EFFECTIVENESS OF INTERNAL CONTROL SYSTEM IN PREVENTION OF FRAUD IN PUBLIC SECTOR
(A CASE STUDY OF UNTH ENUGU)
ABSTRACT
The research work was aimed at the “effectiveness of internal control system in prevention of fraud in public sector a case study of UNTH Enugu. It cannot be over emphasized here that an effective control system does not only ensure financial accuracy of transactions, but it reduces trade to the barest minimum. A good internal control system can only operate in a fairly large organization that employs a good number of staff. It is also important to note that there is high rate of fraudulent practices in government ministries and parastatals today and the board of internal revenue is not an exception. That is why the internal control system must not only be put in place, but is also having to be effective in removing such irregularities. Similarly, this research work was grouped into five, in which chapter one contains the introduction. This will give us a skeletal framework of the study and also sub topics such as statement of the problem and so on. Chapter two contains the literature review which will give the details of the topic and also the meaning of the topic. Chapter three contains the research methodology and techniques which showed the methods through which the survey and the sources of data were carried out. Chapter four contains the presentation and the analysis of data which further gives the information suitable. Chapter five finally contains a workable recommendation proffered from the findings derived. These findings will help the management of the UNTH Enugu to improve on the effectiveness of their internal control system.
TABLE OF CONTENTS
CHAPTER ONE 1
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 OBJECTIVE OF THE STUDY
1.4 RESEARCH QUESTIONS
1.5 RESEARCH HYPOTHESES
1.6SIGNIFICANE OF TH STUDY
1.7 SCOPE OF THE STUDY
1.8 LIMITATIONS OF THE STUDY
1.9 OPERATIONAL /DEFINITION OF TERMS
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 CONCEPTUAL FRAMEWORK
2.2 THEORETICAL FRAMEWORK
2.3 EMPIRICAL REVIEW
CHAPTER THREE
RESEARCH DESIGN AND METHOD
3.1 RESEARCH DESIGN
3.2 AREA OF STUDY
3.3 POPULATION OF THE STUDY
3.4 SAMPLING METHOD
3.5 RESEARCH INSTRUMENTATION
3.6 VALIDATION AND RELIABILITY OF RESEARCH INSTRUMENT
3.7 METHOD OF DATA COLLECTION
3.8 METHODS OF DATA ANALYSIS
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 PRESENTATION OF DATA
4.2 DATA ANALYSIS
4.3 TEST OF HYPOTHESIS
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 SUMMARY OF FINDINGS
5.2 CONCLUSION
5.3 RECOMMENDATION
REFERENCES
APPENDIX I
APPENDIX II
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
The need for accountability arise when a man takes charge of the property of another, or of several others, or of the community at large in the civil service, therefore there has been a tremendous concern to successive governments and the entire public about its performance, which has been described as frustratingly poor over the years. Many opinions both fascinating and educative have been given adducing reasons for the poor performance, notably among these were lack of effective internal control system, low level of accountability, increasing cases of fraud, etc. A sound fraud control technique must provide continuous and complete check to the growing rapidly changing behavior and techniques of fraudsters in public sector (Eze, 2013).
According to Onoja, Ajanya and Audu (2013) there is the need to pay greater attention to the improvement of public sector management. The reason is obvious; government constitutes the largest single business entity and her pattern of expenditure through its various parastatals, agencies and commissions stimulate lot of economic activities. The public sector accountant has the responsibility of developing systematic arrangements to assist management in the performance of the services of the institution while the public sector auditor has among other duties, the complementary role to examine whether management actually performs that efficiently. The public sector auditor has to satisfy himself that the account presented have been prepared in accadance with statutory and constitutional requirements and regulation and that proper accounting practice have been observed in their compilation (Onoja, Ajanya and Audu 2013).
Internal control system for a business are similar to check and balance in the government, they are process put in place to make sure that things stay in the right track. Internal controls are useful for every business but are critical for organization with employees, especially employees who handle valuable assets. Internal control serves as the strength of every organization; the reason being that the control system. The establishment of an effective system of internal control that is capable of preventing fraud and also ensures government transactions are carried out under lawful procedure has been adopted (Ishola, Abikoye and Olajide, 2015). The essence being that, effective and efficient use of government activities has necessitated the need to establish sophisticated internal control system that would prevent fraudulent practices, financially or otherwise.
Internal control is the whole system of control financial and otherwise establishment by the management in order to carry on the business enterprises in an orderly and efficient manner, ensures adherence to management policy, safeguard the asset and secure as far as possible, the competence and accuracy of record in addition to internal check and internal audit (Badmus Olusegun & Edegbe David’s 2003). It is no doubt that adherence to good and sound internal control system and effective internal check will surely reduce high rate of fraud in the public sector.
Auditing aims at providing solution to the inevitable problem of credibility in report and accounts. It prevents and detects errors and frauds and also produces a report of the true and fairness of the financial statement. They also obtain full understanding of the operations under review. The role of internal audit has grown tremendously in most organizations in the recent past. This can be attributed partly to the growth of the organizations, which entails widely extended operations and the need to ensure that the organizations policies and basic accounting controls are observed at every facet of the organization. This calls for the delegation of this responsibility to a separate department called the internal audit department. Internal audit department is department set up by management, usually manned by a chartered accountant, as established in section 358 of the companies Act 1976 as amended, to review the activities of other employee’s thereby enhancing controls in organization (Okoli, 2012). It is against this backdrop that the study examines effectiveness of internal control system in preventing of fraud in public sector with references to university of Nigeria Teaching Hospital (UNTH) Enugu.
1.2 STATEMENT OF THE PROBLEM
The problem in many organizations is that funds and properties are entrusted to certain employees in the organization and in most cases these individual workers are not under supervision. The result is that much of the funds and properties are directed to personal use. To arrest this ugly phenomenon, the management of the organization has to set up internal audit department. It has however become questionable whether the role of internal audit in being practically achieved in the Nigerian public sector, that is if the pragmatic aim of auditing is being realized.
However, some of the problems the study intended to solve which are common in most of public organizations include:
1. Problems of lack of the idea of internal control system. Without internal controls, government establishment operates inadequately, in an unreliable manner and out of compliance with applicable laws and regulations. This invariable leads to high rates of employee dissatisfaction, absenteeism and low rates of employee retention.
2. Inefficient internal control system reduces growth and productivity of the organization. Low productivity can be traced to frauds and errors in the accounts and financial statement of these firms that often lead to the collapse of such organization. The weak internal control system is a major cause of fraud and low productivity in most of government establishment.
3. Lack of internal audit is very ineffective and inefficient. This lack of knowledge of internal audit in public establishment makes it difficult to create effective safeguards that protect organization and financial information. To avoid this weakness, management consultant. These can provide inside the best control systems.
Therefore, it is absolutely necessary to establish an adequate and effective internal control system in government establishment to enhance effective performance of the organization. Consequently, it is important that appropriate measures be taken to avert this situation otherwise it will lead to massive failure of public sector.
1.3 OBJECTIVE OF THE STUDY
The main objective of this research work is to example effectiveness of internal control system in preventing of fraud in public sector. The specific objective includes:
• T o find out if internal control system in government establishment operates adequately in a reliable manner and compliance with applicable laws and regulations.
• To determine if internal control system has enhanced growth productivity and prevent fraud in public organizations.
• To examine whether internal audit is very effective and efficient in safeguarding and protecting public organization financial information.
• To find out if the internal control system aid effective financial administration and management information of corporate organization.
1.4 RESEARCH QUESTIONS
It is expected that the result of this study will help improve internal control system especially government establishment. The following research questions were asked towards achieving the objectives of the study:
• To what extent does internal control system enhance growth productivity and prevent fraud in public organizations?
• To what extent does internal control system in government establishment operate adquqately in a reliable manner and compliance with applicable laws and regulations.
• To what extent is internal audit very effective and efficient in safeguarding and protecting organization financial information?
1.5 RESEARCH HYPOTHESES
The following hypotheses were formulated for the purpose of this study:
Ho: Internal control system in government establishment does not operate adequately in a reliable manner and compliance with applicable laws and regulations.
HA: Internal controls system in government establishment operates adequately in a reliable manner and compliance with applicable laws and regulations.
H02: Internal control system does not enhance growth, productivity and prevent fraud in public organization.
HA: Internal control system enhance growth, productivity and prevents fraud in public organization.
Ho¬3: Internal audit is not very effective and efficient in safeguarding and protecting organization financial information.
HA: Internal audit is very effective and efficient in safeguarding and protecting organization financial information.
1.6 SIGNIFICANE OF TH STUDY
This refers to the usefulness of the research to the government establishment. The importance of this study is of significant benefit to the following categories of individuals:
The government: The ultimate aim of very research is to provide knowledge and information that will bring about a better understanding of the topic under review. It will provide the government with more information that will assist her in closing the entire lapse noted in their parastatals with the aim of providing an understanding of the effectiveness of internal control system as obtainable in the private and public limited companies. University of Nigeria Teaching Hospital (UNTH) Enugu: the study will enable the organization to know the extent to which internal control system has help; the management in the realization of their objectives. It will further enable the management to appraise the internal control system operation with a view to correcting any lapse which may be evidence during the investigation process. Other corporate organizations: it will aid other organizations such as school administrations, companies and hospitals on the strategies to be adopted and improve their internal control system.
State and the country: The findings from this work will further assist the state government and country at large on valuable most especially when the need to broaden their knowledge of internal controls system and policies formulation.
Scholars or student; It will further benefit scholars or students who may embark on the researcher of similar, study in their future program as they will also find it relevant as it will expose them of relevant of internal control in government establishments.
The Researcher: This work will enable the researcher understand the concept of internal control system in prevention of fraud and mismanagement of public funds, it will enable the researcher fulfill the necessary requirement for the award of Higher National Diploma (HND) in accountancy in institute of management and technology (IMT) Enugu state.
1.7 SCOPE OF THE STUDY
The scope of the study is limited to evaluate the effectiveness of internal control system in prevention of fraud in public sector. The geographical area of the study is restricted to University of Nigeria Teaching Hospital (UNTH) precisely Enugu, Enugu state. But for the purpose of easy acquisition of relevant data and information, one has to access their system of control for a better approval. Hence, a descriptive research design will be employed for the study. The period covered in carrying out the project is 2015 to 2016.
1.8 LIMITATIONS OF THE STUDY
The researcher was constrained by finance, lack of cooperation and time factor and other ancillary problems as it was very difficult to visit all the departments of the organization. Financial constraints: finance pose problem to the completion of this research as the researcher have to transport to and for in search of materials. It limited frequent travels which ought to have made to the sampled institution. Also, the cost of source relevant material through the internet and visiting some libraries in the state to source information for the work pose challenges to the research work as the researcher is limited to available fund being a student depending on her parents for fund.
Lack of corporation by the workers; Most of the officers (staff) were not interest to response to some of the researcher.
Time Factors: Time is one of the constraints on the part of the researcher the researcher had other courses to take alongside couple with other school activities.
Bad road network: This is also another limitation to the study as the bad road network restricts the free flow of movement in case of sources materials for this study.
Despite all this limitation, the researcher tried to control several errors which would have affected the findings as well be directed by my project supervisor.
1.9 OPERATIONAL /DEFINITION OF TERMS
To arrive to the essentials of internal audit, it is highly important to know the definition of some terms incorporated from time to time in this work.
Internal control: These are processes designed and affected by those charged with governance management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of the financial reporting effectiveness and efficiency of operations and compliance with applicable laws and regulations.
Internal Auditing: This is examination of records on a continuous basis carried out by person who are also employees to the business enterprise which they are auditing. In this type of the book is submitted to the management with some recommendations and advice from the internal auditors.
Internal Auditor: An internal auditor who is in the employment of the organization which he (as an auditor) is auditing from time to time in accordance with the requirement laid down by the management. He is independent to some extent to enable him discharge his duties satisfactorily but he is not above the management to take his advice.
An Audit: This is an independent examination and expression of opinion on the financial statement of an enterprise by an appointed auditor in pursuance of that, an official examination to ensure that they have been kept in an accurate manner with good accountability practice during a given period.
Financial Accounting and Operation: This includes financial reporting, plant accounting, reconciliation service and billing and payment services.
Fraud: This is an unintentional act in order to steal or deceive from one of fact which deceives and is intended to deceive another.
Detection: This is the art of finding or discovering the existence or essence, nature or identification of something.
Investigation: This is an enquiring commission for some specific purpose stated in his letter of engagement to an investigator.
Management: This constitutes serious members of an organization who dictate and enforce policies and philosophies of the operations.
Efficiency: Ability of perform duties well producing a designed result.
Corruption: This occurs when an agent betrays the principals interests in pursuit of one’s own interest. It is also refers to as behavior that breaks some rule, written or unwritten about the proper purpose to which a public office has been put.
Accountability: Means answerability for one’s action and behavior within the emphasis that public officials should be legally required to be answerable to the public for their stewardship. Accountability implies a compulsion on the part of those who are custodians of public wealth to give account to their trustees.
