ACCOUNTING AND INTERNAL CONTROL SYSTEM IN PRIVATE SECTORS (A CASE STUDY OF AIICO INSURANCE PLC VICTORIA ISLAND, LAGOS)
TABLE OF CONTENT
Table of content v
1.0 Introduction 1
1.1 Background of the study 2
1.2 Statement of the research problem 6
1.3 Objectives and purpose of the study 7
1.4 Scope and limitations of the study 8
1.5 Definition of terms 9
1.6 Organization and plans of the study 11
Literature review 13
2.1 Review of accounting policies 13
2.2 Internal control system review 16
2.3 Internal auditor and the watch dog role 17
2.4 Uses of internal audit department 19
2.5 Function of internal audit 20
2.6 Factors contributing to an effective audit 24
3.0 Case study and methodology 27
3.1 Brief history of Aiico insurance plc 27
3.2 Organization structure of Aiico insurance plc 31
3.3 Research design 35
3.4 Method of data collection 35
3.5 Method of data analysis 38
3.6 Limitations of the study 39
4.0 Presentation and analysis 41
4.1 Preamble 41
4.2 Presentation and analysis of data according to research question 42
4.3 Results finding 46
CHAPTER FIVE: Summary, Conclusion and Recommendation
5.1 Summary 49
5.2 Conclusion 50
5.3 Recommendation 52
The establishment of Aiico Insurance Plc constituting part of the development of Insurance Company in the country within development and internal control system takes place.
A system of internal control is the whole system of controls, financial and otherwise established by the management in order to carry on the objectives of the organization in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible, the completeness and accuracy of records.
In order to allow for better administration in Aiico Insurance Plc, the company is divided into various sections and each is charged with specified duties. The companies is required to render insurance services to the interested insured and are to keep the following account:
Wages and Salaries
But the question that readily comes to mod is, how far has this stewardship role been performed?
Cases of embezzlement and misappropriation of fund are rampant these days. Frauds have taken many in this country with the private sector and public sector, such as embezzlement of cash and falsification or wronged manipulation of accounts etc.
1.1 BACKGROUND OF THE STUDY
The system of control adopted in any business or economy greatly determines one development and growth of that business or economy. To ensure optimization of money, materials, machine, tune resource and management of men control is essential.
Internal control is the whole system of controlling financial and otherwise, established by the management in order to carry on the objectives of the organization in an order and efficient manner and to ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy or records.
One of the instruments used in internal control to minimize wastage and fraud is internal auditing. Auditing has been in existence for many years. It is used in ancient Egypt and Great Mercantile establishment of the middle ages. In recent time, auditing has become essential more and more people are getting interested in the annual reports and account of companies, some of the interested people are owners, shareholders, debenture holders, customers, financial institutions, educational institutions and other publics.
However, this shows that auditing can either be neglected or underrated in out modern economy for it was borne out of the complexities of modern business climate.
The term “Audit” is from a latin “Audire” which means “to hear” this is because the account of an estate domain were checked by having them called out by those in an authority with the growth of trade and commerce, the need for more accurate method or recording business activities arouse. Thus, auditing is more of a question of the hears but whole process whereby the books or accounts and voucher of business crudities (including charities and trust) are subjected to critical examination by professionally qualified and independent accountants (Auditor) on such a details as will enable them form an opinion as to their truth and fairs, the auditor is the bridge across the creditability gap created by the separation of management from the ownership.
The complexities of the art of management extended to increasing ware of business fraud. Embezzlement has the cash squeeze which often cripples many companies. The management has to work inward in order to uphold pace control system of which internal auditing is a major section.
Most writers maintain that the existence of an efficient and effective system of internal control both in design and operation which is the responsibility of management will at best prevent fraud or at best help to detect fraud earliest opportunity.
Internal control function helps to sport out deficiencies in the system so as to reduce correct measure at the earliest opportunity intern10al auditors to appraise, analyze and report upon the policies and method employed in the company. Therefore, internal auditor is an element for internal control system set up by the management of an enterprises to evaluate, examine and report on accounting and other control operation.
1.2 STATEMENT OF THE RESEARCH PROBLEM
Internal control system may be sufficient based on predicament, this may include lack of segregation and assignment of duties to accounting officer. Also, the scopes of duties of internal audit unit are so wide and their seals of operation is so low as well as the shortage of qualified staff to carry out internal auditing and accounting duties.
Independence of accounting officers can easily be maneuvered by the management which can affect the internal audit system of an organization. More so, authorization and approval are not clearly stated, as a result of two or more dishonest staff can override the efficiency of the internal control system.
The criticism of internal control system has been intended to the company hence, his study of internal auditing as a control for effective management.
1.3 OBJECTIVE AND PURPOSE OF THE STUDY
The main objective of the study aims to evaluate accounting and internal control system in private sector. Internal control system which is regarded as the central or most important part of every organization. Therefore, its efficient organization means that the establishment is carrying out its objective with the establishment is carrying out its objective with specific regard to laid down rules and regulation. The objective of this study is to examine the internal control system in existence at Aiico Insurance Plc Victoria Island, Lagos and see how effective, these internal control elements are having ascertained the existence of the internal control and evaluation will be made as to whether the system of internal control in operation at Aiico Insurance Plc, the system of internal control in operation at Aiico Insurance Plc is sound and reliable then recommendation and suggestions will be made.
1.4 SCOPE AND LIMITATIONS OF THE STUDY
The various measures of internal control system are considered in Aiico Insurance Plc but more concentration would be made on internal audit aspect for the purpose of this study. Accounting system and related internal control measure and position. The independence of an internal auditor as well as the scope of this work and how it affects the policies of the management of the area of the study.
1.5 DEFINITION OF TERMS
It is necessary that clear definition of some technical terms and words are given to avoid technical confusion that may arise because of their usage.
ACCOUNTING: Accounting can be defined as an art of recording, analysis, interpreting, summarizing and communicating financial information to the user for the purpose of decision making.
INTERNAL AUDITING: can be defined as “an independent appraisal activity within an organization for the review of accounting financial and other operations basis for service to management”. Internal audit is carried out by staff of the enterprises. It is managerial control which functions by measuring and evaluating the effectiveness of other controls, a self accounting units is expected to have an established internal audit units to do the pre-auditing if all vouchers and ensure adherence to rules and regulation.
INTERNAL CONTROL: The Institute of Chartered Accountant England and Wales define it as “A whole system of controlling financial or otherwise established by the management in order to orderly and efficiently ensure the adherence to management policies, safeguard the assets and secure as far as possible the following tools.
(1) Segregation of duties: This involved division of labour so that work of one officer will serve as a check on the work of another thereby preventing error, fraud or loss.
(2) Maintenance of Cashbook: All receipts and payment vouchers are supposed to be promptly brought into the cashbook for future reference.
AUDIT REPORT: A report prepared by a qualified accountant to express the opinion that the accountant examined show a time and fair view and complies with statutory requirement.
FRAUD: The term fraud according to Olowo-Okere (2001) refers to as intention misrepresentation of financial information by one or more individuals among management, employees or third parties fraud may involved.
1. Manipulation, falsification or alternation of records or document.
2. Suppressing or omission of the effects of transaction from records or document and mis-application of accounting policies.
1.6 ORGANIZATION AND PLAN OF THE STUDY
This study consists of five chapters (organized). The chapters have been designed to suit the topic of the study.
The first chapter examines what the research work is all about, the purpose of the study and the background of the study (case study).
Chapter two deals with review of related literature. It is based on nature and types of auditing, uses of internal audit, functions of internal audit.
Chapter three forms the core of the project where the research work determines, selection instrument and procedure for data collection is based on information from the research methodology.
2.1 REVIEW OF ACCOUNTING POLICIES
According to Ishola K.A. (2002), the end product of any financial accounting process is the preparation and publication of financial statement.
Financial statements are based on corrections derived from experience. These corrections originate from such concept as entity, going-concern, periodicity, realization, matching, consistency and historical cost. The purpose of this statement is not to evolve a basis theory of accounting but to identify some of these concepts which are generally accepted.
These fundamental accounting concepts are seldom disclosed because they are generally accepted as the understandings of the preparation are presentation of financial statement. Disclosure is however necessary if these fundamental accounting concepts are not followed.
The fundamental accounting concepts referred to above are described below:.