CHAPTER ONE

INTRODUCTION
1.0.1BACKGROUND TO THE STUDY

It is feared that the inability of management to ensure effective enforcement to rules and
regulation have rendered that operation of internal control system s the Banking industry open to
abuse. The net effect could be that every one carries out his schedule off duties in any manner he
likes which consequently gives those wishing to commit fraud their long expected golden
opportunity.

Prior to 1952, there was no form of Banking art or ordinance to regulate the establishment and
operations of Commercial Banks or a Central Banks to supervise the control of Banking
Nigerian. During that time many Banks was registered some of which never operated and even
since that period, fraud has remained a permanent feature in out Banking industry. This resulted
in the loss of faith and trust in the financial institutions by Nigeria and consequently, under-
development of the banking habit in the country.

However with the introduction of the first banking ordinance in 1952, and the central Bank of
Nigeria (CBN) Act in 1959 and other subsequent Acts and ordinances with their amendments
over the years, used to regulate and control the activities and operations of financial institutions
in the country, fraud in financial institution have rather increased in magnitude and the methods
used to perpetrate them acquire greater sophistication day after day. Now with the introduction
of modern procedures and advancement in information technology such as those in
communication system, automatic electric gadgets and computer into the banking system
coupled with the various precautionary measures taken by bank agent, fraud have rather taken
nuclear dimensions and the size of sums involved increased at a geometric rate and also with the
held of Anipkitan (1976) a banker of repute, I Ashimi (1976, p6) a banker of prudent, Ughamadu
N. (1991) observed to be liable in its banking sector and be very porous to fraud and many others
who have contributed to maintain a prudently measured to the ascertainment of financial banking
assets and liabilities.

Consequently, the confirmed existence of financial institutions rests delicately on the maintains
of public confidence. This calls for the establishment of an effective system of internal control
which among other things will help to ensure that the laid down procedures standard and statuary
requirements.

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To establish a sound internal control system various organization adopt scope of their operations.
Internal control system requires a continues check and rechecking of day-to-day activities of the
business in order to ensure the correctness and firmness of the accounting records, and to detect
and expose any deviation when it has accord. Most financial institutions loose confidence of the
people not only through fraudulent use of funds but also through some detect infraudulent
practices and or syndication of some dishonest staff facilitated by defects in the Bank internal
control system. There is therefore a great need to climate or minimize the defects loopholes and
make money effective and operational to quard against the occurrence and re-occurrence of fraud
in our financial institutions

. Apart from the prevention and detection of fraud, internal controls are put in place to reflect
the strength of the overall accounting environment in an organisation as well as the accuracy of
its financial and operational records. “Data security failures can cost a company in several ways.
Fines for a single incident have reached as high as $15 million. Legal, IT recovery, and other
costs can be several times that. Violations of data security laws can lead to increased regulatory
oversight. And then there’s the damage to reputation” (Drew, 2012).

One main managerial function that centrally is tasked with the business of capitalising on
opportunities and offsetting the threats is the role of internal audit. Internal audit as a whole, in
essence, can be seen as a special kind of economic control which is concerned with any phase of
business activity which may be of relevant to management. ICT has virtually become
indispensable part in the operations of any modern accounting and management information
systems. Auditing, therefore, involves going beyond the accounting information or financial
records to obtain a comprehensive understanding of the operations under review (Chun, 1997).
This is done by testing and understanding of the system is required ‘to substantiate their opinions
and/or provide advice to management on internal controls’ (IT Governance Institute, 2007).

1.2 STATEMENT OF THE PROBLEM

It is true that many have responsibility in a organization but the accountant is held liable or
accountable for the financial irresponsibility of others as well as his own. This feature is a cause
for concern because, control of this nature may not be an easy task as the accountant may not
have all the time to check every transaction of financial orders. With the advent of computerized
accounting systems, in the management of funds practice fraudulent are now on the increase due
to the less of audit trail by the auditors eventually leading to failure of many businesses. Thus, a
good internal control system that encompasses the whole the system of control both financial and

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administrative to carry on the business of the enterprise in an orderly manner has to be put in
place to bring sanity to the entire organization.

Following the recent failure of some banks that led to the reformation in the banking industry,
the confidence of the bank customer, that is savers of fund, and of the lenders of money from
bank has been lost. Attributed to the failure is also the weakness in the Internal Control System
and the prevalence of fraudulent practices among staffs and management of the bank.

An effective internal control system and good system of fraud prevention will ensure efficient
mobilization of savings and its allocation to productive investment, thereby promoting growth
and development, as well as achieving their objectives, profitability, solvency and ultimately
restores the lost confidence of customers and lenders overtime. However, the system of internal
control is mainly the function of management to establish such, and the ultimate aim of this is to
minimize and prevent the occurrence of fraud in the bank, thus

It should be noted however that fraudulent practices in the banks is usually cause through lapses
or inadequacies which manifested in various ways. Therefore, there is need for the bank
management to ensure that the internal control system is very strong as much as possible to cover
those lapses and inadequacies which manifested in various ways known to them.

1.3 OBJECTIVES OF THE STUDY

The main objective of this study is to examine the usefulness of internal control system as a basis
in a computerized accounting system, while the specific objectives are;

To determine the impact of Internal Control System on the overall management of Nigeria banks

To examine the impact of the Internal Control system on fraud prevention and detection.

To highlight the major causes of fraud and actors that contributed to the incidence of fraud in
banks.

1.4 RESEARCH QUESTIONS

Based on the purpose of the study, the following research questions will be used in the course of
this research:

Does the Internal Control System have impact on the overall management of banks?

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Can the Internal Control Systems of bank ensure fraud prevention and detection?

Can strong internal control system fish-out actors that contributed to incidence of fraud in banks?

1.5 RESEARCH HYPOTHESIS

Hypothesis is a general assumption which may be true or not Kerlinger (1986), defined a
hypothesis as a tentative, conjectural statement of the relationship between two or more
variables. The research work is intended to test the following:

Ho: Internal Control System does not have impact on the overall management of
banks

Hi: Internal Control System has impact on the overall management of banks.

Ho: Internal Control Systems of bank cannot ensure fraud prevention and detection.

Ha: Internal Control Systems of bank can ensure fraud prevention and detection

Ho: an inadequate internal control system cannot cause perpetration of fraud.

Ha: an inadequate internal control system can cause perpetration of fraud.

1.6 SCOPE OF THE STUDY

The study focuses on recording processing and financial control to ensure the conformity of the
role and regulations relating to control process. The scope of this study is limited to the data
collected from First bank Plc, Agbara, Ogun State.

1.7 SIGNIFICANT OF THE STUDY

Even through this study is not a very comprehensive and exhaustive one as a result of some
limitations of all aspects of the work is very relevant in one way or the other to the Nigerian
Banking Industries as a whole, primarily, this study is designed for all those may be interested in
carrying out further study on internal control system as it related to fraud prevention in financial
institutions in Nigeria.

Moreover, banks in Nigeria will deprive great assistance from this research work in detecting
fraud in bank system and subsequently preventing and minimizing fraud. This can be achieved
by adopting and implementing the various suggestions and recommendation made this study in
their control systems.

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Finally, it is hoped that this study will serve as a reference material to both students and other
researchers interested in a similar discourse.

1.8 LIMITATION OF THE STUDY

Here the limitation composed on this study is that of shortage of time and financial constraints.
The time limit set for the submission of these project work was short and this made to be carried
out.

It was also observed that some of the respondents were reluctant in giving out the information
required. Most of them finally agreed after much persuasion and on the condition of anonymity.

1.9 OPERATIONAL DEFINITION OF TERMS

All the technical terms used in this research work shall be explained in this aspect. Such as

A. FRAUD: There is no commonly accepted definition of the term fraud. Experts and
academicals alike have defined if in various ways; The oxford advanced learners dictionary
defined fraud as “act of deceiving somebody illegally in order to make money or obtain goods

The term ‘fraud’ refers to intentional misrepresentations of financial information by one or more
individuals among management, employees, or third parties. It involves the use of criminal
deception to obtain an unjust or illegal financial advantage. Fraud involves the use of criminal
deception to obtain an unjust or illegal gain.

B. INTERNAL CONTROL SYSTEM: The whole system of control both financial and other
wide established by management in order to carry on the business of the enterprise in an orderly
and efficient manner to ensuring adherence to management policies, safeguard then assets and
secure as for as possible, the completeness and accuracy of the records.

C. PREVENTION: The system of stopping the bad attitude of fraud from happening.

D. ACCOUNTING SYSTEM: Accounting system is able to records, procedures and

equipment that routinely deal with the events affecting the financial performance and position of
the entity. In other words, an accounting system comprises documents, journals, ledgers and
financial reports.

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E ACCOUNTING CONTROL: Accounting control comprises the method and procure that are
mainly concerned with the authorization of transactions, the safeguard of assess and the accuracy
of the financial record.

F. MANAGEMENT: Management is a specific group of people who control and direct the
resources of the organization towards achieving organizational objectives.

1.9.1 HISTORICAL BACKGROUND OF THE STUDY

First Bank of Nigeria Limited (First Bank) is Nigeria’s premier commercial bank and most
valuable banking brand. With over 10 million active customer accounts and more than 750
business locations, we provide a comprehensive range of retail and corporate financial services
to customers and investors wishing to explore the vast business opportunities available in Nigeria
and our business locations across Africa, Europe, Middle East and Asia. To live our promise of
‘YOU First’, we design products and services to support your personal, family and business
needs. Our array of products – cards, channels, transfer services, loans & advances, deposit
products, guarantees, distributorship financing, cash management and foreign trade service –
create convenience for your transactions, empower your businesses and offer flexibility of
choice. We are leveraging on technology to drive optimised and cost effective service delivery,
enhance transaction efficiency, risk management as well as entrench collaboration, innovation
and creativity across the group.

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 CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION

Since internal control is a very important aspect of the function of management there is the need
to have an in-depth study of the subject.

Many studies have already been done on the subject, therefore the researcher seek to review the
works already done on the subject as this will help to provide an insight into the research.

2.1 CONCEPTUAL FRAMEWORK

2.1.1 Concept of Internal Control

There are many definitions already given to the word internal control. This will depend on the
organization and what it trades on like banking company being the study in this work. Internal
control is being applied in area of stock, cash, staff (organization) etc.

Internal control, as defined by accounting and auditing, is a process for assuring of an

organization's objectives in operational effectiveness and effeciency, reliable , and compliance
with laws, regulations and policies. A broad concept, internal control involves everything that
controls risks to an organization.

It is a means by which an organization's resources are directed, monitored, and measured. It

plays an important role in detecting and preventing fraud and protecting the organization's
resources, both physical (e.g., machinery and property) and intangible (e.g., reputation or
intellectual property such as trademarks).

At the organizational level, internal control objectives relate to the reliability of financial
reporting, timely feedback on the achievement of operational or strategic goals, and compliance
with laws and regulations. At the specific transaction level, internal controls refers to the actions
taken to achieve a specific objective (e.g., how to ensure the organization's payments to third
parties are for valid services rendered.) Internal control procedures reduce process variation,
leading to more predictable outcomes. Internal control is a key element of the Foreign Corrupt
Practices Act (FCPA) of 1977 and the Sarbanes–Oxley Act of 2002, which required
improvements in internal control in United States public corporations. Internal controls within

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business entities are also referred to as operational controls. The main controls in place are
sometimes referred to as "key financial control.

Three elements of the internal control system are:

1. Environment control: The attitude, alertness, and work-zeal of directors, managers and
shareholders are reflected through environmental control.

2. Accounting system: Accounting system means some procedures and recordings with which
identification of business transactions, classification, summarization, statement preparation and
analysis for timely presentation of correct information are performed.

3. Control procedure: The additional policies and procedures adopted by the business authority
for ensuring the achievement of the specific goal of a business organization are the controlling
procedures.

These control procedures are:

 Proper delegation of power,

 Segregation of responsibility,

 Preparation and use of documents,

 Adoption of adequate security measures to protect the properties, and

 Independent control over the execution of activities.

An internal control system, not only prevent fraud forgery but also fulfills other objectives:

 . The business organization implements its policies complying with the prevailing laws of
the country.

 Employees and officers discharge their assigned responsibilities to increase efficiency in

the execution of work.

 Financial statements provide correct and reliable information maintaining proper

accounts.

In light of the above discussion, it can be briefly stated that the overall policies and plans adopted
by the management for the proper execution of business activities are called the internal control
system.

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 Components of Internal Control System

 Controlling the environment

The control environment is the basis of other elements of all other components of the internal
control system. Moral values, managerial skills, the honesty of employees and managerial
direction, etc. are included in the controlling environment

 Risk assessment

After setting up the objective of business, external and internal risks are to be assessed. The
management determines risk controlling means after examining the risks related to every
objective.

 Control activities

The management establishes a controlling activities system to prevent risk associated with every
objective. These controlling activities include all those measures that are to be followed by the
employees.

 Information and communication

Relevant information for taking decision are to be collected and reported in proper time. The
events that yield data may originate from internal or external sources.

Communication is very important for achieving management goals. The employees are to realize
what is expected of them and how their responsibilities are related to the activities of others.
Communication of the owners with outside parties’ like’s suppliers is also very important.

 Monitoring

When the internal control system is in practice, the organization monitors its effectiveness so that
necessary changes can be brought if any serious problem arises.

Responsibility for Internal Control System

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It is the general responsibility of all employees, officers, management of a company to follow the
internal control system.

The under-mentioned three parties have definite roles to make internal control system effective:

1. Management

Establishment and maintenance of an effective internal control structure mainly depends on the
management. Through leadership and example or meeting, the management demonstrates ethical
behavior and integrity of character within the business.

2. Board of directors

The board of directors possessing a sound working knowledge gives directives to the
management so that dishonest managers cannot ignore some control procedures. The board of
directors stops this sort of unfair activity. Sometimes the efficient board of directors having
access to the internal audit system can discover such fraud and forgery.

3. Auditors

The auditors evaluate the effectiveness of the internal control structure of a business organization
and determine whether the business policies and activities are followed properly. The
communication network helps an effective internal control structure in execution. And all
officers and employees are part of this communication network

Internal control should have the following objectives:

 Efficient conduct of business:

Controls should be in place to ensure that processes flow smoothly and operations are free from
disruptions. This mitigates against the risk of inefficiencies and threats to the creation of value in
the organisation.

 Safeguarding assets:

Controls should be in place to ensure that assets are deployed for their proper purposes, and are
not vulnerable to misuse or theft. A comprehensive approach to his objective should consider all
assets, including both tangible and intangible assets.

 Preventing and detecting fraud and other unlawful acts:

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Even small businesses with simple organization structures may fall victim to these violations, but
as organizations increase in size and complexity, the nature of fraudulent practices becomes
more diverse, and controls must be capable of addressing these.

 Completeness and accuracy of financial records:

An organization cannot produce accurate financial statements if its financial records are
unreliable. Systems should be capable of recording transactions so that the nature of business
transacted is properly reflected in the financial accounts.

 Timely preparation of financial statements:

Organizations should be able to fulfil their legal obligations to submit their account, accurately
and on time. They also have a duty to their shareholders to produce meaningful statements.
Internal controls may also be applied to management accounting processes, which are necessary
for effective strategic planning, decision taking and monitoring of organizational performance..

Overall Objective of Internal Controls

The objective of every type of internal control within an organization is to ensure ethical and
efficient functioning in the following three areas:

• Operations: Internal controls help an organization operate at peak efficiency when it comes to
finances, personnel and business procedures. They also aid organizations in loss prevention and
future projections.

• Reporting: Internal controls make all types of reporting more accurate, financial or otherwise.
Their objective is to identify problems, solve them and then prevent them in the future, all while
documenting things thoroughly and accurately.

• Compliance: Internal controls aim to ensure that a company is in compliance with all internal
and external rules and regulations that pertain to its industry. This includes everything from
manufacturing to labor laws, branding and even OSHA standards.

Common control procedures

 Physical controls:

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These controls include restrictions on access to buildings, specified office or factory areas or
equipment, such as turnstiles at the entrance to the premises, swipe cards and passwords. They
also include physical restraints, such as fixing non-current assets to prevent removal.

 Authorisation and approval limits:

Many employees must adhere to authorisation limits, and these will usually be specified in the
terms of employment. For example, a junior manager may be permitted to book business flights
up to the value of $500, but for tickets costing more than this, the purchase may have to be
approved by someone more senior.

 Segregation of duties:

To minimise the risk of errors and fraud, duties associated with cash handling are often
segregated. For example, in the post room of a company that received cash by post, the employee
recording the cash will be a different person to the one who opens the post. Segregation is also
relevant to other functions. At executive level, it is now best practice to segregate the roles of
chairman and chief executive officer, and as an independent assurance function, internal audit
should be totally segregated from the finance department, with a reporting line direct to the board
of directors or the audit committee.

 Management controls:

These controls are operated by managers themselves. An example is variance analysis, through
which a manager may be required as part of their job to consider differences between planned
outcomes and actual performance. Performance management of subordinates is also an integral
part of many managerial positions. Further down the chain of command, supervision controls are
exercised in respect of day-to-day transactions. Organization controls operate according to the
configuration of the organization chart and line/staff responsibilities.

 Arithmetic and accounting controls:

These controls are in place to ensure accurate recording and processing of transactions.
Procedures here include reconciliations and trial balances.

 Human resources controls:

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  Controls are implemented for all aspects of human resources management. Examples
include qualifications verification, references and criminal record checks on recruits,
checks on staff who have to be attested for complete and training effectiveness.

2.1.2. Internal check and internal audit

Internal check is a system through which the accounting procedures of an organisation are so laid
out that the accounts procedures are not under the absolute and independent control of any
person. The work of one employee is complementary of that of another, enabling a continuous
audit of the business to be made.

The essential elements of an internal check are:

By allocating duties in this way, no one person has exclusive control over any transaction.

Definition and purposes of internal audit:

Internal audit may be defined as an independent appraisal function established within an

organisation to examine and evaluate its activities as a service to the organisation.

Internal audit supports management in the effective discharge of their responsibilities. To this
end, internal audit furnishes management with analyses, appraisals, recommendations, counsel
and information concerning the activities reviewed.

Objectives of internal audit

The formal objectives of internal audit may include some or all of the following:

 review of accounting and internal control systems

 examination of financial and operating information

 review of the ‘three E’s (economy, efficiency and effectiveness)

 review of compliance with laws and regulations

 review of arrangements for the safeguarding of assets

 review of implementation of corporate goals and objectives

 identification of significant risks to the organisation, and monitoring risk management

policy and risk management strategies

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  special investigations as required.

Why internal audit necessary?

The importance of internal audit was highlighted by the Turnbull Report. It states that listed
public companies that do not have an internal audit function should review the need to have such
a function at least annually. Turnbull goes on to state that listed public companies that do have an
internal audit function should review the scope, authority and resources of this function at least
annually.

Turnbull suggests that the need for the internal audit function will depend on several factors.
These include:

Internal audit and internal control

Internal audit is an internal but independent assurance function. While internal auditors are
usually employees of the organization, they should operate independently of management so that
their analyses, judgements and reports are free from bias or undue influence. The head of internal
audit should report to the board of directors, or to the audit committee. Some organizations
reinforce independence by outsourcing the internal audit function to professional external firms.

Internal audit testing is the internal assessment of internal controls and as such is a management
control to ensure compliance and conformity of internal controls to pre-determined standards.

Key risks: Internal audit reviews and reports on internal controls in relation to key risks affecting
the organization. The objective here should be to test the extent to which the controls will control
the risk if it crystallizes. The conclusions of these reports should enable management to
reconsider the controls and modify or redesign them if appropriate.

Financial and operating information:

Internal audit may examine this information in order to ensure it is accurate, fit for purpose and
timely. Tests may be applied to determine whether information is correctly measured and
therefore suitable as a basis for informing management and external stakeholders

Compliance: Increasingly, organizations have to implement performance standards in relation to

compliance. This may be to satisfy the demands of external regulators, or to operate to pre-
determined internal standards. Internal audit should review operations for compliance with such

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standards. In this respect, the work of internal auditors in broadening, as organisations
increasingly pursue compliance not only with industry standards for products and service
provision, but also with criteria relevant to environmental standards.

Types of audit

In the course of their duties, internal auditors may carry out various types of audit. These include
the following:

 Operational audits may be concerned with the efficiency of the organisation’s activities.
They consider performance relative to pre-determined criteria.

 Systems audits are used to test and evaluate controls as described in the last section. They
test whether the controls can be relied upon to ensure that resources are allocated and
managed effectively. They also test whether the information provided by the
organisation’s systems is accurate. Compliance tests verify whether internal controls are
being applied in a proper manner. Substantive tests verify the accuracy of figures, and
can be used to identify errors and omissions.

A transactions or probity audit is concerned with detecting fraud and other types of criminal or
unlawful behaviour. However, it can also be extended to matters relating to fairness of dealings,
impartiality, accountability and transparency, sometimes considered to be within the scope of
social audit . Generally, social audit may be concerned with any matters relating to governance.

Internal control according to the consultation committee of accounting bodies in the united
kingdom is the whole system of controls, financial and otherwise established by the management
in order to carry on the business of an enterprise in an orderly and efficient manner, ensure
adherence to management policies, safeguard the assets and secure as far as possible the
completeness, reliability and accuracy of records, the individual component of an internal control
system are known as controls or internal controls. Since internal control comprises of internal
audit and internal check, there is a need for one to study the internal audit critically and
efficiency control.

Internal auditing is a staff function rather than a line function. Therefore the internal auditor
does not exercise direct authority over other person in the organization whose work he reviews.
The internal auditor appraise policies, plans procedures and record but his review and appraisal

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do not in any case relieve the other persons in the organization of responsibilities assigned to
them.

The emphasis in many companies e.g. (First Bank Nigeria plc Agbara) is directed towards the
review of the accounting records for accuracy and the properly protective function involved in
counts of cash, funds, bank reconciliation, inspection of securities, internal counts and check and
payroll preparation and distribution, the title of internal auditor is sometimes given to a line
executive who supervises the accounting function and has no real auditing responsibility. For
examples, executive of the line office staff look up to the internal audit group for help in
supplementing their own visit to the field. They recognize that without the help of the internal
auditor in checking on adherence to company policies and procedures of the various plants.

Ther problem of control would be considerably increased and they find it reasoning to know that
there is an independent appraisal group out in the field checking operations for any serious
discrepancies.

However, in many companies, the function is properly recognized and much valuable work is
performed by internal auditors who operate alone or have one or two assistants.

2.1.3 The Concept of Fraud

Hornby (1998) defines fraud as an action or an instance of checking somebody in order to make
money or obtain goods illegally. Archibong (1992) describes fraud as a predetermined and well
planned tricky process or device usually undertaken by a person or group of persons, with the
sole aim of checking another person or organization, to gain ill- gotten advantages, be it
monetary or otherwise, which would not have accrued in the absence of such deceitful
procedure.

2.1.4 Classification of Fraud

Basically, two broad schemes of frauds have been identified, they include:

i) Management fraud and (ii) Employees fraud.

According to Fakunle (2006), management fraud often involves the manipulation of the
records and the account, typically by the enterprise’s senior officers with a view to
benefitting in some way. An example is obtaining finance under false pretences, or
concealing a material item, i.e. window dressing. Robertson (1996) defines management

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 fraud as a deliberate fraud, committed by management that injures investors and
creditors, through materially misleading financial statements.

 Management fraud is sometimes called fraudulent financial reporting. It is usually

perpetrated by the management staff of an organization, which includes directors, general
managers and managing directors. The classes of victims of management frauds are
investors and creditors and the instrument of perpetration is financial statement. The
essence of management fraud most times is to attract more shareholders to come and
invest in the organization.

 Employee fraud: These are frauds that are perpetrated by the employees of the
organization. Robertson (1996) defines it as the use of fraudulent means to take money or
other property from an employer. It usually involves falsification of some kind, like false
documents, lying, exceeding authority, or violating an employer’s policy, embezzlement
of company’s funds. Employee fraud is more likely to be encountered where internal
controls are weak.

2.1.5 Type of Bank’s Common Fraudulent Practices

Ovuakporia (1994) gave account of thirty three types of bank frauds in the banking sector. These
includes theft, embezzlement, defalcations, forgeries, substitution, suppressions, payment against
unclear effects, unauthorized lending, lending to ghost borrowers, kite flying and cross firing,
unofficial borrowing, foreign exchange malpractice, impersonation, over involving, manipulation
of vouchers, fictitious accounts, over and under valuation of properties, false declaration of cash
shortages, falsification of status reports, duplication of cheque books, mail transfer, interception
of clearing cheques, computer frauds, fake payments, teeming and lading, robbers and others.

The above numerous types of fraudulent practices in banks, serve as threats to the success of
many banks. If adequate preventive and detective measures are not put into action, it could lead
to the complete failure of financial institutions especially banks in Nigeria.

2.1.6 Causes of Bank Frauds

There are many identified causes of fraud in banks. They vary from institutional to economical,
social, psychological, legal, and even infrastructural causes. The immediate causes of frauds in
general as provided by Ogbunka (2002) include the following:

i) Availability of opportunities to perpetuate frauds and forgeries;

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ii) Human greed, avarice, instability;

iii) Poverty and the widening gap between the rich and the poor;

iv) Prevailing misplaced social values, moral and spiritual decadence

v) Increasing incidence of unemployment;

vi) Increasing financial burden on individuals

; vii) Misapplied intelligence – say for adventure

viii) Job insecurity;

ix) Social misconception that banks money is nobody’s money property and therefore can be
defrauded;

x) Societal expectation;

xi) Inadequate training of personnel;

xii) Unhealthy comparison and competition;

xiii) Revenge; xiv) Peer group pressure;

xv) Non adherence to ethical standards;

xvi) Leadership by bad example;

xvii) Poor/weak recruitment policies;

xviii) Over ambition/frustration of staff;

ixx) Increasing and changing sophisticated in technological equipment;

xx) Inadequate training of manpower;

xxi) Societal indiscipline, especially with money;

xxii) Risk on fraudsters may be low or none;

xxiii) Possibility of identifying or stopping a fraud may be very little;

xxiv) Lack of effective machinery that guarantee severe punishment for fraudsters and forgers;

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xxv) Poor/weak management control, monitoring and supervision and

xxvi) Weak internal control system of the bank.

Of a truth, there are many causes of bank frauds, but weak internal control system stands as a
major cause of frauds in banks. It is therefore, expedient that adequate, efficient and effective
internal control system be installed in every bank in order to reduce this disaster called FRAUD.

2.1.7 Fraud Management

In devising the general preventive measures, the bank should appreciate the main feature of
fraud, one of which is that fraud is rapidly increasing and it is a highly profitable industry.
According to Ekeiqwe (2000), computer technology facilities and accentuates the growth. Other
features are that frauds involve misappropriation of assets and manipulation or distortion of data
and most frauds result from basic failure and inadequacies of internal controls. This was rightly
confirmed in a report by the NDIC 1999 annual reports and statement of accounts, where it said
that most frauds are committed by insider usually in collusion with outside third parties, and
mostly are discovered by accident or tip offs rather than internal and external auditors.

It was suggested by Nwankwo (2015) that on the discussion of the anatomy of frauds,
management should evolve positive attitudes towards safeguarding the banks’ assets and
ensuring that staff does not exploit the weakness in internal control. He further said that the
policies should stress the cardinal principles of separation of duties to ensure that one person
does not originate and complete an assignment or entry. The policy should also emphasize dual
control of sensitive areas such as strong rooms and locks to security documents and account, the
need for daily balancing of account and the various precautions which include necessary
references for opening of accounts. Ekechi (2016) was of the opinion that, in order to attain the
objective of fraud management, there is need for full compliance with established policies, rules
and procedures. Also employees should be made aware of the risks of attempting to defraud the
bank and the action expected if caught.

Finally the policy should incorporate and emphasize investigation and possible prosecution of
suspected frauds. In controlling fraud in the banks, the boards of directors play a major role
because the leadership responsibilities must be clearly spelt out and formally explained to them.
This responsibility should include the directing of the overall policy and management of the
bank, fiduciary duty to act honestly and with utmost good faith, and exercise of skill and care in

19
discharging the statutory obligations of the bank. In particular, the board has the collective
responsibility of the members to ensure that suitable security systems exist, there are adequate
accounting records and internal control measures and there are adequate precautions to prevent
falsification of accounting records and facilitate the discovery of any falsification (Asukwo, 1991
and Oyeyiola, 2017).

The CBN plays its own role in helping banks manage fraud through its monetary policy and
guidelines. CBN demands that banks should make provisions for loss through frauds from its
gross profit. This policy was enacted to safeguard the depositor’s money since it is obvious that
depositor’s money will be lost when there is an incidence of fraud.

2.1.8 Effects of Fraud on Nigerian Banks

Fraud is perhaps the most fatal of all the risks confronting banks. The enormity of bank frauds in

Nigeria can be inferred from its value, volume and actual loss. A good number of banks’ frauds
never get reported to the appropriate authorities, rather they are suppressed partly because of the
personalities involved or because of concern over the negative image effect that disclosure may
cause if information is leaked to the banking public The banks’ customers may lose confidence
in the bank and this could cause a setback in the growth of the bank in particular.

Fraud leads to loss of money, which belong to either the bank or customers. Such losses may be
absorbed by the profits for the affected trading period and this consequently reduces the amount
of profit, which would have been available for distribution to shareholders. Losses from fraud
which are absorbed to equity capital of the bank impairs the bank’s financial health and
constraints its ability to extend loans and advances for profitable operations. In extreme cases
rampant and large incidents of fraud could lead to a bank’s failure.

Fraud can increase the operating cost of a bank because of the added cost of installing the
necessary machinery for its prevention, detection and protection of assets. Moreover, devoting
valuable time to safeguarding its asset from fraudulent men distracts management. Overall, this
unproductive diversion of resources always reduces outputs and low profits which in turn could
retard the growth of the bank.

It also leads to a diminishing effect on the asset quality of banks. The problem is more dangerous
when compounded by insider loan abuses. Indeed, the first generation of liquidated banks by

20
NDIC was largely a consequence of frauds perpetrated through insider loan abuses. If this
problem is not adequately handled, it could lead to distress and bank failures.

Management’s responsibilities towards fraud prevention and detection: According to Ola (2001),
primary responsibility for the invention and detection of errors and irregularities rest with
management. This responsibility arises out of a contractual duty of care by directors and
managers and also because directors and other managers act in stewardship capacity with regard
to the property entrusted to them by the shareholders or others owners. Izedonmi (2000) also said
that the responsibility for the prevention and detection of fraud and errors, within an enterprise,
rest with the management. This responsibility is discharged by management, through the
establishment of an adequate system of internal controls, including internal check and internal
audit.

It is therefore, pronounced that the management of any banking organization is totally

responsible for the prevention and detection of fraud, majority by the establishment of an
adequate, efficient and effective internal control system

2.1.9 BENEFITS OF GOOD INTERNAL CONTROLS

There are many benefits that flow from good internal controls. Some of these benefits as
highlighted by Campbell and Hartcher (2009) include:

 Good communication: Well-written documentation not only gets your message across
but also builds a picture of the culture and processes that have been established to ensure
the firm meets its aims.

 Education: The existence of internal controls helps new employees learn the right way to
do their job and the correct procedures needed to fulfill a task.

 Error reduction: Good and clear internal control procedures minimize errors and save
time and money. They help ensure business information is correct and that staff is
accountable for their actions. For instance, staff should know how to check their own
work to ensure it is accurate.

 Protection and authorization: Internal controls give comfort to staff that they have
protection if they have acted in the way prescribed by the internal controls and within
their authorization limits.

21
  Perceptions of detection: The existence of internal controls acts as a deterrent to those
considering fraud, increasing the risk of detection.

2.2THEORETICAL FRAMEWORK

Various theories have been formulated on internal controls and financial performance. They
include Agency theory; contingency theory and Lending credibility theory. These are discussed
below

2.2.1 Agency Theory

Agency theory is concerned with resolving problems that can exist in agency relationships; that
is, between principals and agents of the principals (Meckling and Jensen, 1976). A reputable
auditor is therefore appointed not only in the interest of third parties, but also in the interest of
management. The two problems that agency theory addresses are: the problems that arise when
the desires or goals of the principal and agent are in conflict, and the principal is unable to verify
what the agent is actually doing and the problems that arise when the principal and agent have
different attitudes towards risk. Because of different risk tolerances, the principal and agent may
each be inclined to take different actions (Meckling and Jensen, 1976).

Agency theory contends that internal auditing, in common with other intervention mechanisms
like financial reporting and external audit, helps to maintain cost-efficient contracting between
owners and managers (Adams, 1994: Davidson, Goodwin-Stewart and Kent, 2015). Agency
theory may not only help to explain the existence of internal audit in organizations but can also
help explain some of the characteristics of the internal audit department, for example, its size,
and the scope of its activities, such as financial versus operational auditing.

2.2.2 Institutional Theory

Institutional theory, offers a contrasting explanation that may be used to understand the adoption
and design of control practices within organizations. This theory, more sociological in character,
originates from work done by Meyer and Rowan (1977) and DiMaggio and Powell (1983). It has
been said that institutional theory is becoming an important theoretical perspective in accounting
and organization theory research (Dillard, Rigsby & Goodman, 2004). According to this theory,
organizations develop and design structures, processes and systems not primarily based on
rational economic cost benefit analysis, but because they are more or less required incorporating
new practices and procedures.

22
According to Meyer and Rowan (1977) this means that: Organizations are driven to incorporate
the practices and procedures defined by prevailing rationalized concepts of organizational work
and institutionalized in society. Organizations that do so increase their legitimacy and their
survival prospects, independent of the immediate efficacy of the acquired practices and
procedures. Organizational structures, including the various internal control functions, roles,
processes and systems, become symbolic displays of conformity and social accountability.
Organizations with the appropriate structures in place avoid in-depth investigations of their
business operations. Meyer and Rowan, building on the work by Berger and Luckmann (1966),
pointed the importance of institutionalized rules. These are classifications built into society and
may be taken for granted or supported by public opinion or even the force of law. These rules
involve normative obligations which may be viewed as facts of (organizational) life which must
be taken into account and considered by actors in the business community whether they are risk
management officers, compliance officers, managers, auditors, directors or other types of
professionals within and outside of firms. The process of institutionalization is then how social
processes of different kinds come to take on a rule like status in everyday society. Repeated
patterns of actions become institutions, or institutionalized rules, and thus institutional theory
explains organizational phenomena by pointing to the environment and the formal and informal
rules that are imposed on organizational activities.

2.2.3 Stakeholders theory

The traditional definition of a stakeholder is “any group or individual who can affect or is
affected by the achievement of the organization’s objectives” (Freeman 1984). The general idea
of the Stakeholder concept is a redefinition of the organization. In general the concept is about
what the organization should be and how it should be conceptualized. Friedman (2006) states
that the organization itself should be thought of as grouping of stakeholders and the purpose of
the organization should be to manage their interests, needs and viewpoints. This stakeholder
management is thought to be fulfilled by the managers of a firm. The managers should on the
one hand manage the corporation for the benefit of its stakeholders in order to ensure their rights
and the participation in decision making.

A stakeholder approach is very much concerned about active management of the business
environment, relationships and the promotion of shared interests in order to develop business
strategies (Friedman & Miles, 2001). Stakeholder interests could encompass a broad range of
issues, such as labor conditions, environmental issues or social responsibility, some of which

23
might be contrary to a firm’s interests (Friedman & Miles, 2006). This touches on Frooman’s
(1999) suggestion that stakeholder management could be seen as managing potential conflict
stemming from diverging interests. In a related debate on corporate responsibility and
citizenship, Waddock (2001) argues that becoming a good corporate citizen means defining, and
achieving, responsible operating practices fully integrated into the entire corporate strategy,
planning, management, and decision making processes.

2.3 EMPIRICAL STUDIES

Internal control system is a topical issue following global fraudulent financial reporting and
business failures in both developed and developing countries. Long (2009) conducted a study on
internal controls in Small Businesses, and found that internal controls has the efficacy of
reducing the Risk of Fraud and promoting the efficient use of the business’ resources. Amudo
and Inanga (2009) conducted a study on the Regional Member Countries (RMCs) of the African
Development Bank Group (ADB) focusing on Uganda. The work developed a conceptual model
to evaluate the internal control systems in public sector projects in Uganda. The outcome of the
evaluation process was that some control components of effective internal control systems were
lacking in the projects, which consequently, rendered the internal control structures ineffective.
Also, a study carried out by Eko and Hariyanto (2011) on the relationship between internal
control system, internal audit, and organization commitment with good governance. The study
considered local government of Central Java province in Indonesia. Questionnaires were
administered in 35 districts. The research showed that internal control had positive significant
relationship with good governance.

In the work of Ozigbo and Orife (2011) on internal control and fraud prevention in Nigerian
business organizations, carried out in some selected firms in Warri Metropolis. A survey was
undertaken. It was discovered that internal control has a significant relationship with fraud
prevention. He, therefore, concludes that internal control was a necessary safeguard which
assures absentee owners of business that their fund is being utilized efficiently. It was
recommended among others that proper accounting record should be kept at all times,
authorization and approval limits of jobs and funds should be setup and communicated to all
concerned interest groups.

Closely related to the present study, Frazer (2012) conducted a study on the effects of internal
control on the operating activities in small restaurants in the United States of America. The

24
purpose of this study was to determine restaurant managers’ perceptions of the internal control
systems on the protection of assets, the segregation of duties, and the verification of transactions.
Two hundred and seventy (270) restaurants were selected through random sampling. The study
revealed statistically significant relationships linking perceptions of internal control systems in
restaurants with each of the three predictors: protection of assets, segregation of duties and
verification of transactions. The results indicated that majority of the study group perceived
restaurants’ internal control system to be inadequate compared to COSO Model.

Uket and Udoayang (2012) examined the impact of internal control design on banks’ ability to
investigate staff fraud, life style and fraud detection in Nigeria. Data were collected from thirteen
(13) Nigerian banks using a Four Point Likert Scale questionnaire and analyses using
percentages and ratios. Multiple regressions were used in testing the hypotheses. The study
revealed that internal control design influences staff attitude towards fraud, and a strong internal
control mechanism is deterrence to staff fraud while a weak internal control mechanism exposes
the system to fraud and creates opportunity for staff to commit fraud. Also, the study showed that
most Nigerian banks do not pay serious attention to the life style of their staff members and most
staff members were of the view that effective and efficient internal control design could detect
employee fraud schemes in the banking sector. The study concluded that effective and efficient
internal control system is necessary to stop the depression in the banking sector.

However, looking at the above studies that had been conducted on effectiveness of internal
control systems in organisations, very few of them examined the internal control system in small
businesses, therefore this research extend the previous research through examining the effects of
internal control system on the performance of small businesses.

25
 CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.0 INTRODUCTION

The foregoing chapters have tried at length to expose various impacts of internal control on
banking industries as a management tool. The rest of the chapters are testimonies to the
extensiveness of the research carried out by the researcher in an honest effort to present a
reference.

3.1 RESEARCH DESIGN

Having determined the research objective and the population of the necessary hypothesis the
researcher is confronted with how the data are to be collected which is referred to as the research
design.

It does not mean the specific method for collecting data, rather the study subjects were brought
into the scope of the research and how they will be employed within the research setting to yield
the required data. This can be seen as the frame work or plan that is used as a guide in collecting
and analyzing data for the study, a model of proof that allows the researcher to draw inferences
concerning case relation among the variables under investigation

3.1.1 SAMPLE POPULATION AND SIZE

For the fruitful completion of the researcher under review, sampling method include top
manager, medium and junior staff.

A fairly large sample size of fifty (50) respondents were chosen by the researcher in order to
accommodate more view and responses which will necessarily facilitates valid and reliable
result.

The research decides that for optimum return of the questionnaires, the respondents were usually
requested to fill the questionnaires and return immediately.

3.2. METHOD OF DATA COLLECTION

In an attempt to collect the necessary data for this research work, the researcher made use of
questionnaires, interviews and observation methods in collecting information for this research
work.

26
Questionnaires were distributed to staff of First Bank Nigeria plc. Agbara who filled it and
returned to the researcher.

Interviews were conducted with some selected officials of the First Bank Nigeria plc. Agbara.

The oral interview conducted by the researcher is mainly to the top management cadre.

The researcher also used observation method or technique in the premises of First Bank Nigeria
plc and was able to find some hidden problems of the organization.

3.3 SOURCES OF DATA

Primary and secondary source of data were utilized in eliciting information for the purpose of
this study.

Primary source of data consisted of questionnaires, and observations. The researcher decided to
employ the three techniques because of their attendant advantage and limitations.

Secondary source of data were also used with reference to materials in order to give this work
both the theoretical and practical touch.

Some of the secondary sources include textbooks, encyclopedia, dictionaries, journal, news
letter, seminars and lecture papers.

SURVEY INSTRUMENT

The instruments used in the study are:

Questionnaire

Observation

3.4. DESCRIPTION OF QUESTIONNAIRES

A total of fifty (50) questionnaires were distributed to both senior and junior staff of First Bank
Nigeria plc. Agbara, this number is justifiable giving the nature of the research and size of the
universe. The questionnaires contained a total of fourteen (14) vital questions.

The respondents were stratified into their various grade level viz:

Grade levels 10 and above 5 questionnaire.

27
Grade level 06-09>18 questionnaire.

Grade level 01-05>27 questionnaires

Total 50

In choosing the number and nature of questionnaire, the researcher took the following into
consideration.

Experience has shown that the fewer the questions in a questionnaires the more willing the
respondent will be towards supplying the answers.

The loosed ended nature of the questionnaires makes for easier classification which made the
wording to be useful.

OBSERVATION

The researcher was able to personally look into the book and account of First Bank Nigeria plc
Agbara. Though is ever published to the public.

3.5. METHOD OF DATA ANALYSIS

Simply percentages were used in qualifying the effect and relationship each data has with
another.

While in the text of hypothesis chi square (x2) method of representation was used.

X2 = (0-E) 2

3.6. METHOD OF TESTING HYPOTHESIS

For the purpose of solving the research problems tabled before the researcher, each hypothesis
will be tested using the responses to the specific lending to the hypothesis in question.

There are many methods of research hypothesis, but as regards this work, the researcher will use
chi-square (x2) method. The formula for calculating the chi-square (x2) is show better X2=E

=( 0-E)2

28
Where x2 = chi-square

O= observed frequency

E= Expected frequency

E = summation/ addition sign.

This x2 is a measure of the discrepancy between observed and expected frequencies but before
the x2 test was calculated the researcher collected the expected frequency. In addition to that,
that hypothesis was tested for significant differences between observed and expected frequencies
of data measured on nominal. This needed the calculation of degree of freedom (DF).

This was obtained by the product of the number of rows minus one and the number of columns
minus one. That is DF (R-1) (C-1) and chosen significant level.

DF = (R-1) (C-1)

Where DF = degree of freedom

R= number of rows

C= number of columns.

29
 CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF D ATA

4.1 INTRODUCTION

The research work in this chapter will deal with the presentation as well as the analysis of data
collected from questionnaire given out to respondents.

The questionnaire designed for this study was direct, simple to understand and practice in all
fifty (50) questionnaires we sent out to the respondents.

So out of the 50 questionnaire, ten (10) was bad due to the fact that the respondents refuse to
return the questionnaire, more so they refuse to give adequate information for the completion of
the project.

This study made use of forty (40) questionnaires in its analysis with the aid of simple test, simple
percentage and chi-square statistics table. Each questionnaire contains fourteen (14) vital
questions, while grouping it into two sections. Section A contains the data relating to the
respondent personal bio data while the section B covered the analysis of research questions.

Variable years Frequency (x) Percentage (%)

Below 20 years 0 0

21-30 years 18 45

31-40 years 12 30

41 and above 10 25

Total 40 100

4.1.1. (SECTION A) ANALYSIS OF RESPONDENT BIO DATA TABLE

Research As Regard The Age Of Respondents

Average age of respondents

30
Variable years X Frequency (f) fx

Below 20 years 10.05 0 0

21-30 years 25.5 18 459

31-40 years 35.5 12 426

41 and above 20.5 10 205

Total 40 1090

From the above table, it can be seen that F refers to the frequency occurrence and X refers to the
mark of class interval.

Mean age= ∑ FX = 1090

F 40 = 27.3

The effect of this is that it shows that the respondents were matured enough to appreciate the
question been asked because they are the category of people who know the impact of internal
control system in banking industries.

TABLE 4.1.2.

Research as regard sex of respondents

variable Frequency (X) Percentage (%)

Male 25 62.5

Female 15 37.5

Total 40 100

From the above table, it can be deduce that 62.5% were male and 37.5% were female.

Table 4.1.3. Research as regard the marital status of respondents

31
Variable Frequency (X) Percentage (%)

Single 12 30

Married 28 70

Total 40 100

From the above table, 70% were married while 30% were single.

TABLE 4.1.4.

RESEACH AS REGARD EDUCATIONAL QUALIFICATION

Qualification Frequency (X) Percentage (%)

Msc/mba 10 25

Bsc /hnd 18 45

Ond/nce 7 17.5

O level below 2 5

Others 3 7.5

Total 40 100

The table above shows that the respondents were educated. Therefore, they understand the
question contained in the questionnaire, invariably, their question would be a great contribution
to this study.

Table 4.1.5 Research as regards the department/section

32
Variable Frequency (X) Percentage (%)

Ict 14 35

Bursary section 10 25

Accounting section 12 30

Others 4 10

Total 40 100

The analysis shown from table above reveals 35% were from ICT section, 25% were from
Bursary section, 30% were from Accounting section and 10% were from other sections.

Table 4.1.6.

Research As Regard Length Of Work Experience

Variable years (X) (F) FX Percentage(%)

Below 6 years 3 6 18 15

10-15 years 12.5 7 87.5 17.5

15-20 years 17.5 9 157.5 22.520

20-25 years 22.5 8 180 20

25-30 years 12.5 10 125 25

Total 68 40 568 100

Mean = ∑FX = 568

F= 40 = 14.2 years

33
 From the above computation, it will be seen that the average length of work experience of
respondents is 14.2 years. This period is long enough and is a credit to the level of participation
of the respondents to the study.

SECTION B

ANALYSIS OF RESEARCH QUESTIONS

QUESTION 1: Do you have an organizational chart?

RESPONSE NO. OF RESPPONDENTS PERCENTAGE(%)

YES 13 32.5

NO 7 17.5

I DON’T KNOW 20 50

TOTAL 40 100%

Table 4.1.7

The response above shows that majority of the staff have no idea of what organization chart is.
The researcher was able to obtain a standard organization chart of the institute from the senior
administration officer (SAO) establishment.

Question 2: Who is responsible for sharing of duties and responsibilities?

NO. Percentage (%)

Administrative officer - -
Divisional officer - -
Supervisor of staff 15 37.5
Head of Department. 23 62.5
TOTAL 40 100%
Table 4.1.8
This particular question of who assigns duties was a bit controversial but on clarification, it was
found that the Head of Department and Supervisors from a panel can draw up a program of
schedule of duties and each supervisor will then go and intimate his subordinate on what their
jobs entails.

34
 Question 3: How often duties re-scheduled?

NO. Percentage (%)

Monthly 10 25

Yearly 25 62.5

As the need arises 5 12.5

TOTAL 40 100%

Table 4.1.9

Some of the respondent in the first group were found to be on shift duties. Further enquires
revealed that it is practice in some of the departments. For instance, in the accounts department,
it is customary to re-schedule duties every year, especially the post of cashier which has tenure
of one year. After the yearly reshuffle, staff may still be taken out of the job assigned to them if it
is found necessary either because of incapability or because they will do better in another
schedule Inter-department transfer and also made when the need arises.

Question 4: How many times have you gone on your annual vacation in the past five years?

There were varied responses to this question to greatest percentage of staff were found to have
gone on vacation for the number of years they have been in FIRST BANK Nigeria plc agbara
employment. The number varied and may or may not be up to five years as was required by the
question. However, two staffs were found to have missed their leave in the past three years.

Question 5: Who authorizes payment of any sort?

The respondents agree that the authority to approve a payment resides with the director except
where that amounts exceed his limit or where it is such that the accountant can approve

35
Question 6: Do you have an internal audit department?

Responses Frequency (F) Percentage (%)

Yes 25 62.5
No 10 25
I don’t know 5 12.5
Total 40 100
Table 4.1.10

The table above shows that there is an audit department in FIRST BANK Nigeria PLC. Agbara

Question 7: Is there any significance relationship between internal control system and banking
industries?

Responses No of respondents percentage

Yes 28 70

No 10 25

I don’t know 2 5

Total 40 100

Table 4.1.11: Based on the responses gotten from respondents above, there is a clear evidence
that there is a significance relationship between internal control system and banking industries.

Question 8: Does weak internal control in FIRST BANK Nigeria PLC agbara result in low profitability?

RESPONSES NO. OF RESPONDS PERCENTAGE (%)

YES 25 62.5
NO 10 25
I DON’T KNOW 5 12.5
TOTAL 40 100%

36
TABLE 4.1.12: The responses above shows that a good reference point has been established and
it is the conviction of the researcher that the opinion or data represent a fair view of the state of
control as they exist in FIRST BANK Nigeria plc Agbara.

4.2 INTERPRETATION OF DATA

Many questions have been asked and answers elicited. The next step was essentially on
determining the implication of the information so far provided. What relevance have they in
determining the effectiveness or otherwise of an internal control system.

In order to incorporate manageability, conciseness and accuracy into this work the researcher has
obtained the following check list Viz.

Reliable Personnel with clear responsibilities:

 Separation of duties

 Proper authorization

 Proper Procedures

 Adequate documentation.

 Physical safeguard

 Vacation and rotation of duties.

Reliable personnel with clerk responsibilities:

The importance of dedicated and reliable personnel cannot be over emphasized. No matter how
well the design of a system is, the absence of a reliable personnel will undermine the
effectiveness, in order to achieve this goal, staff should be assigned duties, responsibilities and
authority commensurate with their abilities and not only, they should be fully aware that they are
responsible and also know the implications of non-performance.

Accomplishment of requirements was the essence of questions 1, 2 and 14 of the questionnaires.

Question number 15 was specifically chosen to test the reliability of the personnel.

The appendix shows that the highest authority comes from the Board of Directors,
followed by the Director. It also shows that there are five (5) main divisions handled by Assistant

37
Director expect for the documentation division has a chief Researcher Officer in the helm of
affairs. The administration internal audit, account department and consultancy services, all report
directly to the director. This independence of function is good for effective administration

SEPARATION OF DUTIES

Separation of duties is the division of tasks so that no one individual can commerce and complete
a job. This imposes a check on found and for one to be perpetrated there must be collision. This
could be avoided by separating duties within the accounting function.

PROPER AUTHORIZATION

From the questionnaire, it is only the director and the accountant that can issue authority as to
how things should be done, this is so in order to make sure that there is steady internal control.

4.3 ANALYSIS OF DATA.

Hypothesis 1: RESEARCH QUESTION

Is there any significant relationship between internal control system and banking industries?

STATEMENT OF HYPOTHESIS

Ho: there is no significant relationship between internal control system and banking Industries.

H1: there is significant relationship between internal control system and banking Industries.

TABLE OF OBSERVED

RESPONSES GRADE LEVELGRADE GRADE LEVEL TOTAL

10 AND ABOVE LEVEL 01- 05
06 – 10
YES 10 10 8 28
NO 2 5 3 10
I DON’TKNOW ? ? 2 2
TOTAL 12 15 13 40

38
Determination of the expected frequency

CT×RT

OT

Where:

CT = COLUMN TOTAL

RT = ROW TOTAL

OT = OVER ALL TOTALS

= 12 x 28 15 x 28 13 x 28

40 = 8.4 40 = 10.5 40 = 9.1

1 2 x 10 15 x 10 13 x 10

40 = 3 40 = 3.75 40 = 3.25

12x2 15 x 2 13x 10

40 = 0.6 40 = 0.75 40 = 0.65

EXPECTED TABLE

GRADE LEVELS

RESPONSES 10 AND ABOVE 06-10 01-05 TOTAL

YES 8.4 10.5 9.1 28

NO 3 3.75 3.25 10

I DON’T KNOW 0.6 0.75 0.65 2

TOTAL 12 15 13 40

39
TEST TECHNIQUE

Chi-square X2

Formula = X2 = (O – E)2

Operative assumptions:

Level of significance = 0.05

Degree of freedom

(R - 1) (C – 1)

(3 – 1) (3 –1)

D.F = 2X2 = 4

X2 critical value = 9.487

DECISION RULE: Reject HO if X2 calculated is greater than X 2 critical value, otherwise

accept HO.

CHI-SQUARE CONTINGENCY TABLE

RESPONSES O E 0-E (0-E)2 (0-E)2

E
YES 10 8.4 1.6 2.56 03.6476

YES 10 10.5 -0.5 -0.25 -002.381

YES 8 9.1 -1.1 -1.21 -01.329

NO 2 3 -1 -1 -03.333

NO 5 3.75 1.25 1.5625 04.166

NO 3 3.25 -0.25 -0.0625 -001.9230

I DON’T KNOW 0 0.6 -0.6 -0.36 -0.6

I DON’T KNOW 0 0.75 -0.75 -0.5625 -0.75

I DON’T KNOW 2 0.65 1.35 1.8225 2.804

40
CHI-SQUARE CALCULATED VALUE…………………… 0.3016

DECISION: since our x2 calculated is lesser than x2 critical value (i.e. 0.3016 <9.487) we accept
Ho.

CONCLUSION:

There is insufficient evidence based on the sample collected by the researcher to support the
claim that there is significance relationship between internal control system and banking
industries. There is no significant relationship.

HYPOTHESIS 2

Research question

Does weak internal control in FIRST BANK Nigeria plc agbara resulted in low profitability?

STATEMENT OF HYPOTHESIS

Ho: Weak internal control system of FIRST BANK Nigeria plc agbara has not resulted in low
profitability of the organization.

H1: Weak internal control system of FIRST BANK Nigeria plc agbara has resulted in low
profitability of the organization.

TABLE OF OBSERVED

RESPONSES GRADE LEVELGRADE LEVEL GRADE LEVETOTAL

10 AND ABOVE L
06 – 10
01- 05

YES 10 9 6 25

NO 10 0 0 10

I DON’TKNOW ? ? 5 5

TOTAL 20 9 11 40

41
TEST TECHNIQUE

Chi-square X2

Formula X2 = (O – E)2

Operative assumptions

Level of significance = 0.05

Degree of freedom

(R - 1) (C – 1)

(3 – 1) (3 –1)

D.F = 2X2 = 4

X2 critical value = 9.487

DECISION PRICE

Reject Ho: If the calculated volume of X2 is less than the critical value. If Otherwise accept Ho:

Determination of the expected frequency

CT×RT

OT

Where:

CT = COLUMN TOTAL

RT = ROW TOTAL

OT = OVER ALL TOTALS

= 20 x 25 9 x 25 11 x 25

40 = 12.5 40 = 5.625 40 = 6.875

42
 20 x 10 9 x 10 11x 10

40 =0.5 40 = 2.25 40 = 2.75

20 x 5 9x5 11 x 5

40 = 2.5 40 = 1.125 40 = 1.375

EXPECTED TABLE

RESPONSES GRADE LEVELGRADELEVEL 06GRADE LEVEL TOTAL

10 AND ABOVE – 10
01- 05

YES 12.5 5.625 6.875 25

NO 5 2.25 2.75 10

I DON’TKNOW 2.5 1.125 1.375 5

TOTAL 20 9 11 40

CHI-SQUARE CONTINGENCY TABLE

RESPONSES O E O-E (O-E)2 (O-E)2

YES 10 12.5 -2.5 -6.25 0.5

YES 9 5.625 3.375 11.391 2.025

YES 6 6.875 -0.875 -0.7656 -0.1114

NO 10 5 5 25 5

NO 0 2.25 -2.25 -5.0625 -2.25

43
NO 0 2.75 -2.75 -7.5625 -2.75

I DON’T KNOW 0 2.5 -2.5 -6.25 -2.5

I DON’T KNOW 0 1.125 -1.125 -1.2656 -1.125

I DON’T KNOW 5 1.375 3.625 13.14062 9.557

CALCULATED X2 TABLE VALUE…………………………………………………..2.8454

DECISION: Since our X2 Calculated value is lesser than Critical value. i.e. 2.8454 < 9.487, we
reject HO

CONCLUSION

The computed value is less than the critical value. Therefore we accepted that weak internal
control has resulted in low profitability of FIRST BANK NIGERIA PLC.

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 CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1 SUMMARY OF FINDINGS.

It has been the objective of this researcher to find out the impact of internal control system in
FIRST BANK Nigeria plc agbara. The researchers encountered in internal control procedures in
the organization.

Various data were collected and observation made, personal interview were conducted. There is
a weak internal control in the areas of stock and cash. Upon all the controls adopted in FIRST
BANK Nigeria plc agbara. Still there is weak internal control.

The researcher also discovered that the organization applies different types of internal control
like stand point check, stamping of voucher, shifting of duties etc.

Furthermore, the researcher found out that there are no reliable personnel, who the jobs of the
organization can be entrusted with.

The researcher also found out that there are many cases of fraud in the company due to inability
of workers not minding their jobs.

Finally, the researcher found out that the management lacked the ego to manage the company
properly.

5.2 CONCLUSION

Frankly speaking, most of the aims and objectives of this study set up in chapter one have been
achieved. We have so far found out that in FIRST BANK Nigeria plc agbara, there is weak
internal control, which has resulted in low profitability of the organization. The company also
has organizational chart.

5.3 RECOMMENDATIONS

Taking cognizance of the findings made by the researcher, the following recommendations are
made:-

The company should create a separate stores department to take charge of the control of its
materials with strict supervision by the accountant (reliable one)

45
That a store official who is more qualified than the present one should be employed to take
charge of the stores department.

That the workers in all sections should be motivated to put in their best and they should be given
adequate training on the job to improve on their work so that the base experience of the past
should not repeat itself.

The security man should be careful and will also be given adequate training concerning their job
to make sure that incident of fraud is not repeated again.

The manager (overall) should be removed and an egoistic person be replaced and the person who
has experience in that field.

46
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