Project Body:

ABSTRACT

This research work “The Impact of Internal Control System in manufacturing Industry
with reference to coca cola and ANAMCO Companies” aims at determining the
strength and weakness of internal control system and exposing the areas of weakness
in the operation of the system and how it effects the productivity and hence
profitability of the organization. To examine the extent the internal control have gone
in bringing about efficiency in the operation of manufacturing industries. To
recommend approaches to proper designing installation and operation of an adequate
internal control system which will improve and ensure further survival of
manufacturing firms. Source of data used include both primary and secondary data.
The data collected were analyzed using the chi-square test method. The findings are
lack of knowledge of internal control system by the staff has affected its application in
the running of the business and the weakness in internal control system of business
manufacturing companies affect the projected profit of the companies. Some
recommendations are audit department should be created in each company and should
be made independent to be able to report deliberate errors, falsifications or improper
use of record or other forms of irregularities that comes to it attention.

TABLE OF CONTENTS

       Title page

       Approval page

       Dedication

       Acknowledgement

       Abstract

       Table of Contents

       List of table

       List of figures

       Chapter One: INTRODUCTION

1.1      Background of the study

1.2      Statement of the problem

1.3      Objective of the study

1.4      Research Questions

1.5      Hypothesis

1.6      Significance of the study

1.7      Scope and Limitation of the study

1.8      Definition of Terms

References

Chapter Two: REVIEW OF RELATED LITERATURE

2.1      Definition of Internal Control

2.2      Elements of a good Internal Control System

2.3      Area of Internal Control

2.4      Internal Control System in Electronic Data Processing System

2.5      Limitations of Internal Control System

2.6      Internal Audit

2.7      Manufacturing Companies

2.8      The Impact of Internal Control on coca cola and Anammco Companies

References

Chapter Three: RESEARCH DESIGN AND METHODOLOGY

3.1      Research Design

3.2      Description of Respondents

3.3      Sources of Data
a)          Primary Sources of Data

b)         Secondary Sources of data

3.4      Population of Determination of Sample Size

3.5      Methods of Investigation

Chapter Four: PRESENTATION, ANALYSIS AND INTERPRETATION OF

DATA

4.1      Analysis of Data

4.2      Testing of Hypothesis

Chapter Five: SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS

5.1      Summary of Findings

5.2      Conclusion

5.3      Recommendations

Bibliography

Appendices

Chapter One

INTRODUCTION

1.1      Background of the Study

The sizes, capabilities, and complexities of modern companies even the smallest
requires internal control in the activities of the organization. As an organization
grows, the management needs more formal information system in order to maintain
control. The control can no longer be carried out by the man on top. Since the
organization is now complex, and subject to such influences without that one person
can possibly hope to exert the detailed and sophisticated control needed. The
management therefore, needs assurance that the accounting data it receives are
accurate and dependable. This assurance is provided in large part by developing
strong system of control that comes from within the functioning of the organization
itself. This strong system is the internal control system. It is the system where each
level of management acts as a siege so far as possible. Adverse factors are dealt with
on the spot by lower management before they grow to worse.

The institute of chartered accountants of Nigeria defined this internal control as the
whole system of control, financial, personal, operating and good information
management system and otherwise established by the management in order to carry
on the business of the enterprise to achieve their aim and set objectives in an orderly
and efficient manner, ensure adherence to management policies, safeguard the assets
the assets of the organization and secure as far as possible the completeness and
accuracy of record. This definition recognizes that a system of internal control extends
beyond to the functions of accounting and financial departments infact, the concept of
internal control is so vast that it effects all the assets of business, all liabilities, the
revenue and expenditures, periodic operating reports, statistical analysis and
dissemination therefore, it also taught across standard costing training programmes
designed to aid the personnel in meeting their responsibilities, internal audit and every
aspect of the operation.

The main purpose of internal controls can be deducted from the above definition are:

1)         To ensure adherence to management policies.

2)         To safeguard the assets of the organization.

3)         To secure as far as possible the completeness and accuracy of records.

4)         To evaluate the level of performance in all divisions of the company

Infact, internal controls aid in the efficient operation of a business. The increased size
of business units have encouraged the adoption of different methods which will both
increase the efficient of the business and act as a safeguard against fraud and error
which adversely affect profitability. The basic divisions of the elements of internal
control are:

       Plan of Organization

Plan should cover the activities of both management and staff at all levels stating
clearly their duties responsibilities and their power to authorize various activities of
the business.

       Authorization, Recording and Custody Procedures:

Where these are concerned, the financial and accounting controls should be as such as
to facilitates efficient working, at the same time obviate any chance of fraud or error
arising.

       Management Supervision and Review:

Management should constantly review and give consideration to the financial position
and financial procedures within the organization. This may include the use of an
internal audit department, but not necessarily so. Budgeting control whereby variances
are revealed and investigated special reviews of department systems may also take
time apart from normal internal audit procedures.

However every company designs its own internal control according to the needs of the
establishment or the area in question needs to be in relationship with the cost benefit.
All departments needs to be scrutinized properly before an adequate and strong
system which will provide all the necessary informations that can be understood and
concise form can be designed. The success and continued existence of all
manufacturing companies and all business enterprises lies on the internal controls that
exist there. In other words, the internal control system is the key to profitability of all
manufacturing companies.

1.2      Statement of the Problem

Although internal control is highly effective in increasing the reliability of accounting

data and in protecting against fraud and errors and promoting the efficiency and
growth of the organization no system of internal control is fully proved. Today, there
are news of bankruptcy and folding up of many manufacturing companies due to
some problems like:

i)            Lack of raw material for production of enough goods for quantity demanded
of the people;

ii)          Different companies have not been manufacturing or producing the expected

or projected number of units.

iii)        Most companies have not been adhering to the system of internal control. It is
being neglected and poorly operated.

iv)        Internal control in most companies is not operational rather it held in

principles;
v)          Lot of money is lost through non adherences to internal control system
thereby denying its expected profit.

1.3      Objectives of the Study

The objectives of this study include among other things:

i)            To examine the extent to which management have designed, installed and
operated the internal control;

ii)          To expose the areas of weakness in operation of the system and how it effects
the productivity and hence profitability. Profitability here is related to the level of
internal control system;

iii)        To examine the extent the internal controls have gone in bringing about
efficiency in the operation of manufacturing industries;

iv)        To recommend approaches to proper designing, installation and operation of

an adequate internal control, system which will improve and ensure further survival of
manufacturing firms.

1.4      Research Questions

1)         To what extent has internal control system, improved the activities of the
manufacturing industry?

2)          Can in adherent to the system of internal control affect the profitability of the
manufacturing companies?

3)         Has internal control system reduces the chances of fraud and errors in the
manufacturing companies?

1.5      Hypothesis

Hypothesis I

Ho:  Manufacturing companies have failed to maintain strict and efficient internal

control over their cash.

H1:  Manufacturing companies have maintained strict and efficient internal control

over their cash.

Hypothesis II
Ho2:  Lack of knowledge of internal control system by the staff has negatively
affected its application in running of the business.

H1:  Knowledge of internal control system by the staff has positively affected its
application in running of the business.

Hypothesis III

Ho:  The weakness in internal control system of manufacturing companies affects the

projected profit of the companies.

H1:  The weakness in internal control system of manufacturing companies does not

affect eh projected profit of the company.

1.6      Significance of the Study

This work will undoubtfully be of a great help to management of various

manufacturing companies and other business enterprises. The importance of it brings
the dream of designing and internal control system and throws more light on the need
for adequate system of control which helps in bringing efficiency in operation and
achievement of objective which leads to increased profitability of the company it
shows that areas of weakness of internal control and suggests appropriate measures of
correcting those weaknesses. It also moves on the state the negative effect of poor
internal control operation which most at times lead to leakage in the projected profits.
This will help waken most companies in order to tighten their loose ends, maximize
profit, survive and succeed. Others who will benefit from this work are other
researchers on this topic, it will help them for further researcher. The researcher found
this work invaluable to his academic advancement because it has exposed him to so
many things which ordinary he would not have come across.

1.7      Scope and Limitations of the Study

It must be understood that on a research work of this nature, it is quite impossible to

collect information from all possible sources and respondents.

In evaluating the impact of internal control systems, emphasis were based on the
elements, internal audit and the application of internal control in EDP system, areas
that need internal control system. The reason for such limitation in scope was
principally to desire well into all aspects of the coverage, so the readers after going
through the entire text will have course to believe that the researcher is well equipped
with materials and information.
       Limitation

For the research work of this nature, it is very impossible to search through all the
whole country, so the researcher because of time and fund could not tour the length
and breadth of the country to gather more facts on this research work. Also the
researcher encountered difficulties in collecting information for the research work.
Lack of adequate library facilities and trying to convince some of the respondents to
complete the questionnaire were some of the difficulties. But at any rate, with the
selected areas the researcher was able to cover them.

1.8      Definition of Terms

The following are some terms used and their meaning as regards this work:

ASSET: Company property like land, machine, plant, building, cash etc.

CONTROLS: Compelling events of the company to conform to their plan.

EFFECTIVENESS: The agree to which input are used in relation to a given level of
outputs.

ELECTRONIC DATA PROCESSING (EDP): A system of processing data by use of

electronic computers.

EMBEZZLEMENTS: Theft of assets by the person its entrusted to.

FRAUD: Deliberate acts of dishonest intended to deceive, of involving the theft assets
and falsification of accounting information and financial statements.

LIABILITIES: Obligation or debts of the company.

PROFITABILITY: Ability to yield targeted or desired profit.

RECEIVABLES: Money and other properties in debtors hand.

SYSTEM: A set of elements which operates together to attain a goal.

i PriceRight Electronics (PEI) is a small wholesale discount supplier of electronic
instruments and parts. PEI’s competitive advantage is its deep-discount, 3-day delivery
guarantee, which allows retailers to order materials often to minimize in-store
inventories. PEI processes its records with stand-alone, incompatible computer systems
except for integrated enterprise resource planning (ERP) inventory and accounts
receivable modules. PEI decided to finish integrating its operations with more ERP
modules, but because of cash flow considerations, this needs to be accomplished on a
step-by-step basis.
It was decided that the next function to be integrated should be sales order processing
to enhance quick response to customer needs. PEI implemented and modified a
commercially available software package to meet PEI’s operations. In an effort to
reduce the number of slow-paying or delinquent customers, PEI installed web-based
software that links to the website of a commercial credit rating agency to check
customer credit at the time of purchase. The following are the new sales order
processing system modules:
• Sales. Sales orders are received by telephone, fax, e-mail, website entry, or standard
mail. They are entered into the sales order system by the Sales department. If the order
does not cause a customer to exceed his credit limit, the system generates multiple
copies of the sales order.
• Credit. When orders are received from new customers, the system automatically
accesses the credit rating website and suggests an initial credit limit. On a daily basis,
the credit manager reviews new customer applications for creditworthiness, reviews the
suggested credit limits, and accepts or changes the credit limits in the customer
database. On a monthly basis, the credit manager reviews the accounts receivable
aging report to identify slow-paying or delinquent accounts for potential revisions to or
discontinuance of credit. As needed, the credit manager issues credit memos for
merchandise returns based on requests from customers and forwards copies of the
credit memos to Accounting for appropriate account receivable handling.
• Warehousing. Warehouse personnel update the inventory master file for inventory
purchases and sales, confirm availability of materials to fill sales orders, and establish
back orders for sales orders that cannot be completed from stock on hand. Warehouse
personnel gather and forward inventory to Shipping and Receiving along with the
corresponding sales orders. They also update the inventory master file for merchandise
returned to Receiving.
• Shipping and receiving. Shipping and Receiving accepts inventory and sales orders
from Warehousing, packs and ships the orders with a copy of the sales order as a
packing slip, and forwards a copy of the sales order to Billing. Customer inventory
returns are unpacked, sorted, inspected, and sent to Warehousing.
• Accounting. Billing prices all sales orders received, which is done approximately 5
days after the order ships. To spread the work effort throughout the month, customers
are placed in one of six 30-day billing cycles. Monthly statements, prepared by Billing,
are sent to customers during the cycle billing period. Outstanding carry-forward
balances reported by Accounts Receivable and credit memos prepared by the credit
manager are included on the monthly statement. Billing also prepares electronic sales
and credit memos for each cycle. Electronic copies of invoices and credit memos are
forwarded to Accounts Receivable for entry into the accounts receivable master file by
customer account. An aging report is prepared at the end of each month and forwarded
to the credit manager. The general accounting office staff access the accounts
receivable master file that reflects total charges and credits processed through the
accounts receivable system for each cycle. General accounting runs a query to
compare this information to the electronic sales and credit memo and posts the changes
to the general ledger master file.