This study aimed at evaluating the effectiveness of internal control system in Nigerian banks. To ascertain control activities in banks, to ascertain the monitoring process in banks in Nigeria and to determine risk assessment in banks in Nigeria served as the objective in evaluating the effectiveness of internal control system in Nigerian banks.The study also ask how effective are control activities in banks in Nigeria? How effective is the monitoring process in banks in Nigeria? To what extent is risk assessment process in banks in Nigeria effective? The research also made of three hypotheses to test if significant or not the effectiveness of internal control activities and determine risk assessment process in Nigerian banks (Diamond Bank). The researcher adopt a questionnaire survey method of data collection. The researcher also found out thatthere are effective internal control activities, diamond bank has internal control monitoring processes which ensures the smooth monitoring of the business transactions, there is an effective risk assessment process in Diamond Banks which detects and prevents errors and potential fraud and deletes fraud. It tried to determine the effect or influence of these variables on Nigerian. It tried to evaluate the effectiveness of internal control activities and determine risk assessment process in Nigerian banks (Diamond Bank). In pursuance of this the chi-square model was used. Internal control environment in banks are effectively managed, the implication of this results in risk assessment and fraud prevention and control, thereby resulting low tendency of fraud.Finally, this study also made the following recommendations; management of banks should ensure proper management of internal control environment to enable effective control activities take place, the management must ensure that they review customer’s and supplier’s complains, the completeness, accuracy and validity of Proper records, books of accounts and financial statements of the bank should be secured and kept out of reach of unauthorized persons.



TITLE PAGE                                                                                              i

APPROVAL PAGE                                                                                     ii

DEDICATION                                                                                            iii

ACKNOWLEDGEMENT                                                                           iv

LIST OF TABLES                                                                                      v

ABSTRACT                                                                                               vi


CHAPTER ONE:INTRODUCTION                                                            1

1.1 Background to the Study                                                                    1

1.2 Statement of Problem                                                                   5

1.3 Objective of the Study                                                                            8

1.4 Research Questions                                                                      9

1.5 Research Hypothesis                                                                    9

1.6 Significance of the Study                                                              10

1.7 Scope of the Study                                                                       11

1.8 Limitation of Study                                                                      11

1.9 Definition of Terms                                                                  12



2.1 Conceptual Review                                                                                14

2.2 Theoretical Review                                                                                19

2.3 Empirical Review                                                                                   24


CHAPTER THREE: RESEARCH METHODOLOGY                                 29

3.1 Design of the Study                                                                               29

3.2 Area of the Study                                                                                   30

3.3 Population of the Study                                                                          30

3.4 Sample of the Study                                                                               31

3.5 Instrument for Data Collection                                                               31

3.6 Validation of the Instrument                                                                   32

3.7 Method of Data Collection                                                                     33



4.1 Introduction                                                                                           34

4.2 Questionnaire Distribution and Collection                                              34

4.3 Analysis of Responses from Questionnaire                                             35

4.4 Hypotheses Testing                                                                                37



5.1 Introduction                                                                                        43

5.2 Summary of Research Findings                                                           43

5.3 Conclusion                                                                                         43

5.4 Recommendations                                                                              44

REFRENCES                                                                                             45




1.1     Background to the study

Banking industry is the live-wire or the equivalent to the central nervous system of the human in all capitalist economics. The institution provides the vital link between the surplus unit and the deficit unit of the economy. Banks promote investment by providing facilities for mobilizing savings and appropriate instruments without which either economic growth or development can take place smoothly and efficiently. In the process of performing these functions, banks come to hold the single largest proportion of the economy’s financial resources and correspondingly account for a similar lion share of the credit that propels the engine of growth and development. In the light of this, the subject of internal control in the industry is of interest to all western type economies of the world.

The process of financial account and data production should be based on a recognized, well-defined and well-organized system of procedures. If the business transactions are to be properly and correctly observed, documented, recorded and collated, then there must be a system which is designed to cope with these activities. For this reason, management of the organization has in general, over a period of many years, placed a great deal of emphasis on having strong system of internal control, where possible. This system is intended to maintain adequate process of accounting data production and safeguarding the organization against possible financial loss due to fraud or error.

Internal control, in its broadest sense, includes all controls, checks and procedures, formally instituted by the management, to maintain the maximum administrative and operational efficiency possible within the accounting and non-accounting function of the business organization. However, in terms of financial accounting, the system is mainly concerned with those controls which exist to aid the processing of reliable accounting data and to safeguard companies’ asset.

An important feature of the impact of Internal control is the director review of company financial operations and position at regular and frequent internals by means of interior account and report, operating summaries and other appropriate financial and statistical. In addition to regular view, management may from time to time call for special reviews of particular items e.g. wages, stock, salary access etc. Managerial review and supervision are essential element in an efficient and effective internal control system.

Banks like other business organization achieve their objective through the use of human and economic resources. In most cases, the economic resources are provided by various interest groups that do not participate in the day today normal running of the operation of the business. The onus is therefore, on the management to make sure these resources are effectively and efficiently managed to achieve the set goal and to build up public confidence, the desired control achieved through the setting up of a good and valid internal control system.





Internal control is the type of control designed and installed by the management of an organization for the growth and survival of the organization. It is the responsibility of the management to ensure and maintain this system of control to enhance profitability. Sequel to this, adequate attention has been given to the study of internal control in business enterprises by experts.

As a concept, Internal Control is distinguished by its scope and its high level of the services offered. The Internal Control System refers to an organized amalgamation of functions and procedures, within a complete system of controls established by the management and whose purpose is the successful function of the business (Cheung, 1997). The Internal Control System is all the methods and procedures followed by the management in order to ensure, to a great extent, as much successful cooperation as possible with the director of the company, the insurance of the capital, the prevention and the detection of fraud, as well as the early preparation of all the useful financial information (Meigs, 1984 ; Papadatou, 2005). According to Cook and Wincle (1976), the Internal Control System resembles the human nervous system which is spread throughout the business carrying orders and reactions to and from the management. It is directly linked to the organizational structure and the general rules of the business (Cai, 1997).

Glance (2006) provided that internal control system refers to “the Institution process and procedure that is been established with the aim of objective achievement. The internal control system also serves as a process that guides an organization towards achieving its established objectives. According to International Organization of Supreme Audit Institution (2004), internal control system is a process effected by an entity’s board of directors, management and other personnel’s, designed to provide reasonable assurance regarding the achievement of the set objectives and the effectiveness and efficiency of operations, reliability of financial reporting andcompliance with applicable laws and regulations and generally the controls are of two types which are preventive and detective controls. According to Church and Schneider (2008), effective internal controls systemare fundamental drivers toward earnings quality.


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