Effectiveness of Internal Control in a Trading Company
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Abstract on Effectiveness of Internal Control in a Trading Company
This project titled EFFECTIVENESS OF INTERNAL CONTROL IN A TRADING COMPANY was considered necessary because of the frauds which are perpetuated in trading companies recently. That was part of what led to the closure of some of them. Our findings revealed that Citiserve limited has similar experience before it was able to put in place checks and balances mechanism i.e EFFECTIVE INTERNAL CONTROL SYSTEM.
Therefore, the study became necessary as to examine the situation in a trading company where their internal controls are effective. For this reason I decided to carry out a research on CITISERVE LIMITED to establish the advantage, the practice, the importance and the effect of internal control on a company’s business and finances
Chapter One of Effectiveness of Internal Control in a Trading Company
INTRODUCTION
BACKGROUND TO STUDY
A trading company is an Enterprise that deals in selling and distribution of goods and services. They buy mostly from the producer/ manufacturer for resale to wholesaler, retailer, and final consumer, depending on stage of chain of distribution it falls. The company and Allied Matter Acts of 1990 requires that trading company should keep records of all financial activities both historical, budgetary and financial records should be internally substantiated through internal audit and further subjected to independent examination by an external auditor. There would not be enough watch-dog for any organizations financial activities except effective internal control is put in place.
Effective internal control is the checks and balance mechanisms that force the management to be well focused and ensure that the organizational goals are achieved in an effective and efficient manner. If this is not in place the management may decide to do things that benefit their personal interest at the expense of the organization.
The success of the administration of the trading company will go a long way in determining the success of the whole organization. The success of the administration is a function the attitude of the management team or on the alternative, on the checks and balances mechanism put in place as watch dog to the management.
Therefore there is need to test and know if the internal control in the company is being allowed to be effective or not.
STATEMENT OF PROBLEM
Most of the trading companies in Nigeria look like well nourished children but with indwelt like tape worms. One would expect that notable improvement and development will be the main features of the trading companies considering the available large markets in Nigeria, but this is not so, non availability of needed infrastructures in the country, high degree of corrupt practices at all levels of the management, lack of information and lack of trust are obstacles that mitigate against success of trading organisation.
Against this backdrop, holistic study of the trading company administration is deemed necessary; a good start will be on the “checks and balances” mechanism that is effective internal control put in place.
RELEVANT RESEARCH QUESTIONS
i. What is Internal Control?
ii. Does effective internal control prevent and detect fraud?
iii. Are there policies or principles established by the Citiserve Limited
regarding internal controls and financial management?
iv. What is legal/managerial compliance?
v. How can internal control operate more efficiently?
vi. How should the internal control checklist be used?
vii. What do we do if we identify potential control deficiencies?
viii. How to maintain effective internal control
OBJECTIVE OF STUDY
The purpose of the study is to gather information that will give insight into the effectiveness of internal control in a trading company and to make analysis that will aid in generalizing the effectiveness of the internal control. To get at this, the following objectives shall be the underlying aim through the course of the study.
i. To ascertain if there is proper internal control department in Citiserve Ltd as well as ascertain if the status that should be accorded to such department are granted. This objectives aimed to be achieved by considering resultant effect on the effectiveness and efficiency of the internal control on the company operations, administration and finance.
ii. To examine the company’s book of records in order to ascertain its
completeness, validity and accuracy.
iii. To confirm that effective internal control prevents and detects errors,
Irregularities and fraud. i.e. safeguards resources against fraud, waste,
abuse, and mismanagement.
iv. To confirm if through the internal control the company develops and
maintains reliable financial and management information through adequate disclosure and timely reporting.
SIGNIFICANCE OF STUDY
Some trading company fails because adequate checks and balances mechanism are not in place.
The Internal Auditor provides management with valuable information for making decision concerning effective operation of the company. The level of independence of the Internal Auditor and compliance with internal control procedures will make the external auditor confidently place high level of reliance on the work of the Internal Auditor in course of carrying out his audit work. This also help in building public/stakeholders confidence in the organization.
Viewed from this perspective, it is to be noted that some trading companies fail because adequate checks and balance/Internal control are not in place. Therefore the conclusions reached on this case study could enable a high/low degree of confidence to be placed on hold for other trading company’s management.
HYPOTHESIS
The Hypothesis to be tested in course of these studies is:
Ho: Effective internal control does not prevent errors, irregularities and fraud.
Hi: Management support assists the effectiveness of internal control
SCOPE OF THE STUDY
The study will be based on the internal control and historical record of Citiserve Limited. This study shall not be investigation of any sort or a probe of the case study, but simply a knowledge based study to end with recommendation.
LIMITATION OF STUDY
The problem with this world is that there is a limit to the extent which one can go in pursuing virtually every course and this project is not an exception.
In carrying out this research some factors were the major uncompromising problems. This includes short time given to carry out the study, unpredictable human behavoiur of staffers of Citiserve Ltd and finance.
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