1.1 BACKGROUND OF THE STUDY
The recent global financial crisis, which had its roots in the banking sector, highlighted, except from the existing regulatory gaps, the lack of proper and efficient internal audit functions within the banking institutions in order to mitigate the resulting negative effects. The burst of the credit crunch and the following financial recession resulted in the dramatic increase of bank frauds all over the world, a fact that strengthened the need for the implementation of internal audit techniques. Moreover, the internal audit function plays a crucial role in the ongoing maintenance and assessment of a bank’s internal control, risk management and governance policies thus, adding value and assisting in the achievement of the management’s goals. In the inter-mediation, banks mobilize savings from the surplus units of the economy and channel these to the deficit units, particularly private business enterprises for the purpose of expanding their productive capacity (Adeyemo, 2012). Levi (2001), asserts that corporate financial scandals in the USA such as Enron and Tyco debacles send shock waves in the corporate world, regulatory authorities, audit fraternity and the economic world society at large. These have led to the erosion of investor confidence in the financial markets. The incidence of fraud and misappropriation of funds in recent time poses a threat accounting profession because of its perennial nature.
This has resulted to questions as to whether accountants actually play any significant role towards the attainment of accountability and prevention of fraud especially that which is currently happening in our major or key financial institutions. With an upsurge in financial accounting fraud in the current economic scenario experienced, financial accounting fraud detection has become an emerging topic of great importance for academic, research and industries. In this age of high technology, fraud investigators can no longer be satisfied with just auditing or accounting skills, these investigators should be trained as forensic accountants and this training should include an extensive knowledge of accounting information. Fraud imposes numerous costs to organizations that experience it.
The banks might suffer loss in terms of monetary, reputation, human capital as well as the exposure to the risk of bankruptcy. In a wider scope, fraud does not only threaten our country’s economic condition with the loss of investors and resources, but it is in fact endangers the serenity and political stability of the nation. Nevertheless, while banks are active in the quest to reduce costs of fraud, it is important to make sure that they do not immensely deteriorate the effectiveness of current functioning key fraud controls. Having committed a large sum of funds and resources as a shareholder to financial institutions, the expectation is to generate a high level of profitability but this has been thwarted by the high index of fraud perpetrations in the industry. Financial statements produced can no longer be relied upon except audited.
1.2 STATEMENT OF THE PROBLEM
Fraud is a challenge in organizations regardless of which type. Research has shown that inability of assessing fraud risk with accuracy can cause fraud not being detected, also improper recording of financial statement have accounted for the rise of irregularities and some acts usually perpetrated by some sta and members of management in a financial institution (Olowookere, 2001). Furthermore, despite the independence of auditors, fraud is still in the increase and most organizations has internal control system that checkmates the operations of the organization but fraud still exist within the organization. In order to protect our banking sector, it is crucial to examine the level of assessment of fraud risk with respect to financial statement audits.