The Effectiveness Of Internal Control System And The Impact On The Activities Of Manufacturing Industry

The Effectiveness Of Internal Control System And The Impact On The Activities Of Manufacturing Industry (A Case Study Of Emenite Fibre Cement

Abstract

This research work was undertaken determine the effectiveness of internal control system and is impact on the activities of a manufacturing industry. The case study of this project was picked from Emenite Fibre Cement Roofing and

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After payment, text the name of the project, email address and your names to 08064502337 Ceiling Company Nigeria Limited, Enugu. In the first chapter, the researcher was able to highlight the statement of problem as to know if they have more than one internal auditor. Also the researcher wanted to know if security arrangements for stock handling are organized. The researcher went further to identify how many password they use in handling their computer files, etc. Research questions were also asked.

In the second chapter, literature review and some references were made to relate the effectiveness of internal control system and its impacts by the researcher. The research then used questionnaires, oral interview and direct observation to the staffs for collecting the necessary information required. The sample size was determined and validity and reliability of instruments were shown in chapter three. In chapter four, the researcher presented and analyzed the data gotten from the questionnaire in order to highlight the effectiveness of internal control and its impacts in the activities of a manufacturing industry. Also the hypotheses put up were vividly tested under this chapter.

Finally, at chapter five, the researcher after everything summarized the findings from the data gotten and tried to make reasonable recommendations before concluding at last

CHAPTER ONE

1.0                                                              INTRODUCTION

1.1 Background of Study

            The research topic the effectiveness of internal control system and its impacts in Emenite Fibre, Cement Roofing and Ceiling Manufacturing Company Enugu is a rare one to deal with often on hears of internal control system in so many places like enterprises, schools and hospitals. Looking at internal control, it has been defined in several ways by professional institutions and many writers of auditing literature.

According to Kooper, internal control in its earliest days was defined as “certain checks and procedures to prevent direct financial fraud or misappropriation of property. However, this seems to have fallen of use hence the concept has grown in scope from mere financial control to embrace other forms of control within an enterprise.

Again, the institute of chartered accountant of England and Wales in its auditing guidelines 3, 204 defines internal control as the whole system of  controls financial and otherwise established by management in order to carry on the business to the ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of records.

In view of this, the researcher cannot attain its peak in finding the problem, solving it and implementing it effectively if other words of people are not adequately consulted. Due to this fact, relevant books, journals, magazines, government publications and records were looked into for possible suggestions, solutions and advice.

Further, the concept of internal control system is becoming increasingly useful in the practice of modern audit that it will be worthwhile understanding the subject matter and the roles it plays in the effective management of a business enterprise. The existence of internal control system in an organization is of great assistance to both management and audition of such an organization that they could sacredly do without it. Not only does it did the management in their process of decision making, but it also provides a base upon which the auditor place reliance when carrying out his audit.

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According to Egbunu, “the idea of internal control could be traced back to the time when people began forming groups to accomplish goals they could not achieve as individuals, managing then became essentials to ensure the coordination of individuals effort”. In the olden days, when the world’s economy was mainly on subsistence bases, individuals were solely responsible for the day-today running of the business. He makes and implements policies such as the control over cash and could at any point in time tell the financial position of his

business. The expansion of such business, however, leads to its administration becoming day-to-day transactions-thus leading to the formation of management, and organ district from the owners, which is solely responsible for the day-to-day decision making in the business.

This is supported by Holmes who maintains that as business organization have grown in physical size, as operations have expanded in complexity and as transactions have increased in number, it has become imperative that management supplies objectives of asset presentation, error elimination and income determination”. These objectives are in real sense what internal control system is all about. More so, the methods and procedures adopted by a business to control its operations provide the management with an assurance that the data available are authentic and factual.

Such system of control comprises of measure taken by an organization for the purpose of protecting its resources against waste and fraud, ensuring accuracy and reliability of accounting and operating data, securing compliance with company’s policies and evaluating the level of performance in all the sections of the company. In the words of Meigs et al, the basic principle of internal controls “that no one person should handle all; phases of

a transaction from beginning to end”. They remarked that “when business operations are organized hat two or more employees are required to participate in every transaction, the work of one employee gives proof of the accuracy of this work of another.

The primary aim of any management is to achieve a maximum profit at a minimum cost. This is made possible by the institution of an internal control system which acts a canopy over other types of control in the various sections of an organization. An organizations internal control according to cook et al “can be compare to a person’s nervous system, it embraces the entire organization serves as a two way communication system and is uniquely designed to meet the need of a specific company”. This includes the need of organization in both the private and public sector.

In the Nigerian private sector, much emphasis is placed on accountability and the keeping of accurate records of transaction by those who manage the affairs of all business enterprises. For instance, the 1990 companies and allied matter Decree in its section 321, subsection 1, 2(a), 3(a) and (b) provides thus:

  1. Every company shall cause accounting records to be kept in accordance with the section.
  2. That the accounting records shall be sufficient to show and explain the transactions of the company and shall be such as to financial position of the company.
  3. The accounting records shall in particular contain.
  4. Entries from day-to-day of all sum of money received and expended by the company, and the matters in respect of which the receipt and expenditure take place and.
  5. A record of the assets and liabilities of the company.
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To live up to expectation of such responsibility, the management of a company has to evolve a strong system of internal out a clear segregation of duties among its employees, but also set in motion the machinery of careful supervision of their activities and detailed recording of transaction in order to minimize fraud and safeguard the assets of the company.

On the contrary, it is unusual to hear causes of fraud and mismanagement involving the employees of companies. Such is a clear manifestation of non-existence internal control system in the affected companies or that the existing system of internal control is weak or ineffective. In an organization where internal control is weak or totally absent, any member of staff could even transact business on behalf of the organization. Pyle et al observed that, “under such conditions, there would be nothing but confusion as to what had been ordered, received and there would be errors, duplications, storages and payment for goods not received, plus unlimited opportunities for fraud through kick banks to employees and through the payment of fictitious invoices”.

1.2       Statement of the Problem

The problem of this study could be categorized as general control and application control which form the basis of internal control system in any organization.

This research seeks to find out the extent to which the system of internal control in the Emenite Fibred Cement and Roofing Company Nig. Ltd. Enugu influences its business by trying to know the following.

  1. If they have more than one internal auditor.
  2. If security arrangement for stock handling are organized.

iii.       How many password they use in handling their computer files etc.

1.3       Objective of the Study

            In view of the problems stated and subsequence question posed the objectives of this research the following:

  1. To assess the strengths and weaknesses of internal control system in the Emenite company Nig. Ltd with the view to determining its ability to minimize fraud.
  2. To discuss as for as possible how mismanagement the manufacturing sector could be curtailed through the institution of good internal control system.

iii.To ascertain how far the internal control system in Emenite Company Nig. Ltd has aided the management in the realization of its organization objectives.

  1. To make necessary recommendations on how to correct lapses that may be discovered at the course of this research.
  2. To increase the knowledge of research on the internal control system operative in Emenite Company Nig. Ltd.

1.4       Research Questions

            Based from the point of overview statement of the problem and the objective of the study, the researcher is out to investigate the under mentioned reasons.

  1. How internal control system helps in manufacturing industry.
  2. How it creates impact on its activities.
  3. How it helps them in achieving their objectives.
  4. How they keep their records (statutory)
    5. How they acquire or dispose their fixed assets.

1.5       Hypothesis

            In trying to prove the impact of internal control system two sets of hypothesis were used. These are denoted by the symbols Ho and H1 respectively.

  1. Ho: Internal control system in Emenite Fibre Cement Roofing and Ceiling Company Nig. Ltd is effective.

H1: Internal control system in Emenite Fibre, Cement Roofing and Ceiling Company Nig. Ltd. is not effective.

  1. Ho: There is clear line of segregation if duties among staff of Emenite Fibre Cement Roofing and Ceiling Company Nig. Ltd.

Hi:        There is no clear line of segregation of duties among staff of Emenite Fibre Cement, Roofing and Ceiling Company Nig. Ltd.

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1.6       Significance of the Study

This study is aimed at providing an understanding  of the effectiveness of internal control system as obtainable in the Emenite Fibre Cement Roofing and the researcher will be able to know the extend to which internal control system in the company has helped the management in the realization of its firms objectives.

The research will also enable the management to appraise the internal control system in operation with a view to correct any lapses which may be evident during the investigation process. When completed, the research findings and recommendation will form a base to be relied upon by subsequent researchers who may wish to make further inquires into the system of internal control operating in Emenite Fibre Cement Roofing and Ceiling Company Nigeria Limited, Enugu.

1.9       Scope and Limitation of the Study

In this research, the researcher limits himself to the effectiveness of internal control system and impact on the activities of a manufacturing industry, using Emenite Fibre, Cement, Roofing and Ceiling Company Nigeria Ltd, Enugu as a case study.

Some of the limitations include:

  1. Lack of adequate finance to conduct the research in all the department of the company. Consequently the study is restricted mainly to the accounts department.
  2. Insufficient period of time to carry out an elaborate investigation on the subject matter. The researcher has only a few months to complete and submit this project for assessment. Thus most of the findings and writing are being done along side with his normal academic work. Lectures have to be foregone on some occasions to visit the area of the area of the case study.

iii.        Lack of detailed information from the staff intervention. For the sake of security and self preservation, not all information and data needed were given by the staff concerned.

1.8       Definition of Terms

Authorization Refers to management’s decision to exchange, transfer, or use assets for specified purposes under specified conditions.

Control The ability to direct the financial and operating policies of another undertaking with the intention of gaining economic benefits from its activities.

Execution The entire cycle of steps necessary to complete the exchange of assets between the parties or the transfer or use of assets within the business.

Fraud This is an irregularity involving the use of criminal deception to obtain an unjust or illegal advantage

Recording  A records maintained for transactions and the resulting assets or services and all functions performed for those records.

The Effectiveness Of Internal Control System And The Impact On The Activities Of Manufacturing Industry (A Case Study Of Emenite Fibre Cement

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