THE IMPACT OF INTERNAL CONTROL SYSTEM ON REVENUE GENERATION: A CASE STUDY OF POWER HOLDING COMPANY OF NIGERIA P.H.C.N OKPARA AVENUE ENUGU

CHAPTER ONE

INTRODUCTION

1.0. BACKGROUND OF THE STUDY

Every organization has a purpose, which includes making some product and rendering some services at a price. For normal operations of the business organization, it is the product or services of the firm that cause cash receipts (revenue) to flow into the firm. Revenue is associated with products or service of a firm as source of expected cash receipts. Revenue is an event; an increase that applies definitely to value that is monetary. This increase occurs because the firm undertakes certain activities or there is any performance by the firm. Revenue therefore refers to the monetary event of asset valves increasing in the firm due to the physical event of production or sales of the firms’ products or services. In Kam (1987:237), Financial Accounting Standard Board(FASB) defines revenue as inflows or other enhancements of assets of an entity or settlements of its liabilities (or combination of both) during a period from delivery or producing goods, rendering service or other activities that constitutes the entity’s ongoing major or central operations. In addition, Hongreen et al (2002:568) described revenue as inflows of asset (almost always cash or accounts receivables) received for products or services provided to customers. On the basis of the above, National Electric Power Authority now Power Holding Company of Nigeria is a government owned public utility establishment enjoying almost total monopoly in generating, transmitting and delivering electricity to all homes and businesses in Nigeria.

According to the establishments customer service chartered (2004), her mission as a service industry is to satisfactorily meet customers electricity demand in the most cost effective manner using proven technology and well motivated customer friendly work force with adequate consideration for the environment. Her goals include: I. To continuously improve her service to her customer. II. To realize full payment for timely accurate and complete billing of electricity delivered. III. Institutionalize business and commercial orientation among the work force. IV. Gradually aiming at closing the gap between demand and supply by upgrading and expanding, generating, transmission and distribution of infrastructure. V. To improve skills and motivation of staff. To achieve the above mission and goals, the management of the establishment must adopt measures to ensure that available resources are prudently used to obtain valve for money from resources allocated to them. Management in turn should generate operational data with which they evaluate the efficiency and effectiveness of their operation. It is fundamental aspect of management stewardship responsibility to provide interested parties with reasonable assurance that their organisation is effectively controlled and that the accounting data it receives on a timely basis are accurate and dependable. Developing a strong system of internal control provides this assurance.

Thus internal control is defined 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 to ensure adherence to management policies safeguard the assets and secure as far as possible the completeness and accuracy of the records. In addition the American institute of Certified Public Accountants in 1949 defined internal control as comprising the plan of organisation and all the coordinate methods and measures adopted within a business (or non profit making body) to safeguard its assets, check the accuracy and reliability of its accounting data promote operational efficiency and encourage adherence to prescribed managerial policies. A ‘system’ of internal control extends beyond those matters which relate directly to the functions of the accounting and financial department. However, it is an established fact that all the business units and service centre of power holding company of Nigerian plc in Enugu state are often plagued by accounting and administrative control problems as it affect revenue generation and other assets. As a result the establishment revenue base has assumed a downward trend. It has also been shown that despite considerable investment, public service delivery by the establishment is widely perceived to be unsatisfactory and deteriorating from bad to worse. The complete dependence on capital grants allocation from government is also known. What is not known is the degree to which internal control weaknesses and reduced allocation from government contribute to the problem.