FRAUD MANAGEMENT AND INTERNAL CONTROL AS CORRELATES OF ORGANIZATIONAL EFFECTIVENESS (A STUDY OF NIGERIAN DEPOSIT MONEY BANKS)
ABSTRACT
No organisation can achieve its objectives without developing and enforcing fraud management policies and standard internal control mechanisms. The study investigated fraud management and internal control as predictors of organisational performance in certain Nigerian deposit money banks in Enugu State. Skye Bank, Access Bank, and EcoBank specifically picked 450 employees at the managerial, senior, and junior levels. The study used primary data by administering a questionnaire to respondents. The data were analysed using descriptive statistics and Pearson correlation analysis. The study found a positive and substantial correlation between fraud management and organisational effectiveness (r=0.772; p<0.05) and internal control and organisational effectiveness (r=0.896; p<0.05) in the selected institutions. Based on this, the report recommends that every bank's management implement internal control, both operational and financial, to ensure that the bank's assets, FREQUENTLY, including cash, are safeguarded. This will help to reduce bank fraud to a bare minimum while also assuring the effectiveness of bank operations.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Internal control, the strength of any organisation, has become increasingly important in Nigerian banks. The reason for its importance is that any organisation's control system is essential to an efficient accounting system. The importance of internal control systems in any organisation, particularly in financial institutions such as Deposit Money Banks, cannot be overstated, given that the banking sector, which plays an important role in a country's economic development, is currently plagued by macroeconomic instability, corruption, fraud, and so on. Fraud, which is one of the reasons for installing internal controls, has become widespread in the Nigerian banking sector. It has harmed Nigeria's global reputation, with advanced world countries labelling it a "fantastically corrupt nation". Fraud has completely entered the Nigerian banking industry, and any bank with a weak internal control system is extremely vulnerable to bank fraud. The Central Bank of Nigeria revealed that attempted bank fraud cases increased between 2007 and 2015, surpassing those registered between 2001 and 2006. According to the CBN statistics, there were 771 cases of attempted fraud totalling 5.4 billion naira as of June 2014. In 2015, 1,193 incidences of fraud were reported, totalling 11.9 billion naira. Banks' poor internal control mechanisms are to blame for this danger. This clearly demonstrates the prevalence of fraud in Nigerian Deposit Money Banks (Nwosu et al., 2024; CBN, 2015). Due to the rising prevalence of bank fraud, senior bank executives and regulators in Nigeria's banking industry are currently grappling with fraud management issues. The adoption of internal control measures alone cannot fully solve the issue of fraudulent activity in banks. Fraudulent activities occur in all organisations, but they are particularly prevalent in Deposit Money Banks due to the instruments of their trade. Banks are particularly vulnerable to financial fraud due to the usage of money and quasi-money instruments in their operations. Despite the adoption of internal control measures in Nigerian Deposit Money Banks, financial fraud has persisted (Madubuko et al., 2023). Internal control systems may undermine the efficient operations that banks put in place to reduce fraud, but they have not been entirely successful in reducing the amount of money that goes into fraud. As a result, internal control systems have evolved into both preventive and protective measures for banks' financial resources while being seen as detrimental to the banks' fundamental operations. Most banks avoid litigation because judicial officers find it boring that the internal control mechanism implemented by the banks was planned and executed by their personnel (Molokwu et al., 2021). Furthermore, where banks are litigious, courts frequently sympathise with clients whose transgressions resulted in higher financial losses, regardless of whether there was coordination with an employee. These stories are not hilarious outside of banking halls when financial fraud has occurred and parties must prove their innocence. One of the reasons for using and reviewing internal control systems in deposit money banks is to reduce the number of fraudulent actions and to detect any planned fraudulent acts before they occur. Fraud management and internal control are thus important predictors of organisational effectiveness, which refers to the rate at which organisations achieve their targeted outcomes.
1.2 STATEMENT OF PROBLEM
Managing fraud in Nigerian Deposit Money Banks is bedevilled with a 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 the accounting system and the mode of accounting information, has encouraged the perpetration of fraud.
Secondly, lack of adequate motivation incentives coupled with poor working conditions has resulted in fraud. Thirdly, weakness in the internal control systems, such as lack of proper documentation of records, has led to fraud. Fourthly, a poorly designed organisational structure, poor devolution of responsibility, and non-compliance with directives have resulted in 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 organisational effectiveness in Nigerian Deposit Money Banks. To examine the relationship between internal control and organisational effectiveness in Nigerian Deposit Money Banks.
1.4 RESEARCH QUESTIONS
The study is aimed at providing satisfactory answers to the following questions.
What is the relationship between fraud management and organisational effectiveness in Nigerian Deposit Money Banks? What is the relationship between internal control and organisational 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 organisational effectiveness in Nigerian Deposit Money Banks. H02: There is no significant relationship between internal control and organisational 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 a panacea for fraud, has not been fully embraced by the Nigerian Deposit Money Banks. Effective internal control and fraud management have been adjudged to be powerful tools to mitigate the incidence of fraud as well as predictors of organization effectiveness, which is usually measured in terms of net profitability, wealth maximisation, growth in the industry’s market share, and expansion of the 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, the government will be informed on the need to adopt effective fraud management policies and internal control to minimise the incidence of fraud 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 organisational effectiveness.
1.7 SCOPE AND LIMITATIONS OF THE STUDY
The study examined the nexus of fraud management and internal control as they correlate to organisational effectiveness in Nigerian Deposit Money Banks. The study placed a 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 constraints and financial constraints.
The time given to conduct a study of this magnitude is relatively short, given the other academic engagements of the researcher. Also, due to limited funds, the study was able to cover 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 is regarded as true and genuine devoid of sentiments or biases.
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 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 the inferential statistics technique – Pearson Correlation Analysis.
1.10 DEFINITIONS 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 the organisation’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.
Organisational Effectiveness: The Ability of an organization to meet its set goals and objectives given the resources at its disposal.
References
Central Bank of Nigeria. (2015). [Annual report on attempted fraud cases in Nigerian banks]. CBN. (Original data cited in later analyses)
Madubuko, C. U., Ibezim, N., & Ikechukwu, M. C. (2023). The impact of internal control measures on the detection and prevention of fraud in banks: A case study of fifteen selected deposit money banks in Nigeria. International Journal of Banking and Finance Research, https://doi.org/10.56201/ijbfr.v9.no1.2023.pg24.37
Molokwu, E. N., Nyor, T., Mohammed, A. N., Ibrahim, Y. K., & Shuaibu, H. (2021). Internal control system effectiveness and fraud prevention in Nigerian deposit money banks. Gusau Journal of Accounting and Finance, 2(4), 107–116. https://doi.org/10.57233/gujaf.v2i4.86
Nwosu, S. N., Ejinkonye, R. C., & Akwawa, U. A. (2024). Internal controls and fraud in the Nigerian banking industry. African Journal of Accounting and Financial Research, 7(3), 55–70. https://doi.org/10.52589/AJAFR-K5NQCLFF
.