ABSTRACT
The aim of the study was to appraise internal control system in a
medium scale business focusing on Innoson Company, Enugu. The objectives of the
study were to determine the contribution of internal control in the detection
of fraud in medium scale businesses, to ascertain the contribution of internal
control system to prevent fraud in medium scale businesses and to find out the
contribution of internal control system in investigating of fraud in medium
scale businesses. The study used survey research design. The population
consists of 152 staff while the sample size was 110. The study used tables and
percentage for analysis while chi square was used to test the hypotheses. The
study found out that internal control significantly contribute in detection of fraud in
medium scale businesses among others. The study recommends that the internal control of government enterprises should be effectively
implemented as it aids in detecting fraud in organizations. This is due to the fact that internal control helps in detecting voucher padding.
TABLE OF CONTENTS
Title
page
Abstract
CHAPTER ONE: INTRODUCTION
1.1 Background of study
1.2 Statement of the problem
1.3 Objectives of the study
1.4 Research questions
1.5 Research Hypothesis
1.6 Significance of the study
1.7 Limitations of the study
1.8 Definition of terms
CHAPTER
TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual framework
2.1.1 Element of internal control
2.1.2 Benefit of internal control
2.1.3 Limitation of internal control system
2.2 Theoretical framework
2.3 Empirical review
2.4 Summary of literature review
CHAPTER
THREE: RESEARCH METHODOLOGY
3.1 Research design
3.2 Source of data
3.3 Population of study
3.4 determination of sample size
3.5 Instrument of data collection
3.6 Method of data collection
3.7 Validation of instruments
3.8 Reliability of instrument
3.9 Method of data presentation and data analysis
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data presentation
4.2 Data analysis
4.3 Testing the hypotheses
4.4 Discussion of findings
CHAPTER
FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of findings
5.2 Conclusion
5.3 Recommendations
5.4 Suggestions for further studies
References
CHAPTER ONE
INTRODUCTION
1.1 Background to the
Study
Every firm, be it profit or non-profit making organization, will
have some objectives which it deem attainable. For profit seeking
organizations, their key goal is to maximize shareholder value while the
non-profit making organization goal is to satisfy the citizenry’s social need.
In order to achieve these purposes, supervision usually plays an important role
in the organization (Lannoye,2013). Sometimes it is hard for the management of
these organizations to provide first hand and personal supervision of operations
due to the size, nature and scope of the organization. The basic components of
organizational governance are risk management and financial performance.
Therefore, for an organization to achieve this it needs to ensure effective and
efficient operations, reliable information (both financial and non-financial)
and compliance of rules and regulations. It is based on this fact that internal
control systems are introduced in diverse organizations. Kabir (2012) states
that internal controls are measures instituted by an organization so as to
ensure attainment of the entity’s objectives, goals and missions. In some
instances, internal controls are check mechanisms to avoiding wastages, theft
and mismanagement of the organization’s assets. In pursuit of organizational
objectives regarding reliable financial reporting, effective and efficient
operations, managers and boards of organizations resort to establishing
internal control systems in ensuring effective outcomes.
Internal control systems involves the
control environment and control procedure, all the policy and procedure adopted
by the directors and management of an entity to assist in achieving their
objectives, including adherence to internal policies, the safe-guarding of
assets, the prevention and detection of fraud and error as well as the
completeness and accuracy of records, with the timely preparation of reliable
financial information (Achibong, 2013).
It is necessary that every organization
must have an internal audit department to ensure that accounting systems
provide an efficient means of recording and reporting financial transactions,
providing management information and protecting the company’s asset from fraud
and misappropriation. One of the most effective systems for detecting fraud is internal
control, which is a system by definition, operating in the same environment as
the fraud itself and serving as an effective, formidable adversary to the fraud
scheme and that the definition of internal control, described as a process,
framework, or function, do not touch upon systematic concepts.
Internal control according
to Achibong (2013), is the accounting tool that can be used to monitor the
finances and its disbursement in a public sector organization in attempt to
bring eliminate or bring to the barest minimum the issues of fraud in such
enterprises. It is believed that properly designed and enforced internal
control systems will normally lead to better financial reporting procedures as
well as giving rise to a reliable report that improves management
accountability function of an institution (Astin&Panos, 2011). However, the
prospect of achievement is determined by limitations inherent in all internal
control systems. In this respect, --Amudo (2008), explains that internal
control systems can only ensure reasonable rather than complete guarantee to
the achievement of the organization’s objectives which are instituted by an
institution’s management and board of directors. It is based on this premise
that this study is been designed to appraise internal control in a medium scale
business.
1.2 Statement of the Problem
Internal control system is considered to
be essential in accounting system as this will enhance the effectiveness and
efficiency of the management of an enterprise.
An effective and efficient internal control system ensures that
all recorded transactions are real, properly valued, recorded timely, correctly
classified, correctly summarized and correctly posted.
However, whether or not the internal
control system has helped the management in having a sound accounting system is
the issue of debate. Therefore, the question being asked is whether the
controls in internal control system are sure that errors and fraud can be
discovered with reasonable promptness, and whether the control procedures as
prescribed and applied in practice are successful in preventing and detecting
material errors and fraud in the accounting system.
An adequate system of
internal control reduces but does not eliminate the possibility of fraud or
irregularities and error. An internal control system therefore, can only
provide reasonable assurance that the management objectives in establishing the
system are achieved. This is propelled by certain problems and limitations
inherent in the internal control system. An efficient internal control system
involves a clear definition and separation of duties for various employers of
groups within a company. The intention of separating the duties is to protect
against fraud, waste abuse and mismanagement of resource. It is quite
unfortunate some organizations have failed to achieve this goal due to the
prevalence of fraud especially as committed by employees in the organization.
1.3 Objectives of the Study
The broad objective of this study is to appraise internal
control system in a medium scale business focusing on Innoson Company, Enugu.
The specific objectives include the following:
1. To determine the contribution of internal control in detection of
fraud in medium scale businesses.
2. To ascertain the contribution of internal control system to
prevention of fraud in medium scale businesses.
3. To find out the contribution of internal control system in
investigation of fraud in medium scale businesses.
1.4 Research Questions
The following research questions are stated for this study:
1. What are the contribution of internal control in detection of
fraud in medium scale businesses?
2. What are the contributions of internal control system to
prevention of fraud in medium scale businesses?
3. What are the contributions of internal control system in
investigation of fraud in medium scale businesses?
1.5 Research Hypotheses
The following hypotheses are formulated for this study:
HO1: Internal control does not have significant contribution in
detection of fraud in medium scale businesses.
HO2: Internal control system does not have significant contribution to
prevention of fraud in medium scale businesses.
HO3: Internal control system does not have significant contribution in
investigation of fraud in medium scale businesses
1.6 Significance of the Study
This study will be of immense significance to the
management and staff Innoson Company, Enugu in that it will go to a great
extent in suggesting ways to ensure the effectiveness and efficiency of
internal control system as well as how to prevent fraud in these firms with the
aid of internal control system.
It will
also enlighten scholars on the concepts of internal control system as well as
other related terms associated with internal control system.
The general
public will not just understand the concept of internal control system but may
go to a great length in adopting its principles in their private businesses to
curtail or eliminate fraud in their businesses.
The
employees of diverse organizations will also get to understand the concepts of
internal control system as well as how to apply its concept in fraud prevention
and elimination.
1.7 Scope of the Study
This study focuses on internal control in Innoson Company,
Enugu.
1.8 Limitations of the
Study
The researcher encountered diverse constraints
in the process of carrying out this study:
1. Difficulty in Gathering Research
Material:
There was difficulty in gathering the
necessary information or materials necessary for the successful completion of
this research study. This is due to the fact that most of the respondents were
either not on sit or were uncooperative in providing the necessary information
as regards to the study.
2. Time Constraints
Time also posed as a constraint to the
successful completion of this research study. The researcher had to combine the
time for lectures and work to carrying out this research study. Though it was
not easy but he was still able to carry out the research work.
3. Finance:
There was not enough finance on the part
of the researcher to complete this research study.
Irrespective of these constraints, the
researcher was still able to successfully carry out this research study.
1.9 Definition of Terms
Internal Control System: This is defined as the whole system of
control, financial and otherwise established by management in
order to carry on the business of the enterprises in an orderly and efficient manner.
Fraud:
Fraud is defined as the intentional misrepresentation, concealment, or omission
of the truth for the purpose of deception/manipulation to the financial
detriment of an individual or an organization.
Misappropriation:
To take (something, such as
money) dishonestly for your own use.
Management Information System: A
management information system (MIS) is a computerized database of
financial information organized
and programmed in such a way that it produces regular reports on operations for
every level of management in a
company.================================================================
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