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ROLE OF INTERNAL CONTROL IN RISK
MANAGEMENT (A Case Study Of Zenith Bank Plc, Owerri Branch)
ABSTRACT
The fact
remains that internal control department has much role to play in managing risk
in ever organizations and financial institutions.
The aim of
the research work is to analyze the role of internal control in risk
management. In this research work, 60 questions were distributed while 40 were
returned. It made use of simple percentage in analyzing the questions where
chi-square was used to test the hypothesis. Furthermore, the following finding
were made during the course of this research work. That there is an existence
of internal department in Zenith Bank Plc, Owerri Branch. The need for
continuous audit was also emphasized is independent of the management and
report is mostly prepared and reviewed bi-annually.
Conclusively,
recommendations were made to the organization to ensure that risk is well
managed in Zenith Bank Plc, to be précised. The independent of the internal
control department should always be maintained. Regular training of the staff
and personnel and also adequate development programs should also be organized
to enhance performances, understanding and appreciation of organization
objective.
TABLE OF
CONTENTS
Title Page
Approval
Page
Certification
Dedication
Acknowledgement
Abstract
Table of
Content
CHAPTER ONE
1.0
INTRODUCTION
1.1
Statement of the Problem
1.2 Need for
the Study
1.3
Objectives of the Study
1.4 Research
Hypothesis
1.5 Scope of
the Study
1.6 Assumptions
of the Study
1.7
Limitations of the Study
1.8
Operational Definition of Terms
CHAPTER TWO
2.0
BACKGROUND OF INTERNAL CONTROL
2.1 Nature
of Internal Control
2.2
Management Duty Regarding Internal Control
2.3
Installation of an Effective Accounting System
2.4
Employees Codes of Conducts
2.5
Monitoring Relevant Legal Requirements
2.6
Limitations of the Effectiveness of Internal Control
2.7 Auditors
use of Internal Control System
2.8
Essential Features of Internal Control
2.9 The
Nature of Risk
2.10 Classes
of Risk
2.11 Risk
Management
2.12
Functions of the Risk Manager
2.13
Objectives of Risk Management
2.14
Identification and Measurement of Risk
2.15 How to
Identify Risks
CHAPTER
THREE
3.0 RESEARCH
METHODOLOGY
3.1
Introduction
3.2 Research
Design
3.3
Delineation
3.4
Selection of Data
3.5 Primary
Data
CHAPTER FOUR
4.0
PRESENTATION AND ANALYSIS OF DATA
4.1 Analysis
of General Characteristic of Respondents
CHAPTER FIVE
5.0 SUMMARY
OF FINDINGS
5.1
Conclusion
5.2
Recommendation
5.3 Areas
for Further Study
Bibliography
Appendix
HAPTER ONE
1.0
INTRODUCTION
Internal
control has played a major role in risk management especially in the banking
industry in Nigeria.
According to
British Auditing Guideline, which defined internal control as the whole system
of control financial and otherwise, established by the management in order to
carry out the business of the enterprise in an orderly and efficient manner,
ensure adherence to management policies, safeguard the assets and secure as far
as possible the completeness and accuracy of records. Where as Hornaren and
foster (1990:910) defined internal control as the set of accounting and
administrative controls and practice that helps to ensure that approved and
appropriate decisions are made in an organization.
Internal
control as the organization of accounting duties is such a way as to maximize
the chance of accurate accounting and minimize the chance of risk or the
occurrence or impact of such losses if they occur.
The
management has the duties in risk identification, evaluation, avoidance,
transfer, retention, recruiting and financing. However, Chris Aloma Osondu
(2008) emphasized on risk management whereby business can hardly operate
without an element of risk and defined Risk management as a ‘scientific
approach to dealing with pure risk by anticipating possible accidental losses
and feigning and implementing procedures that minimizes the occurrence or the
impact of such losses if they occur.
According to
Anyanwu F.A. (2007) Risk can be designed as the general uncertainty, doubt,
chance of loss or insurance the insured object.
An
organization like Zenith Bank Plc which is our case study is such that if
internal control system is not efficient there is every tendency that risks
cannot be managed properly in such an organization.
1.1
STATEMENT OF PROBLEM
When risks
occur the concern is always the economic loss associated with the loss. Hence
it is regarded as an involuntary parting of value. The economic loss may take
many forms such as a loss of property by physical perils as fire or thief. It
may also take the form of premature death of the key man of a business
enterprise or a family breadwinner. It may arise out of the ineffectiveness in
the management of an enterprise, or even as a result of law suit to recover
damages for some negligent act. Therefore, the problems intended to study are:
1. How
management handles their risk;
2. How
efficient is the internal control of the organization;
3. If the
internal control system in that organization helps at all in management;
4. If the
organization is insured.
1.2 NEED FOR
THE STUDY
There have
been a lot of study and sharp practices among directors, employees, accountants
and other high ranking personal of the business organization, which engender
poor performance output.
Furthermore,
by virtue of the fact that Zenith Bank Plc has its stock in trade as money
(cash), which makes it sensitive and vulnerable to risk, the need for the
implementation of stringent control measures is necessary:
a. The study
is aimed at helping to develop risk management technique within the
organization and ensure the formulation of a corporate policy on risk
management.
b. To train,
advise and assist management in the effective management of risk.
c. To
implement the various programmes, as well as performance.
d. To
identify the various exposures to loss as well as the probability of loss from
various losses.
e. To ascertain
the most economical method of handling risk.
1.3
OBJECTIVE OF THE STUDY
The main
objectives for this research work can be stated as follows:
i. The
ability to manage the past and present loss resources of the business in order
to preserve the effective operations of the business after any loss.
ii. The
control of the resources needed after the loss by using systematic programme of
loss prevention and control.
iii.
Planning, managing and controlling of assets and resources of the enterprises
so as to contain the outcome of disastrous events which can seriously affect
the effective operations of the business enterprises.
1.4 RESEARCH
HYPOTHESIS
It will be
worthwhile to give the definition of hypothesis for better appreciation and
understanding of this piece of work.
A hypothesis
is simply a claim of a proposition made about a population, which is subject to
test to determine its validity or otherwise.
H0: (1)
Internal control does not aid in risk management.
HI: Internal
control aids in risk management.
H0: (2) The
company does not see the need in maintaining adequate segregation of duties.
HI: The
company sees need in maintaining adequate segregation of duties.
H0: (3)
There is no relationship between the internal control and risk management.
HI: There is
relationship between the internal control and risk management.
Based on the
above, it is believed that the study will be able to reject or accept the
hypothesis.
1.5 SCOPE OF
THE STUDY
This study
is limited to Zenith Bank Plc. Its focus is on the role of internal control on
risk management.
We should
appreciate the fact that efficient internal control is necessary as well as
essential in the performance and growth of any organization.
Therefore,
or the purpose of clarity, simplicity and avoidance of ambiguity, this work
will briefly elaborate the internal control and its roles in risk management
with reference to Zenith Bank Plc. However, this piece of work might not be a
hundred percent (100%) exhaustive treatment of the internal control functions
but a considerable work has been done.
1.6
ASSUMPTION OF THE STUDY
The
following assumptions were made concerning this work.
1. That
companies institute sound internal control.
2. Companies
formulate internal control policies.
3. Internal
control polices can also be faulty.
4. That the
internal control is independent of the management.
5. The
company uses internal control to monitor and control business operation.
6. Internal
control units can help in risk management.
7. Internal
control can also be deficient in some areas.
1.7
LIMITATION OF THE STUDY
A lot of
limitations and constraints hindered the work of the researcher. Some of these
limitations and constraints are as follows:
i. Time
Constraint: Bearing in mind the time to carry out the research a result of
meeting up with the school calendar, the researcher has to combine both normal
academic work and the research work.
ii.
Insufficient Fund: The high cost transportation as a result of hunting for
information to this research work, since the research was carried out solely
from the meager purse of the student, the much needed extensive travels to
other banks to examine the roles of internal controls in risk management.
However, information from such banks was collected through the questionnaire.
Coupled with the clash of lecture periods of the researcher with her research
appointment times at the bank continued as a constraint in this research work.
iii.
Problems of Gathering Data: Data Collection or gathering was characterized by a
lot of difficulties. It should be pointed out that the level of literacy is
still low in this country while that of illiteracy is high. This high
illiteracy rate credited a lot of obstacles, such as non-response to
questionnaires administered. However, these problems not withstanding, the
researcher was able to produce a presentable research work.
1.8
OPERATIONAL DEFINITION OF TERMS
1. Internal
Control: This is the whole system of control, finance and otherwise by the
management in order to carry on the business of the enterprise in an orderly
and efficient manner to ensure adherence to management policies, safeguard he
assets and secure as far possible the completeness and accuracy of the records.
2. Roles:
Oxford Advance Learners dictionary (2000) defined role as the function or
position that has or is expected to have in an organization, in society or in a
relationship.
3. Risk:
According to Anyanwu (2007) Risk can be defined as the general uncertainty,
doubt, and chance of, or in insuring the insured objects.
4.
Management: Ejiofor (1984) defined management as art of science of working in
an organization through being directed by and by directing and coordinating the
activities of people to achieve the goals of an organization.
5. Risk Management:
According to Anyanwu (2007) defines it as the identification, measurement and
the economic control of risks that threaten the asset of any business. It can
also be defined as the planning, managing and controlling of activities and
measures taken in order to minimize the impact of uncertain events.
6.
Vulnerable: Weak and easily hurt physically or emotionally. According to the
oxford learner’s dictionary (2000).
7. Auditor:
According to B.N. Okezie (2004) Auditor can be defined as an accountant who has
undergone a recognized professional course and is a member of the recognized
Accountancy Bodies resident in Nigeria and who is carrying out a professional
Accountancy practice.
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