Accounting System in Community Banking

Accounting System in Community Banking

Accounting System in Community Banking – The type of accounting information required by any business organization depends on the nature and operations depend on the nature and operations of the business enterprise.  The nature of accounting system in a manufacturing industry hence the banking industry has its own accounting system to cover its banking operations while other industries like manufacturing companies have different accounting systems to take care of their various operations.

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For every community bank like the Ogui Urban community bank Nig. Ltd Enugu that engages in monetary transactions there is an established accounting system such an accounting system is a set of accounting procedures standards and convention designed for recording analyzing presenting and communicating accounting information required by the management investor shares holders and supervisory agencies of the banks. The important of this accounting system is that forms that basis for valid assessment decision-making and control of the operations of the banks.

This project specifically this to present the accounting system for community banking operations using Ogui Urban community bank Ltd. Enugu as a case study.

The accounting system of a community bank covers the following major aspects of accounting.

  1. Financial accounting
  2. Management accounting.

Accounting which is defined by the American institute of corporate as the act of recoding classifying and summarizing in a systematic manner and in terms of money transactions and events which are in part at least of a financial character and interpreting the results therefore.

In community banking industry financial accounting primarily focuses on information for external use of by the investors shareholders depositors and supervisory agencies such as the national board for Community Banks and Central Banks of Nigeria.

The financial reports containing such information include the balance sheet and profit and loss accounts.  Management accounting on the other hand provides information required by management for the internal decision making an control. Management accounting provides information that will aid managers in carrying out the five basic duties viz.

  1. Planning: Deciding what objectives to pursue during a future time period and what to do in order to achieve those objectives.
  2. Controlling: Measuring performance against objectives determining causes of deviations and taking corrective actions where necessary
  3. Organizing:      Grouping activities organizing and providing the authority to carryout the activities.
  4. Staffing:   Determining human resources requirement resulting selecting training and development of human resources.
  5. Motivating:      Establishment a system of rewards to encouraging optimum performance.

In order to ensure that transactions are recorded classified and summarized properly the records for each of these accounting activities must be reviewed regularly.  The aspect of accounting that is concerned with review of accounting records is referred to as auditing. An additional function of acid citing is to ensure that the accounting and operating polices and procedures are properly and consistently applied the two aspects of auditing operation in community banking are he internal auditing and the external auditing


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Community banking is a new concept with specialized operations and objectives, which differ significantly, form the conventional banking practices.  This new banking concept adopted a specialized accounting system with inherent problems. The most critical constraint that faces community banking is the issue of management quality given the low capital and asset base the limited scope of operations and other environmental constraints.  Community banks. Would not ordinarily be able to attract and retain top quality management. Implementation of effective and efficient accounting system depends on the quality and experience of the staff.

Furthermore the weak and inefficient internal control procedures adopted by a community banks in it banking operation pose serious problem some of these problems include he following.

  1. Physical custody of assets and procedure designed to safeguard the assets of the banks.
  2. Inadequacy of segregation of the duties and responsibilities due to shortage of staff.
  3. Incomplete books of accounts and wrong transaction posting.
  4. Poor arrangement for the authorization and approval of documents.
  5. Lack of Idealization and checklist system.

In addition to all these problems the distressed economy and the distress in the banking sector is another major problem facing the community banks.

With many banks being wound-up here and thereby the central banks of Nigeria people no longer have confidence in the banking sector as they are afraid to loose their hard earned money. Hence this has affected not only the community banks but also the entire banking industry.

Lastly the attitude of some bank workers who steal depositor’s money and run away with it also discourages depositors, as some community banks have been wound-up as a result of this. The community banks are not allowed to participate in the clearinghouse. Consequently this denies them a net of income and makes them unattractive to big time business magnets


Presently the community banking operations have become in issue very significant in our economic developmental efforts through the provisions of credit and banking services to boost grassroots productive capacity.  As a new concept and considering the intended ole of community banking in Nigeria this project study is intended to accomplish the following objectives.

  1. To review the concept of community banking and its accounting system.
  2. To nightlight the strength and weakness of the accounting in community banking.
  3. To establish the types of accounting reports required for a community bank
  4. To review the internal control systems implemented in a community banks.
  5. To suggest a way of improving the accounting system in a community bank.


The concept of community banking is increasingly gaining ground in our banking sector as it affects the greatest parts of the population that is the rural drivellers.

The significance of this study is to improve the accounting system so that the investor’s shareholders depositor’s regulatory bodies will use the financial report to greater advantage. By improving the accounting system in community bank the following major benefits will be realized.

  1. The shareholder investors regulatory agencies and interested group can easily have the accounting reports that will enable them ascertain the liquidity profitability and variability of the community bank.
  2. The management can have reliable accounting information to measures performance plan and control operation.
  3. The regularly agencies the national board for community banks will provide the basis for proper planning and controlling of the banking operations.


The following hypothesis were formulated and tested.


H0:    Accounting system has not significance effect on the performance of a

Community banks.

H1:    Accounting system has a significance effect on the performance of a

Community banks.


H1:    Good accounting system ahs an effect on the performance of a Community banks


This study covers the accounting system in a community banks using Ogui Urban community bank Nig. Ltd. Enugu as a case study specifically this study involved investigation, indept analysis of the existing accounting system identification of problems associated with the existing accounting system and recommendations for a suitable accounting system for community banking.

The major areas covered by the above activities include the types of accounts the books of accounts the inter control procedures implemented and the accounting principles and conventions adopted.

A community bank such as Ogui Urban community bank Nig. Ltd. Enugu is a unit bank without branches. However all the community banks have the same structure and operational guidelines already handed over to them by the supervisory agency. Consequently by investigating accounting system of are community banks it is assumed that the same result will be obtained from other community banks.


Banks are usually secretive in giving out information about their operations and books of accounts. Distress in the banking sector makes them feel so reluctant to give out information required but nevertheless I was able to get the information required for this project.


In order to enhance easy understanding of the issues discussed this section explains some of the terminologies used in the project.

  1. Accounting- The art of recording classifying analyzing presenting and interpreting financial transactions.
  2. Accounting system-  a set of accounting procedures standards and conventions designed for accomplishing accounting activities.
  3. Accounting standard/ convention-         a generally accepted method of performing accounting functions.
  4. Internal control system- a set of inbuilt measures of features designed to guide against errors lapses and fraud in an accounting system.
  5. Community bank-A self sustaining financial institution owned and managed by a community or group of communities established for the purpose of providing credit deposit banking and other financial service to the members of the community.
  6. Auditing and investigation-Investigation and review of accounting system and operations with a view to ascertaining compliance with the laid down rules regulations and standards.
  7. Assets –  Records of change of assets or liabilities of business.
  8. Debit an account- to enter or record the monetary value of goods or service received into the account.
  9.           Credit an account- to enter or receive the monetary value of goods or services given out of the account.


For many years effort were made to involve sub-urban and rural people in Nigeria in modern banking practices. A part from encouraging the established of commercial and merchant banks specialized development banks were created focusing on mortgages saving agriculture co-operatives and other specific area.  Beyond this rural branches were mandatory for the commercial banks so as to cater for the interest of the rural driveller.  Inspite of all these efforts rural people could not the into conventional banking system as they are required to fill several forms and provide acceptable collateral to bank up there request for credit facilities.  All theses requirement make it difficult if not impossible for rural divers to obtain credit facilities from the conventional banks.

However in pursuance of rural development programmes the federal government established the directorate of food roads and rural infrastructure DFRRI, but the activities of DFRRI were paralyzed by the difficulties of getting credit facilities form the conventional banks.  In view of these constraints imposed by lack of credit facilities the directorate of food road and rural infrastructure (DFRRI) in 1989 addressed a memorandum to the president and commander in-chief of the armed forced proposing the critical need for a novel financial institution to be known as community banks.

This proposal got the blessings of the central bank of Nigeria and in the budget speech of January first 1990 the president and commander in chief of the armed forces of Nigeria approved the proposal on community banking.  It is useful to quote the relevant section of the budget speech as follows:

“The adjusted subsidy levels of domestic of petroleum product have been estimated to yield an implied savings of N503milloion in 1990 fiscal year. Government has however decided that this sum be put back into strengthening its programme of grass roots economic development.  Accordingly the sum of N453 million will accrue to a specialized account with the central banks of Nigeria for the purpose of establishment of community banks”


“The community banks will be substantially owned by community development association, co-operative societies framers group, patriotic unions and trade unions with in the community.  In addition individual member of the community will be encouraged to subscribe to the equity capital of the commercial bank saving only one community and exploiting to the fullest its advantages as position of local knowledge and trust. Its survival is intimately connected with the development of community, which it serves.

By not getting involved in sophisticated banking service like foreign exchange transactions or international commercial papers and by minimizing its operational cost through high localization and superior arrangement for loans recovery it should be able to operate at lower interest rates to its customers.

The community banking concept was backed up by the community banks decree 46 of 1990 which provides that a community or group of communities may establish a community bank for the of:

  1. Promoting rural development through the provision of finance and banking service.
  2. Enhancing the rapid development of productive activities especially in the   rural areas
  3. Improving the economic status of small-scale producers both in the rural and urban area.


To concretize the community banking idea the first community banks Tudun- Wada Kaduna was commissioned by President Ibrahim Babangida on 31 December 1990 in his address during the commissioning ceremony general Ibrahim Babangida said:

“Today with the birth of the first ever community bank to be established in this country another mile- stone is being attained in our journey towards the emancipation of our national economy. It is the firm belief and commitment of this administration that every Nigerian who is engaged in a productive economic activity must have access to Loan able funds regardless of the size of the need”

Further more general Ibrahim B. Babangida he initiator of community banking in Nigeria defined community banks as a self sustaining financial institution owned managed by  a community for the purpose of providing credit  banking and other financial services to its members  largely on the basis of self recognition and credit worthiness”

According to the paper community-banking system in Nigeria presented by

—-This article is not complete———–This article is not complete————

  This article was extracted from a Project Research Work Topic




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Accounting System in Community Banking

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