Assessment Of Internal Control System In Government Establishment

ASSESSMENT OF INTERNAL CONTROL SYSTEM IN GOVERNMENT ESTABLISHMENT.  (A CASE STUDY OF UNTH, ENUGU)

In order to assist business organization as they in size and complexities, management should design are geared towards the enhancement of the chances of profitability owning to this, there has been an extensive study of internal control system and literature had been written on those in the accounting and auditing profession and also academic and  experts opinions have been focused on how to ensure the effectiveness of the system.

Although, there is no generally accepted method of maintaining internal control, emphasis is non the management of accounting records, separation of duties in such a way that no point of the account or procedure is under the absolute and independent control of any one person but on the other hand the work of each member of staff is complementary is that of another when any of these measure is absent even a basically honest employee may be emptied occasionally to fraudulent or otherwise to take advantage of his or her position of authority and trust in the company.  If the opportunity is there and if there is little chance of ever being fraudulent, the temptation may be much to resist.

In reviewing existing literature materials on internal control.  This chapter is geared to and giving extensive study of the general assessment of internal control, features of internal control system internal control objectives and techniques.

 

2.2     ASSESSMENT OF INTERNAL CONTROL

The cost internal control Assessment (CICA) exposure, Draft of proposed auditing Recommendation deserved internal control as complementary of the plan of an organization by management objective of ensuring as far as practically the orderly and efficient conduct of its business including the safeguarding of Asset the reliability of accounting records and the timely preparation of reliable financial information.

A system of internal control comprises all the measure taken by an organization for the purpose of protecting resources against Westage, fraud and inefficiency – ensuring accuracy and reliability in accounting and operating data securing some congruence with companies all the measure taken  by an organization for the purpose of protecting  resources against Wastage, fraud and inefficiency – ensuring accuracy and reliability in accounting and operating data securing social congruencies with company’s objectives and evaluation of the level of performances in all segments of the company.

The statement of auditing standards (SAS) defines control as “the plan of organization and.  The procedures and records that are concerned with the safeguarding of Assets and reliability of financial records and consequently, are resigning to provide reasonable assurance that:

  1. Transactions are recorded on necessary
  2. Permit preparation of financial statements in confirmity with generation accepted accounting such statements.
  3. To maintain accountability for assets
  4. Transactions are executed in accordance with management general or specific authorization.
  5. Access to Assets is permitted only in accordance with management authority
  6. The recorded accountability for assets is compared with the easily assets at reasonable interval and appropriate actions is taken with respect to any difference internal control system could be described as follows.
  • Safeguarding of company’s assets against loss form each sources as Wastes, fraud, error, inefficiency carelessness or other outward circumstance (e.g fine accidents, theft etc)
  • Ensure the accuracy and reliability of the accounting transactions, records and financial statements
  • Achieve the establishment of a sound company policy and secure compliance with such policy
  • Promote efficiency of personnel and operations

However, auditing defines internal control as “an independent tool of management to ensure that it obtains information, protection of Asset and control for successive operations which lead to accountability.  Internal check cannot be devoured from internal control.  The institute of chartered Accountant of England and Wales “Statement of Auditing defines internal check as allocations of afford checks the routine transaction of the day – to – day work by means of the work of the person being complimentary to that of another.  This institute propagates subdivision of duties by means of which no one person is responsible, for the entire work in connection with any one transaction, but at some extend in the performances, the work tone by each person in connection with that transactions come under the supervisor or notice of at least one another.  Internal check includes among other:

  • Division of work so that no single person has complete control of entire job
  • Each person’s work is complementary to another person’s work as a means of check to each other’s excess and abuses
  • Internal reconciliation on physical and book figures of cash and stock of new materials.

No internal control system however, elaborate can by itself guarantee efficient administration and accuracy of the records nor can it be proof against fraudulent collusion especially in the paint of those holding positions of authority or trust.  Controls can be abused by the person in return the authoritarian is vested, management  is frequently in a position to override controls which it has itself set up.  Whilst the competence and integrity of the personnel operating the control may be ensured by selectors and training those qualities may alter due to pressure both within and without authority.

 

2.3     INTERNAL CONTROL OBJECTIVES

This relates to the purpose to which control is designed to do in relation to the system under consideration.  The purpose of setting control objective is to ensure that it is met just the greatest number of controls which are eventuated but rather to identify those most and efficient and effective in achieving the objectives for the particular system being evaluated because systems can serve so many different objectives for all ones which are audible is met practicable.  However, control objective for many of the common system used for planing purposes such as payments voucher, Byrolls etc. can be standardised to a far better degree.

Control objectives are the essential overall control used in evaluating systems.  They provide the means by which systems are evaluated by helping to answer the two questions.

  • Are these controls in a system which ensure that all controls system objective are met?
  • Do particular controls meet particular objectives?

To facilitate the identification of controls, the auditor should determine what the objectives of a sound control environment ought to be relative to the system under examination, for planing purposes, specific control objective can be set which will cover all aspects of the system under examination.

Example of system are concerned with the authorization and payment of grants.  The control objectives might be that controls exist to ensure that:

  • The procedure prescribing the types of claims and for accepting and processing these are properly authorized for payments
  • Only claims in accordance with the regulation are authorized for payments.
  • Payment can be only made for authorized claims
  • Claims are calculated correctly
  • Payments are properly classified and recorded
  • Payment are substantiated periodically put briefly, these control objectives forms the first stage of a system anoint evaluation. Evaluation of an accuss control in meeting control in meeting control objectives.  Unless the auditor predetermines the appropriate controls for the system to be re-examined he/she can be conduct compliance testing.  Since there is nothing against which to compare the controls the system actually processed.
  1. Corns (1975) states “that the general objective of any internal control system are to protect.
  • Weak people form temptation
  • Strong people from opportunity
  • Innocent people form suspicion

The above objectives are demanded of a good internal control.  It provides reasonable but met absolute assurance to the safeguarding of asset against loss from unauthorised use or disposition and the reliability of financial records for preparing financial statement and maintaining accountability for assets.

  1. Wilson “said that internal control system should be designed to prudent and cover the following scope and objectives.
  • The possibility of collusion, especially between related person among employees.
  • The combination of duties that could enable one person to conceal irregularities.
  • The possible conflict of interest that may arise in the case of a responsible employee having other business interest
  • The extent to which those in position of trust especially where cash is concerned fail to take regular helpings.
  • The operation of systems during times of absence (due holidays sickness and breaks). Internal duck do met make frauds impossible by any means but they make it more difficult and the chances of detection much greater, and therefore they are valuable moral checks.

There is need to prepare modules with standard control objectives for the following areas.

  • Wages and salaries
  • Ordering, receipt and payments for the good services equipment and property.
  • Control and operation of stores
  • Cash, funding, banking arrangement
  • Income management and collections
  • Tendering and controls funds in a system are necessarily relevant to the purpose of audit examination or one equally important some may duplicate other concentrate on key controls circumstances will be a matter of audit judgements. Usually a key control is one which is essentially for the achievement of the control objectives.

 

2.4     INTERNAL CONTROL TECHNIQUES

The next aspect of control to be considered is control techniques.  These supplement control are the detailed practical methods which are utilized practically in connection with accounting systems.

  • Pre-numbering originating documents such as good received notes and sales invoices and accounting for all numbers. If the system provides that all transactions must be originated and authorised on specific forms and these forms are sequentially numbered at the time of printing, them by controlling the issue of the forms and accounting for the numbers issued the department can ensure that all authorised transaction are recorded in the books or that missing number s must be investigated.  This number techniques is designed to ensure that all transactions are accounted for i.e. to secure the completeness of recording transactions.
  • Maintaining total accounts to provide an independent overall control over the ledgers to which they relate. Value totals of items to be processed are recorded in a control account is agreed periodically with the total of balances on the appropriate ledger.

This sales or purposed invoices are posted in details to the appropriate ledger account should then be recognised and reconciled with the control balance at regular intervals any difference investigated.

This techniques is designed to ensure the completeness and technical accuracy posting to the detailed ledger e.g for debtor sand creditors.  However, it should be appropriated that it will not detect postings made in error to one detailed account instead of another in the same ledger met any incorrected amount that the recorded in both the control amount and detailed ledger.

 

  • Establishing batch totals of documents to be processed e.g. the money value total to be processed. This total is agreed with the total provides after processing e.g the Total values of batches of sales involves saint for processing are agreed with the machine totals of butche posted to the sales ledger cards.  The techniques is particularly common for mechanized processing and provides assurance as to the completeness of processing for the operation concerned and accuracy as regards the data for which the total have been established
  • Detailed checking of one document or accounting records against another. For example, the comparison of a cheque drawn in settlement of an invoice with the relevant invoice and goods received note will provide assurance that the cheque has been accurately prepared and is valid document.
  • Holding files, a list of transactions or files of originating documents is maintained and items are detected often, the list of originating documents will be sequentially numbered.  This provides a completeness control and ensure that goods are received for all purchase orders issued and that liability is set up for all goods received.
  • Authorization of documents after examination and checking by a responsible person before any further processing takes place e.g credit rates are checked before dispatch and positing to customer account. The authorization should be evidenced by the persons signature on the documents or files copy thereof.  This is the most common techniques
  • Identifying records with evidence from outside sources such as the regular comparison of the cash book with the bank statement and the agreement of purchase ledger accounts with suppliers statements. This techniques can ensure validity of transaction and the accuracy of records.
  • Checking of records by verifying the physical existence of the assets to which they relate such as continuos stock taking, periodically inspections of the items recorded in the plant register such checking helps to ensure the validity of transactions and at the accuracy of the records

In summary, control techniques have been as the purpose for which controls have been designed and in large organization doing many different things.  There can very substantially.  The particular controls which are used to achieve these objectives generally fit one of these categories.

  • Preventive – to deter undersizable events
  • Detective – the deter and control undesirable events that have occurred.
  • Directive – to cause or encourage a desirable events to occurr. The types of control which management can deploy to achieve and of which the anoiter therefore need to be arouw.

 

2.5     INTERNAL AUDIT

Internal auditing is a part of the internal controls established by management to enable them carry on the business of the organization in an efficient and effective manner and secure the assets and completeness of the records of the enterprises.  J. D. T. Okolo (1989) defines internal Auditing as an independent appraisal activity within an organization for the review of operations as a services to management.  It is a management and control tool which functions by measuring and evaluating the effectiveness of other controls.

The internal audit department in an organization is manned by an internal auditors is a “person who by taking and practice has an inquiring mind and is changed with the board of directors with information about the adequacy with the board of directors with information about the adequacy and effectiveness of the organization system of internal control and quantity performance.

The internal auditor should have a thorough knowledge of the operation of this particular organization.  the intellectual judgement activity intuition and a technical knowledge of the field.  Internal audit involves a review of the soundness, adequacy and application of internal control both financially and otherwise which are established by management.

  • Safeguard its assets.
  • Ensure reliability of records and so on Allen N. C, (1970) metts that “the emergence of an internal anoifor as a specialist in internal control is the result of an evolutionary process that is similar in some way to the evaluation of independent auditing”. Heward, L. R. ( ) in his book described internal auditing as “a review of operations and records sometimes continious undertaking which an organisaiton by specially assigned staff.  By this it could be said that one of the systems of keeping controls in an organization is by establishing a competent internal Anoint section as a check to the other contractor.

Nwoko C. in his own contribution saw that “The internal Audit unit should continuously monitor the procedure to promote efficiency, and reporting on violations in to auditing of transactions or precedural detects.

The purpose of internal audit is to gain for mentoring skilled eyes and aims to ensure employees on the job under normal working condition without striving up employees suspicion or resection.  The most essential concern of internal audit is to ensure that financial designs of the organization are connected in any entirely proper manner that no fraud or misappropriation of accounts occur and that proper system of financial control including internal check arrangements exists.  The internal Auditor as contained in Gilen write up should be consulted about proposed charges and infact their advice should be sought the control element in any proposed charges as they are the independent assessors of the adequacy or control procedure management should give internal Auditor full access to all organization records.

Property and personnel relevant to the subject under review.  The internal auditor should be free to review and appraise policy, plans, procedures and records.  The responsibility of the internal auditors are the information and advise to management

Property and personnel relevant to the subject under review.  The internal auditor should be free to review and appraise policy, plans procedures and records.  The responsibility of the internal auditors are the information and advise to management in accordance with the code of entices of the institution and to co-ordinate his activities with others so as to achieve his audit objectives.  The objectives of the organization internal auditing is primarily concerned with financial matters.  It has remained a field of text book and articles are necessary to bring to the public knowledge of importance of this aspects of internal control.  However, A. H  Millchamp  in his book “Auditing defines internal auditing as “in independent appraisal function established by the management of an organization for the review of the internal control system as a services to the organization.

 

2.6     BUDGETARY CONTROL

Budgets are financial and quantitative statements prepared and approved prior to a defined period of time.  They may includes income, expenditure and the employment of capital.

However, a control system was defines by Higorani, N. L of the Institute of Cost and Management Accountants in England and Weles as “The establishment of budget  relating to the responsibilities of executives to the requirement of a policy and continuos compares of  actual with the budgeted results to secure by individual action, the objectives of the policy or to provide a basis for its revision.  The budgetary control system just as any other control system includes the establishment of qualitative targets, comparism  of actual with the targets and reporting the result of comparism.  For effective control purposes, the flexible budget is used as opposed to the fixed budget.  A flexible budget is a budget which recognizes the difference between fixed, semi – fixed and variable expenses is designed to change in relation to the level of activity attained.  In government ministry, and extra – ministerial departments budgeting is based on the following:

 

  1. RECURRENT REVENUE AND EXPENDITRUE BUDGET:

This refers to those budgetary allocation for various recurrent expenditure like salaries, maintenance and other consumables.  However, it is this budget that ensures the continuity in operation of any enterprise.

 

 

  1. CAPITAL EXPENDITURE BUDGET:

Capital expenditure budget on the other how is budgetary allocation made in respect of capital requirements of the corporation for the next accounting period.   Expenditure that is included in this type of budget include expenses on plant and machinery, acquisition of land, motor vehicle construction of buildings etc.

In conclusion, the rigidity of many sector bodies can produce undesirable effects.  It is often suggested that budget restricts flexibility and acts as a straight Jacket on managerial actions, this may result in expenditure being incurred orderly  because it is included in the budget even though it is met longer required whereas other activities which may be much more beneficial in terms of the objectives of the organization are ignored because of the absence of budgetary provision.  So far, it will be observed that internal control extends beyond financial, and accounting matters and the custody of company asset such functions as work study.  Operations research and production quality control, for example may be an internal part of the system although met failing within the sphere of accounting and finance.

 

2.7     INDEPENDENT OF AUDITORS

Professional independence may either be corporate or individual independence.  Corporate independence means independence of the accountancy profession.  The fundamental concept of professional independence is an attitude of the mind based on integrity and an objective approach to work.

An auditor must, at all time perform his work objectivity and impartially and free from influence by any consideration which might appear to be in conflict with his requirement.  An auditor should exercise his profession with independence and objectivity.  He must be in a position to give honest and unbiased opinion at all times.

According ICAN conduct of members on independence under no circumstances must an auditor knowingly allow his name to be associated, with financial statement that is insleading.

Independent of auditors does not mean that internal auditors are independent of management ratio appoints them.  But they are independent in the sense that they reports to the board of internal audit committee.

An internal auditor maintains the defined accounting system of an organization thereby ensuring that the internal control system is in order.

Usually an internal auditor has almost unrestricted rights to examine evidence, conduct Inquiring , collect information seek explanation, vibins branches and contact outside parties for the verification of the creditability of accounting information a discovery of fraud in the financial statement.

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