THE APPRAISAL OF INTERNAL CONTROL SYSTEM AS EFFICIENCY AND PROFITABILITY IN BANKS

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