This project work takes a look at the impact of internal control mechanism for successful operation in an organisation using the baking sector as case study, with a specific interest on First Bank of Nig. Plc. The research design used during the course of this study was the descriptive survey research design in which a population of 200 staff of First Bank Nigeria Plc. were given questionnaires to respond to. Statistical package for social sciences (SPSS) was being employed to analyze data in form of frequency tables in knowing the effect of internal control on successful operation in an organisation. Two hypotheses were posited and tested using the chi-square. Findings reveals that the calculated t-statistics for the parameter estimates was (t = 3.653), P < 0.01 which is greater than tabulated t statistics (1.9960) at 0.01 level of significance.
Based on the findings of the study, it is recommended that the management of First Bank of Nigeria Plc. should design more effective internal control systems by ensuring that adequate asset listings is done by management, capital assets purchased are approved by appropriate level of management and asset numbering is done to show location and protection of the assets.
- BACKGROUND OF THE STUDY
In this chapter, the researcher intends to look and conduct research on the Impact of Internal Control Mechanism for successful operation in an organization particularly First Bank of Nigeria, Kaduna South Branch.
According to Weber (2010), define impact “as a powerful effort that management has in order to perform their function effectively and to achieve their goals or objective.
According to Benarivo De Guisppee (Augustan Gill, 1943), he said that internal control is a plan of organization and all of the coordinate methods and measures adopted within a business to safeguard its environment, check it is effective and efficient and encourage adherence to prescribed managerial policies.
Louis Fisher (2004) said that Operation is an organized activity in an organization that involves several people performing different task in order to meet organizational goals.Some of the interesting areas about the topic is as follows:
Fraud and Error Prevention: According to Adebayo Adedeji (1979), the responsibility for the prevention of frauds and errors in organization is the responsibility of management, which is usually achieved through the implementation and continuing operation of adequate systems of internal control.
Discover Good Internal Control System: Rober H. Haverman (2004) said that a good internal control system should have a proper coordination and communication network for decisions and policies of management to be effectively communicated throughout the organization and the result thereby reported back efficiently.
Banking institutions occupy a central position in the nations’ financial system and are essential agents in the development process of the economy. By intermediating between the surplus and deficit spending units, banks increase the quantum of National savings and investments and hence national output. By granting credits, banks create money thus influencing the level of money supply which is an essential item in the growth of national income as it determines the level of economic activities in the country.
Banks are central to the payments system by facilitating economic transactions between various national and international economic units and by so doing encourage and promote trade, commerce and industry.
For banks to be able to function effectively and contribute meaningfully to the development of a country, the industry must be stable, safe and sound. And for these conditions to be obtained there must be a sound accounting system, which is occasioned by an internal control system.
In view of the economic growth in companies’ size and complexities, proper management of modern business undertakings are not possible unless they have an effective system of internal control.
A system of effective internal controls is a critical component of bank management and a foundation for the safe and sound operation of banking organizations. A system of strong internal controls can help to ensure that the goals and objectives of a banking organization will be met, that the bank will achieve long-term profitability targets and maintain reliable financial and managerial reporting. Such a system can also help to ensure that the bank will comply with laws and regulations as well as policies, plans, internal rules and procedures, and decrease the risk of unexpected losses or damage to the Bank’s reputation.
Internal control, the strength of every organization, has become of paramount importance today in Nigerian banks. The reason being that the control systems in any organization is a pillar for an efficient accounting system.
The need for the internal control systems in organizations, especially banks, cannot be undermined, due to the fact that the banking sector, which has a crucial role to play in the economic development of a nation, is now being characterized by macro-economic instability, slow growth in real economic activities, corruption and the risk of fraud.
Fraud, which is the major reason for setting up an internal control system, has become a great pain in the neck of many Nigerian bank managers. It has also become an unfortunate staple in Nigeria’s international reputation. Fraud is really eating deep into the Nigerian banking system and that any bank with a weak internal control system, is dangerously exposed to bank fraud.
The CBN reported that cases of attempted fraud and forgery in banks, as at half-year 2007 have surpassed what was recorded for the whole year 2006. The CBN half-year report for 2007, revealed a total of 741 cases of attempted fraud and forgery, involving 5.4 billion, $35,406.1, 150 Euros were reported as at June, 2007. In 2006, 1,193 cases were reported involving 4.6 billion, $1.8 million and 14,389.7 pound sterling. The CBN also reported that the backward development was attributable to weaknesses in the internal control systems of the banks. This has clearly painted the picture of how fraud has penetrated in the financial strength of Nigerian Banks.
In a nut-shell, the damage which this menace, called fraud has done to the banks is innumerable and needs urgent attention. Therefore, the attempt to put an end to this economic degradation, gave rise to the topic of this research study the effect of internal control on organizational performance in the banking sector with Eco bank Nigeria PLC as a case study. However, this study is aimed at verifying the conception that an effective and efficient internal control system is the best control measure for preventing and detecting fraud, especially in the banking sector.
Internal control is the methods employed to help to ensure the achievement of an objective. Internal controls are policies, procedures, practices and organizational structures implemented to provide reasonable assurance that an organization’s business objectives will be achieved and undesired risk events will be prevented or detected and corrected, based on either compliance or management initiated concerns (Awe, 2005). The Institute of Chartered Accountants of England and Wales (ICAEW), defined internal control as the whole system of controls, financial or otherwise, established by management in order to carry on the business of an enterprise in an orderly and efficient manner, to ensure adherence to management policies, safeguard the assets and secure as far as possible, the completeness and accuracy of the records. They are tools used by management everyday for the smooth running of their organization or businesses. Internal controls also refer to the measures instituted by an organization so as to ensure attainment of the entity’s objectives, goals and missions. They are a set of policies and procedures adopted by an entity in ensuring that an organization’s transactions are processed in the appropriate manner to avoid waste, theft and misuse of organization resources. Internal Controls are processes designed and effected by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of the financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations (Mwindi, 2008). Enforcement of internal controls should be designed to promote operational efficiency and effectiveness, provide reliable financial information, safeguard assets and records, encourage adherence to prescribed policies, and comply with regulatory agencies. A sound internal control will ensure that transactions are: valid, properly authorized, recorded, properly valued, properly classified, reconciled to subsidiary records and not carried through by a single employee (i.e. ensure separation of duties) ( Adeyemo Kingsley A,2012).
Organizations establish systems of internal control to help them achieve performance and organizational goals, prevent loss of resources, enable production of reliable reports and ensure compliance with laws and regulations. In the words of ETUK IFIOK CHARLES (1999) et al “Internal Control is the whole system of controls, financial and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far possible the completeness and accuracy of the records”. All managers in an organizational department operate according to stated plans, objectives and the methods they use. The policies, procedures, organizational design and physical barriers constitute the internal controls structure of an institution. Managers should realize that a strong internal control structure is fundamental to the success of an organization in term of its purpose, operations and resources.
Responsibility for providing an adequate and effective internal control structure rests with an organization’s management. Control is important because it single-handedly links with the effectiveness of other managerial functions such as planning. When it comes to planning, it determines whether activities are ongoing toward the achievement of goals and accomplishment of objectives. Control mechanisms keep the plans running smoothly and up to date. Control is also important in employee empowerment wherein performance of the employees could be properly managed. Performance is controlled in terms of appraisal, lessening haphazard decisions on allocation of positions/job titles. Nonetheless, control mechanisms are also important in keeping a balance within the workplace especially since controlling means to minimize unethical decisions of the employees and the organization as a whole.
The questions are: what can be said to be the cause or causes of the increasing rate of fraud in banks? What is the impact of internal control in the prevention and detection of fraud in banks, what is the impact of internal control on the organizational performance of the Eco bank Nigeria plc?
- STATEMENT OF THE PROBLEM
The most serious problem hampering the smooth operation in public and private sectors at all the levels has been fraud, errors, defalcations, mismanagement and abuse of office.
Applicants are complaining bitterly that First Bank of Nigeria, Kaduna South branch do not allow staff to go on training and development having worked for specific period of time with the bank.
Another paramount problem facing the organization as regard to the recruitment, selection, training and development of applicants or candidates during and after an interview because of the pressure by the top official to select their candidate of the applicants regardless of their betterment. No fair play for promotion and training in the organization
The condition of work is not adequate and the problems of motivation and grievances settlements procedures are not adequate as well.
Over the years, different management has been trying to institute a corrective measure. In spite of all these, a lasting solution is still far reached. At times, one tends to wonder if at all the numerous internal control measures instituted in public and private organizations do function, and if they do, to what extent can one conveniently at attest to the fact that internal controls and measures have contributing towards solving the inherent problems that exist in the organization concerned.
The research examines the internal control mechanism of First Bank of Nigeria Plc. With a view to identifying to what extent the controls instituted were able to achieve the goal which they were meant to. It is noteworthy that what matters most is not only instituting internal control mechanism in an organization but the system should be subjected to a process of continuous review and appraisal if it is to function properly and achieve the purpose for its installation.
- OBJECTIVE OF THE STUDY
The aim of this study is to assess the effectiveness of internal control mechanism on the performance of workers in organization particularly First Bank Kaduna South Branch.
The research is an effort to determine the prospects and problems of internal control mechanism on the performance of workers in an organization particularly First Bank of Nigeria, Kaduna South Branch are as follows:
- To examine the impact of internal control mechanism in First Bank of Nigeria Plc.
- To find out the problems of internal control mechanism face in implementing on the performance of personnel working in First Bank of Nigeria Plc.
- To determine the problems and prospect of internal control mechanism on the performance of workers in First Bank of Nigeria Plc.
- To recommend ways by which internal control can be used effectively so as to achieve the organizational goal.
- RESEARCH HYPOTHESES
HO: Weakness in the internal control system in Nigerian banks does not lead to frauds.
H1: Weakness in internal control system in Nigerian banks leads to frauds.
HO: There is no significant relationship between internal control system and organizational performance.
H1: There is significant relationship between internal control system and organizational performance.
1.5 SIGNIFICANCE OF THE STUDY
This project is very relevant and important to the following categories of people:
Society and the Public: Shareholders, customers and the public at large will benefit from this project because it gives them insight to what internal control is all about, its importance to the private sector and particularly First Bank of Nigeria Plc.
Tax Authority: They will be interested in knowing how management runs the company particularly the company loses or gains profit.
Academic Community: The researcher will add to directly available knowledge in academic world on internal control mechanism. Student, lecturers and other scholars will find it very useful and make reference to it.
Management: The study will also provide management with suggestions and recommendations on how best to improve the performance of the internal control mechanism. It is only meant as a study, it can go a long way in alleviating similar problems for some organization in the banking industry.
To the Researcher: This is part of organized work for awarding HND in Human Resources Management.
1.6 SCOPE AND LIMITATION OF THE STUDY
This study is intended to cover internal control mechanism in the Nigerian banking industry with particular reference study. The First Bank of Nigeria Plc has various branches in the state of the country with the headquarters in Lagos. This study will be restricted to the Kaduna branch. The First Bank Plc has many branches in Kaduna and other major towns of the state like Zaria, Zonkwa and Kafanchan. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following
- a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
- b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
1.7 DEFINITION OF TERMS
DEFINITION OF TERMS
Some of the technical terms used in writing the project are defined for simplicity.
HUMAN RESOURCES: The administration and policy makers of a business or organization.
IMPACT: Is a powerful effort that management has in order to perform their function effectively and efficiently to achieve their goals and objectives.
CONTROL: Is a plan of organization all of the coordinate methods and measures adopted within organization to safeguard its environment and check it is effective and encourage adherence to prescribed managerial policies.
OPERATION: Is an organized activity in an organization that involves several people performing different task in order to meet organizational goals.
INTERNAL: This is an activity put in place within the organization by management in order to meet their goals.
OBJECTIVE: Specific goals to be attained should be measurable in terms of growth, quality and time.
1.8 ORGANIZATION OF THE STUDY
This research work is organized in five chapters, for easy understanding, as follows
Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.
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