ABSTRACT
The objective of this study was to evaluate the internal control system in operation at power holding company of Nigeria Plc in Enugu State with a view to knowing its impact on revenue generation in the state. A sample of 40 was selected for the study randomly. The questionnaires were used in gathering the primary data while secondary data were collected from the work of others in the form of literature review. The data collected were analyzed using the chi-square (x2) as the statistical tool to determine the valuation of the hypothesis. The findings concluded that weak internal control system encourages collusion fraud loss of revenue, embezzlement and computation. This have always impeded the company’s ability to effectively supply electricity to customers and there from generate revenue. Internal audit system ensures operations compliance with set policies, promoting accuracy and reliability of transactions recording. In addition, effective internal control system ensure effective recommends the remodeling of the company’s internal control system and strengthening of the investigating unit. The components sectors of the present corporate Power Holding Company of Nigeria PLC should be unbundled into separate distinct independent entities that handle generation, transmission, distribution and marketing. It further recommends that prepaid meters should be seen as an alternative to further accumulate debts.
CHAPTER ONE
INTRODUCTION
1.0. BACKGROUND OF THE STUDY
Every organization has a purpose, which includes making some product
and rendering some services at a price. For normal operations of the
business organization, it is the product or services of the firm that
cause cash receipts (revenue) to flow into the firm. Revenue is
associated with products or service of a firm as source of expected cash
receipts. Revenue is an event; an increase that applies definitely to
value that is monetary. This increase occurs because the firm undertakes
certain activities or there is any performance by the firm.
Revenue therefore refers to the monetary event of asset valves
increasing in the firm due to the physical event of production or sales
of the firms’ products or services.
In Kam (1987:237), Financial Accounting Standard Board(FASB) defines
revenue as inflows or other enhancements of assets of an entity or
settlements of its liabilities (or combination of both) during a period
from delivery or producing goods, rendering service or other activities
that constitutes the entity’s ongoing major or central operations. In
addition, Hongreen et al (2002:568) described revenue as inflows of
asset (almost always cash or accounts receivables) received for products
or services provided to customers.
On the basis of the above, National Electric Power Authority now
Power Holding Company of Nigeria is a government owned public utility
establishment enjoying almost total monopoly in generating, transmitting
and delivering electricity to all homes and businesses in Nigeria.
According to the establishments customer service chartered (2004), her
mission as a service industry is to satisfactorily meet customers
electricity demand in the most cost effective manner using proven
technology and well motivated customer friendly work force with adequate
consideration for the environment.
Her goals include:
I. To continuously improve her service to her customer.
II. To realize full payment for timely accurate and complete billing of electricity delivered.
III. Institutionalise business and commercial orientation among the work force.
IV. Gradually aiming at closing the gap between demand and
supply by upgrading and expanding, generating, transmission and
distribution of infrastructure.
V. To improve skills and motivation of staff.
To achieve the above mission and goals, the management of the
establishment must adopt measures to ensure that available resources are
prudently used to obtain valve for money from resources allocated to
them. Management in turn should generate operational data with which
they evaluate the efficiency and effectiveness of their operation. It is
fundament aspect of management stewardship responsibility to provide
interested parties with reasonable assurance that their organisation is
effectively controlled and that the accounting data it receives on a
timely basis are accurate and dependable. Developing a strong system of
internal control provides this assurance.
Thus internal control is defined as the whole system of control,
financial and otherwise established by the management in order to carry
on the business of the enterprise in an orderly and efficient manner to
ensure adherence to management policies safeguard the assets and secure
as far as possible the completeness and accuracy of the records. In
addition the American institute of Certified Public Accountants in 1949
defined internal control as comprising the plan of organisation and all
the coordinate methods and measures adopted within a business (or non
profit making body) to safeguard its assets, check the accuracy and
reliability of its accounting data promote operational efficiency and
encourage adherence to prescribed managerial policies. A ‘system’ of
internal control extends beyond those matters which relate directly to
the functions of the accounting and financial department.
However, it is an established fact that all the business units and
service centre of power holding company of Nigerian plc in Enugu state
are often plagued by accounting and administrative control problems as
it affect revenue generation and other assets. As a result the
establishment revenue base has assumed a downward trend.
It has also been shown that despite considerable investment, public
service delivery by the establishment is widely perceived to be
unsatisfactory and deteriorating from bad to worse.
The complete dependence on capital grants allocation from government
is also known. What is not known is the degree to which internal control
weaknesses and reduced allocation from government contribute to the
problem.
The incidence of internal control weaknesses unsatisfactory and
deteriorating service delivery have the undesired effect of not only
weakening the establishment’s ability to provide electricity supply
effectively, but also encourages collusion, fraud, asset conversion,
genuine and deliberate mistakes, corruption, lack of transparency and
accountability for revenue collection and accountability for revenue
collection and other assets. For the enhancement of the attainment of
the mission and goals, it is therefore necessary that these hindrances
be removed. It is against the above background and evaluate that this
research carried out to examine and evaluate the internal control system
in operation at holding company of Nigeria in Enugu state.
1.1 STATEMENT OF PROBLEM
The incidence of internal control weaknesses, unsatisfactory and
deteriorating service delivery have the undesired effect of not only
weakening the company’s ability to effectively provide electricity
supply but also encourages collusion, fraud, embezzlements, loss of cash
(revenue), assets conversion genuine and deliberate mistakes,
corruption, lack of transparency and accountability for revenue
collection and other assets. Despite considerable investment, public
service delivery is unsatisfactory and degenerating. The company is not
able to break even and sustain itself from the revenue obtained there
from. This impacts so negatively on the company’s existence.
For the enhancement of the attainment of the mission and goals of the
company, it is therefore necessary that these hindrances be removed.
The management of the company should familiarize themselves with
internal control procedures that will ensure effective service delivery
and the desired revenue generation.
Unfortunately, there has a dearth of adequate information in this
regard. No determined effort has been made to investigate the problem of
weak internal control over service delivery and revenue generation.
Therefore the main motivating factor underlying this study is the desire
to break new grounds with the intent of shedding more light on this
problem and seeking avenues for solving it.
Thus, the purpose of this study is to examine and evaluate the
internal control system in operation at power holding company of Nigeria
in Enugu state with a view of knowing its impact on revenue generation
in the state.
1.2 OBJECTIVES OF THE STUDY
The main objective of this study is to evaluate, the internal control
system in operations at power holding company of Nigeria in Enugu
state.
Other objectives of the study are:
I. To examine the types and techniques of internal
control system for revenue generation adopted by Power Holding Company
of Nigeria in Enugu state.
II. To determine the impact of internal control system on revenue generation.
III. To identify the strengths and weaknesses of the
system of internal control in all departments in power holding company
of Nigeria in Enugu state.
1.3 SIGNIFICANCE OF THE STUDY
This study is significant for the following reasons:
i. These studies will highlight the accounting and
administrative control problems plaguing power holding company of
Nigeria in Enugu state.
ii. It will enable managers of services, organizations
and government owned public utility establishments to bring the
accounting and the internal control procedures inherent in them in
conformity with internal accounting standards and practises.
iii. It will help government owned establishments to
assess then internal control measures and make amends where necessary.
iv. The study could arouse further research into some
other further research into some other functional areas in the company
by students and accountants. It will also help to broaden (my)
researchers’ knowledge.
1.4 SCOPE AND LIMITATION OF THE STUDY
Although the study was to evaluate the internal control system in
operation at power holding company of Nigeria in Enugu state, to ensure
accurate and reliable data collection it was limited to the study of the
internal control measures at the Enugu district unit of power holding
company of Nigeria plc. This covers internal control as it affects
revenue generation (handling of cash) assets control administrative
control and manpower control as well.
The researcher due to the following could not take a wider range of study:
i. Inability to have access to some relevant documents from the officials in the company.
ii. Financial and time constraint, which confined the researcher to only Enugu destruct unit.
1.5 RESEARCH HYPOTHESIS
Based on the objectives of this study the following null and alternative hypotheses were developed.
Ho1`: Effective internal control does not ensure effective service delivery and desired revenue generation.
HA1: Effective internal control system ensures effective service delivery and desired revenue generation.
Ho2; Weak internal control system does not encourage collusion,
fraud, embezzlement, loss of revenue, assets conversion and computation
in power holding company of Nigeria.
HA2: Weak internal control system encourages collusion, fraud,
embezzlement, and loss of revenue, assets conversion and computation in
power holding company of Nigeria.
1.6. RESEARCH QUESTIONS
The following are a few of the questions, which were asked in the questionnaire in the carrying out of this research work.
1. Does the internal audit system ensure that operations
comply with set policies and promote accuracy and reliability of
transactions?
2. Are internal /external auditors independent of those whose functions they appraise?
3. Based on the evaluation of the internal control system, is it effective and efficient?
4. Is the accounting and operational routine sit out in an accounting Manuel?
1.7. HISTORICAL BACKGROUND OF NATIONAL ELECTRIC POWER AUTHORITY (NOW POWER HOLDING COMPANY OF NIGERIA)
National Electric Power Authority was established by Decree No.24 of
1st April 1972 with the amalgamation of the Electricity Corporation of
Nigeria (ECN) and the Niger Dam Authority (NDA). Electricity Corporation
of Nigeria was the brainchild of the 1960 independence in Nigeria
whereas the Niger Dam Authority existed and was the source of power
during the colonial era.
National Electric Power Authority was empowered to maintain an
efficient, coordinated and economic system of electricity supply to all
channels of the nation.
ENUGU DISTRICT BUSINESS UNIT OF POWER HOLDING COMPANY OF NIGERIA IN ENUGU STATE.
Following the unbundling of NEPA into 18 successor companies in
tandem with the Electric Power Sector Reform (EPSR) Act 2005. Enugu
Electricity Distribution company plc is one of the 18 companies that
emerged from power holding company of Nigeria seguel to the on-going
power sector reform.
Enugu Electricity Distribution Company is among the eleven
electricity distribution-marketing companies in Nigerian. The corporate
Affairs Commission registers it under the Nigeria Law. The company was
granted operational License in 2006 by the Nigerian Electricity
Regulatory Commission (NERC).
It has 14 business districts. It is in charge of 5 states in south
east geopolitical zone namely Abia, Anambra, Ebonyi, Enugu and Imo
state. The registered office is okpara Avenue PMB 01287 Enugu.
The day-to-day administration of the company and formulation policies
rests on the shoulders of the (CEO) Chief Executive Officer. The Chief
Executive Officer is ably assisted by Department heads (Assistant
general managers) that are in charge of various departments. The
departments include technical services customers, human resources and
administrative, finance and accounts, audit public affairs and legal.
The business is overseen by business managers who routinely report to
the chief executive officer all this are to help facilitate prompt
attention to customer issues and distribution of power.
1.8. DEFINITION OF TERMS
REVENUE: This describes the amount of money a company generates in a
set period of time through the sale of products or services.
INTERNAL CONTROL SYSTEM: This is the whole system of control,
financial and otherwise established by the management in order to carry
on the business of the enterprise in an order to carry on the business
of the enterprise in an orderly and efficient manner.
AUDITING: An activity earned on by the auditor when he verifies or
examines accounting information determines the accuracy and reliability
of the accounting statement and reports and then expresses his opinion.
CONTROL ACTIVITIES: Policies and procedures that management has established
AUDIT: An independent examination of and the subsequent expression of opinion upon the financial statements of an organization.
INTERNAL CHECK: This is the allocation of authority and work in such a
manner as to afford checks as the routine transactions of day to day
work by means of the work of one person are being proved independently
by another or the work of a person being complementary to that of
another.