Effective Internal Control System As A Measure Of Fraud Prevention In The Public Service
(A Case Study Of Board Of Internal Revenue Enugu State)
An effective internal control system serves as a crucial measure for fraud prevention in the public service by establishing checks and balances that deter fraudulent activities and detect anomalies promptly. Such a system encompasses comprehensive policies, procedures, and mechanisms designed to safeguard assets, ensure compliance with regulations, and promote accountability throughout the organization. By implementing segregation of duties, regular audits, and robust monitoring mechanisms, public service entities can mitigate the risk of fraud by reducing opportunities for unauthorized access and manipulation of resources. Additionally, fostering a culture of transparency and ethical behavior further reinforces the effectiveness of the internal control system, encouraging employees to report suspicious activities and adhere to established protocols, thus bolstering the overall integrity and trustworthiness of the organization.
The purpose of this study is to analyze the effectiveness of the internal control system of the board of internal Revenue Enugu State.
It cannot be over emphasized here that an effective internal control system does not only ensure financial accuracy of transactions, but it reduces trade to the barest minimum. A good internal control system can only operate in a fairly large organization that employs a good number of staff.
It is also important to note that there is high rate of fraudulent practices in government ministries and parastatals today and the Board of internal revenue is not an exception. That is why the internal control system must not only be put in place, but is also having to be effective in removing such irregularities.
Similarly, the research work will be grouped into five chapters, in which chapter one contains the introduction. This will give us a skeletal framework of the study and also sub topics such as statement of the problem and so on.
Chapter two contains the literature review which will give the details of the topic and also the meaning of the topic.
Chapter three contains the research methodology and techniques which will show the methods through which the survey and the sources of data will be carried out.
Chapter four contains the presentation and the analysis of data which further gives the information suitable.
Chapter five finally contains a workable recommendation proffered from the findings derived. These findings will help the management of the board of internal revenue Enugu State to improve on the effectiveness of their internal control system.
Title Page
Dedication
Acknowledgement
Proposal
CHAPTER ONE
1.1 Introduction
1.2 Statement of Problem
1.3 Purpose of Study
1.4 Relevance of the Study
1.5 Methodology and Hypothesis Statement
1.6 Scope and Limitation of Study
1.7 Definition of Terms.
CHAPTER TWO
2.1 Introduction
2.2 Organizational Chart
2.3 Personal Income Tax Duties
2.4 Other Revenue Duties
2.5 Planning Research and Statistics
2.6 Administration and Finances
2.7 Relationship between Internal and External Auditor
2.8 Internal Audit as an Effective Internal Control System.
2.9 Factors that will be considered by an external auditor before relying on the work of the internal auditors
2.10 Audit committee.
2.11 Relationship between the audit committee and the external auditor.
2.12 Essentials of internal control
2.13 Internal check
2.14 Types of internal control system at board of internal revenue Enugu state
2.15 Areas of work where internal and external auditors overlap at the board of internal revenue Enugu state.
2.16 Areas of work where internal and external auditors overlap at the board of internal revenue Enugu state
2.17 Fraud
2.18 Difference between fraud in the organization
2.19 Reference
CHAPTER THREE
3.1 Research methodology
3.2 Primary data
3.3 Validity and reliability of the questionnaire
3.4 Personal interview
3.5 Observations
3.6 Statistical tools and mathematical manipulation
3.7 Research design
3.8 Selection of sample
3.9 References
CHAPTER FOUR
4.1 Introduction
4.2 Field survey
4.3 Presentation and analysis of data
4.4 Section a part of the questionnaire
4.5 Section B part of the questionnaire
4.6 Data analysis
4.7 The procedure for reporting fraud at the board of internal revenue
4.8 Testing of hypothesis
4.9 Hypothesis 1
4.10 Hypothesis 2
4.11 References
CHAPTER FIVE
5.1 Summary
5.2 Recommendations
5.3 Conclusion
5.4 Bibliography
5.5 Appendix
1.1 INTRODUCTION
The Institute of Charter Accountants defines 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.
If the internals control system is effective in an organization, it ensures maximum use of resources and also reduces to the barest minimum fraud.
The feed for affective internal control system therefore cannot be over-emphasized. It is important because of the existence of risks and also all form irregularities in an organizations.ter of flatly, the major frauds in public and private enterprises can be traced to lapse in the internal control system and the existence of poor control environment in organization.
An effective internal control system and its fraud preventive measures in an organization will help to prevent fraud and errors in an organization thereby reducing fraud to its minimum than when internal control is not in existence or when there is weakness in the system.
1.2 STATEMENT OF PROBLEM
An internal control system on its own guarantee and effective and efficient administrative completeness and accuracy of records or a fraud and error free environment due to the following reasons:
a. Two or more dishonest persons working in collusion can override the efficiency of the internal control system.
b. Management is in a position to step over the control it has set up
c. Those in whom the authority is vested can abuse authorization control.
d. A single dishonest employee can override the efficiency of the internal control system.
1.3 PURPOSE OF THE STUDY
They are:-
1. To ensure that management policies are implemented appropriately
2. To ensure the existence of a structures framework for efficient and effective channeling resources.
3. To ensure that there is important and accurate documentation that can provide information on which significant based.
4. To ensure timely records of relevant strategic ad tactic decision are based.
5. To ensure that vital and expensive assets on which operation of the organization critically depends on are prevented from misuse and misappropriation.
1.4 RELEVANCE OF THE STUDY
The relevance of this study is in its attempt to find out and evaluate those factors responsible for effective internal control system in the board of internal revenue (BI) Enugu State, Nigeria.
The significance will include the following:
1. To ensure, the researcher finds out problems encountered in relation to the internal control system and make appropriate recommendation for improvement.
2. To serve as a guide for organization having weak internal control systems to improve on the quality of theirs and their intern make it more effective.
3. To serve as guide to others who are likely to carry on research on this study in future.
1.5 METHODOLOGY AND HYPOTHESIS STATEMENT
In order to carry out this study, both primary and secondary data will be made use of Null and alternative hypothesis will be used for general statement of hypothesis.
HO: Will represent Null hypothesis
H1: Will represent Alternative hypothesis
5.1 HO – Internal control system is not effective in board of internal revenue Enugu State Nigeria to provide a fraud preventive measure.
Internal control system is effective in Board Of Internal Revenue Enugu State Nigeria to provide a fraud preventive measure.
5.2 HO-Two or more dishonest persons working in collusion can override the efficiency of the best possible controls.
1.6 SCOPE AND LIMITATIONS OF STUDY
This study is concentrated on effective internal prevention in an organization and it centres on the internal control system of the Board of Internal Revenue Enugu State Nigeria
The time available to complete this project has placed limitations too. However the researcher will overcome these constraints by streamling the research methodology.
The assumption that respondents would not honestly and accurately answer the survey questions is a limitation in the sense that the fear of loosing their jobs will not make them reveal the secrets of their organization.
1.7 DEFINITION OF TERMS
In this study the researcher will try as much as possible to explain technical terms used during the course of study. They are as follows:
1. Internal control
In the AICPA’S codified standards covering auditing practice (320:09). Internal control is defined as “Internal control comprise the plan if organization and all of the co-ordinate methods to safeguard its assets check the accuracy and reliability of its accounting data, promote operational efficiency and encourage adherence to managerial policies.
It is the whole system of controls financial and otherwise established by the management in order to carry on the business of the company in an orderly67 and efficient manner.
2. AUDITORS
It is a firm of professional accountants all parties one or more of whom is responsible for the control of the audit and signing of the audit report on behalf of the firm.
3. INTERNAL AUDIT
The standards for the professional practice of internal auditing released in may 21978 defined internal auditing as an “independent appraisal function established within its activities as a service to the organization”
4. INTERNAL AUDITORS
Auditors that have been employed by the management of organizations, individuals, companies, partnership, and government as well as other agencies.
5. EXTERNAL AUDITORS
These are independent professional Accountants (qualified) often refereed to as independent to as independent auditors or certified public Accountants.
6. 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.
7. AUDIT COMMITTEE
It is a committee setup by the shareholders to examine the directors’ report and make recommendation on the annual general meeting
Effective Internal Control System As A Measure Of Fraud Prevention In The Public Service:
An effective internal control system is essential for preventing fraud in the public service. Internal controls are the policies, procedures, and mechanisms that an organization puts in place to ensure the accuracy of its financial information, safeguard its assets, and promote operational efficiency. In the context of the public service, where accountability and transparency are critical, a strong internal control system can significantly mitigate the risk of fraud. Here’s how an effective internal control system can serve as a measure of fraud prevention:
- Segregation of Duties: One of the fundamental principles of internal control is to segregate duties among different individuals. This means that no single person should have control over all aspects of a transaction or process. For instance, the person who initiates a transaction should not be the same person who approves or records it. This division of responsibilities creates a system of checks and balances that reduces the likelihood of fraudulent activities going unnoticed.
- Authorization and Approval: Transactions and activities should only be conducted with proper authorization and approval. An effective internal control system establishes clear guidelines for who has the authority to initiate, approve, and execute transactions. This prevents unauthorized individuals from engaging in fraudulent activities.
- Documentation and Record-Keeping: Proper documentation and record-keeping are essential components of internal controls. All transactions, decisions, and activities should be accurately and comprehensively documented. This not only aids in tracking the flow of funds but also provides a reliable trail for auditing and investigations if any irregularities arise.
- Physical Safeguards: Valuable assets and sensitive information should be physically safeguarded. This includes securing physical access to facilities, storage rooms, and data centers. By controlling access to these areas, an organization can prevent unauthorized individuals from tampering with assets or altering records.
- Regular Reconciliation and Review: Reconciliation involves comparing different sets of records to identify discrepancies. Regular reconciliations of financial statements, bank accounts, and other critical accounts can help detect any anomalies or inconsistencies that may indicate fraudulent activities.
- Risk Assessment: An effective internal control system includes a thorough risk assessment process. This involves identifying potential sources of fraud and assessing their likelihood and impact. By understanding where vulnerabilities exist, an organization can tailor its control measures to address specific fraud risks.
- Training and Awareness: All employees, especially those involved in financial processes, should receive training on the organization’s internal control policies and procedures. This raises awareness about fraud risks and the role each individual plays in maintaining the integrity of the system.
- Whistleblower Mechanism: Establishing a confidential reporting mechanism, such as a whistleblower hotline, encourages employees and stakeholders to report suspicions of fraud without fear of retaliation. This mechanism can help uncover fraudulent activities that might otherwise go unnoticed.
- Regular Auditing: Internal and external audits play a crucial role in assessing the effectiveness of an organization’s internal control system. Auditors review processes, transactions, and controls to identify weaknesses and recommend improvements.
- Management Oversight: Effective oversight by management and governance bodies ensures that internal controls are consistently applied and monitored. Regular reviews and assessments by management help maintain the integrity of the control system.
Overall, an effective internal control system acts as a proactive measure to prevent fraud in the public service. By implementing these controls and principles, organizations can create an environment of accountability, transparency, and ethical behavior, reducing the opportunities for fraudulent activities to occur.