THE EFFECT OF INTERNAL CONTROL ON ORGANIZATIONAL PERFORMANCE
Diploma
ABSTRACT
This project work takes a look at the effect of internal control on organizational performance using a case study of Ecobank Nigeria Plc. The main purpose of this study is to examine the effect of internal control on organizational performance i.e how as internal control aid organizational performance in Ecobank Nigeria Plc.
The research design used during the course of this study was the descriptive survey research design in which a population of 50 staff of Ecobank Nigeria Plc was look into. The researcher made use of stratified sampling technique and the research instrument used during the course of this research was questionnaire. Statistical package for social sciences (SPSS) was being employed to analyze data in form of frequency tables in knowing the effect of internal control on organizational performance.
Findings reveals that the calculated t-statistics for the parameter estimates was (t = 3.653), P < 0.01 which is greater than tabulated t statistics (1.9960) at 0.01 level of significance. Therefore, the Null hypothesis is rejected and Alternative hypothesis is accepted, that is there is significant relationship between internal control system and organizational performance of Ecobank Nigeria Plc.
Furthermore findings also reveals that the calculated t-statistics for the parameter estimates was (t = 0.439), P < 0.01 is less than tabulated t statistics (1.9960) at 0.01 level of significance. Therefore, the Null hypothesis is accepted and Alternative hypothesis is rejected, that is, Weakness in the internal control system in Ecobank Nigerian Plc does not lead to frauds.
Based on the findings of the study, it is
recommended that the management of Ecobank Nigeria Plc
should design more effective internal control systems by ensuring that adequate
asset listings is done by management, capital assets purchased are approved by
appropriate level of management and asset numbering is done to show location
and protection of the assets. Also Management should encourage staff to
participate in decision making. Employees feel encouraged and motivated in
accomplishing the goals of the company in which they have taken part in
formulating.
BACKGROUND TO THE STUDY Banking
institutions occupy a central position in the nations’ financial system and are
essential agents in the development process of the economy. By intermediating
between the surplus and deficit spending units, banks increase the quantum of
National savings and investments and hence national output. By granting
credits, banks create money thus influencing the level of money supply which is
an essential item in the growth of national income as it determines the level
of economic activities in the country. Banks
are central to the payments system by facilitating economic transactions
between various national and international economic units and by so doing
encourage and promote trade, commerce and industry. For
banks to be able to function effectively and contribute meaningfully to the
development of a country, the industry must be stable, safe and sound. And for
these conditions to be obtained there must be a sound accounting system, which
is occasioned by an internal control system. In
view of the economic growth in companies’ size and complexities, proper management
of modern business undertakings are not possible unless they have an effective
system of internal control. A
system of effective internal controls is a critical component of bank
management and a foundation for the safe and sound operation of banking
organizations. A system of strong internal controls can help to ensure that the
goals and objectives of a banking organization will be met, that the bank will
achieve long-term profitability targets and maintain reliable financial and
managerial reporting. Such a system can also help to ensure that the bank will
comply with laws and regulations as well as policies, plans, internal rules and
procedures, and decrease the risk of unexpected losses or damage to the Bank’s
reputation. Internal
control, the strength of every organization, has become of paramount importance
today in Nigerian banks. The reason being that the control systems in any
organization is a pillar for an efficient accounting system. The
need for the internal control systems in organizations, especially banks,
cannot be undermined, due to the fact that the banking sector, which has a
crucial role to play in the economic development of a nation, is now being
characterized by macro economic instability, slow growth in real economic
activities, corruption and the risk of fraud. Fraud,
which is the major reason for setting up an internal control system, has become
a great pain in the neck of many Nigerian bank managers. It has also become an
unfortunate staple in Nigeria’s international reputation. Fraud is really
eating deep into the Nigerian banking system and that any bank with a weak
internal control system, is dangerously exposed to bank fraud. The
CBN reported that cases of attempted fraud and forgery in banks, as at
half-year 2007 have surpassed what was recorded for the whole year 2006. The
CBN half-year report for 2007, revealed a total of 741 cases of attempted fraud
and forgery, involving 5.4 billion, $35,406.1, 150 Euros were reported as at
June, 2007. In 2006, 1,193 cases were reported involving 4.6 billion, $1.8
million and 14,389.7 pound sterling. The CBN also reported that the backward
development was attributable to weaknesses in the internal control systems of
the banks. This has clearly painted the picture of how fraud has penetrated in
the financial strength of Nigerian Banks. In
a nut-shell, the damage which this menace, called fraud has done to the banks
is innumerable and needs urgent attention. Therefore, the attempt to put an end
to this economic degradation, gave rise to the topic of this research study the
effect of internal control on organizational performance in the banking sector
with Eco bank Nigeria PLC as a case study. However, this study is aimed at
verifying the conception that an effective and efficient internal control
system is the best control measure for preventing and detecting fraud,
especially in the banking sector.
OBJECTIVE
OF THE STUDY The main objective
of this research study is to examine the effect of internal control system on
organizational performance in the Nigerian banking industry using Eco Bank of
Nigeria PLC as a case study. Apart from the main objective, the research also
sets out to achieve some specific objectives which are; 1) To
examine the various component of internal control system. 2) To
determine the effects of internal control on the organizational performance of
the financial institution. 3) To
know the effect of the internal control in monitoring compliance. 4) To
critically examine how effective the internal control has been used to reduce
the level of risks. 5) To
ascertain how useful is internal control to organizational performance. 6) To
recommend ways by which internal control can be used effectively so as to
achieve the organizational goal.