CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
The chartered institute of Public and finance accountants (CIPFA) states that the internal control system comprises the whole system of controls, financial and otherwise, established by management in order to carry on the business of the organization in an orderly and efficient manner, ensure adherence to management policy safeguard the assets and ensure as far as possible the completeness and accuracy of the records.
Individual components of internal control system are known as “control i.e Internal control”.
The Canadian institute of chartered accountants, Exposure Draft of proposed auditing Recommendations describes internal control as comprising of the plan of an organization and all the co-ordinate systems established by the management of the enterprise to achieve management objectives by ensuring as far as is practical, the orderly and efficient conduct of its business including the safeguarding of assets, the reliability of accounting records and the timely preparation of reliable financial information. Internal control system, therefore canto be viewed as a firms organizational plan including all methods and measures by the firm takes to
(a) Safe guide its assets
(b) Ensure the accuracy and liability of its accounting data
(c) Promote operational efficiency and
(d) To encourage compliance with company policies
This is my abridged definition:
It is the responsibility of management to determine the internal control which is appropriate to the organization. The nature and extent of controls will vary between organizations and also from one part of an organization to the other.
The controls used will depend on the nature, size and volume of the activities and the degree of control which management are able to exercise personally, geographically distribution and may other factors.
Internal control can be divided into two main categories financial controls which are primarily concerned with legitimacy of expenditure and the security of assets and income and other controls mainly administrative which are created and maintained by management the ensure that an activity is relevant to the needs of an organization and is carried out in the most effective manner. These categories are independent and should be regarded in isolation as both have an impact on the performance of activities and their consequent cost and value to the organization.
Accounting and Financial Controls
These consists of all accounting, financial and monetary control techniques and systems built into the internal control system to promote and encourage the attainment of the objectives on internal controls. Generally, accounting and financial controls consists.
(a) Budgetary Control: This refers to formulation of plans of future activity, which by down carefully determined objectives and programmes of activity and provide yard stick by which deviations from planned achievements can be measured. It is defined as “the establishment of departmental budgets relating to the responsibilities of executives to the requirements of policy.
(b) Legitimacy of Income and Expenditure: All income and expenditure should be in accordance with the policy of the organization should be properly authorized and written in law.
(c) Security of Assets: Assets of the organization should be kept in properly custody and not wrongly applied either by error or intent.
(d) Accounting control: All transactions should be correctly recorded processed and control account should be maintained. It is in the bid to discuss those internal control systems that this work is carried out.