INTERNAL CONTROL IN GOVERNMENT ESTABLISHMENT
(A CASE STUDY OF PRODA ENUGU)
ABSTRACT
This work entitled internal control in Government establishment-A case study of Project Development Institute (PRODA) Enugu Spans through five chapters it also contains title page, objective, purpose, significance and methodology. This study examined the efforts made by government institutions towards assuring compliance with set out polices. The purpose of this study is to find out the efforts made by government with set out policies guidelines and procedures as laid down by Auditing standard guidelines and the financial regulations. This research intends also to review the foundation of the internal Audit department with a view of finding out the extent to which it has been able to perform its duties as the watch dog of the internal control system. In finding the company PRODA made use of internal control system which actually makes it effective. Through much money is been spent on internal audit department in term of their salary and equipment in stored in the audit department to ensure proper internal control. The information for the study was collected using primary and secondary methods of data collection. For primary data collection, questionnaires, personal observations and oral interviews were used while existing literature relevant to the topic was consulted for the secondary data. The researcher used tables and percentage to analyze the data. At the end of the following recommendations PRODA should set up a control purchasing department or in the alternative use some of the staff. The prevailing condition whereby almost every section tries to procure its needs directly from the market by itself is highly undesirable.
TABLE OF CONTENTS
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of contents
CHAPTER ONE
INTRODUCTION
1.1 Theoretical Framework
1.2 Statement of Problem
1.3 Purpose of the Study
1.4 Significance of the Study
1.5 Methodology
1.6 Scope and Limitations
1.8 Definition of Terms
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Preamble
2.2 Local Related Literature
2.3 Foreign Related Literature
2.4 Internal Control System
2.5 Internal Control Overview
2.6 Responsibility for Internal Control
2.7 Internal Auditing
2.8 Management Audits
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Sources of Data
3.2 Primary Sources of Data
3.3 Secondary Sources of Data
3.4 Survey Instruments
3.5 Statistical treatment and Analysis of Data
3.6 Population of the study
3.7 Sample size determination
CHAPTER FOUR
4.0 PRESENTATION AND ANALYSIS OF DATA
4.1 Presentation of Data
4.2 Interpretation of Data
4.3 Analysis of Data
CHAPTER FIVE
5.0 RECOMMENDATION AND CONCLUSION
5.1 Discussion of Findings
5.2 Conclusion
5.3 Recommendation
Appendix
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Auditing standards and guidelines (A.S & G) S. 204 define Internal Control as “the whole systems of control both financial and otherwise established by management in order to carry on the business of the enterprises in an orderly and efficient manner, ensure adherence to management policies, safe guard the assets and secure as far as possible the completeness and accuracy of the Records. The individual components of an internal control systems are known as ‘controls’ or ‘internal control’.
The earliest known form of accounting is stewardship accounting and it has its origin far back in 45000 BC. Great land owners would not manage their own land but would appoint persons called stewards to manage the land. Essentially, stewardship accounting involves the orderly recording remained primitive until in recent times.
Indeed, the accounting concepts and procedures in use today for the accounting concept of transactions could be credited to the Italian merchants during the early part of the renaissance. The main principles were set by Luca Pacioli in his famous treatise “Summa de Arithmetical, geometrical, proportion, et proporionalita”. (Double entry Book Keeping) published in Venice 1494.
Stewardship Accounting gave way to Financial Accounting during the industrial revolution. The industrial revolution was marked by industrial capitalism during the early part of the nineteenth century and led to the advent of joint stock companies whereby people contributed capital in exchange for ‘shares’ in the assets and the profits of the company.
The events of the joint stock trade of the south sea Bubble of 1720, had earlier instilled fear and suspicion in the public that they doubled the ability of the directors to carry out this form of trade honestly. Adam Smith was explicit in his view when he said – being the managers rather of other people’s money than of their own, it cannot well be expected that they should look over it with the same anxious vigilance with which the partners of a private co-partner frequently watch over their own – Negligence and profusion must always prevail more or less in the management of the affairs of such a company. (Smith, 1904 edition).
Management Accounting is another aspect of accounting that got its impetus form the industrial Revolution and it saw accounting change from the recording and analyzing role to emphasizing detailed information for decision making.
The most recent accounting method is the social welfare or responsibility accounting and owes its birth to the social revolution which has been under way in the awareness that people started becoming interested in not just the amount of profit made but also on how the numerous social problems could be solved. It became clear to the world that growth and profit and loss account is too narrow to really portray the aim and objectives of the business.
Today most businesses are operated by their shareholders. Similarly, the public owned Central government resources including the nationalized industries but they are managed by the government and persons appointed by the government.
The whole essence of internal control therefore, is to evolve a system whereby though ownership is separated from management, the owners will be left in no doubt that their assets and resources are efficiently managed.
1.2 STATEMENT OF PROBLEM
Major Problem
The government envisaged that there are bound to be problems in the presentation of accounting information and as a result, made leading statements and regulations which will serve as yardsticks by which an accounting system could be measured. Accounting and Auditing Professional bodies also laid down their own standard guideline which will guide their members and in fact, all practicing accountants and auditors in the performance of their professional duties.
Thus study entitled “Internal Control in Government Establishments” is therefore aimed at ascertaining the effectiveness or otherwise of internal controls in government owned establishments using the laid down rules and regulations as parameters.
Sub-Problem
It will not be out of place to observe that many auditors have given their contribution to this topic but most of these contributions are foreigners and as a result, they sees the problems from the view point of their home countries.
In recent times, several cases of fraud, misappropriation of public funds, theft of property and other types of misfeasance have been reported all over this country Nigeria.
Several prominent public owned institutions like the famous coca house in Ibadan Oyo State, the multi million in Lagos State, and to come nearer home to Anambra State, the former Anambra Broadcasting Service) building and the Examination department of the Institute of Management and Technology (IMT) Enugu were all known to have caught flames.
In the words of Yinka Lijadu, “Incidents of fire hazards on high rises building have contributed to loss of enormous wealth in the country in the past few years.
One common characteristics of these incessant fire out breaks is that accusing fingers are always pointing at frauds either perpetrated or with their intensions still being nursed somewhere.
In 1984 when the military took over the reigns of power from the civilians, hundreds of Nigerians as whose hands the wealth of this nation had been entrusted with were locked up in maximum security prisons scattered all over the country for misappropriation of public funds and siphoning out of public fund into foreign accounts.
It is also out uncommon to observer that once a job or service is for the government, the price goes up to upward of 30%. In fact, 10% syndrome is still very fresh in our memories and Abuja contractors can tell better in this regard.
All the above mentioned problems propelled this researcher to choose this topic and she intends not only to look at the causes and effects but will also endeavour to give appropriate recommendation which will help in no small way to prune the occurrence to negligible mind.
1.3 PURPOSE OF THE STUDY
The purpose of the study like was mentioned under statement of problems, is to find out the efforts made by government institutions towards assuring compliance with set out policies, guidelines and procedures as laid down by Auditing Standards and Guidelines and the Financial regulations.
This research intends also to review the foundation of the internal audit department with a view to finding out the extent to which it has been able to perform its duties as the watch dog of the internal control system.
We shall also endeavour to ascertain the objectives of internal control the basis for its development. Factors militating against its smooth running, Answer questions on how the control measures are adequate, relevant and reliable as to answer the safety of assets completeness and accuracy of the records. If safety is assured will they also be safeguarded in the future, give appropriate recommendations on how the system could be improved where weakness are observed.
1.4 RESEARCH QUESTION
The following research questions were formulated in the course of this study:
1. What are the efforts made by government institutions towards assuring compliance with set out policies, guidelines and procedures as laid down by Auditing Standards and Guidelines and the Financial regulations?
2. To what extent has the internal audit department been able to perform its duties as the watch dog of the internal control system?
3. What are the factors militating against the smooth running of the internal control system in the organization?
4. What are control measure been taken by the organization to improve where weakness are observed in the organization?
1.5 SIGNIFICANCE OF THE STUDY
It has been stated earlier that the benefit of an effective internal control system cannot be over-emphasized. Fraud and misappropriation of funds are the bane of our society. This situation arrested the better for posterity.
Where the system is adequate in design, effective and efficient in operation, the corporate objective is almost achieved and need fulfillment of the individual employees will also be assured.
This study with the attendant recommendations will help the organization to know areas of weaknesses and thereby finding appropriate remedy. This is very effective and reliable model of communication since the researcher has titled or no vested interested in the organization.
The government is another beneficiary because it is dispenser of the funds or resources, the internal control system is intended to conserve.
The public has no less interest since they are the tax payers.
Others who will benefit from this study are further researchers and follow students who will be opportune to pick up this work form the library.
This study has also been a source of inspiration and the researcher found it very invaluable to her academic advancement. It has exposed her to so many things which ordinarily would have escaped her notice.
1.6 SCOPE AND LIMITATIONS
The internal control is so versed that it cannot be exhaustively dealt with in this singular research giving limitations in times and resources.
The researcher as the saying goes found herself between the lion and the deep blue sea. She is faced with two unpleasant alternative of either using her limited time to present a very comprehensive work on her topic of study and thereby giving other causes a second place or presenting a scanty work and devoting her precious time to other courses that required her pressing attention which alternatively she may choose.
The opportunity cost of the foregone alternative is costly. In other to optimize the available time, an equilibrium had to be reached and thus researcher can with some degree of confidence, say that the aim of this work has been achieved.
Another limitating factor was money, considering the economic situation in the country and with total commitment to what the Structural Adjustment Programme (SAP) has to offer and also taking cognizance of the fact that this researcher is a student, in fact a poor one for that matter, one cannot but accept that this researcher has put in her “widow’s might”. As a result of the above the scope of this work has been cut off to a manageable level.
As the topic implies, the study will be restricted to government owned establishment with particular reference to Project Development Institute (PRODA) Enugu and will further be localized to four (4) main dimensions of internal control viz:
i. General Financial Control
ii. Cash Control
iii. Fixed Assets Control
iv. Stock Maintenance
1.8 DEFINITION OF TERMS
GOODS RECEIVED NOTE (GRN)
This is the document acknowledging receipt of goods delivered.
LOCAL PURCHASE ORDER (LPO)
It serves as an authority to local dealer, asking him to supply a specified quantity of goods at a given price and collect his money later.
STORES REQUISITION
An official request for a certain quantity of goods to be issued from the stores.
STORES ISSUE VOUCHER
A document on which are stated the goods issued. It is a document officially assigning goods to the section requiring them.
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