AN EVALUATION OF THE INFLUENCE OF INTERNAL CONTROLS IN THE PRODUCTIVITY OF BUSINESS ORGANIZATIONS IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the study

Organisation, as defined by the Oxford Learners Dictionary, is a group of individuals who establish a business, club, or other collective entity with the purpose of attaining a specific objective. It can also denote the gathering of two or more individuals for a specific purpose. They reach a consensus to engage in mutual interaction with the intention of accomplishing the organization's goals (Nwaka, 2018).

In order for an organisation to function, certain elements must be in place to ensure its seamless operation: management, personnel, materials, funds, and machinery. Effective coordination of these elements is imperative for the organisation to attain success. They are utilised by a cohort of individuals referred to as management; management and organisation are inextricably linked (Nwaka, 2018).

Effective management integrates the diverse components of an organisation in such a way that every element operates as a cohesive entity. Management is the collective of administrators or officials within an organisation who guide endeavours in the direction of shared goals through the utilisation of accessible resources. Management can be defined as a systematic approach to planning and organising in order to establish an integrated system that facilitates the attainment of the objectives of the organisation (Hughes, 2020).

Activities that are intentional, well-coordinated, goal-oriented, and directed are the result of efficient management. Historically, social organisations have prioritised "continuity" and "survival" in their operations. In order to prevent insolvency or illiquidity, which refers to the inability of an organisation to fulfil its obligations on time, such as cash and assets security, and the accuracy and dependability of its records, the organisation must establish a robust control system to ensure these things remain secure. The term for this system is "internal control system."

Internal controls must be an integral element of the financial and operational policies and procedures of any organisation. Research conducted by experts in Europe and North America revealed that organisations with robust internal control systems exhibited superior performance in competitive markets, were subject to stricter government regulations, were more prudent, demonstrated greater competence, maintained high levels of liquidity and profitability, and had more effective management controls (Ozor, 2019). A total of four primary theories concerning internal control have been proposed: the stakeholder theory, the systems theory, and the agency theory.

Penn (2019) asserts that the majority of scholars concur that internal controls contribute to accurate financial reporting and fraud prevention. Nevertheless, a significant number of organisations prioritise external audits over internal ones. Consequently, their emphasis is primarily on ascertaining the occurrence of fraud rather than implementing internal controls and audits to proactively deter any misconduct. Fraud causes organisations to lose approximately 5% of revenue annually. Notwithstanding the presence of fraud detection methodologies including ratio analysis, regression analysis, financial ratios, decision trees, neutral networks, and variable transformation, the identification of fraudulent activities remains challenging due to the adeptness of the executives implicated in manipulating outcomes. Financial institutions have expanded their operations internationally due to technological advancements, thereby increasing their susceptibility to risks, fraudulent activities, and other irregularities. Consequently, institutions are obligated to uphold robust internal controls. Risk management and internal control are fundamental components of an organization's governance. The two components are considered to be the bedrock of the novel strategic approach to business management. Saidu (2018) discovered a positive interdependence between the performance and internal control of a telecommunications company in his investigation of the coordination of internal control operations and performance effects. Consequently, the implementation of a proficient internal control system results in enhanced performance for an organisation, encompassing both financial and non-financial dimensions.

1.2 Statement of the problem

An internal control system is a critical component that prevents the occurrence of actions that could impede an organization's progress towards success (Norton, 2018). It is a system that facilitates the attainment of an organization's goals and is, in essence, invaluable to the organization's survival. This system is comprehensive in nature, as it incorporates financial and non-financial control to safeguard the organization's assets, ensure the accuracy and dependability of its records, and achieve the goals and objectives of running the organisation in an orderly fashion (Abdallah, 2021).

Penn (2019) posits that effective internal controls instill confidence in an organisation regarding its capability to execute or commence a specific undertaking, avert errors and losses by monitoring and improving financial reporting and organisational processes, and ensure adherence to relevant laws and regulations. Appropriate systems must be implemented to deter errors and fraud, promptly detect mistakes, and enable management to implement corrective measures to mitigate losses in the event that these fail. The establishment of an efficient control environment within their organisations falls within the purview of owners or managers, as it constitutes an element of their accountability regarding the utilisation of organisational resources. Enhanced internal control systems are becoming more in demand due to the fact that internal control services may serve multiple component purposes. To be effective, organisations must conduct a thorough analysis of their customers and all other business stakeholders to determine how they are satisfying their requirements hence this study intends to evaluate the influence of internal controls in the productivity of business organizations in Cameroon.

1.3 Objectives of the Study 

The aim of this study is to evaluate the influence of internal controls in the productivity of business organizations in Cameroon. Specifically the study seeks to:

To determine the extent internal control systems are used in business organizations in Cameroon.

To determine whether there is a relationship between internal controls and the productivity of business organizations in Cameroon.

To find out the aims of internal control systems in business organizations in Cameroon.

To assess the effects of internal controls and the productivity of business organizations in Cameroon.

1.4 Research Questions

The following research questions will be answered in this study:

To what extent are internal control systems are used in business organizations in Cameroon?

Is there a relationship between internal controls and the productivity of business organizations in Cameroon?

What are the aims of internal control systems in business organizations in Cameroon?

What are the effects of internal controls and the productivity of business organizations in Cameroon?

1.5 Research Hypothesis

The following null hypothesis will validate this study:

Ho1: There is no relationship between internal controls and the productivity of business organizations in Cameroon.

1.6 Significance of the study

This research is on attempt to survey the constructive parts, which internal auditing can play in Nigeria with reference to public organizations.

A lot of problems are facing public organizations as not having an effective audit central system. One of these problems is the management seems to gloss over the operation of the public organizations, which are carried out in disorganized manner. This is so because an efficient control system will enable the management to monitor the performances of the executives and take necessary and adequate corrective actions to ensure high performances at all levels.

It will also serve as a standard against which companies could assess their internal control system and judge their effectiveness. In other words, the study is to provide common language, understanding and a practical way for companies to assess and improve their internal control systems.

1.7 Scope of the study

The study aims to evaluate the influence of internal controls in the productivity of business organizations in Cameroon. Empirically, this study will determine the extent internal control systems are used in business organizations, determine whether there is a relationship between internal controls and the productivity of business organizations, find out the aims of internal control systems in business organizations and assess the effects of internal controls and the productivity of business organizations.

This study will be carried out in Cameroon.

1.8 Limitation of the study

The researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing that the influence of internal controls in the productivity of business organizations in Cameroon discourse is vast thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size covering only residents of Cameroon. Thus findings of this study cannot be used for generalization for other regions within Cameroon. Additionally, the researcher will simultaneously engage in this study with other academic work will impede maximum devotion to the research. Howbeit, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful.

1.9 Definition of terms

Internal Control: Internal control, as defined by accounting and auditing, is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.