1.1 Introduction
Internal control is one of the essential means of establishing and maintaining management control of a business. It involves the entire basic element of management control and is itself the main element of the appraisal, measurement and evaluation control. Internal fraud is a significant problem to the world of today. Organizations allocate many resources to internal control. A framework implemented in business practice to prevent internal fraud. Effective system of control is a prerequisite for the attainment of organizational goals, but it has remained one of the biggest problems facing modern day business. It is an extremely broad topic and of course is not restricted to the accounting field but embraces all activities of the organization. Generally, all aspect of humans endeavor need control.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
Internal control is an insupportable part of the accounting profession where importance to growth and posterity of an organization cannot be over emphasized. It is incubate that no one can succeed without an effective and efficient internal control mechanism. Internal control can also be likened to the brake and steering in a business, which if they are not there, the business train will crash. It can be likened to the laboratory or quality control machinery which controls the quality of production produced by an organization.
According to the British auditing comedian, internal control is the whole system of control, financially and otherwise, established by the management in order to carry on the business of the enterprise in an orderly and affluent manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records. Control are of fundamental importance to the auditor profession, he must decide to ascertain the best approach to the plan the test he intend to carryout in his audit program, he should decide o what extent he can rely on Internal system of internal control, he should ascertain the enterprises system of recording and processing transactions and adequately as a basis for the preparation of the financial statement.
Life Breweries Company Limited Onitsha is a private liability company with above forty (40) share holders including some separate partners. It is a Joint venture between Nigeria owing 70% and 30% co-Afria French Company based in France having 30%. The company was incorporated and was almost completed in 1982 and 1983. The office blocks were completed and handed over to the company on August 3rd 1983. The company is located at the head bridge industrial area fegge layout Onitsha. The share capital has since been increased of 22 million. The company is a brewery and other drinks are produced like life continental lager beer 60cl contents for the purpose of study which is aimed at viewing internal control as a measure of correcting or preventing errors in manufacturing company. internal control could be seen as the organization of accounting duties in such a way as to maximize the chances of accurate accounting and minimizes many chances of undetected fraud, error and litigation of negligence. Life Breweries sieves for the related years traced by he study lay credence. On the effectiveness of the internal control installed by the management of the firm and carried out by the auditor and accounting general of the federation.
This study is expected to view internal control as a measure of preventing errors in manufacturing industries with emphasis on special militating factors against internal control policies which includes in dependency of auditor, low balling, poor distribution of the enterprises and many other factors. Management has recognized internal control as a valuable tool in effectively crying out its responsibilities and auditors have pressed for improvement in internal control to their effects to be of assistance to management as well as to permit education in audit work made possible by the increase in the credibility of the accounting records.
Internal control comprises the whole system of financial and other control established and operating within an organization including internal cheek. Internal audit and all other control established. What is to be noted about internal control is that it is established by the management and it relates to the entire system of control in an organization not limited ot accounting matters. Therefore within an organization, a control is seen as any action by management to enhance the livelihood that stable objectives and goals will be achieved. Physical custody of assets, authorization and approval automatically and management through these areas of control; a kind of internal audit and internal cheek is maintained. Evaluation of internal control has been of important of any management because of its objectives in any organization to succeed the management needs consistency and effectiveness of internal control producers.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Internal Control as a Measure of Preventing Error in Manufacturing Industries.
1.3 Statement of Problems
Investigation revealed that there is Lack of effective control found in Nigeria industries. Problems encountered by auditors in the course of undertaking their auditing functions in Nigerian industries. The use of internal control to defect and measure error and poor accountability in Nigerian manufacturing industries and there is also weakness of management and internal control as the main reasons for business failure and low profitability. Inefficient management and poor composition can encourage fraud in the industry. Ineffective management policy has lead to an increase in the level of fraud witnessed as well as lack of proper supervision has lead to most of the fraud witnessed in the manufacturing industries. Lack of proper training, nepotism and poor recruitment policy, poor qualification and combination of operations staff, poor segregation of duties, all have effect on numbers of fraud in the manufacturing industry.
1.4 Aim and Objectives of Study
The aim of the study is to examine the Internal Control as a Measure of Preventing Error in Manufacturing Industries. In achieving this aim, the following specific objectives were laid out as follows:
- To assess the need for auditors independence integrity and competence in carrying out all the auditing function and responsibilities.
- To examine how the weakness of management could negatively affect the profitability and installation of effective country in an industry.
- To investigate how effective book keeping and accountability can contribute to the growth of the organizational internal control policies.
- To evaluate the benefits and importance of internal control to the profitability and growth of manufacturing industries; and
- To recommend working measures that could be used to enhance and positively improve the internal control structure of most organizations.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Can company afford to succeed and meet up with world and management standard without the aid of internal control?
- What is the need for auditors’ independence integrity and competence in carrying out all the auditing function and responsibilities?
- How does the weakness of management negatively affect the profitability and installation of effective country in an industry?
- How effective can book keeping and accountability contribute to the growth of the organizational internal control policies?
- What is the benefits and importance of internal control to the profitability and growth of manufacturing industries?
- What are the working measures that could be used to enhance and positively improve the internal control structure of most organizations?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: Poor internal control has not prevented profitability errors of life breweries Onitsha Manufacturing Industry.
- H1: Poor internal control has prevented profitability errors of life breweries Onitsha Manufacturing Industry.
Hypothesis Two
- H0: The weakness of internal control management does not negatively affect the profitability and installation of effective country in Manufacturing Industries
- H1: The weakness of internal control management negatively affects the profitability and installation of effective country in Manufacturing Industries
1.7 Significance of Study
The importance and significance of this educative and qualitative analysis cannot be over emphasized as internal control is an insupportable through internal part of the accounting profession. Below are some of the reasons and relevant significant which triggered the conditions of the research investigation.
- The rate of incessant frauds, errors and misappropriation of fraud recorded by most organization and manufacturing industries as a result ineffective internal control.
- The sudden collapse, winding o, liquidation, bankruptcy and premature manufacturing firms.
- To applause the inseparable function rendered by auditors and accounting officers of industries.
- It is equally expected of this study to suggest to management how best to improve or rather effectively enhanced their internal control.
- To administer justice and punish those persons responsible for over shadowing and infringing on auditors independency and integrity.
This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.
1.8 Scope of Study
The scope of the research is focused on the Internal Control as a Measure of Preventing Error in Manufacturing Industries using Life Breweries Company Limited Onitsha as a case study.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Internal Control: To produce the necessary accounting information there management of a business must establish an adequate accounting system. The system should be in corporately control, to ensure that the information produced is reliable, complete and objective is achieved by the management.
Management: Is the process of getting things done through people by supervision and also the process of organizing, planning, actualizing, directing, coordinating and controlling in order to achieve the organizational objectives.
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