THE IMPACT OF INTERNAL CONTROL PROCEDURES ON CORPORATE GOALS A CASE STUDY OF SPRING BANK (NIG) PLC.


Content

 

 

 

ABSTRACT

Internal control is an indispensable tool in the efficient management of any Bank. It could be likened to the “heart” which regulates the business “blood”. No business can succeed without an efficient and effective internal control system. Internal control can also be likened to the “brake and steering” in a vehicle which, if they are not there, the business “Train” will crash. It can also be likened to the laboratory or quality control machinery, which controls the quality of product produced by an organization. It is the Centre hob of all financial activities of any establishment.

 

The study, in some detail reviewed what have been written about internal control to ascertain experts opinion and position on the subject matter.

 

Data for the study where principally gathered through primary and secondary sources.

The primary sources where based on questionnaires, interviews and observations; while the secondary sources includes both published and unpublished materials, textbooks, articles, journals and even newspapers.

 

The hypotheses were statistically tested at the 5% level of significance using the non-parametric chi-square.

The findings from this study revealed that the internal control system of Spring Bank is effective but still needs to be improved upon. Areas of strength and weaknesses in the internal control system were clearly isolated and the recommendations were based on how to improve upon those areas of weakness.                      

   

                                                                                                                         

TABLE OF CONTENTS

Pages

Title page

Certification                                                                            i        

Dedication                                                                              ii

Acknowledgement                                                                  iii

Proposal                                                                                 v

Table of contents                                                                    viii

 

CHAPTER ONE

1.1       Introduction                                                                 1

1.2       Background of the Study                                             2      

1.3       Statement of Problems                                                 3

1.4       Purpose/Objective of the Study                                  4

1.5       Statement of Hypotheses                                             7

1.6       Significance of Study                                                    8

1.7       Limitation of Study                                                       9

1.8       Definition of Terms                                                       10

References                                                                    13

 

 

CHAPTER TWO  

2.1       Introduction                                                                 14

2.2       Historical Development of Internal Control                15

2.3       Definition of Internal Control                                      17

2.4       Types of Internal Control System                                23

2.5       Essential Features of Internal Control System           27

2.6       Internal Audit as part of the Internal  Control

System                                                                          31

 

2.7       Internal Check as aspect of Internal Control

System                                                                          35

2.8       Management duty regarding Internal Control 37

2.9       Consideration in the Appraisal of Internal

Control of Commercial Banks                                     38

2.10    The purpose of Internal Control                                  39

References                                                                    41

 

 

CHAPTER THREE               

RESEARCH METHODOLOGY

3.1       Research Design                                                           42

3.2       Area of Study                                                                42

3.3       Population                                                                    43

3.4       Sampling and Sampling Techniques                           43    

3.5       Sources of Data                                                            44

3.5.1  Primary Sources                                                          44

3.5.2  Secondary Sources                                                      45

3.6       Research Instrument                                                   45

3.7       Methods of Data Analysis                                            46

References                                                                    48

 

CHAPTER FOUR  

PRESENTATION, INTERPRETATION AND ANALYSIS OF DATA

4.1       Introduction                                                                 49

4.2       Data Presentation                                                        51

4.3       Questionnaires Responses                                          51

4.4       Responses to Interview Questions                     73

4.5       Test of Hypothesis                                                        76

 

CHAPTER FIVE  

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1       Summary of Findings                                                   85    

5.2       Conclusions                                                                  86

5.3       Recommendations                                                        89

5.4       Suggestions for Further Research                     91

Bibliography                                                                 93

Questionnaires

Interview Questions


 

CHAPTER ONE

1.1       INTRODUCTION

Commercial Banks are sensitive organizations, which need adequate and proper control to avoid distress. It is impossible to have an effective operation if good system of internal control does not exist or not effective. Internal control is the bedrock of efficient management in organizations, particularity in Banks. The system of control differs from one establishment to another.

 

According to Mohammed (1982:20), where an effective system of internal control is employed in an organization, it does not erase fraud and other irregularities completely but makes prevention and early detection of fraud and errors possible. Also the company’s assets are better safeguarded against loss damages and wastage, and when accountability is in existence, management could make accurate decisions based on the accurate records of financial transactions.

 

Auditors could base their audit work and subsequently audit report on the system of internal control in existence. But where internal control system is completely absent, or where not effective, fraud and errors are suspected.

 

The increase in size of most business units and the complexity of modern business techniques have increased the attention and also encouraged the adoption of different systems of control, though, under the umbrella of internal control.

Therefore, the nature and size of any organization determines the system of control to be adopted. The establishment and implementation of these different systems of control such as accounting control and electronic data processing system lead to effective and efficient management process.

 

Also, due to increase acquisition of financial assets, physical Assets, increase sophistication in financial recordings, the need arises for increased watch and adherence to management plans and policies in the various businesses.

 

These call for routine study and innovations on the system of internal control in existence. From researches conducted so far, it is generally accepted that internal control is an indispensable aid to efficient management because it provides assurance to management of the dependability of the accounting data used in the decision- making.

 

It keeps management informed as to whether the company’s policy is being adhered to and whether the financial position of the organization shows a true and fair view. It is as important as the organization itself and as such should be carefully designed and effectively implemented more especially in commercial banks where they are established.

Failure to do this may result to creation of loopholes for fraud.

                                                                    

1.2       BACKGROUND OF THE STUDY

The history of internal control system should be traced back to the time when human beings began to form organizations to achieve goals, which they could not have achieved individually. Management and co-ordination of efforts became imperative once two individuals or more come together to achieve a common goal.

 

Over the years, these organizations have grown in physical size and expand vastly in operations such that various kinds of irregularities have arisen ranging from unintentional error or fraud to other major international and local defalcation and falsification of records or even to extend to situation where individuals connive to undermine the system of internal control in operation.

Daily media reports have clearly indicated how some Chief Executives and top management personnel of some organizations embezzle, misappropriate funds of their companies and engage in many dubious and fraudulent acts as a result of the weakness and lapses in the organizations internal control.

 

It is against this background that this study seeks to provide solutions to ineffective internal control systems, which have been the undoing of our banks in recent times.

 

1.3    STATEMENT OF PROBLEMS                              

there is no doubt that banks play very vital roles in the Nigerian economy. For this role to be sustained, their profitability and continued existence should be assured.

 

Good management of Banks does not only entail making profit, but also safeguarding the organizations assets from frauds and irregularities. Several Banks failures in Nigeria have been attributed to ineffective and unreliable control systems. Bank fraud has indeed eaten deep into the fabrics of the nations economy and further caused retardation in the industrial growth of this nation.

 

According to an NDIC report in 1996, “Bank failures have griped more than N40billion from innocent depositors”.

It is therefore pertinent that studies of this nature are instituted to probe into and find solutions to ineffective and inefficient control systems in Banks, which are mostly responsible for bank distress cases in Nigeria.

 

Presently, to caution the effect of systematic collapse of the banking industry, the Central Bank of Nigeria (CBN) have beefed up the capital base of commercial banks to Twenty-five billion naira (N25billion).

To provide solution to this problem of lapses of internal control procedures, a number of issues shall be raised and appraised in the study. Does the organization have a chart and how are responsibilities defined? How are authorities delegated, duties segregated and procedures designed to ensure proper custody of assets?

 

1.4    PURPOSE/OBJECTIVES OF THE STUDY                                            

The main purpose of this study is to make an objective inquiry into the impact of internal control system in the management of organizations, particularly commercial banks.

The study is an attempt to have an indepth appraisal of the internal control procedures, in Nigerian banks, the level of adherence and application, the loopholes/problems in the existing system and recommendations/prospects.

In the light of the above expressions, the objectives of study includes;

 

-                     Whether the workers are paid their salaries as at when due and whether it is adequate.

-                     Whether the staff are motivated by management.

-                     To identify the principal causes of workers dissatisfaction and pin-point the implication of such problems to management for control purposes. 

-                     Whether the management and staff adhere strictly to the policies and procedures adopted in the internal control system.

-                     Whether the existing internal control system has need to be improved upon.

-                     To find out how training of staffs can enhance the productivity of the bank.

-                     To investigate the influence of poor staffing and inefficient  workers in the organizational growth.

-                     To make recommendations towards the proper design, installation and operation of a good internal control system.

 

1.5    STATEMENT OF HYPOTHESIS                                      

In order to have proper direction, and control for this project work, the following hypotheses are formulated.

Ha:    Workers are paid their salaries as at when due.

Ho:    Workers are not paid their salaries as at when due.

Ha:    Workers are being motivated by management to enhance productivity.                                

Ho:    There is little or no motivation from management.

Ha:    Management and staff adhere strictly to the policies and procedures adopted in the system.

Ho:    Both the management and the staff do not adhere strictly to the policies and procedures adopted in the internal control system.

Ha:    The internal control system is inadequate and therefore has need for improvement.

Ho:    The internal control system is adequate and therefore has no need for improvement.

Ha:    Staff training can enhanced the effectiveness and efficiency of internal control system.

Ho:    Staff training has no impact on the effectiveness of the internal control system.

 

1.6       SIGNIFICANCE OF STUDY     

In every modern society, banks and the banking sector in general are the bedrock on which the economy thrives.

Any study on the successful management of banks is therefore of great significance. Any problem in the banking sector would invariably have strong effect on the economy and that is why this research work tries to study the internal control system in the banking sector and see how its effectiveness and reliability could be used to prevent bank failures. Also, the need for internal control in contemporary business has become overwhelming that auditors currently demand for its existence in all organizations.

 

Several groups will benefits immensely from the articulate revelations that will emerge from this study. Top managers of banks and other organizations, especially the corporate decision makers will find this study as a guiding tool. This work will also serve as a reference tool to accountants, auditors, consultants and managers.

 

It will serve as a basis of broadening the researcher’s knowledge on internal control and its uses. To customers and investors, they would be confident that controls in place can be reliedupon for the security of their investments. Management on the other hand will be able to reduce losses and improve on internal control system.

Finally, the academic world can use this work as a basis for further research.

 

1.7    LIMITATIONS OF STUDY           

This work will not go into staff fidelity or probe management efficiency, as these may be a separate topic for research.

The thoroughness of this work has been limited by the vast number of organizations spanning the banking industry. It is on the strength of this constraint that the study is being conducted Spring Bank, Victoria Island Lagos and Apapa branch respectively. Although, efforts would be made to examine data from other branches before final recommendation can be made.

 

Other limitations to this study may include, but not limited to the following;

a.           The respondents were only willing to give limited information.

b.           Difficulties were encountered during information gathering, and during interview, some information were regarded as top secrets and too confidential to be divulged.

c.            The questionnaires sent out were not completely returned.

 

1.8    DEFINITION OF TERMS                         

The following terms and concepts below are defined for the purpose of this study.

-                     SYSTEM                      

WU (1983:) submitted that a system is an entity which is composed of a number of attributes and is also composed of  a set of relationships, which connect the object. It is a pre-arranged and pre-designed set of rules and procedures to ensure continuity and efficiency of activities. Oxford Advanced Learners Dictionary defined it as a group of things or parts working together as whole.

    

-                     INTERNAL CONTROL

Auditing guidelines defined internal control as “The whole system of controls, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records”.

           

-                     CONTROL 

Control is basically a management function that deals with the measurement and correction of performance of the subordinates with a view to achieving organizational objectives with maximum efficiency and at a minimum cost.           

 

-                     INTERNAL CHECK

Internal check are those checks on the day to day transactions, which operates on a continuous basis. They are routine checks which are assured by complementing work of one person with that of another. It is a live test rather than post-mortem.

       

-                     FRAUD AND IRREGULARITIES

The term “fraud” is used sparingly in ‘practical auditing’. The preferred term is irregularity. Fraud however, is defined as the intentional distortion of the financial statements to secure particular advantages such as the misappropriation of assets.

The term fraud is also used when it refers to irregularities involving criminal deception to obtain an illegal or unjust advantage.              

 

-                     NDIC

Nigeria deposit insurance comporation.

 

 


REFERENCES

Cookey, A.E. (1997): ‘Distress in Commercial Banks in Nigeria: Causes and remedies” Journal of Economics Vol. 44 (2) pp. 28-32.

 

Hornby, A.S. (1998), Oxford Advanced Learner’s dictionary, special price edition, Oxford University Press, England.

 

Mohammed, S.A. (1982), Essential of Internal Control Procedure in the public sector, Lagos: West African Book Publishers Ltd.

 

Millichamp, A.H. (1886), Auditing - An instructional manual for Accounting students London: DP Publication Ltd.

 

Okezie, B.N: (1994), Auditing and investigations Nigeria: Bon Publishers.

 

WU, F.A. (1983) Accounting information system New York: McGraw Hill.

 

Orjih, J (1996) Business Research Methodology.

 

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