INTERNAL AUDIT AND FRAUD DETECTION IN THE BANKING INDUSTRY

(Banking and Finance)

INTERNAL AUDIT AND FRAUD DETECTION IN THE BANKING INDUSTRY

 CHAPTER ONE

INTRODUCTION
1.1    BACKGROUND OF THE STUDY
In a typical banking sector the auditors duties will be concerned with many departments apart from the normal department relating to accounting and finance, which means that the auditor is not only concerned with account and internal audit department but with the whole banking system or operations.
Presently, there is a distressing increase in the extent of fraudulent activities in Banking Industry, in particular first bank. This has had a negative consequence on the confidence of bank clients. While international federation of accounting in (1984) defined internal audit as “an element of internal control system set up by the management of an enterprise to examine, evaluate and report on accounting and control operations”.
The necessity for internal audit can’t be over emphasized in the records of the banking industry which may contain errors, undisclosed fraud and this will inadvertently mislead or fail to disclose relevant information to management for planning and decision making. This result that may arise from the deficiency of internal auditors to report on the trueness and fairness of the financial statement may be futile.
Fraud can be defined as the misstatement or omission of an amount from which the financial statement does not actually apprehend with, it can also be referred to as intentional act by one or more individuals among management employees or third parties which results in a misrepresentation of financial statement.
WHY FRAUD SHOULD BE CONTROLLED  
    Fraud can be controlled by separations of duties to ensure that responsibility does not overlap, and job should be rotational as single worker stays in a particular job for too long, government should established a policy that will retrieve people going out with money. They should also established a law that will control people of saving above certain amount of money in a bank.

1.2    STATEMENT OF THE PROBLEM
The act of fraud has infiltrated the banking industry. These fraudulent act are in most times not being selected by the internal audit units established. Such frauds are committed in the following manners.
1.    Salaries and wages misappropriation in this area could be affected by.
a.    Claiming of overtime not worked.
b.    Use of wrong rate in calculating wages.
2.    Non-recording of receipts.
3.    Wrong brought forward or balance brought down.
4.    Lack of sense of responsibility.

1.3    PURPOSE OF THE STUDY
The purpose of the study is to critically evaluate a good internal audit system and how to detect fraud in banking as well as to determine and rely on resultant impact and its audit procedures.
Inline with this purpose need to pursue the following objectives.
1.    The verification of the accuracy and integrity of the financial and accounting records, the auditor plays this role.
2.    To ascertain that the standard accounting practices of the organization are being adhered to.
3.    To confirm that liability has been incurred only in respect of legitimate operation of the organization.
4.    To carry out special investigation for management.
5.    To prevent and detect fraud with emphasis on the prevention.

1.4    RESEARCH QUESTIONS
In recognition of these problems, the research works aims at finding out the internal audit and fraud detection in the Banking Industry.
1.    Do the internal audit system in bank help in detecting, controlling and preventing the incidence of fraud?
2.    What action do the internal auditors take when fraud is discovered?
3.    Did internal audit consider fraud as a major problem?

1.5    SIGNIFICANCE OF THE STUDY
The banking system can be benefit by obeying the following instructions.
1.    The banking system will operate smoothly without fraud since members are watch dog to members.
2.    The internal audit enables the auditors to express a professional opinion on the examination carried out on the financial statement which shall be considered to be of highest standard since a thorough examination of transaction and balance would be carried out during the completed audit or final audit.
3.    Fraud and errors can be easily detected before un-whole some damage could be done to the enterprise.
4.    General financing deals with the records of the business transaction summaries and external report of relevant matters.

1.6    SCOPE AND LIMITATION OF THE STUDY
The study of internal audit system embraces all aspects of fraud detection in banking industry with a case study of First Bank Plc Ughelli. And the limitation was that the scope of the study was quite demanding, especially in our present day dispensation where the economic condition is poor and the sensitivity of the project topic of fraud would definitely ring a bell to anybody and the fight against fraud lead to poor response as time contains of this research work.
I have also barely a mouth to my examination and academic activities were still in progress as at the time I was conducting my research.
There was insufficient finance to make enough contact.

1.7    DEFINITION OF TERMS
Accountability – Proposed for a greater policy responsibility.
Auditing – This is an official examination of business and financial records to see that they are true and fair.
Internal Audit – This is an integral part of the financial structure of public authorities.
Fraud – This has been described as any deceitful and dishonest act.
Documentation – All audit works and review actions and conduction of research must be fully recorded in the work payer.
Review – All audit work must be fully checked to confirm the structure of the internal control.

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