ABSTRACT
This
research project is based on Effect of Internal Control System in enhancing
decision-making in Commercial Banks, a case study bf First Bank of Nigeria Plc,
Isolo Branch. It shows how internal control activities favourably and adversely
affect banking industry. The researcher also discussed the regulation of
companies and Allied Matter decree 1990 as it affects internal control.
In
order to realize the objective of the project work, questionnaires were
administered on internal control system in banking industry to determine the
effect and relationship with other unit.
Findings
and recommendation have also been made by the researcher at the end of this
project work to facilitate the activities of internal control in Banking
Industry in Nigeria.
TABLE
OF CONTENTS
Title page
Dedication
Acknowledgement
Certification
Abstract
Table of content
CHAPTER
ONE
1.0 Introduction
1.1 Background
of the study
1.2 Statement
of the study
1.3 Objectives
of the study
1.4 Scope
and limitation of study\
1.5 Hypothesis
1.6 Research
Questions
1.7 Plan
of study
1.8 Definition
of Basic Terms
CHAPTER
TWO
2.0 Literature
Review
2.1 Background
of First Bank Plc
2.2 Historical
Development of Internal Audit
2.3 Auditing
2.4 Internal auditing
2.5 Internal
control
2.6 Internal
audit effect on internals control in various areas of business
2.7 Internal
audit and the prevention of fraud
2.8 Contribution
of internal audit to internal control
CHAPTER
THREE
Research
Design and Methodology
3.1 Introduction
3.2 Research
Approach
3.3 Research
Strategies
3.4 Source
of Data
3.5 Data
Collection Methods
3.6 Returning
of Questionnaire
3.7 Statistical
procedure
CHAPTER
FOUR
4.0 Introduction
4.1 Data
Analysis
4.2 Data
Presentation
4.2.1 Demographic
Classification
4.2.2 Questionnaire
Classification
4.3 Hypothesis
Testing
CHAPTER
FIVE
Summary, Recommendation and
Conclusion
5.1 Summary
of Findings
5.2 Recommendation
5.3 Conclusion
Questionnaire
Bibliography
CHAPTER
ONE
1.0 INTRODUCTION
As
a result of various classes of studies it was found out that a basic
requirement of the Companies and Allied Matters Decree (CAMD) 1990 and as
amended in 1991 to companies and Allied matters bet (AMA), that the management
of an organization should endeavour to keep and also maintain adequate records
and accounts which is expected to represent a true and pair view of the state
of affairs of the organization financial position i.e. the state of affairs of
the balance sheet and also the profit and loss statement of the organization.
These will be finally Verified and attested to by an external auditor who at
the end of his examination is expected to present to the management.
Moreover,
to enhance system of perceptional succession of an organization, human agents
(normally executive officers and other officers) are being appointed to control
its activities and most often, these agents are not the owners hence have
therefore become necessary for us to know and understand that the provision of
internal audit function is not required by law but that of the stationary
audit.
Notwithstanding,
the internal audit function due to its scope of importance has risen to provide
a great deal of assistance to management in meeting up with its own
responsibility of planning and especially controlling; this is therefore the
reason why existences of an Internal audit department in an organization is the
creation of the management. Moreso, with the growth in size and complexity
Obtainable in many organizations is recent years; the importance of internal
audit has corresponding increased so that it is today a major factor in
establishing the quality of an organization's internal control system.
1.1 BACKGROUND TO THE STUDY
Internal
audit is a part of the internal control system existing in an organization both
large and small. It is one of these management controls which is execrated
continuously by the specialized staff and behalf of the management. Internal
audit involves a periodic review of the accounting and internal control system
as well as the results of operations in order:-
- To
report on the efficiency and effectiveness of the internal controls and
accounting system; and to suggest improvements where necessary and
- To report on result of operation,
variations from plan and the reason thereof.
The
internal audit function is delegated by management to employees who have this
as their role or sole responsibility. The employees know as internal auditors
and constituting the internal audit department are not allowed to carry out
other duties in the organization that could result in conflict of interest and
consequently impair their independence - a most desirable quality for their
roles.
Chartered
institute of public finance and accountancy (CIPFA) therefore define internal
audit as "An independent appraisal activity within an organization for the
revenue of operations as a service to the management. It functions by measuring
and evaluating the effectiveness of controls.
The
control structure of an organization consists by and large of an analysis of
the relationship between controllability and responsibility or more precisely a
specification for which managers are responsible for management of resources in
the organization.
The
problem which has always existed when managers’ report to owners is such that;
can the owners believe the report? This is so because it may:-
(i)
Contain errors
(ii)
Not disclosed proud
(iii)
Be inadvertently misleading
(iv)
Be deliberately misleading
(v)
Fail to disclose relevant information.
The
need has therefore emerged for the existence of a good internal control system
in both small and large organization.
According
to Brigg (1972) "Internal control system could be said to be the whole
system of controls, financial and otherwise established by the management of an
organization in an orderly and efficient manner, to ensure adherence to
management policies, safeguard the assets as far as possible the completeness
and accuracy of its records."
Some
types of controls which may be available in planning of the organization,
segregation of duties, physical presentation of assets, authorization and
approval, personnel, supervision and management includes budgetary and variance analysis.
However,
two components of internal control system namely internal check and internal
audit can go a long way in ensuring the accuracy and completeness of the
financial records. Internal audit being our area of focus involves a periodic
review of the accounting, financial and other things.
That
the laid down policies of management in all areas of operations are being
adhered to in practice. It reports on the efficiency and effectiveness of the
internal control and accounting system and to suggest improvement where necessary.
That
all monies due to the organization are received and lodged with the bank or
otherwise properly accounted for.
- That
all payments made by the organization are properly authorized and that the
organization receives full value for any expenditure incurred
- To
report on result of the operations variation from plan and the reason thereof.
The
internal audit function is delegated by the management to the employees who
have this as their sole responsibility. These employees also called internal
auditor and constituting the internal audit department are not allowed to carry
out other duties in the organization that could result in conflicting interest
and consequently impair their independence. This department is created to
provide a continuous and complete audit of the accounts and records of the
organization with the use of:-
1. Internal procedural system
2. Internal check
3. Pre audit jobs.
As
these will help the internal control system to the organization more effective
and efficient.
1.2 STATEMENT
OF PROBLEM
Some
of these problems we are likely to come across in the course of these study are
hereby enumerated below:
1. How effective is the internal auditing
tool of internal control system?
2. The formidability of the internal audit
department
3. The effects of the attitude of staffs
towards internal audit.
4. The
effects of non-independence of internal auditor on internal audit procedure and
conclusions.
5. Determination of the kind of skills
required of the internal auditor.
6. The
effects of management continuous intrusion in the activities of the internal
auditors with respect to extravagance and proud in the organization.
7. Evaluation
of the type of responsibilities and duties expected of an internal auditor in
an organization.
8. The effect of the internal control system
that could exist in an organization.
1.3 OBJECTIVES OF THE STUDY
Many
companies have suffered natural death and many more are still at the verge of
collapse just because of lack of effective internal control in place. And where
there are the internal auditors have not been alerted to these
responsibilities. Why should this be so? It is the objective of this study to
research into these problems with possible solution such that:
(1) To
have the determine factors that specify the type of skill (both technical and
otherwise) require of internal auditor evaluated.
(2)
To correct the attitude of the staffs
towards the internal audit department.
(3) To
examine the effect of internal auditing on internal control system of an
organization.
(4) To
analyze the responsibilities of the internal auditor/internal audit department
to other offices in the organization as a whole
(5) To
examine the effects of management interference or intrusions in the department
(6) To
verify how true the independence of the internal audit department, mostly, the
internal auditors is being effected and further enhanced.
1.4 SCOPE
AND LIMITATIONS OF THE STUDY
The
research highlighted various internal controls and procedures in the banking
environment. The operation of banking sector will be subject to independent
appraisal of accounting, financial and other operations by way of measuring and
evaluating the effectiveness, efficiency and economy of all controls within the
bank.
For
accuracy of data collection, collation and analysis, the researcher in
accordance with the objectives of this study will concentrate on points
highlighted above with peculiar reference to First Bank of Nigeria Plc.
However,
the scope of the study suffered a setback in terms of financial constraints.
There were no enough funds to cover the study of internal control in all banks
operating in Nigeria. The secrecy of some bank officials also made it difficult
to obtain all the information required in respect of internal control in the
banking sector. Another limiting factor in the coverage of the study is the
time fixed for the completion of this research project work. Inspite of this limitation
the areas covered is adequate in achieving the objective of the study.
1.5 HYPOTHESES
The
following hypothesis will be tested:
1.5.1 Ho:
There is no significant relationship
between the internal audit and internal control system of the organization.
HA:
There is significant relationship
between the internal audit and internal control system of the organization.
1.5.2 Ho:
Internal audit should not receive maximum co-operation from other department
staff, the errors and risk involve would not classifiably reduce.
HA:
Internal audit should receive maximum
co-operation department staff, the errors and risk involve would classically
reduce.
1.5.3
Ho: The internal audit should
not be directly responsible to the highest level of management.
HA:
The internal audit should be directly
responsible to the highest level of management.
1.5.4 Ho: Internal auditors are sufficiently
independent to performing their audit roles.
HA:
Internal auditors are not sufficiently
- independent to fulfill their audit roles.
1.6 RESEARCH QUESTIONS
With
the earlier mentioned problems on mind, this study will endeavour to provide
answers to the following questions:
1. What are the effects of management interference
in internal audit functions?
2. What
is the valuation of the contributions of other department to the internal audit
department?
3. What
are the effect of non-independence of the internal auditor on the internal
audit procedure and conclusion?
4. In
view of the fact that internal audit is an integral part of internal control
measures, does it have to centre around the unveiling deficiencies inherent in
an organization and if so, how effective has this being?
1.7 PLAN OF THE STUDY
The
research work has been organized chronologically in order to simplify the
research excise as well as facilitates quick understanding by intended readers
and prospective researchers.
The
project is divided into five chapters. Chapter one consists of the introductory
aspect which includes the background to the study; scope and limitation of the
study, statement of the problem, objective of the study, hypothesis, research
questions, plan of study and definition of plan, chapter two deals with the
literature review part of the project work. Chapter three covers the research
design and methodology and returning of questionnaire. Chapter four presents
the data finding and analysis of results. Chapter five consists of summary,
recommendations and conclusion.
1.8 DEFINITION OF TERMS
The
following terms are used in this project and should be construed as stated:
1.8.1 Internal
Audit: This is an
independent appraisal activity within an organization for review of operations
as a service to management. It serves as a control means for measuring and
evaluating the effectiveness of other controls.
1.8.2 Statutory
Auditor: He is an external
auditor to an organization. He is the auditor appointed on the basis of the
statute of each AGM (The Company Annual General Meeting).
1.8.3 Internal
Control System: This is the
whole system of control financial and otherwise established by management in
order to carry on the business of the organization in an orderly and
efficiently manner to ensure adherence to management policies, safeguard the
assets and secure as far as possible the completeness and accuracy of its
records.
1.8.4 The
Internal Checks: This is
defined as the checks on the day to day transactions which operates
continuously as part of the routine system whereby the work of the person is
provided independent or is complementary to the work of another.
1.8.5 Internal
Audit Department: This is a
department set up in both small and large organization as well to look into the audit in any organization.
1.8.6 Effectiveness: This is the degree to which the goals of an organization is attached. It is also the
act of doing the right things.
1.8.7
Efficiency: The act of doing things right at first time.
1.8.8 Fraud: This refers to irregularities involving in
the use of connivance deception to obtain an unjust or illegal advantage.
1.8.9 Error: This is described as
unintentional mistakes.
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