REVIEW OF RELATED LITERATURE
2.1 Conceptual
Framework.
In order to determine internal
control efficiency evaluation principles, it is important to analyze the
conceptual framework of internal control (Savcuk, 2007). According to the
institute of internal controls (Taylor and Glezen, 2011, Ochulor, 2010),
internal control is an independent appraisal function established within the
banking industry to examine and evaluate its activities as a service to the
banking operations. By measuring the effectiveness of organizational controls,
it is an important managerial control device (Carmichael et al, 1996) which is directly linked to the banking structure and
the general rules of banking business (Cai, 1997).
Sawyer (2007) stated that internal
control is a systematic, objective appraisal by internal auditors of the
diverse operations and controls within an organization to determine whether
financial and operating information is accurate and reliable, risks to the bank
are identified and minimized, external regulations and acceptable internal
policies and procedures are followed, satisfactory operating criteria are met,
resources are used effectively and economically and the banking objectives are
effectively achieved.
Specifically, control environment
reflect the attitude and the policies of management in regard with the internal
audit in the economic unit. On the one hand, control environment is influenced
by the history and the culture of economic unit. On the other hand, control
environment has a pervasive influence on the
way banking activities are
structured that sets a positive and supportive attitude towards internal
control and conscientious management (Aldridge and Colbert, 1994). In regard
with risk assessment, it can be claimed that it is the identification and
analysis of relevant risks associated with achieving the banking objectives
(Karagiorgos, et al, 2009).
Hevesi (2008), control activities
are the policies, procedures and mechanisms that enforce management’s
directives. Computerization refers to the identification, capture and
communication of pertinent information in as appropriate form and time frame to
accomplish financial reporting objectives. Effective communications should
occur in a broad sense with information flowing down, across and up the
organization. It is commonly acceptable that internal control system need to be
monitored in order to assess the quality of the system’s performance overtime
and by monitoring it is ensured that the findings of audits and other reviews
are promptly resolved.
Adeyemi (2010) computerization in
the banking industry are systems that operate functions of data gathering,
processing, categorizing and reporting financial events with the aim of
providing relevant information for the purpose of score keeping, attention
directing and decision-making.
In the financial performance,
Chenhall and Morris (1996) described accounting information system to the
perceived usefulness of scope, timeliness, level of aggregation and
integration. Scope refers to the measures being used and to the extension of
accounting information system in time and space.
Gardin and Greve (2009) Accounting
information system are considered as important organizational mechanisms that
are critical for effectiveness of decision management and control in the
banking organization. Performance management includes activities that ensure
that goals are consistently being met in an effective and efficient manner.
2.2 Effects
of internal control system in Access bank
Ochiagha (2012), in the computerized
environment, the computer system of internal control is converted from a single
manual control, manual and procedures for joint control. As the computerized
system of internal control has a combination of manual control and process
control features. Computerized system in many applications include an internal
control functions of these programs depending on the internal control
applications such as the proceeding is taking place errors or does not work,
because procedures for repetitive movements, making control of the long term
failure is not found, so that specific aspects of the system errors or
irregularities occurring more likely.
Murtala (2010), unlike the manual
accounting that economic operations are recorded on paper, computerized system
is a process whereby original paper-based accounting data is recorded directly
to disk or CD-Rom and can be easily removed or tampered with since technically
illegal changes of electronic data can be achieved without leaving traces,
which is difficult to business records. In addition, the electromagnetic medium
susceptible to damage, so accounting information also exits the risk of lost or
destroyed.
Bolaji (2009), the introduction of
computer technology in the banking industry added to the industry a new
accounting work and also a new control measures as well as corresponding
expansion of the system access control, change control of the programme and
security of accounting information within the disk protection, computer
operations management, system administrators and system maintenance personnel.
Okorie (2011), computerized
accounting in the banking industry transactions are authorized access to
resources and records and should be limited to authorized individuals and
accountability for their custody and use should be assigned and maintained by
authorized staff. Periodic comparison of resources with the recorded
accountability should be made to help reduce the risk of errors, fraud, misuse
or unauthorized alteration.
Ogbu (2011), internal control help
in the appropriate documentation of transactions and all transactions and other
events need to be clearly done and the documentation readily available for
examination. The documentation should appear in management directives,
administrative policies, operating manuals or electronic form.
Onah (2010), Computerized accounting
system of internal control reflects in the work in the process of system
development and banking development. Development controls includes the
development of pre-feasibility studies, capital budgeting, economic evaluation,
development process of system analysis, system design, system implementation as
well as assessment of existing system, system updating the feasibility study to
update the program decision making.
Onuigbo (2009), internal control
provides the following development controls for efficient financial reporting,
and banks achieving of her expected benefits. They include,
1.
Meet the standard in norms: A
computer accounting system and development of projects, both on the banking
development are necessary to follow the departmental requirements.
2.
Staff training: Computer accounting
system should be necessary during the development phase of the system on the
use of personal training, to improve their staff awareness and understanding of
the system in order to reduce the system running the risk of error.
3.
System Conversion: Internal control
help the management to put a new computer accounting system into use, replace
the existing manual accounting system, and do the conversion process to respond
to the banks specific use. Bank transformation in the system should be done
regularly for efficiency in the delivery of services.
4.
Change control procedures. Change in
banking activities and environment may lead to the use of use of the software
to be modified. In order to actualize the objective, internal control has
a role of modifying accounting software,
modifying the process every step must be set to the necessary control in order
to meet up with the banking objectives.
Akabuogu (2008), internal control help staff through
computerized accounting system on accurate record of data and as well financial
upkeep of the banks. The information is timely filled and a set up of complete
file system and strengthen records management.
Obadan (2006), Internal control the
staff to record the management data
output control to ensue that the data is
accurate, reliable andtaken to the various control measures.
2.3 Challenges
of Computerized Accounting System
Okonkwo (2011), power failure has
brought a lot of challenges to the computerization of accounting system in the
banking industry. It is a situation that defies the internal control of any
organization. To this end, the management should do everything possible to
avoid such enormous problems.
Zajac and Pearce (2010) computer
viruses and hackers are the inherent problems of using computerized system. If
virus occur, data saved may delete and if not saved in a removable disk,
information already saved would be found missing.
Ekechukwu (2011), accounting system
not properly set up to meet the requirement of the business due to badly
programmed or inappropriate software or hardware or personnel problems can
cause more havoc.
Ugbana (2005) once data been input
into the system automatically the output are obtained hence the data being
input needs to validated for accuracy and completeness. This throws a lot of
challenges in the accounting system.
Ige (2006), danger of computer fraud
if properly level of control and security are not ensured contributes threat to
the computerization in the accounting system. This leads to the defrauding of
the bank by a staff of the bank or fraudsters,
Peters (2012), Managerial inefficiency
constitutes a threat in a computerized accounting system. This is because most
top managers do not seek the advisers of their subordinates and this result to
inefficiency in administration. Equally, the subordinates will mishandle
his/her position.
Anoke (2011), Corruption at all levels
brings problems in the computerized accounting system in Access bank. Due to the corruption in the system, fraud,
crime and operational inefficiency controls the system and this leads to most
bank failures.
2.4 Academic
Review
Several empirical literatures on the analysis of
internal control in a computerized accounting system in the banking industry
have been reviewed. Siddiqui and Dodder (2009) examine the effectiveness of
financial audit of banking companies operating within Bangladesh. The audited
financial statements of 14 sample banking companies have been analyzed. The
study identifies seven sample companies that have actually overstated their
profits. Hence, the research explores the level of independence, objectivity
and competence of the auditors assigned for auditing banking companies.
Douglas et al (2005) examined the internal audit function in the banks of
Turkey. To achieve its purpose the following methodology is used; 25
questionnaires were sent to internal auditors in the banks of Turkey and 14
were answered. Been 56% of the total questionnaires distributed, while 90
different questionnaires were sent to auditors and 50 were answered been 56% of
the total questionnaires distributed. The analysis of the survey answers
indicates that the importance of internal audit in the banking sector is
increased by the usage of computers and the international extension of banks.
Furthermore, the results show that the number of internal auditors is related
with the size of the bank. Regarding the education of internal auditors, the
result reveals that usually internal auditors have graduated from universities
and have studied accountancy. Finally the research highlights the growing
importance of internal auditing in banking success.
Routoupis and Tsamis (2008) reviewed
three case study approaches in analyzing the attitude of Greek banks with
regard to the application of risk based approach. The Greek law, the bank of
Greece and international regulations impose internal control in the Greek bank
sector. However, the Greek banking credit institutions ignored most
regulations. The result of the research show that the standards of internal
auditing requires the adoption of risk based approach from internal auditors.
Unfortunately, this requirement is not being into practice. Thus, the Greek
banks adopts an intermediary approach of internal auditing that takes into
consideration the risks, without estimating and managing them.
Khana and Kaveri (2010) examined the
implementation of risk based internal audit in India banks. To accomplish the
goals of the survey, a structured questionnaire was mailed to 43 banks in India
both “the public and private sectors”. A total of 25 banks, all public sector
banks and six private sector banks have responded to the questionnaire mailed.
The findings showed that the banks have made sufficient progress in introducing
risk based internal audit. This refers to their understanding of methodology
for the assessment of risks, audit procedures and implementation of audit
report.
Palfi and Muresan (2009) examined
the importance of a well organized system of internal control in regard with
the bank sector. The sample was based on 25 credit institutions of Romania. The
analysis of the survey answers reveals that the continuous collaboration based
on periodical meetings between all structures of bank, characterizes an
effective internal audit department.
Abu-Musa (2010) investigates the
existence and adequacy of implemented security controls of computerized
accounting information system in the Saudi Banking sector. The result of study
reveals that the vast majority of Saudi banks have adequate security controls
in place. The results also enable managers and practitioners to better secure
their computerized accounting information systems and to champion the security
of information technology for the success of their banks.
Ademola (2011) examined the
existence and adequacy of implemented security controls in the Egyptian banking
sector. The results of the survey pointed out that the vast majority of
Egyptian banks have adequate security control in place. The result also
revealed that the computer departments paid relatively more attention to
technical system controls while internal audit departments emphasized more of
the behavioral and organizational security controls. Finally, the study
provides valuable empirical results regarding inadequacies of implemented CAIS
security controls and introduced some suggestions to strengthen and improve the
security controls in the Egyptian banking system.
Bongele (2012) investigates the
appropriate review between designing of accounting information system and
performance of commercial banks units by analyzing strategies. The findings
using the United Bank of Africa reviews that high performance of commercial
units depends on wide range of accounting information system. Other finding
reviewed that banks systematically vary their accounting information system to
support their chosen strategy recognizing that accounting information system
have the potential to facilitate strategy management and enhance organizational
performance.
2.5 Gap
in Literature
In the course of synthesis of the
literature reviewed, efforts were made to look at the concept of internal
control in the computerized accounting system in Access bank. We also brought
into focus the vital and related issues of internal control and general
improvement in the computerized accounting system in Access bank.
However,
the existing literature offers scant evidence of the relationship between
accounting information system and financial performance of Access bank which
have to do with a positive association between accounting information system
design and banking strategy and performance.
Furthermore,
the existing literature offers scant evidence of the relationship between the
accounting information system and management performance. Accounting
information system are considered as organizational mechanisms that are
critical for effectiveness of decision makers and control in organization.
Finally, the study have failed to assess the
effectiveness of internal control in the computerized accounting system of
Access bank, Abakaliki branch.
2.6
Theoretical Framework.
To further enhance the effectiveness and general
understanding of the subject matter, a background of systematically organized
knowledge of varying levels generalized needs to be analyzed. This is aimed at
providing meaning and relevance from the development of such knowledge and
concerts whose application provides specifications and relationship based on
empirical tests and validations.
A theory provides us with the tools with which we try
to analyze issues and causations in order to determine what is real and what is
not. It is important to provide an analytical basis of explanations which would
enhance better appreciation and understanding of internal control and
computerized accounting system in Access bank.
There
are several existing theories in the management sciences which would suit our
purpose in this work. For a better analysis, we shall employ the contingency
theory of accounting information.
2.6.1
The Contingency theory of accounting information.
The contingency theory founded by Smith (1907)
describes a new theory of information system, which embraces both macro
organizational concept, technology and human information processing system. The theory and the possible
relationship of internal control, computerized accounting system in the banking
industry fix in management dicision (Gerdin and Greve, 2004, Widener 2006,
Waterhouse and Tiessen 1978),
For such theory to be performed, the
conceptual model are the financial information, managerial information and
auditing information reporting and the interaction among them.
Deriving from above, it would be
precise to assert that the effectiveness and efficiency of the banking industry
can be determined by the co-existence of internal control through computerized
accounting system to yield efficient managerial decision making and control.
Thus, this has been considered to be true
and functional because since the practice of computer in our financial
institutional, the work-load has been reduced and accounting balances has been
accurate.
However, criticism by some scholars such as Ebenezer
(2005), stated that the use of computer accounting system has led to fraud,
inefficiency and collapse of many banks in the country.