Internal Control System and Fraud Prevention of Quoted Financial Services Firms in Nigeria: A Smart PLS-SEM Approach

Abstract

Fraud prevention involves the integration of all efforts that may be used to reduce or limit the opportunities to commit fraud in an organization. It is tool for protecting the collapse of business activities and it is widely use in the corporate world to manage business challenges. The internal control system is use manage risk and to prevent fraud and errors in order to prevent business losses and liquidation of business. On this basis, the study seeks to examine the effect of internal control system on fraud prevention of financial services firms in Nigeria. The population is 284 respondents from the listed financial services firms in Nigeria. A cluster sampling technique was adopted for the study. The data was sources through the primary sources and a structure questionnaire were administered to the respondents through the use of five-point Liker scale system, and the SMART-PLS-3-SEM was used to analyze the fitness of the data and test the research hypothesis. A constructive reliability and validity, the discriminant validity measure and cross loadings were used to test the fitness of the model. Path coefficient, predictive relevance of exogenous. Findings from the study revealed that control environment and monitoring were found to have a positive and significant effect on fraud prevention, while the information and communication has a negative and significant effect on fraud prevention. Risk assessment show an insignificant positive effect on fraud prevention while control activities is negative and insignificant effect on fraud prevention of the listed financial services firms in Nigeria. In conclusion, the study found that internal control system has a significant influence on fraud prevention. It is recommended among others that the management of financial services firms should maintain the used in control environment, monitoring system because they play a greater in effect on fraud prevention. Also, regulator agency such as CBN, EFCC and ICPC should develop an internal control framework and policy that will guide the financial services firm in Nigeria.

Symbiotic Relationship of Internal and External Auditing in Enhancing Fraud Management: Insights from Nigerian Deposit Money Banks in Bayelsa State

“…This is in tandem with the basic objective of internal auditing which is to detect, control, and prevent fraudulent practices within the operations of the Nigerian Deposit Money Banks and this indicates that internal auditing is an effective and important tool in managing and combating fraud within Nigerian deposit money banks. This outcome agreed with the findings of Anyanwu and Okafor [3], Isiaka [8], Khairini [10], Miryam (2022), and Sepala et al [11] among others who support that effective internal audits mechanism can greatly influence the prevention and detection of fraud in the banking sectors. Also, it was discovered that external auditing has a positive significant impact on fraud management in Nigerian Deposit Money Banks.…”

“…Auditing is regarded as a systematic and independent examination of financial information, records, transactions, operations, or processes of an organization to assess their accuracy, completeness, and compliance with relevant laws, regulations, and accounting standards [7]. The primary purpose of auditing is to provide assurance to stakeholders, such as investors, shareholders, creditors, and government authorities, that the financial statements and other information presented by the organization are reliable and fairly represent its financial position, performance, and adherence to established rules and principles [8]. Auditing is typically conducted by trained professionals known as auditors, who follow standardized auditing procedures and issue reports detailing their findings and opinions [9].…”

“…In contemporary business, internal auditing plays a vital role in assisting organizations in accomplishing their goals. Therefore, it is imperative for businesses, particularly those in the banking sector, to ensure that their internal auditors possess a high level of knowledge, expertise, and competencies [8]. Internal auditing is a system of robust internal controls that organizations use to ensure they are progressing toward their objectives.…”

“…Strong internal controls are a critical component of fraud management. Auditors assess these controls and recommend improvements, which can help prevent fraud by making it more difficult for individuals to engage in fraudulent activities [8]. Auditing includes assessing fraud risks within an organization.…”

“…It was proven that internal audit functions positively and significantly influenced fraud prevention and detection in manufacturing firms. Joseph and Isiaka [8] examined the effect of the internal control system on fraud prevention of financial services firms in Nigeria. Correlation analysis was the preferred statistical tool for the study.…”