THE IMPACT OF INTERNAL CONTROL SYSTEM ON THE FINANCIAL MANAGEMENT OF AN ORGANISATION

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ABSTRACT

Over the years, there have being a problem of incorrect and unreliable financial record which has lead to loss of organizational integrity. The research work aimed among others at determining the relationship between internal measures to proper accounting records. A survey research design was adopted for this research study and a sample size was selected using Yaro Yamane sampling technique as data used were obtained from both primary and secondary sources. Four research questions were formulated out of which three hypothesis were formulated using regression co-efficient analysis method at 5% level of significance and the Z table was also used for comparison between calculated value of significance B and tab le value. The finding from the analysis indicates that internal control measure management performance and is necessary for the growth and effectiveness of the organization. Financial management of any organization cannot do without internal control as true and fair presentation of financial statement may never be possible if the board and senior management are not committed to providing a well planned internal control system. It also recommends that a periodical review of the organization should be done by the management so as to cope with the model trends in organizational fraud prevention.

 

TABLE OF CONTENTS

Cover page

Title Page i

Dedication ii

Acknowledgement iii

Approval Page iv

Abstract v

Table of contents vi

CHAPTER ONE INTRODUCTION

  1. Background of the study 1
  2. Statement of problem 3
  3. Objective of the study 4
  4. Research Questions 5
  5. Statement of hypothesis 5
  6. Significance of the study 7
  7. Scope of the study 7
  8. Limitation of the study 8
  9. Definition of terms 8

 

1.10 References

CHAPTER TWO: LITERATURE REVIEW

10
2.1 Introduction 11
2.2 Internal control 11
2.3 Role and Purpose of internal control 13
2.4 Types of Internal control 15 2.5
Function of internal control 19
2.6 Internal control in financial institution 20
2.7 Element of a good internal control system 24
2.8 Relationships between internal auditing and internal control
system. 27
2.9 Management and internal control system 28

 

  1. Defect and shortcoming of internal control 29
  2. Possible solution to defects internal control system 31
  3. Limitation of internal control 32

CHAPTER THREE 34

  1. Research methodology
  2. introduction 34
  3. Research design 34
  4. Sources of data 34
  5. Area of study 35
  6. population of the study 35
  7. sample size and sampling technique 35
  8. Research instrument 36
  9. Validation and Reliability of instrument 37
  10. Method of data analysis 37

CHAPTER FOUR

  1. Data Presentation and analysis 40
  2. introduction 40
  3. Data Presentation 40
  4. Test of hypothesis 45

CHAPTER FIVE

Summary, Conclusion and Recommendation 54

  1. Summary of findings 54
  2. Conclusion 54
  3. Recommendation 55

Bibliography 57

Appendix 59

Questionnaire 60

ABSTRACT

Over the years, there have being a problem of incorrect and unreliable financial record which has lead to loss of organizational integrity. The research work aimed among others at determining the relationship between internal measures to proper accounting records. A survey research design was adopted for this research study and a sample size was selected using Yaro Yamane sampling technique as data used were obtained from both primary and secondary sources. Four research questions were formulated out of which three hypothesis were formulated using regression co-efficient analysis method at 5% level of significance and the Z table was also used for comparison between calculated value of significance B and tab le value. The finding from the analysis indicates that internal control measure management performance and is necessary for the growth and effectiveness of the organization. Financial management of any organization cannot do without internal control as true and fair presentation of financial statement may never be possible if the board and senior management are not committed to providing a well planned internal control system. It also recommends that a periodical review of the organization should be done by the management so as to cope with the model trends in organizational fraud prevention

CHAPTER ONE

  • INTRODUCTION
  • 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 carryout 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 exists without an organization both are 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 it 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.

  • STATEMENT OF PROBLEM

 

We might not really understand the impact of internal control system in an organization until probably we run an organization void of internal control system.

The absence of adequate internal control measures exposes the financial management of an organization to certain threats such as:

  • Incorrect financial statement and /loss of the companys’assets.
  • Stealing and mis-management of organizational vital documents which may be done by an employee to take undue advantage.
  • Incorrect and unreliable financial records which may lead to loss of organizational integrity.
  • Non implementation of accounting policies in consistent with the applicable legislation appropriate in presentation of financial statement.