The Impact Of A Good Internal Control System On Financial Management Of Organization
The Impact Of A Good Internal Control System On Financial Management Of Organization
Abstract
An internal control system is the process that can be use to provide reasonable assurance that the units goals and objectives will be achieved. It is also the management of business risks and is a dynamic process that changes as personnel and circumstance change. 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 had rock 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 become the vital inducing factor for this project work. However aroused of students and potential readers interest on significance of internal control system become the secondary objective of this work. This will go a lung way in safeguarding and managing efficiently the finance or fund for running the organization for profit maximization by management. Don’t for this research work ;will be obtained through administrating questionnaire through oral interview to senior staff which critical analysis follows. Regrettably however, the quest for introduction will be hindered by time and money factors.
Chapter One
Introduction
1.1 Background of the Study
Internal control can be defined as the whole system of internal control, financial and otherwise established by management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguarded the assets and secure as far as possible the completeness and the accuracy of records. Dr. Aveh (2010). The individual components of an internal control system are known as controls or internal controls. Internal control includes all policies and procedures adopted by the directors and management of an entity to assist in their objective to achieve as far as possible the orderly and efficient conduct of the business including adherence to management internal policies, safeguard of assets. Prevention and detection of fraud and error, the accuracy and completeness of accounting record and timely preparation of reliable financial statement.
An internal control is of great importance to every organization because of its impact on the management of its resources especially finances. It is evident that where there are no9 rules controlling how a thing is to be done, that very thing is done anyhow and the best of it is not attained, this is exactly what effective internal control system is all about. For the purpose of our studies, financial management will mean the application of an organization’s financial resource (money) on activities meant for its usage. It is the proper use, the effective and efficient use of financial resources or simply put the expedient use of financial resources. Internal audit is an internal function which means that it is conducted by the employer of an organization specially designed for this purpose and therefore means it is an organizations management responsibility to establish the department or not to do so. The object of internal auditing is to assists all member of management in the effective discharge of their responsibilities, by furnishing them with analysis, appraisal, recommendation and appropriate comment in the activities reviewed.
To attain its overall objective, internal audit involves such activities as:
- Reviewing the soundness, adequacy and application of accounting, financial and other operating controls and recommending effective control reasonable cost.
- Appraising the quality performance in carrying out assigned responsibilities.
- As creating the effectiveness of established policies and plans and recommending operating improvements.
Where an internal audit department operates, the statutory auditor plays particular attention to its activities as these will have a direct hearing on the scope and depth regained by the external auditors.
This system of internal check is to prevent and also ensure an adequate accounting system which will 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 procedure to be adopted by an internal audit department must have these in and also be set up by experts in theory and 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.
Some of these problems include:
- The inability to establish a functional internal control system within the organization.
- The inability of the management to safeguard the assets of the organizations.
- The inability of the authorizing officers to give approval for all vouchers before payments.
- Inadequate supervision of duties within the organization.
- The inability of management to appreciate, understand and clearly respond to the role of internal control system.
- Inadequate of good internal control system in contributing to the development of the company.
1.3 Objective of the Study
- To find out if there is any internal control system in Nigeria bottling company.
- To determine if there are laid down procedures by management to safeguard the assets of the organization.
- To find out if there are proper authorization for the documents before payments.
- To determine if there is adequate supervision of duties within the organization.
- To find out if management appreciate, understand and clearly respond to the role of internal control system.
- To find out if good internal control system contribute to the development of the company.
1.4 Research Question
- Is there internal control measures put on ground with this organization?
- Are there laid down procedures within the organization to physically safeguard the assets of the organization?
- Is there proper authorization of documents before payment?
- Is there proper supervision of duties within the organization?
- Are the management appreciate, understand and clearly respond to the role of internal control system?
- Is there good internal control system in contributing to the development of the company?
1.5 Research Hypotheses
To aid the successful completion of the study, the following research hypotheses were formulated
- H0: there is no proper authorization for the documents before payments
H1: there is a proper authorization for the documents before payments - H02: there is no good internal control system in the organization
H2: there is a good internal control system in the organization
1.6 Significance of the 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 will be notice of management, so corrective action may be taken.
1.7 Scope of the Study
The focus of this is on the impact a good internal control system has on financial management of organization with particular reference to Nigerian Bottling Company PLC, Enugu.
1.8 Limitations of the Study
Certain limitations were encountered in the course of this study, key among these are;
i. Unavailability of data:
One of the greatest challenges encountered in this study relate to access to and collection of hard data due to extreme data gaps paucity.
ii. Time and Funds:
Another limitation of this study relates to time, fund and logistic constraints which limited the intensity of the spread or area of coverage of the study.
iii. Attitude of the respondents:
This research work was also limited by the reluctant of some respondents to complete the questionnaire promptly and those who even failed to complete them at all. This limited to the number of respondents.
1.9 Definition 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
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”.
Management
Management is the process of planning, organizing, controlling, co-ordinating an organizational resources with the purpose of achieving organizational objectives.
Policy
Policy is an administrative approach that is used to simply the management of a given endeavor.
Asset
Asset is something that has value, especially property and is owned by an entity, which can be used or sold to pay debt.
Audit
Thus comes from Latin word – Audire meaning to hear or Auditors meaning hearing generally, it means official examination of accounts and records
System
This is an interrelated component or parts directed to achieve a particular objective.
This is any irregularity perpetrated by a person to gain or obtain an unjust or illegal advantage. It could be referred to as any criminal deception to gain an unjust or illegal advantage.
Chapter Five
Summary, Conclusion and Recommendation
5.1 Introduction
It is important to ascertain that the objective of this study to assess the impact of a good internal control system on financial management of organization.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing challenges of internal control and financial management in an organization.
5.2 Summary
Based on the findings of the study it is concluded that internal control systems influences financial management of an organization. This effect is supported by the significant positive relationship observed between control activity and financial management in the NBC. Pearson’s correlation coefficients revealed a moderate positive relationship between control activity and financial management. However, control activities had a slightly higher positive significant relationship with financial management. It is further concluded that the public sector in NBC has an effective financial control system as supported by the presence of clear separation of roles, supervision and commitment of management on the implementation of internal controls. However, internal control systems are not well extended to all the departments which has affected their efficiency as revealed by this study. On financial management in NBC, the study concludes that the prudential use of financial resources is not appropriate, although there is improved asset use as well as classification of revenues and expenditures.
5.3 Conclusion
Based on the findings of the study, it is concluded that the organization have an effective internal control system as supported by the study findings of clear separation of roles, supervision, training, and commitment of management. However, there are challenges in the implementation of controls especially considering that the audit function is not well extended to the upcountry centers which clearly has affected their efficiency as revealed by this study. On financial performance of the Nigeria bottling company, the study concludes that the liquidity position of the NBC is not appropriate, details of which are directly revealed in the study, although the study also reveals an improved assets value as well as classification of the NBC revenues and expenditures.
5.4 Recommendations
Based on the conclusions drawn from the study, several recommendations are made. The study has revealed that the staffing level in the internal audit department is not adequate to cover the entire NBC set up, evidenced by not conducting regular audit activities, not operating efficiently as well as preparing reports irregularly. The study recommends competence staff profiling based on the requirement of internal control systems. The study also recommends that there should be a deliberate attempt by the leadership of NBC to strengthen the management’s commitment towards the implementation of internal control systems. Finally, NBC should maintain strong areas of success in the implementation of the existing control activity as per the results of this study to improve financial management. Furthermore, control activities procedures and policies should be regularly revised to ensure they are effective.
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