INTERNAL CONTROL SYSTEM IN GOVERNMENT PARASTATALS (A CASE STUDY OF PHCN ADO EKITI)

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

Several studies have been carried out in Nigeria to find out why many government parastatals or industries which started of well later fall or remain stagnant in their operations. The major causes of this situation were traced down to poor internal control system which emanated from a lot of factors, part of Horngren (1982) therefore defined internal control as referring to both Administration control and accounting control. Administration control organization showing who reports to who and all the methods, planning and control of operations. Accounting control comprises the methods and procedures that are mainly concerned with authorization of sections, the safeguarding of assets and the accuracy of the financial records. Good accounting control helps maximize profit; they help minimize waste, unintentional errors and frauds.

This well designed control measure is a step towards the achievement of anorganizational accountability which in other words means success of organization. The use of internal control system by government parastatal in Nigeria has been recently on great increase. Internal control has been recognized in the most organization as oneof the most essential ingredients, necessary for the survival of the businessenterprise and government agencies. Apart from the problem of scarceresources, organizations run a high risk of fraud, errors, miss appropriation of minimize, if not eliminate completely, these risks, by establishing internalcontrol system. For every organization, there are risks that the organizationalgoals and objectives are not achieved. All efforts aimed at preventing suchrisks or identifying and correcting such risks are viewed as internal control.

Anthony (1998) defined internal control as “the process by whichmanagers assure that resources are obtained and used effectively andefficiently in the accomplishment of the organization objectives. Garrison and Noreen (2000) suggested a different definition for internal control asfollows: “those steps taken by management that attempt to increase thelikelihood that the objectives set down at the planning stage are attained andto ensure that all parts of the organization function in a manner consistentwith organizational policies. He further defined internal control as those setsof organizational activities which include: planning, co-ordination,communication, evaluation and decision making as well as informalprocesses aimed at enhancing the efficient and effective use of theorganizational resources towards the achievement of the organizationalobjectives.

Anthony and Govindavajan (2004) identified several aspect oractivities of management / internal control namely: planning, coordinating,communication, evaluation, decision-making and influencing. Planning whatthe organization should do to achieve proper accountability. Planning couldbe view as budget preparation. With planning the organization decides whatto do and the responsibilities of its different members.

Koontz and Donnel (1992) defined internal control as all themeasures of a public or private organization that could be said to be strategiesof owners and managers to monitor and control the activities within theorganization.

1.2   STATEMENT OF THE PROBLEM

Internal control is management tools that are built into the entity as a part of its infrastructure to help managers and administrators run the entity and achieve their aims on an ongoing basis. Internal control is affected by people: people are what make internal control work. The responsibility for good internal control rests with all administrators and managers. Management sets the objectives, put the control mechanisms and activities in place, and monitor and evaluates the control. Internal control provides reasonable assurance, not absolute assurance; management design and implement internal control based on the related cost and benefits. No matter how well designed and operated, internal control cannot provide absolute assurance that all organization objectives will be realized. However, the researcher is examining  the internal control system in Government parastatals.

1.3   OBJECTIVES OF THE STUDY

The following are the objectives of this study:

1. To examine the internal control system in government parastatals.
2. To examine the process of internal control system.
3. To determine the impact of internal control system on productivity and accountability in government parastatals.

1.4   RESEARCH QUESTIONS

1. What is the state of internal control system in government parastatals?
2. What is the process of internal control system?
3. What are the impact of internal control system on productivity and accountability in government parastatals.

1.6   SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1. The results of this study will be useful to the managers and administrators in both governmental and non-governmental organizations on the benefit and process of internal control system for organizational effectiveness.
2. This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.

1.7   SCOPE/LIMITATIONS OF THE STUDY

This study on internal control system will cover the proper process of internal control system that can be used as a tool for the realization of organizational goals and objectives.

LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.