ASSESSING THE INTERNAL CONTROL SYSTEMS OF PUBLIC INSTITUTIONS (A CASE STUDY OF TAMALE POLYTECHNIC)

ASSESSING THE INTERNAL CONTROL SYSTEMS OF PUBLIC INSTITUTIONS (A CASE STUDY OF TAMALE POLYTECHNIC)

 

ABSTRACT

 

There have been several cases of embezzlement of funds and misuse of resources in Public institutions though such institutions have several rules and control measures to Guide their operations. The main purpose of the research was to assess the effectiveness of internal control systems at Tamale Polytechnic. The specific objectives were to find out the internal control systems at Tamale Polytechnic, employee‟s awareness of the internal control systems, whether management is able to override the control systems and how consistent are the control Systems with international standards. The descriptive research method was employed in the study. The population was all staff at the Polytechnic in the year 2014-2015. The sample was made up of 50 respondents comprising of 40 experts (Finance, audit, procurement and stores) and10 non-experts from other departments apart from the ones already mentioned. The purposive and the simple random sampling technique were used to sample the population and the main instruments used for the collection of data were the questionnaire. Some of the findings the research revealed are the existence of strict supervision, authorization and segregation of duties. The findings revealed that management does not communicate to the staff of new control policies introduced. Again the findings indicated that the control systems at the Polytechnic are quite effective and are directed towards the detection and prevention of fraud and error. Some of the recommendations to the management of the Polytechnic include the embossment of the institution's logo on all assets and that management must keep the employees informed of new control policies introduced. Finally, the Polytechnic must invest in computerizing most of its manual operations.

 

TABLE OF CONTENT

 

DECLARATION............................................................................................................. ii

DEDICATION................................................................................................................ iii

ACKNOWLEDGEMENT............................................................................................. iv

 

ABSTRACT..................................................................................................................... v

 

TABLE OF CONTENT................................................................................................. vi

LIST OF TABLES........................................................................................................ viii

LIST OF FIGURES........................................................................................................ ix

 

 

CHAPTER ONE.............................................................................................................. 1

 

INTRODUCTION........................................................................................................... 1

 

1.1 Background to the Study............................................................................................. 1

1.2 Statement of the Problem............................................................................................. 4

1.3 Reseach Objectives:...................................................................................................... 6

1.4 The Research Questions............................................................................................... 6

1.5 Significance of the Study............................................................................................. 6

1.6 Methodology................................................................................................................ 7

1.7 Scope And Limitations of the Study........................................................................... 7

1.8 Organization of the Study............................................................................................ 7

 

 

CHAPTER TWO............................................................................................................. 9

LITERATURE REVIEW............................................................................................... 9

 

2.1 Introduction.................................................................................................................. 9

2.2 Evolution of Internal Controls..................................................................................... 9

2.3 Definition of Internal Controls................................................................................... 13

2.4 Importance of Internal Control.................................................................................. 17

2.5 Composition / Components of Internal Controls....................................................... 18

2.6. The Control Environment.......................................................................................... 19

2.6.1 Assessment of risk................................................................................................... 24

2.6.2 Accounting Information System to Financial Reporting........................................ 24

2.6.2 Control Activities.................................................................................................... 25

2.6.3 Types of Control Systems....................................................................................... 25

2.6.3.1 Preventive Controls.............................................................................................. 25

2.6.3.2 Detective Controls................................................................................................ 26

2.6.3.3 Corrective Control................................................................................................ 26

2.7 Monitoring.................................................................................................................. 26

2.8 Empirical Review....................................................................................................... 26

 

 

CHAPTER THREE....................................................................................................... 28

RESEARCH METHODOLOGY AND ORGANISATIONAL PROFILE............. 28

3.1 Introduction................................................................................................................ 28

3.2 The Research Design.................................................................................................. 28

3.3 Study Population........................................................................................................ 28

3.4 Sample Size................................................................................................................ 29

3.5 Sampling Procedure.................................................................................................... 30

3.6 Type of Data and Record Garthering Process............................................................ 30

3.7 Data Analysis............................................................................................................. 31

 

 

CHAPTER FOUR......................................................................................................... 32

DATA PRESENTAION, ANALYSIS AND DISCURSIONS.................................. 32

4.1 Introduction................................................................................................................ 32

4.2 Demograph of RESPONDENTS............................................................................... 32

4.2.1 Internal control consistent to international standards............................................. 34

4.2.2 Management overrides internal control................................................................... 47

4.2.3 Internal control existence in the polytechnic........................................................... 49

 

CHAPTER FIVE........................................................................................................... 51

 

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS..... 51

 

5.1 Introduction................................................................................................................ 51

5.2 Summary of Findings................................................................................................. 51

5.3 Conclusion.................................................................................................................. 52

5.4 Recommendations...................................................................................................... 53

REFERENCES.............................................................................................................. 55

APPENDIX..................................................................................................................... 59

 

CHAPTER ONE

 

INTRODUCTION

 

1.1 BACKGROUND TO THE STUDY

 

Globalization of business, advancing in knowledge and wide increase in fraud that leads to collapse of business such as the New Zealand, United Kindom and other nations and institutions in Europe have been encouraged to put emphasis on risk management, their internal audit and internal control systems. Corporate entities, irrespective of their size maintain financial control systems if they wish to uphold the practice of good corporate governance. The purpose is to comply with applicable standards and financial information reliability as well as to ensure effective operation of business. In general managing Risk and financial controls precisely are those remained careful as essential features of structural power.

Internal Controls of every organization remains one of the strategic tools for improving corporate governance and financial management administration for public sector is not an exception, especially in the face of limited resources of a country which adopted the Economic Recovery Programme (ERP) in April 1983, followed by the Structural Adjustment Programme (SAP) in August 1986 and HIPIC Initiative in 2002 so as to salvage the ailing Ghanaian economy.

Organisations are set up to pursue certain objectives. For profit making organisations the ultimate objective is to create wealth for shareholders and make reasonable profit to sustain the business. Not all organisations have similar objectives to achieve.

 

Management of controls in non-profit making organisations is a subject to which very little information exists in the accounting for literature. Though the way in which managers may apply the concepts of management control may differ in some esteem, the

basic concepts of management control are the same for both profit making firms and non-profit making organisations (Anthony and Young, 1994).

In pursuing these goals and objectives certain tools are employed to assist them in the efficient management of the scarce resources at disposal to bring the best out of them. In this regard, the right environment and tools are needed to employ to achieve the desired objectives. This involves both management and employees to ensure that enabling environn1ent is created.

 

The issue of stewardship and accountability is dated back to the biblical days when God placed the first man in the Garden of Eden and tasked him to be accountable and keep the Garden (Gen 2:7). The complexity of the modem day business operation demands the use of adequate programmes, tools and policies to ensure that proper procedures are followed to achieve the objectives of the organization, Jones (2008) said that internal controls was a core element in ensuring accountability and the principle of agency theory .

According to Creveld [n.d] ancient times existed in control systems. The dual administration in Hellenic Egypt were one is bureaucrats responsible for assembling taxes and an observation on the other side.

Association of Certified Fraud Examiners (2007) stated in their manual indicated that all organisations are exposed to the fraud and risk. Big thefts have led to the collapse of firm‟s institutions and resulted to massive venture sufferers, substantial of legal costs, confinement of key individuals, and destruction of self-assurance in money markets. Broadcast fraudulent behaviour by key directors has destructively impacted the standings, brands, and images of many organisations round the globe.

A 2004 study by the ACFE discovered that 83% of internal fraud cases were conm1itted by first time offenders, not career criminals. In its 2006 study, the ACFE disclosed that the banking industry is the biggest victim of internal fraud. The report on ACFE's 2008 is about Occupational Deceit& Abuse raised the internal deceitful loss rate to seven per cent of annual turnover for all organisations.

 

Many institutions in parts of the country do not attain high profit such as the collapse of Enron, Worldcom, Parmalat, mention just a few .this implies no company can be too big to fail.(Babalola, 2010) identified as a common trend in all these failures. Expectations from clients are those external auditors are those to generate unqualified report for them. Giant companies has fallen due to financial distress which has been known as a compromised of Auditors which resulted to absolute dissolutions of corporate bodies in the united states due to poor internal control systems. An instance of financial distress is normally as a result of Poor corporate governance. Many institutions in Ghana are identified to have weak internal controls which impede their smooth running of the business. Disclosure of financial information leads to fraud and this is an indication of weak internal controls makes decisions. Regulators and investors make their decisions most in listed companies due to the quality nature of that financial information disclosure.

 

There are increasing tendency of business organisation to measure of performance and presentation of financial reports. Nevertheless, auditors of public sector organizations have always been concerned not only testing financial statement but also reviews non - financial information. This is because of the unique nature of such organizations.

Consequently, at hand are several methods that public sector organizations are held accountable and for many dissimilar traits of their presentation. Generally, however, they usually prepare and present financial reports.

 

This information provide a picture of the resource entrusted, how the resources were employed during a given period usually one year, and in what form the resources are now held. The emphasis, therefore, has still been on producing verifiable statement of income and expenditure balance sheet and flow of funds.

 

It is expected that the reports of public organizations not only reveal the resources entrusted and their use but more importantly, the degree of efficiency and effectiveness achieved in the employment of the resource.

 

1.2 STATEMENT OF THE PROBLEM

 

Internal auditing has become an integral part of the administrative system of tertiary institutions in Ghana. As autonomous as they are, tertiary institutions receive subventions from the central government to facilitate the execution of their duties. In the process of this, internal audit units of the various tertiary institutions play pivotal role in ensuring that the control systems in these institutions are effectively complied with so as to ensure good governance.

 

The year 2003 saw the enactment of Act 658 and the subsequent formation of internal audit unit now in the institution of higher education such as polytechnics as specified by the internal Audit Agency act. Section 16(1). It is compulsory for every Ministry, Department as well as Agencies (MDAs) are to create internal audit units to exercise their roles on all activities of such institutions in which they operate.

The public procurement act was not to be left out as well as the Financial Administration Act and the Internal Audit Agency Act was made to work effectively.

 

However, it is worth noting that most units and departments in universities and polytechnics have not fully appreciated the role of internal controls as being one to ensure efficient utilization of the resources of these institutions.

 

Public institutions are guided by rules and control measures to help them achieve their aims and objectives and also to curb corruption. There have been several reported cases of embezzlement of fund and misuse of resources in the public institution, though these control measures are put in place especially in the Ministries, Custom Excise and Preventive Service (CEPS), public educational institutions, just to mention a few. A typical example is what happened in Tema port where the state lost millions of cedis through tax evasion. One will even doubt whether public institutions are indeed guided by control measures.

 

From the foregoing the researcher decided to find out whether or not the effectiveness of internal controls put in place by the public procurement act, the financial administration act as well as the internal audit agency has ensured effectiveness and efficiency in the management of scarce resources in achievement of institutions objectives.

In light of these happening, the researcher decided to research into the operations of Tamale polytechnic an educational institution to establish whether their internal controls are really working and in achievement of their objectives.

 

1.3 RESEARCH OBJECTIVES:

 

The main objective of this research is to study and assess the influence of internal control systems in Tamale Polytechnic.

 

The Specific objectives are:

 

1. Determine what are the internal control system existence at the polytechnic and the extent to which they have been achieved.

 

2. Find out if management of the Polytechnic are overriding the internal control systems.

 

3. Determine if internal control systems at the polytechnic are consistent with internationally acclaimed standards, contained on Committee of Sponsoring Organizations (COSO).framework.

 

1.4 THE RESEARCH QUESTIONS

 

This research sought in providing answers to the following questions:

 

1. What are the internal control systems in existence at Tamale Polytechnic?

 

2. Is management at the Polytechnic able to override the control systems?

 

3. How consistent are the internal control systems at the Polytechnic to the COSO framework?

 

1.5 SIGNIFICANCE OF THE STUDY

 

The achievement of this objective, among other factors, is predicated on the existence of effective control systems. The outcome of this study will bring to light to the management of Tamale Polytechnic, the degree of internal controls system in the Polytechnic. This would assist management of the institution to strengthen its internal control mechanism.

Finally, the study will serve as a contribution of knowledge to help future researchers on the same topic. Researchers may fall on this study as a secondary source of literature on their research work.

 

1.6 METHODOLOGY

 

The research design used was the descriptive research method. The population is the study of all the staff of the polytechnic. The sample size used was 50 administrative staff of Tamale Polytechnic which was group into 10 academic and 40non-academic staff.

The sample procedure used was purposive selection for academic staff as also the simple random selection for non-academic staffs. The data collection method was Questionnaires for non-academic staff.

 

1.7 SCOPE AND LIMITATIONS OF THE STUDY

 

There are many public institutions in the country but the researcher chose Tamale Polytechnic because of proximity and time constraint. Among some of the difficulties faced by the researchers was the combination of the research work with the semester‟s course work. Limited financial resources to undertake the study adequately and Unwillingness on the part of some respondents to give out information which they consider delicate and private to the organization and the choice of words to represent what is actually in mind.

Despite the above limitations, the data collected was sufficient and appropriate to help make helpful suggestions and valid conclusions.

 

1.8 ORGANIZATION OF THE STUDY

 

This study was organized into five chapters to enable reader‟s attention. Each chapter is arranged accordingly. Chapter one talks about background of the study, statement of the problem, the objectives of the study, research questions, significance, as well as scope and limitations of the study.

 

The chapter two tries to review existing related literature concerning internal controls to acquire detail understanding on the topic. This chapter gives detailed of the definitions of internal control, importance of internal control, composition of internal control and the limitations of internal control systems. chapter three looks at the scope of the methodology, the design sampling procedure of data collection, chapter four present the analysis of data and presentation of facts, finally chapter five also presents the summary , conclusion and recommendations for the study.

 

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