THE EFFECT OF INTERNAL CONTROL ON ORGANIZATIONAL PERFORMANCE

Postgraduate

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.