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EVALUATION OF INTERNAL CONTROL SYSTEM IN SELECTED PUBLIC SECTOR ENTERPRISES IN NIGERIA

Project Topic: A Critical Evaluation of Internal Control System in Selected Public Sector Enterprises in Nigeria


CHAPTER ONE

Background of the study

1.1   Introduction

Every organization whether private or public is established for the purpose of making profit or at least, cover cost or breakeven. Because it was established to last for an unseen future and not to collapse a few years after commencement, it has to be making a turnover in order to keep the organization in operation.

Management which is defined as the planning, organizing, staffing, leading or directing, controlling of resources to achieve organizational goals effectively and efficiently. It includes setting corporative goals and making strategic policies and decisions aimed at achieving such goals (Jones et al; 1998).

In the bid to carry out the above mentioned responsibilities, management designs, installs and implements a system of control peculiar to the circumstances of the chances of profitability, such control promotes operational efficiency and eliminate or at least reduce waste when properly applied. This control system is known as internal control.

Internal Control System as  defined by the American Institute of Certified Public Accountants (AICPA) is the organizational plan and all the methods and procedures adopted by the management of an organization to assist in achieving the organization’s objectives and ensuring as far as practicable the orderly and efficient conduct of the business.

The system extends beyond those matters which relate directly to the functions of the financial accounting system. There are two dimensions of internal control systems as classified by the (AICPA);

  1. Accounting or Financial Control: It comprises the plans of organization, procedures and records that are concerned with internal audit, internal check and other financial systems of control like safeguarding of assets and reliability of financial records designed to provide reasonable assurance that the transactions are recorded and executed in accordance with the general or specific authorization of the management. Recording of transactions to ensure the preparation of financial statement in conformity with the generally accepted accounting principles and any other criteria applicable to such statement, proper maintenance of accounting assets, management authorization of access to assets and accountability for the physical verification of assets.
  2. Administrative Control: This is classified under other systems of control in the definition, like promoting operational efficiency and effectiveness, seeking or encouraging and obtaining adherence prescribed management policies and methods.

COSO (1992) of the Tradeway Commission is of the view that internal control is just not the prevention or detection of error. In includes decisions on such things as delegation and allocation of authority, the division of work, the method of recording transaction and monitoring of financial investment no matter the amount, for example, how a driver keeps his movement records book. This system can be used either in public or private sector, but this research seeks only to evaluate these control systems u n public enterprises in Nigeria.

Public enterprises are organizations that are not owned by individuals but by the government. Some of these organizations are non-profit making organizations while others make little profit. But the major aim for establishing these organizations is not for profit making, it is for satisfying the basic needs of the society. For example, Nigerian Television Authority (NTA), Power Holding Company Nigeria (PHCN), etc.

Due to the mismanagement of funds, misuse of assets, fraud, inefficiency and ineffectiveness of these organizations or enterprises, hence, the need for a critical evaluation of the internal controls system in these public enterprises, whether the nature of their operations is commercial or civil.

1.2     Statement of the Problems

The public enterprises in Nigeria operate in environment where corruption is prevalent and transparency often is lacking. Corruption is defined as abuse of public offices for personal gains. For instance, bribery, embezzlement of public funds, etc (Transparency International, 2006).

The Corruption Perception Index (CPI) 2006, compiled by the Transparency International covering 163 countries reveals that majority of the African countries in the index scored within the low range of 1.9-3.6, in contrast, majority of the European countries scored a high range of 7.4-9.6 transparency. This Corruption Perception Index suggests a prevalent corruption in African countries and that matter Nigeria.

In recent years some of the fraud escapades that have happened in Nigerian public enterprises have propelled this researcher to embark on this research project.

All the anomalies and more, instigated this researcher to look at some selected public enterprises to know whether the cause of such things is that internal control system those not exist in these enterprises or that it has inherent weakness in them. The study therefore seeks to evaluate on the internal control system of the enterprises thereby raising the following questions;

  1. What roles of should the internal control system play in our public sectors.
  2. Does the management of these public sectors recognize, appreciate and understand this role?
  3. What are the internal control systems that are currently in use?
  4. Do they include all the expected elements of internal control systems?
  5. It will finally identify the existing loop holes of any kind and how it allows for fraud and error.

1.3   Objectives of the Study

The intention of every entrepreneur is to nurture his venture to maturity, so that it can grow, make profit and survive in this hard economics tides and not for it to be bankrupt after a few years of establishment.

A good internal control system is a prerequisite for such venture, for more objective management decisions and avoidance or reduction of waste through fraud and theft. Other purposes which this study is designed to achieve are;

  • To reveal the internal control system existing in these government enterprises.
  • Identify if these systems are adequate to prevent or accomplish its objectives.
  • These systems are they practiced effectively?
  • To find out if these systems are in concordance with the guidelines and procedures of auditing standards and financial regulations.
  • If the government influences the decisions of the management.

1.4   Research Hypothesis

Based on the problems and objectives of the research, the following hypotheses are formulated;

  1. H0:   Effective internal control system does not significantly enhance the growth of public enterprises
  2. Hi:    Effective internal control system significantly enhances the growth in public enterprises.
  3. H0:   The existence of internal audit department in public enterprises does not contribute effectively to the internal control system.
  4. Hi:   The existence of internal audit department in public enterprises contributes effectively internal control systems.
  5. H0: Lack of proper segregation of duties is a defect in internal control system.
  6. Hi: Lack of proper segregation of duties is not a defect in internal control system.

1.5   Significance of Study

This work is important to the society of business in general. It is expected that it will help achieve the following results;

  • It will be of great help to these public enterprises to know areas of weakness and thereby finding the appropriate remedies.
  • Correct the applications of the internal control system of all levels in the public sector.
  • The government, since they are the dispenser of funds or resources hat internal control system is meant to conserves.
  • Suggest ways through which the internal control system could be improved.
  • Finally, it is a source of inspiration and very valuable to academics advancement for the researcher

1.6   Scope/Limitation of Study

Internal control is a vast topic that it cannot be exhaustively dealt with in this single research, given the limitation in time and resource. This study is however restricted to government owned establishment with reference to selected ones in Enugu State like Power Holding Company Nigeria (PHCN), Enugu and Nigerian Television Authority (NTA), Enugu.

As a result of this, the scope of this work has been out to a manageable but detailed size.

The problem associated with research generally is always compounded to the complete inadequacy of data, conducting a research in a country like Nigeria could be anything but easy, which is attributable to the following limitations;

  1. People in the authority enjoyed issuing cheap excuses for being momentarily busy.
  2. The monopolistic nature of the public sector has made most issues secret, obtaining information required was frustrating.
  3. The economic poverty situation in Nigeria now has prevented this researcher from making frequent visits to these parastatals as many times as possible and researching for more information.

—This article is incomplete———–This article is incomplete———— It was extracted from a well articulated quality Project, Research Work/Material

Project Topic: A Critical Evaluation of Internal Control System in Selected Public Sector Enterprises in Nigeria

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