THE ASSESSMENT OF INTERNAL CONTROL SYSTEM AS A TOOL FOR FRAUD PREVENTION IN PRIVATE ORGANIZATION

THE ASSESSMENT OF INTERNAL CONTROL SYSTEM AS A TOOL FOR FRAUD PREVENTION IN PRIVATE ORGANIZATION

ABSTRACT

Internal control system is a topical issue following global fraudulent financial reporting and accounting scandals in both developed and developing countries. A proactive approach to the problem requires a critical evaluation of the impact made by the existing internal control structures in organization to determine their capacity to ensure that the organizations activities are carried out in accordance with established goals, policies and procedures. It is to this end that this research is carried out on the assessment of internal control system as a tool for fraud prevention in private organization with special focus on Transcop Hilton Abuja. The assessment process is that some control components of effective internal control systems are lacking which from this research it is gathered that some office of audit is not totally free. This renders the current control structures ineffective. The study recommends that the office of the auditors must be independent as well as other recommendations to improve the existing internal control systems in the research and suggests areas for further recommendation and research. Method of data collection is questionnaire method and the analysis techniques is Chi-square. 

CHAPTER ONE

1.0.    INTRODUCTION

1.1.    BACKGROUND OF THE STUDY

In our society today, internal control system seems to be the only solution remedy to fraud that has been traced to economic, social and political reason for the purpose of this project the research work will center on organization e.g. private organization because a very strong internal control system is the only solution that can be used to prevent fraud on resources invested by owners of the business concern primarily for profit making and economic development.

The auditing practice committee defined internal control system as the whole system of control. Financial or otherwise established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, sure adherence to management policies, safe. Guard the assets and secure as far as possible the completeness and accuracy of the record.

International standards and auditing (IAS 400) defines internal control system as all the policies and procedures (internal control) adopted by the management of an entity to assist in achieving managements objective of ensuring as far as practicable the orderly and efficient conduct of its business including adherence to management policies, the safeguarding of assets, the detection and prevention of fraud and error, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information.

Fraud as we know today has eaten deep into both the public and private organizations. It is irregularity that may be difficult to completely eradicate but with very strong internal control system. It can be prevented or drastically reduced to the barest minimum.

This project place particular emphasis in determining the level of risks that the internal control might not be property applied. The following factors can be considered         

a.                 The nature of the control itself.

b.                 The attitude of management of control.

c.                  Whether there has been change in staff as control procedures may become wean and become slack as soon as there is a change of staff.

d.                 The doors the control has succeeded in identifying and eliminating in the past.

e.                  The timing and frequency of the control check.

This project owing to the preventing cases of fraud will look into the internal control aspect of the management as a tools of the private organization taking  Transcorp  Hilton Hotel as a case study more so it will be based mainly in the accounts department the receiving sections stores. This research will look into the level of internal control system prevalent in the department compliance with companies and Allied Matters Decree 1990 (CAMA).

Basically certain facture depict low virile and strong system of internal control system in operating in an organization. This features attributable to achieving the effectiveness of internal control measures.

One of the characteristics of internal control is the involvement of honest trust worthy, reliable and dedicated personnel or employee. It is imperative thus to consider the impact of personnel and executive on the effectiveness of the internal control system.

1.2.    STATEMENT OF THE PROBLEM

The prevalence fraudulent practices in the Transcorp Hotel have the public confidence in the system. This has lead to the collapse of some areas of the hotel

1.3.    OBJECTIVE OF THE STUDY

The following objective are drawn for the study

i.                   To identify ways of positive improvement.

ii.                 To determine effective ways of managing the fraud.

iii.              To ascertain the actual causes of fraud.

iv.              To make recommendation base on finding.

1.4.    RESEARCH QUESTONS

In view of the problems of the study following research questions are drawn a. Are internal control measures put in place not effective?

b.       Is fraud in organization as a result of lack of motivation?

c.       Are there been cases of fraud in organization?

d.       Is there result of fraud in organization?

e.       Is there result of fraud corrupt officers in organizations?

1.5.    STATEMENT OF HYPOTHESIS

HI:lack of internal control system leads to fraud in an organization.

HO:lack of sound internal control system does not lead to fraud in an organization.

HI:a sound internal control system will help in prevention of fraud in Transcorp Hilton hotel.

HO:a sound internal control system will not help in prevention of fraud in Transcorp Hilton on hotel.

1.6.    SIGNIFICANT OF THE STUDY

The study will be of importance to government even the public at large in checkmating the activities of fraudsters. It will equally be of importance in exploring ways of maintaining accurate internal control system in the hotel industries.

A study of this nature will enable students and researcher in different field of academic endeavors to know the actual causes of fraud particularly the society who may wish to study on the same topic.

1.7.    SCOPE OF THE STUDY

This work is restricted to the importance of internal control and fraud detection and prevention which will cover the spanning period from (1990-2013).

1.8.    DEFINATION OF TERM

Fraud can be defined as the use of criminal deception to obtain unjust or illegal financial advantage. It is an intentional mistake that is associated with the falsification embezzlement, misappropriation and outright theft.

Internal control system: Can be defined as the procedure adopted by business to control its operation

Internal audit:Is described as a review of operation and records, sometimes continue undertaken with a business by special assigned staff where there is internal audit.

Audit report: This is a statement from the auditor accounting his views in respect of the financial statement, if it complies with the company act that these show a true and fair view.

Audit: This simply means, examination, evaluation of the accuracy and reliability of a firm’s accounting documents and records by a qualified accountant (Auditor) in order to form a opinion whether the account and the information presented before him shows a true and fair view of the period under review.

Internal audit report: It is very important that after much times and effort have been consumed ad variety of skills had been used in carrying out internal audit, there should be no audit, there should be no ambiguity about the measuring and implications of the facts and figure involved in the exercise.

After the internal audit has been completed all the findings from the work prepare then accumulated into summary format the nature of the audit and the magnitude of its findings dictate the type of audit report that should be given to the chairman of the organization.

ECONOMIC AND FINANCIAL CRIMES COMMISSION (EFCC)

Is a body corporate by the federal government to take measures against lapses of ineffectiveness, management forgery, falsification of documents financial misappropriation, frauds and general criminal activities .

Fairness: A convention of fairness is an extension of objectivity. It means that there are different users of accounting information with different needs. Therefore accounting report should be prepared not to favor any particular group or users.