INTERNAL CONTROL SYSTEM AS A BASIS OF FRAUD PREVENTION AND CONTROL IN NIGERIA FINANCIAL INSTITUTIONS (A CASE STUDY OF FIRST BANK OF NIGERIA PLC ENUGU MAIN)
ABSTRACT
This research work was on the
internal control as a basis 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.
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.