1.1 Introduction
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. 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.
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, Limitation of the study and Definition of terms.
1.2 Background of Study
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.
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 Institute of Charter Accountants, the concept internal control system as The whole system of control financial and otherwise established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as fact as possible the completeness and accuracy check and internal audit fraud is a threat common to most organizations. It is a threat to the effective utilization of resources and as such, it will always remain an important concern to management.
Fraud needs to be deleted and potential fraud needs to be prevented. Effective internal control system is vital for the survival of any organization it serves as a check on fraudulent activities of the management and employees an organization and it brings about solutions to likely fraudulent acts in an organization. Management is totally responsible for establishing the internal control system in an organization. Auditing today is based on internal control. A client during the course of financial period so because it is client during the course of so because it is undesirable for an auditor to carry out a hundred percent check on all the transactions enters this.
Internal control system is a necessity in large organizations especially where management is removed from day to day routine operations of the organization. Internal control system include controls exercised by management which comprise of rules and regulations as well as procedures set up by organizations bearing also the problems set up by organizations bearing in also the problem of limited resources.
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 to 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 Inspection as a Mechanism for Preventing Theft and Error in Cooperative Society.
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 Inspection as a Mechanism for Preventing Theft and Error in Cooperative Society using INEC Multi-Purpose Cooperative Society as a case study. In achieving this aim, the following specific objectives were laid out as follows:
- To examine how the weakness of management could negatively affect the profitability and installation of effective Cooperative Society in the study area;
- To assess the need for auditors independence integrity and competence in carrying out all the auditing function and responsibilities;
- 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 Cooperative Society; and
- To recommend working measures that could be used to enhance and positively improve the internal control structure of most Cooperative Society.
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 Cooperative Society in the study area?
- 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 Cooperative Society?
- What are the working measures that could be used to enhance and positively improve the internal control structure of most Cooperative Society?
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 and fraud in Cooperative Society in the area under review
- H1: Poor internal control has prevented profitability errors and fraud in Cooperative Society in the area under review
Hypothesis Two
- H0: The weakness of internal control management does not negatively affect the profitability and installation of effective Cooperative Society in the study area
- H1: The weakness of internal control management negatively affects the profitability and installation of effective Cooperative Society in the study area
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 Inspection as a Mechanism for Preventing Theft and Error in Cooperative Society using INEC Multi-Purpose Cooperative Society 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.
Fraud:
It is defined as the misrepresentation by a person of a material fact know by that person to be untrue or made with reckless attitude in difference as to whether the act is true, with the intention of deceiving the other party and with the result that the party is endured.
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
Internal Audit:
As defined by the institute of internal auditors Incan independent appraisal function established within an organization to examine and evaluate its activities as service to the organization.
Internal Check:
It is defined as the checks on the day today transactions, which operate continuously as part of the routine system where the work of one person is proved independently by another person.
