THE IMPACT OF INTERNAL CONTROL IN MANUFACTURING ORGANIZATION

(A CASE STUDY OF NIGERIA BOTTLING COMPANY PLC, ONITSHA ANAMBRA STATE)

 

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ABSTRACT

The constant failure of many organization resulting from fraud due to loopholes in the Accounting system of the organization calls for a proper understanding of the “Internal control System” and its impact on manufacturing organization.  Internal control System has remained the bedrock for organization or management efficiency. The objectives of these study is to find out what makes the Internal control System of a manufacturing company, to examine critically the impact of Internal control in the management of the company under these study to access the strength and weakness of Internal control System in the manufacturing organization, to make necessary recommendation on how to correct lapses in Internal control  which may be discovered at the course of the research. Method of data collected, was done through questionnaire oral interview and other relevant literature. Data collected were properly analyzed and frequency table was used in the analysis. The techniques adopted was random sampling techniques, used to get total number of forty (4) staff out of which ten (10) of them were management staff who were interviewed and the rest were given questionnaires. The major findings of this research work states that good accounting system of the company is product of its Internal control System. Recommendation state that, it is imperative that companies should operate with effective Internal control System.

 

 

TABLE OF CONTENTS

 

CHAPTER ONE

Introduction ……………………………………………………………..…………1

• Background of the study…………………………………………………..……1

1.2  Statement of the problem………………………………………………………2

1.3  Objective of the study………………………………………….………………2

1.4  Significance of the study………………………………………………………3

1.5  Research Question …………………………………………….………………4

• Research Hypothesis………………………………………..…………………4
• Scope of the study……………………………………………..………………5
• Definition of terms……………………………………………………………5

 

 

 

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1     Research Question …………………………………………………..………7

2.2     Current Literature on Theories and Models…………………………………7

2.3     Summary of the literature Review …………………………………………24

CHAPTER THREE

Research  Methodology………………………………….…………………29

3.1     Research Design ……………………………………………..……………29

3.2     Area of the study……………………………………………………………29

3.3     Population of the study…………………………………………..…………29

3.4     Sample size of the study……………………………………………………30

3.5     Instrument for data collection ………………………………………………30

3.6     Validation of the instrument  ………………………………………………31

3.7     Distribution and Retrieval of the instrument ………………………………31

3.8     Method of Data Analysis……………………………………………………32

 

CHAPTER FOUR

4.1     Data presentation  and Analysis……………………………………………33

4.2     Discussion of findings ………………………………………..……………47

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1     Summary of findings………………………………………..………………48

5.2     Conclusion ………………………………………..…………………..……49

5.3          Recommendations……………………………………………..……………49

5.4     Limitations of the study……………………………………………….……50

5.5     Suggestions for further Research …………………………………….……50

References…………………………………………………………….……52

Appendix A…………………………………………………………………53

Questionnaire ……………………………………………………..….……54

 

 

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Internal control is an indispensable element in the life of any organization, organization cannot meet it’s objectives very well without having an internal control. The need to install internal control becomes imperative due to the increase in size and complexity of the activity of the modern organization. The installation of internal control has a lot of impact on manufacturing organization.

Control on the other hand has been identified as one of the essentials of management functions. It is difficult if not impossible to talk about management without control. Control according to Robert. C. apple is an activity that involves checking to see that plans have carried out and derivation attended to control therefore is one element of management to serious organization has it own idea of control over finances, control over expenditure tangible assets and the internal control originated from control.

The statement number one of the institute of chartered internal control as one consisting of one only internal check nd internal audit but the whole system of controls, financial or otherwide established by management in order to carry on the business in an orderly manners.

internal control can simply be defined as all measures used by management to regulate and control the affairs of the business without an internal control an organization is likely to be effective and too costly to operate due to constant occurrence of fraud. Regardless of the size, type and occurrence of structure of any organization manger and accountants should know the rudiment of it’s accounting system and internal controls. This will help the managers and other staff to operate the organization effectively and efficiently.

1.2     STATEMENT OF PROBLEMS

*        Does internal control give rise to organization efficiency and good management?

*        Is it possible to have a good accounting system without an internal control system?

*        Can the organization achieve its objectives without internal control?

1.3     OBJECTIVE OF THE STUDY

1        To find out what makes up the internal control system of a manufacturing organization.

2        To examine critically the impact of internal control in the management of the company understudy.

3. To access the strength and weakness of internal control system in the manufacturing organization.
4. To make necessary recommendation on how to correct lapses in internal control which may be discovered at the course of the research.

5        To increase the knowledge of the research on the internal control system of a manufacturing organization.

1.4     SIGNIFICANCE OF THE STUDY

1. The study will equip the direction of the company with all the necessary principles, design implementations and the operations of a good internal control system.
2. This will help the workers of the company to know their shortcomings and that of internal control system and hence put corrections in place.
3. The researcher after the study will have a broad knowledge of the role of internal control system in management.

4        The investors will equally gain from this study because they are sure that investment in the organization is well secured against fraud.

5        Finally, this study will also serve as reference literature to future researchers.

1.5     RESEARCH QUESTIONS

1. What constitute the internal control system of organization?
2. How effective is the internal control system of the organization and to what extent is the organization staff complying to it?

3        Does reliability to accounting information depends in internal control.

4        Does internal control assists the external auditor in auditing the organization?

5        Does installation of internal control serve as a check on the activities of the staff of the organization?

6        Does installation of internal control prevent the occurrence of fraud in the organization?

1.6     RESEARCH HYPOTHESIS

According to Willy Nnamani (2007) to effective find a solution or a useful result to the problem, the following hypothesis were formulated.

1. The low installation of internal control serves as a check on the activities of the staff of the organization.

2        Due to the issue or consistent failure of many organization constitute the internal control system in some organization.

3. The low installation of effective internal control system serves as a loophole in preventing occurrence of fraud in the organization.
4. How does internal control system assists the external auditors in auditing the organization.

5        The declining force of internal control system in some organization has made the staff not complying to it.

1.7     SCOPE OF THE STUDY

The study impact of internal control system on manufacturing organization is limited only to the internal control system of Nigeria bottling company Plc Onitsha, Anambra state. Due to many limitation, the researcher encountered while striving to make a through research.

1.8     DEFINITION OF TERMS

*        INTERNAL CONTROL: It is all measure used by management to regulate and control the affairs of the business.

*        FINANCE: It is an issue of distribution of and purchase of liability and equity claims for the purpose of generating revenue producing assets.

*        ASSETS: Anything owned by a person, company etc, that have money value and that may be sold to pay debts.

*        CHARTERED ACCOUNTANT: He is a member of professional body recognized by any act or degree of federal republic of Nigeria.

*        INTERNAL CHECK: It is an aspect of internal control system and it is an arrangement in which a person work is complementary to the work of another person.

*        INTERNAL AUDIT: It is the type of audit conducted by an employee of a business into any aspect of it’s affairs and in compliance with the accounting system and objective of the business.

*        FRAUD:  It is the misappropriation of the asset internal falsification of the books of accounts other records of the business organization.

 

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THE IMPACT OF CAPITAL BUDGETING IN THE PRIVATE SECTOR

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CHAPTER ONE

1.0     INTRODUCTION

 

1.1     BACKGROUND OF THE STUDY

 

Every business firm normally will like to know how it perform over a period of time this leading to a preparation of profit and loss statement. They also ask about their position at a particular point in time, which lead them to the preparation of budget. A budget can be seen as a document or financial document used to project future income and expenses. In budgeting there are types of budget prepared by the firms, such as capital budget, sales budget and cash budget and so on. The process of preparing capital budget is called budgeting. Capital budget are long-term budget made for acquisition and expansion of fixed asset.

Many firms prepares capital budget today, it was originated in the  United states of America (U.S.A). In America it was applied by all firms before the second world war. After the second World War many firm saw the need  to plan for capital expenditure, hence it is prevalence today. The Nigeria brewery limited and other beverage are not left  out in the train of firm that prepare budget for its capital expenditure. The process of capital budgeting is vital to any responsible, well managed business. if that business is public and owned by public shareholders, the budgeting process becomes more crucial, since shareholders can hold management accountable for accepting unprofitable projects that can have the effect of destroying shareholder value. The decision of whether to accept or deny an investment project as part of a company’s growth initiatives, involves determining the investment rate of return that such a project will generate. Capital budgeting is also vital to a business because it creates a structured step by step process that enables a company to develop and formulate long-term strategic goals, seek out new investment projects, estimate and forecast future cash flows, facilitate the transfer of information and creation of decision. Capital budget however is not easy as it is fought with a lot of problems.

 

• STATEMENT OF THE PROBLEM

The main purpose of setting up a private firm is to achieve enough sale revenue that will cover the fixed and the variable cost as well as live some profit to justify its existence. The introduction of many economic measures after the year 1982 aim at revamping the nations economic comes with many problem with which the brewery industries are not left out.

1. The problem of change in the demand of beer.

In order to produce, firms in the brewery industry including (The Nigeria brewery limited) acquire fixed assets as well as raw material. This acquisition is based on the expected demand. The demand of beer can not now be fairly estimated because of the general rises in the price. General rise in the price of beer has made the customers to shift their demand to other goods.

These bring about decrease in the demand for beer. The uncertainty surrounding the continuance rate at which the demand of beer decrease has become of the problem encountered by the capital budget especially by the Nigeria breweries limited since the capacity of the production is always affected by the change in the demand of product.

• The problem of tariff and import restriction on the importation of fixed asset and the spare parts.

It has made the firm like the Nigeria brewery limited look of alternative way of obtaining fixed asset necessary for its production and operation. It often increased the price for them as a result of the import tariff restriction. The uncertain surrounding this has made capital budget a problem.

3. The problem of appropriate selection of human factory which is the fidelity of the capital budgeting

4        The problem encountered in the external source of financing in its capital project.

          The external source of financing included the commercial banks, trade     creditors and some financial institution. Banks and other financial institutions charges interest on the money that they lend out, interest charges fluctuated with the changes in economic setting. Due to the dynamic nature of the economic with consequent effect on the interest rate, it is problem making cost benefit analysis, necessary in the capital budgeting. The rate is never stable. The uncertainty include in this makes a problem for capital budgeting.

5. Problems on knowledge of the techniques in project evaluation.

 

1.3     OBJECTIVES OF THE STUDY

The general objectives of capital budgeting are

• To determine the product scope, capital budgeting lets project planners define the financial scope of a project.
• To determine funding sources and how much money will be needed form each source and the costs associated with using that funding method.
• To control project costs, capital budgets act as control document throughout the life of the project.
• To determine payback time, an important element of capital budgeting is determining the project time.

While the objective of this study is to find out the following.

• To find out the extent to which capital evaluation techniques are used by the Nigeria breweries management in evaluating their projects.
• To find out whether evaluated projects will yield adequate return for the investors.
• To determine the factor that influence the selection of project to be invested in .
• To determine the extent in which evaluation of capital important in Nigeria
• To find out if appropriate selection of human factory, is the fidelity of the capital budgeting.

 

1.4     RESEARCH QUESTION

The following questions have been formulated as a guide for this research.

• Do Nigeria breweries management use capital evaluation techniques in evaluating their project?
• To what extent does evaluated project yield adequate return for investors?
• What are the factors that influenced the selection of project to be invested in?
• To what extent is evaluation of capital project important in NBC budgeting?
• Is the appropriate selection of human factory the fidelity of the capital budgeting?

 

1.5     RESEARCH HYPOTHESIS:

The hypotheses of this research are stated below:

1        HO: Nigerian breweries managements does not use capital evaluation techniques in evaluating their project.

HA: Nigerian breweries management use capital evaluation techniques in evaluating their project.

2        HO: Evaluated project do not yield adequate return for investors.

HA: Evaluated project  yield adequate return for investors

3        Ho: There are no other factors which influence the selecting of project to be invested in

HA: Ho: There are other factors which influence the selecting of project to be invested in

4        HO: Evaluation of capital is not important in Nigeria budgeting.

HA: Evaluation of capital is important in Nigeria budgeting.

5        Ho: Appropriate selection of human factory is not the fidelity of the capital budgeting

HA: Appropriate selection of human factory is the fidelity of the capital budgeting

 

1.6     SIGNIFICANCE OF THE STUDY

The outcome of the research work will be significant to the management of the Nigeria breweries Limited who is faced with capital budgeting decision problem. Furthermore, it will be significant to the investors who wish to invest in capital project.

Finally it will equally be important to other researchers and scholars who may wish to carry out further research on the subject matter or on the related topic.

1.7     SCOPE OF THE STUDY

The study will examine the capital budgeting techniques of the Nigeria breweries and will be able to establish techniques adopted by the firm stated in the theory. The study will also examine the extent in which evaluation of capital important in Nigeria budgeting and also whether evaluated projects will yield adequate return for the investors.

1.8     OPERATIONAL DEFINITION OF TERMS

CAPITAL BUDGETING: This is the long term plan made for production, necessary to buy fixed asset for the production of the goods and services.

Finance: This is the term used to donate acquisition and spending of fund to met an economic unit objective

Cash flow: This is the asset of long-term nature used in the production of goods.

Capital rationing: This is the allocation of scare capital resources among competing economically desirable projects, which cannot be carried out to capital or other constraint.

Ranking: This is the arranging of project in other of their viability with reference to the evaluation result.

Capital expenditure: This is the investment to acquire fixed or long-lived assets from which a stream of benefits is expected

Budget: This is the plan that is qualified in a monetary term

Private sector: This is the part of the economy sometimes referred to as the citizen sector which is run by private individuals or groups.

 

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