CHAPTER ONE

                                INTRODUCTION

1. BACKGROUND OF STUDY

Internal control system is the strength of every organization, has become of paramount importance today in Nigeria banks; the reason being that the control system in any organization is a pillar for an efficient accounting system. The need for internal control systems in the organization, especially banks cannot be undermined, due to the fact that the banking sector, which has a crucial role in the economic development of a nation, is now being characterized by macro economic instability, slow growth in real economic activities, corruption and the risk of fraud.

        Fraud, which is the major reason for setting up internal control system, has becomes a great pain in the neck of many Nigerians. It also has become an unfortunate staple in Nigeria’s international reputation. Fraud is really eating deep into the Nigeria banking system and that any bank with a weak internal control system is dangerously exposed to bank fraud.

        In a nut-shell, the damage which this menace called “fraud” has done to banks in is innumerable and needs urgent attention. Fraud control is becoming an issue that the regulators and top banking executives who are in saddle when fraudulent activities takes place or more succinctly when someone commit an act of fraud in the financial institutions under their management. It is quite clear that the installation of internal controls cannot be sufficient to eliminate dishonest activities, constantly of the controls already put in place to ensure that they are effective in reducing fraudulent activities in financial institutions from becoming successful should become important.

        Fraudulent activities are rampant in every organization but more rampant in financial institutions and perhaps more common in Deposit Money Banks (DMBs) because of the instruments of their trade. Banks are most prone to financial fraud as a result of money and near money instruments used in the process of their operations.

        The acts of financial fraud has persisted in DMBs in spite of strong internal controls put in place to forestall and control any planned intention to steal the bank’s money. Strong controls that at times are antithetical to the efficient operations of the bank having been put in place in certain cases but have not succeeded in reducing drastically the amount of funds lost. Thus all internal control measures have become preventive and protective of the banks   financial resources sometimes to the detriment of the bank’s primary operations. Most banks are litigation-shy as judicial officers often do not find it interesting that that the process (internal controls) put in place by the bank was compromised by the employee.

        In addition, where the bank is litigious, courts often sympathize with customers whose infractions led to large losses of funds irrespective of whether collusion with an employee had existed The scenarios are not funny outside the banking halls when financial fraud happened and parties have to prove their innocence. Whatever the case is, the bank losses money and reputation, the staff members’ lose jobs.

        One of the reasons for the use and continuous revision of internal control systems in the bank is to ensure that losses occasioned by fraudulent activities are minimal if they occur, and attempts are discovered very early before losses can occur. The triumvirate of fraud prevention, fraud control and detection are coalesced into the effective internal control system that the bank employs

1. STATEMENT OF THE PROBLEM

        Fraud is a major challenge to the entire banking industry; no bank is immune to it and in all facets of life (Olusegun 2010). The banking public expert is accountability, fairness, transparency in their day operation for effective intermediation. The government and its agencies have not put enough effort in the prevention and control of bank fraud in Nigeria. Otherwise the level of bank fraud would have reduced to a bearable level. Agencies like money laundering Act which helps to place surveillance on any account through which such excess cash deposits or withdrawals are made, Nigeria Deposit Insurance Corporation which is involved in managing bank distress, failed banks and financial malpractices in bank Acts which was vested with powers to recover the debts of failed banks, dishonoured cheques Acts which affects banks in there collection and payment of cheques on behalf of their customers and bill of exchange act which helps to collect the proceeds of trade bills exchange and cheques are not putting enough effort in the prevention and control of bank fraud, that is the reason why bank is increasing day by day in Nigeria.

        Though there was known cases of fraud in the sector, one major question still remain unanswered which is “what is the nature and different ways through which fraud can be perpetuated in banks”. It is asserted by Adeyemo (2012), that fraud in the bank is possible with co-operation of an insider. The banks are expected to ensure that they carry out their responsibilities with sincerity of purpose which is to devoid of fraudulent practices.

        This is relevant if the banking sector is to gain public trust and goodwill. Environmental factor are those factors that can be traced to the immediate and remote environment of the bank, these factors are manifest in the following manner, the desire to get rich quick, complex legal process, poverty and the wondering gap between the rich and the poor, competition among bank staff, the desire to belong to any social class, job insecurity, peer group pressure, and societal expectation.

        Fraud can bring about disturbance in management objectives /budgets which might lead to non-provision of some fringe benefits such as transportation, medical facilities, service training etc. Massive employment of contract staff in the banking industry and low payment of wages compared to the permanent staff. Deposit target placed on the banking staff used to be high which lead to the fraudulent acts in the sector. Inadequate or lack of training: It is not in common to find inadequately trained staff working in some banks, the rate of expansion in the banking industry since the introduction of rural banking scheme in 1977 is use to acute shortage of trained personnel in the banks, generally. The result of this is that even some clever long serving messengers can easily take advantage in experienced and half-baked officers to perpetrate fraud in banks. Finally several researches have been carried out the impact of internal control on the detection and prevention of fraud in public sector. But not even a single research has been carried out on internal control system and fraud preventing in deposit money bank in Nigeria.

1. AIMS AND OBJECTIVES OF STUDY

The main aim of the study is to examine internal control system and fraud preventing in deposit money bank in Nigeria. Other specific objective of the study includes;

1. to determine the relationship between internal control system and fraud preventing in deposit money bank in Nigeria.
2.  to determine the effect of internal control system on fraud preventing in deposit money bank in Nigeria.
3. to determine the factors affecting of internal control system and fraud preventing in deposit money bank in Nigeria.
4. to determine the extent to which internal control system has enhanced fraud preventing in deposit money has affected bank in Nigeria.
5. to proffer possible solutions to problems.
   1. RESEARCH QUESTIONS

1. What is the relationship between internal control system and fraud preventing in deposit money bank in Nigeria?
2.  What is the effect of internal control system and fraud preventing in deposit money bank in Nigeria?
3. What are the factors affecting of internal control system and fraud preventing in deposit money bank in Nigeria?
4. What is the extent to which internal control system has enhanced fraud preventing in deposit money has affected bank in Nigeria?
5. What are the possible solutions to problems?

1.5   STATEMENT OF RESEARCH HYPOTHESIS

H0: There is no significance relationship between internal control system and fraud preventing in deposit money bank in Nigeria.

H1: There is significance relationship between internal control system and fraud preventing in deposit money bank in Nigeria.

1. SIGNIFICANCE OF STUDY

        The study on internal control system and fraud preventing in deposit money bank in Nigeria will be of immense benefit to the entire Bank in  Nigeria in the sense that it will enable the management of 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 system, reliable management, operating personnel for effecting internal control and internal audit for evaluating whether appropriate controls have been implemented and whether the internal controls systems 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. SCOPE OF STUDY

There study on Internal control system and fraud preventing in deposit money bank is limited to Nigeria.

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. DEFINITION OF TERMS

Internal Control

        Internal 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

Preventing: The act of stopping something from happening or of stopping someone from doing something

Fraud: Wrongful or criminal deception intended to result in financial or personal gain.

Bank: Is a financial institution that accepts deposits from the public and creates credit.