CHAPTER ONE

BACKGROUND OF THE STUDY

1.0       Introduction

Internal control over the years has seen a tremendous increase interest in the both academia and the world of business.  The impact of internal control cannot be underestimated.  Since the institutionalization of socio-economic development in the form of goals guiding business developments, the avoidance of waste and losses has proven difficult. However, an internal control as the most effective partner in solving organizational challenges has been found.

Marah (2007) defines internal control as well-planned measures that are instituted by an organization to ensure the achievement of objectives. They are agreed rules and regulations put in place by management to help improve the working environment which in turn helps the organization to achieve its objectives.

According to the COSO integrated framework 2013, internal control is a step by step programmes and processes that are instituted by the executives and directors of a company to provide protection to the resources of the organization in achieving its objectives.

Internal control plays a very important role in the operational performance of an organization. Without a good internal control measures in an organization, things are likely to be done anyhow which might lead to poor performance and losses. A strong internal control ensures risk is mitigated and resources protected.

In this analysis the researcher intends to explore how internal controls actually contributed to empower businesses to release creativity and entrepreneurship of a business or organizational set up. Internal Controls in Public Sector Organization otherwise referred to as managerial  policing plays an essential role in maintaining confidence in the stewardship of public funds by always putting those to whom the responsibility of stewardship is entrusted, in check.

To protect the interest of the public, every Local government agency or unit such as the TMA require some forms of checks and balances to self-appraise the organization and for that matter the assembly with regards to its operations and functioning. This is done mainly and unconsciously with the institutionalization of internal control mechanisms in the Assembly and also by allowing the system to work or function properly.

Organizations therefore need to establish efficient and effective Internal Control mechanisms to ensure that the organization on the whole functions and operational activities are in accordance with established standards and geared towards the attainment of the organizational goals. In this report therefore, the Internal Control systems of which the Internal Audit function is a major player or component and forms one of the tools in any control mechanism need to be empowered to report on significant issues to management for redress and for purposes of informed decision making.

Recent corporate scandals (such as Enron and WorldCom scandal in 1990) and the legislations, like the Sarbanes Oxley Act which was passed in July 2002 have spurred the public to focus on the importance of Internal Controls and government of organizations which is not limited to only private business activities but include state, federal agencies, public utilities, hospitals, colleges and universities, pension schemes, boards of trustees, the legislature, board of governors and local government institutions of which the Techiman Municipal Assembly is part.

The Internal Control function of an organization, for that matter TMA has multiple roles of oversight, insight and foresight responsibilities.  Oversight responsibilities handled by the Internal Control Mechanisms of the TMA helps to ensure that the Assembly is doing what it is supposed to do and serves to detect and deter public corruption, in the assembly.

By its insight responsibilities, the Internal Control Mechanisms or function assist decision makers (management of the assembly) by providing them with an independent assessment of the Assembly’s policies, programmes, operations and results. For its foresight responsibilities, the Internal Control function helps to identity trends and emerging challenges of the organization.

In the midst of the immense benefits of effective Internal Control systems to the citizenry and stakeholders of the Assembly as a whole, this study seeks to assess the effectiveness of Internal Controls mechanisms in Public Sector Organization with a case study of the Techiman Municipal Assembly (TMA). 

1.1       Problem Statement

Most often, there is lack of mutual understanding with regards to the effective functioning of Internal Control mechanisms and the management functions of govern organizations with regards to planning process, each other’s role and working together to facilitate effective organization arrangements. A situation that often results in antagonisms and confusion in the governance processes of many government organizations (Assemblies).

Internal Control Mechanisms in public sector organizations are often misconstrued and often aligned with political and management affiliations rather than they being looked at objectively and holistically. This state of affairs often results in mistrust of the public in the Internal Controls in the public sector, particularly in the local government systems (Assemblies).

Further, the reporting lines of the Internal Audit Units in the organizational structure of the Assemblies tend to conflict with other functions of numerous monitoring and review teams in the local government system thereby affecting negatively the independence of the Internal Audit Unit and the scope of their work.

Without over emphasizing the immense benefits of internal controls in public sector organizations and to the citizenry, coupled with recent revelations of financial malfeasances in many local government institutions, particularly the assemblies as unearthed by the Public Accounts Committee (PAC) of Parliament. Misapplications and misappropriations of district assembly funds cited in the Report of the Auditor General on the Accounts of District Assemblies for the year ended 31 December 2010 pages 16,

26, 28 and 50 in contravention of Part VII Section 2, Part VIII Sections 1 and 2 of the

Financial Memoranda for District Assemblies, 2004 and Section 179 (1) of the Financial Administration Regulations, 2004 are a few of the financial malpractices in the public sector which boils largely to weak and ill functioning internal controls. This study therefore seeks to address the role of internal controls in Public Sector Organizations and for that matter the district, municipal and metropolitan assemblies of Ghana. Accordingly, the practice boundaries between what are internal controls versus managerial reviews/oversight, and what are controls in general versus other assessments or evaluation functions constitute what this study seeks to unearth. 

In recent years, programmes have been developed by sub-region African countries to include new ideas which are directed towards bringing in improved techniques in services provided by government in general.  

In Ghana for instance public sector financial management have over the past decade under gone various reform which included  Programme of Action to Mitigate against

Social Cost Adjustment and Development (PAMSCAD), Public Financial Management Programme (PUFMAP), Budget Performance and Expenditure Management System

(BPEMS) and the Ghana Integrated Financial Management Information System (GIFMIS) all of which seeks to strengthen the internal control systems in the public sector to have an efficient and waste less financial management system. 

However, recent accounting frauds by many of our public sector institution have created mistrust among users towards organizations.  These incidences create consequences which have an economic impact. For the public to have the most beneficial impact of the Assemblies operations, it is essential that the Assemblies report the results of their work promptly, be it financial or operational and not just to elected and appointed representatives but also to management of the assemblies.  Some executives of many organizations have sought ways to control the enterprises that they run. Internal controls help an organization to achieve its objectives.

An increasing change in the organizations environment has become a common feature in modern organizations and business which call for effective internal control systems to promote efficiency, effectiveness and compliance with rules and regulations. There have been calls for better internal controls in organizations.  Internal controls are therefore looked upon more and more as a solution to a variety of potential problems in organizations including the Techiman Municipal Assembly. 

1.2       Objectives of the Study

The objectives of the study include:

1.            To identify the various forms, measures and mechanisms put in place to enhance the effectiveness of internal controls in the Techiman Municipal Assembly – TMA.

2.            Assess the effectiveness of the existing internal controls at TMA.

3.            To identify and assess the key element of an effective and efficient internal control function. 

4.            Identify the major problems that inhibit the effective and efficient functioning of internal controls in the accomplishment of the TMA goals  

1.3       Research Questions

The research will be directed with the following questions;

1.            What are the various forms and mechanisms put in place to enhance the effectiveness of internal control at TMA?

2.            How effective are the existing internal controls at TMA?

3.            What are the key elements of an effective and efficient internal control function at TMA?

4.            What are the major problems that inhibit the effective and efficient functioning of internal controls at TMA?

1.4       Scope of the Study 

The study was conducted on internal control mechanisms and activities in the Techiman Municipal Assembly (TMA) focusing on the effectiveness that such control mechanisms have on the overall governance of public sector organizations, particularly the Techiman Municipal Assembly (TMA). It will also take a look at internal audit recommendations, implementation, monitoring and strategies as well as other elements that comes together to form the case study.

The Techiman Municipal Assembly (TMA) is chosen for this study out of a total of 216 Metropolitan, Municipal and District Assemblies (MMDAs) together a host of many more other government organizations and agencies in Ghana, partly because of its proximity to the researcher and for cost minimization.  In this light therefore, purposive sampling approach was adopted in selecting the case study organization.

More so, the TMA is chosen for the study because of the preparedness of its staff to participate and contribute towards the research study.  Furthermore, the Assembly has a large operational coverage which translates into larger volume activities, capable of being used for a meaningful study.

1.5       Significance of the Study

The importance of this study cannot be overemphasized, as it sets out to unearth how an effective and efficient internal control function impacts positively on good governance and accountability in public sector organizations; it also unearth as well the negative impacts of ineffective and inefficient internal control mechanisms impacts on governance of public sector entities. Thereby helping policy formulators and decision makers in public entities to know the kind of policy instruments regarding good governance that will help them to shape their respective organizations and institutions so as to make them more efficient and viable and vision oriented.

As evidenced in the introduction, internal controls form the cornerstone of good governance in all organizations. In the public sector, internal controls has a major role to play in protecting public interest relating public funds as well other important aspects of the purpose of public institutions. It is therefore not out of place to assess and take stock of internal control activities’ impact on good governance in the Ghanaian public sector entities in order to help plan the way forward.

The study also seeks to provide an opportunity to policy makers (government) to harness the most benefits out of the internal control function and tools by identifying loopholes in the existing processes/mechanisms and knowing how it impacts on good governance in government activities. 

Lastly, it seeks to add to the knowledge and existing literature and also to serve as a pivot for future research work in the area or subject matter.

1.6       Limitations of the Study

The major limitations anticipated in this research study included time and financial constraints. The time frame for the conduct of the study is limited, coupled with financial difficulties other public sector organizations beside the TMA cannot be

visited.

The case study approach is be adopted for this research, which means that there is the likelihood that issues to be discussed in the case study Assembly might not apply in other public sector organizations in the country.

Again the sensitivity and confidentiality of management information regarding internal audit and other management review reports and responses will make it difficult getting easy access to the needed data from the case study Assembly. The researcher, however, intends to find appropriate antidotes to overcome these in order that they do not affect the findings of this research work in any way.

1.7       Organization of the study

For the work to be orderly and to enhance effective flow of reading and to afford readers of this thesis better understanding of the subject matter, the entire work is to be structured and organized into five (5) main chapters. 

The Chapter one contains the proposal and general introductory information about the study.  It will include background of the study, problem statement, and purpose of the study, scope, limitations and the organization of the study. 

The second chapter presents a review of literature related to the study with the view to positioning the study within other similar studies and to explore available knowledge in the study area.

Chapter three shall detail out the procedures and methods that will be used to carry out the study.  It will explain the entire research design and methodology to be used, the data collection methods and statistical procedures used to analyze the data.  The chapter also presents a brief profile of the Techiman Municipal Assembly (TMA).

Chapter four shall contain analysis done on the data collected and presents them in forms that shall be easily and readily understood by readers.  This will include tables, figures, charts and narrations. Chapter five will feature a summary of findings, conclusions and recommendations that shall be made for appropriate corrective action. 

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