AN APPRAISAL OF INTERNAL CONTROL SYSTEM AS A MEANS OF EFFICIENCY AND PROFITABILITY IN THE NIGERIA DEPOSIT MONEY BANK PLC (A CASE STUDY OF SKYE BANK PLC)
ABSTRACT
1.1 INTRODUCTION
In banking, Accounting and auditing internal control is defined as a process effected by an organization structure, work and authority flows, people and management information system designed to help the banking accomplish specific goals or objectives.
It is a mean by which organization resources are directed, monitored and measured. It plays an important role in preventing and detecting fraud and protecting the organization’s resources.
Internal control-integrated framework, a widely-used frame-work in not only the United State but around the world, internal control is broadly defined as a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories.
A. Effectiveness and efficiency of operation
B. Reliability of Financial reporting
C. Compliance with law and regulations
Internal control has five components
1. Control Environment: set the tone for the organization, influencing the control consciousness of it people.
2. Risk Assessment: the identification and analysis of relevant risk to the achievement of objective, forming a basis for how the risk should be managed.
3. Information and Communication: System or process that supports the identification, capture and exchange of information in a firm and time frame that enables people to carry out responsibilities.
4. Control Activities: the policies and procedure that help ensure management directive are carried out.
5. Monitoring: process used to assess the quality of internal control performance over time.
The internal control relates to the aggregate control system of the organization, which is composed of many individual control procedures.
Discrete control procedures, control are defined by the SEC as a specific set of policies, procedures and activities designed to meet an objective. A control may exist with a designated function or activities in a process. A control’s impact may be entity wide or specific to an account balance class of transaction or application.
Internal control procedure 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 requires improvement in internal control within business entities are also referred to as OPERATIONAL CONTROLS.
The internal control system (ICS) consists of a set of rules, procedures and organization structure which aims to.
⦁ Achieve effective and efficient corporate process
⦁ Safeguard the value of corporate asset ensure that corporate strategy is implemented
⦁ Ensure the reliability and integrity of accounting and management data.
⦁ Ensure that operation comply with all existing rules and regulations
1.2 STATEMENT OF THE PROBLEM
The problem of the study by the researcher is to find out the appraisal of internal control system as a means of efficiency and profitability in Nigeria banks. The major statement of the problem are:
1. The various means employed by customer and staff or official in defrauding the money deposit bank in Nigeria. This is one of the problems confronting the money deposit bank and this affect the bank efficiency and profitability.
2. The likely challenges to be encountered by money deposit banks in tackling fraud; it has become paramount for bank to employ control system internally to check fraud.
3. The researcher work will aimed at finding lasting remedies or solution to solve problem of frauds in money deposit bank in Nigeria.
1.3 RESEARCH QUESTION
The focus of this study is to identify the appraisal of internal control system as efficiency and profitability in banks, hence, in the course of the study effect has been to find solution to the following research question.
1. What is the bank concept of internal control system?
2. What is the historical background of internal control system in commercial bank?
3. What are the various mean employed in defrauding banks?
4. What are the remedies to profitability in commercial bank (money deposit)?
5. What are the main effects of fraud in banks?
1.4 OBJECTIVE OF THE STUDY
The primary objective of this study is to examine the appraisal of internal control system as a mean of efficiency and profitability in the Nigeria commercial bank (money deposit).
The objectives of the study are:
1. To examine the basic concept of internal control system of banks.
2. To discuss the theoretical framework of internal control system in the banking industry.
3. To enumerate the remedies to efficiency in commercial bank (money deposit).
4. To expatiate the form and nature of profitability in banking industry.
5. To analyze the problem uncounted by the commercial banks (money deposit).
1.5 RESEARCH HYPOTHESIS
The basic fundamental for testing hypothesis involved the formulation is:
Ho: Null hypothesis
Hi: Alternative hypothesis
Ho: Internal control system has no correlation with profitability and efficiency of money deposit bank in Nigeria
Hi: Internal control system has a effective correlation with profitability and efficiency of money deposit bank in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The research work is predicted in nature of the study is enable the banking industry on the way to meet the profit on banks that meet the directives has been stronger.
The study in also be beneficial to the shareholders, the policy is bring about improved and increased in the shareholders value and with through appreciate of their share and it’s market ability through the mega bank customers is also benefit through reduction in cost of paying for services, prompt receiving of services, reductions in time spent in the banking hall.
1.7 SCOPE AND LIMITATION OF THE STUDY
The research intend to carry out research work on the appraisal of internal control system as a means of efficiency and profitability in Nigeria bank using Skye bank of Nigeria Plc as a case study.
However, the research intend to cover the lack of recent and adequate material, unwillingness of the respondents and the case study to given the true replies, lack of co-operation of the case study.
However, effort has been made to ensure that the above limitation did not hide effective completion and quality of research work and how it can be improved upon now and the future.
1.8 DEFINITION OF KEY TERMS
Banker: A company carrying on the business of receiving money, collecting draft for customer subject to the obligation of honoring cheque drawn upon them from time t by customers to the extent of the amount available on the account.
Cheque kite flying: this is a method whereby depositors utilize the time a cheque to clean to obtain an authorized loan without any interest charge.
Control: this mean to check put a stop in the activity uses a limit in the activities of individual or a group of individual in the banking industry.
Deflation: this is making or alteration of writing to the prejudge of another man’s right or litter to which he is ordinary entitled to.
Fraud: is an act of cause of deception deliberately practiced to gain unlawful or unfair advantages, such as deception in directly to the detriment of another.
Negligence: an act of negligence in committed where employees through ignorance of lack of commitment to duties guard the interest of his employees or railed to follow a prescribed procedure.
1.9 PLAN AND ORGANIZATION OF THE STUDY
For clarity of research context, the research work has divided into five (5) chapters and adequate research findings and conclusion was drawn to make relevant recommendations for the research.
Chapter one deals with introduction of the topic
Chapter two deals with literature review
Chapter three deals with research methodology
Chapter four deals with data presentation and analysis
Chapter five base on findings, summary, conclusion and recommendations.
TABLE OF CONTENT
Title page
Certification
Dedication
Acknowledgment
Proposal
Table of content
CHAPTER ONE
1.1 Introduction 1
1.2 Statement of the problem 3
1.3 Research question 4
1.4 Objectives of the study 4
1.5 Research Hypothesis 5
1.6 Significance of the study 5
1.7 Scope and limitation of the study 6
1.8 Definition of the term 6
1.9 Plan and organization of the study 7
CHAPTER TWO
2.1 Literature Review 8
2.2 Historical background of Skye bank plc 9
2.3 Conceptual issue of internal control system 13
2.4 Appraisal of internal control system in Nigeria
Banking Industry 15
2.5 Types of fraud 17
2.6 Remedies to fraud and forgeries in Nigeria banking system. 18
2.7 The effect of fraud in Nigeria banks 19
2.8 General cause of fraud in bank 21
CHAPTER THREE
3.1 Research methodology 23
3.2 Sources of data 23
3.3 Population of the study 24
3.4 Method of data collection and data analysis. 24
CHAPTER FOUR
4.1 Data presentation and analysis 30
4.2 Presentation of data 30
CHAPTER FIVE
5.1 Findings 38
5.2 Summary 39
5.3 Conclusion 40
5.4 Recommendation 41
REFERENCES44
CHAPTER ONE
1.1 INTRODUCTION
In banking, Accounting and auditing internal control is defined as a process effected by an organization structure, work and authority flows, people and management information system designed to help the banking accomplish specific goals or objectives.
It is a mean by which organization resources are directed, monitored and measured. It plays an important role in preventing and detecting fraud and protecting the organization’s resources.
Internal control-integrated framework, a widely-used frame-work in not only the United State but around the world, internal control is broadly defined as a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories.
A. Effectiveness and efficiency of operation
B. Reliability of financial reporting
C. Compliance with law and regulations
Internal control has five components
1. Control Environment: set the tone for the organization, influencing the control consciousness of it people.
2. Risk Assessment: the identification and analysis of relevant risk to the achievement of objective, forming a basis for how the risk should be managed.
3. Information and Communication: System or process that supports the identification, capture and exchange of information in a firm and time frame that enables people to carry out responsibilities.
4. Control Activities: the policies and procedure that help ensure management directive are carried out.
5. Monitoring: process used to assess the quality of internal control performance over time.
The internal control relates to the aggregate control system of the organization, which is composed of many individual control procedures.
Discrete control procedures, control are defined by the SEC as a specific set of policies, procedures and activities designed to meet an objective. A control may exist with a designated function or activities in a process. A control’s impact may be entity wide or specific to an account balance class of transaction or application.
Internal control procedure 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 requires improvement in internal control within business entities are also referred to as OPERATIONAL CONTROLS.
The internal control system (ICS) consists of a set of rules, procedures and organization structure which aims to.
⦁ Achieve effective and efficient corporate process
⦁ Safeguard the value of corporate asset ensure that corporate strategy is implemented
⦁ Ensure the reliability and integrity of accounting and management data.
⦁ Ensure that operation comply with all existing rules and regulations
1.2 STATEMENT OF THE PROBLEM
The problem of the study by the researcher is to find out the appraisal of internal control system as a means of efficiency and profitability in Nigeria banks. The major statement of the problem are:
1. The various means employed by customer and staff or official in defrauding the money deposit bank in Nigeria. This is one of the problems confronting the money deposit bank and this affect the bank efficiency and profitability.
2. The likely challenges to be encountered by money deposit banks in tackling fraud; it has become paramount for bank to employ control system internally to check fraud.
3. The researcher work will aimed at finding lasting remedies or solution to solve problem of frauds in money deposit bank in Nigeria.
1.3 RESEARCH QUESTION
The focus of this study is to identify the appraisal of internal control system as efficiency and profitability in banks, hence, in the course of the study effect has been to find solution to the following research question.
1. What is the bank concept of internal control system?
2. What is the historical background of internal control system in commercial bank?
3. What are the various mean employed in defrauding banks?
4. What are the remedies to profitability in commercial bank (money deposit)?
5. What are the main effects of fraud in banks?
1.4 OBJECTIVE OF THE STUDY
The primary objective of this study is to examine the appraisal of internal control system as a mean of efficiency and profitability in the Nigeria commercial bank (money deposit).
The objectives of the study are:
1. To examine the basic concept of internal control system of banks.
2. To discuss the theoretical framework of internal control system in the banking industry.
3. To enumerate the remedies to efficiency in commercial bank (money deposit).
4. To expatiate the form and nature of profitability in banking industry.
5. To analyze the problem uncounted by the commercial banks (money deposit).
1.5 RESEARCH HYPOTHESIS
The basic fundamental for testing hypothesis involved the formulation is:
Ho: Null hypothesis
Hi: Alternative hypothesis
Ho: Internal control system has no correlation with profitability and efficiency of money deposit bank in Nigeria
Hi: Internal control system has a effective correlation with profitability and efficiency of money deposit bank in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The research work is predicted in nature of the study is enable the banking industry on the way to meet the profit on banks that meet the directives has been stronger.
The study in also be beneficial to the shareholders, the policy is bring about improved and increased in the shareholders value and with through appreciate of their share and it’s market ability through the mega bank customers is also benefit through reduction in cost of paying for services, prompt receiving of services, reductions in time spent in the banking hall.
1.7 SCOPE AND LIMITATION OF THE STUDY
This research work focused on the bank and other organization with special emphasis on Skye bank plc being that case study. Never the less the research work has been constrained to the below statement.
I. Time Constraint: the time has not always a friend due to the fact that time available is too short to combine this project work with my other academic programms.
II. Material constraint: banks staff own their customers duty of secrecy. This will make it impossible to get through data and information as regard primary source of information.
III. Financial constraint; with current economic situation where there is financial wash up through the sale of government debt instrument.
1.8 DEFINITION OF KEY TERMS
Banker: A company carrying on the business of receiving money, collecting draft for customer subject to the obligation of honoring cheque drawn upon them from time t by customers to the extent of the amount available on the account.
Cheque kite flying: This is a method whereby depositors utilize the time a cheque to clean to obtain an authorized loan without any interest charge.
Control: This mean to check put a stop in the activity uses a limit in the activities of individual or a group of individual in the banking industry.
Deflation: This is making or alteration of writing to the prejudge of another man’s right or litter to which he is ordinary entitled to.
Fraud: Is an act of cause of deception deliberately practiced to gain unlawful or unfair advantages, such as deception in directly to the detriment of another.
1.9 PLAN AND ORGANIZATION OF THE STUDY
This spells out the organization structure of the topic with a brief or summary of what expected in each chapter, it is divided into five chapters, each chapter contain the following.
Chapter one we be the introduction of the study, statement of the problems, research question, objective of the study, research hypothesis, significance of the study scope and limitation of the study, definition of the term, plan and organization of the study.
Chapter two contain the literature review, chapter three contain the research methodology. Chapter four discuss the data presentation and analysis. Chapter five is devoted essentially to summary, conclusion and recommendations.
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