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.
Î’ounton 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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