Internal Control System As A Means Of Preventing Fraud In Nigeria Financial Institutions (a Case Study Of First Bank Of Nigeria Plc Enugu State)

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This research work was on the internal control system as a means of preventing fraud in Nigeria financial institutions.  However for a more detailed study a case study was carried on First Bank Plc Enugu head office.  The bank understudy was selected by simple random sampling.  This study was necessitated because of the increasing wave of bank fraud in Nigeria in recent times as reported by Nigeria dailies.  Therefore, the need to investigate these reports and if confirmed, a financial institution and to what extent the application of an effective internal control system can go to help matters.  All aspects of this work is very relevant in one way or the other to the Nigeria Banking Industry, as a whole and for those who may be interested in carrying out further study in this topic.

       The research design is the survey approach that is the cross sectional survey type of descriptive research which requires the selection of respondents from population.  The population of the study is made up of the senior officer of the Bank under study who has worked in the Bank for more than five years. In determining the sample size Bowleys Formulars on sampling was used while the allocation of questionnaires to the bank was done randomly.  Also data were collected through primary and secondary sources, the primary sources of data are mainly through personal interviews and distribution of questionnaires while the secondary source include Books, Journals, Newspapers and Magazines.   The method of statically analysis includes the tables, percentage analysis and logical deductions while the significant tests of two means was used in testing the hypothesis.  From the finding, it was ascertained that banks have the best internal control system in Nigeria.  The internal control system is both adequate and effective, although more operative improvement and reviews is vital.  The management of Bank should be at alert so as to close any loophole that may arise in their internal control system.  Also it was discovered that the major cause of fraud is the employment of dishonest staff.  The fore staff qualities like integrity should be ascertained before employment.  There should be a increased enlightens on the legal implications of fraud among other.

Accountancy Department




Title page

Approval page




Table of contents



1.1      Background of the study

1.2      Statement of the problem

1.3      Objective of the study

1.4      Hypothesis

1.5      Research Hypothesis

1.6      Significance of the study

1.7      Scope of the study

1.8      Limitation of the study

1.9      Definition of terms



2.1  Review of related literature

2.2  Definition of fraud

2.3  Types and causes of bank fraud

2.4  The concept and definition of internal control system

2.5  Types of controls

2.6  Internal control system in financial institution (First Bank in Nigeria Plc Enugu State)

 2.7Computers and internal control system



3.1  Research design

3.2  Area of study

3.3  Population of study

3.4  Sampling method

3.5  Research instrumentation

3.6  Validity and reliability of research instruments

3.7  Source of data

3.8  Analytical techniques



4.1  Data presentation and analysis

4.2  Test of hypothesis



5.1  Findings

5.2  Conclusion

5.3  Recommendation






It is feared that the inability of management to ensure effective enforcement of rules and regulation have rendered that operations of internal control system as the Banking Industry open to abuse.  The net effect could be that everyone 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 Nigeria.

During that time many Banks was registered some of which never operated and ever since that period, fraud has remained a permanent feature in our Banking Industry.  This resulted in a loss of faith and trust in the financial Institutions by Nigerians 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 electronic gadgets and computers into the banking system coupled with the various precautionary measures taken by bank agent, fraud have rather taken nuclear dimensions and size of sims involved increased at a geometric rate Anikpitan (1976), a banker of repute, maintained that, discoveries during investment show that banks now taken extra precaution for cleaning a cheque because of rampant incident of fraud and forgery which a bank boss placed on the average of Nim per working day of the year in Nigeria.  I Ashimi (1976, p.6) maintained that, fraud has become sophisticated as to make a gorged signature on a cheque leaf look good enough for the rightful owner to think that it was his signature.

But a situation, as is being experienced now who incessant cause of bank fraud are being reported, could if not immediately checked, erode depositors confidence in the nation’s banking system.  Such a situation could also scare fore investors from the country.  Ughamadu N. in his article on celebrating bank fraud in the business Times 29 July, 1991, observed that,

The logic for establishing a viable and enabling environment for any country will be meaningless if its banking sector is very porous to fraud.

The nature of the business of the banking industry requires a proper measure to be taken to evade fraud.  This is because they are entrusted with public funds.   Ojo, A.T 91982) emphasized that,

       As an open secret, financial Institutions do not have very large resources of their own in relation to the total resources at their disposal.  They depend in the main, on other peoples funds which have been entrusted to them because of the confidence the people have on them as models of responsibility and safety.

       Consequently, the confirmed existence of financial Institutions rests delicately on the maintains of public confidence.  This calls for the establishment of a effective system of internal control, which among other things will help to ensure that the organisation’s accounting are in accordance with the laid down procedures standard and statutory requirements.

       To establish a sound internal control system, various organization adopt various devices and methods based on their nature of business and the scope of their operations. Internal control system requires a continuous check and re checking of day-to-day activities of the business in order to ensure the correctness and fairness of the accounting records, and to detect and expose any deviation hen it has accord.  Most financial Institutions loose confidence of the people not only through fraudulent use of funds but also through some detect in fraudulent practices and or syndication of some dishonest staff facilitated by defects in the Banks internal control system.  There is therefore, a great need to eliminate or minimize the defects or loopholes and make money effective and operational to guard against the occurrence and re-occurrence of fraud in our financial Institutions.


In our daily newspaper there are reports of fraud in financial institution.  For instance, business concord (January 29 1990) noted with ulter dismay that “Robbers are making nonsense of the various types of security measures in banks by employing scientific means of gaining access to their strong rooms.  Another contribution in the business times (23rd January 1990) commented that the rising incidence of bank fraud has created a lot of distrust between banks and their customers”.  Not only that there are increase numbers of reported cases of fraud but also the sums involved are staggering.

       The methods used is perpetrating fraud is recent times are acquiring nuclear sophistication day after day.  While the bank management are busy devising new methods of checking fraud, the fraudulent staff are busy devising new methods of defrauding the bank.  It is obvious here that the results of these incidence are damaging.  Fraud leads to unwanted loss of public fund and put the management of the affected bank on its toes.

       Every incidence of bank fraud reduces public confidence in banking and consequently slows down development of banking habit in Nigeria.

       This continuous occurrence of fraud could be as a result of the present state of the world of technology and the level of sophistication which has enable people to easily discover more ways of perpetrating fraud in the banking system.

       In view of this, therefore, there arises a need for measures to be taken to avert this situation otherwise it could lead to the crippling of the economy and failure of the banking in particular.  However, despite the steps and measures taken by banks to prevent the occurrence of fraud, the situations till remains largely unchanged.  It is therefore necessary to appraise and or establish an adequate and effective internal control system in financial institutions for then orderly and efficient operation so as to guard against ever increasing incidence of fraud, hence this study.   



This research work concentrates essentially or the financial institutions with special emphasis first bank of Nigeria plc with a view to providing suitable recommendations and suggestions that will help in their prevention and minimization of fraud.  It is therefore the main objective of this study to examine the internal control system in the operation of this bank in Nigeria and evaluate the appropriateness and the effectiveness of the system as to toll for fraud prevention.

The study also has its objectives.

i.            To ascertain the degree of compliance of the banks staff with the internal control measures

ii.           To identify possible defects or loopholes (fany) in the system

iii.         To examine the relevance and appropriateness of the presently adopted control measures in preventing fraud

iv.         To offer useful recommendation based on the findings on how best to prevent the occurrence of fraud through an effective internal control system.



This study is required to test, amongst other things the following:

Ho:  That the present internal control system in financial institutions is appropriate in the present world of technology and sophistication in First Bank of Nigeria Plc Enugu State.

H1:  That the present internal control system in financial institutions is not appropriate in the present world of technology and sophistication in First Bank of Nigeria Plc Enugu State.

Ho:  That the present internal control system in financial institutions is not appropriate in this present world of technology and sophistication of First Bank Nigeria Plc Enugu State is effective.

H1:  That the present internal control system in First Bank Nigeria Plc Enugu State is not effective.

Ho:  That the present internal control system in First Bank Nigeria Plc Enugu State can prevent fraud.

H1:  That the present internal control system in First Bank Nigeria Plc Enugu State cannot prevent fraud.


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Internal Control System As A Means Of Preventing Fraud In Nigeria Financial Institutions