INTERNAL CONTROL AS A TOOL FOR EFFICIENT MANAGEMENT
(A Case Study of Nigerian Bottling Company Plc, Ibadan)
BY
KAYODE OLADIPUPO OLAYEMI A PROJECT ANALYSIS OF DIPSON KAYUS COMPUTER PALACE SANGO, IBADAN
2014
08058573347; 07063796484
CHAPTER ONE 1.0 INTRODUCTION 1.1 BACKGROUND TO THE STUDY For the smooth running of an organizations business, certain factors must be put in place, such as manpower, materials, money and machine. These resources need to be well coordinated in order for the organization to achieve its objectives (an organization can have all the resources required for its success but if they are not properly utilized when and where needed, the organization will not achieve its objective). The above mentioned resources are made use of by a group of persons known as management. An organization cannot exist without management, neither can management exist without an organization; the two are inseparable twins. The success of failure of an organization is more or less dependent on its management. Good management weaves together the various parts of the organization so that all sections function as a system. Management refers to members of the executive or administration of an organization or business. According to Beneish (2008:65) management can be defined as the design or creation and maintenance of an internal environment in which people working together in groups can perform efficiently and effectively towards the attainment of group goals. Effective management leads to purposeful, well coordinated and goal oriented activities. Management ensures that organization are run in ways that ensure continuity and survival that is, they ensure that the organization doesnt go bankrupt, or fail in its ability to meet its responsibilities as at when due. They (management) must ensure the safety of the organizations assets and they should be able to do this by instituting a system of control, a system which is strong enough to both safeguard the organizations assets and ensure the accuracy and reliability of records. This system is what is known as the internal control system (Doyle, 2007:14). According to the Doyle and McVay (2007:19), internal control system can be defined as the whole system of control, financial or otherwise, established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to managements policies, safeguard the assets and secure as far possible the completeness and accuracy of the records. The individual components of an internal system are known as controls or internal controls. Internal control, according to Christine (2010:26), is defined as a process affected by an organization, people and information technology (I.T) system designed to help the organization accomplish specific goals or objectives. It is a means by which organizations resources are directed, monitored and measured. It plays an important role in preventing and detecting fraud and protecting the organizations resources. At the organizational level, internal control objectives relates to the reliability of financial reporting, timely feedback on the achievements of goals, compliance with laws and regulations and the prevention and detection of fraud. At the specific transaction level, internal control refers to the actions taken to achieve a specific objective such as the procedure for payment of money for services rendered. Internal control system is an all-embracing term. It includes all measures and devises whereby management regulates and controls the overall affairs of a business towards a defined objective by safeguarding its assets against fraud and waste, ensuring the accuracy and reliability of its records and promoting coherence, efficiency and orderliness of its duties in compliance with the business policy (Ogneva, 2007:25). The individual components of an internal control system are known as control or internal control. Internal control comprises the whole system of control, financial or otherwise, established and operated within a business, including internal check, internal audit and all other forms of control. Internal control sees to the segregation of duties in which case, separation of those responsibilities and identifying lines of reporting for all aspects of the enterprises operations involving the controls. The separation of the activity from another prevents fraud, and where it cannot be completely prevented, detection of such is done as soon as possible (Ogneva, 2007:25). The system of internal control therefore, should be under continuing supervision by management to ensure that it is functioning as prescribed and, is modified as appropriate for change in condition. Nigerian Bottling Company (Coca-cola plc) is a subvented organization and as such, profit making organization, a comprehensive system of internal control is therefore needed to enable the management to have the responsibility for adopting sound accounting policies, for maintaining an adequate and effective system of accounting, for safeguarding assets and for devising controls that will among others things help to assure the production of proper financial statement.
1.2 STATEMENT OF THE PROBLEMS Internal controls are said to be weak when they are neither effective nor adequate. Policy effectiveness means the procedure is properly dealing with a specified risk or group of exposures. Internal control breakdowns have diverse financial consequences. Depending on the control, a company may suffer losses that originate from technology operations to finance work streams. Specifically, the problem that the researcher is going to examine in this research work, are the weaknesses, if any, that exist in the internal control system of Nigerian Bottling Company, Ibadan and its effect in the organizations growth and survival.
1.3 OBJECTIVE OF THE STUDY The main objective of this study is to evaluate the effectiveness of internal control system as a means of preventing and minimizing fraud in Nigerian Bottling Company. The specific objectives are to: 1. Examine how internal control systems play a significant part in the orderly and efficient running of an organization. 2. Examine how internal controls can minimize the possibility of frauds by making it more difficult to perpetrate. 3. Examine how internal control can facilitates the early detection of frauds before much harm is done to the finance of the business.
1.4 RESEARCH QUESTIONS 1. Does effective internal Control system can be used in preventing fraud in business organizations in Nigeria? 2. Does internal Control system is an effective means to minimize fraud in business organizations in Nigeria? 3. Does there significant relationships between internal control and the orderly and efficient running of an organization?
1.5 SIGNIFICANCE OF THE STUDY This study is significant for the following reasons: 1. It will help government owned establishments and private organizations to assess their internal control measures and make amends where necessary 2. This study could arouse further research by students and/or other interested parties into some other functional areas in the company.
1.6 SCOPE OF THE STUDY All the information, facts and figures contained in this research work were obtained only from the Ibadan experimental plant, which is expected to be a representative of the entire plants of the organization without any visit whatsoever to any of its sub-stations. Although some of the officers in charge came around the plant for their monthly and/or quarterly returns during the preparation of this research work, and were thus interviewed on the relevant information to the research problem. This research work is also limited to the information obtained from returned questionnaire and other instruments, such as internet, journals, and magazines.
1.7 LIMITATION OF THE STUDY The researcher will encounter problems while conducting the research work. Some of it is that, he may be faced with hostility from the respondents. The respondents might refuse to grant the researcher all the require attention needed to gather enough data for the study due to security reasons. Other forms of limitations are: - Time constraint is one of the factors that might hinder the completion of this research work. The time given for the completion of the project may be very short, so the researcher will have to make use of the available data. - Lastly, lack of adequate finance is another issue that may limits how widespread the data can be collected, as more data would have been necessary to have a better assessment of respondents.
1.8 DEFINITION OF TERMS Audit: This is an independent appraisal and/or examination on financial statements by independent personnel, known as an auditor, in order to assess the truth and fairness of financial statements of an enterprise. Internal Check: This is an element of internal control that involves all sets of procedures put in place in an organization by the management through which all business transactions would undergo. Internal Control: This refers to the whole system of control, financial or otherwise, established by the management to run the business of an organization in an efficient and orderly manner, safeguard the assets, and ensure as much as possible the completeness, accuracy and validity of records. Error: This, unlike fraud, involves all forms of unintentional mistakes and/or irregularities on financial statements or records of an organization. Fraud: This is an intentional mistake or misrepresentation in financial information. It involves the use of criminal deception to obtain an unjust or illegal financial advantage. Business Organisation: This includes all business houses set up usually primarily for profit motive. Policy: A plan of action adopted or pursued by an individual, government, party, business etc.
REFERENCES Beneish, M. 2008. Internal control weaknesses and information uncertainty. The Accounting Review 83(3): 65-70.
Doyle, J. and S. McVay. 2007. Determinants of weaknesses in internal control over financial reporting. Journal of Accounting and Economics 44(1-2): 19-23.
Doyle, J., 2007. Accruals quality and internal control over financial reporting. The Accounting Review 82(5): 14-17.
Ogneva, M., 2007. Internal control weakness and cost of equity: evidence from SOX section 404 disclosures. The Accounting Review 82(5): 25-29.
Christine, P., (2010). The Causes and Consequences of Internal Control Problems in Nonprofit Organizations. Journal of Accounting and Economics 23(4):26-39