THE IMPACT OF A GOOD INTERNAL CONTROL SYSTEM ON FINANCIAL MANAGEMENT OF ORGANIZATION
The impact of a Good internal control system on the financial management of organization can not be over emphasized. This is because internal control is the bedrock of any organization that wants continuity in the existence of the organization.
Owing to the above reason, awareness on the need for internal control system in organization becomes the vital inducing factor for this project work
However, arousal of students and potential readers interest on the significance of internal control system be come the secondary objective of this work. This will go a long way in safeguarding and managing efficiently the fiancée or fund for running the organization for profit maximization by the management.
Dart for this research h work will be obtained through administering questionnaire through oral interview to the senior staff which critical analysis follows.
Regrettably however, the quest for information will be hindered by time and money factors. Lecture will be going on in the class, resource are scarce to travel wide and collect more information which would enable the researcher to write extensively on the topic.
In conclusion therefore, the researcher will suggest that the impact of a good internal control system when applied, will help a business in profit planning, decision making and forecasting.
1.1 General Introduction
1.2 Statement Of Problem
1.3 Purpose Of Study
1.4 Significance Of The Study
1.5 Scope And Limitation Of The Study
1.6 Formulation Of Hypothesis
1.7 Definition Of Terms
2.0 Literature Reivew
2.2 What Is Internal Control
2.3 Types Of Internal Control
2.4 Overview Of Internal Control System
2.5 Element Of A Good Internal Control System
2.6 Stages Of Internal Audit Planning
2.7 Problems Of Internal Control System
2.8 Internal Check
2.9 Ways By Which Organization Mangoes Its Scare Fund
3.0 Research Design And Methodolgy
3.1 Area Of Coverage
3.2 Data Source
3.3 Questionnaire Design
3.4 Sample Size
3.5 Questionnaire Allocation
3.6 Data Analysis Techniques Used
4.0 Datra Presdentation:
4.1 Finds And `Analysis
4.2 Data Presentation
4.3 Analysis Of Responses To Questionnaire
4.4 Test Of Hypothesis
5.0 Summary, Recommendation And Conclusion
5.1 General Summary
1.1 GENERAL INTRODUCTION
Every organization, profit or non- profit making has objectives and goals in mind to achieve, for profit whole for the non- profit making organization their goal is to satisfy the social need of the citizens, and in the achievement of these purposes, supervisor more often than not of its activities, play a document role. But the largess of the size and scope of these organization have some times made it impossible for the executors to exercise personal and \first hand supervisor of operations. It is in this light that internal controls, financial or otherwise established by management is initiated. According to chambers Andrews (1974) “A complex organization needs an auditor as an extension of the eyes and ears of management who however effective, the organization might be unable to inspect the work of their subordinates whose stewardship is delegated to them.
The system of internal control keeps management informed as to whether government regulation are being followed and whether the financial position of the organization is sound. This ensures management of the effectiveness of the activities in the organization especially the accuracy and authority of financing data
Internal control can be broadly divided into two main categories
1. Administrative control
2. Accounting or financial
It is the accounting or financial control function that internal audit; internal control system thus consist internal audit; internal checks and other accounting polices and systems built into the internal control net-work to promote and encourage the attainment of the objectives of the firm.
Internal audit is an internal function which means that it is conducted by the employers of an organization specially designed for this purpose and therefor means. It is an organizations management responsibility to establish the department not to do so.
The objectives of internal auditing is to assist all member of management in the effective discharge of their responsibilities, by furnishing them with analysis, appraisal, recommendation and pertinent commentary in the activities reviewed.
To attain its overall objective, internal audit involves such activities as:
(a) Reviewing and app raising the soundness, adequacy and application of accounting, Financial and other operating controls and recommending effective control at a reasonable cost.
(b) Assertain the extent of compliance with established polices, plans and procedures.
(c) Ascertain the reliability and relevance of management data development within the organization .
(d) Appraising the quality performance in carrying out assigned responsibilities.
(e) Ascertaining the effectiveness of established policies and plans and recommending operating improvements.
Where an internal audit department operates, the statutory auditor pays particular attention to its activities as these will have a direct bearing on the scope and depth regained by the external auditor.
This system of internal check is to prevent or detect errors and fraud and that the system is operating satisfactorily: It also ensure an adequate accounting system to provide the information necessary for preparing true and fair financial statement .
Since it is the sole duty of the management of an organization to detect fraud, errors and other Irregularities and correct them before they come to the notice of the external auditors, the internal audit procedures adopted by an organization is of consequence. As a result of this, the procedure to be adopted by an internal audit department must have these in mind and also be set up by experts in theory and in practice..
1.2 STATEMENT OF PROBLEM
It has been stated earlier that the duty of detecting frauds and Irregularities lies with the management. This could only be done through an effective and efficient internal control system in an organization.
But even with the presence of the internal auditor some problem are still inherent in organization that interfere with goal attainment.
(1) Stock disappear in large numbers on their daily basis.
(2) Assets are either misappropriated or not accounted for.
(3) Ghost names appear in large numbers on payrolls and are undetected for at longtime.
(4) Physical cash are stolen while signatures are forged in cheques also to steal cash.
(5) Frauds perpetuated are only being discover after longtime.
This project is intended to find out with of the above or other problem. If any is caused by lack of good internal control system in an organization.
1.3 SIGN IFICANCE OF STUDY
No internal control system newer elaborate ,could be completely water tight .But a good internal control system operated in a company is an indispensable aid to efficient management ,in that it Assures management of the re liability of decisions taken by them and that these decisions are in line with goals to be attained .
The significance of this study is to bring to the notice of management the impact of a good internal control system in the financial management 0f organizations .That is to say that it will help the organization to know now to manage it scarce fund.
It will help to discover the existence of internal control system in an organization; and to know it there is weaknesses in the system, and suggest measures to correcting them.
Again, it will equally help to reveal the problems that are caused by a bad internal control system.
This piece of work will also be useful to students, scholars, lectures and other third parties as it shall open new area of further research work .it will also advance challenge to on- coming researchers .
Non –management owners of a business will be adequately protected because all material fraud
which either to ,are undetected by auditors in case of this project work will be brought t9o be notice of management ,so corrective action may be taken
1.4. PURPOSE OF STUDY
(1) The overall purpose of this to evaluate and discover the existence of internal control system in an organization and know if there is any weaknesses in the system .
(2) Again it will help to exposing fraud defalcation embezzlement etc.
(3) The purpose of this study ,will equally help in Eng. GEING Training Allocating To Specific Duties Staff Who Are Capable Of Fulfilling Their Responsibilities .
(4) Mores, it will help to know if the business of an organization is carried on in an orderly and efficient manner to ensure adherence to management policies safeguard its assets and secure the accuracy and reliability of the records.
(5) It will help the management to effectively manage it scarce funds or resources through appropriate and integrated system of account and records.
(6) It will equally help to know the problems that are likely to occure when there is no good internal controls system .
(7) This will also help the organization to know how to manage its available scarce fund
1.5 SCOPE AND LIMITATION OF STUDY
This research work is retrictioted to only most organization
Both profit and non-profit making type that have accounting department and other departments.
The research work is very essential and sections since it will help to know how each of the department are carrying out the work that are assigned to them.
Usually internal controls are very important features of any organization enterprise that is run efficiently and effectively .however ,for every coin there must be two sides It is necessary to acknowledge that internal controls have Internet limitations which includes internal controls tend to be channeled at routine transactions .The one – off or unusual transaction tends not to be the subject of internal control likely human error caused by stress of work load alcohol carelessness distraction mistakes of judgement and the misunderstanding of instruction A requirement that the cost of an internal control is not disproportionate to the potential loss which may result from its absence the possibility of circumvention of control either alone or through collusion with parties outside or inside the enterprise , management override of control Abuse of responsibility ,Human cleverness –no matter how secure the computer code is designed to prevent access, there is always tackier who gets in. Change in environment making controls inadequate and fraud. Most of these organizations are West African glass industry and air liquid Nigeria p l c both in Port Harcourt.
1.6 FORMULATION OF HYPOTHESIS
Therefor for this study the following hypothesis will be tested
Ho A good internal control system has no impact on the financial management of organization
H1: The good internal control system has an impact on the financial management of organization.
Ho: The record keeping aspect of an organization should not strictly be a personal function
Hi: The record keeping aspect of organization should strictly be a personnel functional
1.7 DFINITION OF TERMS
Certain words have been used in thus write up and they need to be defined as they relate to the research topic. \thee words are as follows
Internal control system is defined as “The whole system of control , financial and other wise, establish by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management police, safeguard the asset and secure as far as possible the completeness and accuracy of the records. The individual component of an internal control system are know as “control or control”.
i. THE WHOLE SYSTEM
Internal control can be seen as single procedure (eg a clerical officer Y, checks the calculations done by a clerical officer Z) or as whole system. The whole system should be more than the sum of the part.
ii. ESTABLISHED BY THE MANGEMENT
Internals control system are establish by the management, either directly or by means of externals consultants, internal audit, or accounting personnel external auditor may be asked to advise on the establishment of system.
iii. ENSURE ADHERFENCE TO MANGEMENT POLICESS
Not all management have expressed policies but taken budget as an example, expression of management policy and adherence to the budget can be achieved by procedures such as variance analysis
vi. SAFEGUARD THE ASSETS
Usually, assets may not be allowed to be broken . lost or stolen. Procedures are always devised to safeguard them. Example are locks and keys, the keeping of a plant register of, regular review of debtor balances etc. an aspect of this which is often over looked is that payment where no benefits have been received, is payment for piece work not done, and embezzlement off goods by employees are example of failure to safeguard assets.
Vi SECURE COMPLETENCESS
It is essential that all transaction are recorded and processed. The procedure includes checking that no goods leave the organization without a delivery note followed by regular comparison of invoices with delivery notes to see that no goods sold have failed to result in an invoices.
vii. ACCRANCY OF THHE RECCORDS
Examples of ppprrocedurre3sa to achieve this include checked of the work off one cleaark by another or the uses off control accounts, independent comparison of two sets of records e.g. stock records and stock, or piece work payments and good work put into store..
The management of the scarce fund of organization, in a bid t maximize the eventual wealth of the organization.
The system approach to auditing entail on appraisal of the control features which governs a system in order to determine the extent to which the objective of the system will be met
Thus comes from Latin word – Audire meaning to hear or Auditus meaning hearing generally, it means official examination of accounts and records
. This is an interred lated component or parts directed to achieve a particular objectives
This is any irregularity perpetrated by7 a person to gain or obtain an just or illegal advantage. It could be referred to as any criminal deception to gain an unjust or illegal advantage.
1. Chambers Auddrew : The structure of internal andet October 1979, Pp 27- 31.
2. Chinedum Nwoko : Internal control in Business Aba Books and Equipment Ltd. Enugu 1988, Pa 1-7
3. paddy : Finical management for student Pp 28-30