THE ROLE OF INTERNAL CONTROL AS THE FOUNDATION OF QUALITY MANAGEMENT
ABSTRACT
This project titled “The Role of
Internal Control as the Foundation of Quality Management: a study of the
Broadcast Media in Nigeria” is both a descriptive and an analytical
study designed to evaluate the role of internal control in an
organization so as to see whether, or otherwise, it is the bedrock of
quality management. The entire work is chronicled into five chapters
with each addressing an important segment of the research work. The
objectives of the study are to identify and evaluate: the importance of
Internal Control System in the management of an organization using
Broadcast Media in Nigeria for the study; the features of a good
Internal Control System; the factors responsible for increase of frauds,
embezzlements or misappropriations of funds/assets in the modern day
Nigeria; and also to find out why some of them remain undetected for a
good number of years whereas the books of accounts of the organization
are often being examined by her internal and external auditors.
Furthermore, the population of the
study is the Broadcast Media in Nigeria and the determined sample size
is 171. Data used for the study were obtained from primary and secondary
sources, making use of oral interviews, questionnaires, and literature
review. Again, the data collected were analyzed by the use of tables,
simple percentages, and absolute numbers, while chi-square (x2)
technique was used to test the hypotheses formulated in the study.
Moreover, the major findings made in this dissertation are as follows:
that some of the factors responsible for increase of errors, frauds,
embezzlements or misappropriations of funds/assets, in this modern day
Nigeria are: greed and lack of contentment; non-compliance with the laid
down internal control procedures; non-adherence to financial policies
and guidelines; collusion; employment of unqualified and incompetent
personnel; poor remuneration; glorification of ill gotten wealth in
Nigeria; and delay in payment of salaries by some employers – that
undetected errors, frauds, embezzlements or misappropriation of
funds/assets for quite a good number of years (whereas the accounts of
the organization are being reviewed by her internal auditors on regular
basis and the external auditors yearly) are due to the following:
collusion; employment of inexperienced internal auditor; negligence on
the part of some external auditors; and noncompliance of
companies/organizations to auditors’ management letters (letters of
weakness). Finally, based on the major findings
above, the following recommendations aimed at improving the situations
are made: establishment of adequate accounting system and effective
internal control measures; employment of honest, dedicated and competent
personnel; proper supervision of staff; compliance with Auditors’
management letters; adequate remuneration and regular payment of
salaries, and reorientation of the Nigerian citizens towards the
glorification of ill gotten wealth in our society today.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
It is a well-known fact that everything
in this world has a foundation. In fact, the foundation of anything be
it a building, an idea, a career, belief, etc matters a lot: it
determines, to a very large extent, the strength, durability, quality
and success, or otherwise, of that very thing. The Oxford Advanced
Learner’s Dictionary of Current English, defines foundation as: strong
base of a building, usually below ground level, on which it is built up;
that on which an idea, belief, etc rests; underlying principle; basis;
starting point.
Management as an essential ingredient of
all organized endeavour has an underlying principle and that is the
internal control system. How successfully an organization achieves its
objectives, satisfies social responsibilities or both, and depends upon
how well the organization’s managers do their jobs, In other word, how
well the managers adhere to the whole system of controls, financial and
otherwise, established by the management in order to carry on the
business of the enterprise. How well managers do their jobs – Managerial
performance – is measured in terms of two concepts: efficiency and
effectiveness.
According to Stoner and Freeman (1
989:10), efficiency means “doing things right,” that is, the ability to
get things done correctly, and effectiveness means “doing the right
thing,” that is, the ability to choose appropriate objectives.
The sum of these two concepts is quality
management which is itself the product of Internal Control system. Nwoko
(1997:202) defined quality management as a systematic approach for
ensuring that all activities within an organization happen according to
the plan. This approach was evolved primarily by a group of American
quality experts: W.E. Deming, Joseph Juran and Philip Grosby. Before
implementing quality management, there must be a quality system in
existence. A quality system is an assembly of components, such as
organizational structure, responsibilities, procedures, processes, and
resources.
In the same direction, Stoner and Freeman
(1989:4) defined management as the process of planning, organizing,
leading, and controlling the efforts of organization members and of
using all other organizational resources to achieve stated
organizational goals.
A process is a systematic way of doing
things. Management is defined as a process because all managers;
regardless of their particular aptitudes or skills, engage in certain
interrelated activities in order to achieve their desired goals.
Planning implies that managers think
through their goals and actions in advance. Plans give the organization
its objectives and set up the best procedure for reaching them.
In addition, plans become the guides by
which: _ the organization obtains and commits the resources required to
reach its objectives; _ members of the organization carry on activities
consistent with the chosen objectives and procedures; and _ progress
toward the objectives is monitored and measured so that corrective
action can be taken if progress is unsatisfactory. The first step in
planning is the selection of goals for the organization.
Then objectives are established for the
subunits of the organization — its divisions, departments, and so on.
Once the objectives are determined, programmes are established for
achieving them in a systematic manner.
Organizing means that managers coordinate
the human and material resources of the organization. Once managers
have established objectives and developed plans or programmes, to reach
them, they must design and staff the organization in order to be able to
carry out those programmes successfully.
Leading describes how managers direct and
influence subordinates, getting others to perform essential tasks.
After plans have been made, the structure of the organization has been
determined, and the staff has been recruited and trained, the next step
is to arrange for movement toward the organization’s defined objectives.
This function can be called by various names: leading, directing,
motivating, actuating, and so on. But whatever the name used to identify
it, this function involves getting the members of the organization to
perform in ways that will help it achieve its established objectives.
Whereas planning and organizing deal with
the more abstract aspects of the management process, the activity of
leading is very concrete; it involves working directly with people.
Finally, controlling means that managers attempt to assure that the
organization is moving toward goals. Managers must ensure that the
actions of the organisation’s members do in fact move the organization
toward its stated goals. This is the controlling function of management,
and it involves four main elements:
- establishing standards of performance (budgets); _ Measuring current performance and comparing it against the established standards;
- detecting deviations from standard goals in order to make corrections before a sequence of activities is Completed;
- Taking action to correct performance that does not meet those standards.
- Through the controlling function, managers can keep the organization on its chosen track, keeping it from straying from its specified goals.
But it is a sad commentary to say that
even in those organizations in which quite competent managers and
skilled supporting staff are known to be at the helm of affairs for
attaining the goals of the organizations, the problems of frauds,
irregularities, embezzlement, misappropriation of funds/assets,
mismanagement or poor management, or whatever name it may go with, are
still being encountered, and even at an alarming rate. Why? It is the
opinion of the researcher therefore, that a study on internal control
system as a foundation of quality management would provide an insight to
the way of solving the problems.
Bethel, et al (1971:27) pointed out that
an enterprise may possess the most modern plant and equipment, a highly
skilled and experienced labour and sales force, ample financial
resources and an adequate source of raw materials yet fail to perform
efficiently. They argued that although several reasons are involved but
the major factor is poor management.
The question now is: what is poor
management? Poor management, in the context of this study, simply means
deviation from any of the system of controls, 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.
Poor management occurs only where there
is no internal control system in existence or where in existence, it is
weak. Therefore, the only solution to poor management is establishment
of good internal controls and observing them. Santocki (1972:12) opined,
“By internal control, is meant not only internal check and internal
audit, but the whole system of controls, financial and otherwise,
established by the management, in order to carry on the business of the
company in an orderly manner, safeguard its assets and secure as far as
possible the accuracy and reliability of its records.”
In fact, internal control is the bedrock
of quality management, and to achieve its purposes, it must be adequate
in design and effective in operation.
1.2 STATEMENT OF THE PROBLEM
In the early sixties one hardly heard of
frauds, irregularities, embezzlements or misappropriation of
funds/assets, mismanagement or poor management, or whatever name it may
go with. But nowadays the reverse is the case: there are a lot of cases
of the aforesaid social evils in the modern day Nigeria. Why?
Also, there has been a general out cry
from the public sectors, private sectors, and the general public why
some of the above fraudulent practices are not easily detected, or if at
all detected, they may have taken some time, even though these
organizations may have engaged internal auditors and the services of
external auditors who audit the accounts of the organizations year after
year.
These are the main problems which led the researcher into this study/dissertation.
- What are the factors responsible for the increase of frauds, irregularities, embezzlements or misappropriation of funds/assets, mismanagement or poor management in the modern day Nigeria?
- Does your organization have good, adequate, and operational Internal Control System in existence presently?
- Does your organization have good, adequate, and operational Internal System in existence presently
- Does your organization have internal Audit Department?
- Has your organization experienced frauds, embezzlements or misappropriation of funds/assets before, and what were the causes?
1.3 OBJECTIVES OF THE STUDY
The main objectives of this study are to:
- Identify and evaluate the importance of Internal Control System in the management of an organization using Broadcast Media in Nigeria for the study.
- Identify and evaluate the features of a good Internal Control System.
- identify and evaluate the factors responsible for increase of frauds, embezzlement or misappropriation of funds/assets in the modern day Nigeria, and also find out why some frauds, embezzlement or misappropriation of funds/assets remain undetected for a good number of years whereas the books of accounts of the organization are often being examined by her internal and external auditors.
1.4 FORMULATION OF RESEARCH HYPOTHESES
In considering the nature and extent of
the problems of the study, the researcher shall make some ‘intelligent
guesses upon which the research will be based.
- The persistence of frauds, embezzlements or misappropriation of funds/assets and other fraudulent practices in any organization is not due to noncompliance with established internal control system.
- The persistence of frauds, embezzlements or misappropriation of funds/assets and other fraudulent practices in any organization is due to non-compliance with established internal control system.
- There are no cases where errors, frauds, embezzlements or misappropriation of funds/assets remain undetected for quite a good number of years whereas the accounts of the organization are being audited by her internal auditor on regular basis and the external auditors yearly.
1.5 SIGNIFICANCE OF THE STUDY
Generally, research work helps management
of organizations and intending investors to solve problems and have
sense of direction for effective and efficient management and profitable
operations. This study is significant in that it will help managers of
organizations to understand whether Internal Control System plays any
significant role toward prevention and detection of errors, frauds,
embezzlements or misappropriation of funds/assets, proving the claim
right or wrong that Internal Control System is the foundation of quality
management. It will also help to explain the features of a good
Internal Control System and the role of Internal Audit in Internal
Control System.
Furthermore, it will help to identify and
explain certain factors that are responsible for increase of frauds,
embezzlement or misappropriation of funds/assets in various
organizations in this modern day Nigeria.
Finally, it will be of tremendous help to future researchers who may wish to develop and research more into the study.
1.6 SCOPE OF THE STUDY
This research work focused on “The Role
of Internal Control as the foundation of quality management,” a study of
the Broadcast Media in Nigeria.
However, the findings and recommendations
will certainly be of immense help to managers of other organizations in
Nigeria and elsewhere and other research scholars.
1.7 LIMITATIONS OF THE STUDY
Research of this nature especially in developing countries like Nigeria is usually subjected to some constraints.
In the process of obtaining the data for
this work, some specific problems worthy of mentioning were encountered.
They were as follows:
In the conduct of this kind of study,
reliance is on the data collected and the appropriate officials within
the organization who will make the data available, and if necessary,
explain those that are rather technical. The researcher, while trying to
collect the data, could not, in most cases, get the officials on seat,
and where they were met in the office; some of them were always in a
hurry to attend one meeting or the other and as a result could not grant
enough audience. These problems hindered some of the information that
could have been obtained.
Also, some of the officials were too
reserved and reluctant to make available certain required information,
and this posed a big obstacle during the course of the study.
Furthermore, finance was another
constraint since there searcher, in most cases, had to repeat his series
of visits before he could get some of the officials in the office.
Although the researcher tried to minimize
the effects of these constraints, he therefore cannot claim that the
report Presented here is with 100 percent precision.
The validity of any research work rests
heavily on the availability and reliability of the data required and
utilized for the research work.
This research work, although it was
starved of much of the required data, especially from primary sources,
took much from the secondary source data but this does not in any way
diminish the validity of the work and its recommendations. Truly, the
impact of the result of this study will be of immense assistance to both
lecturers and students who may wish to research in this field of study.
1.8 CLASSICAL DEFINITION OF TERMS
Detective Control
This is an internal control which is
designed to discover errors that have occurred and to assure that they
are corrected on a timely basis.
Error: This is defined as unintentional occurrence of:
Compliance deviation: This is a failure to perform an internal control procedure as prescribed; or
Monetary error: This is a mis-statement in an account or a required financial statement disclosure.
Fraud
Financial Institutions Training Centre
(FITC) defined fraud as an act or course of deception deliberately
practiced to gain unlawful or unfair advantage; deception directed to
the detriment of another.
Internal Control
Millichamp (1987:96) defined Internal
Control as “Internal Control System — the whole system of controls,
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 far as possible the completeness and accuracy of the records.”
Internal Audit
Internal Audit is defined as: an
independent appraisal activity within an organization for the review of
accounting, financial and other operations as a basis of service to
management. It is a managerial control, which functions by measuring and
evaluating the effectiveness of other controls.
Irregularity
This means the intentional mis-statement of an account or required financial statement disclosure.
Management
Bank (1976:88) defined it as “a
collective term that refers to the system, function, process or office
of planning, providing coordination, directing, evaluating and
controlling all available efforts and resources of an organization for
the accomplishment of the objectives and policies which are designated
by, and handed down from top executive of the organization.”
Potential Errors
These are errors which could occur and should be the object of internal controls and/or audit procedures.
Preventive Control
This is an internal control which is designed to prevent errors from occurring.
System
This refers to an arrangement of many
parts that work together, e.g. the digestive system. Again, system can
mean an established order or arrangement of things, e.g. in a business,
in a society, etc.
1.9 OVERVIEW OF THE STUDY
According to Odo (1992:31) overview of the study deals with exposing in a bird’s eye view the nature of the entire study.
Chronologically, chapter one contains the
introduction which includes among others the background of the study,
statement of the problems, objectives of the study, basic research
hypotheses, significance of the study, scope of the study, limitations
of the study and classical definition of terms.
Chapter two is concerned with the rumination of works previously done by scholars in the field of study.
Chapter three deliberated on the research
design and methodology of the study, which include population and
sample description, instrument for data collection, techniques for data
collection and course of this work.
Chapter four centered on data
presentation and analysis while chapter five centered on the findings,
recommendations, conclusion and suggestion for further study.
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