THE EFFECT OF INTERNAL CONTROL SYSTEM ON FRAUD DETECTION AND PREVENTION AMONG COMMERCIAL BANKS IN NIGERIA (A STUDY OF SOME SELECTED BANKS IN BAUCHI)

ABSTRACT The study examines internal control system as a factor of fraud prevention in Nigerian financial institutions in reference to the three selected commercial banks (Fidelity Bank, Guarantee Trust Bank, and United Bank for Africa) in Bauchi. The study used quantitative research design. 154 staffs were the target population with 112 sample and driven by used of Taro Yamane formula. Stratify and purposive sampling techniques were used. Questionnaire was used and collected data whereby frequency and simple percentage, mean and standard deviation, and linear regression analysis were used and analyzed it. The finding indicates that control environment prevent fraud in commercial banks which provides structure for fraud prevention, has a pervasive impact on fraud prevention, influences control consciousness of staff on fraud, and enables managers to establish appropriate policies and procedures to prevent fraud. It is also unveiled that internal control activities prevent fraud which reduces the possibility of financial management errors and led to proper accountability of funds, reduces financial management irregularities and assists in timely detection whenever occurred, reduces human error, control processes being deliberately circumvented by employees on fraud, reduces bankers overriding controls and the occurrence of fraud, and provides reasonable assurance that banks will not be hindered in achieving its proper financial accountability objectives. Monitoring of staff in commercial banks improved financial accountability that continuously kept financial activities of commercial banks under surveillance and improve financial accountability assessment to prevent fraud, it reduces fraud and brings financial accountability, it creates room for employee to be absent minded in mismanagement of customers/banks’ money, and restricts an unintended activity from occurring such as fraud. It is finally concluded that control environment, internal control activities, and monitoring of staff prevent fraud in branches of United Bank for Africa, Fidelity Bank and Guarantee Trust Bank in Bauchi local government area of Bauchi state. It is recommended that control environment and control activities should on a regular basis be evaluated by internal audit department. This is to provide management with the assurance on the adequacy and effectiveness of controls that management has put in place. The management of the banks should seal all loopholes that may create opportunities for undermining of internal control systems. Keywords: Control environment, internal control activities, monitoring, fraud prevention