Internal Control Process as an Effective Tool for Management.
CHAPTER ONE
Purpose of study
Internal control system is very useful as it decides to a large extent the success of an organization. This study will ensure that all control systems are effective and organizations objectives are achieved which includes:
- Effective and efficient operations
- Reliable financial records
- Compliance with law and regulations and
- Accurate and complete financial statements amongst others
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
Anthony (2005) defined internal control as the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the orgnisation’s objectives.
Garrison and Moreen (2000) suggested a different definition for internal control as follows: those steps taken by management that attempt to increase the likelihood that the objectives set down at the planning stage are attained and to ensure that all parts of the organisation function in a manner consistent with organisational policies. He further defined activities which include: planning, co-ordinating, communicating, evaluation and decision making as well as informal process aimed at enhancing the efficient and effective use of the organisational resources towards the achievements of the organisational objectives. With planning, the organisation decides what to do and the responsibilities of its different members.
Anthony and Govindeajan (2004): Opined that internal control system played a vital role in preventing and controlling fraud in organisation. This can be achieved by effective planning, co-ordinating, communicating and evaluating of organisational budgets.
According to Arnold & Turley (1996), planning as main internal control system can fall under the following headings:
- OPERATING PLANS: These are short-term plan which relates directly to the achievement of the organisation objectives. Thus, the annual accountability and met up government target plans to suppress smuggled goods would be examples of operating plans.
- Administrative plans: These are tactical plans concerned with the creation of the organisational structured, under which accountability and performance levels can be determined for appropriate functions.
- Co-ordinating the activities of several parts of the organisation to assure alignments goals.
- Communicating information such as strategy and specific performance objectives. Communication could be done formally [by means of budgets and other official documents] and informal through conservations.
in 1999, in the united states of America, the general accounting office for standard defined “internal control as an integral component of an organisation, management that provides reasonable assurance that the following objectives are being achieved: effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations. They further state that internal control is a major part of managing an organisation. It comprises the plans, methods and procedures and in doing so, support performance of management.
THE SEGREGATION OF DUTIES AND RESPONSIBILITIES THAT REDUCE FRAUD IN AN ENTERPRISE
According to Campion, A (2000), segregation of duties is critical to effective internal control, it reduces the risk of both erroneous and inappropriate actions. In general, the approval functions, the accounting/reconciling function and the asset custody function should be separated among employers. When these function cannot be separated, a detailed supervisory review of related activities is required as a compensating control activitity. Segregation of duties is a deterrent to fraud because its requires collusion with another person to perpetrate a fraudulent act.
According to Churchill, C & Dan C. (2001), specific examples of segregation of duties are as follows:
- The person who requisitions the purchase of goods or service should not be the person who approves the purpose.
- The person who approves the purchase of goods or services should not be the person who reconciles the monthly financial reports.
- The person who approves the purchase of goods or services should not be able to obtain custody of checks.
- The person who maintains and reconciles the accounting records should not be able to obtain custody of checks.
- The person who opens the mail and prepares a listing of checks received should not be the person who makes the deposit.
- The person who opens the mail and prepares a listing of checks received should not be the person who maintains the accounts receivable accounting records.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
It is important to ascertain that the objective of this study was to ascertain internal control process as an effective tool for management. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing an internal control process as an effective tool for management
Summary
This study was on internal control process as an effective tool for management. Three objectives were raised which included: Effective and efficient operations, Reliable financial records, Compliance with law and regulations and Accurate and complete financial statements amongst others. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from P & co feed limited Enugu. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
Looking at the findings of impact of internal control on the company, the researcher concludes that internal control has favourable impact on the company if it is effective. Without internal control in place, an organisation cannot function very well
Recommendation
it is imperative that companies should operate with effective internal control system. Moreso, they should try to observe the following for the internal control to have favourable impact on the company:
- Segregation of duties.
- Proper Authorization.
- Physical safeguarding.
- Proper/clear procedures.
- Rotations of duties.
References
- American Institute of Certified Public Accountant (2014) managing the business rock of fraud: A practice guide.
- Campion, Anita (2000). Improving Internal Control: A practical guide for Microfinance Institution, Washington D.C:Microfinance Networks & GTZ
- Churchill, C & Dan Coster (2001), Care microfinance Risk management Handbook. Washington D.C Care and post publications, Inc.
- Kcontz Heinz in (2008); Management, A Global and Entrepreneurial perspective, Tata: Mcaw Hill Publisher
- Marshall Corn C. (1998): How to Audit A Book: Boston; Berkers Publishing.
- Michael and Scarffer (2005): Local Government Accountability: Challenges and strategies: World Banks Decentralization thematic Group.
- OECD/SIGMA (2004): Assessment Report: Albanca Internal financial control www.sigmaweb.org
- PCAOB (2014): Auditing Standard: an audit of international control over financial reporting. Public company accounting oversight board.
- Razaee, 2 (2002): Financial statement fraud, prevention and detection.New York: wiley Books.
