ABSTRACT
The globalizations of economies, technological advancements, complexity of business and allegations of fraudulent financial reporting have sharpened the ever -increasing attention to internal control in organizations. These developments have thus led to a continuous reflection of internal control and its importance in the development of firms. It is therefore against this background that this study’s main objective is to examine the effect of internal control system on management of organisational resources of manufacturing firms in Nigeria. However, the specific objectives are to: ascertain the level of significance of internal control system on quick recovery of stolen cash in manufacturing firms in Nigeria; ascertain the efficiency of internal control system on credit control of manufacturing firms in Nigeria; analyze the effect of internal control system on the safety of non-current assets in manufacturing firms in Nigeria; examine the relationship between effective internal control system and efficient management of working capital in manufacturing firms in Nigeria; and ascertain the effect internal control system has on manufacturing firms efficiency ratio in Nigeria. The descriptive survey design was adopted. The population of the study comprised of staff of 20 manufacturing firms in South East Nigeria. The Freud and Williams formula was used to determine a sample size of 246 respondents and the sample was distributed to manufacturing firms in South East Nigeria on equal basis. Data were collected using the questionnaire research instrument and interview guide. The simple random sampling technique was used in selecting the respondents to the questionnaire. The reliability test was by Cronbach Alpha at 0.85. The statistical tools used in data analysis are Chi-square, Pearson Product Moment Correlation Coefficient and the simple regression statistic at 0.05 level of confidence. Results emanating from this study revealed that internal control system has significant effect on stolen cash recovery in manufacturing firms in Nigeria (p-value = 0.00 < 0.05); internal control system has significant effect on credit control of manufacturing firms in Nigeria (p-value = 0.00 < 0.05); internal control system has significant effect on the safety of non-current assets of manufacturing firms in Nigeria (p-value = 0.00 < 0.05); there is a significant relationship between internal control system and efficient management of working capital of manufacturing firms in Nigeria (R = 0.935; p-value = 0.00 < 0.05) and internal control system has significant effect on a firm’s efficiency ratios of manufacturing firms in Nigeria (α = 0.19, t- value = 2.14, p-value = 0.033). Therefore, this study concludes that effective internal control systems as observed from the findings of this study are necessary in the effective management of organisational resources in Nigeria and recommends amongst others that effective internal control system should be used to support the organization in achieving its objectives by managing its risks, while complying with rules, regulations, and organizational policies.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
As a concept, internal control is distinguished by its scope and its high level of the services offered. In the modern business world, the term internal control is being used to refer to two basic concepts: the internal control system and the internal control itself. The internal control system refers to an organized amalgamation of functions and procedures, within a complete system of controls established by the management and whose purpose is the successful function of the business (Cheung and Qiang, 2007). The internal control system is all the methods and procedures followed by the management in order to ensure, to a great extent, as much successful cooperation as possible with the director of the company, the insurance of the capital, the prevention and the detection of fraud, as well as the early preparation of all the useful financial information. According to (Papadatou, 2005) the internal control system resembles the human nervous system which is spread throughout the business carrying orders and reactions to and from the management and it is directly linked to the organizational structure and the general rules of the business.
According to American Institute of Certified Public Accountant (AICPA) (1963) a system of internal control extends beyond those matters which relate directly to the functions of accounting and the financial statements. In addition, internal control is a systematic procedure which will lead to evaluate the degree of correlation between those established criteria and the real results of the business. Internal control, as defined from the APC (Auditing Practices Committee, 1980), is an independent examination and certification from an inspector appointed by the business to control the finances according to the legal framework established each time.
According to Miller and Bailley (1989) internal control is a systematic review and a subjective investigation of one element and encompasses the verification of the specific information as these are determined from the general practice. Thus, internal control helps the company to achieve its goals using a systematic approach of assessing the effectiveness of handling dangers.
Internal control, as defined from the Hellenic Institute of Internal Auditors (Η.Ι.Ι.Α, 2004) is an independent, objective, adequately designed and organized procedure, which through the technical and the scientific approaches; assess how adequately the system of internal control functions. From the above definitions, it is clear that the internal control is not just an one-sided tool for controlling the order and rightness of certain situations, but it is a method of detecting the value added up to a company, achieving the index of effectiveness and profitability of the company.
Besides, the purpose of this control is the intentional, the programmed and focused effect of the company on the current situation, so as this situation to be reformed in the future and become the one that ought to exist (Goodwin, 2004). The deviation between the already achieved and the programmed situation can also become possible through controlling the parameter of correct handling of danger situations.
Βounton and Keller-Walter (2000) claimed that the objective purpose of internal control is, on the one hand, the allowance of specific and high level of services offered towards management, and on the other hand, the allowance of assistance towards the members of the organization for the most effective practicing of their duties. Hence, internal control system is being implemented in businesses as tools that add up value to the company. In this way, the firm can achieve a systematic approach towards the most effective operation of the organization, as a unity.
According to COSO report (Committee of Sponsoring Organizations of the Treadway Commission, 1992), internal control is defined as a procedure which offers fundamental security to the business concerning the credibility of financial affairs. The report defines internal control and describes a framework for internal control. However, as stated by Aldridge and Colbert (1994) the difference of this report is that it also provides criteria for the management to utilize such reports to evaluate effective internal controls system.
From these views of the concept of internal control, it can be argued that internal control system assists the organisation to effectively manage its resources. It is, therefore, against the forgoing....
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