FRAUD MANAGEMENT AND INTERNAL CONTROL AS CORRELATES OF ORGANIZATIONAL EFFECTIVENESS (A STUDY OF NIGERIAN DEPOSIT MONEY BANKS)
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FRAUD
MANAGEMENT AND INTERNAL CONTROL AS CORRELATES OF ORGANIZATIONAL EFFECTIVENESS
(A STUDY OF NIGERIAN DEPOSIT MONEY BANKS)
ABSTRACT
No
organizations can be effective towards the attainment of its desired goals
without the formulation and enforcement of fraud management policies and
standard internal control systems. The study examined fraud management and
internal control as correlates of organization effectiveness in some selected
Nigerian Deposit Money Banks in Enugu State. 450 staff across management,
senior and junior level was purposively selected in Skye Bank, Access Bank and
EcoBank. The study made use of primary data via the administration of a
questionnaire to generate data from the respondents. The data were analyzed
using the descriptive statistic analysis and the Pearson correlation analysis.
The results revealed that a positive and significant relationship exists
between fraud management and organizational effectiveness (r=0.772; p<0.05);
and between internal control and organizational effectiveness (r=0.896;
p<0.05) in the selected banks. Based on this, the study suggests that
internal control, both operational and financial should be employed the
management of every bank, to ensure that bank’s assets are safeguarded, cash
inclusive. This will go a long way in reducing fraud in banks to the barest
minimum and ensuring effectiveness in banks’ operations.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF
THE STUDY
Internal
control, the strength of every organization, has become very crucial in
Nigerian banks. The reason for its high importance is that control system in
any organization is fundamental to an efficient accounting system. The need for
the internal control systems in any organizations, especially in financial
institutions such as the Deposit Money Banks, cannot be underestimated, based
on the fact that the banking sector, which has important role to play in the
economic development process of a nation, is now being invaded by macroeconomic
instability, corruption, fraud etc.
Fraud, which
is among the reasons for implementing internal control, has become pervasive in
the Nigerian banking industry. It has tarnished the global reputation of the
country, in which Nigeria was identified as a “fantastically corrupt nation” by
the advanced world economies. Fraud has totally penetrated the Nigerian banking
industry and that any bank with a weak internal control system, is highly
susceptible to bank fraud.
The Central
Bank of Nigeria reported that cases of attempted fraud in banks, between 2007
and 2015, have exceeded what was recorded between 2001 and 2006. The CBN report
showed that a total of 771 cases of attempted fraud, involving 5.4 billion
naira were reported as at June, 2014. In 2015, 1,193 cases of fraud were
reported involving 11.9 billion naira. This menace can be attributed to weak
internal control systems of banks. This clearly chows the picture of the
pervasiveness of fraud in Nigerian Deposit Money Banks (Ahmed, etal, 2014; CBN,
2015).
Fraud
management is now becoming an issue that top bank chiefs and regulators in the
Nigerian banking industry face, due to the alarming rate of bank fraud. The
implementation of internal control systems alone cannot totally address the
issue of fraudulent activities that occurs in banks. Fraudulent acts are common
in every organization, but more common in Deposit Money Banks because of the
instruments of their trade. Banks are highly susceptible to financial fraud as a
result of money and quasi-money instruments used in the process of their
operations. The acts of financial fraud have defied solutions despite the
implementation of internal control systems put in place in Nigerian Deposit
Money Banks (Chibuzor, 2013). Internal control system sometimes negates the
efficient operations, banks put in place to curtail cases of fraud, but it has
not been totally successful in mitigating the amount of funds that goes into
fraud. Thus, internal control systems have become both preventive and
protective of banks’ financial resources, sometimes perceived as inimical to
the primary operations of these banks
Most banks
are litigation-shy as judicial officers find it uninteresting to that the
internal control process put in place by the banks was planned and done by
their employees (Adetiloye, etal, 2014). In addition, where the banks are
litigious, courts often sympathize with customers whose infractions resulted
into larger losses of funds irrespective of whether collusion with an employee
had existed. These cases are not funny outside the banking halls when financial
fraud occurred and parties have to prove their innocence.
One of the
reasons for the use and review of internal control systems in Deposit Money
Banks is to minimize cases of fraudulent activities, to promptly detect any
intended fraudulent acts before they are actually carried out. Fraud management
and internal control are therefore pertinent predictors that determine
organizational effectiveness, which implies the rate at which organizations’
achieve their desired goals.
1.2 STATEMENT OF PROBLEM
Managing
fraud in Nigerian Deposit Money Banks is bedeviled with series of problems.
Firstly, the inability of bank management to effectively implement the policy
and operational procedures of banks, which has led to the ineffective
establishment of accounting system and the mode of accounting information, has
encouraged perpetration of fraud.
Secondly,
lack of adequate motivation incentives coupled with poor working conditions has
resulted into fraud. Thirdly, weakness in the internal control systems such as
lack of proper documentation of records has led into fraud. Fourthly, poorly
designed organizational structure, poor devolution of responsibility,
non-compliance to directives has resulted into fraud.
Lastly,
ineffective supervision, evaluation and monitoring of bank operations by bank
management and regulatory agencies have also encouraged fraudulent activities.
1.3 OBJECTIVES
OF THE STUDY
The
objectives of the study are:
To examine the relationship between fraud
management and organizational effectiveness in Nigerian Deposit Money Banks.
To examine the relationship between
internal control and organizational effectiveness in Nigerian Deposit Money
Banks.
1.4 RESEARCH
QUESTIONS
The study is
aimed to provide satisfactory answers to the following questions.
What is the relationship between fraud
management and organizational effectiveness in Nigerian Deposit Money Banks?
What is the relationship between internal
control and organizational effectiveness in Nigerian Deposit Money Banks?
1.5 RESEARCH
HYPOTHESES
Two
hypotheses are formulated to guide the study, and they are stated as follows:
H01: There is no significant relationship
between fraud management and organizational effectiveness in Nigerian Deposit
Money Banks.
H02: There is no significant relationship
between internal control and organizational effectiveness in Nigerian Deposit
Money Banks.
1.6
JUSTIFICATION FOR THE STUDY
The damage
which fraud has done to banks is inestimable. Fraud has highly eaten the wool
and fabric of Deposit Money Banks in Nigeria due to the nature of their operations.
Even at that, internal control, which has been regarded as panacea to fraud has
not been fully embraced by the Nigerian Deposit Money Banks. Effective internal
control and fraud management has been adjudged to be powerful tools to mitigate
the incidence of fraud as well predictors of organization effectiveness, which
is usually measured in terms of net profitability, wealth maximization, growth
in industry’s market share and expansion of customer base.
Therefore,
in an attempt to stop this financial degradation, the research work was carried
out. It is therefore believed that the study through its findings will be
beneficial to all stakeholders in the banking industry. Also, government will
be informed on the need to adopt effective fraud management policies and
internal control to minimize the incidence of fraud in among public and civil
servants. This study will be of immense usefulness to students in their
prospective future undertakings in the areas of fraud management, internal
control and organizational effectiveness.
1.7 SCOPE AND
LIMITATIONS OF THE STUDY
The study
examined the nexus of fraud management and internal control as they correlates
to organizational effectiveness in Nigerian Deposit Money Banks. The study
placed strong emphasis on Skye Bank, EcoBank and Access Bank in Enugu State,
Nigeria.
In the
course of carrying out the study, the researcher faced certain constraints,
otherwise known as limitations, namely time constraint and financial constraint.
The time
given to conduct a study of this magnitude is relatively short, given other
academic engagement of the researcher. Also, due to limited fund, the study was
able to covered three commercial banks in Enugu State namely: Skye Bank,
EcoBank and Access Bank.
Nevertheless,
a robust and fact-finding study was carried out.
1.8
ASSUMPTIONS
The study is
premised on the two assumptions, which are
That all respondents are staff of the
selected Nigerian Deposit Money Banks.
That all the information given by the
respondents are regarded as true and genuine devoid of sentiments or biasness.
1.9 METHOD OF
ANALYSIS
The study
adopted the descriptive survey design in conjunction with the purposive
sampling technique to select 450 staff of Skye Bank, EcoBank and Access Bank in
Enugu State. The study made use of a primary data, through the administration
of a well-developed questionnaire for data collection. The data generated from
the respondents were subjected to the descriptive statistics technique- tables,
frequency, percentage and means and inferential statistics technique- Pearson
Correlation Analysis.
1.10 DEFINITONS
OF TERMS
Deposit
Money Banks: These are resident depository corporations and quasi-corporations
which have liabilities in the form of deposits payable on demand, transferable
by cheques or otherwise usable for making payments.
Fraud: A
deliberate deception to secure an unfair or unlawful gain, mostly in monetary
terms, or to deprive a victim of a legal right.
Fraud
Management: Strategies and policies implemented by an organization to reduce fraud.
Internal
Control: Process of assuring achievement of organization’s objectives in
operational effectiveness and efficiency, reliable financial reporting and
compliance with laws, regulations and policies. It simply involves everything
that controls risks to an organization.
Organizational
Effectiveness: Ability of an organization to meet its set goals and objectives
given the resources at its disposal
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