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AN ANALYSIS OF THE ROLE OF INSPECTION AND EXAMINATION IN OVERALL BANK MANAGEMENT

CHAPTER ONE

INTRODUCTION

1.  BACKGROUND TO THE STUDY

Banking is an age-long practice with the issue of trade by barter. It was however, difficult to convince people to adopt the stress that banking should be applied to cash management. The idea of saving for the raining days, be it in cash or kind is of paramount important. The concept of building yam barns in the olden days was a form of currency, was not just to secure them but also to save them. Effective management of resources, be it in kind or cash been the bare of the banking system. In Nigeria, the central Bank of Nigeria (CBN) has carried out stringent economic policies aimed at ensuring effective management in the banking sector which comprises commercial merchant and micro finance banks.

The Banking Act of (1969) defined banking as the business of receiving money form outside sources as deposits irrespective of the payment of interest and granting of loan and acceptance of credit or the purchase of bill and cheques or the purchase and sale of securities for account of others or the incurring of the obligation to acquire claims in respect of loans prior to their maturity or the assumption of guarantees and other warranties for others, or the effecting of transfer and clearing and such other transaction as the commissioner may on recommendation of the Central Bank of Nigeria by order published in the Federal Gazette designated as banking business.

Depositors funds are of paramount important to banks, therefore the need to effective and efficient management of depositors fund calls for honest and hardworking personnel. It also relies on the management personnel of a bank to establish the major functions in order to achieve the corporate objective. The issue of communication constitutes a major problem in effective management of communication gap that exists among the management to the lower ones. As a result of this communication gap, the different bank policies do not seem to be well articulated.

1.1  STATEMENT OF PROBLEM

The managerial function of controlling is a measurement and correction of the performance of activities of subordinates in order to make sure that all objectives and plans devised to attain them are being accomplished. Millichamp (1986) described internal auditing as an independent appraisal activity with an organization for the review of the operation as a service to managerial control which functions by measuring and evaluating the effectiveness of other controls. Internal auditing can also be defined as a review of operations and records, sometimes continuous undertaking with a business by a specially assigned staff. The aim objective is to ensure management that the internal checks and accounting system are effective in design and operation. Because of peculiar nature of banks, its business includes: dealing basically on financial assets and liabilities, there is one strong attraction towards fraudulent manipulation and practices by both the employees and those outside the bank employment, hence there is a great need for every bank management more than any organization to strive towards effectiveness in the performance of its functions then.

1) The question becomes “How can inspection function assist management in achieving effectiveness”? it is easier and more common to assess the consequences as lack of adequate internal control in the banking industry has been witnessing an increase in reported bank fraud which runs into hundreds of millions of naira every year. These occur in the form of computer frauds, defalcation and misrepresentation of documents and outright removal of physical cash by employee and outsiders.

2) There is a re-occurring problem of bank managers granting credit (loan) over their discretional limits as approved by management without adequate security given.

3) The cases of increasing bad debts resulting from loans issued to customers that has not been recovered, this have been giving problems to management and as a result, part of their income is reserved as a provision against those debts in view of requirements of the prudential guidelines for licensed banks.

4) Also there is a lack of economy and efficiency in operations. Transaction records of some banks made by employees are not in agreement with established procedures resulting to unbalanced books and records. This criticism by bank external auditors and regulatory bodies like. Central Bank of Nigeria, Nigeria Deposit Insurance Corporation (NDIC) and the government for sometimes now how that activities of banks in the economy has been a subject of adverse criticism by the government and its agencies. These problems should be of serious concern to bank managers and owners when viewed in terms of their consequences on the banks and the society at large. Hence any effort made towards correcting these problems should be regarded as one of the right directions.

1.1  PURPOSE OF THE STUDY

This study is aimed at the following

1) To identify and explain how inspection (internal auditing) can be of assistance towards achieving effective Bank Management.

2)  To identify various ways of inspection and examination techniques.

3)  To examine how these inspection techniques have been applied.

4) To ascertain whether there are challenges encountered during inspection and Examination in banks.

5)  To offer solutions to the problems identified.

1.1  RESEARCH QUESTIONS

This study is the analysis of the role of inspection and examination in overall bank management. It is intended to relate relevant theoretical concept to the United Bank for Africa Plc Enugu in a way which would be helpful to the management. This project is therefore base on the following hypothetical statement research questions

1) To what extent is inadequate inspection of activities a major contributory factor to ineffective bank management?

2) What are the various ways of inspection and examination techniques?

3) Are there challenges encountered during inspection and examination of banks?

1.1  RESEARCH HYPOTHESES

The following hypotheses were formulated

1) Ho: Inspection of activities is a major contributory factor to effective bank management

   Hi: Inspection of activities does not contribute factor to effective bank management

2) Ho:  Application of various inspection techniques helps in detection of fraud in banking industry.

   Hi: Various inspection techniques does not help in detection of fraud in banking industry.

3) Ho: Lack of information is one the challenges encountered during inspection and examination of bank.

    Hi: Lack of information is not a challenge encounter during inspection and examination of a bank.

1.1  SIGNIFICANCE OF THE STUDY

It is hoped that the result of this enquiry would be of immense important to bank inspectors, external auditors, examiners, accounting profession, bank management and other operators in the banking system and the state. In implementing the recommendations as regards the requirement for effective inspection, it is hoped that they would increase objectivity in reporting and increasing inspectors commitment and job security. In implementing the recommendations, it is further expected that the general apathy usually associated with inspection reports would be removed. There is no doubt that reports are produced without bias, they would go a long way to encourage everybody concerned to adherence strictly to the policies standard and procedure as well as promoting to strive towards the collective achievement of the banks objective.

1.1  SCOPE, LIMITATIONS AND DELIMITATIONS SCOPE OF THE STUDY

This study is designed to cover the management function of inspection controlling with particular reference to its assistance to effective bank management.

LIMITATIONS

Due to the fact that it is a difficult task to cover all the banks in Nigeria, the researcher concentrated on the United Bank for Africa Plc. Furthermore, as the researcher could not carry out a study of all the United Bank for Africa within the country, this work is limited within the country, this work is limited to United Bank for Africa Plc situated No 10 station road Enugu, Enugu State of Nigeria.

DELIMITATIONS

In this work, the researcher is faced with some constraints that necessitated the choice of one bank in a particular location.

1) The time allotted to this work is short. As a result the researcher would not have time to cover many banks situated in different locations.

2) A study of different banks in different locations requires enough fund. Therefore due to some financial constraints, the researcher limits himself to just the United Bank for Africa Plc situated at 10 station Road, Enugu. 

1.1  DEFINITION OF TERMS

1)Bank Management: It is a banking process of getting things done through other people in most efficient and effective manner. It is an activity that converts disorganized things and physical resources into useful and effective result.

2)Effectiveness: It is a method of producing or capable of producing an intended result.

3)Bank: This is a financial institution that accept deposit, pay cheque, discount bill and render other financial services to their customers.

4)Analysis: It is an investigation of the component parts of a whole and their relation in making up the whole. Analysis also means detailed examination of the element or structure of something, typically as a basis for discussion or interpretation. It is also the process of separating something into its constituent elements.

Inspection: Inspection is an organized examination or formal evaluation exercise. Inspection is the appraisal involving examination, measurement, testing, ganging, and comparison of materials or items.

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