Effectiveness of Internal Control System as a Quality Control Mechanism in Public Organizations

Inhalt

1. INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 OBJECTIVES OF THE STUDY
1.4 RESEARCH HYPOTHESIS
1.5 SIGNIFICANCE OF THE STUDY
1.6 SCOPE OF THE STUDY
1.7 LIMITATIONS

2.LITERATURE REVIEW
2.1 HISTORICAL BACKGTROUND OF INTERNAL REVENUE SERVICE
2.2 INTERNAL CONTROL
2.3 TYPES OF INTERNAL CONTROL SYSTEM
2.4 QUALITIES OF INTERNAL CONTROL SYSTEM UNDERSTANDABILITY
2.5 CONTROLS IN THE PUBLIC SECTOR
2.5.1 PARLIAMENTARY CONTROL
2.6 OVERVIEW OF FINANCIAL MALPRACTICES IN THE CONTROL SYSTEM

3. INTRODUCTION
3.1 POPULATION
3.2 POPULATION SAMPLE
3.3 SAMPLING TECHNQUES
3.4 METHOD OF DATA COLLECTION
3.5 METHOD OF DATA ANALYSIS AND PRESENTATION
3.6 DATA ANALYSIS PROCEDURES

4. ANALYSIS AND PRESENTATION OF DATA
4.1 INTRODUCTION
4.1.1 ANALYSIS AND PRESENTATION OF DATA FROM THE FINANCE DEPARTMENT
4.1.2 ANALYSIS AND PRESENTATION OF DATA OF THE OPERATIONS DEPARTMENT

5. SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 INTRODUCTION
5.2 SUMMARY
5.3 CONCLUSION
5.4 RECOMMENDATIONS

REFERENCES

1. INTRODUCTION

1.1 BACKGROUND OF THE STUDY

This aspect of the work highlights on the background of the project, the statement of the problem, the objectives of the study, research hypothesis, significance of the study, scope of the study, expected limitation of the study, sample size and the organization of the study.

In every organization it is very essential to put in place an effective internal control system in its daily activities to help achieve its organization objectives. Internal control system is defined by the auditing standard as ‘the whole system of control, financial or otherwise establish by the management policies, safeguards assets and secure as far as possible the completeness and accuracy of the control”. There has been an alarming rate of misappropriation of funds in some organizations. One of such factors is ineffectiveness of internal control system.

The extent of effective internal control depend on the environment, management risk, assessment, the accounting information and communication system, control activities and monitoring. When the five components mentioned above are properly conducted in any organization, it will go a long way of improving performance of employees in an organization.

Furthermore, for internal control system to be effective there must be an internal mechanism to assess and review the performance of the control system put in place for effective measures to be in place where necessary. With the existence of management can be pro-active.

1.2 STATEMENT OF THE PROBLEM

There has been series of fraud cases in many organizations. It is therefore within this context that this topic is chosen as a means to examine how effective the internal control is in place as a check on management performance of the Internal Revenue Service in the Koforidua Municipality. Internal controls needs to review all significant aspects of the system and that all risks is being adequately manage with suitable controls. The existence of internal control measures in an organization should lead to an efficient and proper control system with the detection and minimization of fraud, and errors when they occur. Though the system may not wipe out all the fraud and errors and other irregularities when carefully conceived and administered, it can greatly reduce the occurrences. Notwithstanding the above problem; errors, fraud and irregularities the question to ask is why in spite of the existence of internal control mechanisms in many organization the fundamental problem seem to persist. There is therefore the need to access the effectiveness and efficiency of internal control as an important element in achieving quality control mechanism.

1.3 OBJECTIVES OF THE STUDY

The scope and the objective of effective internal control system differ from one organization to another. However, the objective of study include among other the following

1) To examine how internal control system aids in checking financial malpractice in Internal Revenue Service.
2) To find out how Internal Revenue Service Koforidua Municipality complies with the control measure outlined in its regulation.
3) To find out the source of financial malpractice.

1.4 RESEARCH HYPOTHESIS

1) The research study seeks to test whether effective Internal Control System can serve as a tool for minimizing financial malpractice
2) Whether the Internal Control System is effective and efficient in Internal Revenue Service.
3) Whether the Internal Control System of Internal Revenue Service has some deficiencies and weaknesses.

1.5 SIGNIFICANCE OF THE STUDY

This study is very important because its completion partially fulfill the requirement of the Bsc (Accounting) Programme. It will aid the organization to realize the need for effective internal control system. Finally, it will also be useful to Internal Revenue Service in identifying the strength and weaknesses in its Internal Control System.

1.6 SCOPE OF THE STUDY

In order for effective examination and effective reporting, it has been necessary to limit the scope of the study to only one government organization, which is Internal Revenue Service, the study has been limited to Operational and Finance Department.

1.7 LIMITATIONS

The research work was restricted to internal control and was successfully except with these few limitation. Due to kind of information needed, self-administered questionnaires, interviews and discussions were the main collection methods. It is possible that not all vital information were give due to the more confidential nature of such information.

This leads to the possibility that some information might have been twisted ostensible to enhance a more favorable reporting of the findings. The end result of all these is that, they lead to the distortion of the finding and may therefore lead to-too real outcomes. Inability of the research to interpret some of the responses given on the questionnaire. A study of this kind requires a comprehensive and detailed analysis of the operations of the internal control measures in a numbers of organization in order to give authentic finding, However, due to time and resource constraint and the difficult nature of such a research, only one organization was study thus Internal Revenue Service to make findings less difficult due to over generalization. Despite these constraints encountered, this research work was completed successfully.

SAMPLE SIZE

To avoid any form of bias, the researcher has chosen the Head of Collection and Head of Assessment in the Operation Department, the Chief Accountant in the Finance Department and the staffs in both the Operations and the Finance Department of Internal Revenue Service. These constitute the population of Internal Revenue Service for my research study. The research has to make findings, and also find more relevant and prevalent problem.

2.LITERATURE REVIEW

2.1 HISTORICAL BACKGTROUND OF INTERNAL REVENUE SERVICE

The income Tax Bill, which sought to formally introduce the collection of income tax into the Gold Coast, was passed into law by the legislative council on 22nd September, 1943. However, the income tax ordinance (No. 27) could not be operative until 1st April, 1944. The period of six months was therefore used for administrative organization.

NAME: The original name was the Income Tax Department, however, the department underwent re-organization and other taxes and duties were introduced between 1961 and 1963 and the name was also changed to the Central Revenue Department.

OFFICE: The Income Tax Department was first housed on the old secretariat building which was situated on the plots of which the office of the Department of National Lotteries is now situated. In 1964, the department moved into an old building situated at the junction of High Street and Bannernam road at James Town. During the Political riots of 1948, the officers were again moved to Victoriaborg building which was still under construction.

Cracks were however detected in the building in 1964 and the office again moved into the former Ministry of Trade building opposite the Accra Sports Stadium main gate. The office finally moved to its headquarters building in 1969.

STRUCTURE OF SERVICE: The Income Tax Department and later the Koforidua Revenue Department had been part of the Civil Service set up. It was a department under the Ministry of Economic planning until 1986 when by virtue of PNDC law 143, it was removed from the Civil Service structure and placed under the control of Board and renamed “ The Internal Revenue Service (I R S)”.

THE National Revenue Service has been has been created to supervise together with Customs, Exercise and preventive Service and the department of National Lotteries. It has again been placed under the supervision of the Ministry of Finance and Economic Planning since 1993. The National Revenue Secretariat itself has been placed under the same Ministry.

`The service after having been removed from the Civil Service was given a degree of autonomy in the day-to-day administration. The board of Internal Revenue is composed of Chairman, Six other persons appointed by the government, the Commissioner of Internal Revenue and the Controller and Accountant General.

It must be stated that apart from the Commissioner and the Controller and Accountant General, other members of the board hold office for three years. They are eligible for reappointment but a member can be appointed for two more times only.

However, the board of Internal Revenue Service has not been reconstituted since its inauguration for many years. The head of the service is the Commissioner. He is responsible for the day-to-day administration of the service. He is being assisted by a special advisor. The service has three main department; operation, Finance, Administration and Research Planning and Monitoring unit. A Deputy Commissioner heads each of these departments

The service has ten Regional offices with three regional in Greater Accra, Ashanti and Western Regions headed by Assistant Commissioners (A. C’S). The service also has 45 district officers scattered throughout the country. There are also 39 collection posts/agencies in some towns.

INCOME TAX ACT, DECREES, LAWS AND AMENDMENTS

The first income tax law in the in country was the INCOME Tax Ordinance (NO. 27) of 1943. Between 1943 and 1961 the existing taxes and duties other than income tax were; Minerals Duty 1952 Betting Tax 1955, Casino Revenue Tax 1961, Entertainment Duty 1962, Airport Tax 19963, Excess profit Tax 1963, Hotel Customers Tax 1933 and Standard Assessment 1963. There was also the income tax degree, 1066 (NLCD 78) but in 9175 the various law and degree were consolidated into the Income Tax Amendment in 1983 (SMCD). These were a major amendment in 1983. In 1983, PNDC law 61 amendment portions of the decree including changing the assessment year from 1st July-30th June to 1st January -31st December every year, thus coinciding with calendar year.

From 1983 to date there have been further amendments; pertinent among them were PNDC law 166 of 1986, 192, 1088, 222 of 270, of 1991, 303 of 1992, 494 of 1995 and 514 of 1996. The amendment were meant to rationalize certain aspects to the law and to correct distortions and ambiguities as well as improved upon incentives and relief’s regime to be in consonance with realities of the time and also to reduce the hitherto rates of taxes.

There were also other legislation for Rent Tax and Wealth, but it must be stated that most of the legislation on other taxes and duties have been repeated. The only ones that are still in existence are Capital Gains Tax, Stamp Duty, Casino Revenue Tax, Minerals Royalty and Service Ta (which includes Entertainment Duty, Advertisement Tax, Betting Tax and Hotel and Restaurant Customers Tax). Airport Tax has been coded to the Civil Aviations Authority whiles Rent Tax has been absorbed into the main decree.

YEAR OF ASSESSMENT

The year of assessment from 1944/45 to 1960/61, it was changed to 1st July-30th June 1st January - 31st December every year.

BASIS PERIOD

The Service year- this was practiced up to 198/82

Current year- this was practiced up to 1987

Accounting year- this has been in from 1088

COMMISSIONER

Below is the list of all the past and present Commissioners of the service: W. D DARE, A HEPHURNAMITH, J. B BOWICK, T. V. GLOVER, J. H. GRIFITHS-REINDOLOY, A. H. WHITFIELD, G. K. O. TURKSON, B. H. BKANKSON, A. D. KRAH, J. O. LAMPTEY MILLS, PROF. J. E. A. MILLS, DAVID ADOM, and JANET OPOKU-AKYEMPONG (MRS).

TAXES ADMINISTERED:

The main objective of the service is to collect data taxes for the state. The taxes administered are; INCOME TAX, EMPLOYEES (P. A. Y. E), SELF EMPLOYED CPMPANY INCLUDE, STATE ENTEPRESES, PETROLEUM AND MINING, STAMP DUTY, CAPITAL GAINS TAX, GIFT and RENT TAX.

In adding, the service collects taxes from certain identifiable groups. They are all self employed but service has entered into agreement with the executive members of such grouping and associations and collect the taxes rates negotiated with the executive members on daily, weekly and monthly basis. Such groups include Ghana Private Road Transport Union, Beauticians and Hairdressers Association, Dressmakers Association. The taxes so collected by the executives are paid to the service.

2.2 INTERNAL CONTROL

Internal control system encompasses all methods, procedures and arrangements adopted within an organization to ensure, as far as possible safeguard assets, the completeness, accuracy and reliability of the accounts records. Auditing standards defined Internal Control as “the whole system of control, financial or otherwise, established by management adherence to carry on the business in an orderly and efficient manner, ensuring adherence to management policies, safeguard assets and secure as far as possible the completeness and accuracy of records”

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