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Internal control systems is a topical issue following global fraudulent financial reporting and accounting scandals in both developed and developing countries.
This research work examine the implications of internal control system in an organization with reference to Mercury Micro Finance Bank. In today’s volatile business environment, banking sub-sector in Nigeria faces a wide array of complex business challenges. These challenges come in the form of regulatory compliance, litigation, competitive market pressure, changing technology, investors demand, corporate governance, business ethics and accountability.
The research examine the various types of internal control and the components of internal control. A questionnaire was designed and administered to the staff of Mercury Micro Finance Bank. The data gathered from the questionnaire were presented on table with the respective percentages. The formulated hypotheses were analysed with the used of Chi square statistical tool. From the analysis it was concluded that;
- Effective internal control system make fraudulent practices and other incidences of irregularities very difficult to perpetrate.
- Constant review of accounting and internal control system will reduce incidence of fraud and irregularities in Microfinance banks.
- The internal control system currently in operation at Mercury Microfinance Bank is inline with the International Accounting Standard (IAS).
Conclusion was deduced from the result of the analysis and recommendations were made.
TABLE OF CONTENTS
1.1 Background of the Study
1.2 Statement of Problem
1.3 Aim and Objectives of Study
1.4 Research Question
1.5 Statement of Hypothesis
1.6 Research Methodology
1.7 Significance of Study
1.8 Scope and Limitation of Study
1.9 Definition of Terms
2.1 Definition of Internal Control
2.2 Purposes of Internal Control System
2.3 Types of Internal Control
2.3.1 Directive or Entity Level Controls
2.3.2 Preventive Internal Control
2.3.3 Detective / Corrective
2.3.4 Compensating Control
2.4 Components of the Internal Control System
2.4.1 Definition of Responsibilities
2.4.2 The In-House Dissemination of Relevant and
2.4.3 A System for identifying and Analysing Risk
2.4.4 Control Activities
2.4.5 On-Going Monitoring of the Internal Control System
2.5 internal Control Players
2.5.1 The Board of Directors or the Supervisory Board
2.5.2 Executive Management / The management Board
2.5.3 Internal Audit
2.5.4 Company Staff
2.6 Conceptual Framework
2.6.1 Control Environment
2.6.2 Risk Assessment
2.6.3 Control Activities
2.6.4 Application Controls
2.6.5 Information and Communication
2.7 Effective Internal Control
3.2 Sources of Data
3.3 Population and Sample Size
3.4 Research Instrument Design
3.5 Administration of Research Instrument
3.6 Analysis of Data
DATA PRESENTATION AND ANALYSIS
4.2 Personal Characteristics of the Respondent
4.3 Response of Respondents of the Problem Areas
4.4 Testing and Interpretation of the Hypothesis
4.4.1 Test of Hypothesis One
4.4.2 Test of Hypothesis Two
4.4.3 test of Hypothesis Three
SUMMARY, CONCLUSION AND RECOMMENDATION
1.1 BACKGOUND OF THE STUDY
When companies suddenly collapse, the often resounding question is, “what went wrong?” A breakdown in the internal control system is the usual cause. Internal control is a process that guides an organization towards achieving its objectives. These objectives include operational efficiency and effectiveness, reliability of financial reporting, and compliance with relevant laws and regulations (COSO 1992). Absence of these variables often results in organizational failure. The findings of the Treadway Commission Report of 1987 in the United States (USA) confirmed absence of, or weak, internal controls as the primary cause of many cases of fraudulent company financial reporting.
The widespread global corporate accounting scandals that assumes near epidemic proportions in recent years inform this study. Cases of accounting scandals have been recorded International Research Journal of Finance and Economics – Issue 27 (2009) 125 in JCI and Randgold and Exploration companies. In Nigeria, the Managing Director and Chief Financial Officer of Cadbury Nigeria plc were dismissed in 2006 for inflating the profits of the company for some years before the company’s foreign partner acquired controlling interest.
These scandals emphasize the need to evaluate, scrutinize, and formulate systems of checks and balances to guide corporate executives in decision-making. These executives are legally and morally obliged to produce honest, reliable, accurate and informative corporate financial reports periodically.
The banking industry is a very important subsector of the financial services of any economy. For effective operation and to be able to render a good stewardship to the operations of a bank, it is imperative that there should be reliable accounting and internal control system. The effectiveness of accounting system of any organization depends on the manner and methods used in the recording of financial transactions, which must be in agreement with the International Accounting Standard,(IAS) regulations.
Installation of an effective accounting and in