The Impact of Internal Control System on Organizational Effectiveness and Efficiency
CHAPTER ONE
Objective Of The Study
The main objective of this research study is to examine the impact of internal control system on organizational effectiveness and efficiency. (A survey of Business and Government organizations in Makurdi). Apart from the main objective, the research also sets out to achieve some specific objectives which are;
- To examine the various component of internal control system.
- To determine the impact of internal control system on organizational effectiveness and efficiency.
- To know the effect of the internal control in monitoring compliance.
- To critically examine how effective the internal control has been used to reduce the level of risks.
- To ascertain how useful is internal control to organizational effectiveness and efficiency.
- To recommend ways by which internal control can be used effectively so as to achieve the organizational goal.
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
The chapter takes a critical look on the nature and circumstance of internal control, the review of related literature in a research study is a search for the discovery of existing information on a given research problem. It sets the current research into perspective to show “the state of the art” a literature review must be done in a con text of the research problem. In this study, related literature that highlight properly internal control system will be reviewed to enable and enhance our understanding of the research work so that the intended aims and objectives of the research can be met.
INTERNAL CONTROL
The United Kingdom Auditing practices committee (1979) defined internal control as “the whole system of control, financial and otherwise established by management in order to carry on the business of the enterprise in an orderly band effective manner to ensure adherence to managerial policies and directives, safeguard the assets and ensure as far as possible the completeness and accuracy of the records the prevention and detection of errors the fraud ,and the timely preparation of financial information” According to statement of accounting standards, (SAS) internal control is the combined plan, method and procedures which can safeguard the firm’s assets promote operational efficiency and encourage adherence to prescribed policies.” Also according to Robertson and Davis (1988:169) “internal control system is a set of client procedures both computerized and manual imposed on the accounting system for the purpose of preventing, detecting and correcting errors and irregularities that might enter the system and thereby affect the firm’s financial statement. The SAS (statement of accounting standard) further explains that internal control maybe categorized as either accounting or administrative controls. Accounting control is concerned with the plan of the organization and all the co- coordinated methods and procedures which are implemented with a view of safeguarding assets and enhancing reliability of financial records. An administrative control comprises of the plan of the organization and all co-ordinates methods and procedures that are concerned with operatically efficiency an adherence to management policies and directives. This is also known as operational controls.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
In this chapter, we would describe how the study was carried out.
Research design
Research design is a detailed outline of how an investigation took place. It entails how data is collected, the data collection tools used and the mode of analyzing data collected (Cooper & Schindler (2006). This study used a descriptive research design. Gill and Johnson (2002) state that a descriptive design looks at particular characteristics of a specific population of subjects, at a particular point in time or at different times for comparative purposes. The choice of a survey design for this study was deemed appropriate as Mugenda and Mugenda (2003) attest that it enables the researcher to determine the nature of prevailing conditions without manipulating the subjects.
Further, the survey method was useful in describing the characteristics of a large population and no other method of observation can provide this general capability. On the other hand, since the time duration to complete the research project was limited, the survey method was a cost effective way to gather information from a large group of people within a short time. The survey design made feasible very large samples and thus making the results statistically significant even when analyzing multiple variables. It allowed for many questions to be asked about a given topic giving considerable flexibility to the analysis. Usually, high reliability is easy to obtain by presenting all subjects with a standardized stimulus; observer subjectivity is greatly eliminated. Cooper and Schindler (2006) assert that the results of a survey can be easily generalized to the entire population..
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter is about the analysis and presentation of data collected from the field through questionnaire. The analysis of the data with particular question immediately followed by the presentation of findings.
As mentioned in chapter three, 50 questionnaires were administered and 50 were retrieved and necessary analysis was carried out on them and presented as follows:
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Introduction
This chapter presents a summary, conclusion and recommendations of the findings and end with areas of further research.
summary of major findings
The study investigates the Impact of internal control system on organizational effectiveness and efficiency. The hypotheses indicate that there is significant relationship between internal control and organizational performance. The findings result shows that internal control contribute to organizational performance; the result revealed that the calculated t-statistics for the parameter estimates is (t = 3.653), P < 0.01 which is greater than tabulated t statistics (1.9960) at 0.01 level of significance. Therefore, the Null hypothesis is rejected and Alternative hypothesis is accepted, that is there is significant relationship between internal control system and organizational performance of Ecobank Nigeria Plc.
This studies received support by Coopers and Lybrand (1993) who argued that there was need to consider whether the following control objectives are met; management conveys the message that integrity and ethical cannot be compromised, the organization structure provides a moral framework for planning, directing, and controlling operations, management ensures that appropriate responsibility and delegation of authority is assigned to deal with goals and objectives and the Board of Directors and audit committee are sufficiently independent from management to construct a challenge to management decision and take an active role in ensuring that an appropriate “tone at the top exists”. The findings revealed a low level of organizational performance in ECOBANK Plc. Findings are in agreement with studies by Brown (1996) who argues that performance measures in organizations must focus attention on what makes, identifies and communicates the drivers of success, support organizations learning and provide a basis for assessment and reward. Furthermore, Dixion (1990) adds that appropriate performance measures are those which enable organizations to direct their actions towards achieving their strategic objectives. This is because according to him a firm’s performance is central to the future well being and prosperity of any enterprise.
The results in the table above indicate a significant positive relationship between internal controls and organizational performance of ECOBANK PLC Also with the value of R in the model it shows that there is significant relationship between the dependent variable and independent variable at 0.01 level of significant (r = .063,P < 0.01). The overall regression model is statistically significant in term of its goodness of fit (F = 13.346, P < 0.01). These findings, relate well with previous studies by Coso (1992) who provided a criteria against which effectiveness of internal controls can be assessed. He contends that internal control can be judged effective if the entity’s operations objectives are being achieved; published financial statements are being prepared, reliable and applicable laws and regulations are being complied with. While internal control is a process, its effectiveness is a state or condition of the process at a point in time. Accordingly, the effective functioning of components of internal control provides a reasonable assurance regarding achievement of one or more of the stated categories of objectives to ensure high levels of organizational performance.
Conclusion
From the findings, it is concluded that; the findings shows the overall regression model which is statistically significant in term of its goodness of fit that is there is a significant relationship between internal control system and organizational performance of Ecobank Plc.
The following conclusions were made from the investigation carried out to evaluate The Impact of internal control system on organizational effectiveness and efficiency:
There are internal control departments in all banks in Nigeria, but In Ecobank Nigeria Plc the department is headed by very senior officers not below the rank of Assistant General Manager. The responsibility of Internal Control is strictly that of the management and the internal control officer reports to the highest level of management. The presence of Internal Control system in the banks has provided reasonable assurance regarding the effectiveness and efficiency of operations of banks in Nigeria, the reliability of financial and management reporting and guarantees compliance with applicable laws and regulations. The banks rely heavily on the internal control system on the implementation of policies and procedures. The study revealed that reliance can be placed on the internal control system of banks in Nigeria.
We can conclude further from the study that there exists a high positive correlation between internal controls an organizational performance. Though controls were observed to be generally effective, there were some lapses noted in the area of asset numbering.
On the issue of segregation of duties, the research shows that the duties of all staff are dully segregated so that no one staff carries one transaction from the commencement to conclusion. Practice of good corporate governance by this bank is not yet at its best, they can still do better.
Recommendations
A system of effective controls is a critical component of bank management and a foundation for the safe and sound operation of banking organizations. A system of strong internal controls can help to ensure that the goals and objectives of a banking organization are met, that the bank will achieve long-term Profitability targets, and maintain reliable financial and managerial reporting. Such a system can also help to ensure that the bank will comply with laws and regulations as well as policies, plans, internal rules and procedures, and decrease the risk of unexpected losses or damage to the bank’s reputation. The following recommendations are proffered for tackling the deficiencies noted in the findings from the study. These are aimed at improving the internal control system of banks in Nigeria.
- To examine the effectiveness of internal controls used in ECOBANK Plc, the management of ECOBANK Plc should design more effective internal control systems by ensuring that adequate asset listings is done by management, capital assets purchased are approved by appropriate level of management and asset numbering is done to show location and protection of the assets.
- To establish the level of performance in ECOBANK Plc, the management of ECOBANK Plc should ensure that it strengthens strategies aimed at improving organizational performance in all categories of staff and this should continuously be used to ensure that performance levels are satisfactory.
- To establish a relationship between internal control and performance in ECOBANK Plc, the management of ECOBANK Plc should appreciate these findings on the relationship between internal controls and organizational performance to ensure its continued production in a competitive industry in Nigeria banking industry.
- Application of latest Audit software’s that will be able to break all transactions. Without mincing words, the banking industry in Nigeria is technologically driven and the technology is changing at a very fast rate. While the banks are upgrading their operational systems technologically, they should also upgrade the technological aspect of the Internal Control. This will help to fight all forms of electronic frauds including hacking, skimmers, Phishing, Trojan horse.
- As the system is being improved the staff should also be trained to cope with the latest technologies and the challenges of the job. Both in-house and external training should be arranged for the staff of the department.
- Staff of the Internal Control department should be adequately remunerated. They bear high level of risk. Most people look at them as the police of the organization and therefore they are always at threat. It is unfortunate that most banks pay greater attention to marketing at the detriment of Internal Control consequently marketing officers are most rewarded. And Internal Control staffs are often regarded as non-contributive staff. This notion is wrong because a single fraud that goes undetected can write-off the fortune of the bank. Therefore Internal Control staff should be duly motivated to put in their best. In view of the undeniable importance of internal control system in an establishment such as bank, the management should not allow itself to be mis-directed by the criticisms that are leveled against the internal control system, for instance, control not being cost effective among others. They should note that there is a great need for the presence of an effective internal control system in the banks. According to J. Santocki, poor internal control system or total absence of it, will lead to a chaotic situation in the company and this will lead to errors and fraud, unreliable and inaccurate record keeping and an eventual liquidation of the company.
- The board of directors should have responsibility for approving and periodically reviewing the overall business strategies and significant policies of the bank; understanding the major risks run by the bank, setting acceptable levels for these risks and ensuring that senior management takes the steps necessary to identify, measure, monitor and control these risks; approving the organizational structure; and ensuring that senior management is monitoring the effectiveness of the internal control system.
Areas for further research
The study did not exhaust all the dependent variables that influence organizational performance thus the need for other researchers to conduct an exhaustive study on variables under listed.
Corporate governance and organizational performance
Employee incentive and organizational performance
Motivation, training, morale and organizational performance
Employee motivation and organizational performance
Organizational learning and organizational performance
Consumer behavior and organizational performance
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