AN APPRAISAL OF INTERNAL CONTROL SYSTEM IN PUBLIC SECTOR
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Internal control systems has recently gained much popularity among scholars in finance and corporate governance affairs due to the gap in transparency and accuracy in financial reporting in the public sector. According to Oxford Learners Dictionary, public sector is a part of the economy of a country that is owned or controlled by the government. It can also mean that part of the economy comprising of both public services and public enterprises. Public sectors include public goods and governmental services such as the military, law enforcement, infrastructure (public roads, bridges, tunnels, water supply, sewers, electrical grids, telecommunications, etc.), public transit, public education, along with health care and those working for the government itself, such as elected officials. The public sector might provide services that a non-payer cannot be excluded from (such as electrification), services which benefit all of society rather than just the individual who uses the service (Ellickson, R. C. 2017).
Public demands and expectations at the grassroots for the provision of essential social and basic services using government resources have continued to be astronomically high, as manifested by rising pressure on the resources with which to satisfy these. It is obvious that social, political and economic development involves the effectiveness and the efficiency of the bureaucracy on one hand and the probity of the bureaucrats on the other. The government exists to serve the interest of the citizens. There must therefore be a way of holding the former accountable to the latter (Bello, 2001).
The public sector in Nigeria is unique sector in the economy. It provides different kind of services to the Nigerian citizens and controls massive volume of funds daily. For example, the Ibadan Electricity Distribution Company (IBEDC) as part of the public sector’s objectives to improve livelihoods and provide adequate power supply in an affordable and reliable manner for its people through effective stakeholder collaboration within a secure, decentralized system of governance.
In furtherance of these objectives, (IBEDC) formally came into existence on 1st November 2013 as part of the unbundling of the electricity sector in Nigeria. Ibadan Electricity Distribution Company covers the largest franchise area in Nigeria, made up of –Oyo, Ogun, Osun, Kwara and parts of Niger, Ekiti and Kogi states. Therefore, a system of tough internal controls will ensure that the goals and objectives of (IBEDC) is met, that the organization will help to attain long-term prospect of steady power supply, and maintain reliable financial and managerial reporting. Internal control system can also help to ensure that the (IBEDC) do comply with laws and regulations as well as policies, plans, internal rules and procedures and decrease the risk of unexpected losses or damage to the host communities. This internal control system may discover mistakes caused by personal distraction, carelessness, error in judgment or unclear instructions in addition to frauds or deliberate noncompliance with policies. This helps management to safeguard the organization’s resources, produce reliable financial reports and comply with laws and regulations. Meanwhile, it reduces possibilities of substantial errors and irregularities and assists in their timely detection of fraud.
Internal control system constitute a system which monitors a firm in the direction of its set-up goals. (Adetula, Balogun, Uajeh & Owolabi, 2016). There are also a variety of definitions of internal control as it affects a variety of constituencies (stakeholders) of an organization in various ways. According to Adeoye and Adeoye (2014): (Adetula, Balogun, Uajeh & Owolabi, 2016), internal control system may be a parochial subject succeeding universal deceitful financial reportage and financial cook-ups in almost all advanced and emerging nations. It is a practice stimulated by board of directors of an organization, intended to produce a practical reassurance concerning attainment of planned aims and the efficacy and proficiency of procedures, consistency of financial reportage and passivity with related acts and guidelines (International Organization of Supreme Audit Institution, 2004). Internal controls are very fundamental component of the risk management systems. It can be applied to several parts of a business, whether strategic, financial, operational and compliance (Financial Reporting Council, 2014).
Cases of frauds in the public sector are so pronounced that everyone in every segment of the public service could seem to be involved in one way or the other in some of these nasty acts (Kamaluddeen 1991). Huge amount of money is lost through fraud or due to internal control inadequacies and other criminal temptations, which to say the least, drains the nation’s meagre resources through fraudulent means with its far-reaching and attendant consequences on the development or even socio-economic or political programmes of the nation (Bello, 2001). Thus, as Kamaluddeen (1991) observed in an earlier study “billions of Naira is lost in the public sector every year through fraudulent means”. This, he argues represents only the amount that is ferreted out and made public. Indeed, much more substantial or huge sums are lost in undetected frauds or those that are for one reason or the other hushed up.
Everyone within the organization has some roles in internal controls. The roles vary depending upon the level of responsibility and the nature of involvement by the individual. The management Board of IBEDC and senior executives must established the presence of integrity, ethics, competence and a positive working environment. The director and department heads have oversight responsibility for internal controls within their units. Managers and supervisory personnel are responsible for executing control policies and procedures at the detail level within their specific unit. Each individual within a department is to be cognizant of proper internal control procedures associated with their job responsibilities.
The internal audit role is to examine the adequacy and effectiveness of the organization internal controls and make recommendations where control improvements are needed. Since internal auditing is to remain independent and objective, the internal audit office does not have the primary responsibility for establishing or maintaining internal controls. However, the effectiveness of the internal controls are enhanced through the reviews performed and recommendations made by internal auditing.
The institution of internal control system is an organization is not without a purpose; these purposes will be discussed later in this study. One of such is to ensure that the organization survives, continue to exist, grows, become vibrant in whatever environment it might be existing or located. It is against this background that this sturdy seeks to unveil and look at the place, importance and inevitable nature of internal control system on the survival and growth of the public sector.
1.2 STATEMENT OF PROBLEMS
When we refer to internal control system, we talk of a system which will enable an organization achieve its objectives, we talk of a system which is very important to the existence of an organization, we talk of a system which will forestall the perpetration of acts that can act as a clog in the wheel to the success of an organization. This system is an all-round system, that is to say, it encompasses both financial and non-financial control in realizing the goals and objectives of running the organization in an orderly manner, safeguarding the assets of the organization and also ensuring the accuracy and reliability of the organization’s records.
We might not really understand the impact of internal control system on public sector’s performance until probably, we run an organization void of internal control system. The non-institution of internal control system in a public sector is detrimental to the continual growth and survival of that organization. Non institution of internal control system in a public sector result in improper keeping of records which could lead to the late preparation of accounts, doctoring of books of accounts, misappropriation of funds which are meant to be used for planning, decision making etc. illegal transactions being transacted, pilferage, misuse of fixed assets etc. improper keeping of records can also lead to inability to ascertain the company’s actual assets; goods in stock, which could breed pilfering.
Lack of proper record keeping, controlling of proceedings or actions in an organization could lead to concealing of errors and fraud that might crop-up to bring down the company.
The non-institution of internal control system could lead to inability of the company to make proper decisions and plan ahead effectively. When a company fails to plan, definitely it will forestall the growth of the organization; make the organization to start dwindling and struggling for survival, which will then bring the company to an end. The above challenges led to a study on an appraisal of internal control system in public sector.
1.3 OBJECTIVES OF STUDY
The primary aim of this study is to investigate an appraisal of internal control system in public sector in Ibadan Electricity Distribution Company (IBEDC). The researcher intends to examine the following sub-objectives which is:
- To ascertain the extent to which fraud and errors can be prevented or detected early in Ibadan Electricity Distribution Company (IBEDC).
- To highlight areas of underperformance, weakness and specific failures connected to internal control system in order that corrections may be effected for performance to improve.
- To ascertain the degree of compliance of IBEDC company staffs with the internal control measures.
- To examine the relevance and appropriateness of the presently adopted control measures in preventing fraud in IBEDC.
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