Internal Control System As A Means Of Preventing Fraud In Financial Institutions

INTRODUCTION
1.1 BACKGROUND OF THE STUDY
It is feared that the inability of management to ensure effective enforcement of rules and regulation have rendered that operations of Internal control system as the Banking Industry Open to abuse. The net effect could be that everyone carries out his schedule off duties in any manner he likes which consequently gives those wishing to commit fraud their long expected golden Opportunity.
Prior to 1952, there was no form of Banking art or ordinance to regulate the establishment and operations of Commercial Banks or a Central Banks to supervise the control of Banking Nigerian. During that time many Banks was registered some of which never operated and ever since that period, fraud has remained a permanent feature in our Banking Industry. This resulted in a loss of faith and trust in the financial Institutions by Nigerians and consequently, under-development of the banking habit in the country.
However with the Introduction of the first baking Ordinance in 1952, and the Central Bank of Nigeria (CBN) Act in 1959 and other, subsequent Acts and ordinances with their amendments over the years, used to regulate and control the activities and operations of financial Institutions in the country fraud in financial Institution have rather increased in magnitude and the methods used to perpetrate them acquire grater sophistication day after day. Now with the introduction of modern procedures and advancement in information technology such as those in communication system, automatic electronic gadgets and computers into the banking system coupled with the various precautionary measures taken by bank agent, fraud have rather taken nuclear dimensions and the size of sums involved increased at a geometric rate Anikpitan (1976), a banker of repute, maintained.
That; discoveries during investment show that
banks now take extra precaution fore clearing a
cheque because of rampant incident of fraud and
forgery which a bank boss placed on the average of
N1m per working day of the year in Nigeria. I Ashimi
(1976, P.6) maintained that; Fraud has become
sophisticated as to make a forged signature on a
cheque leaf look good enough for the rightful Owner
to think that it was his signature.
But a situation, as is being experienced now, where incessant cause of bank fraud are being reported, could, if not immediately checked, erode depositors confidence in the nation’s baking system. Such a situation could also scare fore investors from the country. Ughamadu N. in his article on celebrating bank Fraud “In the business Times 29 July, 1991, observed that;
The logic for establishing a viable and enabling
environment for any country will be meaningless if
its banking sector is very porous to fraud.
The nature of the business of the banking industry requires a proper measure to be taken to evade fraud. This is because they are entrusted with public funds. Ojo, A.T (1982) emphasized that;
As an open secret, financial Institutions do not have very large resources of their own in relation to the total resources at their disposal. They depend in the main, on other peoples funds which have been entrusted to them because of the confidence the people have on them as models of responsibility and safety. 4
Consequently, the confirmed existence of financial Institutions rests delicately on the maintains of public confidence. This calls for the establishment of an effective system of internal control, which among other things will help to ensure that the organization’s accounting are in accordance with the laid down procedures standard and statutory requirements.
] to establish a sound internal control system, various organisation adopt various devices and methods based on their nature of business and the scope of their operations. Internal control system requires a continuos check and rechecking of day-to-day activities of the business in order to ensure the correctness and fairness of the accounting records; and to detect and expose any deviation when it has accord. Most financial Institutions loose confidence of the people not only through fraudulent use of funds but also through some detect in fraudulent practices and or syndication of some dishonest staff facilitated by defects in the Banks Internal Control System. There is, therefore a great need to climinate or minimize the defects or loopholes and make money effective and operational to guard against the occurrence and re-occurrence of fraud in our financial institutions.

1.2 AN OVERVIEW OF FIRST BANK PLC
First Bank of Nigeria Plc was incorporated on 31st March 1894 as a limited liability coy with an authorised share capital of 2 stilling the, but today it has been registered at the company’s house for 110 years. The establishment First Bank of Nigeria Plc predates the birth the Nigeria nation as a sovereign entity. The Bank, which was registered as Bank of British West Africa in 1894, has therefore evolved along the path of political, social and economic changes and development of Nigeria from the colonial period to independence and the experience of post independence. It thus shared in the process of its growth, the final experiences of the nation which in retrospect were sources of strength.
First Bank of Nigeria Plc is engaged in commercial Banking Business. The Banks head office is located in Lagos. It is the policy of the Board of Directors that the bank should play an important role in the commercial banking industry in Nigeria. Accordingly the bank is committed to the expansion of its branch network with a view of eventually making its services available through the country. The increase in the number of branches will improve the deposit base of the bank and thus enable it to fund more projects in different parts of the country, thereby contributing towards the nations economic growth. For now the bank has branches all over the country and overseas.
The bank embarked on a computerization project in order to enhance the delivery of its services.
All the branches of the bank and head office departments are now computerized. The bank is committed to successful restricting and development of the nations economy as its rural objective. Towards this end, the bank is interested in assisting small-scale industries, farmers, co-operative societies and community development efforts.
The service include, saving account, current account, standing orders and direct debit, current services, fixed deposits, loans, and advances, corporate finance international operations, these services are being carried out by the efficient human resources of the bank which made up to both senior and junior cadres.

1.3 STATEMENT OF THE PROBLEM
In our daily newspapers thee are reports of fraud in financial institutions. For instance, Business concord (January 27 1990) noted with ulter dismay that “Robbers are making nonsense of the various types of security measures in banks by employing scientific means of gaining access to their strong rooms. Another contribution in the Business Times (23rd January 1990) commented that “the rising incidence of bank fraud has created a lot of distrust between banks and their customers”. Not only that there are increase numbers of reported cases of fraud but also the sums involved are staggering.
The methods used is perpetrating fraud is recent times are acquiring nuclear sophistication day after day. While the bank management are busy devising new methods of checking fraud, the fraudulent staff are busy devising new methods of defrauding the bank. It is obvious here that the results of these incidence are damaging. Fraud leads to unwanted loss of public fund and put the management of the affected bank on its toes.
Every incidence of bank fraud reduces public confidence in banking and consequently slows down development of baking habit In Nigeria.
This continuous occurrence of fraud could be as a result of the present state of the world of technology and the level of sophistication which has enable people to easily discover more ways of perpetrating fraud in the banking system.
In view of this, therefore, there arises a need for measures to be taken to avert this situation otherwise it could lead to the crippling of the economy and failure of the banking in particular. However, despite the steps and measures taken by banks to prevent the occurance of fraud. The situation still remains largely unchanged. It is therefore necessary to appraise and or establish an adequate and effective internal control system in financial institutions for then orderly and efficient operation so as to guard against ever increasing incidence of fraud, hence this study.

1.4 OBJECTIVE OF THE STUDY
This research work concentrates essentially or the financial institutions with special emphasis first bank of Nigeria Plc with a view to providing suitable recommendations and suggestions that will help in their prevention and minimization of fraud. It is therefore the main objective of this study to examine the internal control system in the operation of this bank in Nigeria and evaluate the appropriateness and the effectiveness of the system as a toll for fraud prevention.
The study also has its objectives.
i. To ascertain the degree of compliance of the banks staff with the internal control measures.
ii. To identify possible defects or loopholes (if any) in the system.
iii. To examine the relevance and appropriateness of the presently adopted control measures in preventing fraud.
iv. To offer useful recommendation based on the findings on how best to prevent the occurance of fraud through an effective internal control system.
RESEARCH QUESTION.
1. Does the present internal control system financial Institutions appropriate in present world of technology and sophistication in First Bank of Nigeria Plc?
2. How effective is the Internal control system in First Bank of Nigeria Plc?
3. What techniques, if any could internal control system in Banks can be used to prevent fraud in First Bank of Nigeria Plc?

1.5 STATEMENT OF HYPOTHESIS
This study is required to test, amongst other things the following.
Ho, that the present Internal control system in financial institutions is appropriate in the present world of technology and sophistication in First Bank of Nigeria Plc.
HI: That the present internal controls system in financial Institutions is not appropriate in this present world of technology and sophistication in First Bank Nigeria Plc.
Ho: That the present internal control system in financial institutions is not appropriate in this present world of technology and sophistication of First Bank Nigeria Plc is effective.
HI: That the present internal control system in First Bank Nigeria Plc is not effective.
Ho: That the present internal control system in first bank of Nigeria Plc can prevent fraud.
HI : That the present internal control system in First Bank of Nigeria Plc cannot prevent fraud.

1.6 SIGNIFICANCE OF THE STUDY
Even though this study is not a very comprehensive and exhaustive one as a result of some limitations all aspects of the work is very relevant in one way or the other to the Nigeria Banking Industry as a whole primarily this study is designed for all those may be interested in carrying out further study on internal control system as it related to fraud prevention in financial institutions in Nigeria.
Moreover banks in Nigeria will deprive great assistance from this research work in detecting fraud in their banks and improving their internal control system and subsequently preventing and minimizing fraud.
This they can achieve by adopting and implementing the various suggestions and recommendation made this study in their control system.
Finally, there is no need over-emphasizing the fact that if banks are able to reduce the incidence of fraud in their operation to the least level. That they will be able to operate on a more profitable ground. Again, the bank customers deteriorating confidence on the banking industry will once more be restored and thereby help in building up good banking habit in Nigeria.

1.7 Scope AND LIMITATIONS ON THE STUDY
This study concentrates solely on the financial Institutions and focuses on first bank of Nigeria Plc.
Emperical generalization will be made of other commercial banks in Nigeria.
A very detailed research work was not possible as a result of some limitations suffered by the work.
The major port of this is as a result of the secrecy of banks in Nigeria. Banks in Nigeria do not let out information to people easily especially researches. This is because other people can make reference to their research work and use the information against the bank. The topic being research on helped make the matter worse as banks will not wish to lay bare their internal control system to the public.
Other limitation composed on this study is that of shortage of time and financial constraints. The time limit set for the submission of this project work was short and this made it impossible for a detailed research work to be carried out. This problem of time and finance account for the limitation of the sample size to only the first bank Plc in Onitsha.