
Appendix………………..56
INTRODUCTION
Background to the Study
A system of internal controls is a critical component of bank management and a foundation for the safe and sound operation of banking organizations.
A system of strong internal controls can 4 help to ensure that the goals and objectives of a banking organization will be met, that the bank will achieve long-term profitability targets, and maintain reliable financial and managerial reporting (Markowski & Mannan, 2012).
Such a system can also help to ensure that the bank will comply with laws and regulations as well as policies, plans, internal rules and procedures, and decrease the risk of unexpected losses or damage to the bank’s reputation.
The Basel Committee, along with banking supervisors throughout the world, has focused increasingly on the importance of sound internal controls.
This heightened interest in internal controls is, in part, a result of significant losses incurred by several banking organizations.
An analysis of the problems related to these losses indicates that they could probably have been avoided had the banks maintained effective internal control systems.
Such systems would have prevented or enabled earlier detection of the problems that led to the losses, thereby limiting damage to the banking organization.
REFERENCES
Adeduro A. A. (2014). “An investigation into Frauds in Banks” An Unpublished Thesis of Faculty of Social Sciences, Department of Accounting, University of Lagos, pp 42 – 49.
Achibong, E. F (2013). Fraud Control and Prevention; Who’s Duty?” The Nigerian Accountant, ICAN, Lagos.
Alleyne, P., Howard, M. (2011). An exploratory study of auditors responsibility for fraud detection in Barbado, Managerial Auditing Journal, 20(3), 284-303.
Benjamin, J. (2011). Internal Control and Fraud Prevention: The Account’s Perspective, Accountancy News Publication, Training Arm of ANAN Jos, 5, (1).
Chakrabarty, K.C. (2013), Fraud in the Banking Sector – Causes, Concerns and Cures. Being the Inaugural Address of Deputy Governor of the Reserve Bank of India, During the National Conference on Financial Fraud Organised by ASSOCHAM, New Delhi.
Committee of Sponsoring Organizations of the Treadway Commission on Internal Control & Integrated Framework (COSO) (ICIF), 1994.
Deloitte (2015) Indian Banks Fraud Survey Deloitte Touche Tohmatsu India, Journal.
Encyclopaedia Britannica. (2012). http://www.britannica.com/EBchecked/topic/217591/fraud. Retrieved April 01, 2010,
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