Abstract

The menace of financial statement fraud which has sent notable and reputable corporate entities to their unimaginable early grave soon after the publication of juicy profits has continuing posing catastrophic threats and bleeding the global economy into a state of comma. This dreaded phenomenon around the globe may be demystified through effective internal control system to provide managers with the means to increase accountability for their programs and to obtain reasonable assurance that the programs they direct meet established goals and objectives. Intuitively, an effective system is not only restricted to a digital one but to one that is able to deter, prevent and detect fraudulent activities frontally. The main aim of this study is to develop an internal control system that will help in reducing financial statement fraud of quoted banks in Nigeria through not only its deterrent, predictive and detective properties; but also, the recommended internal control procedures and policies which the accounting profession should adopt. Deterrent control mechanism, and preventive control mechanism were the proxies of internal control system while improper revenue recognition, overstatement of assets were the sub-constructs of the financial statements fraud. The researchers adopted correlational survey design for the study and used primary data via structured questionnaire. The null hypotheses test and other data were analyzed by Pearson Product Moment Correlation and simple linear regression tools with the aid of Statistical Packages for the Social Sciences version 25. The study found that all the internal control system proxies; deterrent control mechanism, and preventive control mechanism positively and significantly related to improper revenue recognition and overstatement of assets of quoted banks in Nigeria in the period of this study. The study concludes that internal control system effectively and significantly related with the financial statement fraud. Based on the empirical findings, the study recommends the need for banks as a matter of necessity to continue to reinvigorate and maintain the tone at the top culture with effective risk management, energizes segregation of duties and job rotation with mandatory annual leave policies for the purposes of rooting out financial statement fraud in Nigeria banks.

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