Internal Control System In Government Parastatals

Project and Seminar Material for Accountancy / Accounting

Abstract

This study is examines the part played by internal control system in the management of Nigerian parastatals. It recognizes two main groups of players in Nigerian parastatals namely, administration and enforcement from which 100 officers responded to a validated questionnaire titled ‘Nigeria parastatals Participation Questionnaire’ which was validated and the reliability coefficient was found to be 0.71. Three research questions and two hypotheses were raised and tested in the study. Analysis of data reveals that significant difference existed between internal control system and proper accountability. Also, effective utilization of Information Technology plays important role in the collection of electric connections. The study also ascertains that effective internal control system ensures high revenue generation. However a positive correlation was found to exist between internal control and high level of accountability. These findings provide vivid evidence for recommendations such as adequate motivation of officers to avoid financial fraud; information technology gadgets should be provided for all commands and competent team, of experts to work out the logic of standard internal control should be put in place.

Chapter One

Introduction

1.1 Background to the Study

Several studies have been carried out in Nigeria to find out why many government parastatals or industries which started of well later fall or remain stagnant in their operations. The major causes of this situation were traced down to poor internal control system which emanated from a lot of factors, part of Horngren (1982) therefore defined internal control as referring to both Administration control and accounting control. Administration control organization showing who reports to who and all the methods, planning and control of operations. Accounting control comprises the methods and procedures that are mainly concerned with authorization of sections, the safeguarding of assets and the accuracy of the financial records. Good accounting control helps maximize profit; they help minimize waste, unintentional errors and frauds.

This well designed control measure is a step towards the achievement of an organizational accountability which in other words means success of organization. The use of internal control system by government parastatal in Nigeria has been recently on great increase. Internal control has been recognized in the most organization as one of the most essential ingredients, necessary for the survival of the business enterprise and government agencies. Apart from the problem of scarce resources, organizations run a high risk of fraud, errors, miss appropriation of minimize, if not eliminate completely, these risks, by establishing internal control system. For every organization, there are risks that the organizational goals and objectives are not achieved. All efforts aimed at preventing such risks or identifying and correcting such risks are viewed as internal control.

Anthony (1998) defined internal control as “the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization objectives. Garrison and Noreen (2000) suggested a different definition for internal control as follows: “those steps taken by management that attempt to increase the likelihood that the objectives set down at the planning stage are attained and to ensure that all parts of the organization function in a manner consistent with organizational policies. He further defined internal control as those sets of organizational activities which include: planning, co-ordination, communication, evaluation and decision making as well as informal processes aimed at enhancing the efficient and effective use of the organizational resources towards the achievement of the organizational objectives.

Anthony and Govindavajan (2004) identified several aspect or activities of management / internal control namely: planning, coordinating, communication, evaluation, decision-making and influencing. Planning what the organization should do to achieve proper accountability. Planning could be view as budget preparation. With planning the organization decides what to do and the responsibilities of its different members.

Koontz and Donnel (1992) defined internal control as all the measures of a public or private organization that could be said to be strategies of owners and managers to monitor and control the activities within the organization.

1.2 Statement of the Problem

Internal control is management tools that are built into the entity as a part of its infrastructure to help managers and administrators run the entity and achieve their aims on an ongoing basis. Internal control is affected by people: people are what make internal control work. The responsibility for good internal control rests with all administrators and managers. Management sets the objectives, put the control mechanisms and activities in place, and monitor and evaluates the control. Internal control provides reasonable assurance, not absolute assurance; management design and implement internal control based on the related cost and benefits. No matter how well designed and operated, internal control cannot provide absolute assurance that all organization objectives will be realized. However, the researcher is examining the internal control system in Government parastatals.

1.3 Research Questions

Does adequate internal control ensure proper accountability?
Does Utilization of IT play important role in the collection of duties?
Does effective internal control associate with high level of accountability?

1.4 Hypotheses of the Study

With regard to the problem of the study, the following hypotheses are formulated to guide the investigation:

H.o1: Adequate internal control does not ensures proper accountability
H.o2: Effective internal control is not associated with high level of accountability

1.5 Significance of the Study

The following are the significance of this study:

The results of this study will be useful to the managers and administrators in both governmental and non-governmental organizations on the benefit and process of internal control system for organizational effectiveness.
This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.

1.6 Scope / Limitations of the Study

This study on internal control system will cover the proper process of internal control system that can be used as a tool for the realization of organizational goals and objectives.

1.7 Limitation Of Study

Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Chapter Five

Discussion of Findings, Conclusion and Recommendation

5.1 Discussion of Results

The analysis of results in chapter four shows that effective internal check associate with high level of accountability in the actualization of PHCN result (Adeniyi (2005)

That Effective utilization of IT play important role and made work done in fulfill the original plan Collin (2008).
That Effective Internal Control help to achieve high revenue, proper accountability, free fraud and positive result in the PHCN (Ojaide 1992, and Michel (2004).

However, Internal Control System is only tools for achieving organizational goals and put organization in a normal shape. It is only mechanism that help organization to function effectively.

To ensure that important documentation which provide the information on which significant strategic and decisions are based provide a complete, accurate and timely record of relevant events.

Horngren (1982:382) writing further on the superficial attention paid to the subject of internal control was once regarded as a technical matter that was confirmed to a course in auditing. However, many secret payment and embezzlements were disclosed during the 1970s. as a result, internal control has become a control responsibility of top management. The management of PHCN is interested in the survival and continued growths of government parastatals in business give priority.

Attention to the installation and efficient operation of the internal control system. The accountability of the operation of an organization depends extensively on the strength of the installed system of internal control. An organization that has an operationally effective and efficient internal control system has better chances of improved accountability than one with a weak internal control system. Internal control in any government parastaltals such as PHCN is not a subject that should be taken lightly. Indeed, without if there can be no successful accountability in business. This may explain why some government parastatals succeed and the other fails or why many public enterprises and parastatals fail woefully in business. Government parastatals go into operation for the sole purpose of making profits for government. Since a weak or non extensive system of internal control has therefore become a central responsibility of top management.

Notwithstanding the size of an organization, whether it is a public or parastatals, manager and accountant are alert to the rudiment of proper accounting system and controls. A proper accounting record which are kept.

5.2 Conclusion

Internal Control system involves internal auditing, administrative and other accounting controls set-up by the management in order to ensure achievement of its planned objective. These objectives entails keeping of appropriate records, ensuring adherence to the management policies and ensuring that actions are in line with plane.

This study has endeavored to find out what relationship the internal control measures have with the key to accountability and management of the Nigeria parastatals. Based on the outcome of the five hypotheses which was empirically tested and the research finding stated earlier in this chapter, the researcher therefore, concludes that the impact of internal control system in PHCN positive. Thus, it is conclusive that internal control system in the parastatals affect positively revenue collection and accountability among the rank and file of Nigeria parastatals.

5.2 Recommendations

Internal Control System are not a substitute for good management, they can assist management but do not replace management of provide an excuse for poor management.

The following recommendations are adopted.

There should be a continue internal check and audit on the part of management and low level of management to ensure adequate internal control system.
There should be adequate internal control system to ensure proper accountability.
There should be adequate motivation such as bones, incentives to the employees/officers to avoid financial fraud.
There should be effective use of information technology to enhance the high level of security check in the various departments.
There should be competent team of experts to work out the logic of standard internal control.

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