THE ROLE OF INFORMATION TECHNOLOGY IN DEVELOPMENT OF AN EFFECTIVE INTERNAL CONTROL SYSTEMINTRODUCTION
1.1 BACKGROUND OF THE STUDY
Firms are essential building blocks of any nation’s growth and
development. As business units, it is natural for firms (no matter their
nature and form) to experience risks and opportunities. What determines
the survival rate of a firm is the set of mechanisms it has put in
place to help maximize opportunities and to nip deviations in the bud.
These set of mechanisms imprinted in an organizational system of operations is in auditing parlance called Internal Controls.
Thus in order to understand the role of information communication
technology in the development of an effective internal control system,
it is important to completely understand the concept of internal control
and its importance. Infact, according to COSO 2004, an effective
internal control system is a sine qua non for a reliable Enterprise Risk Management.
The International Auditing and Assurance Standards Board defines
internal control as, “the process designed, implemented, and maintained
by those charged with governance, management, and other personnel to
provide reasonable assurance about the achievement of an entity’s
objectives with regard to reliability of financial reporting,
effectiveness and efficiency of operations, and compliance with
applicable laws and regulations.” However, this definition is based on
the definition given by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
An enriched and broadened definition of internal control, taking into account some of the suggestions of IFAC’s Global Survey on Risk Management and Internal Control (2011),
would be: Internal control is an integrated part of an organization’s
governance system and risk management, which is understood, effected,
and actively monitored by the organization’s governing body, management,
and other personnel, to take advantage of opportunities and to counter
the threats, in line with risk management strategy and policies on
internal control set by the governing body to achieve an organization’s
objectives through, among other things:
? executing effective and efficient strategic and operational processes;
? providing useful information to internal and external users for timely and informed decision making;
? ensuring conformance with applicable laws and regulations, as well
as with the organization’s own policies, procedures, and guidelines;
? safeguarding the organization’s resources against loss, fraud, misuse, and damage; and
? safeguarding the availability, confidentiality, and integrity of the organization’s information systems, including IT
Even before the outbreak of the worldwide construction and mortgage
industry meltdown in 2009, huge efforts have been taken by countries all
over the world to ensure firms take necessary steps to set up an
effective internal control system. For example, The Public Company
Accounting Reform and Investor Protection Act (2002), otherwise
generally referred to as the Sarbanes-Oxley Act, (2002), introduced in
the United States, made it mandatory for management to initiate good
internal control and provide assessment of its effectiveness. By doing
this, regulatory bodies in various countries firmly believe that the
concept is very important for the ultimate survival of independent
business units and in turn the national economic system as a whole.
However, as it has been discovered after various researches, it is
not easy for a firm to successfully implement its’ internal control
system effectively. More so, in a construction industry which is quite
unique from other sectors of the economy, it becomes more difficult to
successfully implement the details of the inbuilt internal control
system in order to achieve the aforementioned objectives for setting up
an internal control system.
A typical construction process demands heavy exchange of data and
information between project participants on a daily basis (Maqsood et al.,
2004). This makes the construction industry one of the most
information-intensive industries, and requires close coordination among a
large number of specialized but interdependent organizations and
individuals to achieve the cost, time and quality goals of a
construction project (Toole, 2003).
Although construction firms have devised several means and inventions
to run an affective set of risk-minimizing mechanisms all to no perfect
results, with the rise of industrialization, construction firms have
found answers to internal audit problems in information technology
(Krishna M et al., 2011).
In fact, in regards to the specific nature of the construction
industry, ICT has been shown to be a vital tool in assisting the
construction industry to cope with the increasing complexity of its
products as well as the increasing demands of its clients and regulators
(Betts, 1999), and to enhance construction productivity (Liston et al., 2000).
It is also widely reported that the use of information and
communication technology (ICT) with properly defined structures and
communication interfaces has in the manufacturing industry, proved to be
an efficient tool that supports the integration of processes for
product development, production, materials supply, communication and
maintenance processes. As a result, the technology (ICT) has been widely
applied across many sectors to increase competitiveness and reduce cost
and is widely seen today as a vehicle to gain competitive advantage
((Marsh et al.2000; Earl, 1993).
More specifically, in relation to achieving an effective internal control system, Gunasekaran et al (2001),
reported that through the use of ICT on construction projects,
contractors can benefits from improved operational efficiency, improved
quality, reduced project time and cost and increase profit levels.
Similarly, Brown et al, (1996) cited that, downward cost pressures, time
specific nature of construction projects, increased specialization and
technical complexity of projects are major reasons that create demand
for ICT usage in the construction industry. This trend was also
recounted in Ozumba et al (2008) and hinted that, the use of
ICT has the potential to enhance both intra and extra site communication
including benefits such as enhanced data and material management and in
essence enhance overall site management processes.
Given the significant role of an effective internal control system in
the performance of an organization – especially construction firms,
this study seeks to investigate the role of Information Technology in
achieving this goal- an effective internal control system.
1.2 STATEMENT OF THE PROBLEM
From the background information provided, it is evident that the
presence of an effective internal control system is needed in order to
achieve the goals of starting a business. However, a firm faces a lot of
challenges in implementing this required set of mechanisms. A firm
which refuses to surmount these challenges will found itself in deep
abyss. As succinctly supported by Pickett (2005: 86) thus:
“Poor controls lead to losses, scandals; failures and damage to
the reputation of organisations in whatever sector they are from. Where
risks are allowed to run wild and new ventures are undertaken without a
means of controlling risk, there are likely to be problems”
In helping to solve these challenges in setting up an effective
internal control system it has been observed that Information Technology
has a huge role to play in developing an effective internal control
system. This is not to say that the usage of Information Technology in
the construction industry is not without its attendant problems.
This research study will therefore seek to highlight the various
challenges faced by construction firms in Lagos in achieving an
effective internal control system and the role of Information technology
in countering these challenges and in turn leading to emergence of an
effective internal control system.
1.3 AIM AND OBJECTIVES OF THE STUDY
The aim of this study is to identify the roles of information
technology in the development of an effective internal control system.
In consideration to the problems identified above, the objectives of this research are to:
i. To evaluate the importance of information technology in internal control system of a business.
ii. Highlight the various levels through which Information technology
has been used in developing an effective internal control system in a
typical construction firm in Lagos.
iii. Evaluate the response and reactions of construction firms to the usage of Information technology
iv. Identify ways of increasing the usage of Information technology in the internal control processes of construction firms.
1.4 SIGNIFICANCE OF THE STUDY
This study is significant due to the weighty effect of the internal
control system on survival of the construction firms – significant
entities in the development of the nation
The benefits to be accrued on the completion of this study are:
a. To serve as a reference for the evaluation of the benefits and
challenges of using Information Technology in the development of an
effective internal control system
b. To serve a ready source of information for governmental and
quality-control entities seeking to promote the best practices in the
formation of a standard construction industry.
c. To serve as a foundation for future studies into the application
of Information technology in the construction industry as a whole.
This study is intended to provide answers to the research questions
listed below in order to achieve the previously listed objectives
1. What is the importance of information technology in internal control system of a business?
2. What are the various levels through which Information technology
is being used in developing an effective internal control system in a
typical construction firm in Lagos?
3. What have been the responses and reactions of construction firms to the usage of information technology?
4. What processes have to be put in place in order to increase the
usage of ICT in the internal control processes of construction firms?
The research proposition will be developed from the research
objectives. The proposition is to be evaluated by analyzing data
collected from questionnaire shared.
Null hypothesis (H0): Information Technology is not useful in the
development of an effective internal control system in construction
firms in Lagos.
Alternate hypothesis (H1): Information Technology is useful in the
development of an effective internal control system in construction
firms in Lagos.
1.7SCOPE AND LIMITATION OF THE STUDY
This research focuses on Information and Communications Technology
(ICT) and its role in the development of an effective internal control
For this purpose, the study is restricted to only construction firms
in Lagos. This is because not only does construction firms represent a
huge percentage of the total product market in an economy, Lagos as the
commercial center of Nigeria gives an representative view of what is the
standard in other parts of the country. (Oduwaye, 2013)
Other constraints that are to be anticipated in the course of this
study are: shortage of time and finance, bureaucracy, uncooperative
attitude of respondents, inaccessibility of respondents.
However, despite all the aforementioned limitations, the researcher
shall try as much as it is possible to carry out an error free research
and present useful conclusions which would be relevant.
1.8 ORGANIZATION OF THE STUDY
The study consists of five chapters. Chapterone being the first
chapter gives an introduction to the study. It also gives the reasons
why the study is embarked upon as well as highlighting the scope and
limitations of the study.
Chapter two takes care of the general review of existing scholarly
literatures. It also covers the explanation of relevant theories.
Chapter three covers the research methodology taking into account the
research design, sampling procedure, data collection instrument and its
validation as well as statistical tools. Chapter Four presents data
gathered and make an analysis as to how the results are produced in a
coherent form. The Last chapter being chapter five discusses findings,
makes recommendation and concludes the study.
1.9 DEFINITION OF TERMS
Investopedia.com defines Internal Audit as the examination,
monitoring and analysis of activities related to a company's operation,
including its business structure, employee behavior and information
systems. An internal audit is designed to review what a company is doing
in order to identify potential threats to the organization's health and
profitability, and to make suggestions for mitigating the risk
associated with those threats in order to minimize costs.
Also, IIA (Institute of Internal Auditors) defines Internal Audit as
an independent, objective assurance and consulting activity designed to
add value and improve an organization's operations. It helps an
organization accomplish its objectives by bringing a systematic,
disciplined approach to evaluate and improve the effectiveness of risk
management, control, and governance processes
INTERNAL CONTROL SYSTEM
According to the sawyer’s guide for internal auditors, internal control is
defined in accounting and auditing, is a process for assuring
achievement of an organization's objectives in
operational effectiveness and efficiency, reliable financial reporting,
and compliance with laws, regulations and policies. A broad concept,
internal control involves everything that controls risks to an
THE CONSTRUCTION INDUSTRY
According to the Standard Industrial Classification, The construction
industry is a branch of manufacture and trade based on the building,
maintaining, and repairing structures. To put it more succinctly, the
construction industry involves among other features:
- The construction or erection of a building or structure that is
or is to be fixed to the ground and wholly or partially fabricated
- The construction, erection, installation, extension, alteration or
dismantling of a transmission or distribution line, or plant, plant
facility or equipment used in connection with the supply of electricity;
or an air-conditioning, ventilation or refrigeration system
- The alteration, maintenance, repair or demolition of any building or
structure, excluding electrical or metal trades maintenance or repair
INFORMATION AND COMMUNICATION TECHNOLOGY
Techopedia defines Information and communications technology (ICT) as
the technology used to handle telecommunications, broadcast media,
intelligent building management systems, audiovisual processing and
transmission systems, and network-based control and monitoring
functions. ICT tools are developed mainly to
The phrase -ICT was coined byStevenson inhis 1997 report to the UK
Government and promoted by the new National Curriculum documents for the
UK in 2000. In addition to the concepts included in Information
Technology (IT), ICT encompasses areas such as telephony, broadcast
media and all types of audio and video processing and transmission.