THE ROLE OF INTERNAL AUDITORS IN FRAUD DETECTION AND PREVENTION IN BANKS IN NIGERIA(A CASE STUDY OF SKYE BANK PLC)

CHAPTER ONE

INTRODUCTION

1.0      Background of the study

A closer look at institutions in our society shows that a lot of businesses are folding up due to fraudulent acts. Both the management and the employees indulge in activities that can bring down an institution, and ignorance of the roles of an internal auditor is also a problem. Auditors give a fair account of the financial statement of an institution as put together by both the management and employees.

Internal control is of much importance in achieving a company’s goals and objectives. Internal control helps institutions carry out step-by-stepprocesses, economical procedures, accurate and competent actions in order to be efficient and effective in its managerial roles (Connor, 1979:p6). An organization can achieve risk management, disciplined processes and evaluation of its activities through internal control.

Financial institutions are flooded with fraudulent activities and there is a need for the presence of internal auditors to help point out these flaws and leakages. Internal auditors are granted the privilege by the senior management of the bank to interrogate any member of staff, go through files, reports, and even minutes of meetings in carrying out their assignments. It is expected of the internal auditor on going through the information gotten; advise the institution appropriately by reporting directly to the governor of the institution. An effective internal audit control does not only checkmate excesses, but engages in managerial control (Dandago, 2002).

The purpose of the internal auditor is to examine the strengths and weaknesses in the internal control of the policies of an institution that can lead to undetected fraud and point them out for corrective measures.

Frauds are common in institutions, though very common in banks; that is why internal controls are done in banks to control losses and even prevent the occurrence of losses.

Internal control has spoilt the business of bank managers who engage in fraud and even Nigerians’ reputation in the international community.

Conclusively, the activities of bank fraud are increasing as the day goes by, and banks who cannot put measures in place to control this will crumble (Adeduro, 1998:p48). Therefore, this study is meant to discover the roles of internal auditors in fraud detection and prevention in banks in Nigeria (a case study of Skye bank plc).

1.1      Statement of the general problem

Nigeria’s reputation is stained in the international community as it is known to be a corrupt nation; cases of fraud in every sector of the economy including the financial institution. People are not honest in the duties assigned to them because of their personal interests.

Poor management of bank institutions has led to their undue fold-up. Management and even employeesembezzle funds, falsify figures, and do not keep accurate records of financial statements all give rise to fraud in the banking industry.

In addition, our poor judicial system contributes to fraud. Fraudsters are not persecuted as they know with bribe they can escape the full wrath of the law and such cases will be swept under the carpet.

1.2      Aims/ Objectives of the study

The major objective of this study is to know the roles of internal auditors in fraud detection and prevention in banks in Nigeria; a case study of Skye bank plc.

Other specific objectives include:

  1. To determine how effective Skye bank’s internal control system is.
  2. To determine the relationship between internal auditors and fraud in banks.
  3. To determine if internal auditors alone can prevent fraud in Nigeria banks.
  4. To determine how transparent and effective internal auditors are in detecting and preventing fraud in Nigeria banks.

 

1.3      Research Questions

  1. How effective is Skye bank’s internal control system?
  2. What is the relationship between internal auditors and fraud in Nigeria?
  3. Can internal auditors alone prevent fraud in Nigeria banks?
  4. How transparent and effective are internal auditors in detecting and preventing fraud in Nigeria banks?

1.4      Research Hypothesis

Ho: Skye bank does not have an effective internal control system.

Hi: Skye bank has an effective internal control system.

1.5      Significance/ Justification of the study

This study is of immense importance to the general public with special importance to Nigeria banks.

Many Nigerians are ignorant on who auditors are and the roles they play in curbing fraud in the banking sector. It is meant to bring to the knowledge of business owners that auditors should be involved in the management function of their firms.

However, this study is meant to encourage banks to have a committee of internal auditors who will help check losses, prevent losses, and offer advises on how a bank can have an accurate financial statement.

This study will be of immense benefit to other researchers who intend to know more on this topic and can also be used by non-researchers to build more on their work. This study contributes to knowledge and could serve as a bench mark or guide for other work or study.

1.6      Scope/Limitations of the study

This study is restricted to the role of internal auditors in fraud detection and prevention in banks in Nigeria, with Skye bank plc as the case study.

Limitations of the study

Financial constraint:  Insufficient funds posed a challenge on the researcher in the course of gathering this information.

Time constraint: Based on the fact that theresearcher has to combine his study with other academic work, it hindered the time devoted to the research work.

1.7      Definition of terms

Role : The position or purpose that someone or something has in a situation, organization, society, or relationship.

Internal Auditing:  Is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. Internal auditing is a catalyst for improving an organization's governance, risk management, and management controls by providing insight and recommendations based on analyses and assessments of data and business processes. With a commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity.

Fraud:This is a deliberate deception, trickery, or cheating intended to gain an advantage.

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