THE EFFECT OF AUDIT AND INTERNAL CONTROL IN FRUAD PREVENTION

AND ACCOUNTABILITY A CASE STUDY OF ADO-ODO OTA LGA OGUN STATE

Abstract
The study examines the effect of audit and internal control in fraud prevention and
accountability a case study of Ado-Odo Ota LGA Ogun State. The study sampled the opinion
of 400 staff of selected fro. The data was collected with questionnaire and analysed with
mean statistics. The study concluded that there is significant impact of audit procedure on
detection of fraud in selected banks in Nigeria. Internal audit help identify unusual
transaction before they happens and there are significant impact of audit procedure on
prevention of fraud in selected banks in Nigeria. Based on the findings and conclusions of
this study, the following recommendations are proposed to enhance the effectiveness of
internal audit procedures in fraud prevention in selected banks in Nigeria: Banks should
enhance their internal audit departments by providing adequate resources, training, and
technology to improve fraud detection and prevention. Banks should integrate real-time
fraud detection systems that allow internal auditors to identify unusual transactions before
they occur. Management should conduct frequent and surprise audits to reinforce
accountability and discourage fraudulent activities among employees.

CHAPTER ONE
INTRODUCTION

1.1 Background to the Study

The phenomenon of fraud or fraud is certainly not a new thing for all

organizations. Fraud is one of the most frequent problems and experienced by all

organizations and companies. Criminal acts in the banking sector are certainly increasingly

diverse both in terms of form and method. The rapid development of technology has made
many parties abuse its ability to commit fraud. The number of fraud cases that occur in

the banking world seems endless. Internal parties are also known to be the most dominant

perpetrators of fraud among other parties. Therefore, an internal control system is

needed to supervise the course of a company's activities called an Internal Audit and

internal control system.

The rising number of fraudulent incidents in Indonesia has become a significant issue

for the government and the community. Fraud prevention is a cost-effective endeavor that

combat fraudulent activities. It is comparable to illness prevention, as preventing fraud is

more efficient than dealing with its consequences. There are three types of fraud. The first is

the misappropriation of assets, which refers to the theft of an organization’s assets.

Furthermore, the deliberate inclusion of inaccurate information or purposeful withholding of

relevant details on financial statements mislead the users of said statements. Thirdly,

corruption refers to exploiting one’s position inside the government sector for personal

benefit. The internal audit function is crucial in overseeing activities, guaranteeing the

effectiveness of the antifraud control program, and detecting and preventing fraud through its

actions. Regular internal audits will minimize and prevent fraud, errors, and detrimental

activities that affect an organization. Internal audits in government institutions or agencies

have yet to achieve maximum efficiency. The occurrence of fraud cases within the Nigeria

government can be which permits unrestricted re-use, distribution, and reproduction in any

medium, provided the original work is properly attributed to the deactivation of the detection

system and internal audit within the region. This includes the non-functioning of the regional

supervisory body, which is compromised by the presence of individuals who have been

exiled or are nearing retirement. Besides internal audits, internal control is also a factor that

affects fraud prevention. Efforts to protect against misuse of company/organization assets or

property, including policies and procedures, ensure that the accounting information available
in the company/organization is accurate, and ensure that all employees comply with and

enforce all provisions (regulations) of the law/laws on internal control. Quality public sector

audits must support good government financial management. If the quality of public sector

audits is low, it will likely provide leeway for government agencies to commit budget

irregularities. In addition, it raises the risk of lawsuits against government officials who carry

it out.

This makes audit quality difficult to measure, making it a sensitive issue for

individual audit practitioners. Audit results are said to be of quality if the audit examination

adds weight to accountability and provides evidence of deviation from audit standards.

A US-based organization for internal auditors, defines fraud as a series of prohibited

actions that contravene the law and are marked by a deliberate intent to deceive (IIA, 2016).

Fraud is an act of intentional deception or misrepresentation carried out with the purpose of

cheating or misleading others. Individuals within and outside an organization can perpetrate it

(Lin et al., 2022). Moreover, fraud encompasses intentional error, masking of significant

information, obliteration of evidence to support fraudulent activities, and manipulation

resulting in financial detriment to an individual or organization. Fraud comprises

embezzlement, theft, forgery, misuse, and deliberate evidence destruction (Hilal et al., 2022).

In broad terms, fraud can be described as an umbrella term encompassing various techniques

that individuals with a specific skill can employ to deceive others into parting ways with

valuable assets. No standard and permanent rules can be issued to define fraud, including

surprise, deception, or cunning and unnatural methods used to commit fraud. The only

boundaries for defining fraud are things that limit human dishonesty (Zimbelman et al.,

2012).
 Therefore, fraud is a deviant action or deed detrimental to the organization and

contrary to statutory regulations, which should be followed up for the organization’s survival.

Fraud prevention involves formulating policies, systems, and procedures to ensure that

committees, audit committees, management, and other relevant parties undertake the required

actions (Lukman & Chariri, 2023). The ability of an institution to ensure the achievement of

organizational goals, including reliable financial reporting, operational efficiency, and

compliance with policies and guidelines, is crucial (Teye et al., 2023). Preventing fraudulent

activities is a cost-effective approach to mitigating such occurrences. Preventing fraud is akin

to preventing a disease, where proactive measures are more effective than reactive ones

(Dzomira, 2015). Implementing fraud prevention measures is the most effective and

economically prudent way to counter deception. Therefore, it is crucial that everyone in an

organization actively supports and facilitates these efforts. Accordingly, fraud prevention is a

purposeful measure to eliminate opportunities or potential for fraudulent activities (Karyono,

2013). The main purpose of auditing financial reports in a company or organization is to

assess the accuracy of these reports (Francis, 2023).

Internal audit, as defined by the Association of Chartered Certified Accountants

(ACCA, 2013), plays a crucial role with significant benefits for businesses. An organization’s

mandatory function involves examining and evaluating operations as part of its institutional

service (Francis, 2023). The internal audit department evaluates an organization’s operations

alongside its involvement in other business activities, aiming to provide valuable services to

management. Alqudah et al. (2023) emphasized the importance of internal audits having

independence and objectivity. According to Barua et al. (2010), internal audits are conducted

to assist members of an organization in fulfilling their responsibilities by examining,

evaluating, and providing recommendations for effective oversight. The primary role of

internal audit includes providing services, such as advising and assisting management and
committees and conducting analyses and assessments. Internal auditors are responsible for

evaluating the effectiveness of the existing internal control system and ensuring

organizational compliance with policies outlined in established plans and procedures

(Alqudah et al., 2023).

In the context of governmental entities in Indonesia, the Government’s Internal

Supervisory Apparatus, as explained by Yusup and Rahadian (2023), is responsible for

conducting internal audits within the government. It oversees various tasks, including audits,

reviews, assessments, monitoring, and other supervisory activities related to organizational

duties and functions. An organized framework, known as internal control, empowers a

singular entity to oversee and regulate other elements autonomously (Glenardy et al., 2022).

Internal control involves a coordinated system of procedures and strategic planning used by

governmental entities to safeguard assets, optimize operational effectiveness, ensure the

precision and reliability of accounting information, and adhere to pertinent management

policies (Nurhayati et al., 2023). It comprises protocols and strategies to safeguard an

organization’s resources against potential exploitation, ensure accurate and comprehensive

financial data availability, and guarantee compliance with relevant legal mandates and

management strategies (Kartal et al., 2018).

Executed by the entity committee, management, and other stakeholders, internal

control is a systematic procedure designed to instill a reasonable degree of assurance in

achieving three primary objectives: (a) ensuring accurate and reliable financial reporting; (b)

enhancing the efficiency and effectiveness of operations; and (c) ensuring compliance with

relevant laws and regulations (Daniela & Attila, 2013). This conceptualization of internal

control transcends temporal limitations and remains an ongoing framework integral to

operational activities (Bouheraoua & Djafri, 2022). The internal control system plays a

fundamental role in overseeing an organization’s operational activities and should be

seamlessly integrated into the organizational framework as an indispensable element. A

unified internal control system enhances quality and proactivity, reduces unnecessary

expenditures, and enables timely responses to changing circumstances (Pattawe, 2023).

Audit quality is a systematic procedure for impartially acquiring and assessing

evidence related to assertions about economic activities and events. It seeks to ascertain the

alignment between these assertions and the established criteria and report the findings to

stakeholders (Mulyadi, 2014). Audit quality pertains to the likelihood that an auditor will

identify and disclose defects or anomalies in the client’s accounting system (Xiao et al.,

2020). A positive correlation exists between the level of audit quality and the confidence and

reliance of individuals reading financial reports. The capacity of audit quality to generate

reliable financial reports that serve as a robust foundation for decisionmaking is of paramount

significance (Rusmin & Evans, 2017).

Furthermore, the auditor’s efforts to deliver a reliable audit report conforming to

established criteria determine the quality of an audit (Yan & Xie, 2016). Building upon the

earlier definition, audit quality pertains to the systematic scrutiny carried out by an auditor to

validate the accuracy of a financial report, adhering to pertinent procedures. Audit quality is

contingent on contractual obligations and adherence to professional standards throughout the

auditing process (Deis & Giroux, 1992). Afrah et al. (2022) and Putra et al. (2022)

demonstrate a compelling and statistically significant association between internal audit

practices and the mitigation of fraudulent activities. Consequently, this linkage is robust,

indicating a substantive and dependable connection. This robust connection enhances internal

audit efficacy, fortifying fraud prevention measures within organizational contexts. This

elucidates the pivotal role of internal audits in overseeing corporate operations and

specifically deterring fraudulent acts.

 The level of financial impropriety among office holders and political class across the

globe has called for the attention of various scholars. The rate of corruption and decadence

that pervades many countries, especially in the African region, has rekindled interest on the

need for financial accountability and account for stewardship. In view of this, emphasis is

placed on financial accountability and efficient use of public funds across the globe. The act

of reporting to the public on operation performance is referred to as financial accountability.

The aspect of financial accountability that requires the government to handle finances and

other resources prudently is public financial accountability. It incorporates financial and non-

financial reporting, control budgeting and performance; report on expenditure incurred in

respect of public utilities in detail; and moral behaviour.

Financial accountability requires the public or private establishment to manage and

prepare financial reports and ensure openness in financial and non-financial reporting

(analysis), monitor the sustainability of benefit that accrue from its investments and fulfils its

performances reporting and fiduciary obligation to all stakeholders. It is beyond the technical

competence of managers in charge of finances and complete accountability encompasses the

thorough actions, attitudes and reporting correlation among all stakeholders. Public

accountability is stressed in the Nigerian Constitution, as it is a requirement of the law and

the establishment of internal control system (unit) is part of the efforts to make sure that there

is control in place.

The Constitution of the Federal Republic of Nigeria, 1999 through Section 47,

established the National Assembly for the Federation which consists of the Senate and House

of Representatives, while Section 90 of the 1999 Constitution established the House of

Assembly for each of the 36 states of the federation. The public service in Nigeria can be

grouped into three categories which are the core ministries, parastatals and the government

agencies. A number of the parastatals are semi-autonomous, while the majority of the
agencies are autonomous under the supervision of the government. The law sets up these

bodies to meet the ever-increasing wants and desires of the public. They are authorised by the

statue to be in charge of all moneys and control all incomes for the advantage of the totality

of the populace. Now, the big question is, are the public office holders in Nigeria abiding by

the standard of public accountability and freely rendering stewardship of their deeds, while

occupying government office?

This question becomes relevant because the citizens have the right to request for the

activities of their elected public officers and these elected public officers should be willing to

render explanation pertaining to their stewardship to the general public. For accountability to

be improved in the public sector, there is a need for internal control system to make sure that

correct procedures are put in place, maintained and followed to ensure that the financial and

management data are disclosed through quality and timely reports, safeguard the assets of the

organisation against obsolescence and deterioration, improve the efficiency of the

organization, in line with stated objectives. It must ensure that each person in the organisation

complies with the relevant laws, regulations, policies and stated directives, and finally, ensure

the completeness, accuracy and reliability of all the records. However, despite the efforts put

in place in Nigeria, to ensure accountability through internal control system, there is still

evidence of financial unfaithfulness and lack of proper accountability for public funds.

1.2 Statement of the Problem

In recent years, public sector accountability and fraud prevention have become critical

issues in Nigeria’s local government administration. The local government system, which is

the closest tier of government to the grassroots, has frequently come under scrutiny due to
cases of financial mismanagement, corruption, and poor accountability. The case of Ado-

Odo/Ota Local Government Area in Ogun State is no exception. Like many local government

areas across Nigeria, it has faced allegations and public concerns about lack of transparency

in financial transactions, inadequate internal control mechanisms, and weak audit practices.

These challenges not only hinder effective service delivery but also erode public trust in

governance at the grassroots level.

Audit and internal control systems are fundamental mechanisms in any financial

system designed to promote accountability, detect irregularities, and prevent fraudulent

activities. Audits help to independently verify financial records, while internal control

systems are instituted within organizations to ensure that financial activities conform to

policies, laws, and regulations. When effectively implemented, these tools serve as

safeguards against corruption and financial misappropriation. However, there is growing

concern that in many local government areas, including Ado-Odo/Ota, the effectiveness of

these systems remains questionable. Cases of unaccounted expenditures, irregular payments,

and weak compliance with financial procedures suggest that internal controls are either

poorly designed or inadequately implemented. Similarly, audits are often perceived as routine

formalities rather than tools for transparency and accountability.

Existing literature has examined the role of audit and internal controls in fraud

prevention across various sectors in Nigeria. Studies such as those by Adeyemi & Uadiale

(2011), and Onuorah & Appah (2012), have acknowledged the importance of these tools in

enhancing public sector accountability. However, most of these studies tend to focus on

federal and state-level institutions, or private sector entities such as banks and multinational

corporations. Very limited empirical work has been done on the functioning of audit and

internal control systems at the local government level, particularly in rural or semi-urban
areas such as Ado-Odo/Ota in Ogun State. This creates a significant literature gap, as the

dynamics of fraud and internal control in local governments may differ substantially from

those in larger or more centralized institutions.

Moreover, the majority of the existing studies adopt a generalized approach to the

issue, often using aggregated national data or focusing on urban local governments. They

rarely consider the local realities such as limited staffing, political interference, lack of

professional training, and resource constraints that may affect the design and implementation

of audit and control systems in grassroots governance. These contextual factors are

particularly relevant in areas like Ado-Odo/Ota, which is characterized by a mixture of urban

and rural settlements, diverse economic activities, and varying degrees of administrative

capacity.

Another critical gap in the literature is the lack of evaluative studies that measure the

actual effectiveness of existing internal control frameworks in preventing fraud and ensuring

accountability. While many authors affirm the theoretical importance of these systems, few

studies have investigated whether they truly work in practice at the local government level.

Questions remain as to how internal controls are structured, who is responsible for oversight,

what challenges auditors face, and how local officials respond to audit queries and

recommendations.

Given these gaps, this study seeks to critically examine the effect of audit and internal

control systems on fraud prevention and accountability in Ado-Odo/Ota Local Government

Area. The research will explore the structure and effectiveness of these mechanisms, identify

challenges affecting their implementation, and assess their impact on the financial integrity of

the local government. By focusing on a specific case within Ogun State, this study aims to
contribute localized insights to the broader discourse on public sector accountability and to

offer practical recommendations for strengthening fraud prevention at the grassroots level.

1.3 Objectives of the Study

The primary aim of the study is to the effect of audit and internal control in fraud

prevention and accountability a case study of Ado-Odo Ota LGA Ogun State, while the

followings are the specific objectives

1. To examine the effectiveness of audit practices in promoting financial accountability

in Ado-Odo/Ota Local Government Area.

2. To identify the major challenges affecting the efficiency of audit and internal control

mechanisms in fraud prevention in Ado-Odo/Ota Local Government Area..

3. To evaluate the relationship between internal control practices and the incidence of

fraud in Ado-Odo/Ota Local Government Area.

1.4 Research Questions

1. What is the the effectiveness of audit practices in promoting financial accountability

in Ado-Odo/Ota Local Government Area?

2. What ae the identify the major challenges affecting the efficiency of audit and internal

control mechanisms in fraud prevention in Ado-Odo/Ota Local Government Area?

3. What is the relationship between internal control practices and the incidence of fraud

in Ado-Odo/Ota Local Government Area?

1.5 Research Hypotheses

Ho1 There is no significant effectiveness of audit practices in promoting financial

accountability in Ado-Odo/Ota Local Government Area.

Ho2 There is no significant major challenges affecting the efficiency of audit and internal

control mechanisms in fraud prevention in Ado-Odo/Ota Local Government Area.

Ho3 There is no significant relationship between internal control practices and the

incidence of fraud in Ado-Odo/Ota Local Government Area

1.5 Significance of the Study

This study is significant because it addresses the growing concerns surrounding

financial mismanagement, lack of transparency, and rising incidences of fraud in local

government administrations in Nigeria. Focusing specifically on Ado-Odo/Ota Local

Government Area in Ogun State, the study provides valuable insights into how effective audit

practices and internal control systems contribute to fraud prevention and improved

accountability. For local government authorities and policymakers, the findings will serve as

a practical guide for strengthening internal control mechanisms and audit processes,

ultimately enhancing transparency in public financial management. The study can help

expose loopholes that allow for fraud and misappropriation of funds, offering data-driven

recommendations for institutional reforms.

To auditors and internal control officers, this research emphasizes the importance of their

roles in safeguarding public resources. It provides evidence-based evaluation of the strengths

and weaknesses of current practices within the local government framework, serving as a

reference for capacity building and professional improvement. For academics and

researchers, the study adds to the existing body of knowledge by focusing on a grassroots-

level government institution—an area that is often overlooked in audit and fraud prevention

literature. It fills a critical gap by providing recent, location-specific data on how internal

control and audit practices function in the local government setting.

The study is also significant for the residents and civil society of Ado-Odo/Ota LGA, as it

indirectly advocates for better service delivery, financial accountability, and good

governance. A more transparent and fraud-resistant system leads to improved infrastructure,

social services, and public trust

1.7 Scope of the study

This study focuses on evaluating the role of audit and internal control mechanisms in

the prevention of fraud and the promotion of accountability within the administrative

framework of Ado-Odo/Ota Local Government Area (LGA) in Ogun State, Nigeria.

Contextually, the study is limited to examining the internal control structures and audit

processes practiced within the local government setting. It explores how these systems are

designed, implemented, and monitored, and the extent to which they contribute to fraud

detection, prevention, and overall financial transparency. The study will cover key areas such

as internal audit functions, risk assessment procedures, control activities, information and

communication systems, and monitoring activities, as they relate to fraud control and

accountability.

Geographically, the study is restricted to Ado-Odo/Ota LGA, one of the twenty LGAs

in Ogun State. This area was selected due to its commercial relevance, growing population,

and administrative challenges, which make it an important case for assessing public sector

financial control mechanisms at the grassroots level. Periodically, the research focuses on the

current internal control and auditing practices over the past five years (approximately 2019–

2024). This timeframe was chosen to reflect recent reforms, financial reporting trends, and

audit practices within the LGA, particularly in light of Nigeria’s ongoing public sector

financial reforms and anti-corruption campaigns. The study will be limited to responses and

data collected from local government staff, internal auditors, financial officers, and relevant
administrative personnel directly involved in audit and control functions within the LGA. It

will not extend to other LGAs or higher tiers of government.

1.8 Definition of Terms

Internal Audit: Internal audit is an independent, objective assurance and consulting activity

designed to evaluate and improve an organization's operations. Its primary goal is to help the

organization achieve its objectives by systematically assessing the effectiveness of risk

management, control, and governance processes.

Auditing: internal audit is part of the internal control system put in place by management of

an organization to ensure adherence to stipulated work procedure and as aid to management.

Financial Performance: Financial performance measures the quantity, robustness and

sturdiness of a firm’s revenue generation growth.

CHAPTER TWO
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.1 Conceptual Review
2.1. Concept of Internal

Control Committee of Sponsoring Organizations (COSO) of the Treadway

Commission report (1992) defined internal control as a practice which guides the credibility

of financial affairs of an organisation. The report defines internal control and describes a

framework for internal control. What makes the report different is that it also serves as a

guide for the management. Aldridge and Colbert (2021) opined that internal control is a

multi-dimensional tool for controlling the orderliness of an organisation, detecting the

increase in the worth of the organisation and achieving the level of effectiveness and

performance of the organisation. Fundamentals of Internal Control Treba (2023) opined that

internal control is put in place to ensure the adequate management of resources and proper

accountability. Internal control systems also assist in ensuring that public expenditure is

reliable, decent and gives guarantee that all expenditure incurred and programmes of the

organisation have been in accordance with the stipulated regulations. Wales (2015) also

posited that controls consist of financial reporting and operational controls within a process.

Treba (2023) observed that the entity’s internal audit function should recognise three

types of control; these are preventive, authorisation and detective controls. It was further

stated that preventive controls guide against the occurrence of risks, and these controls

include segregation of duties, recruiting and training qualified staff; that authorisation

controls prevent fraudulent or erroneous transactions from occurring and detective controls

discover errors or fraud that has not been prevented; and these will assist to prevent unwanted

acts in the organisation. In the same way, Lawrence (2000) noted that controls can either be

preventive or detective; that preventive controls are proactive controls and this attempts to

prevent undesirable events from taking place. The examples of this include segregation of
duties, proper authorisation, adequate documentation and physical control over assets; while

detective controls are the ones that attempt to detect undesirable acts. Bazzoli (2020) opined

that detective control gives evidence that a loss has actually taken place, but do not prevent a

loss from occurring. In the study

reviews, analyses, reconciliations, physical inventories and audits, were given as

examples of detective controls. Chen (2004) argued that the two types of controls are

important for an effective internal control system, but from a quality point of view,

preventive controls are vital because they are proactive and emphasise quality. Meanwhile,

Wales (2015) emphasised that for an organisation to provide evidence that preventive

controls are functioning and preventing losses, detective controls are important. Hayes (2015)

submitted that internal auditing is a means of improving an organisation’s governance, risk

management and management controls by providing insights and recommendations, based on

analyses and assessments of data and business processes. With commitment to integrity and

accountability, internal auditing provides value to governing bodies and senior management

as an objective source of independent advice. Wee (2019) argued that the scope of internal

auditing within an organisation is wide and may involve topics such as efficacy of operations,

risk management and management controls over: efficiency and effectiveness of operations

include safeguard of assets, the reliability of financial and management reporting and

compliance with laws and regulations. Internal auditing may also involve conducting

proactive fraud audits to identify potentially fraudulent acts; participating in fraud

investigation under the direction of fraud investigation professionals and conducting post

investigation fraud audits to identify breakdowns of control and establish financial loss.

2.1.2 Concept of Fraud and fraud activities

 According to ACFE (2019), having a strong control system will be a barrier for

individuals who want to commit fraudulent acts. One important preventive step is the

existence of an Internal Audit Department in the company. The larger an entity or

organization, the more important it is to expand a more intensive Internal Control System

(SPI) to monitor fraudulent acts that may be committed by parties within the company. This

SPI can take the form of an Internal Audit Department which is tasked with assessing and

verifying Standard Operating Procedures (SOP), said that recording data according to

company policies and plans is part of efforts to monitor activities. Therefore, the existence of

a strong and efficient internal control system is very important for companies to prevent and

detect fraud. The internal audit plays a vital role in assuring effectiveness by performing risk

assessments, checking compliance with policies and procedures, and offering

recommendations for improvement in case flaws or holes are identified in the internal control

system.

Internal audit provides confidence that the internal control system is adequate to

reduce risks, as well as facilitate effective and efficient governance processes where

organizational goals and objectives can be achieved. The internal audit function plays a

crucial role in maintaining the efficient functioning of corporate processes and mitigating the

risk of fraudulent activities. The success of internal audits depends not only on the competent

skills of internal auditors but also on strong support from top management in providing the

necessary resources and authority. The objective of this study is to examine the extent to

which the internal audit The function is effective in preventing and detecting fraudulent

activities. Additionally, it seeks to assess the importance of internal control in the

identification and mitigation of these risks. Fraud may manifest in several industries,

encompassing both the commercial and government sectors. Nevertheless, corruption is a

prevalent kind of fraud in the government sector. Indonesia is ranked 96th out of 180 nations

in terms of corruption-free status, as per a research conducted by Transparency International

Then in the According to transparency.org, Indonesia was classified as the second

most corrupt country in the Asia Pacific region in terms of its degree of development. The

prevalence of fraud in government organizations remains significant. An illustrative instance

of such fraud is the corruption scandal surrounding the e-KTP auction project in 2011, which

resulted in state losses amounting to a staggering IDR 2.3 trillion. This is corroborated by the

affirmation of the investigation auditor from the Financial and Development Supervisory

Agency (BPKP) who verified that the tender document did not adhere to its execution in the

e-KTP project. The e-KTP document pertains to a roster of individuals that are suspected to

be imaginary. Based on this instance, it seems that there are signs of the auditor's incapacity

or negligence in identifying fraudulent activities during the evaluation of tenders for the e-

KTP project procurement. The auditor's capacity to identify fraud might be compromised by

several elements under certain circumstances.

Accounting fraud or fraud has become a significant phenomenon in various

countries, both developing and developed. Fraud incidents involve the government and

private sectors. In the current era of globalization and technological advances, developments

in the business world are increasingly rapid, which has an impact on increasingly tight

company competition, so that the scope of activities and complexity will naturally expand.

No institution/corporate body is truly free from the possibility of fraud. Fraud perpetrators

also exist at all levels, both upper-class and lower-class employees. Fraud is not something

that can be considered trivial by a company. Ethical violations, both administrative and

nonadministrative, are a strong factor in causing fraud, but they are not always directly

related because they do not only occur as a result of ethical violations but can be caused by

other factors that are not within the scope of ethical violations. Fraud has now become the
focus of attention for business stakeholders in a company, many companies have experienced

setbacks and even collapse due to a lack of prevention, detection, and discipline for actions

that cause fraud, so public trust in a company has decreased. Fraud is often carried out by

several individuals to gain instant personal gain. Fraudulent acts carried out have big effects

and risks for a company, which can cause damage to the reputation that has been built by a

company so that the company can slowly experience losses, both material and non-material,

such as financial losses so that the company experiences bankruptcy. So a company must be

able to take preventive measures to prevent fraud from occurring in the company.

There are many definitions according to experts regarding internal audit, namely as

follows: " Internal audit is a self-governing and unbiased process The instill trust and offer

guidance with the goal of enhancing organizational operations and adding value. According

to Ada (2023), "Internal audit will analyze, suggest several suggestions, and audit evaluation

will also include effective monitoring at a reasonable cost." An internal auditor is the person

responsible for planning and carrying out audit tasks that must be approved and reviewed or

revised by managers. Internal control includes the company's agenda and all coordinated

means implemented. Every organization of course has internal controls to achieve its goals.

As per COSO, internal control refers to the impact of the board of directors, management

entities, and other members on actions that serve as safeguards for accomplishing

organizational objectives in the domains of operations, reporting, and compliance

When designing and implementing internal control measures, it is important to take

into account the concerns and objectives of risk management within an organization. For this

reason, in planning internal control it is necessary to consider the principles of internal

control which are components of internal control. COSO's internal control components have

5 components, namely: The Control Environment serves as the fundamental basis for the

internal control framework, exerting influence over the design of activities and the
assessment of risks Risk Assessment) is the introduction and analysis of risks by achieving

objectives and becomes a guideline for determining the company's methods. To manage

identified risks. Control Activities refer to the set of policies and processes implemented to

effectively address risks and assure the execution of management instructions. Information

and Communication refers to the systematic collection, manipulation, and transmission of

data in a manner that enables individuals to fulfil their responsibilities.

Monitoring Activities is the process of determining the quality of internal control

performance over time. Fraud is a fraudulent act carried out to obtain illegal profits. The

main goal is usually to obtain financial benefits, such as money or other assets, through

illegal means These actions can include various forms, ranging from forgery, and fraud, to

misuse of company resources. Fraud perpetrators generally try to avoid detection and legal

sanctions by using methods that are complex and difficult to trace. Fraud is an act that

violates regulations and laws (illegal acts) as well as irregularities carried out with a specific

purpose. This action can be carried out by people who have authority, both from within and

outside the organization. Meanwhile, in the Criminal Code (KUHP) article 378, it is

explained that fraudulent acts are "intending to obtain personal or group benefits through

violations of applicable law, by using false names or identities, deception or lies to encourage

parties to another person hands over goods or something that causes harm to the other party.

Therefore, preventing and detecting fraud requires a careful approach and a strong

internal control system. The five aims of efficient fraud prevention are, namely: 1.

Prevention, specifically, the aim is to proactively stop actual instances of fraud from

happening across all areas of the firm. Deterrence, specifically, the purpose is to prevent

prospective offenders and even exploratory behaviors. Disruption, specifically, this aims to

impede the movement of fraud perpetrators to the greatest extent feasible. Identification,

specifically, the task involves the identification of The activities that carry a high level of risk
and the identification of flaws in controls. Civil action prosecution, specifically, this involves

asserting requirements and enforcing suitable penalties for instances of deceit on the

individuals responsible. Fraud prevention according to is a comprehensive endeavor that can

mitigate the occurrence of variables that contribute to fraud (fraud triangle), specifically: 1.

Minimize the opportunity for fraud to occur. 2. Reduce pressure on employees so that they

can meet their needs. 3. Eliminate reasons to justify or rationalize the fraud committed. The

company's preventive activities effectively lower the likelihood of fraud by promptly

detecting and proactively anticipating any fraudulent activity. Each employee no longer

experiences coercion and may

2.1.2 Concept of Accountability in Nigeria Public Sector

Adegbite (2020) opined that the term public sector can be referred to as the art of the

economy that the government is controlling, so as to be able to provide the basic

infrastructures and services to the public. These infrastructures and services that are to be

provided by the government are so numerous, as a result of persistence increase in

population. Okoh and Ohwoyibo (2020) pointed out that the factors hindering accountability

in Nigeria include poor record keeping system in the various public establishments,

fraudulent practices owing to the existing poverty syndrome in the country, coupled with the

poor value systems, poor mode of releasing funds to the public establishments, shortage of

personnel and facilities in the monitoring units of the public establishments. The advantages

of tighter scrutiny of decision-making and more transparent regimes of accountability are

difficult to challenge; that all government managers as trustees of public resources owe the

responsibility to make sure that they carry out their responsibilities with probity, prudence

and concern for effectiveness, efficiency and economy.

1Appah and Coleman (2009) stated that cases of fraud are rampant in the Nigerian public

sector, to the extent that every segment of the public service is virtually involved in this act of

financial misconduct.

2.1.3 Internal Controls and Financial Accountability

Lawrence (2020) posits that internal control is the circulatory system of any

organisation and argued that strong internal control function helps firms to operate strongly

and profitably. Kayongo (2014) submitted that by implementing an effective corporate

internal control system, a lot of advantages can be to the benefit of the organisation; that

among others, it detects and prevents errors and irregularities in time and thereafter promote

reliable and accurate accounting information which can easily resolve issues arising as a

result of errors from reporting; that it also protects the interests of employees by specifically

stating their duties and responsibilities, as well as safeguarding them against accusation of

irregularities or misappropriations. Kakuru (2021) enunciated that in a business involving a

number of transactions that affect financial performance of the firm, if internal control is not

well implemented, it will negatively affect the performance and productivity of the firm and

hence, retard its capacity; that Internal control assists managers to get the best measures of

the impact of different transactions geared towards generating a diversified portfolio of

investments, thus enhancing proper accountability.

ACCA (2014) stipulated that control activities are policies and procedures that are

formulated by management so as to ensure that the organisational activities are carried out

effectively, with the aim of achieving goals. Van Horne (2022) argued that financial

accountability is to measure performance and it is related to ensure that money released to

people is spent in line with the budgetary provisions in accordance with the set rules.
2.1.5 The effectiveness of audit practices in promoting financial accountability

The Nigerian public sector has undergone significant transformations in recent years,

spurred by globalization, technological advancements, and an increased emphasis on

accountability and transparency. As the nation strives for economic growth and development,

the efficacy of internal control mechanisms within its public sector becomes paramount. One

of the critical challenges faced by public institutions worldwide, including those in Nigeria, is

the pervasive threat of fraudulent activities, including embezzlement, money laundering, and

misappropriation of public funds (Ugbede, Ekpete, & Yahaya, 2021; Ayodele Ojo-Agbodu,

2022; Mukah, 2020). This is further exacerbated by the growing popularity of

cryptocurrencies exposing users to unethical actors (Smith, 2018). Fraud weakens the

institutional foundation upon which economic growth and development depend, making it

onerous to enforce the law. It is considered the most attractive threat to the world economy,

particularly when one considers the amount of money lost annually (Abdullahi & Mansor,

2018). Fraudulent activities within the public sector not only compromise the integrity of

financial systems but also erode public trust and confidence in government institutions. As

Erbuğa (2022) puts it, fraud gives companies and nations headaches, intensely irritates

markets and their players on a global scale. In the Nigerian public sector, fraud has been a

persistent and damaging issue, undermining effective governance and hampering socio-

economic development (Okpala & Enwefa, 2017; Ogiriki & Appah, 2018).

Fraud is almost growing proportionately to economic and financial advancement, and

if care is not taken, it can even overthrow the system, thereby destroying the economy. This

trend has resulted in diverting resources designated for public welfare and social services,

intensifying poverty, inequality, and social challenges. This is further exacerbated by the fact

that fraud techniques cannot be completely discovered and eradicated A. Vutumu et al. DOI:
10.4236/jfrm.2024.134034 705 Journal of Financial Risk Management and that each activity

has a specific set of fraud risks. Akinbowale, Klingelhöfer, & Zerihu (2020) alluded that

fraud perpetrators change their operational techniques in line with changes in internet

technological dynamics and advancement. Fraud prevention serves as an organization’s early

warning system (Akeke & Atah, 2023), involving the anticipation, recognition, and

assessment of fraud risk, as well as the implementation of measures to eliminate or reduce

that risk (Oladipo & Olurotimi, 2021).

ACFE (2022) asserted that the most cost-effective way to limit fraud losses is to

prevent fraud from occurring in the first place because the cost of detecting and eradicating

can be quite exorbitant or, as Erbuğa (2022) puts it, “less expensive than dressing the wounds

of the fraudulent act”. Therefore, fraud prevention is anticipating, recognizing, and assessing

fraud risk and implementing measures to eliminate or reduce that risk (Oladipo & Olurotimi,

2021). Fraud prevention, thus, involves the integration of all efforts that may be used to

reduce the opportunities to commit fraud, ensure employees are not under any pressure to

meet their needs that would lead to committing fraud, and lastly, ensure that there is no

justification by employees to commit fraud (Nyakarimi, Kariuki, & Kariuki, 2020). Robust

internal control systems have generally been considered a strong public sector governance

tool to curb fraudulent activities. Internal control encompasses a set of policies, procedures,

and mechanisms designed to ensure the effectiveness and efficiency of operations, reliability

of financial reporting, and compliance with applicable laws and regulations. In the context of

fraud prevention, a well-structured internal control framework acts as a bulwark against

opportunistic and intentional misconduct. However, the efficacy of these controls depends on

various factors, including their design, implementation, and continuous monitoring.

Considering the public sector’s pivotal role in shaping a nation’s economic trajectory, the
need for robust internal control systems cannot, therefore, be overemphasized in the Nigerian

public sector.

Furthermore, internal control is a fundamental aspect of management stewardship

responsibility, providing interested parties with reasonable assurance that their organization is

being effectively controlled and that the information they receive is accurate and dependable

(Ibrahim, 2017). This means that internal controls are designed to ensure compliance,

safeguard assets, and promote effective governance. In other words, internal control systems

are designed to provide reasonable assurance regarding the achievement of multiple

objectives including operational efficiency, financial reporting, and compliance with laws and

regulations. Internal control systems comprise various components, including control

environment, risk assessment, control activities, information and communication, and

monitoring activities. Each component plays a vital role in ensuring the integrity and

reliability of financial and operational processes. Therefore, adequate internal controls are the

first line of defense in detecting and preventing material errors or fraud (Anyanwu & Okafor,

2022).

Consequently, it is expected that the management of an organization designs internal

controls to ensure efficiency and effectiveness, reliability of financial reporting as well as

compliance with laws and regulations (Oguda, Odhiambo, & Byaruhanga, 2015).

Flowerastia, Trisnawati, & Budiono (2021) asserted that fraud occurrence is generally

motivated by open opportunities, such as weak or absent internal control systems in the

organization. It should be noted that the nexus between internal control and fraud prevention

is a subject of paramount importance, warranting scholarly exploration and indepth analysis.

The two are identified as two critical pairs in organizational risk management because fraud

prevention knowledge is required to mitigate the level of risk. Ogwiji & Lasisi (2022)
highlighted that fraud prevention focuses on identifying threats and opportunities, while

internal control helps counter threats and take advantage of opportunities. Therefore,

understanding and fortifying internal control mechanisms can serve as a linchpin in

mitigating fraud risks, thereby promoting good governance, financial probity, and sustainable

development.

Despite the above-acknowledged importance of internal controls in curbing fraud, the

Nigerian public sector grapples with the need to enhance and tailor these mechanisms to suit

the country’s unique socio-economic landscape. With scanty literature in this area within the

Nigerian public sector, this research aims to bridge existing gaps by delving into the intricate

interplay between existing internal control frameworks in Nigerian public institutions and

their effectiveness in preventing fraud. Adopting the PLS-SEM approach is intended to

explore and highlight the fundamental relationship between the internal control elements and

fraud prevention in the Nigerian Public Sector. By analyzing the components individually,

the study aims to identify which aspects of the internal control framework are most effective

in deterring fraudulent activities, thereby evaluating the overall impact of the internal control

framework on fraud prevention within the Nigerian public sector.

Furthermore, even though several previous studies on internal control systems and

fraud prevention in the public sector in Nigeria exist (for example, Olayode & Ayeni, 2018;

Agwor & Akani, 2023 and Awotomilusi et al., 2023), these studies have focused mainly on

state governments and public institutions. Olayode & Ayeni (2018) focused on Ondo State,

Agwor and Akani (2023) focused on Bayelsa State, while Awotomilusi et al. (2023) focused

on Ekiti State. There is obviously a paucity of studies on internal control systems and fraud

prevention in public institutions at the federal or central government level in Nigeria. Because

the federal government public institutions have more constitutional powers, financial
resources, administrative control, judicial authority, and greater control over policy

implementation than state government institutions; a study on the internal control systems

and fraud prevention in federal or central government institutions, has significant potentials

to provide more generalizable insights that can enhance the design and implementation of

internal control systems, thereby strengthening fraud prevention mechanisms. The findings

could inform policy recommendations and practical strategies for public sector organizations

generally in Nigeria,

2.1.7 The major challenges affecting the efficiency of audit and internal control

mechanisms in fraud prevention.

In the public sector, particularly at the local government level, audit and internal

control mechanisms are vital tools in promoting accountability, safeguarding public funds,

and preventing fraudulent activities. However, the effectiveness of these systems is often

undermined by a number of challenges that limit their ability to detect, prevent, or deter

fraud. These challenges are particularly evident in many local government administrations

across Nigeria, including Ado-Odo/Ota Local Government Area in Ogun State. Despite the

presence of internal control frameworks and audit departments, fraud and financial

mismanagement continue to persist due to systemic and operational inefficiencies.

One of the primary challenges affecting the efficiency of audit and internal control

systems is the lack of adequately trained and skilled personnel. In many local government

offices, the staff charged with managing internal controls or carrying out audits do not

possess the necessary professional qualifications or hands-on experience to do so effectively.

This skills gap makes it difficult to carry out thorough investigations or detect sophisticated

fraud schemes. Inadequate training also leads to a lack of awareness of modern auditing

techniques, international standards, and risk-based auditing practices. Consequently, the

internal control systems often operate below standard, leaving room for exploitation by

individuals with fraudulent intentions.

Closely related to this is the problem of inadequate funding and logistical support.

Auditing departments and internal control units are frequently underfunded, limiting their

operational capacity. In many cases, auditors do not have access to essential tools such as

computers, audit software, transport for field visits, or even simple office materials needed to

carry out their duties. This resource deficiency forces many audit teams to conduct shallow

reviews or delay important checks, reducing the effectiveness and timeliness of the auditing

process. Moreover, underfunded internal control systems are unable to maintain reliable

record-keeping, resulting in missing documents or unaudited financial activities that create

opportunities for fraud to go undetected. Another major issue that significantly undermines

the effectiveness of audits and internal controls is political interference. In many local

governments, the audit department is not fully independent. Instead, it operates under the

control or influence of the local government executive or other political figures. This lack of

independence compromises the objectivity and neutrality of audit processes. In situations

where audit findings implicate high-ranking officials or politically connected individuals,

there is often pressure to alter reports, suppress findings, or avoid further investigation.

Auditors may face threats or intimidation, making them hesitant to carry out their duties

diligently. This creates a culture of impunity where fraudulent practices are allowed to

continue unchecked.

Additionally, the enforcement of internal control policies is often weak. While many

local governments have written procedures and rules governing financial operations, these

policies are rarely followed strictly. There is often a wide gap between policy and practice,

with staff routinely bypassing approval processes, manipulating records, or ignoring set
guidelines. When internal controls are not enforced consistently, they become ineffective. In

some cases, certain staff members are exempted from these procedures due to favoritism or

hierarchy, further weakening the system. Without strict enforcement and monitoring, the

preventive role of internal controls is significantly diminished. The ethical environment and

organizational culture also play a critical role in determining the effectiveness of internal

controls and audit mechanisms. In organizations where ethical standards are poor and

corruption is normalized, there is often little regard for control measures. If the leadership of

the local government lacks integrity, this attitude tends to trickle down the organizational

hierarchy. Employees observe and imitate such behaviors, especially when there are no

consequences for wrongdoing. This culture of tolerance for unethical behavior undermines

the seriousness of internal controls and creates an enabling environment for fraud to flourish.

Furthermore, the limited use of modern technology is a significant barrier to the

effectiveness of audit and internal control processes. Many local government offices still rely

heavily on manual accounting systems and paper-based record-keeping. These outdated

systems are prone to manipulation, errors, and loss of data. Without digital tools to track and

analyze financial transactions, auditors are unable to perform real-time reviews or detect

anomalies efficiently. The absence of computerized accounting systems means there is little

to no automation of control procedures, which could otherwise help in early fraud detection

and improved transparency.

Delays in conducting audits also pose a serious threat to the efficiency of fraud

prevention efforts. In many instances, audits are conducted annually or irregularly, which

limits their relevance and timeliness. Fraudulent activities that occur early in the fiscal year

may go unnoticed for months, giving perpetrators ample time to cover their tracks. Moreover,

delayed audits mean that corrective actions are taken too late, by which time significant
financial damage may have already been done. When audits are not conducted regularly or

promptly, they lose their preventive edge and become less effective as tools for continuous

oversight.

Another critical challenge is the lack of follow-up and accountability after audits have

been conducted. Often, audit reports are submitted and shelved without any concrete action

being taken on the findings. Fraudulent acts identified in the reports are not investigated

further, and the individuals involved are rarely sanctioned. This lack of consequences

emboldens others to engage in similar misconduct, knowing they are unlikely to be held

accountable. In addition, there are rarely any systems in place to track whether

recommendations from audit reports are implemented, leaving gaps unresolved and exposing

the system to further abuse.

Lastly, the internal control systems themselves are sometimes poorly designed or not

customized to suit the local government’s unique structure and operations. Some control

frameworks are too generic, while others are overly rigid and impractical for the specific

activities they are meant to oversee. When internal controls do not align with the actual risks

and operations of the organization, they fail to provide adequate safeguards. Also, in the

absence of periodic review and updates to control measures, these systems become obsolete

and ineffective against evolving fraud techniques

2.1.8 The relationship between internal control practices and the incidence of fraud

Fraud prevention and detection refer to the measures and processes

implemented by organizations to minimize the occurrence of fraudulent activities

and identify instances of fraud when they occur. These efforts aim to protect the

organization's assets, reputation, and financial well-being by deterring fraudulent

behavior and taking appropriate actions to address and mitigate fraud risks.

Fraud prevention involves implementing proactive measures and controls to reduce the

likelihood of fraudulent activities. Creating a culture of integrity, ethics, and

accountability within the organization is essential for fraud prevention. This includes

promoting ethical behavior, setting clear expectations, and fostering a supportive

reporting environment [6,14].Separating key duties and responsibilities among different

individuals helps prevent opportunities for collusion and unauthorized actions. By

ensuring that no single person has complete control over a process or transaction,

the organization reduces the risk of fraud. Internal controls such as authorization

processes, review and approval mechanisms, and proper documentation help prevent

fraudulent activities.

These controls provide checks and balances to ensure that transactions are valid,

complete, and compliant with policies and procedures. Identifying and assessing

potential fraud risks specific to the organization's operations and industry is crucial.

This allows the organization to prioritize fraud prevention efforts and develop targeted

controls to address the identified risks effectively. Effective fraud prevention and

detection measures require a comprehensive and multi-faceted approach that

combines preventive controls, ongoing monitoring, employee awareness, and timely response

to potential fraud. By implementing robust fraud prevention and detection strategies,

organizations can reduce the financial and reputational impact of fraud and maintain

trust among stakeholders

Effectiveness of internal controlsystems and fraud prevention and detectionThe

effectiveness of internal control systems in fraud prevention and detection is a critical

factor in safeguarding organizations against fraudulent activities. Internal control systems

encompass the policies, procedures, and processes established by management to

provide reasonable assurance regarding the achievement of objectives, reliability of

financial reporting, and compliance with laws and regulations . Internal control

systems help identify and assess potential fraud risks within the organization. Through

risk assessment processes, organizations can evaluate the likelihood and potential

impact of various fraud scenarios. This enables management to focus their efforts on

high-risk areas and implement targeted controls to mitigate those risks. Internal controls

play a crucial role in deterring fraudulent activities. Preventive controls are designed

to prevent fraud from occurring in the first place. Examples of preventive controls

include segregation of duties, authorization and approval processes, physical safeguards,

and employee training and awareness programs.

These controls create barriers and reduce opportunities for fraud. Internal

control systems also include detective controls that help identify potential fraud

incidents. Detective controls are designed to detect fraud after it has occurred.

Solomon et al.; Asian J. Econ. Fin. Manage., vol. 5, no. 1, pp. 231-244, 2023; Article

no.AJEFM.1327235Examples of detective controls include monitoring and analysis of

financial data, exception reporting, regular internal and external audits, and the use of data

analytics tools. These controls can help identify irregularities, patterns, or indicators of

fraudulent activities. .Effective internal control systems establish reporting

mechanisms that encourage employees and stakeholders to report suspected fraud.

Whistleblowing hotlines, anonymous reporting channels, and a culture of open

communication foster an environment where individuals feel comfortable reporting

potential fraud. Timely reporting of suspicious activities increases the chances of

detecting fraud and taking appropriate action. Ongoing monitoring and review of internal

controls and processes are crucial for fraud prevention and detection.
Regular assessments, internal audits, and management reviews help ensure that

controls are operating effectively and that any weaknesses or control gaps are

identified and addressed promptly. Monitoring activities also involve analyzing

trends, anomalies, and exceptions to identify potential fraud indicators. Effective

internal control systems include mechanisms for taking corrective actions in

response to identified control deficiencies or instances of fraud. When fraud is

detected, appropriate investigations, disciplinary actions, and remedial measures should

be implemented to address the situation and prevent recurrence . Lessons learned from

fraud incidents can also be used to strengthen internal controls and enhance fraud

prevention efforts. It is important to note that while internal control systems are crucial

for fraud prevention and detection, they cannot guarantee the elimination of all fraud

risks. Determined fraudsters may find ways to bypass controls or exploit

vulnerabilities. Therefore, a comprehensive approach to fraud prevention and detection

includes a combination of internal controls, employee awareness, strong ethicalvalues, and a

proactive stance toward risk management. Regular monitoring, evaluation, and

continuous improvement of internal control systems are essential to adapt to evolving

fraud risks and ensure their ongoing effectiveness

2.2 Theoretical Framework

This study adopts decision theory as a foundational framework, originally

introduced by Herbert A. Simon in 1978. Decision theory is relevant to this study due

to its association with the positive relationship between internal control systems and

fraud prevention within an organization. The internal control system

encompasses various components such as control environment, risk assessment,

control activities, information and communication, and monitoring. These components

are essential for managing business risks in a healthcare firm through an internal
control framework. The correlation between the internal control system and fraud

prevention is crucial. It is widely believed that agency risks arise from information

asymmetry and agency complications, particularly in large public corporations compared to

owner-managed businesses or partnerships. Furthermore, an effective internal control

system provides additional information to shareholders, thus preventing fraud and

increasing revenue for the organization. The application of decision theory can help

mitigate agency risks and reduce or prevent fraud by ensuring the proper

implementation of internal control systems. When individuals are faced with a personal

decision regarding fraud, a strong internal control system acts as a deterrent.

According to Rahim et al. (2020),, organizations employ internal control systems as a

means to prevent fraud. Additionally, Yolanda (2023), emphasize the significance of an

efficient decision-control system in reducing risksand preventing fraud. Monitoring

operational activities plays a critical role in fraud prevention and improving

organizational performance

2.3. Empirical Reviews

Fadzil, Haron and Jantan (2018) studied internal auditing practices and internal

control system. A correlation analysis was used to examine the extent of effective

relationship between internal control system and the organisation’s success in meeting its

revenue target. The findings of the study affirmed positive and strong correlation between the

two variables. Miller (2007) examined the documentation of internal controls from theory to

implementation reported and concluded, through the findings that poor internal control leads

to asset misappropriation, corruption and fraud in financial statements. Emmanuel, Ajanya

and Audu (2013) examined an assessment of internal audit control on the efficiency of public

sector in Kogi State, Nigeria, using structured questionnaire which were analysed through

cross tabulation and chi-square test. They found that internal audit can effectively check fraud
and fraudulent activities in the public sector, while the public sector in Kogi State has

significant numbers of internal audit and department to function effectively. These led to the

recommendation that there is need for effective internal control system which is free from

interference.

Osezua and Julius (2013) examined the imperativeness of transparency and probity in

the Nigerian public sector, using econometric estimation model and two-way estimation. In

their findings, they discovered that the Nigerian public sector is characterised by

mismanagement, resulting in low growth of the economy, lack of transparency and probity

thereby promoting corruption, serving the personal interest of managers of the resources and

that mechanisms for control to ensure compliance are ineffective, thereby recommending that

the principles and regulations for enthronement of transparency and probity in public service

should be upheld, as they remain the vital checks against abuse of position.

Muazu and Siti (2014) investigated empirical evidence of antecedents of internal audit

effectiveness from a Nigerian perspective, by collecting primary data through questionnaire

and analysing them using SPSS version 21. The findings of the study indicated that for

internal audit to achieve the established objectives within various local government or

organisations, there should be well established risk management in place by such

organisations. It was also stated that internal audit effectiveness can equally be attained where

there is effective internal control in place.

Owizy (2011) assessed the effectiveness of internal control in government ministries.

Owizy established that the Benue State Ministry of Finance prepared the annual budget

promptly and it also has adequate expenditure tracking to prevent financial recklessness. The

recommendation in this regard was that the Ministry of Finance should strictly abide by the

principles and procedures, in order to ensure that slacks are built into the budget.
 El-Nafabi (2009) investigated the role of the public sector audit and financial control

systems in Sudan. The study revealed that audit and control systems are vital in ensuring

accountability, for the use of public funds, safeguarding public resources against corruption

and other misappropriation and unlawful practices. The study established that weak and

ineffective financial control systems and deficiencies in accounting systems are some of the

facilitating factors of financial corruption in Sudan. Thus, this study also contributed to the

existing knowledge by examining the effect of internal control system on financial public

sector accountability in Nigeria’s public sector

Internal control is a key issue to be addressed at any organization which intend to do

well and achieved it's objectives in other words; Internal control can be describe as any action

taken by an organization to help enhance the likelihood that the objectives of the organization

would be actualized. Adeniyi, 2004 cited that internal control are design to bring out financial

as operational deficiencies, inadequacies or ineffectiveness of system short fall in perform

and however these has been a public sector debate contingent upon the fact that most public

sector enterprise have been seen to fail woefully due to lack of proper internal control

measure put in place. It is in the light of these devastating phenomenon that several steps and

procedure have been taken to minimize or completely eradicate fraud and put in place proper

internal control in the public sector development have caused direction to be shifted toward

the public sector with a view to enhancing effecifiency and maximization of resources. Thus

the management of fraud in the public sector has engendered of internal control and check

designed to prevent and detect fraud. Previous research concerning fraud detection has

focused primarily on so-called "red flags" which are defined as conditions or circumstance

that indicate potential fraud. In a study conducted by Albrecht and Romney, 1986 87 red

flags were evaluated as being predictions of fraud. Questionnaires were sent to CPA forms

which were divided into two (2) groups.

 The control group consistent of ten (10) patterns who had not detected fraud. Out of a

list of 87 red flags, 31 red flags were found to be significant as predictions of management

fraud. Loebback, Eining and Willingham, (1989) also used the red flags approach to develop

a conceptual model to assess the probability of the occurrence of material management fraud.

They surveyed 277 audit partners at KPMG (Peat Marwick). Loebback, et al concluded that

the auditor's evaluation of the client's control environment is Important in order to assess the

likelihood of material mis-statements during the planning of the audit. Weak control creates a

significant condition that would allow management fraud, a defalcation or an error to occur.

Mpora et al. (2023), conducted a study in Uganda to evaluate the internal control

system and performance of financial institutions. The study had specific objectives,

including examining the relationship between the internal control system and financial

institution performance and exploring the connection between corporate governance

and firm performance. The researchers employed a mixed research design, utilizing both

quantitative and qualitative approaches to achieve their objectives. They selected a

total of 118 respondentsusing simple random and purposive sampling techniques. The results

revealed a significant positive correlation between the internal control system and firm

performance in Uganda's financial institutions, indicating that an improved internal

control systemis associated with positive firm performance.

Nisak and Rochayatun (2023), conducted a literature and empirical review to

investigate the role of internal audit in detecting and preventing fraud in universities.

They collected relevant articles by searching databases such as Emerald,

Springer, and Google Scholar, focusing on keywords related to the theme. The study

concluded that internal audit plays an empirical role in detecting and preventing

fraud in universities. It emphasized the need for internal audits to assist universities

in implementing effective controls, assessing effectiveness and efficiency, and driving

continuous improvements. Internal audit was found to be instrumental in designing,

evaluating, and enhancing risk management, university governance procedures, and

the effectiveness of controls to help universities achieve their goals.

Rashid (2023), analyzed the impact of internal control systems on fraud

detection and prevention. The study highlighted the importance of setting an appropriate

tone at the top and encouraging ethical behavior transparently by top management. It

emphasized the need for a risk assessment process, including brainstorming to identify

potential fraud risks. The study reviewed and analyzed 20 articles from different countries

to demonstrate the significance of internal control systems in preventing and detecting

fraud in commercial companies. The results indicated that internal control systems

play a significant role in fraud prevention. Castellani and Nuralissa (2022), aimed to

examine the influence of internal audit effectiveness and whistleblowingsystems on

fraud prevention in rural banks (BPR) in Bandung Regency. The research sample

consisted of internal auditors working in rural banks in that region. The results of simple

linear regression analysis showed that both the effectiveness of internal audit and

whistleblowing systems contribute to fraud prevention. Wanyama and Reuben

(2022), conducted a study focusing on the impact of internal controls on fraud

detection and prevention in Financial Technology (FINTECH) Companies in

Kenya, specifically Interswitch (Kenya) Limited. The study had three primary

objectives: examining the influence of know-your-customer practices, investigating the

effects of information technology, and determining the impact of staff training on fraud

detection and prevention. The researchers targeted a population of 200 and selected a

sample size of 100 participants. Primary data was collected through questionnaires,

and a descriptive survey research design was employed for the study. The results

demonstrated a strong and positive relationship between the internal control

measures investigated in the study and fraud detection and prevention. Regression

analysis indicated that the variables of information technology, know-your-

customer practices, and staff training explained the measures of fraud detection and

prevention in financial technology companies in Kenya.Ogwiji and

Lasisi (2022), explored the effect of the internal control system on fraud

prevention in financial services firms in Nigeria. The study involved a population of

284 respondents from listed financial services firms in the country. A cluster sampling

technique was utilized, and structured questionnaires were administered to collect

data, employing a five-point Likert scale system. The researchers used SMART-PLS-3-

SEMfor data analysis and hypothesis testing. The study examined constructive

reliability and validity, discriminant validity, cross-loadings, path coefficients, and the

predictive relevance of exogenous variables. The findings revealed that the control

environment and monitoring had a positive and significant effect on fraud

prevention, while information and communication showed a negative and significant

effect. Risk assessment had an insignificant positive effect, and control activities had

a negative and insignificant effect on fraud prevention in the listed financial services

firms in Nigeria. Overall, the study demonstrated that the internal control system

significantly influences fraud prevention.

Hamilah et al. (2023), conducted an analysis on the effectiveness of the

Internal Whistleblowing System in fraud prevention. The study focused on employees

working in the Division of Finance & Accounting, Internal Audit PT. Asuransi

Jiwasraya (Persero) and included a purposive sample of 50 respondents. The

independent variables in the study were the influence of the Internal Auditor,

Internal Control System, Whistleblowing System, Whistleblower Protection, and

Organizational Commitment, while the dependent variable was Fraud Prevention.

Structural Equation Modeling (SEM) using smartPLS software was employed for data

analysis, including tests on the Outer model, Inner model, indirect effect, and

hypothesis The results showed significant influences and significance of the internal

control system, internal auditor, audit committee, independent commissioner, and

whistleblowing system on fraud prevention. Additionally, there were significant

influences of the internal control system, internal auditor, audit committee, and

independent commissioner through whistleblower protection on fraud prevention.

Killic and Karaca (2021), aimed to identify fraudulent actions in a case study

involving an enterprise engaged in international freight transportation by road and provide

prevention solutions. The study initially provided information on fraud and internal control

and discussed their relationship. It then presented a case study illustrating fraudulent

activities conducted by employees in the enterprise and offered prevention

suggestions. The findings revealed that employee fraud in the enterprise was significantly

influenced by a lack of information and communication within internal control

components and surveillance activities.

Yolanda (2023), conducted a qualitative study examining the impact of internal

control designand utilization on fraud detection and prevention in Microfinance

Institutions (MFIs) in Cameroon. The study involved eight MFIs and collected primary

data through fourteen semi-structured interviews. The findings indicated that internal

control has a positive influence on fraud detection and prevention in MFIs by

reducing fraud incentives, opportunities, rationalization, and capabilities. The study

also revealed that poor remuneration, weak monitoring, and a deficient internal

control system are the majorcauses of fraud in MFIs. Molokwu et al. (2023), investigated

the effectiveness of the internal control system and fraud prevention in deposit

money banks in Nigeria. The study employed descriptive analysis and multiple
regression analysis to analyze data collected from nineteen deposit money banks. The

findings showed a positive and significant relationship between the control environment

and fraud prevention. Additionally, the study revealed that control environment, risk

assessment, information and communication, and monitoring have a positive and

significant impact on fraud prevention, while control activities had a positive but

insignificant effect.

Haryanto and Ardillah (2021), analyzed the factors influencing fraud prevention,

including the role of internal audit, internal control, and whistleblowing systems. The study

focused on internal auditors in Indonesian banking companies, with a sample of 100

employees from three private banks in Jakarta. Multiple linear regression analysis was

used to test the hypotheses, and the results indicated that internal audit, internal

control, and whistleblowing systems significantly and positively affect fraud prevention.

Internal audit and internal control were found to be the most dominant variables

influencing fraud prevention. Wanjala and Riitho (2011), examined the relationship

between the implementation of internal control and fraud mitigation in Savings and

Credit Cooperative Societies (Saccos) in Kenya. The study collected data using a

structured questionnaire and analyzed it using the Ordinary Least Square Regression

approach. The findings demonstrated that all internal control variables had a

significant positive effect on fraud mitigation among Saccos in Kenya. Similarly,

Nyakarimi et al. (2023), ]investigated the effect of the internal control system on fraud

prevention in the banking sector in Kenya. The study involved branch managers,

operations managers, and cash supervisors from various banks. Data analysis included

factor analysis, correlation research study, and structural equation modeling. The

study found that the control environment had no statistically significant and negative

effect on fraud prevention.Agyemang [6]assessed the effect of internal controls on

fraud prevention in a bank. The study used a questionnaire and selected a sample of

management staff, including the internal auditor. The findings revealed that the internal

control measures implemented by management helped in preventing fraud.

Effective supervision and implementation of an internal control system were

reported by the majority of respondents. In a study conducted by Adiningrat et al.

[4]aimed to measure the impact of implementing internal control structures and spiritual

accounting on fraud prevention. The study utilized multiple linear regression analysis

and found that the internal control structure had a negative effect on the auditor's ability

to prevent fraud, while spiritual accounting had a positive effect. The research aimed

to minimize fraud committed by company management. Existing literature reveals that

previous empirical studies have predominantly examined the impact of the internal control

system on fraud prevention using diverse indicators. However, there is a lack of studies

specifically focusing on the public institutions in Ekiti State, Nigeria, as most studies

Examples of studies conducted in the banking sector include those by Zandi and Hui

(2020), Awen et al. (2018), Mbilla et al. (2020), Temile et al. (2019), Tamimi

(2021), Akumbo et al. (2020), and Thuan et al. (2020). Thus, this study aims to

address this gap by focusing on public institutions in Ekiti State, Nigeria.

Additionally, the empirical evidence and findings from various studies have presented

mixed results regarding the impact of the internal control system on fraud prevention.

Furthermore, even when similar fraud prevention indicators have been employed,

conflicting empirical results have been observed. Some studies have reported

significant or insignificant positive effects, while others have shown significant or

insignificant negative effects. This variation in results can be attributed to factors such

as the study's time frame, the different sectors investigated by various

researchers, and the geographical locations of the studies. Therefore, this research
aims to bridge these important gaps in the literature by examining the effect of the

internal control system on fraud prevention in public institutions of Ekiti State, Nigeria.

Based on these, the null hypotheses will be stated as follows:H01:There is no

significant difference between the control environment and fraud prevention

and detection in public institutions of Ekiti State, Nigeria.H02:There is no

significant difference between the risk assessment and fraud prevention and detection in

public institutions of Ekiti State, Nigeria.H03: There is no significant difference between

the information and communication and fraud prevention and detection in public

institutions of Ekiti State, Nigeria.H04:There is no significant difference between the

control activities and fraud prevention and detection in public institutions of Ekiti

State, Nigeria.H05: There is no significant difference between the monitoring and fraud

prevention and detection in public institutions of Ekiti State, Nigeria.

A study conducted by Awotomilusi et al. (2023) to evaluate the effect of internal

control systems on fraud prevention and detection in public institutions in Ekiti State,

Nigeria, used structured questionnaires to collect data from internal audit and finance staff of

all public institutions in the state. The sample size was determined using Slovin’s formula,

and data was analyzed using both descriptive and inferential statistics. The study’s findings

indicated that the control environment, monitoring, and information and communication had

a significant positive effect on fraud prevention and detection. However, risk assessment and

control activities showed an insignificant positive relationship. Similarly, Ibanga & Etim

(2022) explored the role of internal control systems in preventing fraud and misappropriation

of funds in the public sector, using Akwa Ibom State Polytechnic, Nigeria, as a case study.

Data was collected by administering questionnaires to a sample size of 92 respondents, which

was determined by employing the Taro Yamane formula. The results revealed that the control
environment, risk assessments, control activities, and information and communication all

contributed to preventing fraud and misappropriation of funds in the public sector.

On the other hand, Oduwole & Akintoye (2023) focused on agricultural firms in

Abeokuta, Ogun State, Nigeria, to examine how internal control affects fraud prevention

using data collected from 30 respondents using a questionnaire. Their study revealed that risk

assessment had a positive and significant effect on fraud prevention, while control

environment and safeguarding of assets had negative and insignificant effects. Furthermore,

Maaroufi (2022) theoretically explored the effect of internal control (COSO) components on

the organizational performance of Moroccan public establishments. The study revealed that

there is a significantly positive relationship between internal control systems and

organizational performance. This relationship was very significant when the focus was placed

on Moroccan public organizations that fully applied the elements of the internal control

framework. Furthermore, Kesuma & Fachruzzaman (2024) performed an empirical review of

10 national and international articles about the effect of the internal control framework on

accounting fraud in the public sector in Indonesia, and found that the application of the

components of internal control has a positive effect on the effectiveness of accounting fraud

prevention in public sector organizations.

In Kenya, Osolo & Njeru (2022) used a descriptive design to analyze the effectiveness

of internal control components on fraud prevention in government parastatals with the case

study of Kenya Pipeline Company. The study revealed a strong correlation between internal

control and fraud prevention, indicating that it is imperative for state-owned corporations in

Kenya to put up strong internal A. Vutumu et al. DOI: 10.4236/jfrm.2024.134034 708

Journal of Financial Risk Management control systems to deter the occurrence of fraudulent

cases and to safeguard public resources.

 Also, in Ghana, Oduro & Cromwell (2018) investigated the effect of internal control

components on fraud prevention in Ghana’s Local Government System, with primary data

collected through a questionnaire from 35 local government institutions in Ghana and

analyzed using multiple regression analysis. The study revealed that risk assessment and

information technology positively and significantly deter fraud, while control environment,

control activities, monitoring, and information communication had a positive but insignificant

influence on fraud prevention. On the other hand, Razzouki et al. (2024) investigated the

impact of internal control on the innovation and performance of public organizations in

Morocco using a causal and quantitative methodology on a sample of 187 public

organizations. Data was collected through a questionnaire and analyzed using the structural

equation modeling approach (PLS-SEM4). The results revealed that strong internal control

significantly and positively influences the performance and innovation of public

organizations in Morocco.

Meanwhile, Agwor & Akani (2023), using explanatory variables (Safeguarding of

Assets and Management Integrity/Ethical Values) and as criterion variables (Asset

Misappropriation and Employee Embezzlement), examined internal control systems and

fraud prevention in the public service of Bayelsa State, Nigeria. A cross-sectional survey

research design was employed with data collected via questionnaire from 48 respondents

across the 10 purposively sampled ministries and parastatals. The Spearman Rank Order

correlation with the aid of Statistical Package for Social Sciences (SPSS) Version 20, was

adopted for data analysis. The study found a strong relationship between internal control and

fraud, safeguarding of assets significantly related to asset misappropriation, and there was a

significant relationship between management integrity/ethical values and employee

embezzlement. The implication is that emphasis should be placed on strong and effective

internal control systems in achieving organizational objectives.

 To further illustrate the importance of internal control in national economic growth

and sustainability, an empirical review by Qin (2018) on internal control studies in and

outside China, revealed that most research has focused on larger firms. And because small

enterprises drive China’s economic growth, Qin emphasized the need for future research on

internal controls in small enterprises, suggesting that high-quality controls based on COSO’s

five elements can enhance management and risk prevention, thereby promoting sustainable

development. Similarly, Olayode & Ayeni (2018) empirically examined the effects of

internal control variables of segregation of duty and system authorization on fraud detection

and prevention in Nigeria. The ordinary least square model estimation technique was

employed to analyze the relationship between the explanatory variables and the dependent

variable. Data was collected through questionnaires administered to Internal Audit and

Bursary Departments staff of 3 tertiary institutions in Ondo State, Nigeria. Seventy-five (75)

questionnaire items were distributed for the study, and the data collected was analyzed with

the aid of the updated ordinary least square regression (OLS) technique, while the data

extracted from the copies of the questionnaire was coded to suit the OLS. The findings

showed that system authorization exhibits a joint significant relationship with fraud detection

and prevention with a coefficient of determination (R2) of 0.281. The study recommends the

implementation of adequate system authorization as a procedure within the internal control

system to prevent or detect fraud.

Furthermore, in a study on the impact of internal controls on accounting information

quality in China, Luo (2017) found that effective internal controls are essential for preventing

distortions in accounting data. These controls ensure reliable financial reporting, operational

efficiency, and compliance with laws and regulations, as outlined in the COSO framework.

This is crucial because high-quality accounting information significantly affects the

efficiency of capital markets and the optimal allocation of social resources. Luo concluded
that to achieve these goals, management must strengthen internal control systems to uphold

the integrity, authenticity, and legitimacy of accounting information. In summary, the above

empirical studies all found a strong relationship between internal control and fraud

prevention. However, some studies found conflicting results about the effectiveness of

internal control systems (especially when assessing the individual components of the control

environment, risk assessment, control activities, information and communication, and

monitoring activities) in preventing fraud, even within similar sectors. Considering that in

developing economies notably, the public service is the most vulnerable to fraudulent

activities and given the limited literature on this topic within the public sector, the current

study seeks to investigate within Nigeria’s public sector, the effect of the internal control

system on fraud prevention, laying emphasis on federal ministries and parastatals.

2.4 Gap in Literature

Several studies have examined the roles of audit and internal control in promoting

fraud prevention and enhancing accountability in both public and private sectors. Research

has consistently shown that strong internal control systems and independent audits reduce the

risk of financial mismanagement and fraudulent practices. For example, studies by Okoye

and Akamobi (2009) and Ibadin and Dabor (2015) highlighted the significance of audit

mechanisms in curbing fraud in public institutions across Nigeria. However, a noticeable gap

exists in the current literature concerning localized, grassroots-level assessments—

particularly at the local government level, such as Ado-Odo/Ota LGA in Ogun State. Most

prior research has focused on federal and state government institutions or large corporate

entities, with limited attention given to the effectiveness of audit practices and internal

controls at the local government tier, where accountability structures are often weaker and

fraud risks can be significant.

 Furthermore, there is a lack of recent empirical studies that incorporate current

reforms, digital financial management tools, or changing regulatory frameworks affecting

internal control systems in local governments since 2020. This gap limits the understanding

of how modern auditing approaches are being implemented (or not) in local councils,

particularly in the context of fraud prevention and improved public accountability in

Nigeria’s decentralized governance structure. Thus, this study seeks to fill this gap by

providing updated, location-specific insights into the effectiveness of audit and internal

control measures in fraud prevention and accountability in Ado-Odo/Ota LGA.

CHAPTER THREE

RESERCH METHODOLOGY

3.0 Introduction

In order to achieve this, this chapter is devoted to the research methodology in terms

of the research design, population of the study, sample and sampling technique, research

instrument, validity and reliability of the research instrument, as well as the method of data

analysis.

3.1 Research Design

 In this study, the research design adopted is survey design. This is because the study

focused on perception of employees on the effect of training on employee job performance.

In this design, questionnaire will be used to generate data.

3.2 Population of the Study

The study population covered the total population of community Bank workers.

According to Van den Broeck, Sandøy, Brestoff (2013), the population of interest is the

study’s target population that the study intends to investigate. Population is defined by

Oberiri (2017), as the aggregate or totality of those conforming to a set of specifications. All

the items under consideration in any field of items in the ‘population’ are known as a census

inquiry, there are 400 employee of the banks. Therefore, the population of the study is 400

3.3 Area of the Study

Ado-Odo/Ota Local Government Area is one of the twenty Local Government Areas

in Ogun State, located in the southwestern region of Nigeria. Strategically positioned, it

shares borders with parts of Lagos State, making it one of the most commercially active and

densely populated LGAs in the state. The LGA serves as a key link between Lagos and the

rest of Ogun State, hosting a mix of urban and semi-urban communities. Major towns within

the LGA include Ota, Ijoko, Atan, Agbara, and Ado-Odo, with Ota serving as the

administrative headquarters. The local government is known for its vibrant industrial and
commercial activities, housing several factories, trading hubs, and small-scale enterprises.

Due to its proximity to Lagos and its growing population, Ado-Odo/Ota has seen rapid

development over the years in infrastructure, commerce, and housing.

In terms of administration, Ado-Odo/Ota LGA has a moderate-sized workforce made

up of various departments such as Finance, Internal Audit, Works and Housing, Education,

Health, and Administration. The staff strength is estimated to range between 400 employees,

including both junior and senior cadre workers. These staff members are responsible for the

day-to-day operations, implementation of government policies, revenue collection, and

delivery of public services. Despite its size and economic importance, the local government

faces several challenges, including issues related to revenue leakages, inadequate financial

controls, and the need for stronger internal audit practices. These challenges underscore the

importance of robust audit mechanisms and internal control systems to ensure fraud

prevention and promote accountability within the LGA’s administrative processes.

3.4 Sample Size

According to Van den Broeck, Sandøy, Brestoff (2013), aspect of the population that

represents it completely is known as sample. It means, the units selected from the population

as a sample, must represent all kinds of characteristics of different types of units of

population. Due to various reasons, data is collected from units of sample instead of all units

of population in majority of researches and their findings are generalised in the context of

entire population. Therefore, the sample size for the study is 400
3.5 Sampling Technique

The study adopted the purposive sampling technique based on the population of the

study.

3.6 Instrument of Data Collection

The instrument of data collection is primary data in nature involving questionnaires.

The questionnaire is designed on a 4-point Likert scale of strongly Strongly Agree (SA),

Agreed (A), Strongly Disagree (SD) Disagree (D). More importantly, the questionnaire will

be administered on a face-to-face basis by visiting the respondents in the class.

3.7 Reliability and Validity of Research Instruments

The validity of research instrument refers to the extent to which an instrument

measures what it is designed to measure. The face and content validity will be used via

expert judgment and critical examination of content and study objectives alongside the test

items. In order to ensure that the questionnaire items were appropriate and relevant, review

of literature was extensively done before construction of the questionnaire. Furthermore, to

ensure reliability of the research instrument, the test-retest method is used to establish the

reliability of instrument and results correlated using Cronbach Alpha test to check for the

internal consistency and reliability.

3.8 Method of Data Collection

The researcher personally distributed the research instrument to the respondents in

their office and return in two day interval to retrieve the questionnaire.

3.9 Method of Data Analysis

The collected data were analysed using mean and standard deviation for the research

questions. The mean acceptance bench mark is 2.5 to establish significance of result.
 CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
This chapter covers presentation of data, analysis and discussion of findings. There is

97.5% return rate of online survey adopted for data collection in this study. Therefore, the

sample size of 400 respondents calculated with Taro Yemma is used in the analysis. The data

is presented in tabular format and analysed using mean statistic.

4.1 Demographic Distribution of Respondents

Table 4.1.1 Gender Distribution of the Respondents
 Category of Frequency of Response Percentage of Response
Response
Male 259 66.4
Female 131 33.6
Total 390 100
Source: Authors’ Field Computation (2025)
Table 4.1.1 and chart above showed that male respondents were 259 (66.4%) while female

respondents were 131 (33.6%). Therefore, there are more male than female respondents.

Table 4.1.2 Age Distribution of the Respondents

Category of Frequency of Response Percentage of Response
Response
18 years to 30 years 208 53.3
31 years to 40 years 140 35.9
41years and above 42 10.8
Total 390 100
Source: Authors’ Field Computation (2025)

Table 4.1.2 showed that respondents between 18 to 30 years were 208 (53.3%), respondents

between 31 years and 40 years were 140 (35.9%) and respondents from 41 years and above

were 42 (10.8%). Therefore, there are more respondents between 18 years to 30 years.

Table 4.1.3 Religion Distribution of the Respondents

Category of Frequency of Response Percentage of Response
Response
Christianity 360 92.3
Islam 22 5.6
None 8 2.1
 Total 390 100
Source: Authors’ Field Computation (2023)
Table 4.1.3 above showed that Christian respondents were 360 (92.3%), Muslim respondents

22 (5.6%) and non-partisan religion respondents were 8 (2.1%).

Table 4.1.4 Marital Status Distribution of the Respondents

Category of Frequency of Response Percentage of Response
Response
Married 252 64.6
Single 136 44.4
Separated 2 0.5
Total 390 100
Source: Authors’ Field Computation (2025)
Table 4.1.4 showed that married respondents were 252 (64.9%), single respondents were 136

(34.9%) and separated respondents were 2 (0.5%).

Table 4.1.5 Educational background Distribution of the Respondents

Category of Frequency of Response Percentage of Response
Response
SSCE 61 15.6
BSC 249 63.8
MSC 71 18.2
PHD 9 2.3
Total 390 100
Source: Authors’ Field Computation (2025)
Table 4.1.5 above showed that respondents with SSCE as educational background were 61

(15.6%), respondents with BSC were 249 (63.8%), respondents with MSC were 71 (18.2%)

and PHD respondents were 9 (2.3%). Therefore, there are more respondents with BSC.

Table 4.1.6 Length of Service Distribution of the Respondents

Category of Frequency of Response Percentage of Response
 Response
1-10 Years 115 29.5
1-20 years 148 37.9
21- 30 years 16 4.1
30 years and above 111 28.5
Total 390 100
Source: Authors’ Field Computation (2025)
Table 4.1.5 above showed that traders respondents were 115 (29.5%), respondents served for

1-10 years, 148 (37.9%), respondents served 11-20 years respondents with 21-30 years were

16 (4.1%) and respondents with 30 years and above were 111 (28.5%).

4.2. Data Analysis based on Research Questions

Table 4.2.1 The effectiveness of audit practices in promoting financial accountability in
Ado-Odo/Ota Local Government Area
Item Description of Statement SA A D SD Total Mean Decision
Score
(4) (3) (2) (1)

1 Internal audit help identify 274 99 16 1 1426 3.65 Accepted

unusual transaction before they
happens 1096 297 32 1

2 Regular audits help identify 300 81 7 2 1459 3.74 Accepted

inconsistencies, unauthorized
transactions, and financial 1200 243 14 2
misstatements, preventing fraud
before it escalates.
3 Internal auditors assess the 274 107 6 3 1432 3.67 Accepted
effectiveness of internal control
mechanisms, ensuring that 1096 321 12 3
loopholes enabling fraud are
detected and addressed.
4 Regular audits create an 263 116 9 2 1420 3.64 Accepted
 environment of accountability, 1052 348 18 2
discouraging employees from
engaging in fraudulent activities
due to the fear of being caught
5 Internal auditors assess the 279 98 12 1 1435 3.67 Accept
effectiveness of internal control
mechanisms, ensuring that 1116 294 24 1
loopholes enabling fraud are
detected and addressed.
6 Internal audits ensure accurate 288 95 6 1 1450 3.71 Accepted
financial reporting by detecting
falsified records, misstatements, 1152 285 12 1
and errors that may indicate
fraudulent activities.

The data in Table 4.2.1 showed that the mean of respondents on the The effectiveness of

audit practices in promoting financial accountability in Ado-Odo/Ota Local Government

Area. Given the 2.50 bench mark for acceptance, items 1-6 of the questionnaire has shown

above the bench mark indicating that there are significant the effectiveness of audit practices

in promoting financial accountability in Ado-Odo/Ota Local Government Area. In summary,

respondents agreed that Internal audit help identify unusual transaction before they happens

with mean score of 3.65, that regular audits help identify inconsistencies, unauthorized

transactions, and financial misstatements, preventing fraud before it escalates with mean

score of 3.74, that Regular audits help identify inconsistencies, unauthorized transactions, and

financial misstatements, preventing fraud before it escalates with mean score of with means core

of 3.67, that Regular audits create an environment of accountability, discouraging employees

from engaging in fraudulent activities due to the fear of being caught with mean score of 3.64,

that internal auditors assess the effectiveness of internal control mechanisms, ensuring that

loopholes enabling fraud are detected and addressed 3.67and internal audits ensure accurate

financial reporting by detecting falsified records, misstatements, and errors that may indicate

fraudulent activities with mean score of 3.71.

 Table 4.2.2: The major challenges affecting the efficiency of audit and internal control
mechanisms in fraud prevention in Ado-Odo/Ota Local Government Area
Ite Description of Statement SA A D SD Total Mean Decision
m Score
(4) (3) (2) (1)

7 Lack of independence and 303 76 11 - 1462 3.74 Accepted

objectivity can affect the
effectiveness of fraud prevention 1212 228 22 -

8 Inadequate staff and expertise 123 90 176 1 1115 2.85 Accepted

can affect the effectiveness of
fraud prevention 492 270 352 1

9 Weak segmentation of duties can 67 224 91 8 1130 2.89 Accepted

 affect the effectiveness of fraud 268 672 182 8
prevention
10 Ineffectiveness in the use of 109 95 186 - 1093 2.80 Accepted
technology can affect the
436 285 372 -
effectiveness of fraud prevention
11 Management consistent 266 99 22 3 1408 3.61 Accept
overriding of control can affect
the effectiveness of fraud 1064 297 44 3
prevention
12 Poor ethical culture and 120 90 176 4 1106 2.83 Accepted
awareness can affect the
effectiveness of fraud prevention 480 270 352 4

The data in Table 4.2.2 showed that the mean of respondents on the impact of audit procedure

on prevention of fraud in selected banks in Nigeria. Given the 2.50 bench mark for

acceptance, items 7-12 of the questionnaire has shown above the bench mark indicating that

there are significant impact of audit procedure on prevention of fraud in selected banks in

Nigeria. In summary, respondents agreed that lack of independence and objectivity can affect

the effectiveness of fraud prevention with mean score of 3.74, that inadequate staff and

expertise can affect the effectiveness of fraud prevention with mean score of 2.85, weak

segmentation of duties can affect the effectiveness of fraud prevention with mean score 2.89,

Ineffectiveness in the use of technology can affect the effectiveness of fraud prevention with

mean score 2.80, that management consistent overriding of control can affect the

effectiveness of fraud prevention with mean score of 3.61 and poor ethical culture and

awareness can affect the effectiveness of fraud prevention with mean score of 2.83.

Table 4.2.3: What is the relationship between internal control practices and the
incidence of fraud in Ado-Odo/Ota Local Government Area
Ite Description of Statement SA A D SD Total Mean Decision
m Score
(4) (3) (2) (1)
13 Auditors ensure that LGA 303 76 11 - 1462 3.74 Accepted
comply with regulatory
requirements from the Central 1212 228 22 -
Bank of Nigeria (CBN) and
other financial authorities,
minimizing fraud risks.
14 The presence of an active 123 90 176 1 1115 2.85 Accepted
internal audit function
discourages fraudulent practices, 492 270 352 1
as employees know their actions
are being monitored.
15 Regular auditing ensures that 67 224 91 8 1130 2.89 Accepted
strong internal control systems
are in place, preventing 268 672 182 8
loopholes that fraudsters could
exploit
16 Internal audits promote 109 95 186 - 1093 2.80 Accepted
accountability and ethical
436 285 372 -
practices among bank
executives, ensuring that
financial operations align with
corporate governance principles
17 Auditors conduct fraud risk 266 99 22 3 1408 3.61 Accept
assessments, identifying
potential areas of fraud and 1064 297 44 3
implementing preventive
measures.
18 Audits assess whether 120 90 176 4 1106 2.83 Accepted
employees adhere to ethical
banking standards, identifying 480 270 352 4
potential misconduct that could
lead to fraud.

The data in Table 4.2.2 showed that the mean of respondents on the what is the relationship

between internal control practices and the incidence of fraud in Ado-Odo/Ota Local

Government Area. Given the 2.50 bench mark for acceptance, items 7-12 of the questionnaire

has shown above the bench mark indicating that there are significant impact of audit

procedure on prevention of fraud in selected banks in Nigeria.. In summary, respondents

agreed that Auditors ensure that LGA comply with regulatory requirements from the Central

Bank of Nigeria (CBN) and other financial authorities, minimizing fraud risks with mean

score of 3.74, that the presence of an active internal audit function discourages fraudulent

practices, as employees know their actions are being monitored. with mean score of 2.85, that

Internal audits promote accountability and ethical practices among bank executives, ensuring

that financial operations align with corporate governance principles with mean score 2.89,

that Internal audits promote accountability and ethical practices among bank executives,

ensuring that financial operations align with corporate governance principles with mean score

2.80, that Auditors conduct fraud risk assessments, identifying potential areas of fraud and

implementing preventive measures with mean score of 3.61 and audits assess whether

employees adhere to ethical banking standards, identifying potential misconduct that could

lead to fraud with mean score of 2.83.

4.3 Discussion of the Finding

As regards to the effectiveness of audit practices in promoting financial accountability

in Ado-Odo/Ota Local Government Area, the result indicated that there are significant the

effectiveness of audit practices in promoting financial accountability in Ado-Odo/Ota Local

Government Area. Majority of the respondents agreed that Internal audit help identify

unusual transaction before they happens with mean score of 3.65, that regular audits help

identify inconsistencies, unauthorized transactions, and financial misstatements, preventing

fraud before it escalates, that regular audits help identify inconsistencies, unauthorized

transactions, and financial misstatements, preventing fraud before it escalates , that Regular

audits create an environment of accountability, discouraging employees from engaging in

fraudulent activities due to the fear of being caught , that internal auditors assess the

effectiveness of internal control mechanisms, ensuring that loopholes enabling fraud are
detected and addressed 3.67and internal audits ensure accurate financial reporting by detecting

falsified records, misstatements, and errors that may indicate fraudulent activities .

As regards to the impact of audit procedure on prevention of fraud in selected banks in

Nigeria, there are significant impact of audit procedure on prevention of fraud in selected

banks in Nigeria. Majority of the respondents agreed that lack of independence and

objectivity can affect the effectiveness of fraud prevention, that inadequate staff and expertise

can affect the effectiveness of fraud prevention, weak segmentation of duties can affect the

effectiveness of fraud prevention, Ineffectiveness in the use of technology can affect the

effectiveness of fraud prevention, that management consistent overriding of control can affect

the effectiveness of fraud prevention and poor ethical culture and awareness can affect the

effectiveness of fraud prevention.

As regards to the relationship between internal control practices and the incidence of

fraud in Ado-Odo/Ota Local Government, there are significant impact of audit procedure on

prevention of fraud in selected banks in Nigeria.. Majority respondents agreed that Auditors

ensure that LGA comply with regulatory requirements from the Central Bank of Nigeria

(CBN) and other financial authorities, minimizing fraud risks that the presence of an active

internal audit function discourages fraudulent practices, as employees know their actions are

being monitored, that Internal audits promote accountability and ethical practices among

bank executives, ensuring that financial operations align with corporate governance

principles, that Internal audits promote accountability and ethical practices among bank

executives, ensuring that financial operations align with corporate governance principles, that

Auditors conduct fraud risk assessments, identifying potential areas of fraud and

implementing preventive measures and audits assess whether employees adhere to ethical

banking standards, identifying potential misconduct that could lead to fraud.

 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

The study examines the effect of audit and internal control in fraud prevention and

accountability a case study of Ado-Odo Ota LGA Ogun State. In order to achieve the

objectives and make logical conclusions, the study is structured into five chapters. The

chapter one covers the background to the study, statement of the problem, objectives of the

study, significance of the study, scope of the study and operational definition of terms.

The chapter two relevant literature of the study of previous research work conducted in the

same or related topic. The chapter the conceptual, theoretical and review of related empirical

literature were reviewed. The chapter three covers the methodology employed in the study,

this include the research design, population of the study, sample size and sampling

techniques, research instrument, validity of the instrument, data collection procedure and

method data collection.

Chapter four covers the presentation, analysis and interpretation of data retrieved from

the questionnaire. The chapter covers the analysis of demographic characteristics of the

respondents, descriptive analysis and the chi-square analysis which was used to test the

hypothesis formulated in chapter one. The chapter also covers the discussion of results. The

chapter five covers the summary, conclusion and recommendations of the study.

5.2 Conclusion

1. There is significant impact of audit procedure on detection of fraud in selected banks

in Nigeria.

2. Internal audit help identify unusual transaction before they happens, that regular

audits help identify inconsistencies, unauthorized transactions, and financial

 misstatements, preventing fraud before it escalates, and internal auditors assess the

effectiveness of internal control mechanisms, ensuring that loopholes enabling fraud

are detected

3. Regular audits create an environment of accountability, discouraging employees from

engaging in fraudulent activities due to the fear of being caught.

4. Internal auditors assess the effectiveness of internal control mechanisms, ensuring that

loopholes enabling fraud are detected and addressed and internal audits ensure

accurate financial reporting by detecting falsified records, misstatements, and errors

that may indicate fraudulent activities.

5. There are significant impact of audit procedure on prevention of fraud in selected

banks in Nigeria.

6. Auditors ensure that banks comply with regulatory requirements from the Central

Bank of Nigeria (CBN) and other financial authorities, minimizing fraud risks and

regular auditing ensures that strong internal control systems are in place, preventing

loopholes that fraudsters could exploit,

7. Internal audits promote accountability and ethical practices among bank executives,

ensuring that financial operations align with corporate governance principles, that

auditors conduct fraud risk assessments, identifying potential areas of fraud and

implementing preventive measures

8. Audits assess whether employees adhere to ethical banking standards, identifying

potential misconduct that could lead to fraud.

5.3 Recommendations

Based on the findings and conclusions of this study, the following recommendations

are proposed to enhance the effectiveness of internal audit procedures in fraud prevention in

selected LGA administration in Nigeria:

Strengthen Internal Audit Functions: LGA administration should enhance their internal

audit departments by providing adequate resources, training, and technology to improve fraud

detection and prevention.

Implement Proactive Fraud Detection Measures: LGA administration should integrate

real-time fraud detection systems that allow internal auditors to identify unusual transactions

before they occur.

Ensure Regular and Unannounced Audits: Management should conduct frequent and

surprise audits to reinforce accountability and discourage fraudulent activities among

employees.

Enhance Internal Control Mechanisms: LGA administration should continuously assess

and update their internal control systems to eliminate loopholes that fraudsters may exploit.

Strengthen Regulatory Compliance: LGA administration should ensure strict adherence to

the Central Bank of Nigeria (CBN) regulations and other financial authorities' guidelines to

minimize fraud risks.

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 SURVEY INSTRUMENT (QUESTIONNAIRE)

Dear Respondent,

The questionnaire is formulated with the aim toTHE EFFECT OF AUDIT AND

INTERNAL CONTROL IN FRUAD PREVENTION AND ACCOUNTABILITY A

CASE STUDY OF ADO-ODO OTA LGA OGUN STATE. To participate in this survey, it

will take approximately 10 minutes. You are expected to answer on the basis on your

knowledge, opinion and idea. Hence, there is no correct or wrong answer in the options.

Furthermore, your participation is voluntary and you can wish to decline your intention to

participate in the survey at any given time. However, I would highly appreciate your

involvement in this study, if you decide to participate. Your response will be treated as

confidential data and will be used only for the research purpose of the study.

Thank you for your time and participation. Please start the survey by clicking on the next

button below.

PART A

A: Demographic Profile of Respondents

Direction: Please fill the box that suits your decision for each of the question

1. Age: 20 Yrs to 30Yrs 31 Yrs to 40 Yrs 41Yrs and above

2. Religion: Christian Muslim others specifiy

3. Length of Service: 1-10Yrs 11-20 Yrs 21 Yrs and above

4. Educational Qualification: SSCE B. Sc M. Sc

 5. Marital Status: Single Married others specify

PART B

A 4 Point Likert-scale will be used to answer the statement in this part. The answer ranges
from
4-1 (Strongly Agreed to strongly disagree). You should answer the statement based on your
knowledge of the subject topic.
The effectiveness of audit practices in promoting financial accountability in
Ado-Odo/Ota Local Government Area
Ite Description of Statement SA A D SD
m
(4) (3) (2) (1)
1 Internal audit help identify unusual transaction
before they happens

2 Regular audits help identify inconsistencies,

unauthorized transactions, and financial
misstatements, preventing fraud before it
escalates.
3 Internal auditors assess the effectiveness of
internal control mechanisms, ensuring that
loopholes enabling fraud are detected and
addressed.
4 Regular audits create an environment of
accountability, discouraging employees from
engaging in fraudulent activities due to the fear
of being caught
5 Internal auditors assess the effectiveness of
internal control mechanisms, ensuring that
loopholes enabling fraud are detected and
addressed.
6 Internal audits ensure accurate financial
reporting by detecting falsified records,
misstatements, and errors that may indicate
fraudulent activities.
 The major challenges affecting the efficiency of audit and internal control mechanisms
in fraud prevention in Ado-Odo/Ota Local Government Area
Ite Description of Statement SA A D SD
m
(4) (3) (2) (1)
7 Lack of independence and objectivity can affect
the effectiveness of fraud prevention

8 Inadequate staff and expertise can affect the

effectiveness of fraud prevention

9 Weak segmentation of duties can affect the

effectiveness of fraud prevention

10 Ineffectiveness in the use of technology can affect

the effectiveness of fraud prevention
11 Management consistent overriding of control can
affect the effectiveness of fraud prevention

12 Poor ethical culture and awareness can affect the

effectiveness of fraud prevention

What is the relationship between internal control practices and the incidence of fraud in
Ado-Odo/Ota Local Government Area
Ite Description of Statement SA A D SD
m
(4) (3) (2) (1)
13 Auditors ensure that LGA comply with
regulatory requirements from the Central Bank
of Nigeria (CBN) and other financial authorities,
minimizing fraud risks.
14 The presence of an active internal audit function
discourages fraudulent practices, as employees
know their actions are being monitored.

15 Regular auditing ensures that strong internal

control systems are in place, preventing
loopholes that fraudsters could exploit
16 Internal audits promote accountability and
ethical practices among bank executives,
ensuring that financial operations align with
corporate governance principles
17 Auditors conduct fraud risk assessments,
identifying potential areas of fraud and
implementing preventive measures.
18 Audits assess whether employees adhere to
ethical banking standards, identifying potential
misconduct that could lead to fraud.