DEBRE MARKOS UNIVERSITY

FACULITY OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACOUNTING AND FINANCE

THE EFFECT OF INFORMATION TECHNOLOGY ON INTERNAL

CONTROL (CASE STUDY: DASHEN BANK DEBRE MARKOS BRANCH)

RESEARCH PROPOSAL SUBMITED TO DEPARTMENT OF ACCOUNTING AND FINANCE FOR

APARTIAL FULFILMENT OF THE REQUIRMENT FOR BA DEGREE IN ACCOUNTING AND FINANCE

BY;
Name ID No
1. Melkamu Tenaw………………...........BER/002/11
2. Liyuwork Alemu……………. ……….BER/093/10
3.Ifa Abayaa……………....…………….BER/083/10

ADVISOR; ADANE .W (M.sc)

DEBRE MARKOS, ETHIOPIA

Contents
CHAPTER ONE.................................................................................................................................................... 1
1. INTRODUCTION.............................................................................................................................................. 1
1.1 Background of the study.......................................................................................................................... 1
1.2 Statement of the problem........................................................................................................................ 2
1.3. Research question................................................................................................................................... 2
 1.4 Objective of the study.............................................................................................................................. 2
1.4.1 General objective.............................................................................................................................. 2
1.4.2 Specific objectives............................................................................................................................. 2
1.5. Significance of the study.......................................................................................................................... 3
1.6. Scope of the study................................................................................................................................... 3
1.7 Organization of the paper........................................................................................................................ 3
CHAPTER TWO................................................................................................................................................... 4
REVIEW OF RELATED LITERATURE...................................................................................................................... 4
2.1 INTRODUCTION........................................................................................................................................ 4
2.2 What is information technology?............................................................................................................. 4
2.3. Functions of Information......................................................................................................................... 5
2.4 components of information technology................................................................................................... 5
2.5. Principles of internal control apply to most business enterprises............................................................5
2.6 Internal Control........................................................................................................................................ 6
2.7 Objective of internal control.................................................................................................................... 7
2.8 COMPONENTS OF INTERNAL CONTROL SYSTEM...................................................................................... 7
2.9 Internal Control in Banks.......................................................................................................................... 9
2.10 The Effect of Internal Control................................................................................................................. 9
CHAPTER THREE............................................................................................................................................... 10
Research Methods........................................................................................................................................... 10
3.1 Research design..................................................................................................................................... 10
3.2. Research Approach............................................................................................................................... 10
3.3. Target population, Sampling techniques and Sample size.....................................................................10
3.4. Data type and source............................................................................................................................ 10
3.5Methods of data collection..................................................................................................................... 11
3.6. Data Analysis and Presentation............................................................................................................. 11
INTRODUCTION

This chapter Includes about the general introduction of the study. And also includes statements of the
problem, objective of the study, significant of the study , scope of the study and organization of the study.

The introductory part that deals some defination about the research

1.1 Background of the study

Internal control is a systematic measure (such as review, check and balances, methods and
procedures) institute by the organization to conduct its business in an orderly and efficient
manner, safeguarding its asset and resource, deter and detect errors, fraud and theft, ensure
accuracy and completeness of its accounting data, produce reliable and timely financial and
management information and ensure adherence its policy and Internal control is a process
affected by an entity board of director’s management and other personnel design to provide
reasonable assurance regarding the achievement of objectives in the following categories:
-reliability of financial reporting, compliance with applicable lows and regulation, effectiveness
and efficiency of operation and safeguarding of assets ( Schwinger; 2005).

Now a day companies depend highly on technology, especially information technology because
it saves time and money as well as it helps to perform tasks with speed and accuracy. For
example: -in bank to perform internal control and provide service to customer information
technology plays a great role in questioning well. Information technology gets the attention of
the business unit in order to perform internal control and providing service in good manner.
Information technology is a set of tools, process and methodologies (like: -coding
/programming, data communication data conversion storage retrieve system analysis and
collect process and present information in broad sense includes office automation, multimedia,
telecommunication information technology process transactions uniformly and eliminate the
human error that occurs in manual system. technology is advantageous to perform routine
tasks with speed and accuracy. As a result, information technology is an important tool for
banks internal control system even if it has its own limitation. Due to these reason banks are
running with technology that innovates in new for operating easily. since banking plays an
important in the economy development of any nations by mobilizing money from same excess
reserve make un available from the public deposit to the demand area .Therefore banks must
have internal control system with the help of information technology to assure the entities
objective as well as to meet the interest of the customer these study will investigate how the
use of information technology affects the internal control systems of Dashen Bank (phile H,
2003).

1.2 Statement of the problem

Information technology is the use of computers to store, retrieve, transmit, and manipulate
data or information, often in the context of business or other enterprise. IT is considered to be
a subset of information and communication technology.
Information technology is an important mechanism of an organization that is vital for effective
management decision making in controlling and administering the bank. Even if information
technology is vital for internal control of the organization, still there are some problems.
Dashen Bank is one of the banks required to use information technology in order to make
advanced decision, Even though it plays a vital role in the activities of the bank, it may has
many problems due to lack of detail aware by employees. Unable to use accurate information
in timely movement has its own impact on internal control. We will try to answer:-
Does the Bank use information technology, how can improve the technology and how it reduce
inadequate information technology process to make appropriate internal control?
Therefore, the researchers motivate to studies on the effect of information technology on
internal control in dashen bank DebreMarkos branch, is to assess and find out possible
solutions.

1.3. Research question

This study will be conduct with the aim of providing answers for the following basic research
questions: -

1. Does Dashen Bank use information technology for effective internal control?
2. How Dashen Bank improve its general activity by using information technology?
3. How can Dashen bank reduce in adequate information technology process to make
appropriate internal control?

1.4 Objective of the study

1.4.1 General objective
The general objective of the study is to assess the effect of information technology on internal
control in Dashen bank DebreMarkos branch.

1.4.2 Specific objectives

This study is addressing the following specific objectives

1. To assess how Dashen Bank use information technology for internal control.

2. To assess how Dashen Bank improve its general activity by using information technology.

3. To find out the way how Dashen bank reduce inadequate information technology process to
make appropriate internal control.

1.5. Significance of the study

The purpose of internal control is to ensure the efficient operation of the business enabling the
bank to effectively achieve goals. The significance of the study will help to detect the existing
problem in the internal control, to identify the weakness and strength of Dashen bank's
information technology operation on internal control and gives away for other researcher who
wants to make further investigation in the area and conduct detail research on the problem.
Well-designed Information technology helps an organization by improving the efficiency and
effectiveness of its activities. This study also may serve as bench mark for other related
researcher to carry out the same line of the study.

1.6. Scope of the study

In this study the researchers attempt to investigate the effect of information technology on
internal control of Dashen bank. To make the study meaningful and to evaluate or assess the
problem in detail, the scope of this study will be limited on the effect of information technology
on internal control of in debremarkos branch.Dashen bank has different officials in different
parts of Ethiopia. However, this study mainly will focus on only DebreMarkos Branch.

1.7 Organization of the paper

In general the research paper consists four main chapters. The first chapter will be an
introductory part, which will have sub-topics such as background of the study, statement of the
problem, research question, and objective of the study, significant of the study, scope of the
study and, organization of the paper. The second chapter will have discussed with literature
review and chapter three deal with a methodology, which will have research design, research
approach, target population, data type and source, methods of data collection and, data
analysis and presentation and, The last chapter, chapter four includes time and budget plan.

CHAPTER TWO
2. REVIEW OF RELATED LITERATURE
2.1 INTRODUCTION
Many organizations have fail because poorly control computerize information system
(rittenberg Et Al2005) information technology system is vital for every financial area of an
organization. Data and information are the life blood of accounting. Information system
capture, organizes, analyze and disseminate data and information throughout modern
organization. Virtually no companies on the modern business handle their accounting without
the support of information technology system (Turban etal 2003.)

The collection of computing system by an organization is term as an information technology.

Almost all private and public organization, in most industries uses information technology to
support their operations the reason for this wide spread of information technology use is that
information technology become the major facilitator of the business activity in the world today
(Turban etal, 2003).

To address many of the risk associated with greater reliance on information technology.
Organization often implement control specific to the information technology function. Auditing
standards describe to broad control groupings for information technology system, general
control and applicator control. General control relates to all aspects of the information
technology function, including administration, software acquisition and maintenance, physical,
and online scroll are specific to certain software application and typically do not affect all
information technology functions. Application controls help ensure the accuracy of transaction
processing (Arensetal, 2003.)

2.2 What is information technology?

The use of computers to process and manage information technology (IT). An entities use of
information technology can improve the effectiveness efficiency of internal control by
consistency processing large volumes of transactions and data. Information technology also
enhances the timeliness and accuracy of information (Arensetal; 2003).

2.3. Functions of Information

There are six basic function performed by information technology these are: -
1. Data capturing: -the data is adhering for various purposes the data capture may be do off
-line on line. The on line data capture involves recording the data from the point of origin and
then making it available in electronic for processing (Jackson RA,2004)

2. Data processing:-which is the place computer convert the data into information by analyzing
and synthesizing data (Jackson RA,2004)

3. General decision making information:-it is the function of summarizing the organization data
in the form of text, number, or chart to make it useful information for decision (Jackson
RA,2004)

4. Data storage: - data that is convert into information and this information produce from the
data are store in magnetic or optical storage media for future use (Jackson RA,2004).

5. Data retrieve: - the data that are store in storage are retrieve when necessary for some
application (Jackson RA,2004).

6. Data transmission: - the data that are information movement from one place to another or
one system to another we call it transmission for purpose.(Jackson RA,2004).

2.4 components of information technology

Information technology generally made up of six basic elements. This are:-people -beneficiary
of information technology, procedure-operation to produce results data and information-
elements which cause an information technology exist in the organization, hardware-the
physical source required, for computer and communication system. Including: input devices,
central processing unit, software-intangible part of information technology, and communication
(Arensetal, 2003).

2.5. Principles of internal control apply to most business enterprises

The fundamental principles of internal control apply to large and small business alike. Every
business requires some type of system of control measures as a means to protect assets and
ensure that accounting records are reliable. Internal controls are usually prevention or
detection orient. Preventive controls seek to prevent the possibility of a loss, while detective
controls are design as a mechanism to detect suspicious activity. A successful fraud affect the
stability of any business, but risk financial failure due to fraud is generally higher for the small
business owner(James AC,1998).

Security

The first principle of internal control every business owner needs to address is physical
protection and safety of personnel and assets this begins with basic security measures, such as
fencing, lighting, door locks and video surveillance (James AC, 1998).

Preventive Control

Any business in the operation will be need for internal controls that are preventive in nature.
One of the basic principles of preventive control separation of functions is also known as
segregation of duties. As an example; persons who receive payments shall not prepare deposits
or post them to account receivable (James AC, 1998).

Detective

Business requires methods to monetary and detects problems that affect the accuracy of
accounting data. Detective internal controls are design to identify in consistencies, in accuracy,
or suspicious transaction that needs to be review. Some methods of detection include un
announce inspection of accounting records, conducting physical inventory, review of computer
access and logins and intrusion detection system (James AC, 1998).

Compliance issues

The definition of internal controls is expand beyond just over sight of financial accounting and
basic security matters The General Accounting Office, Office Management and Budget and the
Tread way Commission's Committee of Sponsoring Organizations all define internal control as a
system for providing reasonable assurance of the effectiveness and efficiency of operations, the
reliability of financial reporting and compliance with applicable lows and regulation (James
AC,1998).
2.6 Internal Control
Internal control is a process affected by an entities board of directors’ management and other
personnel, designed to provide reasonable assurance regarding the achievement of the
following three categories: - reliability of financial reporting, effectiveness and efficiency of
operations, compliance with applicable laws and regulations. Internal control provides
reasonable assurance net absolute assurance, that management' objectives will be achieved.
(TimothyJ.Louwers2013).

2.7 Objective of internal control

The broad objective of control is to ensure that asset companies are safeguarded while at the
same time working towards achieving the strategic goal of an organization. Internal control
objectives are those set of documents that contain the desired results of management that can
be achieved by implementing control activities. Internal control objectives can apply to any area
of business and to any kind of business. Decision makers relies three types of controls in order
to ensure that preventive control which is the best form of controls is full established and
implemented. The internal control systems not only use for safeguard the company agents
possible finances due to fraud or error but also error in the journal and records. If a transaction
that is not authorized takes place, it shall result in a fraudulent transaction are completeness: -
the client procedure must prevent the omission transaction from the records. Transactions are
properly classification: -the proper account classification according to the client's chart of
accounts must be making and the journals if the financial statements are poorly stated.
(TimonthyJ.Louwers, 2013)

2.8 COMPONENTS OF INTERNAL CONTROL SYSTEM

Internal control includes five components or categories of controls that management designs
and implements to provide reasonable assurance that managements control objectives will be
meet. These are called components of internal control. Internal component has five
components. Which are as follows: - control environment, risk assessment, control activity,
information and communications, monitoring (ALVINA ARENS, 2003).

1 THE CONTROL ENVIROMENT

The control environment consists of the action, procedures, policies that reflect the overall
attitudes of top management, director, and owners an entity about internal and it are
important to the entity. The control environment is the umbrellas for the other four
components. Without effective control environment (the umbrella), other four components are
unlikely to result in effective internal control, regardless of their quality. In control environment
the auditor shall consider important sub components such as integrity and ethical values,
commitment to competence management philosophy and operating style, organizational
structure, assignment of authority and responsibility (ALVINA ARENAS, 2003).

2. Risk Assessment

Risk assessment for financial reporting is management's identification and analysis of risks
relevant to the preparation of financial statements in conformity with GAAP. Identifying and
analyzing risk is an ongoing process and a critical component of effective internal control
management must focus on risks that at all levels of the organizations and take necessary
actions to manage them (ALVINA ARENAS,2003).

3. Control Activities

Control activities are put in place by the management to make financial information authentic
and reliable. for example, debtors cannot be written off without permission financial director or
any other person given authority to right off debts, similarly, credit sales cannot be make unless
recommendation is sought from credit control department-such control an activity does not
necessary area in the nature of authorization. These activities are policies and procedures; in
addition to those include in the other for control components. To help that necessary actions
are taken to address risks to the achievement of the entities objective (ALVINA ARENAS,2003).

4. Information and Communication

The purpose of an entities’ accounting information and communication system is to initiate,

record, process and report the entities transactions and to maintain accountability for the
related assets. An accounting information and communication system is several sub
components, made up of classes of transactions such as sales returns, cash receipts accusation
and soon (ALVINA ARENAS,2003).

5. Monitoring

Monitoring activities deal with ongoing or periodic assessment of the quality of internal control
performance by management to determine that controls are operating as intend and that they
are modify as appropriate for changes in condition, monitoring is the last components of
internal control to access the effectiveness of internal control system(ALVINA ARANAS,2003).

2.9 Internal Control in Banks

A bank deals with each and readily in a cashable document, besides the number of branches
and number of transaction record in the books of accounts of banks are usually large therefore
essential that it should take every precaution to guard against errors and frauds commit by its
constituents or by its employees. The principles of internal control applicable in banks are:
-every transaction must be checked and authorized by authorize offices before it actually takes
place every transaction must be entered into the books before the next transaction is
authorized. The routine procedures should be organized in such a manner as to prevent and
detect errors. Focusing attention on crucial issues, determining and investing internal control
resources
intheissuesthatareatopprioritytotheorganizationbyfocusingonthebalanceofefficiencyandeffectiv
eness,bankscanleverageinternalcontrolstobettermanagerisk(https://www.weaver.com/blog/ba
nking-efficiency-and-effectiveness-internal-control).

2.10 The Effect of Internal Control

Information technology is the use of computer to process and manage information. An entity's
use of IT can improve the effectiveness and efficiency of internal control by consistently
processing large volumes of transaction and data. IT also enhances the timelessness and
accuracy information (AlvinA.Arens, 2003).
 CHAPTER THREE
3. Research Methods
3.1 Research design
In order to conduct this study the researchers will use descriptive research design; because it
help to describe the current condition on the effect of information technology on internal
control dashen bank DebreMarkos branch and to assess the major problems faces on the bank.

3.2. Research Approach

The researchers use both qualitative and quantitative research approach to collect the data.
Why because mixed type of research provides strength that offset the weakness of both type of
research technique can be easy to develop and test a new instrument or phenomena and used
to address questions at different level.

3.3. Target population, Sampling techniques and Sample size

In conducting this research, we use managers and employees of Dashen Bank who are
voluntary to give available and reliable information about the effect of information technology
on internal control. The Bank has 23 staff members. From the total workers there are 22
employees and one manager. To conduct this study, the researcher uses census surveying
technique, because to use census method the target population of the study is small, so all staff
members are included.

3.4. Data type and source

The study rely on two main sources of data namely, primary and secondary data as well as
qualitative and quantitative data type. The primary data will be collect through questionnaire
from employees and interview from manager of the bank and the researchers dominantly will
use the primary source. The secondary data will be collected from relevant report of the bank,
like from documents, record records and so on.

3.5Methods of data collection

The data collection instrument use in this study includes by distributing questionnaire and
interview to the bank employees which will be comprise of personal information and question
related to assess the effect of information technology on internal control. The questionnaire
will contains both open ended and close ended question, and we use structured interview to
the manager. The secondary data were collected from written documents like publish books
and internets.

3.6. Data Analysis and Presentation

After data collect and organize through the above methods, the research will process by using
descriptive method of data analysis. Finally, the results will be present through different
statically tools like; tabulations, and percentages.
 CHAPTER FOUR
4. TIME AND BUDGET PLAN

4.1 Time budget

Table The study will conduct with the eight months from title selection of the month November
and submission through various advisor consultants up to the month of June presentation of
the study findings, the eight month and their time as follows,
1: time plan
No Activities Nov Dec Jan Feb Mar Apr May Jun
1 Title 
selection
2 Literature 
review
3 Proposal 
writing
4 Data 
collection 
5 Data 
analysis
and
presentatio 
n
6 Research 
writing
 7 Defense 

4.2 budget plan

This research is expected to cost Birr 660 for undertaking this study.

Table 1: budget plan

s. no Budget item Amount in Birr Sub-total
1 Printing and 350 350
stationary cost
2 Flash /16 GB/ 200 200
3 Taxi transport cost 50 50
Main sub totals 600
Contingency (10%) 60

Total expenses 660

References
 Arensenal,Turbanetal,AlvinA.ArensArensArens,ElderandBeasly,(2003)Auditing and
Assurance services: An Integrated Approach,9th edition
 enterprise_59350.html
 http: ||small business .chron.com | principles internal control apply business
 Jackson RA(2004).Get the most out of audit tools,URL:WWW.findarticles.com
 James AC (1998).Internal control, second edition., New York,page 4-28
 Philee H (2003) information technology and internal control; available at
http;\\www.SSRN.com
 Rittenburg.schwinger(2005)Auditing concepts for a changing Environment,5th edition
 TimothyJ.louwers,Ramsay,David,Sinason,andJerry,straweser,(2013)Auditing and Assurance
service, 5th edition )