Internal Control System In A Computerized Accounting Environment
(A Case Study Of Quiness Nigeria Plc)
In a computerized accounting environment, an effective internal control system is crucial to ensure the integrity, accuracy, and security of financial data. Key components of such a system include access controls to restrict unauthorized entry to sensitive information or functions, segregation of duties to prevent a single individual from having control over all aspects of a transaction, regular monitoring and review of transactions and system logs to detect anomalies or irregularities, encryption and other security measures to safeguard data from unauthorized access or manipulation, and robust backup and disaster recovery procedures to mitigate the risk of data loss or corruption. Additionally, continuous training and awareness programs for employees can help ensure adherence to established procedures and foster a culture of accountability and compliance. Overall, a well-designed internal control system helps mitigate risks associated with errors, fraud, and data breaches in the computerized accounting environment.
This project was carried out with the objective of studying the internal control system in a computerized environment in connection with Guinness Nigeria Plc, with a view to identifying some areas of attention and development in the system. Chapter one contains the introduction statement of the problem, objective of study, significance of study, alternative hypothesis and their basis, scope of study, limitation of the study and definition of terms. Chapter two deals with theoretical frame work and contain information gathered from text books, articles and other publications. Chapter three deals with the research methodology and describes the instruments of data collections for the study. In Chapter four, the date collected from the various sources are presented and analyzed to reveal the strength and weakness in the system where they exist. Chapter five produces a summary of the research, recommendation which were made to eliminate the weakness observed in the system and conclusion were drawn from the data gathered. There is also a bibliography and an appendix containing the internal control questionnaire used for study.
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of content
CHAPTER ONE
1.0 Introduction
1.1 Background of study
1.2 Statement of study
1.3 Objectives of study
1.4 Research Question
1.5 Significant of the study
1.6 Scope of the study
1.7 Limitations of study
1.8 Definition of terms
CHAPTER TWO
2.0 Brief history of case study centre
2.1 Meaning and Definition of concept
2.2 Essential features of internal control
2.3 Internal control in small organization
2.4 Internal Audict
2.6 computerization
2.7 types of computer
2.8 Internal control electronic data processing environment
2.8.1 General controls
2.8.2 System development controls
2.9 Responsibility for establishing internal control system
2.10 Operating areas of internal control
2.10.1 General financial arrangement
2.10.2 Cash and cheque receipt.
2.10.3 Cash and cheque payment
2.10.4 Wages and salaries
2.10.5 purchase and trade creditors
2.10.6 sales and trade debtors
CHAPTER THREE
3.0 Research design and methodology
3.1 Introduction
3.2 Research design
3.3 Sources/methods of data collection
3.4 Population of study
3.5 Method of data collection
CHAPTER FOUR
4.0 Presentation and analysis of data
4.1 Introduction
4.2 Analysis of the various department
4.3 presentation of data
4.4 personal interview
4.5 Interpretation
CHAPTER FIVE
5.0 Summary, conclusion and recommendation
5.1 Summary of findings
5.2 Conclusion
5.3 Recommendation
Bibliography
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Internal control for its vital role in accounting has been viewed and elaborately examined from various standpoints. Internal control system is aimed at improving accountability for actions. The accuracy and liability of records, the safeguarding of assess and the overall efficiency of operations.
The primary air why auditors make use of computer in carrying out auditing task is to ensure accuracy, efficiency and reliability in his work as an auditor. His reason had been made more formidable with the emergency of computer revolution ignited by the internet and World Wide Web. Auditors now operate in a highly competitive and changing global auditing environment.
According to mull champ who adopted the standard definition which defines internal control the whole system of the management in order to carry on the business of the enterprises, in an orderly and efficient manner. The common point in the definition that worth noting are:
1. Internal control system assists management in running the company’s business in orderly and organized manner.
2. Internal control gives a broad meaning extending beyond the accounting and financial applications. As mentioned earlier, the definition is remarkably close in describing the meaning of internal control. It is however to promote operational efficiency dynamism and creation role in the control of the business structure.
The world is shaped with the advancement in technology that moderate and modernization the homes and business today. The telephone, automatic teller machine satellite, computers and many other technologies are no longer tales from the moonlight but one actually being used to harness information.
In recent times, the Nigerian economy has influenced a number of technological evolutions. Computer technology is one of such evolution while the greater number of users enjoys the favours of these life made easy trends, audit and security practitioners are constantly being challenged by their applications.
Dependence on computers today in business circle is not by choices. The computer among organization various types of computer’s have been introduced to substantially enhance human efforts in industrial commercial official and domestics activities. Data are captured, stored, processed, analyzed, transmitted and reported with computers.
Accountancy which is generally known as the language of business is no exception and has been affected by those changes in technology. The manual book keeping process is given way to computerization in both private and public sectors of the Nigerian economy. All system both manually operated or computerized, whether profit oriented or not operates within conditions of resources constraints. This mass embraces is not without its attendants problems. As a result, various steps are taken and procedures established to ensure maximizing the use of these resources in achieving organizational goal and objectives.
Apart from the problem of scarce resources, organizations run a high risk of fraud and errors steps are required therefore to minimize this risk by establishing operating rules and regulations. Internal control represents all such techniques, policies, rule and procedures which the management of an organization has developed for its day to day operations. An evaluation therefore involves considering carefully how good the system in uses is the needs of the organization.
According to Adeniji A.A (2001), “Traditional control comprises all the coordinated methods and measures adopted within a business to promote operational efficiency and encourage adherences to prescribed management policies”.
While statement of auditing defines internal control thus, “Internal control includes not only internal checks and internal audit, but the whole system of control financial and efficient manner which ensures adherences to management policies, safeguards the assets and secure as far as possible the completeness and accuracy of the records.
1.2 STATEMENT OF THE PROBLEM
It is true that many have responsibility in a organization but the accountant is held liable or accountable for te financial irresponsibility of others as well as his own. This feature is a cause for concern because, control of this nature may not be an easy task as the accountant may not have all the time to check every transaction of financial orders.
With the advent of computerized accounting systems, in the management of funds practice fraudulent are now on the increase due to the less of audit trail by the auditors eventually leading to failure of many businesses. Thus, a good internal control system that encompasses the whole the system of control both financial and administrative to carry on the business of the enterprise in an orderly manner has to be put in place to bring sanity to the entire organization.
1.3 OBJECTIVES OF THE STUDY
The purpose of this study are as follows;
1. To examine the internal control system in a computerized environment and see whether it provides records that will form reliable base for the preparation of account and safeguard the assets and make recommendations for further improvement.
ii. To identify the strength and weakness of internal control system and corrective recommendations where necessary.
iii. To find out the role of computer in the accounting system of an enterprise.
1.4 RESEARCH QUESTION
a. Is your system computerized?
b. Is the use of password enforced in the use of computer?
c. Is the procedural control effective?
d. Who takes charge of the outputs?
e. Is the computer very effective in detecting errors?
f. Does the computer facilitate in decision-making?
g. Do you think that computer assisted decision making is more accurate than the normal system or the one not aided.
1.5. SIGNIFICANCE OF THE STUDY
It is an indispensable fact that business in a particular and the world at large have been greatly affected by thee enry of computer. Almost everything is going computerized and the earlier all business organization embrance the use of computer the better.
Alos efficient in providing accurate information at a high speed =, with minimum cost that the computer becomes useful accounting tools. It is known fact the until the values of a thing (computer) ios made known to people, they would hardly desire to associate with such a thing.
With this study, the principle involved in the internal contol system in a computerized accounting environment will result in the efficient executing environment will result in the efficient execution of the business of the organizations concerned.
Even many business organizations which are complacement in their business with the use of computers could be triggered into actions with a view to computerizing the enterprises.
Finally, it is hoped that this study will serve as a reference material to both students and other researchers interested in a similar discourse.
1.6 SCOPE OF STUDY
The study focuses on recording processing and financial control to ensure the conformity of the role and regulations relating to control process.
1.7 LIMITATION OF THE STUDY
As a result of time money and materials, the study could not cover all the geographical areas of the country where Guiness have depots with computerized accounting system for samples. Examples of such areas are Abuja, Lagos, Ibadan and Ondo. There is no reason however to believ that geographical location could have a significant differential impact on the major focus of the research. The selection rocess of the companies for the study was not completely random although were to administer the question to randomly selected departments in Guiness Nigeria PLC concerned. It was also observed that some of the respondents were reluctant in giving out te information required. Most of them finally agreed after much persuation and on the condition of anonyinity.
1.8 DEFINITION OF TERMS
Below are some terms that need to be defined as one progress in the course of this study:
1. Accounting System
Accounting system is able to records, procedures and equipment that routinely deal with the events affecting the financial performance and position of the entity. In other words, an accounting system comprises documents, journals, ledgers and financial reports.
2. Accounting Control
Accounting control comprises the method and procure that are mainly concerned with the authorization of transactions, the safeguard of assess and the accuracy of the financial record.
3. Management
Management is a specific group of people who control and direct the resources of the organization towards achieving organizational objectives.
4. Responsible Official
A responsible official is an employee of the company who at least is a supervisor.
5. Manual labour
A manual is a human labour.
6. Complacement
It is a way of showing satisfaction in one’s own situation.
7. Replete
To be filled up and completed.
8. Financial irresponsibility
It means unwise spending
9. Accounting
It means instrument used in gathering accounting information.
10. Internal control
It means a measure against unwanted behavior or attitude.
Internal Control System In A Computerized Accounting Environment:
An Internal Control System (ICS) is a set of policies, procedures, and processes established by an organization to ensure the reliability of financial and operational information, promote accountability, prevent fraud, and safeguard assets. In a computerized accounting environment, internal controls play a crucial role in ensuring the accuracy and integrity of financial data processed through computer systems. Here’s how an internal control system operates in a computerized accounting environment:
- Segregation of Duties: Divide responsibilities among different individuals to prevent any single person from having control over all aspects of a transaction. For example, the person who initiates a transaction should not be the same person who approves or processes it within the computerized system.
- Access Controls: Limit access to the accounting system and sensitive financial data to authorized personnel only. This involves using usernames, passwords, and other authentication methods to ensure that only authorized individuals can enter or modify data.
- User Permissions: Assign different levels of access to users based on their job roles. For instance, employees should only have access to the functions and data necessary for their responsibilities.
- Audit Trails: Implement mechanisms to track and record all activities within the accounting system. This creates an audit trail that can be reviewed to trace any discrepancies, errors, or unauthorized activities.
- Data Validation and Verification: Establish controls that validate and verify data entered into the system. This could include checks for accurate data entry, matching with source documents, and valid accounting codes.
- Error Detection and Correction: Implement automated error detection mechanisms that highlight inconsistencies or errors in data, such as mismatched numbers or incorrect calculations. These errors should be flagged and corrected before financial reports are generated.
- Backup and Recovery: Regularly back up financial data and establish procedures for data recovery in case of system failures, data corruption, or other technical issues.
- Encryption: Ensure that sensitive financial data is encrypted when it’s transmitted over networks or stored on storage devices to protect it from unauthorized access.
- Change Management: Implement protocols for managing updates and changes to the accounting system. Changes should be thoroughly tested before implementation to prevent unintended consequences.
- Periodic Reconciliation: Regularly reconcile financial records, bank statements, and other relevant accounts to identify any discrepancies or irregularities.
- Management Oversight: Establish a system of management review and approval for important transactions and financial reports generated by the accounting system.
- Training and Education: Provide training to employees on the proper use of the accounting system and the importance of internal controls. This helps ensure that individuals understand their roles and responsibilities in maintaining the system’s integrity.
- Anti-Fraud Measures: Implement measures to detect and prevent fraudulent activities, such as monitoring for unusual patterns or behaviors within the accounting system.
- Vendor and IT Controls: If third-party vendors are involved in managing the accounting system or providing software, ensure their controls align with your organization’s internal control objectives.
- Continuous Monitoring and Improvement: Regularly assess the effectiveness of internal controls in the computerized accounting environment and make adjustments as needed based on changing technologies, processes, and risks.
Overall, a well-designed internal control system in a computerized accounting environment helps mitigate risks, enhances the reliability of financial information, and supports the organization in achieving its financial and operational goals.