Abstract
This study
investigates the impact of internal control on the financial management of
Nigeria Bottling Company. The research hypotheses were formulated to explore
the relationship between internal control measures and the proper utilization
of organizational funds and assets, the occurrence of fraud and revenue losses,
and the accuracy of financial statements. Employing a quantitative descriptive
research design, data were collected from a sample of 77 workers of Nigeria
Bottling Company using a structured questionnaire. Analysis of variance (ANOVA)
was utilized to analyze the collected data.
The findings indicate
that internal control measures significantly enhance the accurate
representation of organizational activities in financial statements and ensure the
proper utilization of organizational assets and funds. Moreover, the
perpetration of fraud and revenue losses within the organization is linked to
weaknesses in the internal control system.
In conclusion, the
study emphasizes the critical role of a well-planned internal control system in
achieving a true and fair presentation of financial statements. Recommendations
include the implementation of adequate organizational controls, clarification
of staff duties, and periodic evaluation and strengthening of the internal
control system to address organizational weaknesses.
Keywords: Internal control, financial
management, Nigeria Bottling Company, fraud, revenue losses, organizational
controls.
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
1.2 Statement
of Problem
1.3 Objectives of the study
1.4 Research Questions
1.5
Research Hypothesis
1.6 Significance of the Study
1.7 Scope of Study
1.8 Definition of terms
CHAPTER TWO
REVIEW OF LITERATURE
2.1 Conceptual Framework
2.1.1 Concept of Internal Control
2.1.2 Internal
Control
2.1.3 Roles
and Purpose of Internal Control
2.1.4 Types
of internal control
2.1.5 Essential Features of Internal Control in
Financial Management
2.1.6 Internal Control in
Financial Institute and Statutory Guideline as a Tool Against Fraud and
Distress
2.1.7 Bearers of Internal Control Responsibility
2.1.8 Key Success Factors of a Financial
Institution
2.1.9 Element of a Good Internal Control
2.1.10 Internal Check
2.11 Relationship Between Internal Auditing and
Internal
2.12 Management and Control System
2.2 Theoretical
framework
2.2.1 Stewardship
Theory
2.2.2 Social Control Theory
2.3 Empirical review
2.4 Limitations
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Research design
3.2 Study area
3.3 Population of the Study
3.4 Sample Size and Sampling Technique
3.5 Sources of Data
3.6 Data collection instrument and procedure
3.6.1 Personal interviews
3.6.2 Questionnaire
3.6.3 Validation and reliability of the instrument
3.7 Data
analysis techniques
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
4.1 Data Presentation
4.2 Testing
of Hypothesis
4.2.1 Hypothesis
One
4.2.2 Hypothesis
Two
4.2.3 Hypothesis
Three
4.3 Discussion
of Findings
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary of findings
5. 2 Conclusion
5.3 Recommendations
REFERENCES
APPENDIX: QUESTIONNAIRE
CHAPTER
ONE
INTRODUCTION
1.1 Background
of the Study
Every organization both
profit or non-profit organization has its objectives and goals in mind to
achieve. For the non-profit making organization, their goal is to satisfy the
social need of the citizens and in the effort to achieve these purposes
supervision more often than not play a vital role.
The size and scope of these
organizations have sometimes made it hard for the executors to exercise
personal and first hand supervision of operation. It is in this light that
internal control established by management is initiated. For an organization to
carry out its business there must be some factors put in place for the smooth
running of the organization like materials, machines, money etc. These need to
be well co-ordinated in order for the success of the organization to be
achieved. These factors are used by a group of persons known as management.
Neither can management exist without an organization both is inseparable. The
system of internal control provides assurance to management of the
dependability of the accounting data used in the decision making of the
organization. It has been discovered that due to lack of internal control
several banks have been discovered to have defrauded its customers mostly
foreign investors, Having discovered this, banks now take extra precaution
before clearing a cheque because of rampant incidence of fraud and forgeries
which have placed bank loss on average of N1m each working day of the year in
Nigeria. Due to this challenges, CBN issued a directive to banks to increase
its capital base to N25 billion.
Management use internal control as a tool to
check staff, due to the fact that managers are not able to monitor the
activities of the organization. It therefore adopts the internal control in
such a way that the system checks itself and any irregularity within the system
is been detected and corrected.
To ensure that the system
checks itself, management could use devices such as segregations, supervision
of work and acknowledgement of performance. The effective arrangement and
implementation of this control system would ensure proper management. Internal
controls are essential features of any organization that is non-effective.
However no system of internal control can by itself guarantee efficient administration
and the completeness and accuracy of the records nor can it be proof against
fraudulent act especially in connection with those holding the position of
authority.
According to Leslie, (1993)
the inherent limitations of internal control include
•
Management overdoing controls
whenever the control does not suit their selfish ambitions
•
Fraud committed by someone who has
carefully studied the system of a particular organization
•
Abuse of responsibility i.e. taking
advantage of the position held to do or carryout illegal acts.
•
Cleverness of some people who
specialize in gelding computer codes of an organization which are designed to
prevent public access, no matter how secure they might be.
•
Employees of an organization making
potential human errors caused by sheds of excess worked alcohol, carelessness,
distractions etc.
All these are factors that can limit
the effectiveness of internal control system in the financial management of an
organization.
1.2 Statement of Problem
The problem can be identified as
“lack of internal control system on the financial management of an organisation
that affects profitability and service quality of a firm. It is argued that
there may be failures to understand the impact of internal control system in a
firm until the public sector runs void of financial controls. The absence of
adequate financial control measures exposes the financial management of public
sector to certain threats such as incorrect financial statements, loss of
government assets, mismanagement of government vital documents, incorrect and
unreliable financial records which may lead to loss of government integrity,
and implementation of accounting policies inconsistent with the applicable
legislation. However, there is a general perception that institution and
enforcement of proper internal control systems may lead to improved financial
management. It is also a general belief that properly instituted systems of
financial controls improve the reporting process and also give rise to reliable
reports which enhances the accountability function of management of an entity.
Nevertheless, available literature indicates that in spite of elaborate system
of controls in organizations, financial management has been elusive in most of
these organizations (Sawyer, 2003). Therefore, all aspects of financial
management in public sector organizations should operate in an environment
where there is confidence in the veracity of the financial information being
used. Hence, the company requires robust systems of financial controls
supported by effective audit and assurance arrangements. This necessitated this
study which sought to establish the effect of internal controls on financial
management of an organisation using Nigeria Bottling Company, Enugu Plc as a
case study.
1.3 Objectives
of the study
The general objective of this
research work is to determine the effect of internal control on the financial
management of an organization. Specifically, this research work stands to
achieve the following objectives:
•
To determine the impact of internal
control to proper use of organizations funds and assets.
•
To ascertain whether perpetration of
fraud and losses of Revenue in an organization are as a result of weakness in
internal control system.
•
To ensure whether a true reflection
of organizational activities are presented in financial statement where there
is an active observation of internal control measures
•
To determine the relationship between
internal control measures and proper keeping of accounting records.
1.4 Research Questions
The research questions are:
•
To what extent does the internal
control measures effect on appropriation of organizational assets and funds.
•
To what extent does perpetration of
fraud and losses of Revenue in an organization are as a result of weakness in
the internal control system.
•
To what extent does internal control
enhance a true reflection of organization activities as presented in the
financial statement?
•
To what extent does a relationship
exists between internal control and proper keeping of accounting records.
1.5
Research Hypothesis
Ho1:Internal
control measure does not ensure proper use of organizations funds and assets.
Ho2:Fraud
perpetration and losses of revenue in an organization are not as a result of
weakness in the internal control system.
Ho3:Internal
control does not ensure, a true reflection of an organizational activities as
presented in financial statement
1.6 Significance
of the Study
There is no controversy that
this research works have been conducted on internal control system, however
much emphasis has been placed on the impact of a good internal control system
on financial management of organizations.
This research work will go a
long way in helping an organization discover the impact of weakness in internal
control and suggest measures in correcting them. It will also reveal the
problems caused by bad internal control system and be useful to students,
scholars, lecturers and other third parties as it shall open new area of
further research work and at same time advance challenges to up-coming
researchers.
1.7 Scope
of Study
The effect of a good internal
control aids management effectiveness in its organization. This research will
specifically focus attention on the activities of organizations in Nigeria and
due to the logical point that not every organization can be studied; this
research is therefore limited to the Nigeria Bottling Company. The focus of
this research is to show the impact of a good internal control system in the
performance of organization financial management.
1.8
Definition of terms
The following terms have been used in
the course of this research work and as such need to be explained. They were as
stated below:
Internal Control: It has been defined by the Auditing
planning committee (APC) in UK as “the whole system of control financial and
otherwise established by management in order to carry out the business of the
enterprise in an orderly and efficient manner to safeguard the assets and
secure as far as possible, the competence and accuracy of records, the
prevention and detection of errors and fraud in accordance with the final
preparation of financial statement.”
Control: Is an exercise performed in the
present to achieve a plan drawn up for the future.
Management: It is defined as the process of
planning, organizing co-coordinating and controlling the activities of an
organization. It is seen as a group of people who monitor and control the
organization activities towards the achievement of the organization objectives.
Audit: This comes from a Latin word “AUDIRE”
meaning to hear in other words it means official examination of account and
records.
Accounting
control: This is concerned with the plan of the organization and all the co-
coordinated methods and procedures which are implemented with a view of
safeguarding assets and enhancing reliability of financial records.
Internal Audit: This is a review of operation and
records sometimes continuous, undertaken within a business by specially
assigned staff.
Impact: This means the duties
responsibilities and functions. As it has to do with work, it is that
fundamental obligation incumbent on the public relations for the attainment of
democratic order in the organization policy.
Accounting: Is the process of producing needed
information regarding primarily the financial activities of economic entities
by Carmichael,
et al (1996) the wide scope of accounting can be
recognized when one considers the diversity of economic entity which cut across
sizes and bounders.
Analysis: In standard
costing and budgetary control, analysis of various in order to seek their causes.
The total profit of various is analyzed into sub – variance indicating the
major reasons for budged figures.
Accounting
Information: This is a system designed to obtain the financial position of an
organization as at the end of the period.
Effectiveness: The total or actual interest paid
or earned in a year, expressed as a percentage of the principal amount at the
beginning of the period.
Efficiency: A measurement of the ability of an
organization to produce and distribute its product. In accounting terms it is
qualified by a communism of the standard hours allowed for a given level of
production and actual hour taken.
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