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

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This research work was the internal control system as a means preventing fraud in Nigeria financial institution. The study was necessary because of the increasing wave of financial fraud in Nigeria in resent time as reported by the Niger 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 matter. All aspect of this work is very relevant in one way or the other to the Nigeria financing industries, as a whole, and for those who may be interested in carrying out further study in this topic. Also data were collected through primary and secondary sources, the primary and secondary serious, the primary source of data are mainly through personal interview and of questionnaires while the secondary include Books, Newspapers, magazines. From my financial it was ascertained that financial institution have the best internal control system in Nigeria. The internal system is both adequate and effective, although more operating improvement and review vital. The management of the financial institution should be at alert so as to chose 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. Therefore staff quality like integrity should be ascertained before employment. The should be an increased enlighten on the legal implications of fraud among other.





Title page                                                                     i

Approval page                                                                     ii

Dedication                                                                    iii

Acknowledgement                                                         iv

Abstract                                                                       v

Table of contents                                                           vi


1.0      Introduction                                                           1

1.1      Background of the Study                                                1

1.2      Statement of the Problems                                       5

1.3      Purpose of the Study                                               8

1.4      Research Question                                                  9

1.5      Research Hypothesis                                               10

1.6      Scope of the Study                                                 12

1.7      Limitation of the Study                                            12

1.8      Significance of the Study                                         13

1.9      Definition of Terms                                                        14



2.0  Review of Related Literature                                     17

2.1      Definition of Fraud                                                  19

2.2      Types and Causes of Financial Institution                   20

2.3      Concept and Definition of Internal Control system              27

2.4      Types of controls                                                    37

2.5      Internal control system in Financial                           43

       References/Note                                                     52



3.1      Research Design                                                     55

3.2      Area of the study                                                    56

3.3      Population of the study                                            57

3.4      Sample size determination                                       58

3.5      Research instrumentation                                         59

3.6      Validity                                                                 60

3.7      Reliability                                                              62

3.8      Source of data                                                               62

3.9      Analysis Techniques                                                64

References                                                             65


4.1 Data Presentation and Analysis                                         66

4.2 Test of Hypothesis                                                   71


5.0  Summary of findings, conclusion and Recommendation      80

5.1 Findings                                                                 80

5.2 Conclusion                                                              80

5.3 Recommendation                                                     82


       Appendix I

       Appendix II








       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 requirement.

       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.




       In our daily newspapers thee are reports of fraud in financial institutions.  For instance, Business concord (January 27 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 baking 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 occurance of fraud. The situation still 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 on the financial institutions with special 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 a toll for fraud prevention.  

       This study also has its objectives as follows;

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

ii.          To identify  possible defect, or loop holes (if any) in the system.

iii.        To examine the relevance and appropriative of the presently adopted control measures in preventing frauds.

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


1.          Does the present internal control system financial Institutions appropriate in present world of technology and sophistication in Financial Institutions?

2.          How effective is the Internal control system in Financial Institutions?

3.          What techniques, if any could internal control system in Banks can be used to prevent fraud in Financial Institutions?


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 Financial Institutions.

HI:  That the present internal controls system in financial Institutions is not appropriate in this present world of technology and sophistication in First Bank Nigeria Plc.

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 is effective.

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

Ho:  That the present internal control system in Financial Institutions can prevent fraud.

HI:   That the present internal control system in Financial Institutions cannot prevent fraud.




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