CHAPTER ONE
- BACKGROUND INFORMATION
To achieve the key financial objective of the firm, that is, profit maximization, the two pre-requisites are efficient utilization of resources and margins management. “The two main pre-requisites for profit maximization are efficient utilization of resources and margins management; hence, profit is maximized when resources are efficiently utilized and margins are well managed. (Ayodeji, 2011: 107). The efficient utilization of resources argument is the economists‟ viewpoint to profit maximization while margins management is the accountants‟ viewpoint to profit maximization. Efficient resource utilization can otherwise be called economic efficiency. It can be sub-grouped into productive and allocative efficiency. Achievement of productive efficiency requires operational and production control, as productive efficiency requires quality control leading to efficient materials or stock control, labour or personnel control whereas, allocative efficiency on the other hand, requires efficient personnel planning and control, recruitment policy and quality control.
Margins management another aspect has two elements; Cost or expense minimization and revenue maximization. Cost minimization is anchored on cost control and cost reduction strategies. Hence, margins management requires cost control.
From all the foregoing, it is evident that achievement of economic efficiency and margins management will be a mirage if effective control strategies are not put in place, whether financial or non-financial. As a result of this, in the internal operations and workings of an entity, there is the need to put proper systems of control in right perspectives, such internally entrenched controls are termed internal controls.
Internal control, the strength of every organization, has become of paramount importance today in our Organizations. The reason being that the control systems in
any organization is a pillar for an efficient accounting system. The need for the internal control systems in an organization cannot be undermined, due to the fact that the economy, which has a crucial role to play in the economic development of a country, is now being characterized by economic instability, slow growth in real economic activities, corruption and the risk of fraud. Fraud, which is the major reason for setting up an internal control system, has become a great pain in the neck of many Nigerian organizations. (Olaoye Clement Olatunji 2009)
For organizations to be able to function effectively and contribute meaningfully to the development of a country, the industry must be safe, stable and sound. And for these conditions to be obtained there must be a sound accounting system, which is occasioned by an internal control system.