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THE ROLE OF INFORMATION TECHNOLOGY IN DEVELOPMENT OF AN EFFECTIVE INTERNAL CONTROL SYSTEM

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND TO THE STUDY

Internal control system is a framework used by organizations for assuring achievement of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies (Chenhall, 2003). A broad concept, internal control system involves everything that controls risks to an organization. Hence, before there can be high performance and productivity in an organization, there have to be an effective internal control system in place.

An effective internal control system also incorporate means by which an organization's resources are directed, monitored, and measured. It plays an important role in detecting and preventing fraud and protecting the organization's resources, both physical (e.g., machinery and property) and intangible (e.g., reputation or intellectual property such as trademarks). At the organizational level, internal control system objectives relate to the reliability of financial information, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations. At the specific transaction level, internal control system refers to the actions taken to achieve a specific objective (e.g., how to ensure the organization's operational information is intact and valid).

According to Amudo & Inanga (2009), everyone in an organization has responsibility for internal control system to some extent. Virtually all employees produce information used in the internal control system or take other actions needed to affect control system. Also, all personnel are responsible for communicating upward problems in operations, noncompliance with the code of conduct, or other policy violations or illegal actions. However, application of technology is needed to ensure that each personnel play its own role in developing and maintaining an effective internal control system. At this point, information technology should be considered as a tool for developing an effective internal control system considering the level of advancement in technology and globalization. the researcher is of the opinion that information technology will have a way of influencing effective internal control system in an organization.

Information technology (IT) is the application of computers to store, retrieve, transmit and manipulate data, often in the context of a organizational management. IT is considered a subset of information and communications technology (ICT). In 2012, Zuppo proposed an ICT hierarchy where each hierarchy level "contain some degree of commonality in that they are related to technologies that facilitate the transfer of information and various types of electronically mediated communications." The term is commonly used as a synonym for computers and computer networks, but it also encompasses other information distribution technologies such as television and telephones. Several industries are associated with information technology, including computer hardware, software, electronics, semiconductors, internet, telecom equipment, engineering, healthcare, e-commerce and computer services (Candreva, 2006). Based, on the widely known capabilities of information technology, the researcher is examining the role of information technology in the development of an effective internal control system in Mouka Foam Manufacturing company, Benin City, Edo State, Nigeria.

Two brothers whom their father, Moukarim came to Nigeria from Republic of Benin in 1935 to establish a metal company, Mouka Ltd in the northern Nigeria, Messrs Essam and Bashir (Late) Moukarim establish the Mouka foam manufacturing factory in Lagos. This plant grew to become the largest single continuous foam manufacturing factory in Africa and the Middle East. Mouka was the first foam company in Nigeria to get its laboratory certified to international standards through the international certification.  In response to increased demand from the East/South South region of Nigeria, the company acquired an existing foaming plant in Benin and opened for business in 2003. In 2008 the plant capacity was upgraded to enable the company give the same quality offering from Benin and today this plant which is under study in this research is catering to the needs of the East, Midwest and parts of the West of Nigeria. Mouka Ltd currently employs over 600 persons across its various locations

1.2    STATEMENT OF THE PROBLEM

Effective internal control system plays an important role in ensuring objective achievement of a company. Several factors ranging from information technology to contributions of the management and personnel staffs also comes into play to ensure effective internal control system. The researcher is curious of ascertaining the role of information technology in the development of an effective internal control system in a manufacturing company considering the capabilities of information technology which includes speed, accuracy, reliability etc. the research is also coming at the right time because there is no existing studies of the role of information technology in the development of an effective internal control system.

1.3     OBJECTIVES OF THE STUDY

The following are the objectives of this study:

1.  To examine the role of information technology in the development of an effective internal control system in Mouka Foam Company.

2.  To examine the level of use of information technology in Mouka Foam Company.

3.  To find out whether effective internal control system in Mouka Foam Company has contributed to the organization’s productivity.

1.4       RESEARCH QUESTIONS

1.  What is the role of information technology in the development of an effective internal control system in Mouka Foam Company?

2.  What is the level of use of information technology in Mouka Foam Company?

3.  Has the effective internal control system in Mouka Foam Company contributed to the organization’s productivity?

1.5     HYPOTHESIS

Ho:  There is no significant relationship between information technology and the development of an effective internal control system in Mouka Foam Company.

Hi:  There is significant relationship between information technology and the development of an effective internal control system in Mouka Foam Company.

1.6     SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1.  The outcome of this study will useful for managements of manufacturing companies because it will form a guide on how information technology can be used as a tool for the development of an effective internal control system in the manufacturing industry.

2.  This research will be a contribution to the body of literature in the area of the role of information technology in the development of an effective internal control system in a manufacturing company, thereby constituting the empirical literature for future research in the subject area.

1.7    SCOPE/LIMITATIONS OF THE STUDY

This study is limited to Mouka Foam Company, Benin Plant, Edo State. It will also cover the company’s information technology system and how it contributes to effective internal control system.

LIMITATION OF STUDY

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

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