1
TITLE PAGE
THE IMPACT OF INTERNAL CONTROL SYSTEM ON
REVENUE GENERATION: (A CASE STUDY OF POWER
HOLDING COMPANY OF NIGERIA (P.H.C.N) OKPARA
AVENUE ENUGU)
BY
OFOZIE ONYEKA C.
ACC/2007/330
FACULTY OF MANAGEMENT AND SOCIAL SCIENCES
CARITAS UNIVERSITY AMORJI-NIKE, ENUGU STATE.
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR
THE AWARD OF BACHELOR OF SCIENCE (B.Sc)
DEGREE IN ACCOUNTING.
AUGUST, 2010.
2
CERTIFICATION
This research work has been read, approved and
accepted as having met the requirements and regulations
governing the preparation and presentation of project in the
Department of Accountancy, Faculty of Management and
Social Sciences, Caritas University, Amorji-Nike, Enugu for the
award of a Bachelor of Science (B.Sc.) degree in Accounting.
MR. AGU C.
DATE
Project Supervisor
MR. UGWU COLLINS
DATE
Head of Department
External Supervisor
DATE
3
DEDICATION
The research project is dedicated to God Almighty, the
creator of heaven and earth. I also dedicate this piece of work
to my wonderful and enduring parents, Chief and Mrs E.I
Ofozie.
4
ACKNOWLEDGMENT
My sincere appreciation goes to Almighty God, the maker
of all impossibilities possible and for giving me the knowledge
and strength to produce this project work.
A big thanks to the members of my great family:
especially my Dad, Chief E. I. Ofozie, my Mum Mrs Stella
Ofozie, my sibling: my Brother Ifechukwu, my Sister Juliet and
to my cousins: Chinelo, Chi-Chi, Ifeyinwa, Emeka and others
not mentioned. To my Uncle,s and Aunties Mr and Mrs P. U.
Obiefuna and to numerous member of my family not
mentioned
for
their
financial
support,
advice
and
encouragement. In particular, i would like to thank my
colleagues and friends, among them are;Chioma, Ngozi,
Chizoba, Stephanie, Christopher, Stella and so many others.
I appreciate the efforts and positive criticism and
necessary correction of my capable and intellectual supervisor
5
in of Mr. Agu C. I. who took his time to ensure compliance and
orderliness in my work and I also wish to thank my H.O.D, Mr.
Ugwu C. and my other lecturers, Mr. Ovute F., Mr. Nsoke P.,
Mr.
Enekwe
C.,
Dr.
Mrs
Eyisi
S.
for
their
immense
contribution from the begining to end, and also to my
roommates
(St
Mary
hostel)
for
encourangement. May God bless you all.
their
support
and
6
LIST OF FIGURES
Figure 2.1 Classifications of Departments Goals and Objective
Figure 2.2 Classification of Business objectives and related
risks
7
ABSTRACT
The objective of this study was to evaluate the internal
control system in operation at power holding company of
Nigeria Plc in Enugu State with a view to knowing its impact
on revenue generation in the state. A sample of 40 was
selected for the study randomly. The questionnaires were used
in gathering the primary data while secondary data were
collected from the work of others in the form of literature
review. The data collected were analyzed using the chi-square
(x2) as the statistical tool to determine the valuation of the
hypothesis. The findings concluded that weak internal control
system
encourages
collusion
fraud
loss
of
revenue,
embezzlement and computation. This have always impeded
the company’s ability to effectively supply electricity to
customers and there from generate revenue. Internal audit
system ensures operations compliance with set policies,
promoting accuracy and reliability of transactions recording.
In addition, effective internal control system ensure effective
recommends the remodeling of the company’s internal control
system and strengthening of the investigating unit. The
components sectors of the present corporate Power Holding
Company of Nigeria PLC should be unbundled into separate
distinct
independent
transmission,
entities
distribution
and
that
handle
marketing.
generation,
It
further
8
recommends that prepaid meters should be seen as an
alternative to further accumulate debts.
TABLE OF CONTENTS
Title page
i
Certification
ii
Dedication
iii
Acknowledgement
iv
List of figures
v
Abstract
vi
Table of contents
CHAPTER ONE:
vii
INTRODUCTION
1.0
Background Of The Study
1
1.1
Statement Of Problem
6
1.2
Objective Of The Study
8
1.3
Significance Of The Study
8
1.4
Scope and Limitation Of The Study
9
1.5
Research Hypothesis
10
1.6
Research Questions
11
1.7
Historical Background of Power Holding Company of
Nigeria
12
9
1.8
Definition of Terms
14
CHAPTER TWO:
REVIEW OF RELATED LITERATURE
2.1
What is Revenue?
17
2.2
What is Internal Control System
18
2.3
Objectives of Internal Control System
20
2.4
Types of Internal Control System
21
2.5
Components of Internal Control System
23
2.6
Functions of Internal Control System
56
2.7
Roles and Responsibilities.
58
2.8
Internal Control System And The Auditors
62
2.9
Operation Of Internal Control System At Power Holding
Company Of Nigeria
2.10 Limitation Of Internal Control System
64
71
CHAPTER THREE
RESEARCH METHODOLOGY
1.1
Research Design
73
1.2
Sources Of Data
74
1.3
Population Of The Study
75
1.4
Sample Size
75
10
1.5
Description Of Questionnaire
76
1.6
Method of Data Analysis
76
1.7
Statistical Test For Hypothesis
77
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRTATION
4.1
Data Analysis and Interpretation
78
4.2
Test Of Hypothesis
84
4.2.1 Hypothesis One
84
4.2.2 Hypothesis Two
86
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATION
5.1
Summary Of Findings
88
5.2
Conclusion
89
5.3
Recommendation
90
5.4
Suggestions For Further Investigation
91
Bibliography
92
Appendices
96
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CHAPTER ONE
INTRODUCTION
1.0. BACKGROUND OF THE STUDY
Every organization has a purpose, which includes making
some product and rendering some services at a price. For
normal operations of the business organization, it is the
product or services of the firm that cause cash receipts
(revenue) to flow into the firm. Revenue is associated with
products or service of a firm as source of expected cash
receipts. Revenue is an event; an increase that applies
definitely to value that is monetary. This increase occurs
because the firm undertakes certain activities or there is any
performance by the firm.
Revenue therefore refers to the monetary event of asset
valves increasing in the firm due to the physical event of
production or sales of the firms’ products or services.
In Kam (1987:237), Financial Accounting Standard
Board(FASB)
defines
revenue
as
inflows
or
other
enhancements of assets of an entity or settlements of its
12
liabilities (or combination of both) during a period from
delivery or producing goods, rendering service or other
activities that constitutes the entity’s ongoing major or central
operations. In addition, Hongreen et al (2002:568) described
revenue as inflows of asset (almost always cash or accounts
receivables) received for products or services provided to
customers.
On the basis of the above, National Electric Power
Authority now Power Holding Company of Nigeria is a
government
almost
total
owned
public
monopoly
in
utility
establishment
generating,
enjoying
transmitting
and
delivering electricity to all homes and businesses in Nigeria.
According to the establishments customer service chartered
(2004), her mission as a service industry is to satisfactorily
meet customers electricity demand in the most cost effective
manner using proven technology and well motivated customer
friendly work force with adequate consideration for the
environment.
Her goals include:
I.
To continuously improve her service to her customer.
13
II.
To realize full payment for timely accurate and complete
billing of electricity delivered.
III.
Institutionalise business and commercial orientation
among the work force.
IV.
Gradually aiming at closing the gap between demand and
supply
by
upgrading
and
expanding,
generating,
transmission and distribution of infrastructure.
V.
To improve skills and motivation of staff.
To achieve the above mission and goals, the management of
the establishment must adopt measures to ensure that
available resources are prudently used to obtain valve for
money from resources allocated to them. Management in turn
should generate operational data with which they evaluate the
efficiency and effectiveness of their operation. It is fundament
aspect of management stewardship responsibility to provide
interested parties with reasonable assurance that their
organisation is effectively controlled and that the accounting
data it receives on a timely basis are accurate and dependable.
14
Developing a strong system of internal control provides this
assurance.
Thus internal control is defined 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 to ensure
adherence to management policies safeguard the assets and
secure as far as possible the completeness and accuracy of the
records. In addition the American institute of Certified Public
Accountants in 1949 defined internal control as comprising
the plan of organisation and all the coordinate methods and
measures adopted within a business (or non profit making
body) to safeguard its assets, check the accuracy and
reliability of its accounting data promote operational efficiency
and encourage adherence to prescribed managerial policies. A
‘system’ of internal control extends beyond those matters
which relate directly to the functions of the accounting and
financial department.
15
However, it is an established fact that all the business
units and service centre of power holding company of Nigerian
plc in Enugu state are often plagued by accounting and
administrative control problems as it affect revenue generation
and other assets. As a result the establishment revenue base
has assumed a downward trend.
It has also been shown that despite considerable investment,
public service delivery by the establishment is widely perceived
to be unsatisfactory and deteriorating from bad to worse.
The complete dependence on capital grants allocation from
government is also known. What is not known is the degree to
which internal control weaknesses and reduced allocation
from government contribute to the problem.
The incidence of internal control weaknesses unsatisfactory
and deteriorating service delivery have the undesired effect of
not only weakening the establishment’s ability to provide
electricity supply effectively, but also encourages collusion,
fraud, asset conversion, genuine and deliberate mistakes,
corruption, lack of transparency and accountability for
16
revenue collection and accountability for revenue collection
and
other assets. For the enhancement of the attainment of
the mission and goals, it is therefore necessary that these
hindrances be removed. It is against the above background
and evaluate that this research carried out to examine and
evaluate the internal control system in operation at holding
company of Nigeria in Enugu state.
1.1 STATEMENT OF PROBLEM
The incidence of internal control weaknesses, unsatisfactory
and deteriorating service delivery have the undesired effect of
not only weakening the company’s ability to effectively provide
electricity supply but also encourages collusion, fraud,
embezzlements, loss of cash (revenue), assets conversion
genuine
and
deliberate
mistakes,
corruption,
lack
of
transparency and accountability for revenue collection and
other assets. Despite considerable investment, public service
delivery is unsatisfactory and degenerating. The company is
not able to break even and sustain itself from the revenue
17
obtained there from. This impacts so negatively on the
company’s existence.
For the enhancement of the attainment of the mission and
goals of the company, it is therefore necessary that these
hindrances be removed. The management of the company
should familiarize themselves with internal control procedures
that will ensure effective service delivery and the desired
revenue generation.
Unfortunately, there has a dearth of adequate information in
this regard. No determined effort has been made to investigate
the problem of weak internal control over service delivery and
revenue generation. Therefore the main motivating factor
underlying this study is the desire to break new grounds with
the intent of shedding more light on this problem and seeking
avenues for solving it.
Thus, the purpose of this study is to examine and evaluate the
internal control system in operation at power holding company
of Nigeria in Enugu state with a view of knowing its impact on
revenue generation in the state.
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1.2
OBJECTIVES OF THE STUDY
The main objective of this study is to evaluate, the internal
control system in operations at power holding company of
Nigeria in Enugu state.
Other objectives of the study are:
I.
To examine the types and techniques of internal control
system for revenue generation adopted by Power Holding
Company of Nigeria in Enugu state.
II.
To determine the impact of internal control system on
revenue generation.
III.
To identify the strengths and weaknesses of the system of
internal control in all departments in power holding company
of Nigeria in Enugu state.
1.3
SIGNIFICANCE OF THE STUDY
This study is significant for the following reasons:
19
i.
These
studies
administrative
will
control
highlight
problems
the
plaguing
accounting
power
and
holding
company of Nigeria in Enugu state.
ii.
It will enable managers of services, organizations and
government owned public utility establishments to bring the
accounting and the internal control procedures inherent in
them in conformity with internal accounting standards and
practises.
iii.
It will help government owned establishments to assess
then internal control measures and make amends where
necessary.
iv.
The study could arouse further research into some other
further research into some other functional areas in the
company by students and accountants. It will also help to
broaden (my) researchers’ knowledge.
1.4
SCOPE AND LIMITATION OF THE STUDY
Although the study was to evaluate the internal control system
in operation at power holding company of Nigeria in Enugu
20
state, to ensure accurate and reliable data collection it was
limited to the study of the internal control measures at the
Enugu district unit of power holding company of Nigeria plc.
This covers internal control as it affects revenue generation
(handling of cash) assets control administrative control and
manpower control as well.
The researcher due to the following could not take a wider
range of study:
i.
Inability to have access to some relevant documents from
the officials in the company.
ii.
Financial and time constraint, which confined the
researcher to only Enugu destruct unit.
1.5 RESEARCH HYPOTHESIS
Based on the objectives of this study the following null and
alternative hypotheses were developed.
Ho1`: Effective internal control does not ensure effective service
delivery and desired revenue generation.
21
HA1: Effective internal control system ensures effective service
delivery and desired revenue generation.
Ho2; Weak internal control system does not encourage
collusion, fraud, embezzlement, loss of revenue, assets
conversion and computation in power holding company of
Nigeria.
HA2: Weak internal control system encourages collusion,
fraud, embezzlement, and loss of revenue, assets conversion
and computation in power holding company of Nigeria.
1.6. RESEARCH QUESTIONS
The following are a few of the questions, which were asked in
the questionnaire in the carrying out of this research work.
1.
Does the internal audit system ensure that operations
comply with set policies and promote accuracy and reliability
of transactions?
2.
Are internal /external auditors independent of those
whose functions they appraise?
22
3.
Based on the evaluation of the internal control system, is
it effective and efficient?
4.
Is the accounting and operational routine sit out in an
accounting Manuel?
1.7. HISTORICAL BACKGROUND OF NATIONAL ELECTRIC
POWER AUTHORITY (NOW POWER HOLDING COMPANY OF
NIGERIA)
National Electric Power Authority was established by Decree
No.24 of 1st April 1972 with the amalgamation of the
Electricity Corporation of Nigeria (ECN) and the Niger Dam
Authority (NDA). Electricity Corporation of Nigeria was the
brainchild of the 1960 independence in Nigeria whereas the
Niger Dam Authority existed and was the source of power
during the colonial era.
National Electric Power Authority was empowered to maintain
an efficient, coordinated and economic system of electricity
supply to all channels of the nation.
23
ENUGU DISTRICT BUSINESS UNIT OF POWER HOLDING
COMPANY OF NIGERIA IN ENUGU STATE.
Following the unbundling of NEPA into 18 successor
companies in tandem with the Electric Power Sector Reform
(EPSR) Act 2005. Enugu Electricity Distribution company plc
is one of the 18 companies that emerged from power holding
company of Nigeria seguel to the on-going power sector reform.
Enugu Electricity Distribution Company is among the
eleven
electricity
distribution-marketing
companies
in
Nigerian. The corporate Affairs Commission registers it under
the Nigeria Law. The company was granted operational License
in 2006 by the Nigerian Electricity Regulatory Commission
(NERC).
It has 14 business districts. It is in charge of 5 states in
south east geopolitical zone namely Abia, Anambra, Ebonyi,
Enugu and Imo state. The registered office is okpara Avenue
PMB 01287 Enugu.
The day-to-day administration of the company and
formulation policies rests on the shoulders of the (CEO) Chief
24
Executive Officer. The Chief Executive Officer is ably assisted
by Department heads (Assistant general managers) that are in
charge of various departments. The departments include
technical
services
customers,
human
resources
and
administrative, finance and accounts, audit public affairs and
legal.
The business is overseen by business managers who
routinely report to the chief executive officer all this are to help
facilitate prompt attention to customer issues and distribution
of power.
1.8. DEFINITION OF TERMS
REVENUE: This describes the amount of money a company
generates in a set period of time through the sale of products
or services.
INTERNAL CONTROL SYSTEM: This is the whole system of
control,
financial
and
otherwise
established
by
the
management in order to carry on the business of the
enterprise in an order to carry on the business of the
enterprise in an orderly and efficient manner.
25
AUDITING: An activity earned on by the auditor when he
verifies or examines accounting information determines the
accuracy and reliability of the accounting statement and
reports and then expresses his opinion.
CONTROL
ACTIVITIES:
Policies
and
procedures
that
management has established
AUDIT: An independent examination of and the subsequent
expression of opinion upon the financial statements of an
organization.
INTERNAL CHECK: This is the allocation of authority and
work in such a manner as to afford checks as the routine
transactions of day to day work by means of the work of one
person are being proved independently by another or the work
of a person being complementary to that of another.
26
CHAPTER TWO
REVIEW OF RELATED LITERATURE
The accounting and administrative system of an entity
may be simple, or they may be massive and complex.
Independent public accountants; internal auditor, managers
will be required to make periodic studies of the accounting and
internal control such a system. It could be impracticable, if
not imposing procedures affecting all types of transactions and
plans.
There will therefore be a need for the system internal
control system to exist or be established in the organization to
ensure simplified in the organization to ensure simplification
in the accounting and the whole system, this is not only
acceptable but also desirable and necessary.
In order to fully understand the subject matter of this
topic it is necessary to review the opinions of others in this
field.
In this chapter, the following subheadings will be
discussed;
1. What is revenue?
27
2. What is internal control system?
3. Objectives of internal control system
4. Types of Internal control system
5. Components of internal control system
6. Functions of internal control system
7. Internal control and the auditor
8. Operation of internal control system at power Holding
company of Nigeria.
9. Limitations of internal control system.
2.1 WHAT IS REVENUE
Revenue refers to the monetary event of asset values
increasing in the firm due to the physical event of production
or sales of the products or services.
Some companies also
receive revenue from interest, dividends or royalties paid to
them by other companies.
Revenue may also refer to the
amount in a monetary unit received during a period of time.
Revenue is associated with products or services of the firm as
the source of the expected cash receipts the asset value
increasing in the firm occurs because the firm undertakes
certain activities or there is performance by the firm.
The
28
above may not be achieved without a sound internal control
system in that organization or company.
Thus in Kam (1989:237) FASB defined revenue as inflows
or other enhancements of assets of an entity or settlements of
its liabilities (or combination of both) during a period from
delivery or producing goods, rendering services or other
activities that constitutes the entity’s ongoing major or central
operations.
2.2 WHAT IS INTERNAL CONTROL SYSTEM
The concept of internal control is still being viewed by
many people from a narrow perspective as being the steps
taken by a business to prevent employee’s fraud.
Actually
such measures are rather a small part of internal control. It is
a fundamental aspect of managements responsibility to
provide interest parties with reasonable assurance that their
organization is effectively controlled and that the accounting
data it receives on a timely basis are accurate and dependable.
This assurance is provided by developing a strong system of
internal control.
29
In accounting and auditing, internal control is defines as
a process effected by an organization’s structure, work and
authority flows, people and management information systems
designed to help the organization accomplish specific goals or
objectives it is a means by which an organizations resources
are directed, monitored and measured. It plays an important
role in preventing and detecting fraud and protecting the
organizations resource both physical and intargetable e.g
trademark.
Millichamp (1992:79) says that internal control system
refers to 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, safeguarded assets
and as far as possible the completeness and accuracy of the
records the individual components of an internal control
system are known as controls or internal controls.
In addition Meig’s et al (1982:139) further refers to
internal control system as consisting of all measures employed
by an organization to:
30
i.
Safeguard assets from waste fraud and inefficient use.
ii.
Promote accuracy and reliability in accounting records.
iii.
Encourage and measure compliance with company
policies and
iv.
Evaluate the efficiency of operation.
Internal Control extends beyond the accounting and
financial functions. Its scope is company indent and touches
all activities of the organization. It includes the methods by
which
top
management
delegates
authority
and
responsibilities. It should be concerned with the efficient use
of resources to achieve a previously determined objective or set
of objective.
The need to perform audit engagement in
accordance with Companies and Allied Matters Decree (CAMD)
1 of 1990 and strict adherence to Generally Accepted Auditing
Standard (GAAS) has prompted the need for internal control in
organizations.
2.3 OBJECTIVES OF INTERNAL CONTROL SYSTEM
The objectives of internal control system includes:
a.
To carry on the business in an orderly and efficient
manner to ensure adherence to management polices safeguard
31
its assets and secure the accuracy and reliability of the
records.
b.
To make and keep books, records and accounts which in
reasonable detail, accurately and fairly reflect the transactions
and the dispositions of the assets of the issuers.
c.
To devise document and maintain a system of internal
accounting control sufficient to provide assurance that;
i.
Transactions are executed in accordance with
managements general or specific authorization.
ii.
with
The recorded accountability for assets is compared
the
existing
assets
at
reasonable
intervals
and
appropriate action is taken with respect to any difference.
iii.
Transactions are recorded as necessary to permit
preparation
of
financial
statements
in
conformity
with
generally accepted accounting principles or any other criteria
applicable to such statement.
2.4
TYPES OF INTERNAL CONTROL SYSTEM
The internal control system consists of two main categories;
a.
Administrative control
b. Accounting control
32
2.4.1
ADMINISTRATIVE CONTROLS
Defliese, et al (1975:85) says administrative control is not
Limited to the plan of the organization and the procedures and
records that are concerned with the decision processes leading
to
management
authorization
of
transactions.
As
a
management function, authorization is directly associated
with the responsibility for achieving the objectives of the
organization and is the starting point for establishing account
control of transactions.
The importance of administrative control is reflected in
the fact that the prime responsibility of management is to
operate the organization within the available resources, it
must be able to operate at acceptable cost, and use its limited
resources in an efficient manner.
To accomplish the above, management must develop the
requisite policies needed to promote efficiency in every area of
activity. These policies must be implemented through proper
personnel selection, training and management.
33
2.4.2
ACCOUNTING CONTROLS
These comprises the plan of organization and the
procedures, measures and records that are concerned with the
safeguarding of assets and the reliability of financial records
and
consequently
are
designed
to
provide
reasonable
assurance that transactions are executed in accordance with
management general or specific authorization.
The above definitions indicate that accounting control is
designed to bring about accurate and suitable recording and
summarization of only authorized financial transactions.
Failure by Power Holding Company of Nigeria Management to
install and effectively maintain such a control means that the
objectives implicitly in the above definition would not be
achieved. A direct consequence of this is the high incidence of
loss or error.
2.5 COMPONENTS OF INTERNAL CONTROL SYSTEM
Internal
characteristics
Control
that
Systems
give
the
generally
have
organization
certain
reasonable
assurance that administrative and accounting controls are
functioning properly.
34
According to Bodnar et al (1998:169-184) and county of
orange internal audit department (2003: 780) an organizations
internal control system consist of five interrelated components
as follows: control environment, Risk assessment, control
activities, information and communication and monitoring. All
the five internal control components must be present to
conclude that internal control is effective.
2.5.1
CONTROL ENVIRONMENT
An organizations control environment is the foundation
of all other components of the internal control system, its
sometimes referred to as the tone at the top of the
organization. The control environment is the collective effect
of various factors on establishing, enhancing or mitigating the
effectiveness of specific polices and procedures.
In otherwords, the control environment sets the overall
tone
of
the
organization
and
influences
the
control
consciousness of the employees. Factors that characterize the
control environment are as follows:
35
2.5.1.1
ORGANIZATIONAL STRUCTURE
This is defined by the patterns of authority and
responsibility that exists within the organization. The formal
organization structure is often denoted by an organizational
chart, which indicates the formal communication patterns
within an organization.
An informed organization structure
exist where regular communication pattern do not follow the
lines indicated by the formed organization structure.
2.5.1.2
COMMITMENT TO COMPETENCE
There should be procedures to ensure that personnel
have the capabilities commensurate with their responsibilities.
Inevitably, the proper functioning of any system depends on
the competence of those operating it.
The qualifications,
selection and training as well as the innate personal
characteristics of the
personnel involved
are
important
features to be considered in setting up any control system.
2.5.1.3
A
INTEGRITY AND ETHNICAL VALUES
control
environment
should
be
fostered
that
encourages the highest levels of integrity, personal and
professional standards.
Many organizations have adopted
36
ethnics,
codes
of
conduct
that
specify
guidelines
for
conducting business in an ethnical manner.
The code of conduct is often written in legal style
language that focuses on land that might be broken potential
ethnical violations present a significant loss exposure for the
organizations. Such exposures include the possibility of large
fines or criminal prosecution against both the company and its
executives.
2.5.1.4
MANAGEMENT PHILOSOPHY AND OPERATING
STYLE
Effective control in an organization begins with and
ultimately rests with management philosophy. If management
believes that controls are important, then it will see to it that
effective control policies and procedures are implemented.
This control conscious attitude will be communicated to
subordinates through the management operating style.
Management enhances the control environment when
they behave in an ethnical manner creating a positive “tone at
the top” and when they require that same standard of conduct
from everyone in the organization.
When the Management
37
pays only lip service to the need for control, then control
objectives will not be achieved.
2.5.1.5
ATTENTION AND DIRECTION PROVIDED BY THE
BOARD OF DIRECTORS AND ITS COMMITTEES.
An organizations board of directors is the interface
between the stockholders who own the organization and the
organizations operating management.
Stockholders exercise
control over management through the functions of the board
of directors and its committee.
Typically, the board of directors’ delegate’s specific
functions to various operating committees such as the audit
committees, which should be independent of an organization
management. It is composed primarily of outside members of
the board of directors.
The audit committee is usually
changed with overall responsibility for the organizations
financial reports, including compliance with existing laws and
regulations. The audit committee nominates public accounts
discusses the scope and nature of audits with public
accountants review and evaluates reports prepared by the
organizations public accountants.
38
2.5.1.6
MANNER
OF
ASSIGNING
AUTHORITY
AND
RESPONSIBILITY
i.
A formal organization chart, a written document is often
used to indicate the overall assignment of authority and
responsibility in an organization.
often
accompanied
by
a
The organization chart is
formal
statements of work assignment.
job
descriptions
and
Written memoranda policy
manuals and procedure manuals are other common means
used to formally assign authority and responsibility within an
organization.
ii.
Budgeting: This in a management activity set for the
entire organization a swell as for each subunit.
Detailed
operating budgets are prepared for subunits to evidence
management’s plan concerning operating of each subunits and
to serve as the device by which managements plans are
commence to subunits.
Budgeting data are used to plan and control the activities
within a firm. A budget is a control that sets forth a financial
plan and /or an authorized amount of resources that may be
utilized be a sub unit in performing its functions.
39
2.5.1.7
HUMAN
RESOURCE
POLICIES
AND
PROCEDURES
Personnel are the key components in any control system
personnel should be competent with capabilities and training
commensurate with their duties.
i.
Segregation of Duties:
Responsibility for specific tasks
in an organization should be clearly designated by manuals,
jobs description or other documentation. Effective segregation
of duties depends to a considerable extent on the precise ad
detailed planning of all procedures and the careful assignment
of functions to various people in the organization. The details
of the procedures should be set forth in a memoranda that
also shows explicit assignment of duties to individuals
department and employees.
Written procedures, instructions and assignments of
duties will prevent duplication of work, overlapping of
functions,
omission
of
important
functions,
misunderstandings and other situations that might weaken
the internal accounting controls.
Such notes typically form
the basin of a formal manner or procedures and policy.
40
ii.
Supervision: This is the direct monitoring of personnel
performance by an employee who is so charged.
Proper
supervision is necessary to ensure that duties are being
carried out as assigned.
iii.
Job Rotation and Forced Vacations: This allows
employees to check or verify the operations of other employees
by performing their duties for a period of time irregularities
that may have been committed by an employee may be
disclosed while the employee is on vacation with his or her
duties assumed by another employee.
Job rotation allows more then one employee to become
familiar with certain duties and procedures so that the
replacement of employees in cases of emergency is less
difficult.
It serves as a general check on the efficiency on
vacation or who has been rotated to another job.
2.5.2
RISK ASSESSMENT
This is the second of the five components of internal
control system concerned with identifying, analyzing and
managing risks that affects the company’s objective.
41
2.5.2.1
DETERMINE GOALS AND OBJECTIVE
The central theme of internal Control is (1) to identify
risks to the achievement of an organizations objective and (2)
to do what is necessary to management those risks.
Thus,
setting goals and objectives is a precondition to internal
controls. If an organization does not have goals and objective,
there is no need for internal control.
At the organization level, goals and objectives are
presented in strategic plan that includes a mission statements
and broadly defined strategic initiatives.
At the department
level, goals and objectives must support the organizations
strategic plan.
Goals and objectives are clarifies in the
following categories.
a.
Operations:
The risks and related objectives pertain to
the achievement of the basic mission(s) of a department and
the effectiveness and efficiency of its operations, including
performance standards and safeguarding resource against
loss.
b.
Financial Reporting:
These
risks
and
related
objectives pertain to the preparation of reliable financial
42
reports including the prevention of fraudulent public financial
reporting.
c.
Compliance:
These risks and related objectives pertain
to adherence to applicable laws and regulations.
The following table illustrates these concepts.
Fig. 2.1
Classification of a department’s goal and objective
OBJECTIVES
i.
CLASSIFICATIONS
Payroll: provide service and support to the
organization
ii.
Processing:
Compensation/withholding; Operations (O)
Compensation
deductions
rates
should
and
be
payroll
accurately
and
properly entered into the payroll system
Iii Each accounting period prepare journal Financial (F)
entries for payroll deductions and related
adjustments.
Iv
Processing:
Authorization;
management
accurately
should
maintain
personnel Compliance (C)
properly
all
and
compensation
43
documentation
v.
An employee master file that is accurate O, F, C,
and complete should be maintained
Source:
Understanding internal controls, country of
Orange internal audit department, California, March, 2003;
p.11.
From the above it is obvious that a clear set of goals and
objectives is fundamental to the success of a department.
Specifically, a department of work unit should have;
(1)
A mission statement
(2)
Written goals and objectives for the department as a
whole and
(3)
Written goals and objectives for each significant activity
in the department (see diagram below).
44
(4)
Department
Mission
Department
Goals and
objectives
Activities to
Achieve goals
And
objectives
Activity level
Goals and
Objectives
Furthermore, goals and objectives should be expressed in
terms that allow meaningful performance measurements.
There are certain activities, which are significant to all
departments such as budgeting, purchasing goods and
services, hiring employees, payroll, evaluating employees and
safeguarding property and equipment.
Thus all departments are expected to have appropriate
goals and objectives, policies and procedures and internal
controls for these activities.
2.5.2.2
IDENTIFY RISK AFTER DEFINING GOALS
Risks assessment is the identification and analysis of
risks associated with the achievement of operations financial
reporting and compliance goals and objectives. Thus in turn,
forms a basis for determining how those risks should be
managed.
45
To properly manage their operation, managers need to
determine the level of operations, financial and compliance
risk are writing to assume.
Risk assessment is more of
management’s responsibilities and enables management to act
proactively in reducing unwanted surprises.
Failure to
consciously manage those risks can result in reduced
assurance that goals and objectives will be achieved.
a.
Risk identification:
A risk is anything that could
jeopardize the achievement of an objective.
For each of the
departments objectives risk should be identified. Asking the
following question helps to identify risks.

What could go wrong?

How could we fail?

What must go right for us to success?

Where are we vulnerable?

What arrest do we need to protect?

How could someone steal from the department?

How could someone disrupt out operations?

How do we know if our objectives are being achieved?
46

On what information do we most rely?

On what do we spend the most money?

How do we bill and collect revenue?

What is our legal greatest exposure?
It is important that risk identification be comprehensive at
he department level and at the activity or process level for
operations financial reporting and compliance objectives
considering both external and internal risks factors.
Usually several risks can be identified for each objectives.
Using
the
previous
example,
the
following
table
illustrates the concepts discussed so far. The identified risks
relates to the goals and objectives previously determined.
Fig 2.2 Classification of department objectives and
related risks;
GOALS
AND BUSINESS
OBJECTIVES
RISKS
OBJECTIVE
CLASSIFICATION
i.
Payroll. Provide services
Transactions may not be
and
processed or processed
support
to
the
47
ii.
organization
incorrectly.
Processing: Compensation/ Operations (0)
Statement
withholding: compensation
misstated due to entry
rates
omission,
and
deductions
payroll
should
may
be
incorrect
be
coding, duplicate journal
accurately and promptly
entries or improper cut-
entered into the payroll
offs.
system
ii.
iv.
Each
accounting
period Financial (F)
Employment laws and
prepare journal entries for
regulations
payroll, payroll deductions
violated resulting in five
and related adjustments
penalties and litigation
Processing: Authorizations Compliance (C)
Incorrect data in the
Personnel
master file could result
should
accurately
Management
properly
maintain
and
in
all
may
incorrect
be
wage
payment
compensation
documentation
v.
An employee master file
O, F, C
Payroll
withholdings
48
that
is
accurate
and
complete
should
be
maintained
may be incorrect award
incentives
recognition
etc may not be reflected
on the master file.
Sources: Understanding internal control, county of orange
Internal Audit Department, California. March, 2003; P.14
b.
Quantitative and Qualitative cost:
When
evaluating the potential impact of risk, both quantitative and
qualitative cost needs to be addressed.
Quantitative costs
include the cost of property equipment, or inventory, cash
naria loss, damage and repair cost, cost of defending a lawsuit
etc.
Qualitative costs can have wide ranging implications to
the organizations.
These costs may include loss of public
trust loss of future grants, gifts and donations, injury to the
organizations reputation, violation of laws public health and
safety and also default on a project.
c.
Risk Analysis: After risk have been identified a risk
analysis should be performed to priorities those risks:
49

Estimate the potential impact if the risk were to occur
consider both qualitative and quantitative cost.

Assess the probability of risk occurring.

Determine how the risk should be managed decide
what actions are necessary.
Prioritizing helps department focus their attention on
managing significant risks lie risks with reasonable likelihoods
of occurrence and large potential impacts).
d.
Factors to guide a Department through its Risk
assessment:

Make sure the department has a mission statement
with written goals and objectives.

Assess risks at the department level and activity at
process levels.

Complete a business control worksheet for each
significant activity or process in the department
prioritize these activities or process which are most
critical to the success of the department and those
activities which could be improved the most.
50

Make sure that all risks identified at the department
level are addressed in he business controls work sheet.
2.5.3
CONTROL ACTIVITIES
Control activities are actions supported by policies and
procedures that help assure management directives to address
risks are carried out properly and closely. In the same way
that managers are primarily responsible for identifying the
financial and compliance risks for their operations, they also
have live responsibility for designing, implementing and
monitoring their internal control system.
There is the need to distinguish between preventive and
detective controls for better understanding of control activities.
The indent of these controls is different. Preventive controls
attempt to deter or prevent undesirable events from occurring.
They are proactive controls that help to prevent a loss.
Examples of preventive controls are separation of duties
proper authorization, adequate documentation, and physical
control over assets.
Detective controls, on the other hand, attempt to detect
undesirable acts.
They provide evidence that a loss has
51
occurred but do not prevent a loss from occurring. Examples
of detective control are reviews, analysis, reconciliation,
physical inventories and audits.
Both types of controls are essential to an effective
internal control system.
From a quality stand point,
preventive control are essential because they are proactive and
emphasis quality.
However detective control plays a critical role providing
evidence that the preventive controls are functioning and
preventing losses.
Control
activities
include;
Approvals,
authorities,
verifications, reconciliation’s, review of performance security of
assets, segregation of duties and control over information
systems and are further explained as follows:
2.5.3.1
APPROVALS/AUTHORIZATION (PREVENTIVE)
An important control activity is authorization approval.
Management
authorizes
employees
to
perform
certain
activities and to execute certain transactions within limited
parameters.
In
addition,
management
specifies
those
52
activities or transactions that need supervisory approval before
they are performed or executed by employees.
Authorization is the delegation of authority it may be
general or specific. Giving a department permission to expand
funds from an approved budget is an example of general
authorization.
Specific authorization relates to individual
transactions, it requires the signature or electric approval of a
transaction by a person with approval authority.
Approval of a transaction means that the approver has
received the supporting documentation and is satisfied that
the transaction by a person with approval authority is
appropriate, accurate and complies with applicable laws
regulations, policies and procedures. Approvers should review
supporting documentation, question unusual items and make
sure that necessary information is present to justify the
transactions before they sign it. Signing blank forms should
not be done.
Approval authority may be linked to specific naira levels.
Transactions that exceed the specified naira levels would
require approval at a higher level.
Under no circumstance
53
should an approver tell some one to sign on behalf of the
approver or share this password with another person.
To
ensure proper segregation of duties the person initiating a
transaction should not be the person who approves the
transaction.
A departments approval levels should be
specified in a department policies and procedures usual.
2.5.3.2
RECONCILIATIONS (DEFECTIVE)
Broadly defined, reconciliation is
a
comparison
of
different sets of data to one another, identifying and
investigating differences and taking corrective actions when
necessary to resolve differences. Reconciling monthly financial
reports of files copies of supporting documentation or
departmental accounting records is an example of reconciling
one set of data to another. This control helps to ensure the
accuracy and completeness of transactions that have been
charged to a departments account.
To ensure proper segregation of duties, the person who
approves transactions or handles cash receipts should not be
the person who performs the reconciliation. A critical element
of the reconciliation process is resolved differences.
It does
54
not do any good to note differences and do nothing about it.
Difference should be identified, investigated and explained.
Corrective
actions
must
be
taken
when
necessary
if
expenditure is incorrectly charged to a departments account,
then the approver and reconciler should ascertain that the
correcting journal voucher was posted. Reconciliation should
be documented and approved by management.
2.5.3.3
REVIEW OF PERFORMANCE (DETECTIVE)
Management review of reports, statements, reconciliations and
other information is an important activity.
Management
should review such information for propriety, consistency and
reasonableness.
Reviews of performance provide a basis for detecting
problems.
Management should compare information about
current performance of budgets forecasts, prior periods, or
other benchmarks to measure the extent to which goals and
objectives are being achieved and to identify unexpected
results or unusual conditions, which require follow-up.
55
Managements review of reports, statements, recon and
other informations should be documented as well as the
resolution of items noted for follow-up.
2.5.3.4
ASSET
SECURITY
(PREVENTIVE
AND
DETECTIVE)
Liquid assets, assets with alternative uses, dangerous
assets vital documents, critical system and confidential
information
must
be
safeguarded
against
authorized
acquisition, use or disposition. Typically, access controls are
the best way to safeguard these assets. Examples of access
controls are as follows; locked door, keypad system, and key
system, badge system locked filing cabinet, guard, computer
password, menu protection and data encryption.
Departments that have capital assets or significant
inventions should establish perpetual inventory control over
these
items
by
recording
purchase
and
issuances.
Periodically, a person who is independent of the purchase
authorization and asset custody functions should physically
count the items. The counts should be compared to balances
per the perpetual records.
56
Missing items should be investigated, resolved timely and
analysed for possible control deficiencies, perpetual records
should be adjusted to physical counts if missing items are not
located.
2.5.3.5
SEGREGATION OF DUTIES (PREVENTIVE AND
DETECTIVE)
Segregation of duties is critical to effective internal
control.
It
reduces
inappropriate actions.
initiate
transaction,
the
risk
of
both
erroneous
and
In general no one person should
approve
the
transaction,
record
it,
reconcile balances, custody or handle assets and review
reports.
All
the
functions should
be
separated
among
employees. When these functions cannot be seperated,
detailed supervisory review of related activities is required as a
compensating control activity.
Segregation of duties is a deterrent to fraud because it
requires collusion with another person to perpetrate a
fraudulent act. Specific examples of segregation of duties are
follows:
57

The person who requisitions the purchase of goods or
services should not be the person who approves the purchase.

The person who approves the purchase of goods or
service not be the person who reconciles the monthly financial
reports.

The person who approves the purchase of goods or
services should not have custody of checks.

The person who opens the mains and prepares a listing
of checks received should not be the person who makes the
deposit.

The person who opens the mail and prepares a listing of
checks received should not be the person who maintains the
accounts receivable records.
2.5.3.6
INFORMATION SYSTEMS
Organization employees use a variety of information
system mainframe computers, local areas and wide areas
networks of mini computers and personal computer single
user workstations and personal computers, telephone systems
etc.
58
The need for internal control over these systems depends
on the importance and confidentiality of the information and
the complexity of the application that reside on the systems.
There are basically two categories of control over information
systems.
General Control and application controls
a.
General Control:
(Preventive and Detective): General
controls apply to entire information systems and to all the
applications that reside on the systems.
General control
consists of practices deigned to maintain the integrity and
availability of information processing functions, networks and
association application systems.
These controls apply to
business application processing in computer centers by
ensuring complete and accurate processing.
These control
ensure that correct data files are processed processing
diagnostics and errors are noted and resolved, application and
functions are processed according to established schedules,
file backups are taken at appropriates intervals recovery
procedures for processing features are consistently applied
59
and actions of computer operators and system administration
are system administrators are reviewed.
Additionally, these controls ensure that physical security
and environmental measures are taken to reduce the risk of
sabotage
vandalism
and
destruction
of
networks
and
computer processing centers.
Finally, these controls ensure the adoption of disaster
planning to guide the successful recovery and continuity of
networks and computer processing in the event of a disaster.
b.
Applications Control:
(Preventive and Detective):
Applications are the computer programs and processes
that enables us to conduct essential activities, buying
products,
paying
people,
accounting
for
revenues
and
expenditures and forecasting and monitoring budgets.
Application
systems
and
controls
include
apply
input
to
computer
controls
(e.g
application
edit
checks)
processing controls (e.g record counts) and output controls
(e.g error listing), which are specific to individual applications.
Application controls consist of the mechanisms in place over
each seperate computer system, which ensure that authorized
60
data is completely and accurately processed.
designed
to
prevent,
detect
and
correct
They are
errors
and
irregularities as transactions flow through the business
system. They ensure that the transactions and programs are
secured, the systems can resume processing after some
business interruption, all transactions are corrected and
accounted for when errors occur and the system process data
in an efficient manner.
When a department decides to purchase or to develop an
application,
department
personnel
must
ensure
the
application include adequate controls:
1.
(1)
Input Control
(2)
Processing controls and
(3)
Output controls
Input control: Ensure
the
complete
an
accurate
recording of authorized transactions by only authorized users,
identify, rejected, suspended and duplicate items and ensure
resubmission of rejected and suspended items. Examples of
input control are error listings, field checks, limit checks, self-
61
checking
digits,
sequence
checks,
validity
checks,
key
verification, matching and completeness checks.
2.
Processing Control:
Ensure
the
complete
and
accurate processing of authorized transactions. Examples of
processing controls are run to run control totals, posting
checks, end of file procedures, concurrency control, controls
files and audit trails.
3.
Output Control:
Ensure
that
a
complete
and
accurate audit trail of the results of processing is reported to
appropriate individuals for review. Examples of output control
are listing of master files changes, error listings, distribution
registers and review of output.
2.5.3.7
BALANCING RISKS AND CONTROLS
To achieve goals, management needs to effectively
balance risks and control. By performing this balancing act
“reasonable assurance can be attained.
At it relates to
financial and compliance goals being out of balance causes the
following problems:
62
EXCESSIVE RISKS
EXCESSIVE CONTROL
Loss of assets
Increased bureaucracy
Poor business decisions
Reduced productivity
Non compliance
Increased Complexity
Increased regulations
Increased cycle time
Public scandals
Increase of non-value activities
In order to achieve a balance between risks and controls,
internal controls should be proactive value added and cost
effective.
2.5.4
INFORMATION AND COMMUNICATION
Information and communication are essential to effecting
control, information about an organization’s plans, control
environment, risk, control activities and performance must be
communicated up, down and across an organization.
Reliable and relevant information from both internal and
external sources must be identified captured, processed and
communicated to the people who need it in a form and time
frame that is useful. Informations system procedure reports
containing operational, financial and compliance related
63
information that makes it possible to run and control an
organization.
Information and communication systems can be formal
or informal.
Formal information and communication systems which
range from sophisticated computer technology to simple staff
meetings should provide input and feed back data relative to
operations, financial reporting and compliance objectives such
systems are vital to an organization success. Just the same
informal conversations with customers supplies, regulation
and employees often provide some of the most critical
information needed to identify risks and opportunities.
When assessing internal control over a significant activity
(or process) the key questions to ask about information and
communication are as follows:

Does our department get the information it needs from
internal and external sources in a form and time frame that is
useful?
64

Does our department get information that alerts it to
internal or external risks (e.g legislative, regulatory and
developments)?

Does our departments get information that measures its
performance information that tells the department whether it
is achieving its operations, financial report and compliance
objectives?

Does our department identify, capture and process and
communicate
the
information
that
others
need
(e.g
information used by our customers or other department) in a
form and time frame that is useful?

Does our department provide information to others that
alerts them to internal or external risks?

Does our department communicate effectively internally
and externally?
Nevertheless, communicating with people and gathering
information to people in a form and time frame that in useful
to them is a constant challenge. When completing a business
controls work sheet for a significant activity or process in a
65
department evaluate the quality of related information and
communication systems.
2.5.5
MONITORING
Monitoring
is
the
performance over time
assessment
of
internal
it is accomplished
control
by on-going
monitoring activities and by separate evaluations of internal
control such as self-assessments peer reviews and internal
audits.
The purpose of monitoring is to determine whether
internal control is adequately designed, properly executed and
effective.
Internal control is adequately designed and properly
executed if all five internal control components are present
and functioning as designed. Internal control is effective if the
board
of
directors,
the
management
and
departmental
management have reasonable assurance that;

They understand the extent to which operations
objectives are being achieved.

Published financial statements are prepared reliably.

Applicable laws and regulations are being complied.
66
While internal control is a process, its effectiveness is an
assessment of the condition of the process at one or more
points in time. Just as control activities helps to ensure that
actions to manage risks are carried out, monitoring helps to
ensure that control activities and other planned actions to
effect internal control are carried out properly and timely and
that the end result is effective internal control.
On going monitoring activities include various management
and supervisory activities that evaluate and improve the
design, execution, and effectiveness of internal control.
Separate evaluations on the other hand such as selfassessments and internal audits are periodic evaluations of
internal control components resulting in a formal report on
internal
control.
Self-assessments
are
performed
by
department employees internal audits are performed by
internal auditors who provide an independent appraisal of
internal control.
2.6 FUNCTIONS OF INTERNAL CONTROL SYSTEM
a.
To provide reliable data management must be provided
with accurate, timely as well as dependable information that
67
will aid them in an informed decision-making concerning the
operations of the business. It keeps management informed as
to whether the financial position is sound operation profitable
and interdepartmental relations harmonies.
b.
To encourage adherence to prescribed policies. Decision
made by management becomes company policies.
To be
effective, this policy must be communicated throughout the
company and consistently followed.
Internal control aids in
securing compliance with company policy.
Management
equality has a direct responsibility of maintaining accounting
records and producing financial statements that are adequate
and reliable.
Internal Control provides assurance that this
responsibility is being met.
c.
To promote operational efficiency. The controls within an
organization are meant to prevent unnecessary duplication of
efforts, protect against wastes in all aspects of the business
and discourage other types of inefficient use of resources.
This will enhance the use of minimal or limited resources of
the organization to achieve maximum productivity regarding
68
profits realization and other co-operate objectives of the
organization.
d.
To the independent public accountant, the quality of
internal controls in force determines the pattern of their
examination; of course they study and evaluate the system of
internal control from time to time.
e.
Internal accounting control system ensures that the
values of assets remain at their true and fair values.
f.
It ensures the existence of division of labour, providing
that one person does not do the handing of a transaction or
economic activity from the beginning to the end.
2.7 ROLES AND RESPONSIBILITIES
According to the committee of sponsoring organizations
(COSO)
framework,
everyone
in
an
organization
has
responsibility for internal control to some extent. Virtually all
employees produce information used in the internal control
system or take other actions needed to effect control. Also, all
personnel should be responsible for communicating upward
problems in operations, non-compliance with the code of
69
conduct or other policy violation or illegal actions. Each major
entity in corporate governance has a particular role to play;
a.
Chief Executive Officer (C.E.O):
The
CEO
has
Ultimate responsibility and ownership of the internal control.
The individual in this role sets the tone at the top that affects
the integrity and ethnics and other factors that create the
positive control environment needed for the internal control
system to thrive. Aside from setting the tone at the top, much
of the day-to-day operation of the control system in delegated
to other senior managers in the company, under the
leadership of the CEO.
b.
Chief Financial Officer (CFO):
Much of the internal
control structure flows through the organizations under the
leadership of the CFO.
In particular controls over financial
reporting fall within the domain of the chief financial officer.
The audit committee should use interactions with the CFO
and others as a basin for their comfort level on the internal
control over financial reporting.
This is not intended to
suggest that the CFO must provide the audit committee with a
level of assurance regarding the system of internal control over
70
financial reporting rather through interactions with the CFO
and others, the audit committee should get a gut feeling about
the completeness, accuracy, validity and maintenance of the
system of internal control over financial reporting.
c.
Controller/Director
of
Accounting
or
Finance:
Much of the basis of the control system comes under the
domain of this position.
It is key that the controllers
understand the need for the internal control system is
committed to the system and communicates the importance of
the system to all people in the accounting organization.
Further, the controller must demonstrate respect for the
system though his or her actions.
d.
Internal Audit:
A main role for the internal audit
team is to evaluate the effectiveness of the internal control
system and contribute to its ongoing effectiveness with the
internal audit team reporting directly to the audit committee of
he board of directors and/or the most senior levels of
management, it is often this functions that plays a significant
role in monitoring the internal control system. It is important
to not that many non-profit making organizations are not large
71
enough to employ an internal audit team. Each organization
should assess the need for this team and employ one as
necessary.
e.
Board of Director/Audit Committee:
board in necessary.
A strong, active
This is particularly important when an
executive or management team controls with tight reins over
the organization and the people within the organization.
The
board should recognize that its scope of over sight of the
internal control system applies to all the three majors areas of
control: over operations, over compliance with laws and
regulations, and over financial reporting. The audit committee
is the boards first line of defense with respect to the system of
internal control over financial reporting.
f.
All Other Personnel:
The Internal control system is
only as effective as the employees throughout the organization
that must comply with it.
Employees
throughout
the
organization
should
understand their role in internal control and the importance of
supporting the system through their own actions and
72
encouraging respect for the system by their colleagues through
the organization.
2.8 INTERNAL CONTROL SYSTEMS AND THE AUDITOR
The introduction of a well-developed system of internal
control is the responsibility of the management. But it is a
matter of concern for the auditor though he has no authority
to recommend and prescribe that certain rules and procedures
should be adopted by the business. He can simply guide and
help if required to do so.
What is expected from him is he
must possess an expert’s knowledge of such procedures. In
the second standard of filed work set out by the AICPA, it is
made clear that “ there is to be proper study and evaluation of
the existing internal control as a basis for reliance thereon and
for the determination of the resultant extent of the rests to
which auditing procedures are to be restructed”.
Thus, the aim behind the study of internal control by an
auditor is to establish a basis for reliance on the system of this
control so as to enable him to assess the extent to which he
should apply tests during the course of audit.
73
This much is certain that if there is a good system of
internal control, the work of an auditor becomes quite easy.
He can very conveniently rely on test checking.
However, it depends upon special circumstance of a
particular case as to how far internal control would be helpful
in the audit work. The following points would be helpful in
screening the internal control system:
1.
Study of accounting routine, its weaknesses and sources
from which they would arise.
2.
Financial powers vested in the various officials and the
circumstances in which they are to be used.
3.
Study of limits of inspection over financial and other
accounting duties.
4.
Whether some mechanical appliances are used to prevent
any defalcation of cash etc and
5.
Whether any device of checks and balances is used to
measure the success of accounting methods of techniques.
The auditor should also have in mind:
74
a.
The likelihood of collusion as well as combination of
duties,
which
would
enable
someone
conceal
irregularities.
b.
The likelihood of collusion between close relatives each
working in the same department or organization.
c.
The extent to which employees in position of trust,
especially those handling cash failing to take regular
annual leave or vacations.
The auditor can be in a position to perform audit efficiently
provided there is a good and effective internal control system
in use.
under
However, it does not mean that he can take shelter
the
system
and
shirk
his
duties.
The
entire
responsibility is his and there is nothing to protect him if he
does his work carelessly and with negligence.
2.9 OPERATION OF INTERNAL CONTROL SYSTEM AT
POWER HOLDING COMPANY OF NIGERIA
In designing a system of internal control, the personnel
should be segregated by functions into those who initiates or
authorize transactions and those who execute transactions.
75
From
the
standpoint
of
internal
control,
the
establishment’s transactions cycle may be divided into:
a.
Revenue Cycle:
Events related to the distribution of
goods and services to the customers, other entities and the
collection of related payments.
b.
Expenditure cycle: Events related to the acquisition of
goods and services from other entities and the settlement of
related obligations.
c.
Production Cycle:
Events related to the transaction of
researches into goods and services.
d.
Finance Cycle:
Events related to the acquisition
and management of capital funds including cash.
Each of the transaction cycle will have exposure (risk i.e
sometimes financial consequences).
Management should
develop detailed control objective for each transactions cycle
objectives provide a basis for analysis.
objectives
have
been
slated,
Once the control
management
may
collect
information to determine the extent to which control objectives
are being achieved in each of the organizations transaction
cycles.
76
The specific control objectives for each transaction cycles
drawn from the concept of an internal control structure are as
follows:
a.
Revenue cycle:
i.
The customers should be authorized in accordance with
management’s criteria.
ii.
The prices and terms of good and services provided
should be authorized in accordance with management’s
criteria.
iii.
All shipments or movements of goods and services
provided should result in billing to the customers.
iv.
Billings to customers should be accurately and promptly
classified. Summarized and reported.
b.
Expenditure cycle:
i.
Vendor
should
be
authorized
in
accordance
with
accordance
with
management’s criteria.
ii.
Employees
should
management’s criteria.
be
hired
in
77
iii.
Access to personnel payroll and disbursement record
should be permitted only in accordance with management
criteria.
iv.
Compensation rates and payroll deductions should be
authorized in accordance with management’s criteria.
v.
Amounts due to vendors should be accurately and
promptly classified, summarized and reported.
c.
Production cycle:
i.
The production plan should be authorized in accordance
with management’s criteria
ii.
Costs of goods and service manufactured or produced
should be accurately and promptly classified summarized and
reported.
d.
Finance Cycle:
i.
The amounts and timing of debts transactions should be
authorized in accordance with management’s criteria.
ii.
Access to cash and securities should be permitted only in
accordance with management’s criteria.
78
2.9.1
BASIC CONTROLS
Basic controls are those controls necessary for the
completeness and accuracy of accounting records.
These
include such techniques as: i.
Pre-numbering original documents.
For examples
vouchers and purchase invoices.
ii.
Maintaining total accounts to provide an independent
overall control over the ledger to which they related.
iii.
Detail checking of document or according record against
another.
Examples, the comparison of cheque invoice and
goods received notes.
iv.
Authorization
of
documents
after
examination
and
checking by the head of other charges sections and head of
payroll (Salaries) section before any processing monthly
reconciliation of cash book with bank statements.
vi.
All service centers and customer care centers of the
establishment
receipt book.
render
monthly
returns
and
use/unused
79
vii.
Taking
out
periodic
trial
balances
to
check
the
arithmetical accuracy of the book –keeping for the final
account.
2.9.2
OPERATIONAL CONTROLS
These are designed to ensure the continued and proper
operation of safeguarding assets. At power Holding company
of Nigeria, operational control entails the following:
i.
It measures and corrects performance.
O’ Daniel
(1996:32) maintains that “control is essentially a management
function that deals with the measurement and correction of
the performance of subordinates with a view to achieving
organizations objectives with maximum efficiency and at
minimum cost”.
ii.
It brings about efficiency. Internal Control consists of the
measures designs to promote operational efficiency and to
encourage adherence to managements policies.
iii.
It provides control of activities. According to Louis
(1989:95) if management is to direct the activities of a
business according to plan every transaction should go
80
through four steps.
It should be authorized, approve,
executed and recorded,”
2.9.3
INTERNAL AUDITING
This is an important element of internal control internal
auditors are professional employees with the responsibility of
investigating throughout the establishment, the efficiency of
operations in every departments or unit. They study and list
the system of internal control and report to the district
Business Manager on their findings or problems, which
require strengthening of internal controls.
2.9.4
ELECTRONIC
DATA
PROCESSING
MACHINES/COMPUTER SYSTEM
The audit procedures adopted in the audit of electronic
data processing are not basically different from that of
manual. An electronic data processing system and machines
are of great importance in the functioning of internal control.
Because of the possession of great data processing speed,
daily processes involving cash receipts, cheques can provide
management with a continually up to data cash receipt
81
journal, cheque register, customer accounts ledger and cash
balance.
Computers are outstanding and can prepare reliable
bank
reconciliation
outstanding.
even
when
cheques
and
cash
are
It can provide current information for cash
planning and for cashing.
2.10 LIMITATIONS OF INTERNAL CONTROL SYSTEM
Although internal control system is highly effective in
increasing the reliability of accounting data and in protecting
against frauds, no system of internal control is error free.
However, for a coin there must be two sides.
Two or more
dishonest employees working in collusion can detect the
system
temporarily.
Carelessness
by
employees
and
misunderstanding of instructions/procedures can cause a
breakdown in controls. The inherent limitations includes the
following:
i.
A good system of internal control can become ineffective
as a result of employees fatigue and indifference.
82
Ii
In the performance of the procedures of internal control
errors
occur
due
to
carelessness,
misunderstanding
of
procedures and other inherent mistakes.
iii.
Personal
and
professional
associations
within
the
management structure makes it difficult to detect fraud.
iv.
A well-formulated system of internal control can be
destroyed by employees’ lack of confidence and co-operation.
v.
Management is frequently in the position to override
control which it has itself set-up. Control can be abused by
the person on whom the authority is vested upon for his
personal gain.
vi.
Overly rigid control hamper the actions and decisions of
individuals, artificial limiting an employees response to the
variety of his or her tasks. Accountability and pressures for
performance may boomerang. Rigid control system may create
the types of actions that the control were designed to prevent.
vii.
Adequate accounting and management staff may be
lacking and thus making a way for inadequate managerial
supervision, ineffectiveness and a breakdown of the control
system.
viii. Cost will prevent management from ever installing an
ideal system.
83
CHAPTER THREE
RESEARCH METHODOLOGY
The aim of this chapter in to present in detail the
methods used in this research. This focuses on the various
method used by the researcher to obtain data.
Research methodology involves and orderly manner
employed in collection, interpreting and analyzing of data used
in this study, which involves selection of sample, population,
and research data as well as the statistic tool of analysis.
3.1 RESEARCH DESIGN
A research design can be described as an outline or plan
from which an activity can be carried out (Nworgi, 1999:23). It
provides the procedural outline for the conduct of any given
investigation.
This research work is designed to study how internal
control system affects revenue generation in power Holding
Company of Nigeria. This covers all the P. H. C. N., which is
represented with the branch at Okpara Avenue. However the
findings will be generalized to all.
84
3.2 SOURCES OF DATA
In order to collect as much relevant material on this
study as possible, a number of methods of data collection were
used.
However
for
good
understanding
of
the
revenue
generation both primary and secondary sources of data used.
As a matter of facts filed research work in form of personal
interview, questionnaires were administered together for the
purpose of this work.
3.2.1
PRIMARY DATA
Primacy sources of data were used on this study mainly
as they provide basic reliable and concrete information from
the respondents. The questionnaire was the major source of
my data collection. The information got were analyzed and
findings drawn. Personal interviews were conducted in scenes
where adequate and accurate information was not obtained
through the use of questionnaires.
85
3.2.2
SECONDARY DATA
There are information’s already in existence before the
conduction of this research works. It constitutes a stepping
stone in most research works, assignments, Internet searches
etc just in this case. This is because the knowledge acquired
from reading and collecting materials done by others will help
me generate primary data. Library research was also done, the
in of text books journals and other published materials.
3.3 POPULATION OF THE STUDY
This study “the impact of internal control system on
revenue generation in power Holding company of Nigeria
considers time and resource available. The research was only
limited to the staff of the power holding company Okpara
Avenue of various departments. The population of the staff of
company is 40.
3.4 SAMPLE SIZE
This is the number of respondents the questionnaire was
administered to the entire population being 40 respondents
were given questionnaire and all was returned correctly filled.
86
Therefore this number makes up the sample size for this
research.
3.5 DESCRIPTION OF QUESTIONNAIRE
This questionnaire involved for the research work was
typed questions personally issued to the respondents so as to
enable them fill in their options to the questions asked. The
questions were in form of Yes or No structures to enable the
respondent with limited knowledge of the study areas to
answer them with minimum accuracy.
3.6 METHOD OF DATA ANALYSIS
This involves the procedures adopted in analyzing the
hypothesis used in the research. The null hypothesis (Ho) and
the altering alive hypothesis (Ha) were analyzed using
percentages and chi-square.
The percentages were used to calculate the numbers of
respondents who answered Yes or No. The presentation is in a
tabular form. The chi-square (X2) was used to test the
hypothesis put forward in chapter one and from the answers
gotten from the questionnaires and personal interview. The
use of chi-square is important where there are two or more
87
population proportion chi-square is used to test the validity of
the result of the correlation coefficient it should however be
stressed that the correlation coefficient measures the direction
of the association among two variables.
3.7 STATISTICAL TOOL FOR TEST OF HYPOTHESIS
The chi-square (X2) was used to test the hypothesis. The
chi-square
test (X2)
is
an
important
extension
of
the
hypothesis testing and is used to compare an actual or
observed
distribution
with
a
hypothesized
or
expected
distribution. It is often referred to as goodness of fit test. The
value of chi-square was computed using the formula
X2
=
Σ
(Fo - Fe)
Fe
Where
Fo
=
observed fervency
Fe
=
expected or theoretical frequency
The observed and expected frequency
Σ
=
summation
Σ (FO-Fe)2
Fe
sum of all deviations squared
and weighted
88
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
This
chapter
is
concerned
with
data
presentation
analysis and interpretation of data collected from both primary
and secondary sauces. The data were collected through the
use of questionnaires and data unless adequately analyzed
makes little or no meaning to anybody.
A total of 40 questionnaires copies were sent out and it
was all returned. This presents 100% response. The analysis
presented is solely done by using simple percentage based on
the response form employees of power holding company of
Nigeria Enugu business district on which the questionnaire
was administered.
4.1 DATA ANALYSIS AND INTERPRETION
The analysis and interpretations of data are shown in
tables
89
QUESTION 1
RANK OF RESPONDENTS
TABLE 1
Variables
Respondents
Percentage (%)
Senior manager
2
5
Manager
3
7.5
Assistant managers 5
12.5
Officer I, II or III
15
37.5
Other
15
37.5
Total
40
100
From the responses to question I in the questionnaire in
table I above only two respondents or 5% indicted that they
should position of senior manager 3 or 75% are manages, 5 or
12% are Assistant managers, 15 or 37.5% hold position of
Officer I, II or III and or 37.5% indicated that they hold other
positions not mentioned in the table.
90
QUESTION 2: EMPLOYEES YEARS OF SERVICE
TABLE 2
Variables
Respondents
Percentage (%)
Les then 3 yrs
10
25
4-6 years
7
17.5
7-9 years
10
25
10 years and above
13
32.5
Total
40
100
From the responses to question 2 in the questionnaire,
table 2 indicates that 10 or 25% of the respondents have work
under power holding company of Nigeria between 0 and 3
years 7 or 17.5% between 4-6 years, 10 or 25% between 7-9
years and 13 or 32.5% between 10 years and above.
Question 7: Does the internal audit system ensure that
operations comply with set policies and promote accuracy and
reliability of transaction?
91
Table 3
Variables
Respondents
Percentage (%)
Yes
40
100
Total
40
100
From the response to question 7 in the questionnaire in
table 3, 40 respondents or 100% agreed that the internal audit
system ensures that operation comply with set policies and
promotes accuracy and reliability of translations.
Question II: Are external/internal auditors independent of
those whose function they appraise?
Table 4
Variables
Respondents
Percentage (%)
Yes
31
77.5
No
9
22.5
Total
40
100
From
the
response
to
the
question
11
in
the
questionnaire. In table 4, 31 respondents or 77.5% agreed that
92
the internal/external auditors are independent of those whose
functions they appraise i.e their employers only 9 or 22.5%
respondents indicted otherwise.
Question 13:
The impact of internal control system on
service delivery and revenue generation
Table 5
Variables
Respondents
Percentage (%)
Yes
35
87.5
No
5
12.5
Total
40
100
From the response to question 13 in the questionnaire.
In table 35 respondents or 87.5% agreed that internal control
system have some impact on service Delivery and revenue
generation. It is evidenced that customers are provided with
credible bills based on proper tariff for electricity consumed
within the billing month and the expected revenue realized.
The internal control system is effective and efficient. 5
respondents or 12.5% indicated other use they considered the
internal control system to be ineffective and inefficient
93
Question 14: Internal control operational procedures
Table 6:
Variables
Respondents
Percentage (%)
Yes
40
100
No
-
-
Total
40
100
From response to question 14 in the questionnaire, in
table 6, 40 respondents or 100% said that the accounting
policies and operational procedures are set out in a manual.
This
clearly
communicates
specific
responsibilities
to
individual staff; facilitate training of new staff and enable one
to review and monitor the internal control system.
Question 10: Evaluation of internal control system
Variables
Respondents
Percentage (%)
Yes
36
90
No
4
10
Total
40
100
94
From the response to question 10 in the questionnaire.
In table 7, 36 respondents or 90% indicated that there has
been periodic review and examination of the internal control
system by an external auditor in the past. This helps in the
effective assessment of the control activities and monitoring of
the internal control system while 10 respondents or 10%
stated otherwise.
4.2 TEST OF HYPOTHESIS
In this section, the research hypotheses stated in the
chapter one are tested. The statistical tool employed is chisquare (X2) as indicated in chapter three of this study. The
hypothesis could be stated as thus
4.2.1
HYPOTHESIS ONE
Ho 1:
Effective internal control system does not
ensure effective service delivery and desired revenue
generation.
Ha 1:
Effective internal control system ensures effective
service delivery and desired revenue generation.
95
TEST DATA: The data for the validation of the hypothesis
above is presented below.
COMPUTED X2 VALUE FOR HYPOTHESIS ONE
Table 4.2.1
Response
No of respondents Expected
FO-FE
(FO-FE)2 (FO-FE)2
variable
(FO)
freq (FE)
Yes
35
20
15
225
11.25
No
5
20
-15
225
11.25
Total
40
40
0
450
22.5
FE
From the response to question 13 in the questionnaire
Decision: The table 4.2.1 shows that the computed X2 22.5
with 1 degree of freedom, that is (2-1)
(2-1), the theoretical
value of X2 at 5% level of significance is 3.84 which is less
than the computed X2
This
ensures
implies
effective
generation
that
effective
service
internal
delivery
and
control
desired
system
revenue
96
4.2.2 HYPOTHESIS TWO
Ho2:
Weak internal control system does not encourage
collusion fraud embezzlement, loss of cash (revenue) assets
conversion and Corruption in power holding company of
Nigeria PLC
Ha2: weak internal control system encourages collusion,
fraud, embezzlement, loss of cash (revenue), assets conversion
and corruption in Power Holding Company of Nigeria PLC.
TEST DATA: The data for the validation of the hypothesis
above is presented below
COMPUTED X2 VALUE FOR HYPOTHESIS TWO
Table 4.2.2
Response
No of respondents Expected
FO-FE
(FO-FE)2 (FO-FE)2
variable
(FO)
freq (FE)
Yes
30
20
10
100
5
No
10
10
-10
100
5
Total
40
40
0
200
10
FE
From the response to question 12 in the questionnaire
DECISION:
Table 4.2.2 shows that the computed X2 is 10
with 1 degree of freedom that is (2-1) (2-1) the theoretical value
97
of X2 at 5% level of significance is 3.84 which is less then the
computed X2 level
We therefore reject Ho2 and accept Ha 2 this implies that
weak internal control system encourages collusion, fraud
embezzlement,
loss
of
revenue
assets
conversion
Corruption in Power Holding Company of Nigeria PLC.
and
98
CHAPTER FIVE
SUMMARY
OF
FINDINGS
CONCLUSION
AND
RECOMMENDATIONS
This chapter summarizes the findings draws conclusion
and makes recommendation on this project entitled The
impact of internal control system on revenue generation in
Power Holding Company of Nigeria in Enugu State.
5.1 SUMMARY OF FINDINGS
Based on the analysis of data collected and interpreted
the research summaries the findings as follows:
The internal control system in operation has some impact
on service delivery and revenue generation. It was discovered
that the company adopts various types and techniques of
internal Control to satisfactorily meet customer electricity
demand, provide credible bills based on proper tariff for
electricity consumed within the billing month and therefore
generate revenue.
The company adopts measures, which ensures that no
one individual can control both the recording function and the
99
procedure
relative
to
processing
a
transaction
thereby
segregating their duties.
Internal audit system at the company ensures that
operations complies with set policies and promotes accuracy
and reliability of transactions recorded.
The study also revealed that opportunities for collusion,
fraud, loss of revenue, embezzlement, assets conversion and
corruption arises as a result of weak internal control system.
Periodic evaluation of the internal control system by an
external auditor is used to effectively access the control
activities and detect fraudulent practices.
5.2 CONCLUSION
The incidence of internal control system weaknesses have
always impeded the ability of Power Holding Company of
Nigeria in Enugu state to effectively supply electricity to her
customers and therefore generate potential revenue. As such
her contribution to the improvement of national goals and
objectives is not very satisfactory.
On the basis of the above the main objective of this study
was to evaluate the internal control system in operation at
100
Power Holding Company of Nigeria in Enugu State and various
points were made. Reveals that internal control system plays
a major role in prudently managing the resources and funds
entrusted to public sector managers.
The company has an organizational structure denoted by
organizational charts, which indicated formal communication
patterns within the organization.
RECOMMENDATIONS
Having examined and evaluated the internal control
system in operation at Power Holding Company of Nigeria PLC
in
Enugu
state,
the
study
makes
the
following
recommendations.
i.
Internal control system and the investigating units at the
company should be remodeled and strengthened to position
them to discharge their duties effectively and efficiently.
ii.
The component sectors of the present corporate Power
Holding Company of Nigeria should be unbundled into
separate distinct independent entities that handle generation
transmission, distribution and marketing.
101
iii.
Secure a culture charge within the various cadres of staff
that focuses on customer satisfaction, quality service rendition
and transparency in service delivery and procurement process.
iv.
To continuously improve her service of provision of
electricity of adequate quality to all customers and delivering
credible bills to all customers within the billing month. The
company should more to establish more customer care centers
to mitigate complaints or wrong, billings, non receipts of bills
disconnection improper address and wrong names.
v.
Prepayment meters should also be seen as an alternative
to further accumulation of debts
5.4 SUGGESTIONS FOR FURTHER INVESTIGATION
Having examined and evaluated the internal control
system in operation at Power Holding Company of Nigeria PLC
in Enugu State, the researcher suggests a further study on the
effectiveness of debt profile in the company.
102
BIBLIOGRAPHY
TEXT BOOKS
Adeleke,
J.O
(2009).
Audit Investigation
and assurance
Services.
Bodnar, G. and William. S. (1998). Accounting Information
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Edition).
Daniel, A. (1989). Accounting: London Pitman Press LTD.
Defliese, P. (1975). Montgomery’s Auditing: New York, John
Wiley and Sons INC.
Eze, J.C. (2005).
Principles and Techniques of auditing:
J.T.C. Publishers.
Eze, O. and Agbo, B. (2005). Research Method basic issues and
methodology: Benalice publications.
Hongreen, C. and Datar M. (2002). Cost Accounting A
managerial Emphasis: new Delhi, Prentice Hall, (10th
Edition).
Igwenagu, C. (2006). Basic Statistics and Probability: Prince
Press communication.
Kari, V. (1989). Accounting Theory: California Hayward, July.
103
Louis, E.B. (1998). Principles of Management: Homewood,
Richard D. Irwin Inc.
Meigs, R. and Whittington, O. (1982). Principles of Auditing:
Richard D. Irwin Inc. Homewood, Illinois (7th edition).
Millichamp, A.H. (1992). Auditing: An Instructional Manual for
Accounting Students: Elbs – Df. Publication LTD,
London.
Nwabueze, P. (2000). Basic principles of Auditing: m’cal
Communications Intl.
Oxford Accounting Dictionary (2005) University Press.
JOURNALS
American Institute of certified Public Accounts (2005). Audit
Committee tool kit: New York Inc.
Anoruo, C. (2004). Unbundling and its dynamics: NEPA News,
March – May.
County of Orange (2005). Understanding Internal Control:
Internal Audit Department California March.
Jenide, A. (2005). Understanding the Electric Power sector
Reform Act: The Guardian Tuesday June 14.
104
NEPA (2004). Customer Service Charter: Webmaster @ PHCN
Nigeria.
NEPA (2004). The Fight against Corruption: NEPA review March
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105
Department of Accountancy
Faculty of Management and Social Science
Caritas University, Amorji Nike,
Emene – Enugu
P.M.B. 07184
Enugu
Dear Sir/Madam,
REQUEST FOR THE COMPLETION OF QUESTIONNAIRE
I am a student of the Department of Accountancy,
Caritas University carrying out a research study on the topic “
The impact of Internal control on revenue generation in Power
Holding Company of Nigeria in Enugu State.
I will be very grateful if you would complete the attached
questionnaires to the best of your knowledge to enable me
complete a successful research on he topic. Be assured that
the information received will be used solely for this study.
Thanks for your understanding and cooperation.
Yours faithfully,
OFOZIE ONYEKA .C.
106
APPENDIX
QUESTIONNAIRE
Dear Respondent,
Please Tick {√} right where appropriate and supply
additional information where necessary.
1.
2.
3.
What position are you occupying?
A.
Senior Manager
B. Manager
C.
Asst. Manager
D.
E.
Others (Please specify)
Officer 1,11,111
For how long have you held the position?
A.
Less then 3 years
B. 4-6 years
C.
7-9 years
D.
10 years and above
There is segregation of duties or separation of duties
among the employees and such reduces the risks of both
erroneous and inappropriate actions
A.
4.
Yes
B.
No
Do you have an organization chart of the financial
accounts department?
A.
Yes
B.
No
107
5.
Are consumers provided with credible bills based on
proper tariff for electricity consumed within the billing
months?
A. Yes
6.
B.
No C. Not always
Are consumers able to authenticate any demand by staff
of Power Holding Company of Nigeria for any form of payment
for service materials, billings meter etc.
A.
7.
Yes
B.
No
The Internal audit system ensures that operations
comply with set policies and promote accuracy and reliability
of transaction recording?
A.
8.
Yes
B.
No
Do power Holding company of Nigeria realize full
payment for timely, accurate and complete billing of electricity
delivered?
A.
9.
Yes
B.
No
Has there been any periodic review and evaluation of the
past twelve months?
A.
Yes
B. No
108
10. Based on your evaluation of the internal control system is
it effective and efficient?
A.
Yes
B.
No
11. Are Internal/External Auditors Independent of those
whose functions they appraise?
A.
Yes
B.
No
12. Collusion, fraud, embezzlement, loss of revenue, assist
conversions and corruption arises in your as a result of
internal control Weakness?
A.
Yes
B.
No
13. Does the Internal control System have any impact on
service delivery and revenue generation?
A.
Yes
B.
No
14. Is the accounting and operational routines set out in an
accounting mannual?
A
Yes
B.
No
15. Do your company maintain a system of regular and
formal performance appraisal?
A.
Yes
B.
No
109
16. What in your opinion do you see as problems currently
facing the internal system at Power Holding Company of
Nigeria? State them.
……………………………………………………………………………….
17. What do you suggest as solution to the problems listed in
No. 16.
………………………………………………………………………………