A Comparative Analysis Of The Effectiveness Of Internal Control System In A Computerized Accounting System ( A Study Of Zenith Bank)

A COMPARATIVE ANALYSIS OF THE EFFECTIVENESS OF INTERNAL CONTROL SYSTEM IN A COMPUTERIZED ACCOUNTING SYSTEM ( A STUDY OF ZENITH BANK)

ABSTRACT

Due to the rapid growth of modern technology and computerization there is increase in computer usage in organization and this tends to increase fraudulent practices. This study therefore aims at examining the effectiveness of internal control system in a computerized accounting system and how it enhance profitability and efficiency. In this study, the primary sources of data which is the questionnaire was use and the chi-square (X²) hypothetical test instrument was employed to carried out the data analysis and to test the formulated hypothesis. From the analysis, it was found that an occasional evaluation and review of internal control system increases profitability and efficiency and also help in reducing fraud. It was therefore concluded that as a technique internal control is a very important aspect of an organization and therefore recommends that management should ensure that employees are well educated and well trained on the use of the system, establishment of organization structure, segregation of duties, and ensure the employees acts in utmost good faithin their dealings with the organization to enhance an effective and sound internal control system for increase in profitability and a successful business operations.

TABLE OF CONTENTS

Title page                                                                         ii

Certification Page                                                             iii

Approval page                                                                  iv

Dedication                                                                       v

Acknowledgment                                                             vi

Abstract                                                                           viii

Table of contents                                                             ix

CHAPTER ONE

1.0   Introduction                                                             1

1.1 Background Of The Study                                          1

1.2 Statement Of Problem                                                5

1.3 Objective Of The Study                                              7

1.4 Research Questions                                                   8

1.5 Research Hypothesis                                                 10

1.6 Significance Of The Study                                          12   

1.7 Scope of Study                                                           13

1.8 Limitations Of Study                                                  14

1.8 Definition Of Terms                                                   22

1.9 Definition of Terms                                                    15

References                                                               17

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1   Introduction                                                             18

2.2 Nature of Internal Control                                          26

2.3   Evaluation of Internal Control System                     35

2.4   Assessment Of Internal Control System                   38

2.5   Techniques Of Internal Control                                        40

2.6   Essentials Of Internal Control                                 46

2.7   Purpose Of Internal Control                                     54

2.8   Necessity Of Internal Control                                   55

2.9   Internal Limitation Of Internal Control                    56

2.10Internal Control In Specific Areas Of Interest           57

2.11 Internal Control System In A Computerized

Accounting System                                                  71

2.12problems and prospects of internal control system 80

2.13 Summary Of The Chapter                                                82

2.14definition of terms                                                   83

References                                                               85

CHAPTER THREE

RESEARCH METHODOLOGY

 3.1 Introduction                                                             86

3.2   Research Design                                                      86

3.3 Collection Of Data                                                     87

3.4 Source Of Data                                                          87

3.4.2 Sampling Method Procedure                                   90

3.5 Research Instruments                                                91

3.6   Method Of Data Analysis                                         91

3.7   Summary                                                                         95

References                                                               96

CHAPTERE FOUR

4.0      DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDING

4.1   Introduction                                                     97

4.2 Analysis of data                                                 97

4.3   Presentation Of Data Analysis                         99

4.4 Test Of Hypothesis                                             119

 4.5 Interpretation Of Results                                 128

CHAPTER FIVE

5.0 SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary                                                           131

5.2 Summary Of Research Findings                                132

5.3   Conclusion                                                      134         

5.4 Recommendation                                               135

Bibliography                                                    138

Appendix I                                                       141

Appendix II                                                      142

CHAPTER ONE

INTRODUCTION

1.1 Background Of Study

A computerized Accounting system is now a basic necessity and no longer a luxury among business of what ever orientation  and size .In the past accounting was done manually by business owners where by employees perform the whole accounting cycle manually on a periodic basis they calculate trial balances, journalize transaction, prepare financial statement reports and other routines. This process proved time consuming, cumbersome and prone to human error. There were also problems with storage and retrieval of information not to mention consolidated and reporting. Computerized accounting system has revolutionized the way businesses are conducted. They have enable companies to paint a more accurate picture of their organization financial performance and make comparisons and across places and periods of that performance.

Even the smallest organizations has computer now and use computerized accounting packages to maintain their accounts. The availability of relatively cheap and reliable accounting software has changed the way auditors approach financial accounting system. Organizations are increasingly dependent on computerized systems and indeed, most large organization could not function without them. It is arguable that modern organization could not grow to their present size without computer-based systems.

A computerized Accounting system will not succeed in completely achieving the organizations objectives unless controls know as internal controls are built. Therefore it is very important to operate an effective internal control system in a computerized accounting system by management in order to achieve its goal and objectives which includes. Operating efficiently and effectively produces reliable information, complies with applicable laws and regulations and safeguard assets. In short, Internal control consist of those measure designed to keep the business operating on track. It is a necessity in large organizations especially where management is removed from day to day routine operation of the organization and also where computer-based accounting system is used .These internal controls may include the establishment of standard and procedures for the designing and documentation of new system introduced into the organization bearing in mind the problem of limited resources.  

In this research, attention will be on a computerized accounting system which gives an effective internal control mechanisms which will serve as a tool for effective management decision including the necessary interest which will be mentioned in the study.

An effective internal control enable the external auditor to rely on the internal control mechanism and also give a true and fair view of the organization financial transaction of a given period and helps to reduce the volume of work to be carried out by the external auditor. The auditor will ascertain through the effective internal control mechanism if the transaction of the organization is correctly reflected in the accounting records.

The need for effective internal control system therefore cannot be over emphasized it is important because of the existence of risks and all forms of irregularities in an organization. So, a computerized accounting system will make the crafting of strategic plans especially as competition in the industry heats up. This will hereby reduce fraud and irregularities to its minimum.

Having been familiar with what internal control mechanism is, the researcher steps forwards to ascertain the acclaimed importance of the concept of effective internal control system in a computerized accounting system by going into the banking system of which the researcher decide to use Zenith Bank as the study. In every enterprise various controls are always needed for security, maximum administrative and operational efficiency in both financial and non-financial areas. The most essential part of such system will be analyzed in details later in this research work in order to fully appreciate the effectiveness of internal control system.

1.2   Statement Of Problems

In spite of the sophisticated and expensive internal control put in place, there is still an increasing rate in computer fraud, misappropriation of fund, malpractice and other fraudulent practices in organization. In some situations whereby an individual is entrusted with the functions of recordings and storing of data in a computerized accounting system, it will be easier for such an individual to perpetrate fraud which invariably will lead to a big set back to the company and might cause the liquidation of the company. Also there are problems of computer manipulations by an unauthorized staffs and when all these are incurred it will reduce profitability in the organization and may lead to the liquidation of the company.

With regards to this fayol states in an undertaking control consists of identifying whether everything occurs in conformity with the plan adopted, the instructions issued and principles established. It has for its object to point out weaknesses and errors in order to rectify them and to prevent reoccurrence. It operates on everything people and actions

There is therefore need for internal control to be instituted in a computerized accounting system as it will enhance profitability and increase efficiency of the staffs and also reduce fraud.

1.3   Objective Of The Study

The objective purpose of this study is to identify and determine the effectiveness of internal control system and the consequences of an ineffective internal control system in banking industry of which zenith bank is the study.

The research work scores the internal control system of zenith bank with the view of ascertaining its strength and weakness. the objectives are:

1.  To evaluate and review internal control in an organization and it increase in efficiency and profitability.

2.  To examine the factors that influences the activities and performance of the internal control system department in the organization

3.  To analyze how internal control system ensure the efficiency of workers.

4.  To introduce strategy that will reduce computer fraud and the occurrence of computer fraud.

5.  To analyze the extent to which external auditor rely on the internal control mechanism of the company.

1.4       Research Questions

From prior debated and research on internal control system in a computerized accounting system, ways of fraud prevention which are adequate reporting of agents stewardship, internal and external checks by the auditors and reduction in the frequent occurrence of errors in their account. Equally, scholars have suggested that some of the likely problems associated with auditing of banking industries accounts are absence of qualified  manpower accounting resources and facilities, time and administrative interference. In an attempt to examine the proposal and problem of internal audit in a banking industry, the following questions have been brought up which include:

1.  How does the evaluation and review of internal control system increase efficiency and profitability?

2.  What are the factors that influence the activities and performance of the internal control system department in the organization?

3.  How can internal control enhance the efficiency of workers?

4.  What strategy should be put in place to reduce computer fraud and avoid the occurrence of computer fraud?

5.  To what extent do the external auditors adhere to the work performed by the internal auditor?

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