EFFICIENT INTERNAL CONTROL AND IT’S EFFICIENT ON PROFITABILITY OF AN ORGANIZATION

EFFICIENT INTERNAL CONTROL AND IT’S EFFICIENT ON PROFITABILITY OF AN ORGANIZATION

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The question of distressed private and public firms, misapproriation of funds, fraud (both employee fraud and fraudulent finance reporting) and embezelent e.t.c in the private and public enterprises in the country are prevalent and one at high alorming rate.

In fact, are would be justified to believe that, there was something terribly wrong be internal control system in the various organization. It is obvious and statement and even output of result desired or expected by the public from the organization are being prepared by professional accountants, but by and large the financial statement are approved or certified by the internal control management of the organization.

According to carmi Michael (1996) the importance of the understanding the internal control structure has been recognized in the program for preparing, verifying and disturbing to various level of management these current reports and analyses that enable executives and function that are used be a large organization.

The importance of establishing and maintaining effective internal control system is also illustrate by the passage of the ‘foreign practices Act of 1997’’ in united state of America the act was introduced because in the mid-1970s, hundred of american corporation acknowledged having made payment (bribes and kickback) to official in foreign countries to obtain business. In essence, frauds and bribes had destroyed the internal control system of organisation (Whittington pany, 2003)

Cormichad, 1996, says that internal control system of any organization cannot be over-emphasized; it is key to determine the success and failure of any bisuness organization and is indeed the background of an accounting system in any organization professional standards, least since 1947 ans was expressed in the second standard of field work, as revised in 1988, as follows.

“As sufficient understanding of internal control structure is to be obtained, to plan the audit and to determine the nature, timing and extent to test to be performed”.

Internal control system is defined by millichamp, (2002) as the whole system of controls, financial and otherwise, established by the management in order to carry on the business of the enterprises in an orderly an efficient manner, ensure adherence to management policies safeguard the assets and secure as far as possible the completeness of accuracy of the records.

The definition of internal control is comprehensive in that it addresses the achievement of objectives in the areas of operations financial reporting and complaince with laws and selling, purchasing, accounting and prodcution.

1.2     The main objectives of this research work is to examine the management, set goals in relation internal control system of the organization other objectives of the research include

1. To examine how the business is carried an in orderly and efficient manner.
2. To examine how its assets are safe guard it is very important for all assets to be secured and maintained.
3. To examine the accuracy of records and determine whether or not they are reliable.
4. To recommended on the corrective measure to be taken in order to enhance efficient and internal control in organization

1.2 STATEMENT OF THE PROBLEM

Effective and efficient internal control system is needed in all forms or kinds of organization because when an internal control is efficient, it bring about the profit or gain desired by the management and especially by the owners also know as the shame holders. His the management responsibility of any organization to ensure that the internal control and other control measures established by it are properly adhered to as minimize their wealth and survival of the organization, but the prevailing situation now is that business atmosphere in the country.

All theses situation can be traced to internal control system of any organization and it consist of people called the board of directors, management and even the directors of any operating department in the organization. There for, the question is why is business or companies folding up or winding up. How efficiently the internal control system of organization in the business world in this country.

Viewing from the efficient internal control system and it’s effect on the profitability of organization.

1.3 JUSTIFICATION OF THE STUDY

Based on inefficiency and inffectiveness of internal control system on an organization’s profitability, this research work justified the purpose of knowing the importance if internal control of the operation of an organization like quality of the product produced, this effective the profit level which in turn reduce the individual dividends attributable to the owners.

Internal control also include the program for preparing, verifying and distributing to various level of management, current reported and analysis that enable executive to maintain control over the variety of activities of function used by the organization. The use of budgeting techniques production standard, laboratory inspection, time and motion studies and training of employers are devices which are part of internal control but are removed from accounting and financial activities. When all these are put in place, and are duly followed, it makes the organization remain ficus otherwise many fault or discrepancies arises which effects the production of the company as well as the profitability level. This justified the need for and well defined control policies that the company needs to follow to achieve its objective and reach is goals.

1.4 RESEARCH METHODOLOGY

This is describing the various processes that has been  in collecting and analyzing  the data which produces the  necessary information  to solve the research problem. It also shows how the analysis was been carried out and relevant tools employed in testing the hypothesis it specifies the research instrument that was employed  in collecting sample form the population.

Research design – Nworgu ( 1990) define research design spelt out the framework or plan for a study  that is used as guide for analyzing data. The narrative  description and  quantitative survey method were  used for  the presentation of data gathered for this research project.

Johnson 9 1977) ascertain that this methods are important aim of using descriptive method  particularly is b because of its simplicity, it advantage over other methods and the nature of research to  be carried out.

1.5 SIGNIFICANCE OF THE STUDY

The research  work is meant importance  of effective and efficient  private and public organization . The  success of  private organization that  is to broaden  knowledge   about  the internal control system to both the  main focus is its relevance to the low profitable they are :

Furthermore, it also benefit  the external uses of the financial statement  of t he organization , as a basis for assessing it, as a potential  investor.

The research  study  will aid researcher. In the same field of study ( accountants and Business management) in carrying out further  research  work on the internal control system of  any organization.

The research work had covered all the important aspects of internal  control system  of any organization.

• The research  work had  covered  all the important aspects of internal  control measures established by the organization in order to enhance profitability direct question  toward find out the  efficiency of the  internal control and its effect on profitability  of an organization.

It also covered five  (5)  years report of internal control system ( that is 2002-2006) of the Nigerian Bottling company ( coca- cola) ilorin branch.

1.6 PLAN OF THE STUDY

This research study was designed to make use of primary and secondary data. The primary data was collected through the use of  questionnaires and personal interview  with staff of cocal- coal bottling company Ilorin.

The secondary data  was gathered from sources like accounting records, and other material made available  by the company.

1.7 DEFINITION OF TERMS

• Efficient: To do something well and thoroughly  with no money or energy. That  is , orderly and efficient conduct of business.
• Internet control system: Is as s et of processes, function , activities , sub- system  and people who are grouped together  or consciously segregated to ensure the effective  achievement of objectives and goals.
• Organization structure : It defines individual manager’s responsibility  for decision making and for establishing  company  policy and set the  limit of such authority  understood  to all levels  of the organization  contribute to a strong control environment.
• Control frame work: In a given organization it may be complex  or  relatively simple but as  a generalization, large organization  tends to have more complex and  sophisticated control frame work  small organization  are often able to operate  effectively with control base  largely on personal contract between employees.
• Polices and procedures: complete and  well documented polices and procedures to described the  scope of the functions its activities  and inter relationship  with  other department   policies  establish the organizations direction, while procedures indicate now policies are to be implemented and
• Profitability: that make or likely to make money in business organization  or transaction.
• Effective: Producing the result that is worried or intended  as an out come in a business organization.
• Internal control : Essentially comprises control environment and control procedure adopted by the directors and senior management of an organization to assist  in  attempting   to achieve the orderly and  efficient  conduct of business.
• Monitoring; It is the process that assess the quality  of  internal control overtime.
• Risk assessment : It’s the   identification,  analysis and  management of  risks relevant  to the preparation of  conformity with  GAAP (General Accepted accounting  practice)
• Control activities: This is the policies and procedures ensuring  that \ necessary actions  are taken to address  the risk involved I achieving he entity’s objectives.
• Control environment : It sis the tone of an organization which reflects the overall attitude  and actionsof the  board of directors, management  and  owners influencing  the control consciousness of its people.

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