AN APPRAISAL OF INTERNAL CONTROL SYSTEM AS A MEAN OF EFFICIENCY AND PROFITABILITY IN THE NIGERIA MONEY DEPOSIT

CHAPTER ONE

1.1   INTRODUCTION

        In banking, Accounting and auditing internal control is defined as a process effected by an organization structure, work and authority flows, people and management information system designed to help the banking accomplish specific goals or objectives.

        It is a mean by which organization resources are directed, monitored and measured. It plays an important role in preventing and detecting fraud and protecting the organization’s resources.

Internal control-integrated framework, a widely-used frame-work in not only the United State but around the world, internal control is broadly defined as a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories.

1. effectiveness and efficiency of operation
2. reliability of Financial reporting
3. compliance with law and regulations

Internal control has five components

1.     Control Environment:    set the tone for the organization, influencing the control consciousness of it people.

2.     Risk Assessment:   the identification and analysis of relevant risk to the achievement of objective, forming a basis for how the risk should be managed.

3.     Information and Communication: System or process that supports the identification, capture and exchange of information in a firm and time frame that enables people to carry out responsibilities.

4.     Control Activities:  the policies and procedure that help ensure management directive are carried out.

5.     Monitoring:     process used to assess the quality of internal control performance over time. 

The internal control relates to the aggregate control system of the organization, which is composed of many individual control procedures.

Discrete control procedures, control are defined by the SEC as a specific set of policies, procedures and activities designed to meet an objective. A control may exist with a designated function or activities in a process. A control’s impact may be entity wide or specific to an account balance class of transaction or application.

Internal control procedure reduce process variation, leading to more predictable outcomes. Internal control is a key element of the foreign corrupt practices Act (FCPA) of 1977 and the Sarbanes-Oxley Act of 2002, which requires improvement in internal control within business entities are also referred to as OPERATIONAL CONTROLS.

The internal control system (ICS) consists of a set of rules, procedures and organization structure which aims to.

• Achieve effective and efficient corporate process
• Safeguard the value of corporate asset ensure that corporate strategy is implemented
• Ensure the reliability and integrity of accounting and management data.
• Ensure that operation comply with all existing rules and regulations

1.2   STATEMENT OF THE PROBLEM

        The problem of the study by the researcher is to find out the appraisal of internal control system as a means of efficiency and profitability in Nigeria banks. The major statement of the problem are:

1. The various means employed by customer and staff or official in defrauding the money deposit bank in Nigeria. This is one of the problems confronting the money deposit bank and this affect the bank efficiency and profitability.
2. The likely challenges to be encountered by money deposit banks in tackling fraud; it has become paramount for bank to employ control system internally to check fraud.
3. The researcher work will aimed at finding lasting remedies or solution to solve problem of frauds in money deposit bank in Nigeria.

1.3   RESEARCH QUESTION

        The focus of this study is to identify the appraisal of internal control system as efficiency and profitability in banks, hence, in the course of the study effect has been to find solution to the following research question.

1. What is the bank concept of internal control system?
2. What is the historical background of internal control system in commercial bank?
3. What are the various mean employed in defrauding banks?
4. What are the remedies to profitability in commercial bank (money deposit)?
5. What are the main effects of fraud in banks?

1.4   OBJECTIVE OF THE STUDY

        The primary objective of this study is to examine the appraisal of internal control system as a mean of efficiency and profitability in the Nigeria commercial bank (money deposit).

The objectives of the study are:

1. To examine the basic concept of internal control system of banks.
2. To discuss the theoretical framework of internal control system in the banking industry.
3. To enumerate the remedies to efficiency in commercial bank (money deposit).
4. To expatiate the form and nature of profitability in banking industry.
5. To analyze the problem uncounted by the commercial banks (money deposit).

1.5   SIGNIFICANCE OF THE STUDY

The research work is predicted in nature of the study is enable the banking industry on the way to meet the profit on banks that meet the directives has been stronger.

        The study in also be beneficial to the shareholders, the policy is bring about improved and increased in the shareholders value and with through appreciate of their share and it’s market ability through the mega bank customers is also benefit through reduction in cost of paying for services, prompt receiving of services, reductions in time spent in the banking hall.

1.6   RESEARCH HYPOTHESIS

        The basic fundamental for testing hypothesis involved the formulation is:

Ho:   Null hypothesis

Hi:    Alternative hypothesis

Ho:   internal control system has no correlation with profitability and efficiency of money deposit bank in Nigeria

Hi:    internal control system has a great correlation with profitability and efficiency of money deposit bank in Nigeria.

1.7   SCOPE AND LIMITATION OF THE STUDY

        The research intend to carry out research work on the appraisal of internal control system as a means of efficiency and profitability in Nigeria bank using Mainstreet bank of Nigeria Plc as a case study.

        However, the research intend to cover the lack of recent and adequate material, unwillingness of the respondents and the case study to given the true replies, lack of co-operation of the case study.

        However, effort has been made to ensure that the above limitation did not hide effective completion and quality of research work and how it can be improved upon now and the future.

1.8   DEFINITION OF KEY TERMS

Banker:   A company carrying on the business of receiving money, collecting draft for customer subject to the obligation of honoring cheque drawn upon them from time t by customers to the extent of the amount available on the account.

Cheque kite flying: this is a method whereby depositors utilize the time a cheque to clean to obtain an authorized loan without any interest charge.

Control:   this mean to check put a stop in the activity uses a limit in the activities of individual or a group of individual in the banking industry.

Deflation:        this is making or alteration of writing to the prejudge of another man’s right or litter to which he is ordinary entitled to.

Fraud:     is an act of cause of deception deliberately practiced to gain unlawful or unfair advantages, such as deception in directly to the detriment of another.

Negligence:     an act of negligence in committed where employees through ignorance of lack of commitment to duties guard the interest of his employees or railed to follow a prescribed procedure.

1.9   PLAN AND ORGANIZATION OF THE STUDY

        For clarity of research context, the research work has divided into five (5) chapters and adequate research findings and conclusion was drawn to make relevant recommendations for the research.

        Chapter one deals with introduction of the topic

        Chapter two deals with literature review

        Chapter three deals with research methodology

Chapter four deals with data presentation and analysis

Chapter five base on findings, summary, conclusion and recommendations.

CHAPTER TWO

2.1   LITERATURE REVIEW

        One of the major causes of distress in banks is the ineffectiveness in the system of internal control which has resulted into accumulation of bad debt which were incurred through dubious means.

        Therefore, an understandably of the subject matter of this project topic hold to thoroughly understood that is the appraisal of internal control system as a means of efficiency and profitability in banks.

        According to Awe (2005) internal control is defines as policies, procedures, practice and organizational structures implemented to provide reasonable assurances that an organization is business objective will be achieved and undesired risk event will be prevented or detected and corrected based on either compliance or management initiate concerns.

        According to Leslie (2007), defines internal control as not only the internal check and internal audit but whole of system control financial and otherwise established by the management in order to carry on the business of the company in an orderly manner to safeguard the asset and secure as fast as possible.

        The institute of Chartered Accountant of England and Wales (ICAEW) 2001, defines internal control as the whole system of control financial or otherwise established by Management in order to carry on the business of an enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the asset and secure as far as possible the completeness and accuracy of the records.

        Mayo (2003) defines internal control as the measure takenly, an organization for the purpose of protecting it’s resources against waste, fraud, inefficiency, ensuring accuracy and reliability in accounting and operating data, securing compliance with organization policies and evaluating the level of performances in all division of the organization.

        According to ICAN study pack (2006) fraud consists of both the use of deception to obtain an unjust of illegal financial advantage and intentional misrepresentation affecting the financial statement by the one or more individuals among management employees or third parties.

        Hornby (2001) defines fraud as an action or instance of checking somebody in order to make money or obtain good illegally.

• HISTORICALL BACKGROUND OF MAINSTREET BANK

The Afribank Nigeria Plc received banking license on Oct 20, 1959 and opened it first branch at Kano City on January 4, 1960. she was the know as banquet internationale pour Afrique accidentale (B/AO) the origin of B/AO dates back to around 1853 when the bank first established in Senegal later it was changed to Banque Pour la Afrique accidentale (B/AO). The word internationale was added later when the bank owner included the first nationally bank B/AO was one of the first bank to set up shop in West Africa at a point the banks activities in the area were so prevailing that he was given the authority to issue currency notes (A Central Bank function). In the French speaking West Africa Countries. Afribank was established as a subsidiary of BAO. The compliance with federal government orders, the headquarter was set up in 1960 at 94 board street Lagos.

The establishment of Afribank coincide with the emergency of the countries oil industry. The bank later developed links with some oil companies and in order to serve there need more promptly the bank set up two more branches in Portharcourt and Aba just before the out break of Civil wars in 1967 with the promulgation of the Nigeria companies decree of 1968, it because imperative for all firms in Nigeria to be corporate as Nigeria to be incorporated as Nigeria companies on limited liability companies under the name international bank for west Africa (IBWA). The English equivalent to B/AO. In 1971 the bank got their first Nigeria Chairman in person of Alhaji T. Galadima, that same year BAO itself experience charges in her own equity structure. The union bank of Switzerland bought over 20 percent of the 49 percent of BAO equity capital held at the city which the position was taken up by Boncodo Brazil, while the remaining 9 percent was brought by the company i.e. International Afribank debanque holding Luxeboury on account of indigenization, the federa military government in 1976 required 60 percent of the equity structure of Afri-bank and some other banks. The left B/AO with 40 percent of the Afribank equity capital by 2005, Afribank had developed a branch network of 21 (twenty one) with 6 (six) rural branches staff strength has also growth to 210. The banks organization chart was restructured and new department like general control, legal commercial and marketing were added in 2006, the paid capital of Afribank increased to 25 billion also for the first appointment of a Nigeria as the bank managing director in 2005, the federal government gave up 10 percent of their equity in the bank staff, two year later, the bank adapted Afribanbk as their subname. The name Afribank is common to all banks balance sheet.

Now, Afribank has become mainstreet Bank, effective Friday August 5, 2011, Afribank Nigeria Plc become Mainstreet Bank limited. This step which will help enhance the smooth operation of the company will also ensure that the recapital;ization process will be concluded ahead of the company will also ensure deadline given by the Central Bank of Nigeria.

Mainstreet Bank has taken over the deposites liabilities and asset of Afribank since August 5,2011.

Mainstreet esplained that in the change of Afribank to Mainstreet bank limited. The bank remains going concern the bridge  bank (MBL) will continue to operate normally and discharge it’s obligation to all the stakeholders without description. All the business location and service point of the bank is remn to the banking public normal business hours as the bank is in good position to meet all its obligations. Customers and the general public are assured that their deposit are safe and accessible as the bank is mainly undergoing a process on the road to successful recapitalization management and CIBN have assured customers that the position will loose from transacting business with the bank.

The Nigeria Deposit Insurance cooperation (NDIC) intervention and creation of mainstreet bank provides for the stabilization of the bank and will allow for continuing operation with no description as Mainstreet bank will continue to enjoy the CBN guarantee for depositor and creditors. The CBN guarantee for Mainstreet Bank has been extended to December 2011.