CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF STUDY
According to Oxford Learners Dictionary, Organization can be said to
be a group of people who form a business, club etc. together in order to
achieve a particular aim. It can also mean two or more people getting
together for a purpose. In getting together, they decide to interact
with one another to achieve the objectives of the organization (Unamka
& Ewurum, 1995:1)
When we discuss organization, we have variclasses among which are
service organization and social organization etc. All these
organizations have in mind the aim of continuing if not for eternity, a
given period of time. (Unamka & Ewurum, 1995 1, 2, 3)
For an organization to carry on its business there must be some
factors put in place for the smooth running of the organization
management, man-power, materials, money and machines. These need to be
well coordinated in order for the success of the organization to be
achieved. They are used by a group of persons known as management;
neither can management exist without organization- the two are
inseparable twin. (Unamka &Ewurum, 1995:65)
Good management weaves together the various parts of organization so
that all factors function as a united body. Management refers to the
group of executives or officials of a company who directs efforts
towards common objectives by using available resources (Unamka &
Ewurum, 1995:66) management can also be said to be a process of
planning, organization to have an intergrated system that will aid the
achievement of organization objectives (Musselman & Hughes, 1981)
Effective management leads to purposeful, well coordinated, goal
oriented and goal directed activities. As earlier social organizations
have in mind “CONTINUITY” and “SURVIVAL” as they are being run for an
organization to survive and continue existing without going bankrupt, or
said to be illiquid, i.e. being its inability to meet up with its
responsibilities as and when due, it must ensure the safty of its
assets, cash and also the accuracy and reliability of its records, it
should ensure that it institutes a system of control, strong enough to
ensure such. This system is what is known as INTERNAL CONTROL SYSTEM.
According to WIKIPEDIA, the free encyclopedia, in accounting and
organization theory, INTERNAL CONTROL is defined as a process effected
by an organization’s people and information technology (I.T) system,
designed to help the organization accomplish specific goals or
objectives. It is a means by which an organization’s resources are
directed, monitored and measured. It plays an important role in
preventing and detecting fraud and protecting the organization’s
resources both physical (e.g. machinery and property) and intangible
(e.g. Reputation and intellectual property such as trade marks) the
organizational level, internal co9ntrol objectives relate to the
reliability of financial reporting; timely feedback on the achievements
of operational or strategic goals and compliance with laws and
regulations. At the specific transaction level, internal control refers
to the actions taken to achieve a specific objective (e.g. how to ensure
the organization payments to third parties are for valid services
rendered)
There are also a variety of definitions of internal control as it
affects a variety of constituencies (stakeholders) of an organization in
various ways.
Under the committee of sponsoring organization (COSO) internal
control- integrated framework, a widely-used frame work in the United
States, internal control is broadly defined as a process effected by an
entity’s board of directors, management and other personnel, designed to
provide reasonable assurance regarding the achievement of objectives in
the following categories: Effectiveness and Efficiency of operations;
Reliability of financial reporting; and compliance with laws and
regulations.
According to Millichamp(2002:85), internal control system is defined
as the whole system of controls, financial and otherwise, established by
the management in order to carry on the business of the enterprise in
an orderly and efficient manner, ensure adherence and management
policies, safeguard the assets and secure as far as possible the
completeness and accuracy of the records. Internal controls are to be an
integral part of an organization’s financial business policies and
procedures. Internal control consists of all the measures taken by the
organization for the purpose of protecting its resources against waste,
fraud and inefficiency, ensuring accuracy and reliability in accounting
and operating data, securing compliance with the policies of the
organization and evaluating the level of performance in all
organizational units of the organization. Internal controls are simply
good business practices.
Internal control according to Osita(2002:106) is the whole system of
controls, financial or otherwise, established by management in order to
secure as far as possible, the accuracy and reliability of the records,
run the business in an orderly manner and safeguard the company’s
assets, its objectives being the prevention or early detection of
fraud and errors. It may include internal auditing.
Everyone within the organization has some roles in internal controls.
The roles vary depending upon the level of responsibility and the
nature of involvement by the individual. The Kansas Board of regents,
president and senior executives established the presence of integrity,
ethics, competence and a positive control environment. The director and
department heads have oversight responsibility for internal controls
within their units. Managers and supervisory personnel are responsible
for executing control policies and procedures at the detail level within
their specific unit. Each individual within a unit is to be cognizant
of proper internal control procedures associated with their job
responsibilities.
The internal audit role is to examine the adequacy and effectiveness
of the organization internal controls and make recommendations where
control improvements are needed. Since internal auditing is to remain
independent and objective, the internal audit office does not have the
primary responsibility for establishing or maintaining internal
controls. However, the effectiveness of the internal controls are
enhanced through the reviews performed and recommendations made by
internal auditing.
The institution of internal control system is an organization is not
without a purpose; these purposes will be discussed later in this
sturdy. One of such is to ensure that the organization survives,
continue to exist, grows, become vibrant in whatever environment it
might be existing or located. It is against this background that this
sturdy seeks to unveil and look at the place, importance and inevitable
nature of internal control system on the survival and growth of an
organization.
1.2 STATEMENT OF PROBLEMS
When we refer to internal control system, we talk of a system which
will enable an organization achieve its objectives, we talk of a system
which is very important to the existence of an organization, we talk of a
system which will forestall the perpetration of acts that can act as a
clog in the wheel to the success of an organization. This system is an
all round system, that is to say, it encompasses both financial and
non-financial control in realizing the goals and objectives of running
the organization in an orderly manner, safeguarding the assets of the
organization and also ensuring the accuracy and reliability of the
organization’s records.
We might not really understand the impact of internal control system
on an organization’s performance until probably, we run an organization
void of internal control system. The non-institution of internal control
system in an organization is detrimental to the continual growth and
survival of that organization. Non institution of internal control
system in an organization result in improper keeping of records which
could lead to the late preparation of accounts, doctoring of books of
accounts, misappropriation of funds which are meant to be used for
planning, decision making etc. illegal transactions being transacted,
pilferage, misuse of fixed assets etc. improper keeping of records can
also lead to inability to ascertain the organization’s actual assets;
goods in stock, which could breed pilfering.
Lack of proper record keeping, controlling of proceedings or actions
in an organization could lead to concealing of errors and fraud that
might crop-up to bring down an organization.
The non-institution of internal control system could lead to
inability of the organization to make proper decisions and plan ahead
effectively. When an organization fails to plan, definitely it will
forestall the growth of the organization; make the organization to start
dwindling and struggling for survival, which will then bring the
organization to an end.
1.3 OBJECTIVES OF STUDY
As earlier said that this sturdy of internal control is not without
objectives and as such we shall see some of the objectives for the
institution of internal control system in an organization. The
objectives of this sturdy are:
- To ascertain the extent to which fraud and errors can be prevented or detected early.
- Highlight areas of under performance, weakness and specific failures
connected to internal control system in order that corrections may be
effected for performance to improve.
HYPOTHESIS AND RESEARCH QUESTIONS
1.4 RESEARCH QUESTIONS
- Does record keeping aid the proper running of business?
- Does segregation of duties aid averting errors and fraud?
- Does your organization carry out internal check or vouching?
- Are your fixed assets used for other business outside your normal business?
- In what ways does internal control affect the survival and growth of an organization?
1.5 RESEARCH HYPOTHESIS
There are no significant relationships between internal controls and the orderly and efficient running of an organization.
There exist significant relationship between internal controls and the orderly and efficient of an organization.
1.6 SCOPE AND LIMITATION OF STUDY.
SCOPE OF STUDY
This sturdy of internal control system in public organization shall
cover the use of controls at ensuring that orderly efficient manner of
carrying on business, adherence to management policies, safeguarding of
assets and receiving as far as possible the completeness and accuracy of
the records in public organization, power holding company of Nigeria
(PHCN). The scope of this sturdy is centered on PHCN, Okpara Avenue,
Enugu.
LIMITATION OF THE STUDY.
In the cause of this research, there were some hitches that were
encountered. These hitches have in one way or the other, directly or
indirectly caused some limitation in the research work. Some of these
limitations encountered were;
- Funds needed to conduct in-depth study.
- Insufficient time.
- Non-availability of required documents.
- The respondent being reluctant in answering some questions.
1.7 DEFINITION OF TERMS
ERROR: A mistake, especially one that causes problems or affects the result of something.
PILFERAGE: Relates to stealing things of little value or in small quantities especially from the place where one works.
FRAUD: the crime of deceiving somebody in order to get money or goods illegally.
VOUCHING: This is comparing the original documents with the entries made in the books.
MANIPULATE: To control or influence somebody or somebody or something, often in a dishonest way that they do not realize it.