Effects of an Internal Control of Financial Accountability in the Nigerian Public Sector

Essay, 2018

17 Pages, Grade: 3'81


Table of Contents

1.1 Research problem
1.2 Hypotheses

2.1 Concept of Internal Control
2.2 Concept of Financial Accountability
2.3 Internal Controls and Financial Accountability
2.4 Limitations on Internal Control Effectiveness
2.5 Empirical Review of Related Literature


4.1 Presentation of results
4.2 Test of Hypotheses
4.3 Discussion of Findings




This study examines the effect of internal controls on financial accountability in the public sector. The study adopts a survey design method with a population of sixty (60) respondents consisting of staff of the Accountant General Office in Benue state, Nigeria using questionnaire in generating primary data from respondents. The statistical tool used for testing the hypotheses is the Chi-square statistics. The findings revealed that internal controls instituted in public sector are in compliance with COSO integrated framework which is used in detecting errors and fraud. The study also revealed that internal controls have significant role in the management of financial resources allocated to public sector and that management staff in public sector interfere with the effective administration of internal control procedures. In line with these findings, we recommend that the internal control in Nigerian Public sector be constantly reviewed by management so as to be in line with national and international best practices in order to reduce irregularities, inaccuracies, fraud and errors; All employees and those in charge of managing financial resources should constantly be schooled –workshops, seminars, as well as in-service trainings so as to enable them to be conversant with matters relating to internal controls; Management staff interfering with the internal control should be sanctioned accordingly to serve as a deterrent to others to desist from such acts; and finally, auditors should be encouraged to expose wrong doings and apply the rules as and at when the situation demands.

Keywords: Internal controls, financial accountability, Auditor, Public sector, Nigeria


Internal control system is a topical issue following global fraudulent financial reporting and accounting scandals in both developed and developing countries (Mattie & Cassidy, 2002). According to COSO (2004), Internal Control is a system consisting of specific policies and procedures designed to provide management with reliable assurance that the goals and objectives it believes important to the entity will be met. In their view, the reasons to have internal controls is to promote operational effectiveness and efficiency, provide reliable financial and administrative information, safeguard assets and records, encourage adherence to prescribed policies and compliance with regulatory agencies. This also gives the components of internal controls as control environment, control activities, risk assessment, information and communication, and monitoring and evaluation. This however has presumed to mean that internal controls are domain of accountants and auditors, but is actually the management that has the primary responsibility for proper controls. This is part of their stewardship responsibility over the use of government resources. Indeed, the managers through their actions, policies, and communications can result in a culture of either positive or lax control. Planning, implementing, supervising, and monitoring are fundamental components of internal controls (Arens, 2006).

Around the world, governments face pressures to provide public services effectively, efficiently and equitably (Van, 2012). However, the public sector has been controlled by numerous forces of change including; growing demand for quality services, rising costs constrained resources competitive pressures and monitoring by public and private groups with a markedly better informed client. Thus, extra pressure is being exerted on public sector managers to reassess their strategies. This strategy is geared towards financial accountability, which is the assessment of value for money and acceptance by individuals of personal responsibility for their actions in relation to quality of their outputs and decisions (Blinkerhoff, 2003).

1.1 Research problem

There have been several instances throughout the world in which financial resources have been mismanaged or misappropriated through fraudulent practices leading to collapse of several onetime flamboyant businesses. Schroy (2010) argued that there was a massive failure of internal controls especially in public sectors, suggesting the degree to which major institutions across the globe are mismanaged; and as such proprietary trading was involved and speculative profits created a permissive environment in which executives ignored elementary principles of internal controls.

Several studies such as the ones of Mashe (2000), Okwach & Inanga (2000), Wales (2005), Adeyemi, Akindele, & Agesin, (2014), and several others found that firms are faced with internal control weaknesses such as unacquainted payments, poor debt management, unpresented payment vouchers and misappropriation of revenues and other receipts, thus the need to examine and/or strengthen the internal control systems of the public sector organizations. Therefore, researches on internal control are a matter of concern to government, firms as well as accounting researchers. It is against this background that this study seeks to examine the effect of internal controls on financial accountability in the public sector, with data from Benue State Accountant General Office in Nigeria. Consequently, the study fills this gap by addressing the following research questions;

i. Does the internal controls instituted in Benue Accountant General office over the years complied with COSO integrated framework?
ii. Is the internal control procedure of the Accountant General office of Benue state effective and efficient in detecting errors and frauds?
iii. What are the roles of internal control procedures in the management of financial resources allocated to Benue State?
iv. Does management staff interfere with the effective administration of internal control procedures of the office of the accountant General?

1.2 Hypotheses

i. Internal controls instituted by Benue Accountant General office over the years are not in compliance with COSO integrated framework.
ii. Internal Control Procedures of the Benue state Accountant General office are not effective and efficient in detecting errors and frauds.
iii. Internal Control does not have any significant role in the management of financial resources allocated to Benue State
iv. Management staff of Benue Accountant General office does not interfere with the effective administration of internal control procedures of the office of the accountant General

The rest of the paper is divided into review of related literature showcasing conceptual and theoretical frameworks, methodology, result/discussion and conclusion/recommendations.


2.1 Concept of Internal Control

Anthony (2014) defined internal control as a process effected by an organizations structure, work and authority flows, people and management information systems designed to help the organization accomplish specific goals or objectives. In his view, it is a means by which the organizations resources are directed, monitored and measured. He added that there is need to put in place circumstances ensuring that procedures will be performed as intended; right attitudes, integrity and competence, and monitoring by managers.

Ishumgisa (2011) considered internal controls as a process comprising five components; control environment, risk assessment, control activities, information and communication, and monitoring. The author noted that each component influences all aspects of an organization’s activities whether administrative, financial or accounting operations. In this respect, the author stated the need for effective functioning of each of the components for the organization to attain the purpose for which it was established. A control may exist within a designed function or activity in a process as well as in an entity-wide or specific to an account balance, class of transactions or application. However, Meigs (2008) continue to say that controls have specific characteristics; they can be automated or manual, reconciliations, segregation of duties, reviews and approval authorizations, safe guarding and accountability of assets, preventing or detecting error or fraud, among others. Controls within a process may consist of financial reporting controls, operational controls and compliance with laws and regulations which in essence, reduce process variation, leading to more predictable outcomes in an organization.

According to Frank (2009), there are three types of controls that the entity's internal audit function should recognize: preventive, authorization and detective controls. Preventative controls prevent risks from occurring for example; segregation of duties, recruiting and training the right staff. Authorization controls prevent fraudulent or erroneous transactions from taking place. Detective controls which detect errors or fraud that has not been prevented. These help to deter undesirable acts in the organization especially in public sector. They could be exceptional reports that would reveal that controls have been bypassed. They provide evidence that a loss has occurred but do not prevent loss from occurring, for example, large payments from government treasury being made without authorization.

COSO (2004) divided internal controls into two complementary forms, the accounting controls and administrative controls. Accounting controls were viewed as safeguards to control assets and ensure accuracy of financial records while administrative controls are safeguards designed to provide operational efficiency and adherence to policies and procedures. Moreso, objective setting is a precondition to internal control. By setting objectives, management can then identify risks to the achievement of those objectives. To address those risks, management of organisation may implement specific internal controls. The effectiveness of those internal controls can then be measured by how well the objectives are achieved and how effectively the risks are managed. More generally, Yeo and Neal (2004) disclosed that setting objectives, budgets, plans and other expectations establish criteria for control. They also added that control itself exists to keep performance or the state of affairs within what is expected, allowed or accepted. Therefore, Control built within a process is internal in nature and it takes place with a combination of interrelated components such as; social environment affecting employee behavior, information necessary in control, and policies and procedures. Internal control structure is a plan determining how internal control consists of these elements:

2.2 Concept of Financial Accountability

Financial accountability is the liability that one assumes for ensuring that an obligation to perform a responsibility is fulfilled (Frost, 2012). Financial accountability means being able to provide an explanation or justification and accept responsibility for events or transactions and one's own actions in relation to these events or transactions (Kikonyogo, 2009). In his view, financial accountability is like a Semantic tree: the trunk is governance; a main branch is public accountability which feeds other branches like budgeting, accounting, auditing, and records management.

Financial accountability is also concerned with tracking, and reporting on allocation, disbursement and utilization of financial resources, using the tools of auditing, budgeting and accounting. The literature in this area deals with compliance with the laws, rules and regulations regarding financial control and management (Brinkerhoff, 2003). In his view, accountability involves the delegation of individuals or agencies to provide information about and/or justification for their actions.

Brown (2001) asserts that financial accountability is connected with ensuring that money given to people especially public servants is spent according to the budgeted items and activities using the set rules. In other words, Moses (2007) considered financial accountability as assessment of value for money and acceptance by individuals of personal responsibility for their actions in relation to quality of their outputs and decisions. Cox (2000) noted that financial accountability implies accountability to the public. In essence, this suggested need for management to be transparent and conscious when spending the organizational resources while undertaking their activities in a bid to effectively achieve the institutional mission, ethical standards and good governance. Therefore, the key to achieving financial prudence and in identifying opportunities for growth in an organization as well as in the public sector is financial accountability. This can be achieved through putting financial controls in monitoring and recording assets, authorization, periodic update of job descriptions for officers and employees, personnel policies such as health insurance policy, continuous training, conflicts of interest policy and code of ethics, audit committee, among others.

Holding employees accountable helps them to know the satisfaction of achieving a goal and performing to standard (Anderson, 2009). Accordingly, Anderson (2009) opined that audit committee and public accountants are essential in public sectors. Audit committee so enacted must ensure that proper federal and state tax filings are completed timely, including payroll taxes; understand the authority’s internal controls and have policies in place to update them as needed; monitor any legal matters that could impact the financial health and reporting of the entity; understand institute and oversee any special investigatory work as needed.

2.3 Internal Controls and Financial Accountability

According to Gendion, Cooper and Townley (2000), internal control is a management function that is crucial for proper accountability and, accountability for all funds should be maintained at all times. Thus every organization is subject to some kind of risks depending upon several factors such as; the products and services it offers, the market in which it functions, the sources through which it is financed, and the way it utilizes its resources.

Kikonyogo (2009) noted that a lot of benefits can be derived through the implementation of an effective corporate Internal Control System. Among others, it prevents errors and irregularities by detecting them in a timely manner there by promoting reliable and accurate accounting records. It can also quickly resolve issues arising as a result of reporting errors. It protects the interests of employees by clearly specifying to them their duties and responsibilities and safeguarding them against being accused of irregularities or misappropriations (Dess & Shaw, 2001).

According to ACCA (2005), assessment of risk involves the analysis and establishment of plans in order to prevent the risks associated with the attainment of company objectives. The control activities include policies and procedure formulated by management in order to ensure the effectiveness of carrying out activities with regard to the achievement of organizational goals.

Notably, information and communication component covers understanding of policies and procedures, validation of information, and evaluation of employee performance. In their view, monitoring, the practice of assessing the overall performance of an organization, is perhaps the most prominent of all steps of Internal Control Systems. The majority of studies on monitoring and accountability have suggested that fostering it will lead to higher performance.

Therefore, in designing internal controls, it should be cost beneficial while reducing risk to an acceptable level in line with the objectives of the organization or ministry. Otherwise, government managers may design systems with excessive controls in one area of their operations that adversely affect other operations. For example, employees may try to circumvent burdensome procedures, inefficient operations may cause delays, and excessive procedures may stifle employee creativity and problem solving or impair the timeliness, cost or quality of services provided to beneficiaries. Thus, benefits derived from excessive controls in one area may be outweighed by increased costs in other activities.

Moreso, qualitative considerations should also be made. Proper controls over high risk/low monetary unit transactions such as salaries, travel and hospitality expenses are necessary. The costs of appropriate controls might seem excessive for the amounts of money involved relative to overall government expenditures, but they may be critical to maintaining public confidence in governments and related organization.

2.4 Limitations on Internal Control Effectiveness

The limitations on internal control effectiveness need to be stressed to avoid exaggerated expectations due to a misunderstanding of its effective scope. Internal control cannot by itself ensure the achievement of the general objectives defined earlier. An effective internal control system, no matter how well conceived and operated, can provide only reasonable not absolute assurance to management about the achievement of an entity's objectives or its survival.

It can give management information about the entity's progress, or lack of it, toward achievement of the objectives. But internal control cannot change an inherently poor manager into a good one. Moreover, shifts in government policy or programs, demographic or economic conditions are typically beyond management's control and may require managers to re-design controls or adjust the level of acceptable risk.

Another limiting factor is that the design of an internal control system faces resource constraints. The benefits of controls must consequently be considered in relation to their costs. Maintaining an internal control system that eliminates the risk of loss is not realistic and would probably cost more than is warranted by the benefit derived. In determining whether a particular control should be established, the likelihood of the risk occurring and the potential effect on the entity are considered along with the related costs of establishing a new control.

Organizational changes and management attitude can have a profound impact on the effectiveness of internal control and the personnel operating the system. Thus, management needs to continually review and update controls, communicate changes to personnel, and set an example by adhering to those controls.

2.5 Empirical Review of Related Literature

Ademola and Alade (2015) examined the effect of internal control system in Nigeria public sector using the Nigeria National Petroleum Corporation as a case study. Both primary and secondary source of data were used while Chi-square and Pearson’s correlation coefficient were used to test the hypothesis. The questionnaire elicited measures on segregation of duties, internal verification, physical control and dues process variables using 150 respondents drawn from finance, administration, marketing and purchasing departments of the corporation. The study reveals that the establishment of internal control play a vital role in prevention of fraud and irregularities.

Adewale (2014) examined internal control system: A managerial tool for proper accountability in the Nigerian customs service. The studies recognizes two main groups of players in the Nigeria Customs Service namely, administration and enforcement from which 100 officers responded to a validated questionnaire was used. The hypotheses formulated were tested using Chi-square and it reveals that significant difference existed between internal control system and proper accountability. Also, effective utilization of information technology plays important role in the collection of custom duties. The study also ascertains that effective internal control system ensures high revenue generation. These findings provide vivid evidence for recommendations such as adequate motivation of officers to avoid financial fraud; information technology gadgets should be provided for all commands and competent team, of experts to work out the logic of standard internal control should be put in place.

Munene (2013) investigated the effects of internal controls on financial performance in Kenya. Internal controls were looked at from the perspective of control environment, internal audit and control activities whereas financial performance focused on liquidity, accountability and reporting as its measures. The research was conducted using survey, correlation and case study as research designs. Data was collected using Questionnaires as well as review of available documents and records from a population of 37 government training institutions in Kenya. Data was analyzed using the Statistical Package for Social Sciences. The study found that management of the institutions is committed to the control systems, actively participates in monitoring and supervision of the activities of the government training institutions in Kenya. It was further revealed that there is a clear separation of roles, weaknesses in the system are addressed. The investigation recommends competence profiling in the internal audit department and that the institutions establishes and manages knowledge/information management system to enable all parties within the institution to freely access and utilize the official information.

Aramide & Bashir (2015) examines the effectiveness of internal control system and financial accountability at local government level in Nigeria. Data were gathered through the distribution of one hundred and fifty (150) copies of questionnaire, the responses were analyzed and were tested using chi-square statistics. Findings from this study show that internal control system is positively significant for the good financial accountability in the local government area council in Nigeria. The study recommends that local government authority should increase an effort to ensure proper and highly effective internal controls system is put in place within local government to enhance their financial accountability.

In another study, Morelo (2011) examined the importance of internal control in the Brazilian public administration. Using a content analytical method, the study reveals that there is existence of records of bribes payments from suppliers to an employee of the organization, existence of an off-the-books payroll scheme; service providers hired without the proper selection procedures or execution of a formal contract, and staffed with significant numbers of family members of institution personnel; overbilling and overcharging of civil construction projects; uncompleted projects and continued illicit payments to third parties for advantages not authorized in the legislation governing the execution of contracts. The study recommends, among others, that proper internal controls should be enacted to ensure accountability in terms of administration and service delivery.

Moses (2007) examines the effectiveness of internal control systems in achieving value for money in local governments. Using the regression analysis, it was revealed that internal control systems have a significant positive effect in achieving Value for Money. The study further reveals that there a significant positive relationship between the control environment, control activities, risk assessment, information and communication and monitoring and value for money in local governments.

Cuomo (2005) examined internal control and financial accountability for not-for-profit boards using charities organisations in America. The study uses discussion based model. The study reviews that carrying out fiduciary responsibilities by board of directors and officers such as being financially accountable to the organization is essential to the survival of the organisation. A failure to meet these obligations is a breach of fiduciary duty and can result in financial and other liability for the board of directors and the officers. Therefore, the study concludes that effective internal controls will help to protect an organization’s assets and assist in their proper management.


The objective of this study is to answer the research questions. Both primary and secondary sources of data were used. For sourcing of primary data, a well-structured questionnaire of likert five point scales ranging from 1 – 5 (strongly agree 5, agree 4, disagree 3, strongly disagree 2, undecided 1) was used to generate data from respondents in the Benue State Accountant General Office. To complement the primary data, secondary data were used by review of relevant literature. Other secondary source of data were Institute of Chartered Accountants of Nigeria journals and study packs. The study adopted survey research design in order to collect a sufficient amount of primary data. The population, which also form the sample size of this study is sixty (60). This comprises Staff of Benue state Accountant General Office, which falls under the classification of Ministry in the Nigerian public sector. Through stratified sampling, the sample size consist of fifteen (15) management staff, twenty (20) senior staff, and twenty-five (25) junior staff which sum up to sixty (60) staff. These questionnaires were administered and only 52 were filled and returned, thus fifty two (52) is the final sample size for testing in this study.

For validity and reliability of data, experts assisted the researcher in evaluating the relevance, wording, omissions, and clarity of questions or items in the instrument as well as the Cronbach Alpha Method provided by Statistical Package for Social Sciences (SPSS) were used on the variables. This made the instrument to be declared reasonably reliable or consistent. The instrument is taken to be reliable if the calculated Alpha is or greater than 0.76. In addition, the data collected are analysed using Chi-square statistics generated from SPSS 20 to validate or invalidate the hypotheses. The analysis in this study involves Descriptive statistics (especially mean, standard deviation and percentage), and inferential statistics (Chi-Square analysis)


4.1 Presentation of results

Cronbach Reliability test

This examines the properties of measurement scales and the items that compose the scales. Ideally, the cronbach alpha coefficient should be about 0.7 (Pallant, 2001). The cronbach coefficient for the study performs very well with a value of .89, .79, .82 and .76 and this indicates that the scales and the items of the research instrument show a high measure of internal consistency.


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Effects of an Internal Control of Financial Accountability in the Nigerian Public Sector
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effects, internal, control, financial, accountability, nigerian, public, sector
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John Joseph (Author), 2018, Effects of an Internal Control of Financial Accountability in the Nigerian Public Sector, Munich, GRIN Verlag, https://www.grin.com/document/428186


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