THE IMPACT OF INTERNAL CONTROL ON THE DETECTION AND PREVENTION OF FRAUD IN PUBLIC SECTOR. A CASE STUDY OF FIRST BANK OKIGWE

PROJECT INFORMATION

Format: ms word /  Chapters: 1-5 /  Pages: 56 /  Attributes: primary data analysis, questionnaires

CHAPTER ONE

1.0      INTRODUCTION

1.1   BACKGROUND OF STUDY

A system of internal controls is a critical component of bank management and a foundation for the safe and sound operation of banking organizations. A system of strong internal controls can help to ensure that the goals and objectives of a banking organization will be met, that the bank will achieve long-term profitability targets, and maintain reliable financial and managerial reporting (Markowski & Mannan, 2008). Such a system can also help to ensure that the bank will comply with laws and regulations as well as policies, plans, internal rules and procedures, and decrease the risk of unexpected losses or damage to the bank’s reputation.

The Basel Committee, along with banking supervisors throughout the world, has focused increasingly on the importance of sound internal controls. This heightened interest in internal controls is, in part, a result of significant losses incurred by several banking organizations. An analysis of the problems related to these losses indicates that they could probably have been avoided had the banks maintained effective internal control systems. Such systems would have prevented or enabled earlier detection of the problems that led to the losses, thereby limiting damage to the banking organization.

A system of accounting and records keeping will not succeed in completely and accurately processing all transaction unless controls known as internal controls are built into the system (Opromolla & Maccarini, 2010). Internal controls are processes designed to provide reasonable assurance that management achieves effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations (Grant, Miller, & Alali, 2008).

A system of internal controls potentially prevents errors and fraud through monitoring and enhancing organizational and financial reporting processes as well as ensuring compliance with pertinent laws and regulations (Rae and Subramanian, 2008). Reasonable assurance is provided when cost effective actions are taken to restrict deviations, such as improper or illegal acts to a tolerable level. The internal audit reviews the effectiveness of the internal control system to ascertain whether the system is functioning as intended (Fadzil, Haron & Jantan, 2005).

The system of internal controls should emphasize on, proper identification measurement and monitoring of risks, control activities for each level of operation, creation of reliable information systems that promptly reports anomalies and detailed reporting of all operations and monitoring of all the activities (Opromolla & Maccarini, 2010).

Internal controls are affected by a company’s board of directors, management and other personnel and are designed to ensure effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations (Spira & Page, 2003).

The management should assess and report the effectiveness of an institution’s internal controls to its stakeholders (Rezaee, 1995). Internal controls should have the following as its components, control environment, risk assessment, control activities, information and communication and monitoring activities (Basel Committee, 2011).These interrelated components of internal control must be present and functioning properly in order to have an adequate and functioning internal control system (Rezaee, 1995).

1.2   STATEMENT OF THE PROBLEM

The regularity of fraud and misappropriation of funds is creating fear, anxiety, and a loss of confidence in the minds of bank customers. Also, poor internal control system may lead to increase in bank losses and more so, incompetency in the part of internal control systems could as well lead to fraud in bank.

It could also be that some organizations finds it difficult to understand the implications and impact of the different internal controls on fraud detection and prevention, that might possibly assist in the organizations in cost minimization in terms of internal controls and at times challenges may arise in knowing which of the internal control tools which must be given priority in the course of the design of internal controls into the accounting systems.

Finally, several research has been carried out on the internal control and fraud prevention in the Ghanaian Local Government Service but not even a single research has been carried out on the impact of internal control on the detection and prevention of fraud in public sector. a case study of First Bank Okigwe.

1.3   AIMS AND OBJECTIVES OF STUDY

The main aim of the study is to determine the impact of internal control on the detection and prevention of fraud in public sector. Other specific objectives of the study include;

1.          to determine the effect of internal control on the detection and prevention of fraud in public sector.

2.          to determine the factors affecting internal control and its effect on the detection and prevention of fraud in public sector.

3.          to determine the extent to which internal control system affects the detection and prevention of fraud in public sector.

4.          to proffer possible solutions to the problems.

1.4   RESEARCH QUESTIONS               

1.          What are the effect of internal control on the detection and prevention of fraud in public sector?

2.          What are the factors affecting internal control and its effect on the detection and prevention of fraud in public sector?

3.          What is the extent to which internal control system affects the detection and prevention of fraud in public sector?

4.          What are the possible solutions to the problems?

1.5   STATEMENT OF RESEARCH HYPOTHESIS

H0:   Internal control system has no significant effect on the detection and the prevention of fraud in public sector.               

H1:    Internal control system has a significant effect on the detection and the prevention of fraud in public sector.               

1.6   SIGNIFICANCE OF STUDY

        The study on the impact of internal control on the detection and prevention of fraud in public sector will be of immense benefit to the entire First Bank in Okigwe in the sense that it will enable the management of the First banks to maintain an enhanced controlled environment by helping management and employees to establish and maintain an environment throughout the bank that sets a positive and supportive altitude towards internal control, reliable management, operating personnel for effecting internal control and internal audit for evaluating whether appropriate controls have been implemented and whether the internal controls are functioning as intended. Finally, the study will contribute to the body of existing literature and knowledge to this field of study and basis for further research.

1.7   SCOPE OF STUDY

The study on the impact of internal control on the detection and prevention of fraud in public sectors is limited to First Bank.

1.8   LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9   DEFINITION OF TERMS

ImpactA marked effect or influence.

Internal ControlInternal control, as defined by accounting and auditing, is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies

Detection        Is the act of noticing or discovering something.

PreventionThe act of stopping something from happening or of stopping someone from doing something

FraudWrongful or criminal deception intended to result in financial or personal gain.

Public SectorThe part of an economy that is controlled by the state.