THE IMPACT OF A GOOD INTERNAL CONTROL SYSTEM ON FINANCIAL MANAGEMENT OF ORGANIZATION

CHAPTER ONE:

INTRODUCTION

1. BACKGROUND OF THE STUDY

Internal control can be defined as the whole system of internal control, financial and otherwise established by management in order to carry on the business of the enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguarded the assets and secure as far as possible the completeness and the accuracy of records. Dr. Aveh (2010). The individual components of an internal control system are known as controls or internal controls. Internal control includes all policies and procedures adopted by the directors and management of an entity to assist in their objective to achieve as far as possible the orderly and efficient conduct of the business including adherence to management internal policies, safeguard of assets. Prevention and detection of fraud and error, the accuracy and completeness of accounting record and timely preparation of reliable financial statement. An internal control is of great importance to every organization because of its impact on the management of its resources especially finances. It is evident that where there are no rules controlling how a thing is to be done, that very thing is done anyhow and the best of it is not attained, this is exactly what effective internal control system is all about.

For the purpose of our studies, financial management will mean the application of an organization’s financial resource (money) on activities meant for its usage. It is the proper use, the effective and efficient use of financial resources or simply put the expedient use of financial resources. Internal audit is an internal function which means that it is conducted by the employer of an organization specially designed for this purpose and therefore means it is an organizations management responsibility to establish the department or not to do so. The object of internal auditing is to assists all member of management in the effective discharge of their responsibilities, by furnishing them with analysis, appraisal, recommendation and appropriate comment in the activities reviewed. To attain its overall objective, internal audit involves such activities as: 1. Reviewing the soundness, adequacy and application of accounting, financial and other operating controls and recommending effective control reasonable cost. 2. Appraising the quality performance in carrying out assigned responsibilities. 3. As creating the effectiveness of established policies and plans and recommending operating improvements. Where an internal audit department operates, the statutory auditor plays particular attention to its activities as these will have a direct hearing on the scope and depth regained by the external auditors. This system of internal check is to prevent and also ensure an adequate accounting system which will provide the information necessary for preparing true and fair financial statement. Since it is the sole duty of the management of an organization to detect fraud errors and other irregularities and correct them before they come to the notice of the external auditors, the internal audit procedures adopted by an organization is of consequence. As a result of this procedure to be adopted by an internal audit department must have these in and also be set up by experts in theory and practice.