ABSTRACT

This study primarily aims at finding out the impact of internal control system on the profitability of Nigeria Deposit Banks with an empirical study on Sterling Bank Plc. Internal control systems impact on Nigeria Deposit banks might be as a result of non-adherence to the system or stringent, inflexible adherence on the system. This extremes will invariably have adverse effect on the profitability of the Nigeria Deposit banks and as such the management will always try to strike a balance or trade-off for their profit maximization. The paper therefore tends to evaluate the extent of adherence to internal control system, its impact on the profitability of Sterling Bank Plc and control strategies to be adopted to revitalize or moderate the system. This project is divided into five (5) chapters Chapter One: This is the introductory chapter that provides information about internal control system. This chapter gives insight of the problem identification, objectives and significant of study, hypothesis to be tested and scope and limitations of the study. Chapter Two: This is the Literature Review which makes good references to people that carried out the studies on internal control. It includes the importance and qualities of good internal control and also qualities expected of bank staff. Chapter Three: This includes Research design, scope and methodology. Chapter Four: This involves presentation and analysis of data collected. Chapter Five: This includes the Summary, Recommendation and Conclusions.

 

 

TABLE OF CONTENTS

Title page        -           -           -           -           -           -           -           -           -           -           -i

Declaration      -           -           -           -           -           -           -           -           -           -           -ii

Approval page-           -           -           -           -           -           -           -           -           -           -iii

Dedication-     -           -           -           -           -           -           -           -           -           -           -iv

Acknowledgement-    -           -           -           -           -           -           -           -           -           -v

Table of contents-       -           -           -           -           -           -           -           -           -           -vi

Abstract-         -           -           -           -           -           -           -           -           -           -           -viii

                                                      TABLE OF CONTENT

CHAPTER ONE

1.1       Introduction     -          -           -           -           -           -           -           -           -           -1

1.2       Statement of the Problem       -           -           -           -           -           -           -           -1

1.3       Aim and Objectives of the Study       -           -           -           -           -           -           -2

1.4       Significant of the Study                     -           -           -           -           -           -           -2

1.5       Statement Hypothesis             -           -           -           -           -           -           -           -           -3

1.6       Scope and Limitations of the Study               -           -           -           -           -           -3

1.7       Definition of terms                 -           -           -           -           -           -           -           -4

CHAPTER TWO

LITERATURE REVIEW

2.1       Introduction               -           -           -           -           -           -           -           -           -6

2.2 Conceptual Review           -           -           -           -           -           -           -           -           -8

2.3 Theoretical Review           -           -           -           -           -           -           -           -           -28

2.4 Empirical Review  -           -           -           -           -           -           -           -           -           -29

 

 

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction          -           -           -           -           -           -           -           -           -           -32

3.2 Research Design   -           -           -           -           -           -           -           -           -           -32

3.3 Population of the Study-  -           -           -           -           -           -           -           -           -32

3.4 Sample Size           -           -           -           -           -           -           -           -           -           -32

3.5 Sampling Techniques        -           -           -           -           -           -           -           -           -33

3.6 Sources of Data    -           -           -           -           -           -           -           -           -           -33

3.7 Research Instrument         -           -           -           -           -           -           -           -           -33

3.8 Method of Data Collection           -           -           -           -           -           -           -           -34

3.9 Data Analysis and Statistical Tools          -           -           -           -           -           -           -34

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 Introduction          -           -           -           -           -           -           -           -           -           -35

4.2 Data Presentation -           -           -           -           -           -           -           -           -           -35

4.3 Analysis of Data               -           -           -           -           -           -           -           -           -37

4.4 Answer to Research Question      -           -           -           -           -           -           -           -39

4.5 Summary of Findings       -           -           -           -           -           -           -           -           -40

 

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary               -           -           -           -           -           -           -           -           -           -41

5.2 Conclusion            -           -           -           -           -           -           -           -           -           -41

5.3 Recommendations                        -           -           -           -           -           -           -           -           -42

      References                        -           -           -           -           -           -           -           -           -           -44

      Appendix  -           -           -           -           -           -           -           -           -           -           -46

 

CHAPTER ONE

1.1       Introduction

Internal control is the set of accounting and administrative control and practices that helps managers in operating their organization more effectively and efficiently. It ensures that both the accounting and administrative activities are in order with the laid down procedures, standards, and statutory requirements. It also detects deviation if any and calls for immediate corrective measure. In any profit oriented organization, the objective of management is to maximize profit, and internal control is a technique that can be of assistance in attaining such maximizations.

Banking is a venture undertaken primarily for profit and whose operation should at least include taking money on account and releasing of such money wholly or partly on demand or authority of the depositor. An important object of banking particularly in the developing countries is the promotion of economic development. In pursuance of this economic development as well as banks’ profitability, banks tends to improve on their services by devising methods of sound and effective system of internal control. This study therefore, intends to evaluate how the internal control policies have affected the profitability of Nigeria Deposit Banks with particular reference to Sterling Bank Plc Dutse Branch, Jigawa State

1.2       Statement of the Problem

There have been incessant cases and stories been told about high frequency of fraud, embezzlement, overcharging, manipulation, missing files and ledger cards and other banking malpractices in banks today, with the management and shareholders not knowing how to handle the adverse situation.

The Sterling Bank Plc Dutse Branch, Jigawa State was not left out in these increase in crime – wave problems and banking malpractices, despite the existence of inter-control and devices adopted to detect fraud. This situation has culminated in the lack of confidence by the staff, shareholders and customer over the growth and profitability of the banks. Moreso, with the proliferation of banks and also the increase in rural banking, with commercial bank’s branches, the volume of accounting records has drastically increased, thereby necessitating the appraisal of the adequacy and reliability of records, and overall efficiency of operations.

Furthermore, with the public interest in the “truth and fairness” of financial statements – profit and loss account and balance sheet, whose stratum of reliable is on the internal control system, the research is therefore aimed at investigating the extent of adherence to the internal control system and its impact on the profitability of the banks.

1.3       Aim and Objectives of the Study

To identify the Impact of Internal Control System on Profitability of Nigeria Deposit Banks

The objective of this research include among others the following:

        i.            To identify and appraise the internal control designed, installed and operated by the management of Sterling Bank Plc. with a view to assessing its impact on profitability.

      ii.            To examine the extent of adherence or compliance to the policies, standards and procedures by the members of the staff in order to recommend operating improvement.

    iii.            To identify possible deficiencies and weaknesses of the existing internal control to find means of ameliorating them.

    iv.            To review the profitability of the sterling Bank Plc. and relate it to their internal control.

      v.            To critically analyze the effectiveness, adequacy and applicability of the various internal control. 

    vi.            To offer useful recommendation to proper design, installation and operation of an adequate and good internal control system.

1.4       Significant of the Study

The research is intended to define the level of internal control and its impact on profitability of Sterling Bank Plc. It will be of great importance to the banking staff especially the managers and officers whose interest are geared towards the enhancement of the chances of bank profitability; in serving as a guide in the performance of their duties. It will assess the effect of fraud, manipulations, errors, improper authorization, dishonesty, inadequate accounting records etc on profitability in view of the existing internal control system.

A comprehensive knowledge of system of internal control will form a foundation on which the auditor’s report on “true and fair view” final account is based and as such, the study will be of immense values to the practicing Accountants, Auditors, Lawyers, shareholder and other interested parties for acceptance and reliance of financial statement. Furthermore, it will include more research in the improvement of banking services in Nigeria for the interest of the shareholders, customers and government.

Finally, the study will provide the basis for recommendation to the management of the best approach to designing, installing and operating an improved system of internal control aimed at promoting operational efficiency and eliminating or at least minimizing waste.

1.5       Research Question

1.      What are systems of internal control adopted by Sterling Bank Plc, Dutse. To enhances profitability of the system?

2.      The present internal control systems adopted by Sterling bank Dutse effective and adequately operated?

3.      Is the existing internal control system of the banks enhance their profitability?

1.6       Scope and Limitations of Study

This study covered the internal control systems adopted by various Nigeria Deposit Banks in Nigeria. The population sample was taken from Sterling Bank Dutse branch in Jigawa State. Other parts of the country were not covered, though empirically generalized view was made of them.

The study was restricted to two major areas of internal centre. They are:

i) Administrative control ii) Accounting and financial control (internal checks, internal audition and other financial system of control). This was done based on a comprehensive understanding of the principles of good internal control.

However, the study encountered a lot of constraints as regards time, money and sourcing of information. Effort geared towards obtaining adequate information proved abortive due to the uncooperative attitude of some interviewed staff. Besides, no bank likes the public to know the deficiencies in its internal control as the confidence reposed on it by the public might be lost. But, irrespective of these limitations, an in-depth study was still carried out.

1.7       Definition of Terms

 The researcher at this point believes that some key words and terms that will be encountered while reading this research work will be defined.

Internal Control System: This is the whole system of controls, financial and otherwise established by the management in order to carry on the business of the enterprises in orderly and efficient manner, ensure adherence to management policies, safeguard  the assistance and secure as far as possible the complements and accuracy of the records.

Internal Accounting/Financial Control: Measures that relate to protection of assets and to the reliability of accounting information and financial statements.

Internal Administrative Control: A sub category of internal controls which reply principally to operational efficiency and compliance with company policy and which do not bear directly on the dependability of financial statement.

Cheques: A cheque is a bill of exchange drawn on a banker, payable on demand” (Bill of exchange ordinance 1917   73).

Embezzlement:  Theft by a person of assets entrusted to him or her

Internal Auditing:  An activity carried on in some organization by a professional staff to investigate and evaluate the system of internal control on a year round basis. Also to evaluate the efficiency of individual department within the organization.

Documentation: This includes all the charts, firms, tapes, reports and other business papers that guide and describe the working of a company’s system of accounting and internal control, 

Fraud: Dishonest acts intended to deceive, often involving the theft of assets and falsification of accounting records and financial  statements.

Organization chart: A diagram showing organizational lines of authority and responsibility with emphasis on separation of function.

Irregularities:  Acts by individuals in an organization aimed at perpetrating fraud or embezzlement.

Fidelity bond: A form of insurance contract is which a bonding company agrees to reimburse an employer for losses caused by theft by bonded employees.

Independent Auditor: Professional level accountants that examine the books and records of companies and express opinions the accounting records in the interest of third parties. 

Effectiveness: Attainment of a predetermined goal.

Efficiency: Relationship between inputs and outputs 

Collusion: Where two or more persons conspire to commit an illegal act such as fraud and embezzlement.

16 Illegal Acts: Actions that are not in conformity with prescribed company practices that are capable of leading to fraud.