THE EFFECTIVENESS OF INTERNAL CONTROL SYSTEM ON THE IMPROVEMENT OF FINANCIAL MANAGEMENT IN PUBLIC SECTOR BUSINESS OUTFITS
(A CASE STUDY OF NIKE LAKE RESORT HOTEL, ENUGU)
This research work has set out to determine the relationship between effective internal control system and improve financial management. The motivating factor in researching into the relationship in the assumed contracting of contemporary Nigeria parastatals claming to employ effective internal control system and observance of unimproved financial management. In actual fact, a problem was identified in some situation, management have constantly claimed effective internal measures adopted but financial management has not improve accordingly.
In view of this problem, hypothesis were formulated, facts and figures were collected and these hypothesis were tested proved using universally acknowledge statistical instrument, the chi-square. The method of deducting an interference from answers given in the interview schedule was adopted in addition to the chi-square. The null hypothesis were accepted and the alternative hypothesis rejected, showing that effective internal control system leads to improved financial management.
The analysis among other things revealed the effectiveness of internal control system on the improvement of financial management.
The recommendation in looking at this work would be to advice readers for the research on this topic. The findings are based on data analysed.
In order to ensure that management understand what the concept of internal control entails, frequent lectures should be organized for all these who constitute the top management of the organization. The management of parastatals should take measures to ensure that they maintain an effective internal control system in their organization not only for the purpose of improvement in financial management but to increase both the reliability of information and the credibility organization to government investors, leaders and the public at large.
TABLE OF CONTENTS
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Hypothesis
1.5 Significance of the Study
1.6 Scope of the Study
1.7 Limitation of the Study
1.8 Research Questions
2.0 REVIEW OF RELATED LITERATURE
2.1 Internal Check, Authorization, Recording Custody and Procedures
2.2 Classes of Internal Control
2.3 Administrative Control
2.4 Accounting Control
2.5 Internal Control Over Purchase
2.6 Internal Control Over Cash
2.7 An Overview of Effective Internal Control System
2.8 Internal Auditing
2.9 The Importance of Internal Audit Department in an Organization
3.1 Research Design and Methodology
3.2 Area of Study
3.3 Population of Study
3.4 Sample Size Determination
3.5 Sampling Techniques
3.6 Research Instrumentation
3.7 Validity and Reliability of Research Instrument
3.8 Sources of Data
3.9 Method of Data Analysis
4.0 Presentation and Analysis of Data
4.1 Presentation and Analysis of Data
4.2 Test of Hypothesis
5.0 Summary of Findings/Conclusion and Recommendation
1.1 BACKGROUND OF THE STUDY
Internal Control system of an entity is strictly interrelated to the structure used by management to oversee the activities of the organization, or to what is defined as the entity’s corporate governance. Good corporate governance should provide proper incentives for the board or management to pursue objectives that are in the interest of the company and shareholders and should facilitate effective monitoring, thereby encouraging firms to use resources more effectively or efficiently.
Whatever may be the nature of a business and its organizational set-up, the duty of the auditor is to check if the financial statement prepared by the company shows a true and fair view and the importance of audit can hardly be exaggerated. Every auditor should worship those principles and conventions which have been adopted and follow them on our daily behaviour.
Auditing is an important professional task carrying heavy responsibilities and calling for commensurate skill and judgment.
The need for a continuous review of records undertaken within a business by specially assigned staff need to be overemphasized. The objective examination of financial statements prepared by management of an organization not only increase the reliability of information, but the credulity of the organization of investors, government and the public at large. On accounting matters, the main objective of internal audit is to ensure management that the internal check and accounting system are effective in design and operation.
The present practice of employment of effective internal control system and status of auditors report represents the culmination of a century of development. Initially, audit were performed mostly at the request of business owners who wished to be assured that their book-keeping records has been accurately handled and that all cash was properly accounted for. So, with the development of partnership, auditor also became useful in determining the amount of profit to be distributed to partners.
Because of divergent views head by many people who are not versed in the accounting profession about whom the auditor is, the greater majority has always regarded the work of the auditor to be limited to were desired to apprehend fraud. They visualize him as wizened individual wearing the traditional green eyeshade and sheave garters. They would expect a top high stool, counting money or meticulously long columns of figure and gaining his sole pleasure in life from the apprehension of likeness persons whose books failed to balance or whose cash or account proved to be short.
However, this is an erroneous impression, audit reports aim not only to dictating frauds but to review and report on the propriety and impropriety of management measures and communication of financial preparation in an organization. Same applies to internal control. An effective internal control measure is meant to determine both the degree of accuracy and reliability of information, and that it is in accordance with accepted criteria and standards. Determining whether a particular internal control system is effective is a judgment resulting from an assessment of whether the five components Control Environment, Risk Assessment, Control Activities, Information and Communication and Monitoring are present and functioning. Effective controls provide reasonable assurance regarding the accomplishment of established objectives. Infact, the role of effective internal control system in business world can only be likened to the importance to be said in the food.
Internal control itself, is the organization of the accounting system and the distribution of duties of the accounting staff in such a way that it gives to check on day-to-day transactions which operate continuously as part of the routine system whereby the work of one person is proved independently or is complementary to work of another. That is each individual within a unit is to be cognizant of proper job responsibilities. The objective if this being the prevention or early detection of errors or fraud. All involve surveillance by at least two persons so far so possible independent of each other. The Internal Audit role is to examine the adequacy and effectiveness of the organizational 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 recommendation made by Internal Auditing.
The discussion on the work of the auditor, the attendant audit report vis-à-vis the internal control system as presented this study is intended to convey a more accurate impression of the present day audit system. This research study therefore, wants to determine empirically how indispensable an effective control system is human and material management and allocation in a parastatal using Nike Lake Resort Hotel, Enugu as a case study.
BRIEF HISTORY OF NIKE LAKE RESORT HOTEL
The idea of a resort hotel started soon after the war. Considering the place of tourism in the world, this dream remained in the pipeline until 1979 when Dr. M.I. Okara former Premier of the Eastern region performed the foundation laying ceremony of Nike Lake Resort Hotel.
Urgent as the protest seemed, it was stalled by government bureaucracy thus politics and constant change of administration. Lake of fund and expertise is another overriding factor.
Through concerted efforts, Nike Lake Resort Hotel, Ltd. Gen. Sani. Abacha invested the plague under the watchful eyes of Col. Robert N. Akonobi the then Military Government State to declare it open.
NIKE LAKE RESORT HOTEL ORGANIZATIONAL CHART
Nike Lake Resort Hotel Organizational Chart
1.2 STATEMENT OF THE PROBLEM
In Nigeria today, especially in the public sector many public servants tend to look down on the concept of accountability. Accountability is a concept that concerns itself with the liability to be accountable to the public or to whichever body for whom services is rendered. Stewardship account rendering which gives a sweeping over-view of the leaders and managers performances has reviewed committee appointed to appraise the financial performance of most public companies, ministries and contracts awarded during the ousted civilian and military administration. The order become necessary in view of allegation that politicians swindled public money during the duration they were in office. Consequently, most of these trusted public servants have been found guilty of either embezzlement or misappropriation of public fund but audit reports on the other hand may indicate that the company had maintained a system of effective internal control and accounting records fairly kept. This is therefore, a problem which permeates our society which need to be investigated. That is how do we reconcile the idea of employing an effective internal control system and at the same time having the records unfairly kept?
Before taking up this research, the researcher mind has been puzzled with the problem of whether to believe that business organization these days on the face of financial misappropriation still employ effective internal control system. This is exactly the same problem which agitates the minds of most investor and lenders. However can an investor assure himself that his investment will ever yield in the face of this malady, and the profit figures that attracted him are not “lookep up” false or misleading. The problem gets complicated to more when we pause to view that our auditors who are supported to ensure that effective internal control exists, are the chief perpetrator by conspiring. It is said that even the audit department of the statement is not left out in this mass fraud we have to ask control? That is the question we have to trusted.
On its own part, evidence shows that the inability of the part of management to carryout effective internal control measures over the years has culmination on their loss of potential investor.
And in an effort to investigate the effectiveness of internal control system in the operation of services of parastatals in Nigeria, one needs to understand the nature of the organizational set-up to find where the problem emanates from. In this regard, the following critical question demand answer.
Are proper books of account kept with respect to:
a) All sum of money received and expended by the company and the matters in respect of which the receipt and expenditure take place?
b) All sales and purchases of goods by the company?
c) The assets and liabilities of the company?
2. Does the internal audit department conform to its function which include:
a) enforcing compliance with laid down principles and procedures
b) Monitoring enforcement and compliance ensuring that things are done.
c) Making the financial statement prepared by it so accurate that management can safety rely on them in making their business decisions.
The above similar question need to be answered before the researcher can find out the impact effective internal control system can have towards effective financial management and allocation.
1.3 OBJECTIVES OF THE STUDY
The main trust of this study is to investigate and identify how effective and prompt the conduct of internal check of financial statement of Nike Lake Resort Hotel in particular has been vis-à-vis other parastatals in Nigeria. In order to ascertain what impact they have created on the improvement of their financial management.
In summary, the purposes of the study are:
1. To find out why people should bother themselves with the existence of internal control measures, if it is true that such measures lack effectiveness.
2. to advice and recommend, depending on the findings of the study and more attention be directed towards the exercise of periodic internal check. The advise/recommendation is necessary because many people are affected when the activities of those who are entrusted with the management of their affairs misuse such privilege.
3. identify the reliability to investors, lenders, government and public at large of such periodic internal check of parastatals.
1.4 RESEARCH HYPOTHESIS
Based on the statement of problem and research purposes, the hypothesis are as follows:
1. Ho: The company has effective internal control
H1: The company does not have effective internal control system.
2. Ho: That the impact of internal control has improved
the level of financial management since the past 5 years.
H1: That the impact of internal control has not improved the level of financial management since the past 5 years.
1.5 SIGNIFICANCE OF THE STUDY
It can safely be said that proper internal control system is the life wire of any corporation for the rendition of an opinion by audit reports attesting to the fact that an effective internal control system preceded the preparation of the company’s financial statements on the past performances are for information purposes. The need for this study, therefore, lines on the recommendation that were made at the end of the study and their implementation.
In general, the significance of this study would at least be predicted on:
1. That good internal control should safeguard the company’s assets.
2. That good internal control should make accounting record are therefore, the financial statements prepared from them so accurate that the management can safely rely on the in making their business decisions.
3. That their responsibility for the establishment and working of internal control lines with the management and not with the independent auditor and
4. that employment of effective internal control system by a parastatal has a tremendous impact on the improvement of financial management of that organization.
1.6 SCOPE OF THE STUDY
Nike Lake Resort Hotel is a service company located at Nike, Enugu. However, the questionnaire for the study will be extended to all the department in the company. As to the report and data analysis, areas of concentration will include the financial statements and the audit reports including the recommendations that may have made by an independent auditor. Concentration will include these areas because financial statements are derived from internal control measures and audit reports are based on financial statements.
The study does not intend involving the computation of all ratio as this may amount to deviation but selected ones may be computed and the selection which depend on the degree of relevance of the study. Further, the study will not extend to physical examination of cash, stock or other assets and liabilities but to accept any written as may be produced by an appropriate management officer. The questionnaire itself will not go beyond these relevant areas except where remark and other necessary information are needed. The questionnaire will concentrate on the management of internal resources and the impact of internal control on it. External/independent audit and its attendant reports will have to be discussed very briefly at it is the climax of the entire audit exercise.
1.7 RESEARCH QUESTIONS
To achieve the objectives of the study, the researcher would seek to provide answers to the following questions:
1. Does the company has effective internal control system?
2. how does the impact of internal control improved the level of financial management since the past five (5) years?
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