A Study into the Impact of Internal Control System on Detection of Fraud : Current School News

A Study into the Impact of Internal Control System on Detection and Prevention of Fraud

 – A Study into the Impact of Internal Control System on Detection and Prevention of Fraud – 

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ABSTRACT

Management, not the auditor is responsible for setting up and monitoring of the internal control system. Internal control system cannot fully be regarded as effective not even when the design and implementation is properly done;

this is because the effectiveness of an internal control system depends on the competency and dependability of the people using it.

Bank failures and widespread losses over the past two decades, have clearly pointed out the picture of how fraud has penetrated the financial strength of banks; it has however, elevated the importance of effective internal control system within the formal financial sector worldwide.

Organizations set up internal control system most at times because they are required by law to do so;

but then, how many has actually made it a point of duty to train and educate employees on how to use these internal control system since its effectiveness depends on the competency and dependability of the people using it.

This research paper defines internal control, as a means to an end; it is aimed at verifying the conception that an efficient and effectively implemented internal control system is the best strategy for preventing and detecting fraud especially in the banking sector;

thus the objective of this research is to examine the effect of the internal control system, when it comes to prevention and detection of fraud.

Data captured in this study, was analyzed through descriptive method. Quantitative technique was also used to analyze the response of the respondents as well as a computer program known as SPSS. The descriptive analysis involves the use of percentage, tabulations, and graphical presentation. The sources of data for the research were both primary and secondary sources.

INTRODUCTION

How extensive should a company’s internal control system be? In today’s environment, this is a difficult question to answer.

The reason being that some current business, legal, and social trends suggest that companies need to increase their emphasis on internal control, while other trends indicate just the opposite.

Bank failures and widespread losses over the past two decades have elevated the importance of effective internal control within the formal financial sector worldwide. In the United States for example, bank failures rose over 200 percent in the 1980s partly due to fraud and mismanagement.

Internationally, the collapse of Barings Bank and Yamaichi Securities further focused the financial sector’s attention on internal control.

The Basle Committee analyzed the problems related to these losses and concluded that they probably could have been avoided had the banks maintained effective internal control systems (banking, a regulatory and auditing guide).

In addition, a review of traditional banks affirmed that the implementation of effective internal control systems played an important role in reducing bank failures. Internal control, the strength of every organisation, has become of paramount importance today in Nigeria banks.

The reasons being that the control systems in any organization are a pillar for an efficient accounting system as well as the achievement of organizational goals.

BIBLIOGRAPHY

Alvin A. Arens, J. K. Loebbecke, and W. Morley Lemon, 1987. Auditing, An integral approach. 4th edition. Page 282-312

Archibong, E. E., 1992. The bank inspector: new born publishers Banking: a regulatory accounting and auditing guide.4th edition page 43-68

Committee of sponsoring organizations (COSO) of the Treadway commission, Internal Control-Integrated Framework, New York: 1992 page 40

Company code 1963, Act 197 section 123

Fakunle, B., 2006. Audit companion. 2nd edition. Page: 172,296

ICAN (Institute of chartered accountants of Nigeria), 2006a. financial reporting and audit practice, page 206

ICAN (Institute of chartered accountants of Nigeria), 2006b. Money Laundry and Frauds, ICAN News 10 (2): 8.

Larry F. Konrath, 2002. Auditing, A risk analysis approach. 5th edition. Page 205- 222

Messier, F. William Jr. (1997) 2nd edition “Auditing and Assurance Service, A Systematic Approach”

Ogbunka, N.M., 2002. Risk and internal control management in financial institutions, page 187- 188

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