THE IMPACT OF INTERNAL CONTROL SYSTEM ON THE FINANCIAL MANAGEMENT OF AN ORGANIZATION (A CASE STUDY OF THE NIGERIA BOTTLING COMPANY PLC, ENUGU)

CHAPTER ONE

1. INTRODUCTION

1. BACKGROUND OF THE STUDY

Every organization both profit or non-profit organization has its objectives and goals in mind to achieve. For the non-profit making organization, their goal is to satisfy the social need of the citizens and in the effort to achieve these purposes supervision more often than not play a vital role.

The size and scope of these organizations have sometimes made it hard for the executors to exercise personal and first hand supervision of operation. It is in this light that internal control established by management is initiated. For an organization to carryout its business there must be some factors put in place for the smooth running of the organization like materials, machines, money etc.

These need to be well co-ordinated in order for the success of the organization to be achieved. These factors are used by a group of persons known as management. Neither can management exists without an organization both are inseparable. The system of

internal control provides assurance to management of the dependability of the accounting data used in the decision making of the organization

It has been discovered that due to lack of internal control several banks have been discovered to have defrauded its customers mostly foreign investors, Having discovered this, banks now take extra precaution before clearing a cheque because of rampant incidence of fraud and forgeries which have placed bank. Loss on average of N1m each working day of the year in Nigeria. Due to this challenges, CBN issued a directive to banks to increase its capital base to N25 billion.

Management use internal control as a tool to check it staff due to the fact that managers are not able to monitor the activities of the organization. It therefore adopts the internal control in such a way that the system checks itself and any irregularity within the system is been detected and corrected.

To ensure that the system checks itself, management could use devices such as segregations, supervision of work and acknowledgement of performance. The effective arrangement and

13 implementation of this control system would ensure proper management.

1.2     STATEMENT OF PROBLEM

We might not really understand the impact of internal control system in an organization until probably we run an organization void of internal control system.

The absence of adequate internal control measures exposes the financial management of an organization to certain threats such as:

• Incorrect financial statement and /loss of the companys’assets.

• Stealing and mis-management of organizational vital documents which may be done by an employee to take undue advantage.

• Incorrect and unreliable financial records which may lead to loss of organizational integrity.

• Non implementation of accounting policies in consistent with the applicable legislation appropriate in presentation of financial statement.

1.3     OBJECTIVE OF THE STUDY

The overall purpose of this research work is to evaluate and determine the impart of internal measures in an organizational financial management.

A well defined organizational structure helps management to run the business in an orderly manner. This enhance operational and efficiency, which is the important features of internal control.

Specifically, this research work stands to achieve the following objective.

1. To determine the impact of internal control to proper use of organizations funds and assets.

1. To ascertain whether perpetration of fraud and losses of Revenue in an organization are as a result of weakness in internal control system.

1. To ensure whether a true reflection of organizational activities are presented in financial statement where there is an active observation of internal control measures.

4. To determine the relationship between internal control measures and proper keeping of accounting records.

1.4     RESEARCH QUESTION

The following research questions will be used to form the research hypothesis and they are:

1. To what extent does the internal control measures impacts on appropriation of organizational assets and funds.

1. To what extent does perpetration of fraud and losses of Revenue in an organization are as a result of weakness in the internal control system

1. To what extent does internal control enhance a true reflection of organization activities as presented in the financial statement

1. To what extent does a relationship exists between internal control and proper keeping of accounting records

1.5     STATEMENT OF HYPOTHESIS

This     research     is      undertaken     on      the      basis     of      the      following

hypothesis.

HYPOTHESIS ONE (1)

Ho: internal control measure does not ensure proper use of organizations funds and assets.

Hi: Internal control measure ensures proper use of organization funds and assets.

HYPOTHESIS TWO (2)

Ho: Fraud perpetration and losses of revenue in an organization are not as a result of weakness in the internal control system.

Hi: Fraud perpetration and losses of Revenue in an organization are as a result of weakness in the internal control system.

HYPOTHESIS THREE (3)

Ho: internal control does not ensure, a true reflection of an organizational activities as presented in financial statement

Hi: Internal control ensures a true reflection of an organizational activities as presented in financial statement.