ABSTRACT
This research work was embarked upon
with a view of providing an insight into the “Internal Control System, How Effective as a Means of Reducing the
Incidence of Fraud in an Organisation”, for this purpose Nigerian Bottling
Company Plc, Agidigbin Road Opposite LTV, Lagos State has been chosen as a case
study.
This research work was divided into five
(5) chapters for easy comprehension and as is it for this kind of work.
The first chapter, which serves as an
introduction, start by explaining why the research was been carried out, it
usefulness and the area of problem statement.
The second chapter, which is review of
literature defined “Internal Control
System, brief history of the case study, meaning of fraud, types of fraud,
causes of fraud, control of fraud and etc was considered in this chapter.
The third chapter, tells us what
research methodology is, method of data collection, the research design, the
approach to the research work and the strategies. The used of questionnaire and
brief interview served as the primary data while the used of textbooks and
journals served as the secondary data collection.
The fourth chapter, the hypothesis was
tested using the data collected in chapter 3 above, issued out to the sample
selected thereby formed the observation of frequency.
The fifth chapter which was the last
chapter which also served as conclusion part formed the summary, conclusion,
recommendation and also provided suggestion for further research. The result of
our effort would be laid before you, it must be stressed that our discussion
was based on mostly what is practicable on the field and every detail of
Internal Control System.
TABLE OF
CONTENTS
Title Page
Certification i
Dedication ii
Acknowledgement iii
Abstract v
Table of Contents vi
Chapter One: Introduction
1.0
Introduction 1
1.1
Objective of the Study 7
1.2
Statement of Problem 8
1.3
Significance of the Study 8
1.4
Scope of the Study 9
1.5
Limitation of the Study 10
1.6
Formulation of Hypothesis 10
1.7
Definition of Terms 11
Chapter Two: Literature Review
2.0
Introduction 16
2.1
Brief History of my case
study 17
2.2
The meaning of Fraud 19
2.3
Types of Fraud 21
2.4
Causes of Fraud 25
2.5
Magnitude of Fraud in
Manufacturing Industries 27
2.6
Control of Frauds 31
2.7
Definition of Internal
Control 32
2.8
Functions of Internal
Control 33
2.9
Efficiency of Operation 3
2.10
Accounting Structure 35
2.11
Internal Control Over
Computer 36
2.12
Internal Control Over Petty
Cash 36
2.13
Internal Control Over Plant
and Equipment 37
2.14
Internal Control Over
Salaries 38
2.15
Internal Control Over
Transaction 39
2.16
Independence of Department 39
Chapter Three:
3.0
Research Methodology 40
3.1
Methods of Data Collection 40
3.2
Personal Interview 40
3.3
Survey Procedure 41
3.4
Sample and Sampling 41
3.5
Desk Research 42
3.6
Design of Questionnaire 42
3.7
Relevant Hypothesis
Formation 43
3.8
Response Rate 44
3.9
Degree of Freedom 45
3.10
Level of Significance 46
3.11
Decision Rule Using X2 46
Chapter Four
4.0
Analysis of Data and Test of
Hypothesis 47
4.1 Observed Frequency 61
Chapter Five: Summary, Conclusion, Recommendation
and Suggestion for Further Research
5.0 Summary 65
5.1 Conclusion 66
5.2 Recommendation 67
5.3 Suggestion for Further
Research 70
Bibliography 72
Appendix 72
Questionnaire
CHAPTER ONE
1.0
INTRODUCTION
There is barely any organisation in our society today that cannot
be associated with one type of fraud or the other. Manufacturing industries,
banking industries etc have all experienced a high propensity of fraud in
recent time. In fact, activities of fraudsters in our organisations are highly
unpredictable and their methods of operations keep changing.
The case and issue of fraud in Nigerian economy has taken a
different dimension, which if not attended to would cause a wreck in the total
economic potentials. Fraud is not only found in the private sector of the
Nigerian economy but also the public sector. As a matter of fact, the motive
(for almost all aspirants) behind serving in a public office is to go and fraud
to enrich themselves.
Cases of frauds are found to arise due to complete absence of
internal auditing services to check transaction and policies laid down, duties
are not adequately segregated as a single persons starts and completes a
transaction etc. The meaning of this is
that the funds which could have been used by an organisation in the generation
of employment through expansion and diversification programmes would have been
cornered by a selfish individual who uses his position in the organization
authority or intelligence to embezzle money.
If this end is not properly monitored, then the future of the
Nigerian economy would be in shamble. There is therefore he need to give a
serious attention to the design of internal control measures that would help to
curb the activities of fraudsters.
From a more professional perspective and according to auditing
guidelines published by the institute of chartered accountancy (England and Wales). Internal Control System is defined as
“the whole system of control, financial and otherwise, established by the
management of an enterprise in an orderly and efficient operations to secure it
assets, ensure compliance with management polices and secure as far as possible
the completeness, and accuracy of the records.
Conclusively, Internal
Control System are prescribed practices which the management of an
enterprises develop, and adopted in order to facilitate the smooth and
efficient running of an enterprises of order and mainly to the present in all
the operations of the enterprise and for security of its assets.
The types of controls available as contained in the appendix to
the operation auditing guideline on internal control, with reference to the appendix are ten (10) types of control
management could use in controlling its organisations. They are as follow:
i.
Organisation control
ii.
Authorization and approval
iii.
Segregation of duties
iv.
Arithmetic and accounting
control
v.
Supervision control
vi.
Personal control
vii.
Management control
viii.
Acknowledgement of
performance and
ix.
Budgeting control
The beauty of any control is for it to actually work efficiently
and effectively in practice. So, it is not enough to design a control but to
make sure that it functions as planned.
The meaning of each would be explained and it area of application
are explained below:
1. Organisation Controls
This is a control set up by the management which involves having a
plan of organisation which should defined and allocate responsibility where a
specified person is in charge of a particular function who might be called the responsible
who is their responsible and automatically answerable for that function.
This control also ensure that line of reporting are known meaning
that an employee should the precious powers delegated to him, the extent of his
authority and to whom he should report. Example the correct operation of internal
control may be delegated by the board of specific management personnel and to
internal audit department.
2. Authorization and Approval
This control emphasized the need for all transaction to be first
of all be authorized or approval by an appropriate person. Examples are that
credit sales must be approved by the credit control department, all overtime
done as required by the management be approved by the department manager or works
manager and perhaps all returnable and non returnable gate posses must be
approved by two or more management personnel.
3. Segregation of Duties
This control is self explanatory as it preaches the procedure
where no single person should be responsible for the recording and processing
of a complete transaction of the glaring advantages that the involvement of
several people the risk of international manipulation or accidental error and
increase the element of checking errors.
4. Physical Control
The is control called physical as it involves on intelligent
deliberate actions to safeguard the assets of a company, keep a highly
confidential business information in a restricted safe equipment or place and
above all to give full protection to all the assets of the company be it
financial or otherwise.
5. Arithmetical and Accounting Control
These are control in the recording function which checks that the
transaction have been fully authorized and that they are included and correctly
recorded with accuracy.
Procedures in the control include checking the arithmetic accuracy
of records, the maintenance and checking of total, reconciliation, controls
account etc. For example, where this control is in operation all purchases involves
are checked by the purchase invoice section of accounting department being
prelisted by that section before sending them to the computer department for
processing. Notable to be mentioned as an example of this control is where
there is clerk in the accounting department comparing the income purchases
invoices with copy order forms and goods inward notes.
6.
Supervision Control
All actions by all levels of staff should be supervised. There
possibility for the supervision should be clearly laid down and communicated to
the person being supervised.
7.
Personnel Control
At this concern the human resources of the organisation, under
this control, procedure should be designed to ensure that personnel operating
the system are competent and motivated to carry on the task assigned to them
and appropriate, measures put in place for the remuneration promotion and
carrier development prospect design for the employees.
8.
Management Control
These are control ,exercised by the management which are outside and
over and above the day-to-day routine of the system. They include overall
supervisory controls, review of management accounts, comparisons with budget,
internal audit and other.
9.
Acknowledgement of Performance
This makes it compulsory for every function performed by any
responsible official to be signed or initiated and stamped to prevent anybody
from doing illegal or unauthorized assignment for fraudulent purposes. For
instance, during a stock taker exercise at the end of the financial year, the
official stock takes is made to signed the stock sheet of all items counted so
that in case of any error that the blame could be ascribed to the person
responsible.
10.
Budgeting Control
This is a techniques used in business to streamline the activities
of a particular organisation to achieve a set goal. Budget itself is defined as
a quantitative plans of action where all actions are expressed in monetary
terms. This is usually employed as it affords or give the opportunity of
computing the variances analysis, which helps to control and manage a business
very well. This study would therefore bother on the meaning of fraud, types of
fraud common to organisation and the various internal control in our
organisation with particular reference to Nigerian Bottling Company Plc.
1.1
OBJECTIVE OF THE STUDY
The objective of this study is to emphasize the effectiveness of
internal control as a means of reducing the incidence of fraud in an
organization with special reference to Nigerian Bottling Company Plc and also
to proffer suggestions that will help bring its incidence to the bearest minimum.
1.2
STATEMENT OF PROBLEM
The objective of internal control is to limit the occurrence of
errors and fraud to the bearest minimum. However, no matter how effective an
internal control system is, error and fraud occur by:
i.
Collusion: Two or more dishonest
person working in collusion can override the efficiency of the best possible
controls.
ii.
Abuse of Authority: Those in
whom the authority is vested can abuse authorization control.
iii.
Management Exemption: Management
is in a position to override control set by it.
iv.
Human Errors: Due to errors of
judgement and interpretation, misunderstanding, carelessness etc, fatigue or
distractions can undermine the effective operation of internal control.
1.3
SIGNIFICANCE OF THE STUDY
This study is very important in that:
i.
It will unfold various
factors contributing to fraud in our organisation.
ii.
It will enable us to know
about common fraudulent practices in our organisation.
iii.
It will also help us to know
the various internal control measure that can be put in place in combating the
incidence of fraud.
As it is popularly and erroneously believed by the un-initiated
into the accounting profession that internal control system is all about
protocols which must be followed in a particular organisation which delay
business transactions and also useful for prevention of fraud this study will
help to correct this belief and hence unveil the tremendous merit of the system
especially how it is being operated in Nigerian Bottling Company Plc.
1.4
SCOPE OF THE STUDY
In order to create an avenue for a proper understanding of this
study, it is necessary to state clearly the scope and limitations of this work.
Firstly, this study is limited to the internal control system in
Nigerian Bottling Company Plc.
Secondly, this study is supposed or meant to represent the
internal control techniques as it operate in Nigerian Bottling Company Plc,
while many of the findings may have general application, some might not be
applicable to other smaller firms in a different location or different
industry.
Thirdly, the topic will cover internal control with a computer
using electronic data processing technique.
Lastly, the topic will cover all inherent factors both internal
and external as it affects the internal control environment of Nigerian
Bottling Company Plc with all techniques being in place.
1.5
LIMITATIONS OF THE STUDY
The problem encountered by the researcher in the cause of this
study are majorly that of time constraint, finance, willingness or
unwillingness, it also worth mentioning in addition to the points mentioned
earlier as it is true for security reasons that all the control that are in
operation in an organisation cannot be probed into by a researcher and this
formed the major limitation to the scope of the study.
1.6
FORMATION OF HYPOTHESIS
Hypothesis are developed and tested to ensure a more effective and
result oriented research work. Two types of hypothesis will be employed in this
study. The null and the alternative hypothesis. This is the normal principles
of reject or accept criterion. The hypothesis shall be used to test whether
internal control as a means of controlling fraud is weak and ineffective.
The research hypothesis are:
H0: Effective and efficient operations of internal control does not
lead to reduction of fraud in an organisation.
H1: Effective and efficient operation of internal control leads to
reduction of fraud in an organisation.
1.7
DEFINITION OF TERMS
The following are the definition of the related terms as used by
the researcher in this study.
(1) Fraud
This is an intentional misrepresentation of financial information
by one or more individual among management, employee or third party. It is a
special case of irregularities and it involved the use of criminal deception to
obtain an unjust or illegal advantage.
(2)
Internal Control
This is the whole system of control, financial or other wise,
established by the management of an enterprise in order to ensure an orderly
and efficient operation to secure its assets, ensure adherence to management
solicits and as far as possible the completeness and accuracy of the records.
(3)
Internal Auditing
It is an independent appraisal activity within an organisation for
the review of accountability, financial and other operation as a basis of
services to management.
(4)
Internal Check
This is the check imposed on the day-to-day transactions whereby
the work of one person is proved by an independent person called auditor to
ensure that the laid down procedure are followed, by the objective being
prevention and detection of errors and frauds.
(5)
Investigation
This is a process where management requires audit staff to report
special or any unusual development to it. It is essentially an enquiry into the
financial affairs of an enterprises by an accountant on behalf of a client for
some purpose generally specified by the client.
(6)
Compliance Test
This is a test designed to ensure that the internal control system,
which the auditor wishes to rely upon is working properly in practice.
(7)
Substance Test
This is a test on transactions and balances and other procedure
such as analytical review, which seek to provide audit evidences as to the
completeness, accuracy and validity of the information contained in the
financial statement.
(8)
Pre-Audit
This involves the examination or security of transaction or
vouches before payment. It may also include the examination of contracts prior
to approval, security or all vouchers and payrolls before payments are made.
(9)
Post-Audit
This involves audit verification of all transactions entered into
after payments have been made. It concerns primarily the control of cash and
the verification of revenue. It general application comprises the appraisal of
the overall performance measured against established standards.
ESSENTIAL
CHARACTERISTICS OF GOOD INTERNAL CONTROL SYSTEM
Every organization has its own system of internal control but
there are certain features that must be included in a good internal control.
These includes
a.
Segregation of Duties
This is very essential in the use of internal check. Ideally, in a
good system of internal control, the function of initiation of a transaction
and the authorization should be separated.
b.
Specified Organisation Structure
Authority could be clearly established for all activities in the
organization. Duties in which internal control is involved should be
specifically specified by written instruction.
c.
Proof Measures
Proof measure such as total account, trial balance, etc should be
given attention and be seen to be in operation always.
d.
Acknowledgement of Performance
Persons performing data operations should acknowledge their
activities by means of signatories, materials rubber stamps etc. for example,
if a payroll is prepared, all officer involve in the preparation process should
append their initial and rubber stamps.
e.
Protective Devices
Instruction of perceiving and securing record should be in
existence and must be fully put into use, realizable procedure for the use of
clerks should be established.
f.
Formal Transfer of Responsibility for Goods
When goods are moved from hands to hands, proper documentation
should be maintained. This is necessary to particular person or department and
documents such as Goods Received Note (GRN), Stores Requisition Note (SRN)
should be used.
g.
Verification Review and Amendment of the System
Once the system of internal control has been established the
management should continue to verify, review if necessary amend the system from
time to time. This is necessary to ensure the adequacy of internal control
system at all time.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment