Internal Control In An Examining Body

INTERNAL CONTROL IN AN EXAMINING BODY-A CASE STUDY OF THE NATIONAL EXAMINATION COUNCIL, ENUGU ZONAL OFFICE

Internal control is a versa topic that many local and foreign authors and researchers had worked upon or looked into. Such work and ideas are based on the content of their home countries. Thereby giving it both local and foreign perspectives. The researcher id therefore interested in this topic on order to evaluate some of their work and at the same time contribute his own perception.

In order to make the topic so simple and comprehendible, the researcher has decided to split a break it into a layman’s understanding on the need for internal control in an examining bodies even in government establishments.

 

2.1 A CHECKLIST OF INTERNAL CONTROL

These are various types of control as laid down in the Auditing standards and guidelines. These checklists are hereunder summarized.

  • Personnel: personnel are the most crucial elements of successful control. The activities of individuals ranging from their incompetence and dishonesty can mar a system, irrespective of how well it meet other items on the checklist. Based on this fact, individuals must certainly be given authority, responsibility, and duties commensurate with their abilities, interest, experiences and reliabilities.
  • Segregation duties: under this check no one individual should see to the starting and completeness of a duty. In other words no single person should be responsible for the recording and processing of a complete transactions.
  • Arithmetical and Accounting: these are checks carried to ensure that recording function which control the transactions have authorized. Correctly recorded and accurately processed.
  • Physical: this has to do with the physical custody of asset to authorized procedures designed to limit access to authorized personnel only.
  • Organization-: this entails as well defined organizational structure-implying that an enterprise should have a plan of organization and an identified line reporting
  • Supervision-: all responsibilities for supervision of member staff should be clearly laid town and communicated to the person being supervised (1). For an effective internal control to be effective, the aforementioned guideline and standards shall be met by the establishment.

In view of this, B.G vickery in his own outlook regarded “internal check” as the “systematic organization of with clerical duties and routine procedure in such manner as to ensure that innocent mistakes are detected and corrected at an early stage. This necessitates subdivision of duties by means of which no one person is responsible for the entire work in connection anyone transaction”.

 

2.2 QUALITY OF A GOOD INTERNAL CONTROL SYSTEM

Some authors like Koontz o’ Bonnel, A,H Millichamp Weihrich and many other more articles and books on internal control and Weihrich in their work outlined eight (8) qualities of a good control system namely:

  • Control should be objectives
  • Control should be flexible
  • A Good control should unity organization climate
  • Control should lead to corrective action
  • Control should be economical
  • Control should be tailored to plan and positions
  • A good control should point up exception at critical point
  • Control should be tailored to individual management and their by personnel. (2)

Also in his work, A.H Millichamp pointed out two way by which the auditor must convince himself of the reliability of the financial record presented to him. he can do this by using “vouching approach” that is by   examining each individual entry and verify or vouch it, or he can;

  • Determine that there is system of procedure, which if effectively applied all the time will ensure that the record are reliable
  • Determine that there is another way recording transactions, preparing document and making up the company’s book and records:
  • Determine that the system have been so applied”. In the light of the above Howard F. shelter in his work pointed out that “an auditor should carry out a compliance test from which he tests the system to see if it agrees with the procedures the firm adopts. The auditor formulates an opinion on the efficacy of the system. The answers to three closed related question will ordinarily provide the basis for the auditor’s conclusions.
    1. What procedures are purportedly in use to accomplish effective internal control?
    2. Are those procedures actually being followed?
    3. How satisfactory are those procedures as a means of creating good internal control?”

Where the auditor is not satisfactory with the system he will adopt a substantive test which is a test carried out to check individual transactions and balances of the accounting records which includes cash, debtors Assets, etc.

For the fact that internal control involves mainly checking off book of account (transactions and balances) in order to provide a reliable accounting record, A.H milli-champ go on to defined “internal check as” the check on the day to day transaction which operates continuously as part of the routine system whereby the work of one person is proved independently or is complementary to the work of another, the rationale being the prevention or early detection of error and frauds, it includes matters such as the delegation and allocation of authority and the division of work the method of recording transactions and the use of independently ascertained totals against which a large number of individual items can be proved.

He further enumerated some characteristics of an  effective internal control system to include:

  • Acknowledgement of performance by signatures, initials, rubber stamps, etc
  • Protective device like safer, locked cash register.
  • Segregation of duties,
  • Specified organizational structure:
  • Proof measures, eg. Trial balance& pre-list etc
  • Management control
  • Internal Audit
  • Verification Review and Amendment of the system.
  • Formal transfer of responsibility for good like G.R.N and s.i.v etc.
  • Pre-review
  • Post-review (3)

 

2.3 ACCOUNTING PROFESSION IN NIGERIA AND INTERNAL CONTORL

Accounting profession in Nigeria as it concerns examining bodies including other government establishments is mainly greened by the provision of the Revised financial regulation of Nigeria (1976).

Section 202 of the financial Regulation states that vouchers must be numbered consecutively and promptly posted to the cashbook. This will help to prevent fraudulent use of vouchers, which are authorized for cheques to be issued or cash payment to be made to the person named thereon, who is the payee.

Section 315 of the same regulation state that cancelled firms including originals will be retained in the receipt or license books, while section 828 mandates that spoilt or cancelled cheques leaves and receipt with original must be retained in the cheques books.

Also, section 510 required that all certificates on voucher, involved with writing checking passing and payment of vouchers must be signed by the officer in charge; while section 529 state that “ when money is paid to the bank, the paying-in-ship and the duplicate (and triplicate, where applicable) must be analyses as to:

  • Cheques

(ii) Postal order

(iii) Money order

(iv) Notes

 

The  duplicate must be examined to see that it bear an acknowledgement of receipt by the bank and the substituted for, after the lodgments’.

Section i44 required accounting officers to inspect at irregular intervals the cash held by their subordinates and the record of cash inspections must be kept. Also section 2039 required officers controlling expenditure to ensure that a complete and detailed internal check is done an each payroll before payment and this should be done by officers who are those currently employed on preparation of the payroll. The voucher certificate in the payroll summary voucher under title of check by will be signed by the officer in charge of internal check. Audit department are outlined as follows

 

Section 2208 specifies that the internal Auditor au should carryout a detailed and it of the accounts and record, the examination of the system and procedures in force. Special reports should be issued where necessary. In case of carry irregularity in the accounting records, the attention of the accounting officer must be called.

Accounting to section 2204. The internal Auditor in charge will ensure that the programme of audit will extend to cover all the records of the department or unit in order to satisfy himself that: –

  • The safeguards introduced for the prevention or the prompt detection of fraud and loss of cash are adequate. Normal safeguard include the observation of government and departmental regulations and instruction for existences of internal checks.
  • The system for the control of the collection of revenue is adequate, and that all monies received have been promptly brought to account to the correct heading and subheading;
  • The system for the control of expenditure if adequate and that all payments made are properly authorized and correct, that they are paid to the right person and for the purpose for which they were authorized;
  • The system for the control of issues and consumption of stored items is adequate, that all issues are made to the right person and are used for the purpose for which they are authorized.
  • There are adequate means for the verification by him of all cash store items and plant held;
  • The accounting records are accurate.

Condition of usage of government vehicles is also enumerated in the financial Regulation. For example, it was stated in section 2301 that! ‘the accounting officer shall be responsible for ensuring that there are effective controls in the use of government vehicles. For that purpose, he will ensure that the following records are maintained;

  • Vehicles control register;
  • Requisition /Approved for Journey;
  • Vehicles logbook / Work ticket;
  • Vehicles maintained Register.

Also in see 2302, official transport is to be used always to facilitate government business. They should not be used in transactions of private nature except;

  • Officers on grade level 15 and level

(ii) House to office running

(iii) Collect of officer children to and for school.

As regards stores, see.3202 provides that separate ledger is necessary for each store and that items should be arranged in alphabetical order and clearly indexed, while section seal 3201 required the maintaining of proper store ledger.

Section 3304 states that the store keeper or officer in charge of store  or section of a store is personally  responsible for;

  • Checking, handing store of store received;
  • Care of store, including proper stocking with due observation of the safety precautions
  • Issue of store supported by authorized vouchers and ensuring that such issues are checked before being properly packaged.
  • Progression of store issues so that items of old stock are issued before new stock.
  • Maintenance of stock within the prescribed maximum and minimum limits.
  • Avoidance of waste of store and irregular issues.
  • Periodical verification of stock balance, with tally card and ledger balance, and for reporting discrepancies revealed including damaged or deteriorated stock, excess stock or obsolent stock.
  • A test verification of the additions and subtractions in the store ledger and a test comparison of the ledger balance with receipts and issues voucher;
  • An examination of the condition of the stock and manner storage;
  • A test comparison of the ledger balances with the actual stock and tally cards.
  • A scrutiny of the book and registers in use which should be up –to- date and the relevant vouchers properly filled;
  • An examination of security measure including comments when obsolescent stock or excess stock are held, together with necessary recommendations

Also regards stores issues, see 3501 states that issues will be made only on the authorization of a numbered store requisition, a store transfer requisition. In case of issues of stock from unallocated authorized to incur expenditure who must ensure that funds are available.

Referring to the Local Purchase Order (LOP) s. 3907 state that:

  • The preparation of LOP will be in words and figures and that the order will be ruled off after the last time

(ii) The original and duplicate of the order will be submitted to the supplier, who will return the original will the involve or bill. After payment, these will be attached to the payment voucher

(iii) The triplicate copy will be sent to the store – keeper if the good are to be kept in his charge.

(iv) The quadruplicate will remain in the book. Accounting to s. 3909,all unused and party used LOP book will be kept under lock and key, and suitable precautions will be taken at all times to prevent them from getting into unauthorized hands.(4)

 

2.4 INTERNAL CONTROL OF REAL-TIME INSTALLATION

A real-time installation up date records simultaneously with the accordance of the transaction to be record. Examples are: (a) corporation on-time registration and bookkeeping.

(b) Bank bookkeeping et.

The normal situation is that there are a number of terminals, located where the transaction are actually taking place. All linked to the central computer installation.

The internal control problem to be solved is that it may be possible to read and update a file via a terminal, perhaps without any record remaining. In these circumstances the possibility of fraud or undiscovered over must be eliminated (or perhaps we should say minimized) by the use of carefully planned controls over the use of the terminals:

  • use of password or identification number without which the terminal cannot obtain access to files within the control computer.
  • Requiring the use of a key to engage the terminal;
  • Locating the terminal in such a way that unauthorized personnel cannot access to it;
  • Maintaining confident
  • Maintain a computer record of every occasion when a particular terminal is use;
  • Maintain a manually prepared documentary record transaction.

The audit of such an installation will require a careful review by the auditor of the internal control listed above.

It will be necessary for the auditor to be involved in the planning of the installation at an early stage to enable him to ensure that all necessary controls are built into the system one important feature which may be incorporated in the system at this early stage is the creation of a special computer file for subsequent audit purposes. The computer selects and records on a random basis, transactions which are store on tape or disc until printed out for the auditor to verify. Provided proper safeguard for the security of this file are provided, it will be impossible be for any user to know whether his particular transaction has been store in this way for later checking.

 

2.5 CONSIDERATION OF AN EFFECTIVE CONTROL SYSTEM

For a control to be effective it will recognize among other as follow;

  • The control must be relevant to the size of the job that is being performed.
  • Variation from standards must be reported immediately.
  • Distribution of duties must be properly set out so as to identify person responsible for the variations.
  • Exception to the stated rules and procedure must be avoided.
  • There must be a good control environment.

 

2.6 ARTICLES THAT ENHANCE INTERNAL CONTROL SYSTEM MAGAZINE AND JONRNALS

Dapo Olowa, in his articles “keeping record of business operations; stressed the essence of proper recording system. Among the records advocated by him are purchasing and stock record, sales records, and cash records. He was of the opinion that suppliers register and file help in negotiating, price, delivery and terms of business while purchase order file keeps tracks of all that has been ordered.

Inventory control, he said can be in two form viz; physical stock taking, which is suitable where stock items are numerous like super markets.

He further recommended cash receipt journal and bank reconciliation to determine whether the chequebook stubs agree with the bank records. (5)

Contributing in his article, O.E Ogbimi, in “government auditor and financial Accountability” recognized the need for shareholder to be assured that their money is being properly utilized and for the benefit of the company as a whole. For the shareholder to obtain such assurance, it is reasonable that persons who are relevantly competent, periodically examined and report on what management has done with their money (6)

On this plat form, it is also  necessary and pertinent that in government establishments, periodical examination should be carried out to ensure that tax payers money are judiciously utilized.

In the article, “internal control system and fraud in the Nigeria public sector”. Bade Fayemi of the department of Accounting &finance, university of Ilorin, was of the opinion that majority of fraud in the public sector can be traced to copses in the internal control system and the existence of a poor control environment in the ministries and parastatals.

Control is regarded as “a management function that deals with the measurement and correction of the performance of subordinate, with a view to achieving organizational objectives with maximum efficiency and at minimum cost.”

He further pointed to the  fact that the functions of the internal audit cannot be effectively performed if it is not independent from excessive control by the politicians and senior government official this will enable it to detect and report fraud without fear or favour”.(7)

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