A new study has identified transaction-level controls and continuous monitoring as the most effective measures for preventing fraud in Nigerian deposit money banks, urging regulators and financial institutions to focus more on the effectiveness of internal controls than on policy documentation.
The peer-reviewed study, titled Effect of Internal Control Systems on Fraud Prevention in Nigerian Deposit Money Banks, was conducted by a team of researchers led by Rapheal Olufemi Ajayi, alongside Mercy Okafor, Olusola Michael Akinmoyewa, Ayo David Adeyemi, Aanu Joseph Kuola and Oluwatosin Ibukun Mobolade.
Published in Volume 18, Issue 3 of the Journal of Global Economics, Management and Business Research, the study examined the influence of the five components of the internationally recognised COSO Internal Control Framework on fraud prevention across 14 listed Nigerian banks between 2019 and 2024.
The researchers analysed audited financial reports as well as data obtained from the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC).
According to the findings, control activities and continuous monitoring significantly reduced fraud risks, while risk assessment on its own had no statistically significant effect on preventing fraud.
Commenting on the findings, Ayo David Adeyemi of the Department of Business Administration, Faculty of Science, Business and Enterprise, University of Chester, United Kingdom, said the research challenges the assumption that having documented internal control policies is enough to curb financial crime.
“Fraud prevention depends less on the existence of internal control policies than on how effectively those controls operate in practice. Institutions cannot rely on compliance documentation alone; they must ensure controls are actively implemented and continuously monitored,” he said.
Adeyemi, who is also the Executive Director of PIPO Global Limited, said the findings come at a time when fraud in Nigeria’s financial sector is becoming increasingly sophisticated, particularly through digital channels.
“As financial systems become more technology-driven, banks must strengthen operational controls and independent oversight. Our research shows that risk assessment alone has no statistically significant effect on reducing fraud losses. That suggests many institutions identify risks without translating them into effective operational controls. The industry needs to move beyond box-ticking and focus on controls that work in practice,” he said.
He added that the findings have important implications for banking regulation and supervision.
“Regulators need to rethink how they assess internal controls in Nigerian banks. Reviews should focus not simply on whether controls exist, but on whether they work. The Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation should place greater emphasis on the operational effectiveness of monitoring activities and transaction-level safeguards. Such a shift would represent a significant step towards strengthening the integrity and resilience of Nigeria’s financial system,” he said.
The researchers said the findings provide evidence-based recommendations for financial institutions, regulators and policymakers seeking to strengthen fraud prevention across Nigeria’s banking sector.