INTERNAL AUDIT SYSTEM AND FRAUD DETECTION IN BANKING INDUSTRY. A CASE STUDY OF FIRST BANK NIGERIA, UGHELLI.

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

In a typical banking sector the auditors duties will be concerned with many departments apart from the normal department relating to accounting and finance, which means that the auditor is not only concerned with account and internal audit department but with the whole banking system or operations.
Presently, there is a distressing increase in the extent of fraudulent activities in Banking Industry, in particular first bank. This has had a negative consequence on the confidence of bank clients. While international federation of accounting in (1984) defined internal audit as “an element of internal control system set up by the management of an enterprise to examine, evaluate and report on accounting and control operations”.
The necessity for internal audit can’t be over emphasized in the records of the banking industry which may contain errors, undisclosed fraud and this will inadvertently mislead or fail to disclose relevant information to management for planning and decision making. This result that may arise from the deficiency of internal auditors to report on the trueness and fairness of the financial statement may be futile.
Fraud can be defined as the misstatement or omission of an amount from which the financial statement does not actually apprehend with, it can also be referred to as intentional act by one or more individuals among management employees or third parties which results in a misrepresentation of financial statement.

WHY FRAUD SHOULD BE CONTROLLED

Fraud can be controlled by separations of duties to ensure that responsibility does not overlap, and job should be rotational as single worker stays in a particular job for too long, government should established a policy that will retrieve people going out with money. They should also established a law that will control people of saving above certain amount of money in a bank.

STATEMENT OF THE PROBLEM

The act of fraud has infiltrated the banking industry. These fraudulent act are in most times not being selected by the internal audit units established. Such frauds are committed in the following manners.
Salaries and wages misappropriation in this area could be affected by.
Claiming of overtime not worked.
Use of wrong rate in calculating wages.
Non-recording of receipts.
Wrong brought forward or balance brought down.
Lack of sense of responsibility.

PURPOSE OF THE STUDY

The purpose of the study is to critically evaluate a good internal audit system and how to detect fraud in banking as well as to determine and rely on resultant impact and its audit procedures.
Inline with this purpose need to pursue the following objectives.
The verification of the accuracy and integrity of the financial and accounting records, the auditor plays this role.
To ascertain that the standard accounting practices of the organization are being adhered to.
To confirm that liability has been incurred only in respect of legitimate operation of the organization.
To carry out special investigation for management.
To prevent and detect fraud with emphasis on the prevention.