EFFECT OF INTERNAL CONTROL ON THE PROFIT MAKING OF NIGERIAN BREWERIES A STUDY OF NIGERIAN BOTTLING COMPANY 9TH MILE ENUGU

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Study

Internal control has been recognized in the most organizations as one of the most essential ingredients, necessary for the survival of the business enterprise and government agencies. Apart from the problem of scarce resources, organizations run a high risk of fraud, errors, misappropriation of funds, inefficient and ineffective operations. Step are required, therefore to minimize, if not eliminate completely, these risks, by establishing internal control system. For every organization, there are risks that the organizational goals and: objectives are not achieved. All efforts aimed at preventing or identifying and correcting such risks are viewed as internal control. Anthony (2008:17) defined internal control as “the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization objectives. Garrison Noreen 2000:378) suggested a different definition for internal control as follows: “those steps taken by management that attempt to increase the likelihood that the objectives set down at the planning stage are attained and to ensure that all parts of the organization function in a manner consistent with organizational policies”.

He further defined internal control as those sets of organizational activities which include: planning, co-ordination, communication, evaluation .and decision making as well as informal processes, aimed at enhancing the efficient and effective use of the organizational resources towards the achievement of the organizational objectives. We are treating internal control as a tool used by the management to facilitate those activities which corresponds to our area of study. Anthony and Govindavajan (2004) identified several aspects or activities of management/internal control namely: planning, coordinating, ‘communication, evaluation, decision-making and influencing. Planning what the organization should do to achieve proper accountability. Planning could be viewed as budget preparation. With planning the organization decides what to do and the responsibilities of its different members. Koontz and Donnel (2002:34)defined internal control as all the measures of a public or private organization that could be said to be strategies of owners and managers to monitor and control the activities within the organization. Arnold and Turley (2006:3162) classify organization plans as falling under the following headings: i. Operating Plans: These are short-term plan which relates directly to the achievement of the organization objectives. Thus the annual accountability and met up government target plans as well as the plans to suppress smuggled goods would be examples of operating plans. ii. Administrative Plans: These are tactical plans concerned with the creation of the organizational structured, under which accountability and performance levels can be determined for appropriate functions.