Impact of Internal Control System On The Financial Management Of An Organization

1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Every organization both profit or non-profit organization has its
objectives and goals in mind to achieve. For the non-profit making
organization, their goal is to satisfy the social need of the citizens
and in the effort to achieve these purposes supervision more often
than not play a vital role.
The size and scope of these organizations have sometimes
made it hard for the executors to exercise personal and first hand
supervision of operation. It is in this light that internal control
established by management is initiated. For an organization to
carryout its business there must be some factors put in place for
the smooth running of the organization like materials, machines,
money etc.
These need to be well co-ordinated in order for the success of
the organization to be achieved. These factors are used by a group
of persons known as management. Neither can management exists
without an organization both are inseparable. The system of
internal control provides assurance to management of the
dependability of the accounting data used in the decision making of
the organization
It has been discovered that due to lack of internal control
several banks have been discovered to have defrauded its
customers mostly foreign investors, Having discovered this, banks
now take extra precaution before clearing a cheque because of
rampant incidence of fraud and forgeries which have placed bank.
Loss on average of N1m each working day of the year in Nigeria.
Due to this challenges, CBN issued a directive to banks to increase
its capital base to N25 billion.
Management use internal control as a tool to check it staff due
to the fact that managers are not able to monitor the activities of
the organization. It therefore adopts the internal control in such a
way that the system checks itself and any irregularity within the
system is been detected and corrected.
To ensure that the system checks itself, management could
use devices such as segregations, supervision of work and
acknowledgement of performance. The effective arrangement and
implementation of this control system would ensure proper
management.

1.2 STATEMENT OF PROBLEM
We might not really understand the impact of internal control
system in an organization until probably we run an organization
void of internal control system.
The absence of adequate internal control measures exposes the
financial management of an organization to certain threats such as:
– Incorrect financial statement and /loss of the
companys’assets.
– Stealing and mis-management of organizational vital
documents which may be done by an employee to take undue
advantage.
– Incorrect and unreliable financial records which may lead to
loss of organizational integrity.
– Non implementation of accounting policies in consistent
with the applicable legislation appropriate in presentation of
financial statement.

1.3 OBJECTIVE OF THE STUDY
The overall purpose of this research work is to evaluate and
determine the impart of internal measures in an organizational
financial management.
A well defined organizational structure helps management to
run the business in an orderly manner. This enhance operational
and efficiency, which is the important features of internal control.
Specifically, this research work stands to achieve the following
objective.
1. To determine the impact of internal control to proper use of
organizations funds and assets.
2. To ascertain whether perpetration of fraud and losses of
Revenue in an organization are as a result of weakness in internal
control system.
3. To ensure whether a true reflection of organizational activities
are presented in financial statement where there is an active
observation of internal control measures.
4. To determine the relationship between internal control
measures and proper keeping of accounting records.

1.4 RESEARCH QUESTION
The following research questions will be used to form the research
hypothesis and they are:
1. To what extent does the internal control measures impacts on
appropriation of organizational assets and funds.
2. To what extent does perpetration of fraud and losses of
Revenue in an organization are as a result of weakness in the
internal control system
3. To what extent does internal control enhance a true reflection
of organization activities as presented in the financial statement
4. To what extent does a relationship exists between internal
control and proper keeping of accounting records

1.5 STATEMENT OF HYPOTHESIS
This research is undertaken on the basis of the following
hypothesis.
HYPOTHESIS ONE (1)
Ho: internal control measure does not ensure proper use of
organizations funds and assets.
Hi: Internal control measure ensures proper use of organization
funds and assets.
HYPOTHESIS TWO (2)
Ho: Fraud perpetration and losses of revenue in an organization are
not as a result of weakness in the internal control system.
Hi: Fraud perpetration and losses of Revenue in an organization are
as a result of weakness in the internal control system.
HYPOTHESIS THREE (3)
Ho: internal control does not ensure, a true reflection of an
organizational activities as presented in financial statement
Hi: Internal control ensures a true reflection of an organizational
activities as presented in financial statement.

1.6 SIGNIFICANCE OF THE STUDY
There is no controversy that this research works have been
conducted on internal control system, however much emphasis has
been placed on the impact of a good internal control system on
financial management of organizations.
This research work will go a long way in helping an
organization discover the impact of weakness in internal control
and suggest measures in correcting them. It will also reveal the
problems caused by bad internal control system and be useful to
students, scholars, lecturers and other third parties as it shall open
new area of further research work and at same time advance
challenges to up-coming researchers.

1.7 SCOPE OF STUDY
The impact of a good internal control aids management
effectiveness in its organization. This research will specifically
Focus attention on the activities of organizations in Nigeria and due
to the logical point that not every organization can be studied, this
research is therefore limited to the Nigeria Bottling Company. The
focus of this research is to show the impact of a good internal
control system in the performance of organization Financial
management.

1.8 LIMITATION OF THE STUDY
The major constraints in this study include the conservating nature
of organization and their apathy towards providing information,
especially with respect to their internal operation policies
Human errors and biasness are other limiting factor of this
study. This is because some data’s were obtained through
discussions and interviews therefore there is the possibility of
human error of omitting some vital information. Respondent may
also exaggerate important information in order to give their
organization a positive credit for fear of what seem an invasion into
the organization’s privacy. Time and finance is also a limiting factor.

1.9 DEFINITION OF TERMS
The following terms have been used in the course of this research
work and as such need to be explained. They were as stated below:
INTERNAL CONTROL
It has been defined by the Auditing planning committee (APC) IN Uk
as “the whole system of control financial and otherwise established
by management in order to carry out the business of the enterprise
in an orderly and efficient manner to safeguard the assets and
secure as far as possible, the competence and accuracy of records,
the prevention and detection of errors and fraud in accordance with
the final preparation of financial statement.”
CONTROL
Is an exercise performed in the present to achieve a plan drawn up
for the future.
MANAGEMENT
It is defined as the process of planning, organizing co-ordinating
and controlling the activities of an organization. It is seen as a
group of people who monitor and control the organization activities
towards the achievement of the organization objectives.
AUDIT
This comes from a Latin word “AUDIRE”meaning to hear in other
words it means official examination of account and records.