Banking and Finance Project Topics

Internal Control System; How Effective as a Means of Reducing the Incidence of Fraud in an Organisation

Internal Control System; How Effective as a Means of Reducing the Incidence of Fraud in an Organisation

Internal Control System; How Effective as a Means of Reducing the Incidence of Fraud in an Organisation

Objective of the study

The primary objective of this study is to evaluate the effectiveness of internal control systems as a means of reducing the incidence of fraud within organizations. Specifically, the study aims to achieve the following objectives:

  1. To assess the Current State of Internal Control Systems.
  2. To investigate prevalent types of fraud occurring in organizations
  3. To evaluate the effectiveness of Internal Control Mechanisms



Internal Controls

Fraud deterrence are measures to stop fraud occurring in the first place, whereas fraud detection involves identifying fraud as quickly as possible once it has been perpetrated (Naicker, 2006). Zhang (2012) states that fraud detection and deterrence must operate together. Naicker (2006) further states that fraud detection is a continuous process as criminals always adapt to new ways of committing fraud once they know of the existence of a detection method. Fraud deterrence/prevention involves good division of responsibilities, supervision of staff, monitoring work performance and also putting measures in place to ensure that even when systems are accessed that there is proper control (Kimani, 2011). Institutions should adopt know your customer practices to identify all the features of their clients, management should not only strive to know new customers but must update existing files and monitor their operations in order to detect fraud (Hardouin, 2009). Daily monitoring of transactions should also be carried out in order to spot unusual transactions (Prabowo, 2012).Fraud awareness can also be enhanced through seminars and training events held in collaborations with institutions like the central bank, the central reference bureau and other financial institutions, covering areas like fraud prevention measures and investigation techniques (Prabowo, 2012). Staff training is a key element in risk management as employees who are actively trained in risk management are better able to identify threats to the organization due to weak or non-existent internal controls (Rae & Subramaniam, 2008). Know your customer is a key compliance issue, whereby an institution is required to identify all the features of its clients by updating existing files and monitoring the operations and checking at least that originators and beneficiaries are not blacklisted (Hardouin, 2009).

Fraud Detection and Prevention

Fraud has been in existence throughout history and has taken many different dimensions. Bank fraud has grown with advent of the banking industry, and has been facilitated by the technological innovations and the widespread use of the Internet. According to the fraud triangle (Cressey, 2003) for fraud to occur the three factors; pressure, rationalization and opportunity should be present. Bank employees have knowledge of the systems as well as classified and confidential information which together with technological advancement can give them the opportunity to commit frauds. All they need is some pressure and the rationalization and that way they become part of fraud cartels that are fleecing millions of shillings from the banks. According to a report by consultant firm, Deloitte Kenyan banks were victims of more than half the Sh4.1 billion ($48.3 million) fraud that hit East African banks in 2012 as technology made the crime easier. At least Ksh1.5 billion ($17.64 million) was stolen from Kenyan banks in the past one year, in schemes hatched by technology-savvy bank employees. This can be attributed to failure by both the bank processes and the employees to detect and control fraud. Security experts say the amounts reported reflect only a small portion of the real losses suffered since banks prefer internal disciplinary  measures in cases involving thieving employees (Kimani, 2013).This means that banks should be on an alert and should also revise their controls to keep up with fraud.





In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.


Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.


According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.

This study was carried to examine internal control system, how effective as a means of reducing the incidence of fraud in an organisation. Nigeria bottling company, Akwa Ibom state form the population of the study.




This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.




It is important to ascertain that the objective of this study was to ascertain internal control system, how effective as a means of reducing the incidence of fraud in an organisation. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing internal control system, how effective as a means of reducing the incidence of fraud in an organisation


This study was on internal control system, how effective as a means of reducing the incidence of fraud in an organisation. Three objectives were raised which included: To assess the Current State of Internal Control Systems, to investigate prevalent types of fraud occurring in organizations and to evaluate the effectiveness of Internal Control Mechanisms. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from Nigeria bottling company, Akwa Ibom state. Hypothesis was tested using Chi-Square statistical tool (SPSS).


In conclusion, while internal control systems serve as a critical line of defense against fraud, their effectiveness ultimately depends on the commitment of management, the diligence of employees, and the adaptability of control mechanisms to evolving risks and challenges. By continuously evaluating and improving internal control processes, organizations can strengthen their resilience against fraud, safeguard their assets and reputation, and promote sustainable business practices in an increasingly complex and dynamic environment.


Based on the findings of this study, the following recommendations are proposed to enhance the effectiveness of internal control systems in reducing the incidence of fraud within organizations:

  1. Organizations should conduct comprehensive fraud risk assessments to identify and prioritize potential fraud risks across various business processes and functions. By understanding the specific fraud risks faced by the organization, management can tailor internal control measures to mitigate these risks effectively.
  2. Implement and enforce robust segregation of duties policies to ensure that critical financial and operational tasks are divided among multiple individuals. This prevents any single individual from having complete control over a transaction or process, reducing the risk of fraud and collusion.
  3. Invest in advanced monitoring and surveillance technologies to proactively detect suspicious activities and anomalies within organizational systems and processes. Implementing automated monitoring tools, anomaly detection algorithms, and real-time alerts can help organizations identify potential fraud red flags and take timely corrective actions.


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