ABSTRACT
The study sought to evaluate the effect of internal controls
on revenue generation in Ministry of Finance. The research design that was
employed in this study is descriptive design. The study population was all the
employees at the Ministry of Finance during the calendar year 2013. Data was
analyzed by use of the linear regression.
The study found out that ICS
contributes to revenue generation at the company. Ministry of Finance play a
number of roles in supporting the systems by ensuring all documents are
authentic, correct and confirm that the relevant officers have signed all
documents before processing to prevent misappropriation of revenues. The
company has formalized policies and procedures for all activities which allows
for good and efficient communication, control and monitoring of activities. All
employees understand the concept and importance of internal controls, including
the division of responsibility. Accounting records are limited to employees
with designated responsibility for such records. The study revealed that Ministry
of Finance reviews its ICS when need arises.
Numerous audits are conducted in line with technological
changes to ensure the systems‟ sustainability. Long queues have been replaced
by auto-receipting system that reduces time wasted on serving students. There
were formalized policies and procedures for all major operations of the entity
and policies. The Management is committed to the operation of the system and
provides feedback to the officers about the operation of the system. Management
has defined appropriate objectives for the entire organization and has criteria
for ascertainment of which fraud - related risks to the organization are most
critical.
The study recommends firms to cultivate integrity and ethical
values among its employees and management. Effective board of directors,
management, and internal audit departments should be established in
organizations. Management should design internal controls to ensure efficiency
and effectiveness, reliability of financial reporting as well as compliance
with laws and regulations. Firms should adopt internal control and information
systems that produce operational, financial and compliance-related information
reports to make it possible to run and controls the business. Internal controls
need to be adequately monitored in order to assess the quality and the
effectiveness of the system's performance over time. Monitoring of customer
feedback and audits should be conducted periodically by internal auditors.
TABLE OF
CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 Background to
the Study
1.1.1 The Concept of Internal
Controls
1.1.2 The Concept of Revenue
1.1.3 Relationship between
Internal Controls and Revenue
1.1.4 The Concept of Internal
Control and Revenue Generation in Nigeria
1.2 Research Problem
1.3 Objectives of the Study
1.4 Significance
of the Study
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
2.2 Review of Related Theories
2.2.1 The Agency Theory
2.2.2 Attribution Theory
2.2.3 Reliability Theory
2.3 Internal Control Systems and Revenue Generation
2.3.1 Control Environment
2.3.2 Risk Assessment
2.3.3 Information and Communication System
2.3.4 Control Activities
2.3.5 Monitoring
2.4 Review of Empirical Studies
2.5 Summary
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Study Population
3.4 Data Collection
3.4.1 Data Collection Procedure
3.4.2 Data Collection Instruments
3.4.3 Pilot Testing
3.5 Data Analysis
CHAPTER FOUR
DATA ANALYSIS AND
PRESENTATION OF FINDINGS
4.1 Introduction
4.2 Data Presentation
4.2.1 Respondent’s Educational Qualification
4.2.2 Time Spent by Respondents Working at Ministry of Finance
4.2.5 Ministry of
Finance ICS Rating
4.2.6 Control
Environment
4.2.7 Risk
Assessment
4.2.8 Information and Communication System
4.2.9 Control
Activities
4.2.10 Monitoring
4.2.11 Regression
Analysis
4.3 Summary and Interpretation of Findings
CHAPTER FIVE
SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1 Summary
5.2 Conclusion
5.3 Recommendations to Policy and Practice
5.4 Limitations of the Study
5.5 Suggestion for Further Studies
REFERENCES
QUESTIONNAIRE
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The rapidly changing economic and competitive environments, shifting
customer demands and priorities, and restructuring for future growth and social
trend indicates how extensive an organization internal controls should be
structured to ensure continuous growth in revenue generation. Internal control
is a dynamic integral process that is adapting continuously to the changes
facing modern organizations. At all levels of the organization, the management
and personnel have to be involved to address risks and to provide reasonable
assurance of the achievement of the organization's mission and general
objectives.
Every organization strives to provide products and render some service at
a price using the most effective and efficient operations of its business. It
is by the effective and efficient operations in products or services delivery
that revenue flow into the organization. In the Nigeria, organizations failures
and widespread dip in revenues over the past two decades have been due to
operations that have resulted into mismanagement thus elevated the importance
of effective internal control within the formal business sectors. Internal
control, which assures the stability of every organisation, therefore has
gained importance today. This is because the control systems in place are a
pillar for an efficient accounting system as well as the achievement of
organizational goals.
1.1.1 The Concept of Internal Controls
Internal controls are measures that organizations institute with the aim
of ensuring that the objectives, goals, and mission of the organization are met
(Rezaee, 2002). They refer to set of organizational policies and procedures
that ensure any transaction is processed in the appropriate way to avoid waste,
theft and misuse of organization resources. Through internal control systems,
organizations achieve performance and organizational goals, prevent loss of
resources, enable production of reliable reports and ensure compliance with
laws and regulations. Thus internal control is established by the organizational
management to ensure that the business of enterprise is carried out in an
orderly and efficient manner. This further ensures adherence to management
policies safeguard the assets and secure the completeness and accuracy of the
records.
Organizations are constantly and extensively working to improve their
internal control systems so as to increase revenue inflow, survive in the
rapidly changing economic and competitive environments, and adapt to the
shifting customer demands and priorities (Kantzos and Chondraki, 2006).
Internal control consists of five interrelated components which are derived
from the way management runs a business, and are integrated with the management
process: control environment; risk assessment; control activities; information
and communication; and monitoring (Carmichael, 1996). According to Liu (2005)
and Rittenberg et al. (2005), under the current operations of organizations in
general, the importance of internal control can be divided into six major
categories; detecting error and fraudulence, decreasing illegal conduct,
improving the competence of the business entity, improving the quality of data,
helping to create the business infrastructure, and decreasing auditors‟ fee.
1.1.2 The Concept of Revenue
Revenue refers is that monetary event of asset valves increasing in the
organization because of the physical event of production or sales of products
or services of the organization (Pandey, 1996). Rittenberg and Schwieger (2005)
define revenue as the inflows or enhancements of assets of a firm or
settlements of its liabilities during a period from delivery or producing
goods, rendering service or other activities that constitutes the entity‟s
ongoing major or central operations. In addition, described revenue as inflows
of asset (almost always cash or accounts receivables) received for products or
services provided to customers.
Organizational performance is in terms of revenue generation portrayed by
the levels of assets accumulation, wealth created, and the quality services by
customer level of satisfaction and customer complaints (Kloot, 1999). For
better revenue generation, organizations should critically look at customers
and other stakeholders in business and establish how best they are satisfying
their needs. Organizations should continuously improve their revenue and have
an internal control system that is intervened with organizations operating
activities and it is most effective when controls are built into the
organizations infrastructure in terms of continued improvement on performance
standards as part of the competitive advantage of the organization.
1.1.3 Relationship between Internal Controls and Revenue
Internal control systems including internal audits are intended primarily
to enhance the reliability of financial performance, either directly or
indirectly by increasing accountability among information providers in an
organization (Jensen, 2003). Internal control therefore has a much broader
purpose such that the organization level of control problems associated with
lower revenues, which explore links between disclosure of material weakness and
fraud, earnings management or restatements (Doyle et al., 2005).
Internal controls provide an independent appraisal of the quality of
managerial performance in carrying out assigned responsibilities for better
revenue generation (Beeler et al., 1999). According to Fadzil et al. (2005), an
effective internal control system unequivocally correlates with organizational
success in meeting its revenue target level. Effective internal control for
revenue generation involves; regular a review of the reliability and integrity
of financial and operating information, a review of the controls employed to
safeguard assets, an assessment of employees' compliance with management
policies, procedures and applicable laws and regulations, an evaluation of the
efficiency and effectiveness with which management achieves its organizational
objectives (Ittner et al., 2003).
Most organizations no longer set up internal control system as a
regulatory requirement but also because it helps in ensuring that all
management activities are appropriately carried out (Kenyon and Tilton, 2006).
Further, organizations are making it a point of duty to train, educate, and
sensitize their employees on how to use these internal control systems since
its effectiveness depends on the competency and dependability of the people
using it. All these control actions ensure that any risks that may affect the
company‟s ability to achieve its goals are appropriately avoided and should
occur at all levels and in all functions of the organization.
Further, there are three major classifications of internal controls;
preventive, detective, and corrective (Singleton, 2006). Preventive controls
predict potential problems before they occur, make adjustments, and prevent an
error, omission or malicious act from occurring. The detective controls are
used to detect and report the occurrence of an omission, an error or a
malicious act. Finally, the corrective controls help in ensuring that the
impact of a threat is minimized, identify the cause of a problem as well as the
correct errors arising from the problem. Corrective controls correct problems
discovered by detective controls and modify the processing system to minimize
future occurrence of the problem.
Risk management encompasses a set of resources, behaviors, procedures and
actions that is adapted to the characteristics of each organization and that
enables managers to keep risks at an acceptable level for the company. Risk
management and internal control systems complement each other in controlling
the company‟s activities. Its aim is to identify and analyze the company‟s main
risks. Risks that exceed the acceptable levels set by the organization are
dealt with subject to plans of action. For some time now, risk management in
general and internal control more specifically; have been considered as
fundamental elements of organizational governance. As a consequence, risk
management is beginning to be perceived as a new means of strategic business
management, linking business strategy to daily risks and then optimizing those
risks in order to realize value (Saarens and de Beelde 2006.) In the United
States for instance in 1992, a group of companies sponsored the formation of
the tread way commission to study and report on how to improve on the
effectiveness of internal control systems, and more recently in 2002 the US
congress passed the Sarbanes Oxley act giving new directives on how companies
are to report on the effectiveness or otherwise of their internal control
systems.
1.1.4 The Concept of Internal Control and Revenue Generation in Nigeria
Internal control has gained importance today in many organizations in Nigeria
including the Ministry of Finance Enterprises and Services (Ministry of Finance)
Limited. In particular, internal controls are required to assure that if
properly designed and implemented, Ministry of Finance achieved its goals
mitigating its losses. Established over 20 years ago, Ministry of Finance Ltd
is a knowledge-based premier body corporate wholly owned by the Ministry of
Finance. It mandated to harness the resources of the university with a view to
enhancing its teaching and research capabilities; promoting and providing
financial managerial services for income-generating activities within the
university. Its vision is to be premier
knowledge-based business enterprise while its mission is to promote and engage
in knowledge-based business activities for the benefit of the university and
other stakeholders through the provision of financial management, consultancy,
bookstore and hospitality services.
In addition, Ministry of Finance provides financial managerial services
for all the academic revenue and the following University based Income
Generating Units (IGUs) like; the Chiromo Funeral Parlour (CFP), Diagnostic
Imaging, Immunology, Haematology, and Clinical Chemistry Laboratory services,
dental services at the Dental Plaza, and Veterinary Farm and Small And Large
Animal Clinics in Faculty of Veterinary Medicine. Currently, the business units
comprise of Ministry of Finance include; the bookstore, Arziki Restaurants and
Chiromo Conference Centre. In order to sustain efficiency and effectiveness, Ministry
of Finance is organized in six key sections; Finance, Human Resource and Administration
(HRA), Business Advisory Services (BAS), Information and Communication
Technology (ICT), consultancy and procurement. The internal control is ensured
through communication in the sections‟ processes through which all relevant and
reliable information is identified, captured and communicated in a timely
manner to all relevant players within Ministry of Finance thereby enabling them
to carry out their responsibilities.
1.2 Research Problem
Organizations continue to experience low levels of revenue generation
most of which are manmade and therefore avoidable. Despite the numerous rules
and regulations, the varying levels in revenue generation occur across all
entities in the government and private sectors. No matter how well it is
designed and operated, an internal control system can only provide a
reasonable, not absolute assurance that the objectives of the company‟s
internal control system are met in terms of revenue generation.
This heightened interest in internal controls is, in part, a result of
the increased revenue in the the academic programs in Module II. An analysis of
the problems related to this whether there are
effective internal control system since such systems help in preventing
or enable earlier detection of the problems that led to the losses (Rezaee,
2002).
According to (Kirsty, 2008) an internal control system creates an
organization‟s confidence in its ability to perform or undertake a particular
task and prevents errors and losses through monitoring and enhancing organizational
and financial reporting processes as well as ensuring compliance with pertinent
laws and regulations. Muio (2012) studied the impact of internal control
systems on the financial performance of private hospitals in Nairobi and
established a significant relationship between internal control system and
financial performance. Kakucha (2009) evaluated the level of effectiveness of
internal controls operating in Nairobi and established that there are
deficiencies in the systems of internal controls, with the degree of
deficiencies varying from one enterprise to another. Njui (2012) investigated the effectiveness of
internal control and audit in promoting good governance in the public sector in
Nigeria and found that internal control has the greatest effect on corporate
governance within Nigeria government ministries followed by risk management
while compliance and consulting had the least effect. Ngugi (2011) survey of
internal control systems among the listed private companies and the public
sector companies in Nigeria in which the results indicated that the private
sector compared to the public sector has a strong internal control system.
Limited research has been carried out to examine the effect of the
internal control system on revenue generation in Nigeria. All the above research on internal controls
has a gap as they did not take into consideration on the components of internal
control and risk analysis. It is due to this background that the study sought
to fill the knowledge gap by assessing the effect of internal control on
revenue generation in Nigeria while focusing on Ministry of Finance.
1.3 Objectives of the Study
The objective of this study is to evaluate the effect of internal
controls on revenue generation in Ministry of Finance.
1.4 Significance of the Study
Ministry of Finance Management
First, the study would benefit the Ministry of Finance Audit Committee by
assuring itself that appropriate processes are functioning effectively to
monitor the risks to which the company is exposed and that the system of
internal control is effective in reducing those risks to an acceptable level.
Secondly, the findings would be of great use to Ministry of Finance management
in accounting to the Board for developing, operating and monitoring the system
of internal control and for providing assurance to the Board that it has done
so. Third, the results of the findings would be used by the employees to in
improving their financial performance through effective implementation of the
internal control systems and processes.
Researchers and Scholars
This study contribute to the existing knowledge, address and provide the
background information to research organizations, individual researchers and
scholars who would want to carry out further research in this area. The study
would help researchers and academicians to expand their research into the
effect of internal control on revenue generation (both public and private) in Nigeria
as literature review.
The Government
The study would finally
help the government ensure quality of internal and external reporting and
maintenance of proper records and processes that generate a flow of timely
relevant and reliable information from within and outside the organization.
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