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Project Topic:

EFFECT OF INTERNAL CONTROL ON THE PROFIT MAKING OF NIGERIAN BREWERIES (A STUDY OF NIGERIAN BOTTLING COMPANY 9TH MILE ENUGU)

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 Format: MS WORD ::   Chapters: 1 - 5 ::   Pages: 72 ::   Attributes: Questionnaire, Data Analysis,Abstract  ::   147 people found this useful

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ACCOUNTING UNDERGRADUATE PROJECT TOPICS, RESEARCH WORKS AND MATERIALS

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CHAPTER ONE

1.0   INTRODUCTION

1.1 Background of the Study

Internal control has been recognized in the most organizations as one of the most essential ingredients, necessary for the survival of the business enterprise and government agencies. Apart from the problem of scarce resources, organizations run a high risk of fraud, errors, misappropriation of funds, inefficient and ineffective operations. Step are required, therefore to minimize, if not eliminate completely, these risks, by establishing internal control system. For every organization, there are risks that the organizational goals and: objectives are not achieved. All efforts aimed at preventing or identifying and correcting such risks are viewed as internal control.

Anthony (2008:17) defined internal control as "the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization objectives. Garrison Noreen 2000:378) suggested a different definition for internal control as follows: "those steps taken by management that attempt to increase the likelihood that the objectives set down at the planning stage are attained and to ensure that all parts of the organization function in a manner consistent with organizational policies”.

He further defined internal control as those sets of organizational activities which include: planning, co-ordination, communication, evaluation .and decision making as well as informal processes, aimed at enhancing the efficient and effective use of the organizational resources towards the achievement of the organizational objectives. We are treating internal control as a tool used by the management to facilitate those activities which corresponds to our area of study.

Anthony and Govindavajan (2004) identified several aspects or activities of management/internal control namely: planning, coordinating, 'communication, evaluation, decision-making and influencing. Planning what the organization should do to achieve proper accountability. Planning could be viewed as budget preparation. With planning the organization decides what to do and the responsibilities of its different members. Koontz and Donnel (2002:34)defined internal control as all the measures of a public or private organization that could be said to be strategies of owners and managers to monitor and control the activities within the organization. Arnold and Turley (2006:3162) classify organization plans as falling under the following headings:

   i.        Operating Plans: These are short-term plan which relates directly to the achievement of the organization objectives. Thus the annual accountability and met up government target plans as well as the plans to suppress smuggled goods would be examples of operating plans.

 ii.        Administrative Plans: These are tactical plans concerned with the creation of the organizational structured, under which accountability and performance levels can be determined for appropriate functions.

  1. Coordinating the activities of several parts of the organization to assure alignments goals.
  2. Communicating information such as strategy and specific performance objective. Communication could be done formally (by means of budgets and other official documents) and informal through conversations.

Evaluating actual performance related to the standard and making inference as to how well the employees have preformed. Deciding what, if any action should be taken. In 1999, in the United States of America, the general accounting office for standard defined "Internal Control as an integral component of an organization, management that provides reasonable assurance that the following objectives are being achieved: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. They further state that internal control is a major part of managing an organization. It comprises the plans, methods, and procedures used to meet missions, goals and objectives and in doing so supports performance based management. Internal Control also serves as the first line of defence in safeguarding assets and preventing and detecting errors and fraud. In short, internal control, which is synonymous with management control, helps government program managers achieve desire results through effective stewardship of public resources.

Internal Control provides reasonable assurance that the objectives of the organization are being achieved in the following categories: effectiveness and efficiency of operations including the use of the entity's resources. Reliability of financial statement and other report for internal and external use, compliance with applicable laws and regulation. Internal control was designed to provide reasonable assurance regarding preventions of or prompt detection of unauthorized acquisition, use or disposition of organizations assets. Internal Control is not one event, but a. series of actions and activities that occur throughout an entity's operations and on an ongoing basis. Internal control was recognized as integral parts of each system that management uses to regulate and guide its operations rather than as a separate system within an organization.

In this sense, internal controls are management tools that are built into the entity as a part of its infrastructure to help manager run the entity and achieve their aims on an ongoing basis. Internal control is affected by people: people are what make internal control work. The responsibility for good internal control rests with all managers.

Management sets the objectives, put the control mechanisms and activities in place, and monitor and evaluates the control. However, all personnel in the organization play important roles in making accountability happen.

Internal control provides reasonable assurance, not absolute assurance; management design and implement internal control based on the related cost and benefits. No matter how well designed and operated, internal control cannot provide absolute assurance that all organizational objectives will be met. Factors outside the control or influence of management can affect the entity's ability to achieve all of its goals. For example, human mistakes, judgment errors, and acts of collusion to circumvent control can affect meeting organization's objectives.

Therefore, once in place, internal control provides reasonable but not  absolute assurance of meeting organizational goals Isidore (2006:81) in his definition of internal control stated it is the whole system of controls, financial and otherwise, established by the management in order to carry on the business 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 the records. The key concepts from the above definition can be summarized as follows:

  1. To ensure that a structural framework exists for the efficient and effective channeling scare resources.
  2. To ensure that policies decided on and adopted by management are consistently followed by those responsible for implementing them;
  3. To ensure that expensive assets on which operations critically depend are properly secured and safeguarded to prevent misuse and misappropriation,
  4. To ensure that important document which provides the information on which significant strategic and decision are based provide a. complete accurate and timely record of relevant events.

Eric (2004) in his paper title "Internal Controls and financial accountability 'stated that a primary responsibility of directors - is to ensure that organization is accountable for its programs and finances to its contributors, members, and the public and government regulators.

Accountability requires that the organization comply with all applicable laws and ethical standards, adhere to the organization's mission, create and adhere to conflict of interest, ethics, personnel and accounting policies, protect the rights of members, prepare and file its annual financial report with the internal revenue service and appropriate federal regulatory authorities and make the report available to all member of the board and any member of the public who requests it. Every organization both profit or non-profit organization has its objectives and goals in mind to achieve. For the non-profit making organization, their goal is to satisfy the social need of the citizens and in the effort to achieve these purposes supervision more often than not play a vital role.

The size and scope of these organizations have sometimes made it hard for the executors to exercise personal and first hand supervision of operation. It is in this light that internal control established by management is initiated. For an organization to carry out its business there must be some factors put in place for the smooth running of the organization like materials, machines, money and so on.

These need to be well co-ordinated in order for the success of the organization to be achieved. These factors are used by a group of persons known as management. Neither can management exist without an organization as both are inseparable.

The system of internal control provides assurance to management of the dependability of the accounting data used in the decision making of the organization.

Management use internal control as a tool to check it’s staff due to the fact that managers are not able to monitor the activities of the organization. It therefore adopts the internal control in such a way that the system checks itself and any irregularity within the system is been detected and corrected.

To ensure that the system checks itself, management could use devices such as segregations, supervision of work and acknowledgement of performance. The effective arrangement and implementation of this control system would ensure proper management.

According to United Nations University (2002), the brewing industry is one of the fastest growing branches of Nigerian manufacturing industries. It contributes about 28 per cent of MVA (Manufactured Value Added) and provides direct employment for over 30 000 persons. The indirect employment associated with the industry is close to 300 000 including the firms producing ancillary services.

Nigerian Breweries Plc, incorporated in 1946, is the pioneer and largest brewing company in Nigeria. Its first bottle of beer, STAR Lager, rolled off the bottling lines of its Lagos Brewery in June 1949. Other breweries were subsequently commissioned by the company, including Aba Brewery in 1957, Kaduna Brewery in 1963, and Ibadan Brewery in 1982. In September 1993, the company acquired its fifth brewery in Enugu state, and in October 2003, its sixth brewery, sited at Ama in Enugu. Ama Brewery is the largest brewery in Nigeria and one of the most modern worldwide.

Operations at Enugu brewery were discontinued in 2004, while the company acquired a malting Plant in Aba in 2008. In October 2011, Nigerian Breweries acquired majority equity interests in Sona Systems Associates Business Management Limited, (Sona Systems) and Life Breweries Limited from Heineken N.V. This followed Heineken's acquisition of controlling interests in five breweries in Nigeria from Sona Group in January 2011. Sona Systems two breweries in Ota and Kaduna, and Life Breweries in Onitsha have now become part of Nigerian Breweries Plc, together with the three brands: Goldberg lager, Malta Gold and Life Continental lager. Thus, from the humble beginning in 1946, Nigerian Breweries Plc now has eight operational breweries from which its high quality products are distributed to all parts of Nigeria, in addition to the ultra-modern malting plants in Aba and Kaduna.

1.2 Statement of Problem

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