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PROJECT TOPIC: INTERNAL CONTROL AND FRAUD PREVENTION

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CHAPTER ONE INTRODUCTION: Banks occupy a critical position in a complex financial system that supplies the money and credit needs of the economy. The unique characteristic of a commercial bank is that it also creates money, and it is this particular feature of the commercial banks which distinguishes them from non-banking financial institution. However, all take part in the process of financial intermediation whereby such intermediaries also provide considerable benefits to borrowers in so far as there may be difficulties in locating potential savers who are willing to lend appropriate amount of funds at relevant interest rate. Banks’ ability to promote growth and development depends on the extent to which financial transactions are conducted with trust and least risk. The foundation on which banks is built is on confidence and trust, and where banks indulge in unsafe and unsound confidence, such banks may collapse. So, for banks to achieve objectives and as well as generating overall confidence, the INTRODUCTION AND ESTABLISHMENT OF INTERNAL CONTROL must come in to promote efficient operation. Internal control system therefore serves as a sine-quanon for FRAUD PREVENTION. Internal control is a creation of management, thus, the management retains sole responsibility for the establishment and maintenance of adequate and functional internal control. BACKGROUND TO THE STUDY Banks play very important roles in the economic development of any country. As an important component of the financial system, banks channel scarce resources from surplus economic units to deficit units. Thus, to an appreciable and reasonable extent, they exert a lot of influence on the pattern and trend of economic development through their lending and deposit mobilization activities. The efficient mobilization of savings and its allocation of productive investment by financial institution, thereby promote economic growth and development as well as achieving their objectivities, profitability and solvency. All the aforementioned benefits that banks can exert on the economy as a whole can be achieved through an effective internal control system and fraud prevention in the banking industry. In the words of A.H. Millechamp (2000), “Internal Control the system is an independent appraisal function within an organization for the review of system of control and the quality of performance as a service in the organization.

 

The Institute of Chartered Accountant of England and Wales (ICAE& W) defines it as a review of operations and records, sometime continuous undertaken with a business by a specially assigned staff. Internal control, therefore is a whole system of controls, financial or otherwise, established by the management in order to carry out the business of an enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of record.


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