Internal Control System In Banking

.0 BACKGROUND OF STUDY

The expansion of the operational activities of banks beyond the domestic border as a direct result of globalization and improved technology has become the hallmark for businesses in the current business environment and the banking sector is no exception. Globalization and improved technology exposes businesses particularly the banking sector to increased fraud, alterations and other irregularities hence making internal control system imperative to be maintained by every business.

According to Douglas N.K, (2011), maintaining an effective internal control system in banks emerged as a result of globalization of businesses, technology advancements, increasing risks of business failures, fraud and alterations. The banking

Such a system can also help to ensure that the bank will comply with laws and regulations as well as policies, plans, internal rules and procedures and decrease the risk of unexpected losses or damage to the bank’s reputation. Internal control systems help bank’s Board of directors and management to safeguard the bank’s resources, produce reliable financial reports and comply with laws and regulations. Internal control supports to reduce the possibilities of substantial errors and irregularities and assists in their timely detection when they do occur. Also, having effective internal controls may discover mistakes caused by personal distractions, carelessness, errors in judgment, or unclear instructions in addition or deliberate noncompliance with policies. Therefore, staff of banks must have proper knowledge on its internal control and be consistently applied to. As emphasized by Tandon (2007), internal control includes the division of work, job rotation, authority levels, separation custody and recording and accounting controls. The size and complexity of bank’s operation and risks profile will be affected for the formality of any control system (sundharanam,

Internal control is a process designed and affected by those charged with governance, management and other personnel to provide reasonable assurance about achievement of the entity’s objective with regards to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations. Internal control is designed and implemented to address risks that threaten achievement of any of these objectives. Internal control system as described by Basu (2006), is the whole system of controls, financial or otherwise, established by the management in order to carry on the business of the enterprise in orderly and efficient manner, ensure adherence to management policies, safeguard assets and secure as far as possible the completeness and accuracy of records. According to COSO (2002), internal control comprises of the following components; the control environment, the entity’s risk assessment process, the information and communication system, control activities and