The Role Of Internal Control In Risk Management

Project and Seminar material for Accountancy

Project and Seminar material for Accountancy


Abstract


The fact remains that internal control department has much role to play in managing risk in ever organizations and financial institution. The aim of the research work is to analyze the role of internal control in risk management. In this research work 60 questions were distributed while 40 were returned. It made use of simple percentage in analyzing the questions where chi-square was used to test the hypothesis.

Furthermore, the following finding were made during the course of this research work. That there is an existence of internal department. The need for continues audit was also emphasized is independent of the management and report if mostly prepared and reviewed bi-annually.

The independent of internal control department should always be maintained. Regular training of the staff and personnel and also adequate development programs should also be organized to enhance performances, understanding and appreciation of organization objective.


Table Of Contents


Preliminary Page(s)

  • Title Page
  • Approval Page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table Of Contents

Chapter One

1.0 Introduction

  • 1.1 Background Of The Study
  • 1.2 Statement Of Problem
  • 1.3 Need For The Study
  • 1.4 Objective Of The Study
  • 1.5 Research Hypothesis
  • 1.6 Scope Of The Study
  • 1.7 Assumption Of The Study
  • 1.8 Limitation Of The Study
  • 1.9 Operational Definition Of Terms

Chapter Two

2.0 Background Of Internal Control

  • 2.1 Nature Of Internal Control
  • 2.2 Management Duty Regarding Internal Control
  • 2.3 Installation Of An Effective Accounting System
  • 2.4 Employees Codes Of Conduct
  • 2.5 Monitoring Relevant Legal Requirement
  • 2.6 Limitations Of The Effectiveness Of Internal Control
  • 2.7 Auditors Use Of Internal Control System
  • 2.8 Essential Features Of Internal Control System
  • 2.9 The Nature Of Risk
  • 2.10 Classes Of Risk
  • 2.11 Risk Management
  • 2.12 Functions Of Risk Manager
  • 2.13 Objectives Of Risk Management
  • 2.14 Identification And Management Of Risk
  • 2.15 How To Identify Risks

Chapter Three

3.0 Research Methodology

  • 3.1 Research Design
  • 3.2 Sources Of Data
  • 3.3 Population Of The Study
  • 3.4 Method Of Data Collection And Data Analysis

Chapter Four

4.0 Result And Discussion

  • 4.1 Result
  • 4.2 Discussion

Chapter Five

5.0 Summary Of Findings, Conclusion and Recommendation

  • 5.1 Summary Of Findings
  • 5.2 Conclusions
  • 5.3 Recommendation
  • 5.4 Areas For Further Study
  • Bibliography
  • Appendix

Chapter One


1.0 Introduction

1.1 Background Of The Study

Internal control has played a major role in risk management especially in the banking industry in Nigeria.
According to British auditing guideline which defines internal control as the whole system of control financial and otherwise established by the management in order to carry out the business of the enterprises in an orderly and efficient manner, ensure adherence to management policies, safe guarded the assets and secure as far as possible the completeness and accuracy of records.

Whereas Hornaren and Foster (1990:910) defined internal control as the set of accounting and administrative control and practice that helps to ensure that approved and appropriate decisions are made in an organization. internal control as organization of accounting duties is such a way as to maximize the chance of accurate accounting and minimize the chance of risk or the occurrence of impact of such losses if they occur.

The management has the duties is risk identification evolution, avoidance transfer, retention recruiting and financing. However, Chris Aloma Osondu (2008) emphasized on risk management whereby business can hardly operate without an element of risk and defined risk management as a scientific possible accidental losses and feigning and implementation procedures that minimizes the occurrence or the impact of such losses if they occur.
According to Anyanwu F.A. (2007) Risk can be designed as the general uncertainty doubt, chance of loss or insurance the insured object. An organization of management is such that if internal control system is not efficient there is every tendency that risks cannot be managed properly in such an organization.


1.2 Statement Of Problem

When risks occur the concern is always the economic lose associated with the loss. Hence it is regarded as an involuntary parting of value. The economic loss may take many forms such as a loss of property by physical perils as fire or theft, it may also take the form of premature death of the key man of a business enterprise or a family bread winner. It may arise out of the ineffectiveness in the management of an enterprise or seen as a result of law suit to recover damaged for some negligent act therefore for the problems intended to study are:

  1. How management handles their risk.
  2. How efficient is the internal control of the organization.
  3. If the internal control system in that organization helps at all in management.
  4. If the organization is insured.

1.3 Need For The Study

There have been a lot of stuffy and sharp practices among directors, employees, accountants and other high ranking personal of the business organization which engender poor performance output.
Furthermore by virtue of the fact that has its stock in trade as money (cash) which make it sensitive and vulnerable to risk. The need for the implementation of strindent control measures is necessary

  1. The study is aimed at helping to develop risk management technique within the organization and ensure the formation of a co-orporate policy on risk management.
  2. To train, advise and assist management in the effective management of risk.
  3. To implement the various programmes, as well as performance.
  4. To identify the various exposures to loss as well as the probability of loss from various losses.
  5. To ascertain the most economical method as handling risk.

1.4 Objective Of The Study

The main objectives for this research work can be stated as follows;

  1. The ability to manage the past and present loss resources of the business in order to preserve the effective operations of the business after any loss.
  2. The control of the resources needed after the loss of using systematic programme of loss prevention and control.
  3. Planning, managing, and controlling of assets and resources of the enterprises so as ton contain the outcome of disastrous events which can seriously affect the effectiveness operations of the business enterprises.

1.5 Research Hypothesis

It will be worth while to give the definition of hypothesis for better appreciation and understanding of this piece of work.
Hypothesis is simply a claim of a proposition made about a population which is subjective test to determine its validity or otherwise.

  1. Ho; The internal control does not aid in risk management
  2. Hi; Internal control aids in risk management.
  3. Ho; The company does not see the need in maintaining adequate segregation of duties.
  4. Hi; The company sees need in maintain adequate segregation of duties.
  5. Ho; There is no relationship between the internal control and risk management.
  6. Hi; There is relationship between the internal control and risk management.

Based on the above, it is believed that the study will be able to reject or accept the hypothesis.


1.6 Scope Of The Study

This study is limited, it focus on the role of internal control or risk management. We should appreciate the fact that efficient internal control is necessary as well as essential in the performance and growth of any organization. therefore of the purpose of clarity, simplicity and avoidance of ambiguity this work will briefly elaborate management with references. However, this piece of work might not be a hundred percent (100%) exhaustive treatment of the internals control functions but a considerable work has been done.


1.7 Assumption Of The Study

The following assumption were made concerning this work.

  1. The companies institute sound internal control.
  2. The companies formulate internal control policies.
  3. The internal control policies can also be faulty.
  4. The internal control is independent of the management.
  5. The company uses internal control to monitor and control business operations.
  6. The internal control units can help in risk management.
  7. The internal control can also be deficient in some areas.

1.8 Limitation Of The Study

A lot of limitation and constraint hindered the work of the researcher. Some of these limitations and constraints are as follows:

Time Constraint:

Bearing in mind the time to carryout the research, a result of meeting up with the school calendar. The researcher has to combine both academic work and the research work.

Insufficient Fund:

The high cost transportation as a result of hunting for information to this research work since the research was carried out solely from the meager pursue of the student, the much needed extensive travels to other banks to examine the roles of internal control in risk management. However information from such banks was collected through the questionnaire coupled with the clash of lecture periods of the researcher with her research appointment, time at the bank continued as a constraint in this research work.

Problem Of Gathering Data:

Data collection or gathering was characterized by a lot of difficulties. It should be pointed out that the level of literacy is still low in this country while that of illiteracy is high. This high illiteracy rate credited a lot of obstacles such as non-response to questionnaires administered. However these problems not with standing the researcher was able to produce a presentable research work.


1.9 Operational Definition Of Terms

Internal Control:

This is the system of control finance and otherwise by the management in or to carry on the business of the enterprise in an orderly and efficient manner to ensure adherence to management policies. Safeguard he assets and secure as far possible the completeness and accuracy of the records.

Roles:

Oxford Advance Learners dictionary (2000) defined role as the function or position that has or is expected to have in an organization, in society or in a relationship.

Risk:

According to Anyanwu (2007) Risk can be defined as the general uncertainty, doubt and chance of or in insuring the issued objects.

Management:

Ejiofor (1984) defined management as art of science of working in an organization through being directed by and by directing and co-coordinating the activities of people to achieve the goals of an organization.

Risk Management:

According to Anyanwu (2007) defines it as the identification, measurement and the economic control of risks that threatens the asset of any business. It can also be defined as the planning managing and controlling of activities and measures taken in order minimize the impact of uncertain events.

Vulnerable:

Weak and easily hurt physically or emotionally. According to the Oxford Learner’s dictionary (2000).

Auditor:

According to B.N. Okezie (2004) Auditor can be defined as an accountant who has undergone a recognized professional course and a member of the recognized accountancy bodies resident in Nigeria and who is carrying out a professional accountancy practice.


Chapter Five


5.0 Summary Of Findings, Conclusion and Recommendation

5.1 Summary Of Findings

From the results, the researcher has gone so far, especially from the questionnaires and analyzed tables, it will be worth while to presents briefly and concisely the main points. They are as follows;

  1. Internal control aids in risk management.
  2. The company sees the need in maintaining adequate segregation of duties.
  3. There is relationship between internal control and risk management.
  4. Internal control department exist in the ban.
  5. There is depth need for continuous audit
  6. The internal control department is independent of the management.
  7. The management will never be better off without internal control department.
  8. Other department see the function of internal control department as being efficient.
  9. That the company maintains adequate segregation of duties.
  10. The findings have it that exceptions are investigated and reported, however, there reports as a result, expose unusual situation.
  11. The company uses internal control to monitor and control business operations.
  12. Internal control units can help in risk management.
  13. Internal control can also be efficient in some areas.

5.2 Conclusion

At critical analysis of internal control has duty been carried out by the researcher in the course of the study.
Moreover adequate attention was paid to internal control of based on the roles of internal control risk management. It has to be pointed out that various department of the organization. this would give the internal control department conclusive atmosphere for its performance.

Internal control as a part of internal auditing facilitates questions 1 and 9 of the questionnaire in chapter two.
One can infor that the topic of this study holds true and there recommended for every organization.


5.3 Recommendation

Making some recommendation not only to the management of the organizations.

  1. Every organization should have internal control department for implementation and review of internal audit system and quality of performance.
  2. The independent of the internal control department should always be maintained.
  3. There should be segregation of duties, so that no person start and finishes a transaction.
  4. Management should engage into the risk transfer in order to share their risk with the insurance company.
  5. Management should try as much as they can manage their risk very well or to reduce risk if it cannot be avoided.

Regularly training of the staff and personal and also adequate development programmes should also be organized to enhance performance, understanding and appreciation of organization objective.


5.4 Areas For Further Study

From findings here by suggest that the nest person who is to write on this topic should make thorough research on the following;

  1. Ensure that risk is managed very well in the banking industry.
  2. Ensure that there is adequate segregation of duties.
  3. Ensure that there is efficiency in the internal control department.
  4. Ensure that internal control plays a very good role in management.


The Role Of Internal Control In Risk Management


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