EFFECTIVE INTERNAL CONTROL SYSTEM AS A MEASURE OF FRAUD PREVENTION IN THE PUBLIC SERVICE (A CASE STUDY OF BOARD OF INTERNAL REVENUE ENUGU STATE)
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EFFECTIVE INTERNAL
CONTROL SYSTEM AS A MEASURE OF FRAUD PREVENTION IN THE PUBLIC SERVICE
(A CASE STUDY OF
BOARD OF INTERNAL REVENUE ENUGU STATE)
PROPOSAL
The purpose of this
study is to analyze the effectiveness of the internal control system of the board
of internal Revenue Enugu State.
It cannot be over emphasized here that
an effective internal 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, the
research work will be grouped into five chapters, 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 will show the methods
through which the survey and the sources of data will be 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 board of internal revenue Enugu State
to improve on the effectiveness of their internal control system.
TABLE OF CONTENTS
Title Page
Dedication
Acknowledgement
Proposal
CHAPTER ONE
1.1 Introduction
1.2 Statement
of Problem
1.3 Purpose
of Study
1.4 Relevance
of the Study
1.5 Methodology
and Hypothesis Statement
1.6 Scope
and Limitation of Study
1.7 Definition
of Terms.
CHAPTER TWO
2.1 Introduction
2.2 Organizational
Chart
2.3 Personal
Income Tax Duties
2.4 Other
Revenue Duties
2.5 Planning
Research and Statistics
2.6 Administration
and Finances
2.7 Relationship
between Internal and External Auditor
2.8 Internal
Audit as an Effective Internal Control System.
2.9 Factors
that will be considered by an external auditor before relying on the work of
the internal auditors
2.10 Audit
committee.
2.11 Relationship
between the audit committee and the external auditor.
2.12 Essentials
of internal control
2.13 Internal
check
2.14 Types
of internal control system at board of internal revenue Enugu state
2.15 Areas
of work where internal and external auditors overlap at the board of internal
revenue Enugu state.
2.16 Areas
of work where internal and external auditors overlap at the board of internal
revenue Enugu state
2.17 Fraud
2.18 Difference
between fraud in the organization
2.19 Reference
CHAPTER THREE
3.1 Research
methodology
3.2 Primary
data
3.3 Validity
and reliability of the questionnaire
3.4 Personal
interview
3.5 Observations
3.6 Statistical
tools and mathematical manipulation
3.7 Research
design
3.8 Selection
of sample
3.9 References
CHAPTER FOUR
4.1 Introduction
4.2 Field
survey
4.3 Presentation
and analysis of data
4.4 Section
a part of the questionnaire
4.5 Section
B part of the questionnaire
4.6 Data
analysis
4.7 The
procedure for reporting fraud at the board of internal revenue
4.8 Testing
of hypothesis
4.9 Hypothesis
1
4.10 Hypothesis
2
4.11 References
CHAPTER FIVE
5.1 Summary
5.2 Recommendations
5.3 Conclusion
5.4 Bibliography
5.5 Appendix
CHAPTER
ONE
1.1 INTRODUCTION
The
Institute of Charter Accountants defines the concept internal control system as
“The whole system of control financial and otherwise established by the management
in order to carry on the business of the enterprise in an orderly and efficient
manner, ensure adherence to management policies, safeguard the assets and
secure as fact as possible the completeness and accuracy check and internal
audit” fraud is a threat common to most organizations. It is a threat to the
effective utilization of resources and as such, it will always remain an
important concern to management.
Fraud
needs to be deleted and potential fraud needs to be prevented. Effective
internal control system is vital for the survival of any organization it serves
as a check on fraudulent activities of the management and employees an
organization and it brings about solutions to likely fraudulent acts in an
organization.
Management
is totally responsible for establishing the internal control system in an
organization.
Auditing today is
based on internal control. A client during the course of financial period so
because it is client during the course of so because it is undesirable for an
auditor to carry out a hundred percent check on all the transactions enters
this.
Internal control
system is a necessity in large organizations especially where management
is removed from day to day routine operations of the organization. Internal
control system include controls exercised by management which comprise of rules
and regulations as well as procedures set up by organizations bearing also the
problems set up by organizations bearing in also the problem of limited
resources.
If the internals
control system is effective in an organization, it ensures maximum use of
resources and also reduces to the barest minimum fraud.
The need for
affective internal control system therefore cannot be over-emphasized. It is
important because of the existence of risks and also all form irregularities in
an organizations term of flatly, the major frauds in public and private
enterprises can be traced to lapse in the internal control system and the
existence of poor control environment in organization.
An effective internal
control system and its fraud preventive measures in an organization will help
to prevent fraud and errors in an organization thereby reducing fraud to its
minimum than when internal control is not in existence or when there is
weakness in the system.
1.2 STATEMENT
OF PROBLEM
Internal control
system is an important system for the survival of any public sector. It becomes
imperative that the internal controls should be kept alive and under close
watch. The strategies is for effective functioning of an internal control
system are followed:
i. ORGANIZATION
The parastatal must
have clear corporate objective, plan, policy and duties of the employees should
be clearly defined. There should be clear policy objectives, from where
controls could be made if an organization has no plan, control could not be
possible. Organizational control is the primary and most important
control within an enterprise it is concerned with the inter-relationship of the
whole complex activities of the enterprise, its divisions, units and standards,
methods or procedures of concluding the affairs of the enterprise and defines
the precise function and purpose of every section and its authority in relation
to other section. This is where an organization responsibilities and duties
are clearly stated.
ii. SEGREGATION OF
DUTIES
Absolutely, basic to the concept of internal control system is the segregation
of the duties of the employee to ensure that no one person is able to record
and process a complete transaction. Particular importance must be
attached to the total separation of the function of ‘Authorization’,
‘Execution’, ‘Custody’ and ‘Recording’.
iii. PHYSICAL
These are mainly concerned with the custody of the assets and involves
procedural and security measures designed to ensure that access to assets is
limited to authorized personnel. These include direct and indirect
control. The physical controls are very important in respect of valuable,
portable, exchangeable assets or close in possession.
iv. AUTHORIZATION
AND APPROVAL
All transactions
require authorization and approval by an appropriate and responsible
person. All transactions should be reviewed and seen to be carried out in
the public sectors modes or procedures of doing things before they are
approved.
v. PERSONNEL
There should be
procedures to ensure that personnel have capabilities commensurate with
their responsibilities inevitably, the proper functioning of any system depends
on the competence and integrity of those who are to operate it. Right
person should be put in the right position, at all times.
vi. SUPERVISION
Any
system of internal control should have means of supervision by responsible
officials for the day to day transactions and their recording thereof, it is
through supervision that the controls’, effectiveness are ensured. If the
rules, procedures etc are installed without supervision, they can not function
effectively.
vii. ARITHMETICAL AND
ACCOUNTING
These are the controls within the recording function which check that the
transactions to be recorded and processed have been authorized and that they
are all complete and that they are accurately processed such controls include
checking the arithmetical accuracy. However, for every coin, there must
be two sides. It is necessary to acknowledge that internal controls have
inherent limitations which include:
i.
Internal
controls tend to be channeled at routine transactions. The one-off or
unusual transaction tends not to be the subject of internal control.
ii.
Likely
human error caused by stress of work load, alcohol, carelessness, distraction,
mistakes of judgment, and the misunderstanding of instruction.
iii.
A
requirement that the cost of an internal control is not disproportionate to the
potential loss which may result from it absence.
iv.
The
possibility of circumvention of controls either alone or through collusion with
parties outside or inside the public sectors.
v.
Management
override of controls.
vi.
Abuse
of responsibility
vii.
Human
cleverness – no matter how secure the computer code is designed to prevent
access, there is always lacker who gets in.
viii. Changes
in environment making controls inadequate.
ix.
Fraud
However, the inherent
limitations of internal controls are the reasons why auditors are required to
always perform some substantive tests of material items as well as relying on
internal controls.
1.3 OBJECTIVES
OF THE STUDY
They are:-
1.
To
ensure that management policies are implemented appropriately
2.
To
ensure the existence of a structures framework for efficient and effective
channeling resources.
3.
To
ensure that there is important and accurate documentation that can provide
information on which significant based.
4.
To
ensure timely records of relevant strategic ad tactic decision are based.
5.
To
ensure that vital and expensive assets on which operation of the organization
critically depends on are prevented from misuse and misappropriation.
1.4 RESEARCH
QUESTION
From prior debated
and research on internal control system in public sectors, educationist have
suggested the following ways of fraud prevention in the public sector which are
adequate reporting of agents stewardship, internal and external checks of the
various parastatal by the auditors and reduction in the frequency occurrence of
errors in their account.
Equally the scholars
in the same vein have suggested that some of the likely problems associated
with auditing of public sectors accounts are absence of qualified manpower
inadequate accounting resources and facilities, time and administrative
interference by other tier of government.
In attempt to examine
the proposal and problems of internal audit in public sector, the following
questions have been advance which include:
a)
Does
this organization have an internal audit department?
b)
Are
staff usually rotated on their job from time to time?
c)
Are
the accounting records kept in this organization useful to the internal audit
department?
d)
Are
accounting records kept for all the operations of this organization?
e)
Is
the major cause of fraud in this organization negligence.
f)
Are
adequate disciplinary actions usually taken against staff who alleged to have
committed fraud?
g)
In
your own view, do you think there is need to audit this organization?
h)
Does
internal auditors perform its duty with reasonable care and skill?
i)
Is
the internal audit department well staffed with qualified staff?
1.5 SIGNIFICANCE
OF THE STUDY
The relevance of this
study is in its attempt to find out and evaluate those factors responsible for
effective internal control system in the board of internal revenue (BIR) Enugu
State, Nigeria.
The significance will
include the following:
1.
To
ensure, the researcher finds out problems encountered in relation to the
internal control system and make appropriate recommendation for improvement.
2.
To
serve as a guide for organization having weak internal control systems to
improve on the quality of theirs and their intern make it more effective.
3. To
serve as guide to others who are likely to carry on
research on this study in future.
1.7 DEFINITION
OF TERMS
In this study the
researcher will try as much as possible to explain technical terms used during
the course of study. They are as follows:
1. INTERNAL
CONTROL
In the AICPA’S
codified standards covering auditing practice (320:09). Internal
control is defined as “Internal control comprise the plan if organization and
all of the co-ordinate methods to safeguard its assets check the accuracy and
reliability of its accounting data, promote operational efficiency and
encourage adherence to managerial policies.
It is the whole
system of controls financial and otherwise established by the management in
order to carry on the business of the company in an orderly67 and efficient
manner.
2.
AUDITORS
It is a firm of
professional accountants all parties one or more of whom is responsible for the
control of the audit and signing of the audit report on behalf of the firm.
3.
INTERNAL
AUDIT
The standards for the
professional practice of internal auditing released in may 21978 defined
internal auditing as an “independent appraisal function established within its
activities as a service to the organization”
4.
INTERNAL
AUDITORS
Auditors that have
been employed by the management of organizations, individuals, companies,
partnership, and government as well as other agencies.
5.
EXTERNAL
CHECK
It is defined as the
checks on the day today transactions, which operate continuously as part of the
routine system where the work of one person is proved independently by another
person.
6.
AUDIT COMMITTEE
It is a committee
setup by the shareholders to examine the directors’ report and make
recommendation on the annual general meeting
7.
EXTERNAL AUDITORS
These are independent
professional Accountants (qualified) often refereed to as independent to as
independent auditors or certified public Accountants.
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