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THE EFFECT OF COLLUSION ON A SOUND INTERNAL CONTROL SYSTEM (A CASE STUDY OF EMENITE NIGERIA LTD)

Project topic for Financial Studies department.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY                                                                     

            Collusion is a secret agreement that two or more people make in order to do something dishonest. According to Aguolu (1998:42) “it is the compensating relaxation of inter-related checks by staff who operate complimentary roles for their mutual benefits”.  Collusion is not particular to Nigeria alone. History has shown that many countries like Britain and America experience collusion in their industries firms and organizations.

            Internal control system on the other hand is the internal control with a common purpose. According to  Steller (1977:55) Internal control is the means by which management obtain information, protection and control. Internal control are established by the management for both financial control and other non-financial control. It helps to maintain an adequate method of processing accounting data and to safeguard the company against possible financial loss due to fraud or loss.

            In Nigeria today, the reverse is the case, what is happening in all sectors of Economy, government and non-governmental organizations show that the internal control systems are no longer effective just because of the power or influence of collusion. Thus the effects of collusion on a sound internal control system are the main focus of this study.    

            Now one may ask how collusion affects internal control system. The answer is not far fetched, since the issue of ghost workers, low motivation, worker poor attitude to work, staff in-competencies and embezzlement of funds are the headline of our news today. No doubt collusion had led to a lot of anomalies in all sectors of the economy. No wonder there is no sanity again in our society. The health, educational industrial and financials sectors are all affected.

            Aguolu (1998) rightly observed that “it is collusion that made the production supervisor agree with the wages supervisor to include fictitious names on the payroll which result in both of them sharing the money”.

            Moreover, it is collusion that makes the inspection officer agree with the store keeper to alter materials received documents in order to inflate supplies for their mutual advantages. It is also collusion that made a staff in constructing department of Emenite Nig Ltd to agree with the head of manufacturing department to go for an outside work on behalf of the company without taking or making proper record or documentations of such work so that both of them will share the money.

             To the best of my knowledge, what is happening in our firms and industries like Emenite Nig Ltd show a non compliance to internal control system. This is because collusion have succeeded in giving the sound internal control system a serious challenge. Thus many companies and organizations in Nigeria had lost hope in internal control system since its poor implementation has led to poor performance and failure of many organization; even Christian organizations.

            Inspite of every odd, the writer is hopeful that non compliance to internal control system which mostly is as a result of collusion can be minimized when government, none governmental organizations and individual members of this country recognize and perform properly some inevitable vital internal control obligations in their various works of life.

1.2 STATEMENT OF PROBLEM

            This research study is an attempt to examine the effect of collusion on a sound internal control system. Collusion is a general sickness which pervades all sectors of the economy frustrating all efforts to instituting a sound internal control system. Everybody in our society experiences its negative political and socio-economic influences but on varying dimensions. It is possible that the rate at which collusion currently affect internal control system has led to low motivation of junior workers, poor attitude to work, frustration and weakness in managerial ability. It has also contributed to the high rate of the existence of ghost workers experienced in our society today because of poor personnel control. Staff incompetence and embezzlement of funds experienced in most sectors of the economy nowadays may have been due to collusion caused by greed especially among the members of management.

            Thus collusion in internal control system may have been because of questionable character of many Nigerians. All of us have in one way or the other contributed in making things bad especially our poor value system.+ some as a result of ignorance believe and act on whatever they are told by their bosses. Some also act out of fear of loosing their job. Others violate internal control system because they want to reap where they did not sow. Thus becoming richer over night than their masters, supervisors and even employers.

1.3 PURPOSE /OBJECTIVES OF THE STUDY 

            The main objective of this study is to identify the major effects of collusion on a sound internal control system in Emenite Nig ltd. and to offer suggestions as to ways of improving adherence to internal control system especially by management staff.

The specific objectives of the study include:-

  1. To determine the major causes of collusion.
  2. To find out the effects of collusion on a sound internal control system.
  3. To offer suggestion on the possible solution to the problem on effects of collusion in a sound internal control system in Emenite Nig ltd and Nigeria in general.

1.4 RESEARCH QUESTION

  1.  What are the major causes of collusion in an establishment?
  2.  Has collusion any effect on a sound internal control system?
  3. Would you say that collusion cannot be prevented by an efficient and effective internal check procedure?

1.5 STATEMENT OF HYPOTHESIS

Hypothesis one

Ho: Greed on the part of management is not a major cause of collusion to beat the internal control system.

Hi: Greed on the part of management is a major cause of collusion to beat the internal control system.

Hypothesis two

Ho:    collusion has no negative effect on the efficiency and effectiveness of internal control system.

Hi:   collusion has negative effect on the efficiency and

       effectiveness of internal control system.

Hypothesis three

Ho: collusion is not prevented by an efficient and

       effective Internal check procedure.

Hi:  collusion is prevented by an efficient and effective

        internal check procedure.

1.6 SIGNIFICANCE OF THE STUDY

            Despite the fact that some studies have been carried out in Nigeria and other parts of the world on the effect of collusion on a sound internal control system, not much has been done with reference to Emenite Nig ltd.

Thus the significance of study includes:-

  1. It is the researcher intention to arouse the interest of accountants and other administration analyst through this study to carry out research on the effects of collusion on a sound internal control system.
  2. The research no doubt will be beneficial to administrators at all levels and indeed to entire Nigerian citizenry.
  3. It helps in solving the problem of collusion against procedures in both government and non governmental organizations.

1.7 SCOPE AND THE LIMITATION OF THE STUDY            This study will be limited to Emenite Nig ltd in Enugu state. collusion as a universal problems is not found only in Emenit Nigeria ltd but in the entire industries and organizations at large. Thus my findings and suggestions in this research may be applicable to other organizations both governmental and non governmental organizations in Enugu state and surroundings.

            One of the major difficulties encountered in the course of this work was time. A research of this nature cannot be perfectly done or studied without enough time to interview the staff in order to know the people’s view about collusion and internal control system.

            Also unavailability of documented materials and text books related to this study hindered the researcher’s efforts in developing this study. This made he researcher to work on and with the available materials which were not adequate.

1.8 DEFINITION OF TERMS

Internal control

            According to Ugwu (1998:149) Internal control refers to the whole system of control and otherwise established by management to ensure that functions are carried out in orderly manner, safeguard the assets and secure as far as possible the accuracy and reliability of records. Promoting efficiency and encouraging adherence to policies”.

            According to William and Raymond (2006:391) “Internal control is a process effected by an entity’s board of directors, management and other personnel designed to provide reasonable assurance regarding the achievement of objectives in the following categories, reliability of financial reporting, compliance with applicable laws and regulations, effectiveness and efficiency of operations”.

            In view of above definitions, the writer of this project defines internal control as the whole system of control no matter the form that it takes.

            According to Inyiama (2010) Internal control system is also define as the whole system of controls, 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, safeguard the assets, secure as far as possible the completeness and accuracy of the records.      

Internal control system                                                                                                                                                                                                                                                                                                                                                                                    

            Internal controls with a common purpose grouped together are referred to as internal control system. They are the laws, policies and procedures that affect the daily operations and management of firm, industry or organization.

Collusion

             Longman dictionary of contemporary English defines collusion as “a secret agreement that two or more people make in order to do something dishonest”.

            According to F. Clive de Paula (1970) Internal control means practically a continuous internal audit carried on by the staff themselves by means of which the work of each individual is independently checked by other members  of the staff.

             According to P.C. Jones and J.G. Bates (1994) internal control is the individual component of the whole system of 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

            Safeguard asset and secures as far as possible the completeness and accuracy of the records.

            According to Taylor and Perry’s (1976) Internal control is defined as “not Internal check and Internal audit but the whole system of controls financial and otherwise, established by the management in order to carry on the business of the company in an orderly manner,  safeguard its assets and secure as far as possible the accuracy and reliability of its records”.


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