The Impact of Internal Control Design on Employee

Involvement in Bank Fraud: A Case Study of First

National Bank

BY: RICHMOND KUDOZIA

SUPERVISOR: DR. GODFRED AMEWU
 01_ Introduction

02_ Research Problem

Table of Contents 03_ Research Objectives

The Impact of Internal Control Design on Employee
Involvement in Bank Fraud: A Case Study of First National 04_ Theoretical Underpinnings
Bank
05_ Empirical Literature

06_ Methodology

07_References

08_Q & A
Introduction
• The banking sector forms the foundation of many global economies; impacting investments, insurance,
trade activities and the development of nations (Thakor, 2019).

• However, the issue of fraud presents a significant threat to the integrity and stability of the banking
industry (Etefe, 2022).

• According to Yego (2016), banking fraud is any type of financial crime resulting from:
- inadequate or failed internal processes, people and systems, or external events.

• Banks in order to safeguard their assets and structures put in place internal checks and balances -
internal control.
Introduction …Continued
• It is tempting to think these attacks on the banking industry only come from external sources, rather
than from within the bank.

• Employee involvement in bank fraud has been identified as a significant issue affecting financial
institutions worldwide, including Ghana (Ohemeng et al., 2020).

• In a new Bank of Ghana report, more than 50% of the cases of fraudulent activity were carried out with
the assistance of bank staff (The 2020 Banking Industry Fraud Report – Bank of Ghana, n.d.)

• These individuals have intimate knowledge of the bank's internal systems and processes. As such their
involvement makes fraud detection very difficult.
 Research Problem
• All over the world, investors have lost huge sums of money as a result of fraud, not to mention the
economies that have been ruined in the process (Morgan, 2020).

• In a report by the Association of Certified Fraud Examiners (2022), a total of 2,110 fraud cases
reviewed across 133 countries revealed losses amounting to $3.6 billion

• A recent study conducted involving Nigeria’s Access Bank, GT-Bank and Fidelity Bank revealed
that these banks put together recorded 26,877 fraud cases in the first half of 2022, with over $3
Million lost (Fakiya,2022).

• In Ghana, fraud cases decreased from 2,670 to 2,347 in 2021. However, losses surged from GHS25
million to GHS61 million, with 53.46% of cases involving bank staff. (The 2020 Banking
Industry Fraud Report – Bank of Ghana, n.d.).
 Research Problem
• The occurrence of employee fraud in the Ghanaian banking industry appears to be on the increase
(Dadzie-Dennis et al., 2018).

• However, there is very little research on the impact of internal control design on employee
involvement in bank fraud, particularly in the Ghanaian context.

• It is important that banks stay abreast with the subject of staff involvement in fraud and the design
of adequate control systems if they are to find solutions that can spot and prevent fraud
 Research Objective
• To identify the internal control mechanisms in place in Ghanaian banks

• To investigate the factors that contribute to employee involvement in bank fraud in Ghanaian
banks.

• To assess the effectiveness of internal control measures in curbing fraud in Ghanaian banks.
Theoretical Underpinnings
• Agency Theory examines the relationship between bank management (principal) and employees
(agents) to understand how incentives, monitoring, and contracts impact employee behaviour
regarding fraud and internal controls.

• The Fraud Triangle Theory, developed by Donald Cressey, posits that fraud happens when three
elements converge: perceived pressure, rationalization, and opportunity

• Searching
Organizational
for pain Culture Theory highlights how the values, norms, and beliefs within a bank shape
employee
We are behaviour.
always looking for little signals.
The annoying, the frustrating, the
could-be-better.
• Control Theory: This theory focuses on the role of internal controls in regulating and preventing
deviant behaviour within organizations. It can help assess how effective control mechanisms, such as
segregation of duties and monitoring systems, influence employee involvement in bank fraud
 1.
Empirical Literature
• Eko & Udoayang (2012) determined the impact of internal control design on banks’ ability to
investigate staff fraud and staff lifestyle in Nigeria. Data were collected from 13 Nigerian banks.
2.
Results: A weak internal control system exposes the system to fraud and gives employees the
opportunity to commit fraud.

• According to Kabue (2015), a study to examine the impact of internal controls on fraud detection
and prevention sampled 43 Kenyan commercial banks. Results: The study concluded that there is a
3.
negative and significant relationship between robust internal control systems and the level of fraud
prevention and detection

• Yakubu et al (2017) also conducted a study using ADB Bank to assess the effectiveness of internal
4.
controls against fraud. Results: Poor internal control, among other factors, was found as one of the
main causes of fraud in the bank.
Methodology
• The research is an explanatory study design. This study will attempt to establish the impact of
internal control design on the detection and investigation of employee fraud among bank staff.

• Both qualitative and quantitative research methods for data analysis, allowing for generalization,
statistical analyses, and comparative analysis

• Targeted Population: The population of interest for the study comprises the employees of First
National Bank (FNB) GH in Ghana. A total of 160 participants

• Data will be collected using questionnaires. The questionnaire

will be based on a Likert Scale and the data analyzed using SPSS v20.

• This study will apply a multiple regression model to help identify any significant connections
between the factors influencing employee involvement in bank fraud. to establish the relationship
between the dependent variable and the independent variables.
 References
Hillison, W., Pacini, C., & Sinason, D. (1999). The Internal Auditor as Fraud-Buster. Managerial
Auditing Journal, 14(7), 351-363.

Hofstede, G., Garibaldi de Hilal, A. V., Malvezzi, S., Tanure, B., & Vinken, H. (2010). Comparing
Regional Cultures within a country: Lessons from Brazil. Journal of Cross-Cultural Psychology,
41(3), 336-352.

Lister, L. M. (2007). A practical approach to fraud risk: comprehensive risk assessments can enable
auditors to focus antifraud efforts on areas where their organization is most vulnerable. Internal
auditor, 64(6), 61-66.
 References
Mustaine, E. E. & Tewksbury, R. (2012). Cracking open the black box of the manuscript review
process: A look inside Justice Quarterly. Journal of Criminal Justice Education, 23(4), 399-422.
(2012). Cracking open the black box of the manuscript review process: A look inside Justice
Quarterly. Journal of Criminal Justice Education, 23(4), 399-422.

Olorunsegun, S. (2010). The impact of electronic banking in Nigeria banking system (Critical
Appraisal of Unity Bank Plc). A Master Degree Dissertation submitted to Ladoke Akintola
University of Technology, Ogbomoso, Oyo State, Nigeria.