ABSTRACT
The current economic trends
have made it important for all institutions; both private and public to
maintain effective internal control systems. Internal control has attracted
intense debate and attention across industries in accounting and auditing
literature over the past decades. The regulatory and institutional framework
has improved significantly over the years yet still the Tema Development
Corporation (TDC) in particular is faced with lots of challenges. It is against
this background that this study was conducted into the effectiveness of the
internal control systems of TDC. The main objective of the study is to assess
the effectiveness of internal control system at TDC. Related literature was
reviewed. The study adopted the explanatory research. The study population was
staff of TDC. A sample size of fifty (50) respondents was used for the study.The
purposive sampling technique was adopted. Data was collected through interview
and questionnaire.The data collected were analysed using Statistical Package
for Social Scientist (SPSS) computer software program. Summary of all
findings made included: it was revealed from the study that, the control
environment at TDC is effective as majority of the respondent agree to that
assertion with a few not being sure of the effectiveness of the control
environment.In reviewing the risk assessment component of the internal control
system at Tema Development Corporation, the study found that, the risk
assessment is also effective. The last element of internal control considered
by the study was monitoring and this happened to be the most effective in the
TDC with most respondents showing that they perceive monitoring to be
effective.
CHAPTER ONE
INTRODUCTION
Background to the Study
The concept of internal control has experienced an
interesting development. From the early 1900s to about 1936, the purpose of
internal control was to protect assets particularly cash, from embezzlement or
theft by employees reference. Audits were conducted comprehensively, and the
focus was on the detection of fraud and clerical errors. When financial markets
began to expand and became the primary source of capital for large public
companies, interest in the fairness of the financial statements emerged, and
irregularities, were detected and corrected on a timely basis (Tipgos, 2002).
Important at this end was the design of procedures and processes as well as
segregation of duties. However, in later years, the issue of qualification and
training of employees became an important component of adequate or reliable
internal control.
Internal controls are systems within a company that design
methods and procedures to produce effective operations, establish reliable
financial reporting, avoid fraud and maintain compliance with regulations and
laws. Internal controls evaluation is meant to help institution review and
assess the structure of accountability within the organization. An effective
system of internal controls gives assurance regarding the integrity of
financial reporting and safeguarding of assets. Fraud can easily be detected
through internal controls. Such controls also help accuracy in financial
reporting (Asare, 2006).
Financial resource is seen as an
imperative resource to many institutions and establishments which must be
effectively and efficiently managed to bring about the needed change and
results from the activity for which the funds have been made available. It is
considered as the lifeblood of any establishment and its availability ensures
growth and survival of the establishment as well as the carriage of the mandate
of the establishment. However, sometimes this important resource is mismanaged
and misappropriated by those put in charge to ensure proper and efficient
management of the resources to the detriment of the activity for which the
resources have been made available. There have been several instances
throughout the world in which financial resources have been mismanaged or
misappropriated through fraudulent practices leading to collapse of several
onetime flamboyant businesses. Schroy (2010), argued that in the incidents
cited, in fact, there was a massive failure of internal controls, suggesting
the degree to which major institutions across the globe are mismanaged; and as
such proprietary trading was involved and speculative profits created a
permissive environment in which executives ignored elementary principles of
internal control.
In Ghana, there have been several instances or revelations of
ineffective internal controls, especially in the public sector. Thus the
Auditor General’s report on the public accounts dating back to the time of
independence to date; and more specifically between the periods 31st December,
2006-2008 revealed some serious shortcomings which need to be addressed to ensure
prudent management of resources. The findings indicate unacquainted payments,
unpresented payment vouchers and misappropriation of revenues and other receipts.
Others are contract irregularities, poor debt management and huge debt stock.
The rest are procurement without entity tender committee approval, illegal
payment and/or drawing of salary as well as bank lodgements not reflecting in
bank statements; just to cite a few to drive home a point on the need to
examine and/or strengthen the internal control systems of the public sector
organizations in Ghana. The instances cited clearly show that there are a lot
of internal control weaknesses in the public sector in Ghana.
Recently, at the Public Accounts Committee (May 2011)
sittings at the Parliament House of Ghana, where the audited accounts of public
second cycle institutions were considered, it came to light that an Accountant
at Presbyterian Senior High (PRESEC), Legon has embezzled or misappropriated
funds belonging to the school as follows: 2005, Two Hundred Thousand Ghana
Cedis (GH¢ 200,000.00); 2006:- Sixteen Thousand Ghana Cedis (GH¢16,000.00), and
again in the same 2006 another Thirty-Three Thousand Ghana Cedis
(GH¢33,000.00). This clearly shows that there is laxity in the management of
financial resources in the public sector. Thus the internal control systems are
weak and the systems and structures are not operating properly. It is in this
vain that mechanisms such as the internal control systems are not only put in
place but also strengthen and closely monitored to check and avert the
inaccuracies to ensure efficiency and proper utilization of resources for the
achievement of performance goals.
Statement of the Problem
Efforts have been made over the years to curtail and/or
eliminate the financial improprieties and inaccuracies in the public sector in
Ghana. The recent one being the establishment of
the Internal Audit Agency through the passage of the Internal Audit Agency Act
2003 (Act 658); which requires all MDAs in Ghana to create Internal Audit Unit
in their establishments in order to strengthen internal controls so as to check
or avert the inaccuracies in financial management in the public sector.
However, in spite of the several interventions over the years and the existence
of the Internal Audit Unit in the public sector organizations in Ghana it
appears the financial improprieties and inaccuracies continue to persist and
this needs to be investigated to find out the reasons accounting for these
shortcomings.
It is therefore incumbent upon every establishment,
irrespective of its size or sector to ensure effective and efficient
utilization of resources allocated to it for ultimate execution of the task and
the activities being undertaken in an efficient manner. Arens et al (2006)
postulates that internal control system consists of policies and procedures designed
to provide management with reasonable assurance that the entity achieves its
goals and objectives. As such internal control is deemed to be an important
feature in the administration and management of financial resources.
There are various components of internal financial control
systems used to develop and evaluate an organisational financial regulatory
compliance. These components are control environment, risk assessment, control
activities, information and communication and monitoring. They need to work
together to form a strong set of methods and procedures the company follows in
its operations.
In addition to these internal control system, there are other
laws and institutional frameworks and are established to ensure sound financial administration of state and other
enterprises. Among these are The 1992 Constitution of the Republic of Ghana,
the Criminal Code of 1960 (Act 29), the Financial Administration Act (Act 654),
the Public Procurement Act (Act 663), and the Internal Audit Agency Act (Act
658) and other various legal frameworks to enhance the effectiveness and
efficiency of internal financial controls and to ensure financial
accountability in public sector financial administration in Ghana. In spite of
all these, Corruption Perceptions Indices (CPI) suggests a prevalence of
corruption in African countries (Transparency International, 2006). Hence,
there is apparent risk of senior public officers overriding internal financial
controls to achieve their private gains.
Public institutions are guided by rules and control measures
to help them achieve their aims and objectives and also to curb corruption.
There have been several reported cases of embezzlement of fund and misuse of
resources in the public institutions, though these control measures are put in
place especially in the ministries, Custom Excise and Preventive Service
(CEPS), public educational institutions, just to mention a few (Ghana Business
News 2013). A typical example is what happened in Tema port where the state
lost millions of cedis through tax evasion. One will even doubt whether public
institutions are indeed guided by control measures. It is in light of these
happenings that this study is conducted to find out the operations of Tema
Development Corporation and to establish whether their internal controls are
really checking their operations.
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