EFFECTS OF INTERNAL CONTROL SYSTEM IN IMPLEMENTING THE PROCESS IN GOVERNMENT PARASTATALS

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

In Nigeria, successive governments, since independence have set up autonomous organizations with legal independence and powers, having the initiative of private enterprises to carry on developmental activities of commercial or industrial nature. Thus, the emergence of Ahmadu Bello University teaching Hospitals with headquarters in Samaru Zaria is charged with the responsibility of accounting properly all financial activities undertaken by its management.

The need to institute both internal and external audit systems within organizations for efficient and effective financial monitoring, management and control was further necessitated by some prevalent economic pressure like the recession in the privatization and commercialization of most of government owned organizations, keen competition in the Nigerian business environment, the Structural Adjustment Programme (SAP), Industrial unrest and the renewed call by the government through War Against Indiscipline and Corruption (WAI-C) for financial prudence, action and accountability by government functions.

Internal auditing is of fundamental importance as an effective means of ensuring the reliability of internal records for information and use, through proper internal control systems within an organization without which such records will present chaos and the whole system may fail to succeed for lack of orderliness, accuracy, reliability of information, safety of its assets and the general security of records.

Effective internal control is necessary to be able to determine whether all transactions have been reflected within accounting record. It is therefore, important to recognize that the auditor concerns himself with internal control throughout the client’s organization and not merely within the finance and supplies department alone. He ought to understand the organizational operations as a whole, ascertain and evaluate the whole system of control operating within the organizations. An important aspect about controls is the fact that it has to be timely otherwise the whole exercise will be futile.

The internal auditor helps management to achieve organizational objectives effectively through his report. Such reports have to contain express opinion of the auditor on the areas he undertakes to audit. The nature and extent of the internal control system and internal auditing, appropriate to anyone organization is the management’s responsibility and depends on the organizations typology and geographical distribution.

The importance of internal control for internal audit purposes will be appreciated most in an organization like the Ahmadu Bello University Teaching Hospitals, whose activities are spread over various branches at different locations both within and outside Kaduna State.

1.2   STATEMENT OF THE PROBLEM

Internal control is management tools that are built into the entity as a part of its infrastructure to help managers and administrators run the entity and achieve their aims on an ongoing basis. Internal control is affected by people: people are what make internal control work. The responsibility for good internal control rests with all administrators and managers. Management sets the objectives, put the control mechanisms and activities in place, and monitor and evaluates the control. Internal control provides reasonable assurance, not absolute assurance; management design and implement internal control based on the related cost and benefits. No matter how well designed and operated, internal control cannot provide absolute assurance that all organization objectives will be realized. However, the researcher is examining the internal control system in Government parastatals.

1.3 OBJECTIVES OF THE STUDY

With the above list of problems and many others yet unmentioned bedeviling the internal control system of the Internal Auditor Department in A.B.U. Teaching Hospitals, it will be unfair if no step is taken even as effected by one’s academic pursuance to look at the problems and causes critically and suggest possible solutions that could improve the situation for the organizations continued effective existence.

In a nutshell, the aim of this study is to find a possible shorten and long term solutions to the problems thereby pacing the way for efficient operation in the organization in order to achieve the purposes for its existence.

 1.4   RESEARCH QUESTIONS

1.  Does the internal control measures the degree of compliance of the staffs in Ahmadu Bello University Teaching Hospitals?

2. Does the internal control measures the relevance and appropriateness of the adopted control in preventing fraud in Ahmadu Bello University Teaching Hospitals?

3. Does segregation of duties aid averting errors and fraud in Ahmadu Bello University Teaching Hospitals?

4. What is the state of internal control system in government parastatals?

5. What is the process of internal control system?

6. What are the impact of internal control system on productivity and accountability in Ahmadu Bello University teaching Hospitals?

1.5 SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1.  The results of this study will be useful to the managers and administrators in both governmental and non-governmental organizations on the benefit and process of internal control system for organizational effectiveness.

2.  This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.

1.6 SCOPE AND LIMITATIONS OF THE RESEARCH

The study is limited to A.B.U. Teaching Hospitals activities, especially its internal audit system and financial dealings as it relates to the management of its financial resources.

The A.B.U. teaching Hospitals are selected as a sample to be studied for the fact that it is likely to offer free access to relevant financial and audit information and documents that will be required for this research. The study centres largely on the Internal Audit Department of the Ahmadu Bello University Teaching Hospitals, Headquarters in Samaru Zaria.

The Departmental functions as per responsibilities assigned to it by management which is mainly to operate within the broad areas of reviewing of accounting system and other related internal control, examinations of financial and operating information for management, review economic efficiency and effectiveness of operations, and implementation of organizational policies, plans and procedures. The external audit concerns itself with making necessary information available with express opinion to outside users to third parties.In the cause of this research, there were some hitches that were encountered. These hitches have in one way or the other, directly or indirectly caused some limitation in the research work. Some of these limitations encountered were;

Staff Reluctance: In most cases the staffs from the Internal Audit Department of the Ahmadu Bello University Teaching Hospitals often feels reluctance over providing required information required by the researcher. This result in finding information where the structured questionnaires could not point out.

Researcher’s Commitment: The researcher, being of full time student spent most of her time on other academic activities such as test, class work, assignment, examination etc which takes average focus from this study.

Inadequate Materials: Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.

1.7   DEFINITION OF TERMS

Internal control: Internal control, as defined in accounting and auditing, is a process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.

Accounting System: Royal Linlbery and Chon (1972) hold that accounting system is the total structure of record and procedures which discover record, classify and report information or on the financial position of a government unit or any funds balance account of a group and organizational components.

Auditing Procedures: According to R. Glymme Williams (1974). He defined auditing procedures as acts to perform during the course of an examination. Auditing procedures are based on professional judgment applicable in the circumstances.

Audit technique: R. Glymm Williams (1974) defined audit technique as a method or details procedures essentials to express or execution in an art of science technique and procedures are classed related.

Auditing Standards: These are measuring devices or models to which the audit must perform.

Auditing: the Institute of Chartered Accountant in England and Wales defined auditing as

“the independent examination and investigation of the books, accounts and vouchers of a business with a view of enabling theauditor to report whether the balance sheet and profit and loss account are properly drawn up so as to show a true and fair view of the state of affairs and the profit and loss of the business according to the best of the information and explanation obtained by the auditor”.

Management control system: A management control system (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole in light of the organizational strategies pursued. Management control system influences the behavior of organizational resources to implement organizational strategies. Management control system might be formal or informal.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.