APPRAISAL OF FINANCIAL CONTROL SYSTEM ON ORGANIZATIONAL PROFITABILITY
Chapter one
Introduction
Background of the study
Every firm, be it profit or non-profit making organization, will have some objectives which it deem attainable. For profit seeking organizations, their key goal is to maximize shareholder value while the non-profit making organization goal is to satisfy the citizenry’s social need. In order to achieve these purposes, supervision usually plays an important role in the organization. Sometimes it is hard for the management of these organizations to provide first hand and personal supervision of operation due to the size, nature and scope of the organization. The basic components of organizational governance are risk management and financial performance. Therefore, for an organization to achieve this it needs to ensure effective and efficient operations, reliable information (both financial and non-financial) and compliance of rules and regulations
Profitability is a concept that has received serious attention all over the globe, this is because the growth and development of any profit-oriented organization depend on its ability to remain profitable at all times, even in the period of the visible current financial crunch of the world economy. Siyanbola and Raji, (2013) stated that profitability has attracted considerable importance in finance and accounting literature. Also, Malik, (2011), have emphasized profitability has been one of the primary objectives of financial management and control which is to maximize the owners’ wealth. Hence, profitability is cardinal determinants of performance for wealth maximization. A business that is not profitable cannot survive in the long run. Furthermore, the current intensity of competition in the business environment has made running a successful business a function of its ability to be profitable and survive. Therefore, the ultimate goal of a business is to earn enough profit to ensure sustainability in prevailing market conditions. (Adebayo and Onyeiwu, 2018).
Moreover, the effectiveness and efficiency of a firm’s utilization of resource can be measured by its profitability. Profit is a key factor. This is because the more profit reflects a more effective and efficient utilization of resources and vice versa. Low profitability can slow the rate at which a firm progresses and certain obligations and at times target might not be met (Adebayo and Onyeiwu, 2018). It is, therefore, to achieve effectiveness and efficiency that Harley and Emery, (2016) concluded that a detailed control over a number of parameters is required to access the financial condition and situation of the business in detail. They also recommended that to organize an effective system of financial control, management should delegate their power to the subordinate who is conversant with facts in cost management.
Statement of the problem
The application of these financial control mechanisms has generated a lot of argument (with some scholars arguing in favor of while others against) it use. This is because, while financial control has been adopted by the world of management as a tool for achieving organizational performance (Ajonbadi et al, 2014) others have viewed the effect as a hindrance to free workflow process. The high rate of corporate failure and low contribution to GDP could be attributed to the poor performance of the manufacturing sector due to lack of adequate financial planning and control. It has been mentioned that some manufacturing firms do not have a financial plan talk less of a financial control framework. This absence has resulted in reckless spending, wastages and fraud culminating into poor performance (Uwuigbe, et al, 2011). In addition, the manufacturing sector in this contemporary time of globalization is inundated with myriad problems but have a bright prospect for development. There is therefore the need for the application of financial control mechanisms to solve some of these problems in order to realize the anticipated prospects for growth and development
APPRAISAL OF FINANCIAL CONTROL SYSTEM ON ORGANIZATIONAL PROFITABILITY