INTERNAL AUDIT AND FRAUD CONTROL IN THE NIGERIAN MONEY DEPOSIT BANK

Abstract

This study examined internal audit and fraud control in the Nigerian money deposit banks. The study employed survey design in which a set of questionnaire was administered on the selected banks in Nigeria. The percentage and graphical method was adopted as the method of data analysis. The results indicated that the level of fraud control in Nigerian banks is low; the study also revealed that risk assessment management, system audit and verification of financial reports adopted by the banking industry in Nigeria limit the fraudulent activities among the Nigerian banks; the results also showed that audit roles captured by risk assessment, system audit and verification of financial reports were statistically significant in determining the fraudulent act in banking industry in Nigeria. Based on the findings, the study concluded that risk assessment, system audit and financial report verifications are carried out to determine the effectiveness and impact of auditors on fraud control in Nigerian banks which reveals that auditors’ roles need to be improved to enhance fraud control in banking industry.

          CHAPTER ONE

               INTRODUCTION

• Background of the study

The role of auditors in fraud control and monument is essential. Fraud has been one of the most problematic and unsolvable matter for business all over the world for a long time; however, there has been much more attention and research dedicated to the topic after the scandals such as Enron, WorldCom and others. Frauds have led to loss of huge amount of money in the banking industry and nation’s economy in general (Fatoki, 2015). Researchers have discovered that fraud contributed drastically to the financial distress of poor performance of many banks in Nigeria (Austin, 2011). According to Olorunsegun (2010), fraud is a major challenge of banking industry and this makes all banks vulnerable and distress. The management of each bank spends their hard-earned money to curtail it occurrence. Moreover, it puts question marks on the integrity of the employees and management of the banks and also gives rise to absolute loss of customers’ confidence in banking. Adeyemo (2012) asserted that banking frauds are made possible with insiders or staffs collaboration. The management and staffs of every bank are expected to carry out their responsibilities with ultimate sincerity of purpose devoid of fraudulent practices to enhance public gain, trust and goodwill. Besides the role played by banking industry in growth and development of the nation economy, fraud goes a long way in depriving the economy of the necessary funds required for sound economic activities. It was discovered that the actions taken by the management of the banks in the aftermath of fraud cases are insufficient in stopping another fraud from been perpetrated. In a study carried out by Onwujiuba (2013), it was revealed that the managements of banking industry are not putting up enough measures that can prevent and control banking frauds, hence, the reason for incessant fraudulent practices in Nigeria. Adeyemi and Uadiale (2011) opined that the existing duties and responsibilities of auditors are inadequate and are not clearly defined. Also, the expectation of the people on the issues of the auditors' responsibilities in detecting and curtailing fraudulent act are high. As a result, a significant number of people or respondents believed that auditors’ responsibilities should be widened. Abu-Saeed and Kabir (2012) revealed that the internal audit unit needs to be alive in discharging their responsibilities and the need to acquire basic or necessary knowledge that can engender fraud prevention in the banking industry. Sorunke (2016) observed that internal audit unit did not contribute significantly to fraud prevention and control in reality. 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. Internal control is the strength of each organization and it has become of preponderating importance nowadays in Nigerian banks. The rationale being that the management systems in corporate organizations could be a pillar for an economical accounting system. (Olaoye, 2019). The requirement for the inner management systems in monetary establishments is preponderating appreciation to the fact than the general public sector that includes a crucial role to play within the economic development of a nation, which is currently being characterized by macro-economic instability, slow growth in real economic activities, corruption and also the risk of fraud. Fraud in African banking industry is growing at speedy horrifying rate, as a result of the main perpetrators are internal employees and a few corrupt members of the highest management, this truth was additionally supported by the studies of Nwaze (2019), Okpara (2009), CBN report (2015) World Health Organization definitely declared that no fraudulent act is perpetuated without the input of management staff.

• STATEMENT OF THE PROBLEM

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 rejigging 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. It I in view of this that the researcher intends to investigate internal audit and fraud control in the Nigerian deposit money bank

• OBJECTIVE OF THE STUDY

The study has one main objective which is subdivided into general and specific objective, the general objective is to examine the effect of internal audit and fraud control in the Nigerian deposit money bank, the specific objectives are;

1. To examine the effect of internal audit on fraud control in deposit money banks
2. To ascertain if there is any significant relationship between internal audit and fraud control in Nigeria deposit money banks

• To examine the role of internal audit in ameliorating fraud in Nigeria deposit money bank

1. To examine impact of internal audit on the profitability of deposit money banks
   • RESEARCH QUESTIONS

The following research questions were formulated by the researcher to aid the completion of the study;

1. Does internal audit have any effect on fraud control in deposit money banks?
2. Is there any significant relationship between internal audit and fraud control in Nigeria deposit money banks?

• Does of internal audit play any role in ameliorating fraud in Nigeria deposit money bank?

1. Does internal audit have any impact on the profitability of deposit money banks?
   • RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid the completion of the study;

H₀: there is no significant relationship between internal audit and fraud control in Nigeria deposit money banks

H₁: there is a significant relationship between internal audit and fraud control in Nigeria deposit money banks

H₀: Internal audit does not play any role in ameliorating fraud in Nigeria deposit money bank

H₀: Internal audit does play a role in ameliorating fraud in Nigeria deposit money bank

• SIGNIFICANCE OF THE STUDY

It is believed that at the this research is on attempt to survey the constructive parts, which internal auditing can play in Nigeria deposit money bank in Nigeria. A lot of problems are facing the banking system as not having an effective audit central system one of these problems is the management seems to gloss over the operation of the local government, which are carried out in disorganized manner. This is so because an efficient control system will enable the management to monitor the performances of the executives and take necessary and adequate corrective actions to ensure high performances of the executive and take necessary and adequate corrective actions, to ensure high performances at all levels.

• SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the impact of internal audit and fraud control in the Nigerian deposit money banks. But in the course of the study, there are some factors that limit the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.8 OPERATIONAL DEFINITION OF TERMS

Internal audit

Internal auditing is an independent, objective assurance and consulting activity designed to add value to and improve an organization's operations.

Fraud

Fraud is an intentionally deceptive action designed to provide the perpetrator with an unlawful gain or to deny a right to a victim. Types of fraud include tax fraud, credit card fraud, wire fraud, securities fraud, and bankruptcy fraud

Fraud control

Control fraud occurs when a trusted person in a high position of responsibility in a company, corporation, or state subverts the organization and engages in extensive fraud for personal gain.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.