INTERNAL CONTROL AS A TOOL FOR EFFICIENT MANAGEMENT (A CASE STUDY OF P & CO FEED LIMITED)
A business organization grows in size and complexity. There is need of adequate control system financial and otherwise for safeguarding the asset of the organization and securing as far as possible the accuracy and reliability of its records.
Most like the accounting principles, there is No general accepted method of controlling internal system in some business organization, but there are some general requirement, which aid the system of internal control, which include the necessity to arrange the internal records. Method and general system of internal control of a business organization that is part of the account or a procedure is under the absolution or independent control of any person but that is on the contrary, the work of an employee is complementary to that of the another and that the continuous of audit is made up of the detail analysis of the business. Each organization has its own peculiarities. The individual organizational set-up and its peculiarities must be taking in control system.
It need not to be expensive but require the careful planning and co-donation of each person who handled account records or take co-operate decision.
The operation of the account system can be made more efficient by the regular use of competent internal auditors and good or competent external auditing of business transaction in supportive of the management internal control system.
DIVISION OF INTERNAL CONTROL
The three internal recognized elements of internal control according to G.N Boyton are;
- The plan of the organization (with peculiar reference to allocation of staff duties)
- Authorization, recording and custody procedure (including the internal clerk)
- Managerial supervision and review (including internal audit)
Plan of the organization: the necessity of adequate plan of the organization has been mentioned above. Such plan should cover the activities of both management and the staff at all levels stating clearly their duties; responsibilities and power of authorized various activities of the business. This later point is of important since subordinate duties may leave the way to be varied which may leave the way to be open for abuse for those in authorities over other members of the staff who are not in a good position to question the direction they receives.
AUTHORITY RECORDING AND CUSTODY PROCEDURE
Where is this concerned? The financial and accounting control should be such that will ensure the efficient working and at the same obviate any attempt of fraud and error arising. Here the practical diversion of duties should be such as to ensure that the internal check ensure the day to day transaction for one person is proved independently or complementary to the work of another, the objective being the precaution or early dictation of error or fraud.
Internal check involves the work of at leas two persons to be conducted as far as possible independently. This will in itself involve he division of responsibilities in various procedure whereby transaction are authorized performed and recorded indecently with the pre-ascertained or total or by examination.
MANAGERIAL SUPERVISION AND REVIEW
This implies the efficient working of the management is constantly reviewing and giving the financial consideration and financial procedure within the organization. This could be archived by the use of an internal audit department. Budget control and standard system of costing con greatly assist the working of the internal control whereby variance are reviewed and investigated. Special review of the departmental system may also take place apart from time to time-internal audit process.
FUNDAMENTALS PRACTICAL APPLICATION
It is important to point out the dangers of being so concerned with the system that the end product is overworked. No two businesses is expertly the same. A set of procedure for one business may be quite unsuitable for another business. It require thought, experience and skills before suitable method may be formulated but in so doing, the ultimate goal must be first be considered. An internal system must be design to suit the business rather then organizing the business to suit the system.
SCOPE OF CONTROL
Business plan once made become an integral part of the business control system directly or indirectly. Control system in an organization is of different levels. At the top of this hear achy of control lies the economic control of the enterprise, which is governed, by both the internal and external control. Prominent among them however will be a set of financial control which will involve the usual accounting control which includes;
- Cash control
- Control of revenue flow
- Control of the expense flow
- Control of the firm rate of growth:
The non-finical control may be the control time, product quality and data information flow to name only but few. Whether we are concerned with planning and decision-making or the control, we should be concerned with the effect on cost, revenue and worth of the firm as a whole.
NATURE OF ACCOUNTING CONTROL
Accounting control here concerns budget as accounting controls, first the budget as an overall plan of the business operations. Plans are concerned with the internal resources allocation. The important point to be taking into account in drawing up plans include specifying the goal of the enterprise explicitly, the resource it is expected t command during the period including any constraint or resource unavailability, generating all the feasibly alternative courses of action open to the enterprise, spending the outcome of the alternative which will archive the prescribe goal (whether this be of an optimizing or satisfying nature) subject to the constraint and to the various type of interdependency including intertemporal once. It is important to note that data for planning budget must be founded n the economic principles. The effectiveness of the control budget is measured solely by the result it produced and not by the relationship of the data it contains which may have to become reality. If for example, it is desired to maximize a certain, a control budget of 700.00 which produces an outcome of 1000.00 is to be preferred to a budget of 1000.00 which produces a result of 1000.00, despite the greater predictive accuracy of the latter.
It follows in the word of an often quoted remark attributed to Chanes and Cooper, that a good plan do not necessary yield a good control and that good control data are not necessary the some. The distinction then shows that there is a fundamental different between the task of resources allocation undertaking in the pursuit of certain objective and the task of coordinating the activities of men and machine in an effort to ensure a predetermine degree of efficiency and the nearest approach to the planed objective.
ACCOUNTING RECORDS
Internal record keeping: the basic intention of record keeping is to provide an internal clerical center over the day to day operation of a business that will ensure the good custodianship of mans goods and property while in the hand of another. The two technical used in the recording process are the journals and the ledger. The objective of the system is to have a permanent record of transactions. In actual business practice, the exert form of this record are very tremendously. In a very simple manual system, they take the form of a notebook as accounting outside the small undertaking. The journals are more likely to consist of a bound Volume of printed form of various types, a stack of barge card each representing a journal entry. Similarly, in large organization, ledger may consist of computed printed out sheets. The function of the journal and the ledger is to correct and clarify the result of the transaction affecting the business entity. In most cases, dealing with portions outside the business enterprise is signaled by distinct event such as the receipt of ands invoice form the supplier, the writing of a cheque, the preparation of a dispatched note and corresponding invoice. In the ordinary way entries are made to record this event as they occur so that outside from clerical delays, an update record is always available.
PROTECTION OF ASSET IN CUSTODY
Accounting ensures that a concern receives its proper dues and pays its proper debt. At the same time a recording procedure is arrange so that the record of transaction is conveniently clarified so as to be enable information to collected for report purposes. The is an equally important aspect of internal accounting in its use as a device aid at preventing as far as possible, the indebtedness, misappropriating, embezzlement or misses of the firms resources. The objective of the accounting control is also to make sure that the fund and properties of an enterprise are kept under custody and that they are not improperly used either by error or intent. It would be an unfortunate situation if the business is making profit, but this is being spirited away through the loss or destruction of asset.
PREVENTIVE ACCOUNTING
The basic gripes of the internal control are the division of accounting duties so that the work of one person is complementary to another or is proved independently. There is usually a routine system of check o the day-to-day transaction that operates continuously.
Prompt and systematic recording is arranged in such a way that the part of the recording process that is handled by one individual is checked against other part handled by another.
According to A. S Willmoore “care is taken to keep separate hands the transacting of business, the recording of the assets involved”. It then follows that the people who have personal access to the to the assets of the business are not allowed to keep the records of these assets, and those who do handle the records are denied access to assets themselves.
In small companies, the system of internal control is comprehensive. In the circumstance, greater reliance has to be placed on supervision rather than the system, to ensure that other members of staff check the work of each individual. As organizations grow, the system of control should be reviewed by means of interim accounts and reports, operating summaries and other appropriate financial and statistical information. This review needs to be supported by special examinations from time to time of special items of activity where there is the great risk of things going wrong.
Payroll administration is a particular important field for control in any organization. Regardless of the size it is essential that there should be complete internal control of this aspect.
Four distinct functions are involved and it is usually possible to put these functions in different hands so that no one is dependent on the others and no individual has control of the entire process
The first function is the employment of the personnel and the making of changes \in their rates of pay. This activity is kept separate from the actual preparation and the disbursement of the payroll process. Two stages are involved in payroll preparation – time keeping and preparation. They are kept separate so that a foreman looks after the timekeeping while the wages department prepares the pay within the limits set by the personnel and timekeeping departments
The wages department does not, however, itself disburse cash.
This is left to the fourth party, the cashier, who controls the actual cash, but disburses it only on the authority of the other departments.
This sort of multiple checks is the essence of internal control. It is of course still possible for all the people involved to get together so as to falsify the records , but the possibilities of manipulation through collusion are reduced to a minimum.
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