The Role of Internal Control System as an Aid to Management Decision Making

The Role of Internal Control System as an Aid to Management Decision Making.

ABSTRACT

The objectives of the study is to examine the Role of Internal Control System as an aid to Management Decision Making.

Primary data were collected through a well-structured research questionnaire administered. A sample size of 30 was randomly selected and all responded accordingly.

Therefore, chi-square was employed for the data analysis. The study revealed that is significant relationship between the internal control and decision making

TABLE OF CONTENT

Contents
DECLARATION….. ii
CERTIFICATION …iii
DEDICATION… iv
ACKNOWLEDGEMENT…… v
ABSTRACT………. vii
TABLE OF CONTENT…. viii
LIST OF TABLE…………. xi
1.0 Introduction………. 1
1.1 Background to the study . 1
1.2 Statement of problem….. 2
1.3 Objective of study………. 3
1.4 Research Questions……. 4
1.5 Statement of Hypotheses….. 5
1.6 Significance of the Study ………. 6
1.7 Scope and limitations of study…. 7
1.9 Organization of the study….. 7
1.10 Definition of Terms…. 8

CHAPTER TWO LITERATURE REVIEW

2.0 Introduction ….. 10
2.1 Conceptual Clarification …. 10
2.1.1 Definition and Understanding of Internal control….. 10
2.2 Internal Control….. 12
2.2.1 Components of Internal Control ….. 14
2.2.1.1 Control Environment .. 14
2.2.1.2 Risk Assessment………. 14
2.2.1.3 Control Activities…. 14
2.2.1.4 Information and Communication…. 15
2.2.1.5 Monitoring ………… 15
2.2.2 What Internal Control Can Do…. 16
2.2.3 What Internal Control Cannot Do…… 17
2.2.4 Roles and Responsibilities……. 17
2.2.4.1 Management………….. 18
2.2.4.2 Board of Directors…… 18
2.2.4.3 Internal Auditors …….. 19
2.2.4.4 Other Personnel…19
2.2.5 Classification of Internal Control….. 20
2.2.5.1 Administrative Control… 20
2.2.5.2 Accounting Control…. 20
2.2.6 How to Establish Cost-Effective Controls… 21
2.2.7 Determining Your Plan‘s Control Objectives……. 21
2.2.8 Establishing, Documenting and Communication of Your Internal Controls… 23
2.2.9 Essential Elements of Internal Control …….. 25
2.2.10 Importance of Internal Control ….. 26
2.2.11 Segregation of Duties….. 28
2.2.12 Internal Audit …… 28
2.2.13 Objectives of Internal Auditing Function …….. 29
2.2.14 limitations of Internal Control …….. 29
2.3 The Nature of Decision making……. 30
2.3.1 Decision Making Process…….. 30
2.4 Internal Control and Information Technology … 31
2.5 Theoretical Literature Review ….. 32
2.5.1Research of control conception……. 32
2.5.2 The Need for Control Systems….. 36
2.5.3 Adoption and Design of Controls ……. 39
2.6 The Need to Align Principals and Agents…… 40
2.6.1 Control of Agency Problems……… 41
2.6.2 Adoption of New Organizational Practices…… 44
2.6.2.1 Coercive Isomorphic Change…. 45
2.6.2.2 Mimetic Isomorphic Change……… 45
2.6.2.3 Normative Isomorphic Change …. 46
Empirical Review…….. 46
2.7 Control from Different Theoretical Perspectives….. 46

CHAPTER THREE RESEARCH METHODOLOGY

3.0 Introduction…… 52
3.1 Research Design…… 52
3.2 Research Population…….. 52
3.3 Sample and Sample Techniques…53
3.4 Research Instrument…….. 53
3.5 Validity and Reliability of Instrument…… 53
3.6 Data Collection Technique……. 53
3.7 Method of Data Analysis ……… 53

CHAPTER FOUR DATA PRESENTATION AND DISCUSSION

4.1 Demographic Data of Respondents …….. 55
4.2 Testing of Hypotheses…… 57
4.2.1 Hypothesis one:…… 57
4.2.2 Hypothesis Two: …. 58
4.2.3 Hypothesis three….. 59
4.2.4 Hypothesis Four……… 61

CHAPTER FIVE SUMMARY OF FINDINGS, DICUSSION, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction……… 63
5.1 Summary of Findings……. 63
5.2 Conclusion ……. 63
5.3 Recommendations…. 64
REFERENCES …. 65
APPENDIX……….. 67

INTRODUCTION

Background to the study

Every organization both profit or non-profit organization has its objectives and goals in mind to achieve.

For the non-profit making organization, their goal is to satisfy the social need of the citizens and in the effort to achieve these purposes supervision more often than not play a vital role.

The size and scope of these organizations have sometimes made it hard for the executors to exercise personal and first hand supervision of operation. It is in this light that internal control established by management is initiated.

For an organization to carry out its business there must be some factors put in place for the smooth running of the organization like materials, machines, money etc.

These need to be well co-ordinated in order for the success of the organization to be achieved.

These factors are used by a group of persons known as management. Neither can management exists without an organization both are inseparable.

The system of internal control provides assurance to management of the dependability of the accounting data used in the decision making of the organization. Management use internal control as a tool to check it staff due to the fact that managers are not able to monitor the activities of the organization.

It therefore adopts the internal control in such a way that the system checks itself and any irregularity within the system is been detected and corrected.

To ensure that the system checks itself, management could use devices such as segregations, supervision of work and acknowledgement of performance.

The effective arrangement and implementation of this control system would ensure proper management. High-profile organizational failures typically lead to the imposition of additional 2 rules and requirements, as well as to subsequent time-consuming and costly compliance efforts.

However, this obscures the fact that the right kind of internal controls—enabling an organization to capitalize on opportunities while offsetting the threats—can actually save time and money, and promote the creation and preservation of value.

Effective internal control also creates a competitive advantage, as an organization with effective controls can take on additional risk.

According to Chambers (1995), Cosserat (1999), Ridley and Chambers (1998), internal Controls are systems comprising of the control environment and control procedures.

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Committee of Sponsoring Organizations of the Treaway Commission (COSO). (1992). Internal Control-Integrated Framework. Coopers & Lybrand, September, Vol. 1–4.

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