ABSTRACT
The aim of the study was to appraise
internal control system in a medium scale business focusing on Innoson Company,
Enugu. The objectives of the study were to determine the contribution of
internal control in the detection of fraud in medium scale businesses, to
ascertain the contribution of internal control system to prevent fraud in
medium scale businesses and to find out the contribution of internal control
system in investigating of fraud in medium scale businesses. The study used
survey research design. The population consists of 152 staff while the sample
size was 110. The study used tables and percentage for analysis while chi
square was used to test the hypotheses. The study found out that internal control
significantly contribute in detection of fraud in medium scale businesses among
others. The study recommends that the internal control of government enterprises should
be effectively implemented as it aids in detecting
fraud in organizations. This is due to the fact that internal
control helps in detecting voucher padding.
CHAPTER ONE
INTRODUCTION
1.1 Background to the
Study
Every firm, be it profit or non-profit making organization, will
have some objectives which it deem attainable. For profit seeking
organizations, their key goal is to maximize shareholder value while the
non-profit making organization goal is to satisfy the citizenry’s social need.
In order to achieve these purposes, supervision usually plays an important role
in the organization (Lannoye,2013). Sometimes it is hard for the management of
these organizations to provide first hand and personal supervision of operations
due to the size, nature and scope of the organization. The basic components of
organizational governance are risk management and financial performance.
Therefore, for an organization to achieve this it needs to ensure effective and
efficient operations, reliable information (both financial and non-financial)
and compliance of rules and regulations. It is based on this fact that internal
control systems are introduced in diverse organizations. Kabir (2012) states
that internal controls are measures instituted by an organization so as to
ensure attainment of the entity’s objectives, goals and missions. In some
instances, internal controls are check mechanisms to avoiding wastages, theft
and mismanagement of the organization’s assets. In pursuit of organizational
objectives regarding reliable financial reporting, effective and efficient
operations, managers and boards of organizations resort to establishing
internal control systems in ensuring effective outcomes.
Internal control systems involves the
control environment and control procedure, all the policy and procedure adopted
by the directors and management of an entity to assist in achieving their
objectives, including adherence to internal policies, the safe-guarding of
assets, the prevention and detection of fraud and error as well as the
completeness and accuracy of records, with the timely preparation of reliable
financial information (Achibong, 2013).
It is necessary that every organization
must have an internal audit department to ensure that accounting systems
provide an efficient means of recording and reporting financial transactions,
providing management information and protecting the company’s asset from fraud
and misappropriation. One of the most effective systems for detecting fraud is internal
control, which is a system by definition, operating in the same environment as
the fraud itself and serving as an effective, formidable adversary to the fraud
scheme and that the definition of internal control, described as a process,
framework, or function, do not touch upon systematic concepts.
Internal control according
to Achibong (2013), is the accounting tool that can be used to monitor the
finances and its disbursement in a public sector organization in attempt to
bring eliminate or bring to the barest minimum the issues of fraud in such
enterprises. It is believed that properly designed and enforced internal
control systems will normally lead to better financial reporting procedures as
well as giving rise to a reliable report that improves management
accountability function of an institution (Astin&Panos, 2011). However, the
prospect of achievement is determined by limitations inherent in all internal
control systems. In this respect, –Amudo (2008), explains that internal
control systems can only ensure reasonable rather than complete guarantee to
the achievement of the organization’s objectives which are instituted by an
institution’s management and board of directors. It is based on this premise
that this study is been designed to appraise internal control in a medium scale
business.
1.2 Statement of the Problem
Internal control system is considered to
be essential in accounting system as this will enhance the effectiveness and
efficiency of the management of an enterprise.
An effective and efficient internal control system ensures that all recorded transactions are real, properly valued, recorded timely, correctly classified, correctly summarized and correctly posted.
However, whether or not the internal control system has helped the management in having a sound accounting system is the issue of debate. Therefore, the question being asked is whether the controls in internal control system are sure that errors and fraud can be discovered with reasonable promptness, and whether the control procedures as prescribed and applied in practice are successful in preventing and detecting material errors and fraud in the accounting system.
An adequate system of internal control reduces but does not eliminate the possibility of fraud or irregularities and error. An internal control system therefore, can only provide reasonable assurance that the management objectives in establishing the system are achieved. This is propelled by certain problems and limitations inherent in the internal control system. An efficient internal control system involves a clear definition and separation of duties for various employers of groups within a company. The intention of separating the duties is to protect against fraud, waste abuse and mismanagement of resource. It is quite unfortunate some organizations have failed to achieve this goal due to the prevalence of fraud especially as committed by employees in the organization.
1.3 Objectives of the Study
The broad objective of this study is to appraise internal
control system in a medium scale business focusing on Innoson Company, Enugu.
The specific objectives include the following:
- To determine the contribution of internal control in detection of
fraud in medium scale businesses.
- To ascertain the contribution of internal control system to
prevention of fraud in medium scale businesses.
- To find out the contribution of internal control system in
investigation of fraud in medium scale businesses.
1.4 Research Questions
AN APPRAISAL OF INTERNAL CONTROL SYSTEM IN A MEDIUM SCALE BUSINESS
