To some, internal control is just for the prevention of fraud and asset misappropriation while others see internal control as that control which play a part in guaranteeing control over business operations. Internal control and internal audit has also been used in place of each other. This study on the effect of internal control system on accountability and transparency in the selected money deposit banks in FCT with first bank PLC as the case study. Descriptive and also survey research design was employed for the study. Due to the fact that the entire population in all banks cannot be tested because of large size, cost and time, a random bank was selected. First Bank Plc among other banks in Nigeria is used. Forty (40) questionnaires were administered to staffs of the bank. Also, personal interviews were carried out. Due to the fact that the entire population in all banks cannot be tested because of large size, cost and time, a random bank- First Bank Plc among other banks in Nigeria is used. Forty (40) questionnaires were administered to staffs of the bank. Also, personal interviews were carried out. For this research study, a population of 40 (forty) respondents was chosen from the selected bank in Nigeria. Questionnaires were given to the staffs whose views show the characteristics of the bank. Findings from study indicates that ineffective internal control system is a major cause of fraud in banks. Also Internal control can be significant in detecting fraud and lastly, Control measures of bank cannot ensure effectiveness and efficiency of operations.

At the end the following was recommended; Adequate supervisory management control, Proper segregation of duties and Training of staffs

Table of content

Abstract

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

1.2 Statement of the Problem

1.3 Objectives of the Study

1.4 Research Questions

1.5 Research Hypothesis

1.6 Significance of the Study

1.7 Scope of Study

1.8 Limitation of Study

1.9 Organization of the Study

1.10 Definition of Terms

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

2.1 Conceptual Clarification

2.2 Theoretical Framework

2.3 Empirical Analysis

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

3.1 Research Design

3.2 Research Population of the Study

3.3 Sample and Sampling Techniques

3.4 Research Instrument

3.5 Validity and reliability of instrument

3.6 Data collection technique

3.7 Data analysis technique

CHAPTER FOUR

DATA ANALYSIS AND PRESENTATION

4.0 Introduction

4.1 Analysis of Data Collected

4.1.2 Data Analysis

4.2.1 Research Hypothesis Test

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.0 Introduction

5.1 Summary of Findings

5.2 Conclusion

5.3 Recommendation

REFERENCES

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Years back, there have been misconceptions and misunderstanding on what internal control is. To some, internal control is just for the prevention of fraud and asset misappropriation while others see internal control as that control which play a part in guaranteeing control over business operations. Internal control and internal audit has also been used in place of each other.

The operational standard(guideline) defines internal control as ‘The whole system of controls, financial or otherwise, established by the management in order to carry on the business of the enterprise, in an orderly and efficient manner, ensure adherence to management policies, safeguard assets as far as possible the completeness and accuracy of the records’. In relation to this definition, it is seen that it has an all-embracing nature and it is clear that internal control is concerned with the controls operative in every area of corporate activity as well as with the way in which internal control system are known as ‘controls’ or ‘internal control’. The definition establishes four objectives of internal control as: to carry on the business of the company in an orderly and efficient manner, to safeguard the asset, to ensure adherence to management policies and to secure completeness and accuracy of the records.

Over the years, it has been observed and discovered that due to lack of internal control in the banking industry, several banks have defrauded its customers. Due to this, banks have decided to take extra security steps before clearing a cheque because of fraud occurrence and forgeries which have placed banks loss on average of one million naira each working day of the year in Nigeria. Due to this challenge, CBN issued a directive to banks to 25 billion naira. Management use internal control as a tool to check and monitor the activities of the organization. The management, therefore, adopts the internal control in such a way that the system is checked and any irregularity within the system is detected and corrected.

It is important that banks have internal audit department to ensure that accounting system provides an efficient means of recording financial transactions, providing management information and protecting the company’s assets from fraud and

misappropriation (Achibong, 1993). In the detection of fraud, one of the most effective system is the internal control system which defines and operates in the same environment as the fraud itself.

Fraud, on the other hand, can be defined as an act of deliberate deception with the aim of securing a personal benefit by taking advantage of other. There are different definitions of fraud. According to the Encyclopedia Britannica (2009), it is the deliberate misrepresentation of fact for the purpose of depriving someone of a valuable possession. ICAEW(1996) defines fraud as the intentional misrepresentation or omission of the truth for the purpose of deception or manipulation for the financial detriment of an individual or an organization(such as a bank) which also includes embezzlement, theft or any attempt to steal or unlawfully obtain, misuse or harm the assets of the bank. In terms of Adeniyi (2012), ‘fraud refers to an intentional act by one or more individuals among management, employees or third parties, which results in a misrepresentation of financial statements’.

Although fraud is sometimes a crime in itself, more often it is an element of crimes such as obtaining money by false pretense or by impersonation. Fraud can be seen as the intention, deception, misrepresentation or omission of the truth for the purpose of obtaining unlawfully the assets of the bank, which is the main reason for setting up an internal control, has become a pain in the neck of bank mangers. The Central Bank of Nigeria half-year report for 2007, revealed the total of 741 cases of attempt fraud and forgery, involving N5.4 billion and €35,406,150 were reported at June, 2007 which outshone what was recorded for the whole year 2006. The banking sector recorded N28.4bn cases of fraud and forgeries in 2010, a report by the NDIC. The amount contained in the 2011 annual report and statement of account of the NDIC represents an increase of 33.4 per cent over N21.29bn recorded in 2010. It says a total of 2,352 cases accounted for N28.4bn fraud, adding that the frequency of occurrence represented an increase of 53.5 per cent over that of 2010 fraud cases of 1532 reported. On the incidence of fraud, the NDIC said 10 out of the 20 banks that were in operation in 2011 accounted for 87.1 per cent of the banking industry fraud cases compared to 51.08 per cent in 2010. The report did not disclose the identities of the banks with the highest number of fraud cases. During the period, 498 were attributed to staff participation out of 2352 cases which showed an increase of 141 from 357 cases in 2010. The CBN also reported that the backward development was attributable to weakness in the internal control system of the bank which has clearly shown the picture of how it penetrated into the financial strength of money deposit banks.

1.2 Statement of the Problem

In relation to the recent upsurge in the banking system sustainability, its increasing level of activities, banks are faced with numerous problems among which is trying to prevent various fraudulent intentions of both staffs and customers (Adeduro, 1998). The insurgency of fraud and misappropriation of funds is bringing about loss of confidence in the minds of customers. Recent survey shows that a fraud is perpetrated or committed every day in the banking sector either by staff, customer or staff conniving with customers (CBN 2014 Bulletin).

Poor internal control brings about high bank losses. Management, are therefore, required to set up a strong internal control but this system depends on the size, nature of operations and as well, the objectives. An empirical analysis of the problems related to the these losses shows that if internal control system was properly maintained and monitored, the losses could have probably reduced which would have prevented or enabled detection of such problems which would thereby reduce the problems faced by banking system. It is important that banks consider detective and preventive controls which would reduce the possibility of errors, irregularities and fraud and lead to accountability and transparency.

1.3 Objectives of the Study

The primary objective of this study is to analyse the effect of internal control system on accountability and transparency in the selected money deposit banks in FCT. The specific objectives are:

• Evaluate the roles of internal control in banking system

• Examine whether the fraudulent activities are caused by ineffective internal control system in the banking system

• Determine the adverse effect of fraudulent activities of banks

• Appraising the control measures of the banks in ensuring effectiveness and efficiency of operations.

• Determining the ways fraud can be managed in the banking industry.

1.4 Research Questions

The cost of fraud is difficult to estimate because not all fraud is discovered. Therefore, this research work seeks to provide answers to the following research questions based on the empirical findings:

• What are the internal control systems in the banks?

• How effective has the internal control proved in the detection of frauds in banks?

• To what extent does the effectiveness of internal control system impact in the safeguarding the organization’s assets?

• What are the adverse effect fraudulent activities in banks?

• To what extent can fraud be managed in the banking sector?

1.5 Research Hypothesis

For the purpose of this research study, the following hypotheses were formulated:

Hypothesis one

H0: Lack of effective internal control is not a major cause of frauds in banks.

H1: Lack of effective internal control is a major cause of fraud in banks.

Hypothesis two

H0: Internal control is not significant in detecting fraud.

H1: Internal control is significant in detecting fraud.

1.6 Significance of the Study

This research work which is conducted on an empirical analysis of internal control system places much emphasis on fraud detection of a banking system. This research work will go a long way in helping banks discover the impact of weaknesses of internal control in terms of fraud detection and suggest measures in improving the system. Also, this research work will show how various ways fraud can be perpetrated, detected and prevented through the use of proper internal control system. It will also be useful to students, scholars, lecturers and other parties as it will bring about further research work and at the same time advance challenges to up-coming researchers.

1.7 Scope of Study

This study examines the effect of internal control system on accountability and transparency in the selected money deposit banks in FCT. There is need for research by proving evidence from banking businesses in developing countries like Nigeria although this should not be taken as completely meticulous of all possible situations in Nigeria as a result of the cosmic size of banks and the illimitable nature of this study. First bank, Plc in Abuja was used in this research work.

1.8 Limitation of Study

In carrying out this research, limitations faced are challenge in obtaining enough relevant related materials. Apart from this, bad internet connection served as a great challenge. Also, the method of carrying out this research is limited as all the available methods are not used. This research does not cover all the available banking industries in the world. It was limited to a bank in Nigeria.

1.9 Organization of the Study

The research work consists of five chapters. Chapter one focuses on the background, statement of the problem, research questions, research hypothesis, and objectives of the study, significance of study, scope of the study, limitation of the study and definition of terms.

Chapter two focuses on the theoretical framework and conceptual framework relevant to the study. Related literatures were also reviewed.

Chapter three discusses the research methodology, research design, population and sample size, research instruments, methods of data collection and data collection technique.

Chapter four involves the analysis of data collected, the presentation and interpretation of the result.

Chapter five will deal with summary of major findings, conclusions and recommendation from the study.

1.10 Definition of Terms

• Internal control: It refers to the control established by the management to deal with the operations of the business in an orderly and efficient manner, ensure adherence to management policies, safeguard assets as far as possible the completeness and accuracy of the records.

• Control: It is an exercise performed in the present to achieve a plan drawn up for the future. A policy or procedure that is part of internal control.

• Fraud: A deliberate deception to secure unfair or unlawful gain. False representation intended to deceive relied on by another to that person's injury. Fraud includes fraudulent financial reporting undertaken to render financial statements misleading, sometimes called management fraud, and misappropriation of assets, sometimes called defalcations.

• Detection: the act of discovering the existence of something or the state of having been noticed or discovered.

• Segregation of duties: means assigning different people the responsibilities of authorizing transactions, recording transactions, and maintaining custody of assets. Segregation of duties reduces the opportunities for one person to both perpetrate and conceal errors or fraud.

• Misstatement is a difference between the amount, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework