CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND TO THE STUDY

The effect of internal control on prevention of fraud in manufacturing company cannot be over emphasized as each case of fraud has its devastating effect on not only manufacturing companies but also the national economy at large. Fraud has racked the economy of this nation, it is now a generally accepted fact that the problem of managing the economy now depends on the ability of the manager to keep this fraud at a distance, if they must succeed.

        The Nigerian economy due to persistence of fraud and mismanagement has been plunged into debt crisis which a part of wider crisis of accumulation which has already resulted in a market deterioration in the aggregate performance of the production sector of the economy, a balance of payment. The collapse of social infrastructure, and escalating level of inflation and acute shortage of basic consumer goods, decline drastically the standard of living and external assets. Fraud therefore constitutes a major havoc in any organization or establishment.

          It is therefore imperative that manufacturing companies or industries should make concerted efforts to prevent the incidence of fraud and put in adequate control measures at all time.

1.2    STATEMENT OF THE PROBLEM

Fraud has assumed a wider dimension touching almost all part of our national fraud is not limited to the financial sector alone, organization precisely manufacturing industries as a focus relating to this research exercise and organization not left out.

        Fraud therefore has an instrument with its committed, such instrument include the employee’s, consumers, debtors, the computers etc, which are used in the perpetration of the fraud. In trying to probe further why some of these fraudulent activities today have been discovered that the major causes are; dishonest staff, breakdown of the internal control system of the organization, public, “ineptitude” in handling cases of fraud in the organization, loose and ineffective security system in the organization and stagnant position for a long time of some staff. It is therefore important to say that appropriate measures have to be introduced to minimize the problem.

                  Inefficient management and poor composition can encourage fraud in the industry. Ineffective management policy has lead to an increase in the level of fraud witnessed as well as lack of proper supervision has lead to most of the fraud witnessed in the manufacturing industries. Lack of proper training, nepotism and poor recruitment policy, poor qualification and combination of operations staff, poor segregation of duties, all have effect on numbers of fraud in the manufacturing industry.

1.3      OBJECTIVES OF THE STUDY

The main objective of the study is to assess the effect of internal control on fraud prevention in manufacturing industry.

Other specific objectives are to:

                i.        Evaluate the control systems put in place in manufacturing industry to prevent fraud.

              ii.        To find out the causes of fraud in the manufacturing industry.

            iii.        Identify the problems the industry face as a result of the detection of manufacturing or financial fraud

             iv.        To find out effective internal control system influence on prevetion of fraud.

               v.        To find out the problem of fraud and how to curb it.

             vi.        To find out the employees knowledge base on the concept of fraud in the industry.

1.4      RESEARCH QUESTIONS

In order to address the problem mentioned above, the following research questions are asked:-

                      i.        To what extent do you think internal control can be used to prevent fraud in manufacturing industry?

                    ii.        Is lack of good internal control system a major cause of fraud in industry?

                  iii.        How can fraud be prevented in manufacturing firms in Nigeria?

                   iv.        To what extent do operational staffs contribute to fraud in the     manufacturing industry?

                     v.        Do you think that fraud can be effected without the involvement of an insider staff of the manufacturing industry?

1.5      STATEMENT OF HYPOTHESES

The following hypothesis are formulated:

Ho1: Internal control has no significant effect on fraud prevention in manufacturing industries.

Ho2:  There is no significants relationship between internal control and operational staff in preventing fraud in the manufacturing industry.

1.6      SIGNIFICANCE OF THE STUDY

The significance of this study is concerned with educating industries faced with fraudulent distress to restructure the organization from falling into liquidation because of weak internal control system. Practicing accountants and mangers will also find this study useful because, not only will it help to add to their knowledge, it will aid higher productivity and efficient remark.

1.7    SCOPE OF THE STUDY

This study focuses on the effect of internal control on fraud prevention in manufacturing industries of Maiduguri flour mills. It will also look into the various control that exists between manufacturing industry and operational plans.

However, this study is restricted only to Maiduguri flour mills and will constitute the internal control on fraud of the manufacturing industry such as operational plan. Also, is the operational staff ranging from lower category.

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