A CRITICAL INVESTIGATION OF INTERNAL CONTROL SYSTEM AND ITS CONTRIBUTION TO EFFECTIVE FINANCIAL MANAGEMENT IN CORPORATE ORGANIZATIONS IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the study

Each organisation, whether for-profit or not-for-profit, possesses a set of objectives and goals that it strives to accomplish. The primary objective of non-profit organisations is to address the social needs of the public. Frequently, supervision is an essential component in this progress. At times, the magnitude and reach of these institutions have posed challenges for the executors in terms of exercising direct and personal oversight over operations. The initiation of internal control by management occurs in this context. In order for an entity to conduct its operations, certain prerequisites must be met, including financial resources, operational materials, machinery, and machinery (Anyanwu, 2019).

Effective coordination of these elements is imperative for the organisation to attain success. These elements are utilised by an organisation referred to as management. Management cannot exist in the absence of an organisation; the two are inextricably linked. The internal control system ensures that the accounting data utilised in the organization's decision-making is reliable, thereby providing management with assurance (Peterson, 2018).

Due to the possibility and occurrence of errors and fraud, internal controls in financial management are of the utmost importance. Consequently, institutions must establish safeguards to ensure they fulfil their fiduciary obligations, which include maintaining the plan's financial books and records and filing annual returns/reports that are complete and accurate. This objective can be achieved through the implementation of efficient internal control systems, which are based on a framework model comprising the following elements: monitoring, risk assessment, control activities, communication and information, and control environment.

It is critical to bear in mind that internal control functions as a procedure that imparts reasonable, albeit not absolute, assurance to the organisation; it serves as a vehicle to accomplish goals rather than an aim in and of itself. The operation of internal control is not limited to policy manuals and forms; rather, it is personnel at each level (Olu, 2023).

Internal control is a framework comprising distinct policies and processes that are intended to furnish management with dependable assurance regarding the fulfilment of the entity's critical goals and objectives. Ramadhan et al. (2023) posit that the purpose of internal control is to safeguard assets and records, facilitate dependable financial and administrative data, and enhance operations, efficiency, and effectiveness.

Working Group (2007) of the International Monitoring Fund (IMF) examined internal control components including the control environment, control activities, information and communication regarding risk assessment, monitoring and evaluation. Internal controls are generally regarded as the purview of auditors and accountants. In reality, management bears the principal responsibility for ensuring that controls are effective. The research employed Morgan's (2007) contingency theory, which was cited in Master et al. (2023). According to this organisational theory, there is no optimal method for organising, managing, or decision-making within a company. Conversely, the most effective course of action is contingent upon both the internal and external circumstances (Master et al., 2023).

Since the 1930s, the majority of African nations have had an increasing need for an internal audit department; nevertheless, the full implementation of internal audit procedures remains incomplete (Moses et al., 2023). In Ethiopia, for instance, operational audits and the implementation of contemporary methodologies like flowcharting, statistical sampling, and computer auditing receive relatively less consideration. The expenditure of internal auditors is intended to verify the accuracy and reliability of accounting records. Moreover, a written audit charter is absent from the majority of internal audit departments (Innocent et al., 2023). As a result, the majority of organisations lack distinct definitions of the objectives, powers, scope, and responsibilities of internal audit, and implement no mechanisms to verify that the internal audit department operates with the support and authority of senior management.

1.2 Statement of the problem

Internal controls are obligatory procedures that are designed to provide contributions to a range of performance indicators for the organisation (Seth, 2022). Notwithstanding the diligent implementation of internal control systems, accounts persist of various forms of financial fraud occurring within organisations, including mismanagement, transaction errors, embezzlement, and the waste of assets (Moss, 2023). In corporate organisations in Cameroon, the impact of internal controls on the dependability of financial reports, the efficacy and effectiveness of hotel operations, and adherence to laws and regulations remains unsubstantiated.

1.3 Objectives of the Study 

The aim of this study is to critically investigate internal control system and its contribution to effective financial management in corporate organizations in Cameroon. Specifically the study seeks:

To find out whether there are internal control systems in corporate organizations in Cameroon.

To determine whether internal control systems in corporate organizations in Cameroon are efficient.

To examine the impact of internal control system on financial management in corporate organizations in Cameroon.

To assess the lapses of internal control system on financial management in corporate organizations in Cameroon.

1.4 Research Questions

The following research questions will be answered in this study:

Are there internal control systems in corporate organizations in Cameroon?

Are the internal control systems in corporate organizations in Cameroon are efficient?

What are the impact of internal control system on financial management in corporate organizations in Cameroon?

What are the lapses of internal control system on financial management in corporate organizations in Cameroon?

1.5 Research Hypothesis

The following null hypothesis will validate this study:

Ho1: There are no internal control systems in corporate organizations in Cameroon.

1.6 Significance of the study

There is no controversy that this research works have been conducted on internal control system, however much emphasis has been placed on the impact of a good internal control system on financial management of organizations. This research work will go a long way in helping an organization discover the impact of weakness in internal control and suggest measures in correcting them. 

It will also reveal the problems caused by bad internal control system and be useful to

students, scholars, lecturers and other third parties as it shall open new area of further research work and at same time advance challenges to up-coming researchers.

The study findings will also be helpful to those under taking financial management as a course and practitioners; it shall act as a source of information (secondary data) in their attempt to undertake research in the same topic.

1.7 Scope of the study

The study aims to critically investigate internal control system and its contribution to effective financial management in corporate organizations in Cameroon. Empirically, this study will determine find out whether there are internal control systems in corporate organizations, determine whether internal control systems in corporate organizations are efficient, examine the impact of internal control system on financial management in corporate organizations and assess the lapses of internal control system on financial management in corporate 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 internal control system and its contribution to effective financial management in corporate 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.

Internal Control System: Is a formalized system intended to provide reasonable assurance that the objectives of a program as a whole are met, e.g. financial control, quality control or process control.

Management: It is defined as the process of planning, organizing co-ordinating and controlling the activities of an organization. It is seen as a group of people who monitor and control the organization activities towards the achievement of the organization objectives.