JEEVANDEEP SHAIKSHNIK SANSTHA POI’S

ARTS, COMMERCE AND SCIENCE COLLEGE GOVELI

A
PROJECT REPORT ON

ROLE OF AUDIT FOR PROPER ACCOUNTABILITY OF COMPANY'S FUNDS

SUBMITTED TO

UNIVERSITY OF MUMBAI

UNIVERSITY OF MUMBAI OF THE DEGREE OF MASTER IN COMMERECE

FACULTY: COMMERCE
BY

MINAL MANOHAR PADWAL

ROLL NO: 215906

UNDER THE GUIDANCE OF

MISS DEEPSWINI CHAVHAN (HOD)

MISS MAYURI KAMBLE (PROF.)

ACADEMIC YEAR
2021-2022
 UNIVERSITY OF MUMBAI

ROLE OF AUDIT FOR PROPER ACCOUNTABILITY OF COMPANY'S FUNDS

UNIVERSITY OF MUMBAI OF THE DEGREE OF MASTER IN COMMERECE

BY
MINAL MANOHAR PADWAL

ROLL NO: 215906

UNDER THE GUIDANCE OF

MISS DEEPSWINI CHAVHAN (HOD)

MISS MAYURI KAMBLE (PROF.)

JEEVANDEEP SHAIKSHNIK SANSTHA POI’S

ARTS, COMMERCE AND SCIENCE COLLEGE GOVELI

YEAR-2021-2022
 JEEVANDEEP SHAIKSHNIK SANSTHA POI’S
ARTS, COMMERCE AND SCIENCE COLLEGE GOVELI

YEAR-2021-2022

CERTIFICATE

This is to certify that MINAL MANOHAR PADWAL has worked and duly completed her project work
for the degree of bachelor

In commerce under the faculty of commerce in the subject of commerce And her project is entitled,

ROLE OF AUDIT FOR PROPER ACCOUNTABILITY OF COMPANY'S FUNDS

Under my supervision

I further certify that the entire work has been done by the MINAL MANOHAR PADWAL under my
guidance and that no part of it has been submitted previously for any degree of diploma of any University.

It is her own work and facts reported by her personal findings and investigations.

GUIDING TEACHER NAME

SIGNATURE OF GUIDING
TEACHER

DATE OF SUBMISSION COLLEGE SEAL

 DECLARATHION BY LEARNER

I the undersigned Miss SHIVAJI ANANTA PADWAL here by, declare that the work embodied in this

project work “THE IMPACT OF QUALITY CONTROL ON ORGANISATIONAL

PERFORMANCE”

Form my owns contribution to the research work carried out the guidance of “MISS MAYURI KAMBLE”
is a result of my own research work and has not been previously submitted to any other University for any
other degree / diploma to this or any other University.

Wherever reference has been made to previously works of others, it has been clearly indicated as such and
included in the bibliography.

I, here by further declare that all information of this document has been obtained and presented in
accordance with academic rules and ethical conduct.

Name and signature of the learner

Certified by

Name and signature of guiding teacher

MISS MAYURI KAMBLE

4
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ACKNOWLEGEMENT
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of the project

I take this opportunity to think the University of Mumbai for giving me chance to do this
project

I would like to thank my Principle MR. KORE SIR for providing the necessary facilities

required for completion of this project.

I take this opportunity to thank our Coordinator MSS. DEEPSWINI CHAVHAN, for her

moral support and guidance.

I would also like to express my sincere gratitude towards my projects guide

MSS. MAYURI KAMBLE whose guidance and care made the project successful.

I would like to thank my college library, for having provided various reference books and

magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of my project especially my parents and peers who supported me throughout
my project
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TABLE OF CONTENTS

Cover page

Title Page i

Dedication ii

Acknowledgement iii

Approval Page iv

Abstract v

Table of contents vi

CHAPTER

ONE

INTRODUCTI

ON

Background of the study 1

Statement of problem 3

Objective of the study 4

Research Questions 5

Statement of hypothesis 5

Significance of the study 7

Scope of the study 7

Limitation of the study 8

Definition of terms 8
 7

References 10

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction 11

2.2 Internal control 11

2.3 Role and Purpose of internal control 13

2.4 Types of Internal control 15 2.5

Function of internal control 19

2.6 Internal control in financial institution 20

2.7 Element of a good internal control system 24

2.8 Relationships between internal auditing and internal control

system. 27

2.9 Management and internal control system 28

Defect and shortcoming of internal control 29

Possible solution to defects internal control system 31

Limitation of internal control 32

CHAPTER THREE 34

Research methodology

introduction 34

Research design 34

Sources of data 34

Area of study 35
 8
population of the study 35

sample size and sampling technique 35

Research instrument 36

Validation and Reliability of instrument 37

Method of data analysis 37

CHAPTER FOUR

Data Presentation and analysis 40

introduction 40

Data Presentation 40

Test of hypothesis 45

CHAPTER FIVE

Summary, Conclusion and Recommendation 54

Summary of findings 54

Conclusion 54

Recommendation 55

Bibliography 57

Appendix 59

Questionnaire 60
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ABSTRACT

Over the years, there have being a problem of incorrect and unreliable

financial record which has lead to loss of organizational integrity. The

research work aimed among others at determining the relationship

between internal measures to proper accounting records. A survey

research design was adopted for this research study and a sample size

was selected using Yaro Yamane sampling technique as data used were

obtained from both primary and secondary sources. Four research

questions were formulated out of which three hypothesis were

formulated using regression co-efficient analysis method at 5% level of

significance and the Z table was also used for comparison between

calculated value of significance B and tab le value. The finding from the

analysis indicates that internal control measure management

performance and is necessary for the growth and effectiveness of the

organization. Financial management of any organization cannot do

without internal control as true and fair presentation of financial

statement may never be possible if the board and senior management

are not committed to providing a well planned internal control system. It

also recommends that a periodical review of the organization should be

done by the management so as to cope with the model trends in

organizational fraud prevention

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CHAPTER ONE

INTRODUCTION

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
 11

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 increaseits 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
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implementation of this control system would ensure proper

management.

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.
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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.

2. To ascertain whether perpetration of fraud and losses of

Revenue in an organization are as a result of weakness in internal

control system.

3. To ensure whether a true reflection of organizational activities

are presented in financial statement where there is an active

observation of internal control measures.

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4. To determine the relationship between internal control

measures and proper keeping of accounting records.

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.

2. 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

3. To what extent does internal control enhance a true

reflection of organization activities as presented in the financial

statement

4. To what extent does a relationship exists between internal

control and proper keeping of accounting records

STATEMENT OF HYPOTHESIS

This research is undertaken on the basis of the following

hypothesis.
 15

HYPOTHESIS ONE (1)

Ho: internal control measure does not ensure proper use oforganiza

Hi: Internal control measure ensures proper use of

organizationfunds and assets.

HYPOTHESIS TWO (2)

Ho: Fraud perpetration and losses of revenue in an organization

arenot as a result of weakness in the internal control system.

Hi: Fraud perpetration and losses of Revenue in an organization

areas a result of weakness in the internal control system.

HYPOTHESIS THREE (3)

Ho: internal control does not ensure, a true reflection of

anorganizational activities as presented in financial

statement

Hi: Internal control ensures a true reflection of an

organizationalactivities as presented in financial statement.

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SIGNIFICANCE OF THE STUDY

There is no controversy that this research works have been

conducted on internal control system, however much emphasis

has been placed on the impact of a good internal control system

on financial management of organizations.

This research work will go a long way in helping an

organization discover the impact of weakness in internal control

and suggest measures in correcting them. It will also reveal the

problems caused by bad internal control system and be useful to

students, scholars, lecturers and other third parties as it shall open

new area of further research work and at same time advance

challenges to up-coming researchers.

SCOPE OF STUDY

The impact of a good internal control aids management

effectiveness in its organization. This research will specifically

Focus attention on the activities of organizations in Nigeria and

due
 17

to the logical point that not every organization can be studied, this

research is therefore limited to the Nigeria Bottling Company. The

focus of this research is to show the impact of a good internal

control system in the performance of organization Financial

management.

LIMITATION OF THE STUDY

The major constraints in this study include the conservating

nature of organization and their apathy towards providing

information, especially with respect to their internal operation

policies

Human errors and biasness are other limiting factor of this

study. This is because some data’s were obtained through

discussions and interviews therefore there is the possibility of

human error of omitting some vital information. Respondent may

also exaggerate important information in order to give their

organization a positive credit for fear of what seem an invasion

into the organization’s privacy. Time and finance is also a limiting

factor.

DEFINITION OF TERMS

The following terms have been used in the course of this research

work and as such need to be explained. They were as stated

below:
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INTERNAL CONTROL

It has been defined by the Auditing planning committee (APC) IN

Uk as “the whole system of control financial and otherwise

established by management in order to carry out the business of

the enterprise in an orderly and efficient manner to safeguard the

assets and secure as far as possible, the competence and accuracy

of records, the prevention and detection of errors and fraud in

accordance withthe final preparation of financial statement.”

CONTROL

Is an exercise performed in the present to achieve a plan drawn up

for the future.

MANAGEMENT

It is defined as the process of planning, organizing co-ordinating

and controlling the activities of an organization. It is seen as a

group of people who monitor and control the organization

activitiestowards the achievement of the organization objectives.

AUDIT

This comes from a Latin word “AUDIRE”meaning to hear in other

words it means official examination of account and records.

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CHAPTER TWO

LITERATURE REVIEW

INTRODUCTION

The chapter takes a critical look on the nature and circumstance

of internal control, the review of related literature in a research

study is a search for the discovery of existing information on a

given research problem. It sets the current research into

perspective to show “the state of the art” a literature review must

be done in a con text of the research problem.

In this study, related literature that highlight properly

internal control system will be reviewed to enable and enhance

our understanding of the research work so that the intended aims

and objectives of the research can be met.

INTERNAL CONTROL

The United Kingdom Auditing practices committee (1979)

defined internal control as “the whole system of control, financial

and otherwise established by management in order to carry on

the
 20

business of the enterprise in an orderly band effective manner to

ensure adherence to managerial policies and directives,

safeguard the assets and ensure as far as possible the

completeness and accuracy of the records the prevention and

detection of errors the fraud ,and the timely preparation of

financial information”

According to statement of accounting standards, (SAS)

internal control is the combined plan, method and procedures

which can safeguard the firm’s assets promote operational efficiency

and encourage adherence to prescribed policies.”

Also according to Robertson and Davis (1988:169) “internal

control system is a set of client procedures both computerized and

manual imposed on the accounting system for the purpose of

preventing, detecting and correcting errors and irregularities that

might enter the system and thereby affect the firm’s financial

statement.

The SAS (statement of accounting standard) further explains

that internal control maybe categorized as either accounting or

administrative controls. Accounting control is concerned with the

plan of the organization and all the co- coordinated methods and
 21

procedures which are implemented with a view of safeguarding

assets and enhancing reliability of financial records.

An administrative control comprises of the plan of the

organization and all co-ordinates methods and procedures that

are concerned with operatically efficiency an adherence to

management policies and directives. This is also known as

operational controls.

ROLE AND PURPOSES OF INTERNAL CONTROL

According to Walter and William (1982:5), the role and purpose

of internal control system is meritable because internal control

consists of the measures, record procedures and plan of an

organization that deals mainly with safeguarding asset and

ensuring financial records are accurate and reliable. They further

explained that the need for internal control can be seen in its

roles and purposes which are:

1. financial internal control

2. Administrative internal control

FINANCIAL INTERNAL CONTROL

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The need for internal c control system under this is :

a. To ensure the assets of the company is protected.

b. Protecting against improper disbursement of the assets for

thecompany

c. Assuring and securing the accuracy and reliability of all

accounting, financial and other operating information of the

company.

ADMINISTRATIVE INTERRNAL CONTROL

a. To ensure that the operations the organization are carried

outeffectively and efficiently.

b. To ensure the objective and aim of the organization

areattained

c. To provide assurance that access to asset is permitted only

inaccordance with management authorization

d. To ensure transactions are properly recorded in the

financialstatement
 23

To ensure financial statements are prepared in accordance with

accounting principles.

TYPES OF INTERNAL CONTROL

The guideline of internal control put forward eight (8)types of

internal control system that should be obtainable in an

organization in an organization and they are follows:

ORGANIZATIONAL CONTROL

An organization should have a plan of its activities which should

define and allocate responsibilities that is every function should be

monitored by a specific person who may be called “responsible

officer.” Adequate lines reporting for all aspect the organization

operations, including controls should be clearly stated and the

delegation of authority and responsibility should be clearly

specified

SEGREGATION OF DUTIES

One of the prime means of control is the separation of duties. This

reduces the risk of internal manipulation, accidental error and

increases the element of checking.

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Functions which should be separated in an organization financial

management include: initiation (officer or person who decides to

give out the loan ), Execution ( the person who keeps the money

to be loan out ) and recording (the person who records the whole

process in the book).system development and daily operations

have to be considered in moulding the internal control system to be

full proof against fraud.

PHYSICAL CONTROL

This concerns the physical custody of assets and involves

procedures and security measures designed to limit access to

authorized personnel only. These include both direct and indirect

access via documentations. These controls assume importance in

the case of valuable, portable, exchangeable or desirable assets.”

Physical control can also be achieved by electronic means in a

computerized environment for example through the use of

electronic I.D cards, password etc to restrict access to particular

file.

ARITHMETICAL AND ACCOUNTING CONTROL

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These are the controls within the recording function which h

checks that the transactions to be recorded and processed have

been authorized and that they are correctly and accurately

processed. Such controls include checking the arithmetical

accuracy of the records, maintenance and checking of totals,

reconciliation, control accounts and trial balances and

accounting for document.

PERSONNEL CONTROL

There should be procedure to ensure that personnel have

capabilities commensurate with their responsibility. Inevitably,

the proper functioning of any stem depends on the competence

and integrity of those operating it. The qualifications, selection

and training as well as the personal characteristics of the

personnel involved are important features to be considered in

setting up any control system especially in financial

management.

SUPERVISION CONTROL

Any system of internal control should include the

supervision by responsible officials of day-to –day transactions

and the recording thereof. Al activities performed in the financial

management by all the level of staff should be clearly laid down

and communicated to the person supervising

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MANAGEMENT

These are the controls exercised by management outside the day-

to- day routing of the system they include the overall supervisory

controls exercised by management, the review of management

accounts and comparison thereof with budget internal audit

function and other special review procedures. It is also the duty

of the management to review the internal control from time to

time in order to accommodate changes in the financial

management operations.

AUTHORIZATION AND APPROVAL

All transactions should require authorization by an appropriate

responsible person. This is very important in the financial system

of an organization where large amount of money is handled so

therefore it is appropriate for these money which are used for are

used for various transactions to be authorized by a trusted and

responsible person

ESSENTIAL FEATURES OF INTERNAL CONTROL

INFINANCIAL MANAGEMENT
 27

According to Walter and William (1982:5-7), the detailed nature of

the controls operative within any organization will depend upon the

following:

a. The nature and size of the business conducted.

b. The number of administrative staff employed

c. The materiality of transaction concerned

d. The importance placed upon internal by the

organization’s

own management.

e. The management style of the entity particularly the

twistplaced on the integrity and honesty of the key personnel

and thelatter’s ability to supervise and control their own

subordinate staff. Despite the many variation in

internal control system, whichmanifest in

different situations, all internal control system willpossess an

unavoidable principle of “separation of function”. These

functions among others include

FUNCTION - ENTAILING

AUTHORIZATION -This is the approval of contractual obligation

CUSTODY - The handling of assets involved in transaction

RECORDING -The creation of documentary evidence of the

transaction and its entry in the accounting recording

.in
 28

commercial organizations or banks, the nature of the business has

been stated earlier on and it is peculiar to all banks, regardless of

the size or location. The size varies from organization and the

number of staff depend s on the size of the organization. In smaller

organizations or banks, an officer could perform the work meant for

two or three people, if the work load is adequate for one staff.

Banks transactions have materials which are usually very

important and confidential; therefore the internal control of the

banks will have to be such that naturally safeguards all its

documents. Furthermore, the main act of banking i.e a customer

patronizing a bank is an automatic gesture of trust and so

therefore, the integrity and honesty of the key personnel must be

sound and well emphasized by the internal control operating in

the bank.

INTERNAL CONTROL IN FINANCIAL INSTITUTION AND

STATUTORY GUIDELINE AS TOOL AGAINST FRAUD AND

DISTRESS

Looking at financial institution for example a bank it is always

under the control of some bodies like CBN, SEC etc. these

bodies
 29

monitor and influence the activities of all banks directly or

indirectly.

It has been established that fraud is a very deadly disease to any

commercial banks, because if allowed to grow and eat deep into

the banking system, it inevitably leads to distress. Evidence from

recent banks regarding fraud and forgeries in commercial and

merchant banks reveals that the phenomenon has been on the

upward trend,i.e the incidents of fraud and forgeries has been

increasing, despite the control measures put in place by

individual banks. The subject fraud has increasingly gained the

attention of the monetary and supervisory authorities, in view of

the fact that fraud results in huge financial losses to banks and

their customers loss of confidence in banks which may ultimately

bring about bank failure. It is therefore important to stress the

need for all banks to comply with the statutory requirements of

rendering returns for the effectiveness of all policy measures,

which the monetary and supervisory authorities might design to

curb this menace. The statutory requirement for financial

institution is to employ external auditors to check their books

and affairs. regulatory authorities exercise their powers to deal

with members of the institution and

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management found to have grossly violated the regulatory and

statutory code of conduct or to have been engaged in financial

malpractice or have condoned such offences of other staff.

BEARERS OF INTERNAL CONTROL RESPONSIBILITY

The role of management in any organization involves the planning

and control of the operations of the organization to ensure that

there in accordance with plans. (Walter and Will 1982-6).the

totality of the procedure is to ensure that the internal control system

is effective on its operators.

According to Oyejide and Soyode (1998:8) management has the

responsibility under the company and allied matter Act (CAMA)

to keep adequate accounting records. Management should

therefore introduce appropriate controls to prevent or reduce the

incidence of irregularities, and intentional errors, including fraud.

The risk of fraud can be reduced by ensuring that the key

functions which each transaction cycle are always performed by

separate individuals.

Segregation of duties should exist among:

1. Those with power to authorize a translation and to commit

thebank to execute it.

 31

2. Those charged with the dust of recording such translations

inbanks in banks book.

3. Those who have the custody of assist and can determine

theirrelease.

KEY SUCCESS FACTORS OF A FINANCIAL INSTITUTION

An example of a financial institution is a bank. IBFC

AugustoTraining limited (2004:2-3) mentioned the

following to be the keysuccess factors of commercial

banks.

a. Strong capital base

b. Strong internal process

c. Ability to use technology for competitive advantage.

d. Good and disciplined management and staff

e. Share holders of good standing capacity and willingness to

support

FUNCTIONS OF A COMMERCIAL BANK.

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Banks are noted for their full services, which they render to

commerce and individual. These services are encapsulated in

their functions which include the following:

a. Acceptance of Deposit

b. Granting of loans

c. Issuing bank drafts and travelers cheque

d. Making payments on behalf of their customers.

e. Buying and selling of securities on behalf of their customers.

ELEMENT OF A GOOD INTERNAL CONTROL SYSTEM

INTERNAL AUDIT: Leslie R.. Howard (1973) writing on

internal audit said, it is a review of operation and records

sometimes continuous which is been looked into by

specially assigned staff.

Leslie went further to say that where internal audit exist, internal

controls is greatly facilitated and in order to achieve the planned

objectives, management must have to set reasonable procedure

for the internal audit department to apply. He went further to

state
 33

that if the internal auditor would achieve the aim of management

that is profit maximization, independence is also a necessity.

Also Sir Author E. Cutforth (1975) defined internal audit as a

review of operation and records sometimes continuous,

undertaken within a business by specially assigned staff. A

situation where the external auditor, there could be unnecessary

duplication of work which stands to tamper the financial

management of the organization.

He went further to say that if management set up a strong internal

audit department with its own autonomy, the scare fund of an

organization would be adequately and effectively managed. Internal

auditors have responsibilities to carry out some of which are:

 Providing management with information about the adequacy

and effectiveness of the organization system of internal control.

 Review and improvement of the system of internal check

 The examination and review of the organization policies and

activities to ensure compliance with statutory legislative

requirement.

 Internal auditors should be able to undertake at all times

special investigation at the management request.

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INTERNAL CHECK

It has also been deemed necessary to explain the principles of

internal checks which also forms part of the system internal control

embrace. The institute of chartered accountant of England Wales

defined internal check as the allocation of authority and work in

such manner as to afford checks on the routine transaction of

day to day work by more of the work of an individual being proved

independently by another. According to Oremade T. (1979:31),

internal check covers the detection of fraud or errors and interior

quality of work. It involves a number of principles among which

are:

(a) Work is divided so that no single person has sole control

over a complete cycle of work. Thus, for example a cashier should

not post the ledger instead these functions should be carried out

by an independent person responsible to the accountant.

(b) The work flows from one person to another and in the

process each stage is subjected to an independent check. This is

done with a minimum amount of duplication.

(c) When checks are not automatically out as part of the

system, special checks should be carried out by senior officials.

 35

(d) Proper lines of authority should be established for

dealingwith such transactions.

RELATIONSHIPS BETWEEN INTERNAL AUDITING

ANDINTERNAL CONTROL

There has been a misconception about the use of the work

internal audit and internal control and a clarification has been

deemed necessary. Oremade T. (1979:30) defined internal audit

as “An independent review of operations and records, some times

continuously undertaken within a business by a specially

assigned staff”.

While he defined internal control as “A system which comprises the

plan of organization and all of the co-ordinate methods and

measures adopted within a business to safeguard its assets, check

the accuracy and reliability of its accounting data, promote

operational efficiency and encourage adherence to prescribed

managerial policies”.

Furthermore, he explained that an efficient internal control

embraces internal audit. Also, internal audit is carried out on the

basis of the internal control system in place

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MANAGEMENT AND INTERNAL CONTROL SYSTEM

The internal control system should be evaluated periodically to
expose any lapses present, to know how strong or weak the
system is. Management is in the position to override controls,
which it has established, for its own interest.
The role of management in internal control is explained as follow;

It is the management of an organization that put in place the

internal control system for smooth running and continuity of the

enterprise. However, management has a way of affecting the

internal control system and vice versa. When an internal control

system is set up by the management, it will be arranged in such a

way that any misconduct or lapses in the system will be noticed.

The effect of management on internal control will be obvious from

the way in which they handle misbehaviors or misconducts among

workers. If management deals with the misconduct with levity, the

whole organization will relax, i.e people will begin to work at will

and at their own pace, knowing that nothing will be done to

them. It should be noted that with this kind of management,

fraudulent act would thrive very well. Also in a case whereby the

management shows favoritism to some workers and turn blind

eyes to their
 37

misconduct, fraud thrives. A good management ought to ensure

effectiveness of the internal control system by frowning at any

typeof malpractice or misconduct.

Finally, the competence and integrity of the personnel

operating the controls must be ensuring by management through

proper selection and training to assure the organization beyond

reasonable doubt against fraudulent acts.

DEFECT AND SHORT COMINGS OF

INTERNALCONTROL

Internal control is a set of control institutionalized by the

management of an organization to accomplish a number of

objectives and goals. Internal control as a system means

thecombination of inter-related and independent controls,

necessitating a high degree of co-ordination, working

togethertowards the achievement of known goals and

aspirations.

When there is a defect on the side of the management in

carrying out proper internal control system, the result might

lead to distress in the organization. Some factors responsible

for distress in internal control system are;

 38

1. Dishonesty and fraudulent act of workers. Fraud is referred

to as an intentional misrepresentation of financial information by

one or more individuals among the management or employees.

These include.

a) Manipulation and falsification of records or documents

b) Misappropriation of assets.

c) Omission of defects in transaction from records or document.

d) Misapplication of accounting policies.

It should be noted that in an organization, two types of fraud are

recognized namely: management fraud and employee fraud.

2. An unstable environment or monitoring body could also

lead to defect in internal control system. It should be noted that

the types of fraud perpetuated are:

a) Presentation of forged cheques and dividend warrants.

b) Granting of unauthorized credits.

c) Posting of fictions credits

d) Fraudulent transfers and withdrawals

e) Outright theft of money

POSSIBLE SOLUTION TO DEFECTS IN INTERNAL CONTROL

SYSTEM
 39

The defects in internal control system can be corrected and

replaced by a healthy system through the following measures

(Ares and Loebbeck 1996:270-274), which is applicable to

organization

.2.11.1 PERSONNEL CONTROLS

 Proper recommitment procedure

 Proper disengagement procedure

 Posting and placement

 Job rotation

 Training programmes

ADMINISTRATIVE CONTROL

 Segregation of duties

 Dual custody

 Security duties e.g test key, commerce etc.

ACCOUNTING CONTROLS

 Date validation

 Prompt posting of transaction

 Balancing

 Reconciliation

FINANCIAL CONTROL
 40

 Cash limit

 Signing powers

 Specialized stationer

PROCESS CONTROL

 Input/output validation

 Program control

INVENTORY CONTROLS

 Logs and listing

 Physical checks and counts

 Bin lards, stock receipt notes

LIMITATION OF INTERNAL CONTROL

Internal controls are essential features of any organization that is

non-effective. However no system of internal control can by itself

guarantee efficient administration and the completeness and

accuracy of the records nor can it be proof against fraudulent act

especially in connection with those holding the position of

authority.

According to Oyejide and Soyade (1998-8-9) the inherent

limitations of internal control include:

 41

 Management overdoing controls whenever the control does

not suit their selfish ambitions.

 Fraud committed by someone who has carefully studied the

system of a particular organization

 Abuse of responsibility i.e taking advantage of the position

held to do or carryout illegal acts.

 Cleverness of some people who specialize in gelding computer

codes of an organization which are designed to prevent public

access, no matter how secure they might be.

 Employees of an organization making potential human

errors caused by sheds of excess worked alcohol, carelessness,

distractions etc.

All these are factors that can limit the effectiveness of internal

control system in the financial management of an organization.

 42

CHAPTER THREE

RESEARCH METHODOLOGY

INTRODUCTION

In this chapter, issues that would be discussed are as follows:

Research design, area of the study, population of the study,

samplesize and sampling technique, instrument of data

collection, validityand reliability of the instrument and method of

data analysis.

RESEARCH DESIGN
 43

For the purpose of carrying out a good analysis and reaching a

reasonable conclusion, data are been collected from various

sourceseither through the primary source and secondary source.

SOURCES OF DATA

Data used for this research work were collected mainly from both

primary and secondary sources.

 Primary source: The primary data used for this work were

gotten through questionnaire and oral interview which was

administered to the respondent.

 Secondary Source: The secondary data was gotten from

textbooks, journals, newspapers, magazines and bulletin.

AREA OF STUDY

This study covers the Nigeria bottling company Breweries which is

precisely situated at 9th mile corner Enugu.

POPULATION OF THE STUDY

This research was only limited to the employees of Nigeria

Breweries. The population of this study which consist of over

2,000 workers but the target population of this work consists of

500 staff which is made up of Accountants, Directors, External

Auditors and Managers and other stakeholders put together.

 44

SAMPLE SIZE AND SAMPLING TECHNIQUE

Sample is a small or selected group used to represent the whole.

The sample size that will be used to represent the whole

population will be determined using the Yaro Yamane as it

would not be easyto use the entire population.

The “Yaro Yamane” Formula is as stated

belown =N

1 + N(e)2

Where

n = Sample size

N = Finite population

1 = Constant

E = Level of significance taken to be 0.05

n = 500

1+500(0.05)2

n = 500

1+500(0.0025)

= 222

RESEARCH INSTRUMENT
 45

The instruments used for the purpose of the study are oral

interview and questionnaire.

Oral interview has to do with asking of question so as to

gather as many information as possible. The questionnaire issued

contains certain questions which are in accordance with the

research work and the research hypothesis and are framed in a

waythat it would not be misunderstood by the respondent.

VALIDATION AND RELIABILITY OF THE INSTRUMENT

The question issued to the respondents for this research work

was designed in a way that it arouse interest in the mind of the

respondent. The Questionnaire was issued out to prominent

lecturers, professors and statisticians in the university who went

through them and made necessary suggestions. In the cause of

the oral interview, certain checks and balances were also adopted

to secure perfect validation of the information given.

METHOD OF DATA ANALYSIS

In this study, questionnaires issued was returned and analyzed

based on simple percentage. A parametric statistical tool

regression
 46

co-efficient analysis was used to test hypothesis in accordance

with the research work.

It was adopted for this research because it shows the relationship

between internal control and its impact on the financial

management of an organization.

Z-table was used for comparison between calculated values of

significance of b. The simple percentage method makes use of the

above formula.

n x 100

N 1

Where

n = Actual or amount obtained

N = Total number or amount expected

100 = Percentage

The regression co-efficient method is stated

thus:b = X1Y1 – nxy

X12 – nX2

a = Y–

bXWhere
 47

b = slope of the line or the gradient

Y = variation of x in regression line

X = a given value

XIYI = The score of the respondent population

XY = Mean score of the respondent population

X2 = Variance of

score XY2 = Variance of

score Y

n = Number of

respondenta =

relationship of X and Y

To determine the relationship the above formula is

usedY = a+b

Sb = See
x21 - n x2

Where See = the standard error of estimate

See = Y12-aY1-bx1Y1
n-2

After sb has been calculated, the Z-test would be

used.Z = b

Sb

DECISION CRITERION FOR VALIDATION OF HYPOTHESIS

 48

The following decision will apply

thus: If b < x reject the Ho (Null

hypothesis) If b > x accept the Ho

(null hypothesis) Where

b = critical or table value

x = calculate value
 49

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

INTRODUCTION

This chapter is concerned with presentation, analysis and

interpretation of data tested with regard to the hypothesis stated in

chapter one to determine either the rejection or acceptance of Ho

hypothesis

DATA PRESENTATION

In this section, the responses to questionnaire are presented and

analyzed using the simple percentage for comparison. The

presentations and analysis are as stated below.

Questionnaire I

Internal control measures ensure proper use of organizational

fund and assets.

 50

Table 4.2.1

Respondent Strongly Disagree Total % of % of

Agree agreement disagreement
Accountant 13 18 33 45 55
Director 20 14 34 59 41
External 29 16 45 64 36
auditor
Manager 7 14 21 33 67
Stakeholder 44 45 89 49 51

Questionnaire 2

A true reflection of organizational activities is presented in

financialstatement through the performance of internal control.

Table 4.2.2

Respondent Strongly Disagree Total % of % of

Agree agreement disagreement
Accountant 17 16 33 52 61
Director 18 16 34 53 50
External 30 15 45 67 42
auditor
Manager 10 11 21 48 38
Stakeholder 45 44 89 51 49
 51

Questionnaire 3

Perpetration of fraud and losses of revenue in an organization is

asa result of weakness in the internal control system.

Table 4.2.3

Respondent Strongly Disagree Total % of % of

Agree agreement disagreement
Accountant 13 20 33 39 61
Director 17 17 34 50 50
External 26 19 45 58 42
auditor
Manager 13 8 21 62 38
Stakeholder 45 44 89 51 49

Questionnaire 4

Segregation of duties among the employees of an organization

couldimprove financial management

 52

Table 4.2.4

Respondent Strongly Disagree Total % of % of

Agree agreement disagreement
Accountant 19 14 33 58 42
Director 15 19 34 44 56
External 22 23 45 49 51
auditor
Manager 16 5 21 76 24
Stakeholder 78 11 89 88 12

Questionnaire 5

The internal control system has significant impact on the

financialmanagement of an organization

Table 4.2.5

Respondent Strongly Disagree Total % of % of

Agree agreement disagreement
Accountant 21 12 33 64 36
Director 14 20 34 41 59
External 20 25 45 44 56
auditor
Manager 12 9 21 57 43
Stakeholder 80 9 89 90 10
 53

Questionnaire 6

Document verification enhances financial management

Table 4.3.6

Respondent Strongly Disagree Total % of % of

Agree agreement disagreement
Accountant 22 11 33 67 33
Director 29 5 34 85 15
External 41 4 45 91 89
auditor
Manager 19 2 21 90 95
Stakeholder 55 34 89 62 38

Questionnaire 7

Internal checks and balances enhance financial management

Table 4.2.7

Respondent Strongly Disagree Total % of % of

Agree agreement disagreement
Accountant 28 5 33 85 15
Director 18 16 34 53 47
External 44 1 45 98 22
auditor
Manager 17 4 21 81 19
Stakeholder 88 1 89 99 1
 54

Questionnaire 8

Independent appraisal of internal control measured by an external

auditor would improve financial performance and management of

your organization.

Table 4.2.8

Respondent Strongly Disagree Total % of % of

Agree agreement disagreement
Accountant 29 4 33 88 12
Director 12 22 34 35 65
External 40 5 45 89 11
auditor
Manager 6 15 21 29 71
Stakeholder 59 30 89 66 34

Questionnaire 9

A well known documented procedure for dealing with non-financial

transaction in organization enhances financial management.

 55

Table 4.2.9

Respondent Strongly Disagree Total % of % of

Agree agreement disagreement
Accountant 23 10 33 70 30
Director 12 22 34 35 65
External 39 6 45 87 13
auditor
Manager 3 18 21 14 86
Stakeholder 79 10 89 89 11

TESTING OF HYPOTHESIS

The hypotheses were tested using data collected from

questionnairedistributed.

HYPOTHESIS ONE

Ho: Internal control measure does not ensure proper use oforganiza

HI: Internal control measure ensures proper use of

organizationfund and asset.

 56

2 2
Respondent X1 Y1 X1 X1y1 Y1
Account 15 18 225 270 324
Director 20 14 400 280 196
External 29 16 841 464 256
auditor
Manager 7 14 49 98 196
stakeholder 44 45 1936 1980 2025
x1-115 y1-107 X12-3451 Ex1Y1-3092 Y12 – 2997

X = 115 = 23

Y = 107 = 21.4

b = X1Y1 – n x y

X12 – nX2

b = 3092 – 5x23x21.4

3451 – 5x23x23

b = 3092 – 2461 = 631 = 0.78

3451 – 2645 806

a = Y - bX

a = 21.4 – 0.78x23
 57

= 21.4 - 17.94

= 3.46

Testing the significance

of bSb =Y12-aY1-bx1Y1
n-2

X12 - nx2

Sb = 2997 - (3.46) (107)-0.78(3092)

5-2
3451 – 5 x 23 x 23

Sb = 2997-370-2412
3

3451 – 2645

Sb = 215
3
806

Sb = 71.6 = 8.4617 = 0.30

806 28.3901

Z= b = 0.78 =2.6
 58

Sb 0.30

Critical Z-table at 3 degree of 5% level of significance for two

tailedtest is ± 0.9989.

Decision

2.6 > 0.9989

Since 2.6 is greater than 0.9989, therefore we reject Ho which

states that internal control measure does not ensure proper use of

organization fund and asset.

HYPOTHESIS TWO

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.

2 2
Respondent X1 Y1 X1 X1y1 Y1
Account 13 20 169 260 400
Director 17 17 289 289 289
External 26 19 676 494 361
auditor
Manager 13 8 169 104 64
stakeholder 45 44 2025 1980 1936
X12-3328 Y12–3050
x1-114 Y1-108 Ex1Y1-3127
 59

X 114 = 22.8

Y = 108 = 21.6

b = X1Y1 – nxy

X12 – nX2

b = 3127 – 5 x22.8 x 21.6

3328 – 5 x 22.8 x 22.8

b = 3127 – 2462 = 665 = 0.91

3328 – 2599 729

a = Y – bx

a = 21.6 – 0.91 x 22.8

a = 21.6 – 2075

= 0.85

Testing the significance of b

 60

Sb= n-2
X12 - nx2

Sb = 3050 – (0.85)(108)-0.91(3127

5-2

33328 – 5 x 22.8 x 22.8

Sb = 3050 – 92 – 2846

3328 – 2599

Sb = 37.3 = 6.1074 = 0.23

729 27

.: t = b = 0.91 = 3.9

Sb 0.23

Critical z-table at 3 degree of 5% level of significance to two

tailedtest is ± 0.9989

Decision

3.9 > 0.9989

 61

Since 3.9 is greater than 0.9989, therefore we reject Ho which

states that fraud perpetration and losses of revenue in an

organization are not as a result of weakness in the internal control

system.
 62

HYPOTHESIS THREE

Ho: Internal control does not ensure a true reflection of

anorganizational activities ad presented in financial

statement.

HI: Internal control ensures a true reflection of an

organizationalactivity as presented in financial statement.

2 2
Respondent X1 Y1 X1 X1y1 Y1
Account 17 16 289 272 256
Director 18 16 324 288 256
External 20 25 400 500 625
auditor
Manager 10 11 100 110 121
stakeholder 45 44 2025 1980 1936
X12-3138 Y12–3194
x1-110 Y1-112 Ex1Y1-3150

X = 110 = 22

Y = 112 = 22.4

b = X1Y1 – nxy

X12 – nX2

b = 3150 – 5x 22 x 22.4

3138 – 5 x 22 x 22
 63

b = 3150 –
2464

3138 – 2420

b = 686 = 0.96

718

a = Y - bx

= 22.4 – 0.96 x 22

= 22.4 – 21.12

= 1.28

Testing the significance

of bSb =Y12-aY1-bx1Y1
n-2

X12 - nx2

Sb = 3194 – (1.28)(112) – 0.96 (3150)

5-2

= 3138 – 5X 22 X 22
 64

Sb = 3194 – 143 – 3024

3138 -2420

Sb = 9

718

Sb = 3 = 0.11

26.7955

:. z = b = 0.96 = 8.7

Sb 0.11

Critical t-table at 3 degree of 5% level of significance for two

tailedtest is ± 0.9989

Decision

8.7 > 0.9989

Since 8.7 if greater than 0.9989, therefore we reject Ho which states

that internal control does not ensue a true reflection of an

organizational activities as presented in financial statement.

 65

CHAPTER FIVE

SUMMARY OF FINDINGS, RECOMMENDATION

ANDCONCLUSION

SUMMARY OF FINDINGS

Based on the data collected, analyzed and tested in chapter

four,the following findings were made as summarized below:

 Internal control measures ensure proper use of

organizationalfund and assets.

 Perpetration of fraud and losses of revenue in an

organizationare as a result of weakness in the internal control

system.

 A true reflection of organizational activities is presented in

financial statement through the performance of internal control.

In accordance with the findings, recommendation and conclusion

are made to ensure the effectiveness of internal control to

management functions.
 66
CONCLUSION

The financial management of any organization can be measured

by the standard or the effectiveness of the internal control

system and as well as the policies implemented by the

management. A well-managed business entity will not only attract

interest of outsiders but will also retain the zeal of the existing

owners and users of the financial information.

Therefore in conclusion, it will be said that the financial

management of any organization cannot do without internal

control as true and fair presentation of financial statement may

never be possible if the board and senior management are not

committed to providing a well planned internal control system.

RECOMMENDATION

The role, responsibilities and procedures to be adopted by the

management, internal audit department as well as the account

department to the overall management of an organization should be

focused on ensuring the safety of the assets and soundness of their

operations.

 Management should ensure that there are adequate

organizational controls and that each staff knows his duties and

equally ensures effective segregation of duties

 The internal control system should be remolded and

strengthened to position the staff in carrying out their duties

 67

efficiently and effectively and at the same time evaluated

periodically to strengthen its weaknesses in the organization.

 Finally, the management of the organization should be

reviewed periodically so as to cope with modern trends in

organizational fraud prevention.

 68

BIBLIOGRAPHY

Aguolu, A.O (2002) fundamental of Auditing, Enugu: meridian

publishers.

Adeniyi Adeniji (2003) Auditing and investigation, El-toda

ventures limited, Nigeria pp 165-175.

Chambers, A.U (1979) The structure of internal audit New

YorkRonney Inc.

Chuke, C.I (2001) Basic principles of financial management,

Ibadan prentice hill international.

Emekekwue P. (2003) Comparative Banking System

publication of B.A.S.E and O.A.U pp 371.

Eze, J.C (2005) Principals and technique of Auditing, New

enlargededition, Enugu JTC publisher.

Igwenagu, C. (2006) Basic statistic and probability Enugu: Prince

Press Publication.

Joseph, C.E (2005) Principles and Techniques of Auditing

New

and Enlarge Edition Enugu.

Leslie, R.H (1993) Internal audit functions and experimental

investigation, Home woodlion, Richard Irwin.

 69

QUESTIONNAIRE

Please, supply the answers to the below question by ticking in the

appropriate box.

PART A.

1. What department are you?

2. What position do you occupy?

3. Sex: Male or Female

4. Marital status: single or married

5. Age: 23 – 30 31 – 40 41 -60 a above 60

PART B

1. Internal control ensures proper use of organization fund

andassets?

Strongly Agree Disagree

2. A true reflection of an organizational activities are presented

infinancial statement through the performance of internal control

Strongly Agree Disagree

3. Perpetration of fraud and losses of revenue e in an

organization are as a result of weakness in the internal

controlsystem.

Strongly Agree Disagree

 70

4. Segregation of duties among the employees of an

organizationcould improve financial management

Strongly Agree Disagree

5. The internal control system has significant impact on

thefinancial management of your organization

Strongly Agree Disagree

6. Documents verification enhances financial

managementStrongly Agree Disagree

7. Internal checks and balances enhance

managementStrongly Agree Disagree

8. Independent appraisal of internal control measured by

anexternal auditor would improve financial performance and

management of your organization

Strongly Agree Disagree

9. A well documented procedure for dealing with non-

financialtransaction in an organization enhances financial

management.

Strongly Agree Disagree