THE IMPACT OF INTERNAL CONTROL SYSTEM IN A MANUFACTURING INDUSTRY WITH A SPECIAL REFERENCE TO COCO COLA AND ANAMMCO COMPANIES
This research work “The Impact of Internal Control System in manufacturing Industry with reference to coca cola and ANAMCO Companies” aims at determining the strength and weakness of internal control system and exposing the areas of weakness in the operation of the system and how it effects the productivity and hence profitability of the organization. To examine the extent the internal control have gone in bringing about efficiency in the operation of manufacturing industries. To recommend approaches to proper designing installation and operation of an adequate internal control system which will improve and ensure further survival of manufacturing firms. Source of data used include both primary and secondary data. The data collected were analyzed using the chi-square test method. The findings are lack of knowledge of internal control system by the staff has affected its application in the running of the business and the weakness in internal control system of business manufacturing companies affect the projected profit of the companies. Some recommendations are audit department should be created in each company and should be made independent to be able to report deliberate errors, falsifications or improper use of record or other forms of irregularities that comes to it attention.
TABLE OF CONTENTS
Table of Contents
List of table
List of figures
Chapter One: INTRODUCTION
1.1 Background of the study
1.2 Statement of the problem
1.3 Objective of the study
1.4 Research Questions
1.6 Significance of the study
1.7 Scope and Limitation of the study
1.8 Definition of Terms
Chapter Two: REVIEW OF RELATED LITERATURE
2.1 Definition of Internal Control
2.2 Elements of a good Internal Control System
2.3 Area of Internal Control
2.4 Internal Control System in Electronic Data Processing System
2.5 Limitations of Internal Control System
2.6 Internal Audit
2.7 Manufacturing Companies
2.8 The Impact of Internal Control on coca cola and Anammco Companies
Chapter Three: RESEARCH DESIGN AND METHODOLOGY
3.1 Research Design
3.2 Description of Respondents
3.3 Sources of Data
a) Primary Sources of Data
b) Secondary Sources of data
3.4 Population of Determination of Sample Size
3.5 Methods of Investigation
Chapter Four: PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
4.1 Analysis of Data
4.2 Testing of Hypothesis
Chapter Five: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of Findings
1.1 Background of the Study
The sizes, capabilities, and complexities of modern companies even the smallest requires internal control in the activities of the organization. As an organization grows, the management needs more formal information system in order to maintain control. The control can no longer be carried out by the man on top. Since the organization is now complex, and subject to such influences without that one person can possibly hope to exert the detailed and sophisticated control needed. The management therefore, needs assurance that the accounting data it receives are accurate and dependable. This assurance is provided in large part by developing strong system of control that comes from within the functioning of the organization itself. This strong system is the internal control system. It is the system where each level of management acts as a siege so far as possible. Adverse factors are dealt with on the spot by lower management before they grow to worse.
The institute of chartered accountants of Nigeria defined this internal control as the whole system of control, financial, personal, operating and good information management system and otherwise established by the management in order to carry on the business of the enterprise to achieve their aim and set objectives in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets the assets of the organization and secure as far as possible the completeness and accuracy of record. This definition recognizes that a system of internal control extends beyond to the functions of accounting and financial departments infact, the concept of internal control is so vast that it effects all the assets of business, all liabilities, the revenue and expenditures, periodic operating reports, statistical analysis and dissemination therefore, it also taught across standard costing training programmes designed to aid the personnel in meeting their responsibilities, internal audit and every aspect of the operation.
The main purpose of internal controls can be deducted from the above definition are:
1) To ensure adherence to management policies.
2) To safeguard the assets of the organization.
3) To secure as far as possible the completeness and accuracy of records.
4) To evaluate the level of performance in all divisions of the company
Infact, internal controls aid in the efficient operation of a business. The increased size of business units have encouraged the adoption of different methods which will both increase the efficient of the business and act as a safeguard against fraud and error which adversely affect profitability. The basic divisions of the elements of internal control are:
Plan of Organization
Plan should cover the activities of both management and staff at all levels stating clearly their duties responsibilities and their power to authorize various activities of the business.
Authorization, Recording and Custody Procedures:
Where these are concerned, the financial and accounting controls should be as such as to facilitates efficient working, at the same time obviate any chance of fraud or error arising.
Management Supervision and Review:
Management should constantly review and give consideration to the financial position and financial procedures within the organization. This may include the use of an internal audit department, but not necessarily so. Budgeting control whereby variances are revealed and investigated special reviews of department systems may also take time apart from normal internal audit procedures.
However every company designs its own internal control according to the needs of the establishment or the area in question needs to be in relationship with the cost benefit. All departments needs to be scrutinized properly before an adequate and strong system which will provide all the necessary informations that can be understood and concise form can be designed. The success and continued existence of all manufacturing companies and all business enterprises lies on the internal controls that exist there. In other words, the internal control system is the key to profitability of all manufacturing companies.
1.2 Statement of the Problem
Although internal control is highly effective in increasing the reliability of accounting data and in protecting against fraud and errors and promoting the efficiency and growth of the organization no system of internal control is fully proved. Today, there are news of bankruptcy and folding up of many manufacturing companies due to some problems like:
i) Lack of raw material for production of enough goods for quantity demanded of the people;
ii) Different companies have not been manufacturing or producing the expected or projected number of units.
iii) Most companies have not been adhering to the system of internal control. It is being neglected and poorly operated.
iv) Internal control in most companies is not operational rather it held in principles;
v) Lot of money is lost through non adherences to internal control system thereby denying its expected profit.
1.3 Objectives of the Study
The objectives of this study include among other things:
i) To examine the extent to which management have designed, installed and operated the internal control;
ii) To expose the areas of weakness in operation of the system and how it effects the productivity and hence profitability. Profitability here is related to the level of internal control system;
iii) To examine the extent the internal controls have gone in bringing about efficiency in the operation of manufacturing industries;
iv) To recommend approaches to proper designing, installation and operation of an adequate internal control, system which will improve and ensure further survival of manufacturing firms.
1.4 Research Questions
1) To what extent has internal control system, improved the activities of the manufacturing industry?
2) Can in adherent to the system of internal control affect the profitability of the manufacturing companies?
3) Has internal control system reduces the chances of fraud and errors in the manufacturing companies?
Ho: Manufacturing companies have failed to maintain strict and efficient internal control over their cash.
H1: Manufacturing companies have maintained strict and efficient internal control over their cash.
Ho2: Lack of knowledge of internal control system by the staff has negatively affected its application in running of the business.
H1: Knowledge of internal control system by the staff has positively affected its application in running of the business.
Ho: The weakness in internal control system of manufacturing companies affects the projected profit of the companies.
H1: The weakness in internal control system of manufacturing companies does not affect eh projected profit of the company.
1.6 Significance of the Study
This work will undoubtfully be of a great help to management of various manufacturing companies and other business enterprises. The importance of it brings the dream of designing and internal control system and throws more light on the need for adequate system of control which helps in bringing efficiency in operation and achievement of objective which leads to increased profitability of the company it shows that areas of weakness of internal control and suggests appropriate measures of correcting those weaknesses. It also moves on the state the negative effect of poor internal control operation which most at times lead to leakage in the projected profits. This will help waken most companies in order to tighten their loose ends, maximize profit, survive and succeed. Others who will benefit from this work are other researchers on this topic, it will help them for further researcher. The researcher found this work invaluable to his academic advancement because it has exposed him to so many things which ordinary he would not have come across.
1.7 Scope and Limitations of the Study
It must be understood that on a research work of this nature, it is quite impossible to collect information from all possible sources and respondents.
In evaluating the impact of internal control systems, emphasis were based on the elements, internal audit and the application of internal control in EDP system, areas that need internal control system. The reason for such limitation in scope was principally to desire well into all aspects of the coverage, so the readers after going through the entire text will have course to believe that the researcher is well equipped with materials and information.
For the research work of this nature, it is very impossible to search through all the whole country, so the researcher because of time and fund could not tour the length and breadth of the country to gather more facts on this research work. Also the researcher encountered difficulties in collecting information for the research work. Lack of adequate library facilities and trying to convince some of the respondents to complete the questionnaire were some of the difficulties. But at any rate, with the selected areas the researcher was able to cover them.
1.8 Definition of Terms
The following are some terms used and their meaning as regards this work:
ASSET: Company property like land, machine, plant, building, cash etc.
CONTROLS: Compelling events of the company to conform to their plan.
EFFECTIVENESS: The agree to which input are used in relation to a given level of outputs.
ELECTRONIC DATA PROCESSING (EDP): A system of processing data by use of electronic computers.
EMBEZZLEMENTS: Theft of assets by the person its entrusted to.
FRAUD: Deliberate acts of dishonest intended to deceive, of involving the theft assets and falsification of accounting information and financial statements.
LIABILITIES: Obligation or debts of the company.
PROFITABILITY: Ability to yield targeted or desired profit.
RECEIVABLES: Money and other properties in debtors hand.
SYSTEM: A set of elements which operates together to attain a goal.