INTERNAL CONTROL AS AN EFFECTIVE MANAGEMENT TOOL IN THE BANKING INDUSTRY

(A CASE STUDY OF FIRST BANK OF NIGERIA PLC, ENUGU MAIN)

By

CHUKWU AGNES M. (REV. SR.)

Presented To

Department of Accountancy

ABSTRACT

This project was carried out with the sole aim of studying an evaluating the internal control system in a banking industry- using first Bank of Nigeria PLC, Enugu main as a case study.

The project is written in five chapters: chapter one is the introduction which include the background of the study etc. chapter two enumerated literature Review, where the earlier views on internal controls were reviewed to avoid duplication chapter three is the Research Methodogy. Chapter for -data pre sanitation, Analysis and interpretation and finally, chapter five includes: summary, findings, recommendations, implications, limitations of the study and suggestions.

In handling this project, the survey and historical research method was employed.

A total of 99 workers were chosen as the population of this study. The workers were grouped as staff and non-staff. The staff were 65 in number, which revealed that the 65 staff were made up of 13 management staff, 44 senior staff, 8 junior staff. While the non-staff were 34 in number which made up of 2 contract staff and 32 I.T Staff since the project topic "internal control as an effective management tool in the banking industry" is an important topic, the staff population was chosen, since they are the one to understand the language of the project topic.

The study tools were mostly through questionnaires, oral interviews, reading which includes text books, journals, pas texts, newspapers, annual reports and statement of accounts, manuals, enclopedias, and other publication; and observations.

The data collected were interpreted to the understanding of everybody through the use of tables, pie chart, and chi-square.

The study overviewed the following areas: definitions, categories, types and essentials of internal control system. others are plan of organization authorization, managerial supervision, internal check and internal audit.

The findings that, top management rely heavily on internal auditors and inspectors report for managing, controlling and decision making among other findings. The research made some recommendations which is hoped will help for the achievement of effective internal control system as well as effective management in FBN PLC.

TABLE OF CONTENTS

Cover page…………………………………………………………i

Title page……………………………………………………………ii

Dedication …………………………………………………………iii

Acknowledgement……………………………………………… - iv

Table of contents………………………………………………�v

List of tables……………………………………………………�vi

Abstracts……………………………………………………………vii

CHAPTER ONE

10 INTRODUCTION

11 Background to the study

12 Statement of problem

13 The purpose or objective of the study

14 Scope of Delimitation of the study

15 Research Questions

16 Significance or Rationale of the study

CHAPTER TWO

20 REVIEW OF LITERATURE

CHAPTER THREE

30 METHODOLOGY

31 Research Design

32 Area for the study

33 Population for the study

34 Sample and sampling procedure

35 Instrument for data collection

36 Validity of the instrument

37 Reliability of the instrument

38 Method of Administration of the instrument

39 Method of data analysis

CHAPTER FOUR

40 DATA PRESENTATION AND RESULTS

CHAPTER FIVE

50 DISCUSSION, IMPLICATION AND RECOMMENDATIONS

51 Discussion of results

52 Conclusions

53 Implication of the results

54 Recommendations

55 Suggestions for further study

56 Limitation of the study

REFERENCE

APPENDICES

TABLE LIST OF TABLES

411 Analysis of responses to whether there is a reliable operational internal control

412 Analysis of responses to the effects of adherence to laid down regulations helping in effective management

413 Analysis of whether the Bank manages in line with the laid down regulations and guidelines

414 Analysis of responses to whether effective management an accountability is independent of internal control system

415 Analysis to the responses of the use of the reports of the internal Auditors and inspectors per decision making

46 1 Analysis responses to the implementation of he corrections and suggestions from their inspections and internal auditors

417 Analysis response to the profitability and operational efficiency of a bank in having relationship with internal control systems

418 Analysis response to whether decision of labour does help in internal control

419 Analysis response to whether all records are supervised and called over

4110 Analysis responses to whether one who passed the entries participate in the calling over of the records

4111 Analysis responses to possibility of effective management and accountability without internal control system in operation

4112 Analysis responses to training courses and regular motivation to work

4113 Analysis response to the rate of operational efficiency in FBN PLC

4114 Analysis responses to he dependence of the future stability of Banks on effective operational internal control

4115 Analysis responses to the effectiveness of division of labour in FBN PLC, Enugu main

4116 Analysis responses to the effective and efficient of the existence of internal control system in FBN PLC Enugu Main

4a Illustration using pie chart for the distribution of respondents length of services

42 Test of hypothesis

421 Computation of chi-square text using table 417 for hypothesis 1

422 Computation of chi-square test using table 417 for hypothesis 2

423 Computation of chi square test using table 412 for hypothesis 3

CHAPTER ONE

INTRODUCTION

11 BACKGROUND OF THE STUDY

Internal control is control within the company In this type of control employees within the establishment can be useful sources which could be very helpful of more effectiveness of the desired goal This means that it must be within the establishment's restraints, authority or command It involves a check within the banking industry to facilitate the effectiveness of its management

The banking industry of every economy consists of all the activeness of financial institutions geared towards setting and maintaining a healthy cash flow and management policy in such economy

Banking industry cannot perform their functions very well without maintaining a sound internal control This is the reason for the study of internal control and its role in the effective management of the banking industry

According to the Canadian institute of chartered accountants, exposure draft of proposed auditing recommendations, internal central comprise of the plan of an organization and all the co-ordinate systems established by the management of the enterprise to achieve management's objective of ensuring as far as it is practical The orderly and efficient conduct of its business including the preparation of reliable financial information

E Murphy in her text described internal control as the plan of organization and all of the co-ordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency and encourage adherence to prescribed managerial policies

Internal control system could be viewed as a firms organization plan including all methods and measures the firm takes to:-

1 Safeguard it's assets

2 Ensure the accuracy and reliability of its accounting data

3 Promote operational efficiency and

4 To encourage compliance with organization policies

It is the responsibility of management to determine the internally control system which is appropriate to the organization The nature and extent of controls will vary between organizations That is, it differs from one organization to another The control used will depend on the nature, size and volume of the activities and the degree of control which management are able to exercise personally, geographical distribution and many other factors

12 STATEMENT OF PROBLEM:

Most business organizations in Nigeria of which banking industry is one of them are known for their inability to keep complete and accurate records, and quite often lose some of their assets both financial and others under their control to fraudulent workers, and other enemies of progress who adopt any strategy possible to satisfy their selfish interest at the detriment of the public interest

The main problem of this research work are as follows:-

To identify the nature, weaknesses and limitations interest in the internal control system as regards the banking sector using the first Bank of Nigeria PLC, Enugu main as a case study

In the real sense, the banking system suppose to reap its full benefits, but the system cannot work where there is management and operational inefficiency among the workers an this will result to a general unprofitability in the banking system this can only be remedied through the corrective measures which will be provided as this study proceeds

13 THE PURPOSE OF THE STUDY

A good internal control system is essentially indispensable to every organization that has portfolio of assets and bulky transaction to undertake It is with due knowledge of this indispensable nature of good internal control system to organizations mostly of the banking industry that this research work have designed to base the research to :-

(i) Evaluate how effectively the management has relied on internal control for decision making and corporate goal attainment

(ii) Ensure that proper and accurate accounting system is maintained

(iii) Appraise the cost-benefit of installation of internal control

(iv) Create awareness of the importance of internal control

(v) Make recommendations where necessary

14 SCOPE OF THE STUDY

This research work focuses on Banking industry, using the first Bank of Nigeria PLC, Enugu main as a case study First Band of Nigeria Plc has its headquarters at Lagos and five zonal banking units which includes central, East, North, West and Lagos Banking operations

This study will look into banking operations especially the following aspects of internal control of the selected areas as:-

(a) The authorization custody and recording

(b) The nature of segregation of duties

(c) The internal checks and internal audit in operation

(d) The aspects of supervisory

(e) The other control measures being exercised and their adherent to management policies and guidelines

15 RESEARCH QUESTIONS

For the purpose of this research work to be achieved, the following hypothesis were formulated:-

HO: Effective management and accountability is not independent of the internal control system

H1: Effective management and accountability is independent of the internal control system

HO: The profitability and operational efficiency of a bank has no relationship with its internal control system

H11: The profitability and operational efficiency of a bank has relationship with its internal control system

HO: Adherence to laid down rules does not help effective management

H111 Adherence to laid down rules helps effect management

16 SIGNIFICANCE OF THE STUDY:-

This research work on "Internal control as an effective management tool in the banking industry" will be useful to bankers, insurers, Auditors, and other researchers

(i) To the insurers, bankers and other financers:

The operators of the banking system whose sector is being threatened to winding up, may learn some useful reasons from the findings of the research

(ii) To other Researchers:

People who may be carrying out research in this area will certainly find this work relevant It can serve as a source of information to them They can find it very useful during their research work

(iii) To the External Auditors:

The findings of this study will be of a great help to the external auditors in determine the extent of work to be carried out by them since they rely on internal control system of their clients

(iv) To the Students and the General Public:-

Students as well as the general public who want to acquire knowledge of internal control in the banking industry will equally benefit form this study