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Bank Name: FCMB Bank

Account Type: Savings
Account number: 7749601025

Bank Name: Access Bank

Account Type: Current
Account number: 0107807602



The study sought to determine the effect of internal control system on financial performance of deposit money banks in Nigeria. To achieve the objective of this study, the study used hypothesis testing research design. The study tested the following hypotheses: H1: Internal Controls and Financial Performance are positively related; H2: Internal Controls have a significant impact on Financial Performance. The population chosen for this study was 16 banks listed by SEC. The study selected a sample of 5 banks from a target population of 16 deposit money banks. The sample was drawn using stratified random sampling technique. The study relied on both primary and secondary data. Primary data was collected using structured questionnaires while the secondary data was gathered from financial statements based on availability and accessibility of data. The findings revealed that most banks had a internal audit as one of the functionality of internal controls of the organization that greatly impacts on the financial performance of the banks. It was also established that the management had put in place mechanisms for mitigation of internal check that may result from fraud. The study examined the impact of segregation of duty on the financial performance of deposit money banks in Nigeria. The results also revealed that that the staff were trained to implement the accounting and financial management systems (M=0.9483, S.D=0.5888). The statistical results from the regression analysis show that there is a positive relationship between internal control system and financial performance of desposit money banks. The independent variables (internal audit, internal check and segregation of duty) contributed to 81.70% of the variation in financial performance as explained by adjusted R2 of 0.7907% which shows that the model is a good prediction. It was concluded that banks that had invested on effective internal control systems had more improved financial performance as compared to those banks that had a weak internal control system. The study further recommends that the governing body, possibly supported by the audit committee, should ensure that the internal control system is periodically monitored and evaluated. The limitation of this study is that the study was focused on 5 banks only while we have others deposit money banks, therefore these findings may not be used for generalizations on all banks in Nigeria. It is therefore important for a study to be conducted using wider scope and coverage then, the findings can be compared and conclusions drawn




Globalization and the advancement in technology has become the hallmark for businesses today and the banking sector is no exception. Banks have been expanding their operations and activities beyond the domestic borders as a result of globalization and improved technology. The expansion of business, globalization and the advanced technology also exposes business to increased risk, fraud, altercations and other irregularities. This has made internal controls an imperative system to maintain by every business and for that matter the banking sector. Globalization of businesses, technological advancements, increasing risk of business failures, the fraud and altercations that emerged in the financial sector in Nigeria call for the proper maintenance of an effective internal control systems through :

Internal audit to help an organisation accomplishits objectives by bringing systematic disciplined approach to evaluate and improve the effectiveness of risk management control and governance processes. Internal check as duties wherby check are imposed on all aspects pf work so that no person is solely responsible for all parts the account procedure. Segregation of duty as a single control activity and the key to good internal control system and procedure design, that no single person should be responsible to recording and prcessing of a comlete transaction in other to reduces the risk of intentional manipulation or accidental error.

Whatever the decision taken in an organization internal control processes, effective and efficient measure with an appropriate manner of approach. These internal control tools are refers to a system within an organization which prescribe the decision of authority, responsibility of activities and their direction and recording for the purpose of creating a smooth operating procedure in an efficient and progressive manner, so ordered that a degree of check and restraint exist, resulting in the achievement of the organization’s

purpose within a minimum of waste and a maximum of production or gain (GUPTA 2005).

It has been discovered that due to lack of internal control several banks have been     discovered to have defrauded its customers mostly foreign investors, Having discovered this, banks now take extra precaution before clearing a cheque because of rampant incidence of fraud and forgeries which have placed bank. Loss on average of Nlm each working day of the year in Nigeria. Due to this challenges, CBN issued a directive to banks to increase its capital base to N25 billion. Management use internal control as a tool to check it staff due to the fact that managers are not able to monitor the activities of the organization. It therefore adopts the internal control in such a way that the system checks itself and any irregularity within the system is been detected and corrected.

To ensure that the system checks itself, management could use devices such as segregations, supervision of work and acknowledgement of performance. The effective arrangement and implementation of this control system would ensure proper management.

Internal controls are to be an integral part of any organization’s financial and business policies and procedures. Internal controls consist of all the measures taken by the organization for the purpose of :

  1. Protecting its resources against waste, fraud, and inefficiency;
  2. Ensuring accuracy and reliability in accounting and operating data:
  3. Securing compliance with the policies of the organization; and
  4. Evaluating the level of performance in all organizational units of the organization. Internal controls are simply good business practices. (Kansas State University – USA June 30, 2003)

For some time now, risk management in general and internal control more specifically; have been considered as fundamental elements of organizational governance. As a consequence, risk management is beginning to be perceived as a new means of strategic business management, linking business strategy to daily risks and then optimizing those risks in order to realize value (Saarens and de Beelde 2006)

The Idea of internal control system becomes very important in an organization due to its vital role for example, the internal auditors of an organization are also part of the internal control system consist of both the internal auditors and the management team. So, it is the duty of every one to ensure conformity in the day -to-day activities of the organization also the need for profit maximization in an organization cannot be under estimated if the organization must remain in business this view bring about the idea of operational efficiency which can only be achieved through proper checks and balances within the organization.

The concept of internal control system covers all financial units, business activities including among other things :

  1. Mechanism of internal check in an organization.
  2. Financials cost and management accounting control function.
  3. Internal audit.


The study investigated the relationship between the impacts of internal Control systems on performance of deposit money bank. Internal control system many organization, including bank is very important because it ensure orderliness, in the organization, advance to management policies, early detection of error and fraud, protection of assets e.t.c.

Internal control system problem have led to closure of many banks in Nigeria, ezudiji (1997) thereby making depositors customer to shareholder of such bank to loss his or her shares. It is inimical to nations economy because provide 90% of the capital employed in Nigeria. Due to the following problem it leads to the following question.

Does bank operation carried out in any orderly manner and follow the procedure laid down. Does transaction recorded accurately and correctly.     


The objective of this research is basically aimed at the following:

  1. To determine if lack of good internal control a major cause of fraud in bank.
  2. To ascertain whether banks with internal control system prevent menace of frauds in Nigeria.
  3. To determine if bank personnel commit fraud.
  4. To ascertain how effectively fraud control measure is in Nigerian banks.


This project has been able to provide answers to the following research questions

  1. How does banks operations can be carried out in internal control system?
  2. Are they benefits of internal control system to the government, public, students and researchers?
  3. Does transactions recorded accurately and correctly?
  4. Are the problems facing by internal control system?


Hypothesis One

HO:   The lack of a good internal control is not a major cause of fraud in banks.

HI:    The lack of a good internal control is a major cause of frauds in Nigeria.

Hypothesis Two

HO:   Banks with internal control system cannot prevent the menace of fraud in Nigeria.

HI:    Banks with internal control system can prevent the menace of fraud in Nigeria.


From all experience, fraud is unique in terms of the system of planning and execution.

Knowledge of the various ways which fraud have been perpetuated in the past and foresight or anticipation system considering the past can facilitate an adequate internal control design that can be efficient and effective in guiding management in the prevention and re-occurrence of fraud. If it is agreed that majority of fraud are born by the bank, then banks should pursue effective internal control measures to prevent fraud. The research work therefore is designed to help to get acquainted with various frauds and their method of execution with the view of gaining sufficient knowledge to enrich individuals and collective experience in management and prevention of fraud. 


This study examines the nature and prevention of bank fraud in Nigeria banking system and is based on knowing how good internal control relates with the prevention of bank frauds in the Nigeria banking. The study is based strictly in Nigeria banking system and more emphasis is based in Auchi, the research work uses a time frame of 5 years (2009 – 2013) using a sample size of 75 for effective result. The researcher encounters some constrain which limited the scope of the study;

 a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study     

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.

c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities 


BANK is a financial institution where money and other valuable items are been kept for safety purpose.

INTERNAL: it is the affairs and activities within a country.

CONTROL: is the power to direct influence or limit something e.g. fraud, error, and to safeguard business

SYSTEM: it is a set of things working together as a mechanism or network, the prevailing political or social order.

INTERNAL CONTROL SYSTEM: This whole of control, financial and otherwise established by the government in order to carry on business of the enterprises in an orderly manner, ensures stick firmly to management policies the completeness and accuracy of accounting records.

MONEY: it is anything which is generally acceptable for making payments or in the settlement of debt.

DATA: is a term used to describe basic “FACT” based on measurement and recording something knows or assumed as facts and made on basic reasoning or calculations. It can be said to be unprocessed information or raw facts.

FRAUD: is the act of deceiving somebody in order to get money or goods illegally or the use of deception to obtain unjust or illegal financial advantage.


This research work is divided into five (5) main chapters and each chapter has the following content:

Chapter one is the introduction consisting of the statement of problems, research question, objective of the study, research hypothesis, significance justification of the study, scope and limitation of the study, definition of key terms, and organization plan of the study.

Chapter two is the literature review consisting of the historical of the case study, concept of internal control system, classification of internal control system, reliance control, types of internal control system, objective of internal control system, environment of internal system, requirement for effective internal control system, application of internal control system. Chapter three is research methodology consisting of the types of data, research design, sample procedure and method of data collection. Chapter four is data presentation and data analysis and finding. Chapter five is summary, conclusion, recommendation and references.