ABSTRACT
This
dissertation explores the critical role of internal controls in safeguarding
financial integrity within public enterprises. The primary aim of this study is
to assess how effectively internal controls contribute to financial
accountability and transparency within the Pension Transitional Arrangement
Directorate (PTAD). By examining the design, implementation, and challenges of
internal controls, the study seeks to identify strengths and weaknesses in the
current system and provide recommendations for improvement. The research
objectives are to assess the design and implementation of internal control
systems within PTAD, investigate internal and external factors hindering the
effectiveness of these controls, and evaluate the relationship between the
effectiveness of internal controls and the operational performance of the
organization. The study is grounded in Agency Theory and Control Theory, which
provide a theoretical framework to understand how internal controls influence
organizational performance. A mixed-methods approach, involving both
qualitative and quantitative data, was employed. The descriptive research
design was chosen to provide an in-depth analysis of the PTAD's internal control
systems without manipulating variables. Data were collected from both primary
and secondary sources, with the study population comprising PTAD staff involved
in finance, compliance, pension administration, and auditing, alongside
external auditors from relevant government offices. Using Taro Yamane’s
formula, a sample size of 100 respondents was determined. Data analysis was
performed using frequency tables, percentages, and mean scores, with the
Chi-square test employed to test the research questions through SPSS. The
study's findings reveal that PTAD has a well-structured and implemented
internal control system. However, challenges such as inadequate enforcement,
bureaucratic inefficiencies, lack of transparency, organizational culture, and
political interference were identified as significant obstacles to the
effectiveness of these controls. Despite these challenges, a positive
relationship between effective internal controls and improved operational
performance was evident. The study highlights the importance of continuous
improvement in internal control systems, recommending better training for
employees, stronger management commitment, regular updates to standard
operating procedures, and increased digitalization of operations to enhance
efficiency. The study concludes that while internal controls are essential for
maintaining financial integrity in Nigerian public enterprises, their
effectiveness is undermined by systemic challenges. Addressing these challenges
requires a multifaceted approach, including stronger enforcement protocols,
improved transparency, and leadership commitment to ethical practices. By
implementing these measures, public corporations like PTAD can enhance their
financial integrity, accountability, and overall operational performance,
thereby contributing to better governance and increased public trust in
Nigeria’s public sector.
Keywords: Internal Controls, Financial Integrity,
Public Corporations, Pension Transitional Arrangement Directorate (PTAD),
Operational Performance
TABLE
OF CONTENTS
Title page i
Declaration ii
Acknowledgements iii
Abstract iv
Contents page v
List of Tables vii
List of Figures viii
Chapter 1: Introduction
1.1 Background to the study 1
1.2 Statement of the problem 2
1.3 Research Aim &
Objectives 4
1.4 Research Questions 4
1.5 Significance of the Study 5
1.6 Scope of the Study 6
1.7 Limitation of the Study 6
Chapter 2: Background/ Context
2.1 Background of Pension
Scheme in Nigeria 8
2.2 Overview of the Pension
Transitional Arrangement Directorate (PTAD) 9
2.3 Context 10
Chapter 3: Literature Review
3.1 Introduction 11
3.2 Conceptual Review 11
3.2.1 The Concept of Internal
Controls 11
3.2.2 Classification of
Internal Controls 12
3.2.3 Elements of Internal
Control System 13
3.2.4 Design and Implementation
of Internal Control Systems 14
3.2.5 Factors Affecting the
Effectiveness of Internal Control 15
3.2.6 Impact of Internal
Control on Operational Performance 17
3.3 Internal Controls in
Pension Transitional Arrangement Directorate (PTAD) 19
3.4 The Concept of Public
Corporation 26
3.5 Theoretical Framework 27
3.5.1 Agency Theory 27
3.5.2 Control Theory 28
3.6 Empirical Review 30
3.7 Gap in Literature
Review 34
Chapter 4: Research Methodology
4.1 Introduction 35
4.2 Research Philosophy 35
4.3 Research Approach 36
4.4 Research Design 37
4.5 Method of Data Collection 37
4.6 Population of the study 37
4.7 Sample and Sampling
Techniques 38
4.8 Research Instrument and
Instrumentation 38
4.9 Method of Data Analysis 39
4.10 Validity of the Instrument 40
4.11 Reliability of the
Instrument 40
4.12 Ethical Consideration 41
Chapter 5: Data Analysis and Presentation
5.1 Introduction 42
5.2 Demographic information
of participants 42
5.3 Test of Reliability 49
5.4 Normality Test 52
5.5 Chi- Square Test 58
5.6 Interpretation Based on
Research Questions 59
5.7 Summary 61
Chapter 6: Summary, Conclusion and Recommendation
6.1 Summary of Findings 62
6.2 Conclusion 63
6.3 Recommendations 64
LIST OF TABLES
Table Description Pages
Table 5.2.1. Age Group 42
Table 5.2.2 Sex 43
Table 5.2.3 Educational Level 44
Table 5.2.4 Department 46
Table 5.2.5 Years of Work Experience 47
Table 5.2.6 Cadre
48
Table 5.3 Reliability Test 49
Table 5.4.1 Normality Test: Descriptive Statistic 49
Table 5.4.2 Test of Normality 52
Table 5.5.1 Chi-Square Test: Case Processing Summary 58
Table 5.5.2 Chi- Square Test 58
LIST OF FIGURES
|
Figures
|
Description
|
Pages
|
|
Figure 5.2.1
|
Pie Chart showing age
group distribution
|
43
|
|
Figure 5.2.2
|
Pie Chart showing Sex
distribution
|
44
|
|
Figure 5.2.3
|
Pie Chart showing
respondent educational level distribution
|
45
|
|
Figure 5.2.4
|
Pie Chart showing
distribution of respondent by department
|
46
|
|
Figure 5.2.5
|
Pie Chart showing the
distribution of respondent years of experience
|
47
|
|
Figure 5.2.6
|
Pie Chart showing the
distribution of the respondent cadre in the organization.
|
48
|
|
Figure 5.4.2.1
|
Histogram showing
outcome of normality test on the respondents age Group
|
53
|
|
Figure 5.4.2.2
|
Histogram showing
outcome of normality test on the respondents sex distribution
|
54
|
|
Figure 5.4.2.3
|
Histogram showing
outcome of normality test on the respondents educational level
|
55
|
|
Figures 5.4.2.4
|
Histogram showing
outcome of normality test on the respondents departments in the PTAD
|
56
|
|
Figure 5.4.2.5
|
Histogram showing
outcome of normality test on the respondents
years of Experience
|
56
|
|
Figure 5.4.2.6
|
Histogram showing
outcome of normality test on respondents cadre in PTAD
|
57
|
CHAPTER
ONE
INTRODUCTON
1.1
Background
to the Study
There are several interpretations of
what the term "management" means. However, it relates to a number of
definitions that can be used to characterize the term. For example, according
to (Gupta, 2021 Management is the process of integrating resources such as
human, financial, physical, and information within an organization to attain
organizational objectives." Henri Fayol principles posit that there are
many different tasks and roles that managers perform to help organizations run
smoothly (Ali et al., 2021). It is clear from the above sets of definitions and
interpretations that management involves people working in an organization and how
they achieve the success of that organization.
It is also clear from many of the
perspectives of management that the functions of management have been seen from
different perspectives; however, the managerial concept seems to be dealing
with more or less the approaches of managing an organization and the tools and
techniques of management. In the continued changing and uncertain world of
today, it is absolutely important to develop a set of managerial skills that
would not only enable the managers to apply capable practices in their
organizations, but it also has to be significantly helpful in enhancing the
concerned society.
It
therefore follows that to maintain financial probity and reduce the likelihood
of corruption and mismanagement, internal controls must be strong and
effective. Like many developing nations, Nigeria's public enterprises confront
formidable obstacles to financial transparency and monitoring. Thus, strong
internal control systems are necessary to maintain stakeholder trust, guarantee
regulatory compliance, and improve financial management (Owolabi, 2012).
According
to Mawanda, (2008) an effective internal
control system is important for a firm because this system assists in
preventing fraud, error, and reduces wastage. Business unit expansion has
brought out the need for internal controls, which enables orderly and efficient
business operation and ensures adherence to the internal policies of a company.
An effective internal control system is a precondition for ensuring the
accuracy and completeness of accounting records and preparing financial
information in a timely manner. The design and effectiveness of the accounting
and financial reporting processes and safeguards partially influence the
institution's ability to enhance its profitability. Although no system of
controls can ensure that the financial reports are completely free from
material misstatements or errors, an appropriately designed system of internal
control may reduce that risk significantly with regard to a company's financial
statements (Kaplan, 2008).
An
organisation uses internal controls, which are a collection of policies and
processes, to protect its assets, prevent and identify fraud, guarantee
compliance with legal requirements, and assure the accuracy of its financial
reporting. The financial stability and operational effectiveness of public
enterprises can be considerably impacted by the efficacy of these measures.
Historically, corruption, inefficiency, and financial irregularities have
plagued Nigerian public organisations, undermining their legitimacy and
performance (Oladele and Agabi, 2010).
Nigerian
public companies work in a complicated regulatory environment where
bureaucratic inefficiencies and political meddling can make it difficult to put
in place efficient internal controls. Adeyemi and Uadiale (2011) stated that
major obstacles to the efficacy of internal control systems in public
businesses are the absence of autonomy and the prevalence of corrupt
behaviours. This emphasises the necessity of thorough reforms that fortify
these organisations' governance frameworks and improve accountability.
Moreover,
using global best practices for internal control can greatly improve these
systems' efficacy in Nigerian government-run businesses. The COSO framework from
the Committee of Sponsoring Organisations of the Treadway Commission offers a
thorough approach to developing and accessing internal controls. By putting
such frameworks into place, public firms can improve operational efficiency and
financial probity by harmonising their operations with international standards
(Babatunde, 2013).
Given
the historical background of financial mismanagement and corruption, a crucial
field of research is the efficacy of internal controls in ensuring financial
integrity in Nigerian public organisations.
It is against this backdrop that this research work seeks to determine
the impact of internal controls on the financial integrity of public
corporations in Nigeria.
1.2 Statement of the Problem
The
public firms in Nigeria have been very instrumental to economic growth and the
supply of basic services to the people. These good works are often overshadowed
by mismanagement, corruption, and inefficiency that appear to be rampant in
such organisations and to have consequently jeopardised their credibility and
operational efficiency. These problems, from time to time, rear their ugly
heads and raise serious doubts about the adequacy and effectiveness of internal
control procedures followed in those types of organizations. Despite the
presence of numerous regulatory frameworks and supervision systems, several
financial irregularities have happened, which disclose a probable deficiency in
the execution and enforcement arrangement of internal controls (Babatunde,
2013).
Many
audits and inquiries into public corporations have revealed gross inadequacy in
their internal controls and financial management. Such error often results in
huge losses financially and a loss of public confidence. Continuing issues of
theft, inefficiency, and unaccounted monies all point to a problem that is
systemic in nature and should be properly investigated to identify its causes
and workable solutions. According to Eke, 2016, lack of effective internal
controls in public business is a risk to its financial stability and national
growth efforts. Moreover, political interference, lack of autonomy, poor
enforcement of regulations, among other challenges, contribute to the very
hard-to-execute internal controls in actual sense.
Institutional
checks and balances are sometimes undermined by the impact of vested interests,
and public enterprises frequently function in such circumstances. Due to this
circumstance, it is imperative that the internal control frameworks in
existence be critically examined to determine their suitability for
international best practices and their real effect on financial probity in
these organisations (Adeyemi and Uadiale, 2011).
Before
the establishment of PTAD, which is now responsible for the management and
administration of the Defined Benefit Scheme, several problems and challenges
had been encountered. Some of these problems were embezzlement of pension
funds, not showing any care for pensioners, irregularities in pension payment,
poor record keeping, existence of ghost pensioners, and complaint handling.
These failures fanned the flames of a lot of criticism and calls from
pensioners and other stakeholders to reform the system.
The
following identified problems, many in number, therefore, necessitate this
research to investigate how the Pension Transitional Arrangement Directorate
has addressed these challenges and system improvement under its current
internal controls. More so, the ongoing efforts to improve
the efficiency and openness of public companies through reform serve as another
strong indication of the necessity for this study. This research attempts to
give a detailed analysis of the effectiveness of internal controls in promoting
financial integrity by concentrating on a particular case study within the
Nigerian environment. This study seeks to identify the major factors that make
such controls effective or ineffective and generate recommendations on how to
improve such controls. Policymakers, auditors, and managers responsible for
managing the financial accountability of integrity of public firms have to
understand such dynamics.
The
apparent failure of the internal control measures to ensure financial integrity
in state enterprises in Nigeria raises the problem this study attempts to
solve. Continuing financial irregularities point to a serious weakness in the
implementation and enforcement of regulatory systems, even in their presence.
The present research, therefore, sets out to assess the current status of
internal controls with an objective of improving financial accountability and
transparency in public organizations, point out problems and hindrances that
tend to act against their effectiveness with a view to making practical
recommendations.
1.3 Aim and Objectives
Aim
The
primary aim of this study is to assess the impact of internal controls in
ensuring financial integrity within public enterprises in Nigeria. By focusing
on a specific case study, this research seeks to identify the strengths and
weaknesses of current internal control systems and provide recommendations for
enhancing financial accountability and transparency.
Objectives
i.
To assess the design and implementation of
internal control systems within the selected public enterprise.
ii.
To investigate the internal and external
factors that hinder the effectiveness of internal controls.
iii.
To evaluate the relationship between the
effectiveness of internal controls and the operational performance of the
public enterprise.
1.4 Research Questions
i.
How are internal control systems designed
and implemented within the selected public enterprise?
ii.
What internal and external factors hinder
the effectiveness of internal controls in the selected public enterprise?
iii.
What is the relationship between the effectiveness
of internal controls and the operational performance of the selected public
enterprise?
1.5 Significance of the Study
This
research is important since it has the ability to provide a clear understanding
of how well equipped internal controls are in ensuring that financial integrity
is kept within Nigerian public businesses. Thus, this research would arm one
with the necessary details regarding the present status of the internal system
of controls with the view of focusing on the strengths and the weaknesses of
the system by discussing a specific case. Cross-checking the economy and the
uttermost duty these public firms have in managing the public resources make
this one especially necessary. Improved financial management, decreased cases
of fraud and misappropriations, and increased public confidence in these
organizations are all potential benefits of improving the internal controls.
Another
major contribution of this research is identification and clearing the
roadblocks that hamper the effectiveness of internal control in public
companies. It will not only result in a better understanding on the part of
organizational leaders and policymakers of the impediments—bureaucratic
inefficiencies, lack of autonomy, political meddling—to make changes that will
improve the climate in which efficient internal controls are applied. The
findings of the research can further be applied in formulating policies
targeting the enhancement of governance, accountability, and openness in public
firms, hence increasing overall effectiveness and productivity.
What
is more important, however, is the fact that the study will make an empirical
investigation into the internal control and its effect on public firms'
performance. The study could therefore add to suggesting, using evidence
provided, a very tight system of internal control that would result in high
financial integrity through a showing of a positive relation between sound
internal control systems and good financial outcomes. This might just give the
impetus needed for public enterprises to invest in better monitoring systems
and embrace global best practices that would bring long-term financial
stability and operational success.
Further,
an attempt shall be made to document how the efficacy of internal controls is
viewed by the various stakeholders. This is important, since the success in the
development and maintenance procedures of internal control is highly dependent
on stakeholders' acceptance. By taking into consideration the opinions and
experiences of the management, auditors, and staff, this research study can
achieve a well-rounded understanding of the benefits and practical pressures of
internal controls, hence affording it a capability to give more focused and
useful recommendations.
This
is important at different levels: academic contributions, policy implications,
and practical applications. It seeks to cover an existing knowledge gap on
internal controls in Nigerian public enterprises; derive recommendations based
on empirical data to provide insights into better financial integrity; and
provide insights that might be helpful for organizational leaders and
policymakers to improve governance and accountability in the public sector. The
findings of this study have great practical relevance in the realization of
overall economic growth and reform efforts within the Nigerian public sector.
Policymakers,
auditors, and managerial professionals could draw significant information from
the conclusions of the study to help them as they strive to better internal controls
and encourage public businesses to be financially integral.
1.6 Scope of the Study
This
study analyses a particular governmental firm in Nigeria as a representative
case study to assess how well internal controls ensure financial integrity. It
includes a thorough examination of the existing internal control frameworks,
pointing out their advantages and disadvantages. The study looks into the
difficulties and impediments—such as political meddling and ineffective
bureaucracy—that prevent efficient internal controls. In order to provide a
thorough grasp of the practical ramifications, it also looks at how internal
controls affect the public enterprise's financial performance and collects
stakeholder opinions. The objective of the research is to formulate feasible
suggestions for augmenting the efficacy of internal controls and elevating
financial accountability and transparency in Nigerian public organisations.
1.7 Limitation of the Study
They
did not feel free to release the information for fear of it being used to
threaten them or embarrass them or their ventures. Some declined to fill in the
questionnaires altogether. There was a letter of introduction from the
University, incorporated in the study, which assured the respondents that the
information they would provide would remain confidential and be used for purely
academic purposes only.
Further,
the information to be gathered was subjective, hence involving personal
feelings, emotions, attitude, and perception, which could not be easily
quantified and verified objectively. This entailed assurances by the researcher
to the respondents that their participation was very important and that their
responses would be anonymous. Other limitations involved time and resource
constraints.
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