INTERNAL CONTROL SYSTEM IN BANKS PROSPECTS AND PROBLEMS (A CASE STUDY OF UNION BANK PLC}
ABSTRACT
This researcher examines the prospects and problem of internal control in bank, using Union Bank Plc Muhtala Muhammed way llorin as a case study. Forty four (44) staff of the bank were randomly sampled. A questionnaire was design to collect data from respondents, simple percentage, chi-square test and average total weighted response (AWTR) to analyze the data collected. The study revealed that internal control system is effective in Union Bank Plc, it was also found out that the purpoled factor are militating against internal control system. Level of management and gender does not affect responses of the respondent on factors that are militating against internal controls system.However, working experience and education qualification of respondent affect the response of the respondent on factors that are militating against internal control system. The recommendations were proffered and these are:
I. The management should daily with the factor militating
against internal control system if the internal control is to be more effective.
II. Appointment of personnel to a particular work should be base on working experience and educational qualification
III. The bank should appoint right people into the bank when they want to employ people.
Iv. There should be training of all personnel of the
bank so that this will improve their skills,
v. Also internal control system should be review
regularly, so that if there is problem, it can be corrected.
TABLE OF CONTENT
Title page
Certification
Dedication
Acknowledgement
Abstract
CHAPTER ONE
INTRODUCTION
1 Background of the study
2 Statement of the problem
3 Justification of the study
4 Statement of hypothesis
5 Objective of the study
6 Scope of the study
7 Plan of the study.
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
2.2 Concept of internal control
2.3 Classification of internal control
2.4 Types of internal control
2.5 Reliance on internal control
2.6 Axes on internal control
2.7 Objective of internal control
2.8 Environment of internal control
2.9 Requirement for effective control
2.10 Application of Internal Control
2.11 Limitation of internal control
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Types of Data
3.2 Research design
3.3 Sample procedure
3.4 Method of data analysis
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF DATA
4.0 Data presentation
4.1 Data analysis
4.2 Findings.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Summary
5.1 Conclusion
5.2 Recommendations
5.3 Suggestion for further research
Bibliography
CHAPTER ONE
INTRODCUTION
1.1 BACKGROUND OF THE STUDY
Banks are very important in any nation; they are the backbone f the nation's economy. Function of banks according to Ezeudiji (1997), including money creation, acceptance of deposit from the customers, provision of facilities for domestic and foreign remittance, help government in implementing monetary policies e.t.c.
According to Benaijee (2001) internal control system is whole system of control, financial and otherwise established by the government in order to carryon business of the enterprises in an orderly manner, ensure adherence to management policies safeguarding the assets and ensure as far as possible the completeness and accuracy of accounting records".
The function of internal control system includes the detection of error, early detection of fraud and protection or safeguarding of business assets but despite the fact that all banks have internal control system, there have been a lot of problems in the banking sector. Ranging from bank liquidating to defrauding the banks, many banks have been liquidated example of such bank include Savannah bank Plc, National Bank Plc (although it is now being resuscitated) merchant bank Nigeria limited. Nigeria international bank limited to mention few.
According to Central Bank of Nigeria (CBN) annual report over (N16,billion) sixteen billion naira was defrauded from the banking sector, also recently a bank was suspended from the cleaning system by the central bank of Nigeria (CBN) because of mis-management of banks resources expert have given reasons as to what causes banks distress. According to Exeudiyi (1997) one of the causes of bank distress is the internal control system problems include poor or lack proper authorization of loan and contract, poor loan recovery, failure to collect proper collateral security, management override the control e.t.c.
According to Koroye (1989). It a bank interval control (detective in any significant way. then) that audit should be decline outright or opinion must qualified as strictly as possible. It is because of two main reasons.
(1) Banking transaction are very prone to fraud
(2) The auditor will take forever action to vouch the transaction to obtain substantive audit transaction.
1.2 STATEMENT OF THE PROBLEM
Internal control system many organization, including bank is very important because it ensures orderliness, in the organization, advance to management policies, early detection of error and fraud, protection of assets e.t.c internal control system problems have led to closure of many banks in Nigeria, Ezeudiji (1997) thereby making depositors customer to shareholder of such banks 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 questions.
Does bank operation carried out in any orderly manner, and follow the procedure laid down? Does transactions recorded accurately and correctly?.
1.3 JUSTIFICATION OF THE STUDY
The study is very important nowadays were federal government and state government has striving hard to woo investor in Nigeria. Since foreign investor will not invest in any country where there is no good banking sector. The study will be of immense benefit to banks determine the extent to which internal control system is effective. In addition the study would determine the factor problem militating against the success of internal control in banks so that solution proffer to it. The study will be of immense help because most of the funds requires by Nigerians are provided by banks also anything that affects banking sector also affect many others sectors such as agriculture and economy sector of the nations
The study will be useful for further research in related topic.
1.4 STATEMENT OF THE HYPOTHESIS
The following hypotheses form the framework for carrying out this study.
Ho 1: The internal control system is not significantly
effective in union bank plc.
Ho 2: The factors are not significantly militating
against Interval control system ri union bank plc Ho3: There is no significance do not significantly effect responses on factors militating against internal control system in union bank plc
Ho 4: working experience do not significantly effect responses on factors militating against internal control system in union bank plc.
Ho 5: level of management on the respondent does not significantly affect the responses on factors militating against internal control system in union bank plc.
Ho 6: The academic qualifications of the respondent do not significantly affect their responses on factors militating against internal control system in union bank plc.
1.5 OBJECTIVES OF THE STUDY
The objectives of the study are:
i. To find out if there is internal control in union bank plc
ii. To investigate the effectiveness of internal control system in union bank plc
iii. To find out factors that affect internal control system in union bank plc
iv. To suggest way to improve internal control system effectiveness in union bank plc
1.6 SCOPE OF THE STUDY
This study is limited to Union bank plc Muritala Muhammed way branch ilorin due to financial constraints and other' problem. The study can only be generated to union bank plc branches ail over the country.
1.7 PLAN OF THE STUDY
This plan is divided into (5) five chapter, the first chapter discuss on the introduction of the study which comprises of the general background of the study, hypothesis, significance, limitation, plan of the study and scope of the study.
The second chapter contains chapter that review the related literature, these literature is reviewed under the concept of internal control.
Chapter three deals mainly with research methodology it substantially give detail information on the instrument used for the study it also contains research design and explanation on procedure for collection of data.
Chapter four deals with analysis and interpretation of the data collected; finally, summary, conclusion and recommendations are made in chapter five.
CHAPTER TWO
LITRATURE REVIEW
2.1 INTRODUCTION
The introduction of corporate form of business organization forced the separation of the investors from management. This divorced of investor from management together with the demand of creditors, lead to the development of period audit by independent outside public account to bridge the gap and effect better management control, their have been development of various form of internal control on which internal auditing is part.
The management of the large corporation has likewise been force to adopt means of overcoming adequate personal knowledge of business operation, thus internal control came into being.
The subject of internal control including internal audits jointly forms the framework from which to operate. There are two different concept of internal control; the narrower the two concepts appears in the definition of the term in some auditing textbook, journals. A typical example is that of Banner and Curtey (1981) which gives the definition as follows; the method and management with a company that are set to safeguard cash, merchandise and other asset, to provide check on accuracy of the record and to promote efficiency and compliance with company policies.
In definition of Accountant. Eric Kohler (1983) described internal control as the general methodology by which management is carried on which is an organization, also any of the numerous devices for supervising and directly on operation or operations generally.
However, the commonly adopt definition of internal control is the definition in auditing guideline 3.204 given in the Institute of Chartered Accountant which is not only internal check and internal control but whole system of controls financial and otherwise, established by the management in order to carry out on the business of the enterprise in an orderly and efficient manner ensure adherence to management policies, safeguarding "the asset and ensure as far as possible the completeness and accuracy of the accounting recording. The -individual component of internal control system is known as control or internal controls.
If the definition are considered or studied in detail the following will be understand:-
The word "financial means the use of control account which may include physical asset restriction to computer terminals.
(a) Asset to be broken or stolen is always unacceptable to many establishments and procedures are always devised to safeguard.
(c) The procedure to achieve accuracy of record includes the checking of the work of one check by another or the use of control account, independence comparison of this two sets of record e.g stock record and stock.
(d) The whole system means that internal control can be seen as a single procedure or as a whole system and the whole system should be more than the sum of the parts.
(e) The phrase established by the management means that the internal control system are established by the management directly or by the means of external consultants internal audit or accounting personnel, external auditor may be asked to advice on the setting up of the system.
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