AN EXAMINATION ON THE IMPACT OF INTERNAL CONTROL SYSTEM ON THE PERFORMANCE OF AN ORGANIZATION: CASE STUDY OF ECO-BANK, CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

All organizations, whether for profit or nonprofit, have specific aims and objectives they want to accomplish. The objective of a non-profit organization is to fulfill the social needs of the public, and in order to accomplish these goals, regulation is almost always essential. However, the size and scope of these organizations have sometimes made it hard for the executors to exercise personal and first hand supervision of operations.Therefore, in order to optimize the utilization of resources entrusted to all employees in an organization, various form of control are put in place by management of the organization, among these major controls are internal control and internal audit to mention a few. According to Awe (2005), internal controls are policies, procedures, practices and organizational structures implemented to provide reasonable assurance that an organization’s business objectives will be achieved and undesired risk events will be prevented or detected and corrected based on either compliance or management initiated concerns. Additionally, internal controls enables management adapt to the quickly changing competitive and economic environment, as well as to changing consumer priorities and expectations and future growth restructuring. Similarly, it promote efficiency, reduce risks of assets loss and help to ensure the reliability of financial statements and compliance with laws and regulations (Coco, 2005).Coco (2005)further explains that because internal controls serve many component purposes, there are increasing calls for better internal control systems; internal control is looked upon more and more as a solution to a variety of potential problems. Beyond that, Chambers (2000), Cosserate (2009),and Ridley and Chambers (2000) define internal controls as systems that consist of control procedures and the control environment. They went on to say that internal control systems comprise all of the policies and practices that the board of directors and management of an organization has adopted to help them achieve their goal of conducting business as efficiently as possible. These include maintaining asset protection, adhering to internal policies, preventing fraud and error, accurately and completely filling out accounting records, and promptly preparing trustworthy financial information. On the other hand, in a competitive environment, successful organization make sure they achieve and maintain continuous survival (Drucker, 2003). According to Brown (2001), organization that are successful establish performance metrics that direct attention towards identifying and communicating their successes, facilitate organizational learning, and serve as a foundation for evaluation and compensation.

Conceptually, organizational performance refers to the overall effectiveness and efficiency with which an organization achieves its goals and objectives. It is measured in terms of customer satisfaction, through reduced customer complaints (Kloot, 2019).However, to achieve optimal performance, organizations must thoroughly examine their customers and all stakeholders in the business, understanding how effectively they are meeting their needs.  He further suggests that organizations should always get better at what they do by gathering resources, adding value, enhancing service quality, and being flexible. Furthermore, the internal control system should be integrated into the organization's day-to-day operations. This is most successful when the controls are ingrained in the organization's structure, contributing to its overall success and ongoing improvement in performance standards, giving it a competitive edge.Therefore, a survey will be conducted on an examination on the impact of internal control system on the performance of an organization: Case study of Eco-bank, Cameroon

1.2 Statement of the Problem

The system of internal control provides assurance to management of the dependability of the accounting data used in the decision making of the organization. Even though internal control systems have been in place for many years in the majority of organizations, financial crimes are still an increasing problem. Instances of this financial crimes involve financial misconduct within departments, collusion among senior or highly trusted employees, and violations of control measures, among other things. Furthermore, many researchers have confirmed that the internal controls established by management in most organizations haven't effectively stopped these fraudulent activities. These controls have not significantly decreased the repeated instances of fraud and corruption carried out by employees in many organizations.  Hence, it is in the light of these that the study seeks an examination on the impact of internal control system on the performance of an organization.

1.3  Objectives of the Study

The main purpose of this study is to examine the impact of internal control system on the performance of an organization. Specifically, the study will;

1. Assess the existing internal control system in Eco-bank, Cameroon

2. Investigate the extent to which internal control system affect the performance of Eco-bank, Cameroon

3. Investigate the correlation between the internal control system and financial performance of Eco-bank

1.4 Research Questions

The study will be guided by the following questions;

1.        What are the existing internal control system in Eco-bank, Cameroon?

2.        To what extent does the internal control system impact the performance of Eco-bank, Cameroon?

3.        What is the correlation between the internal control system and the financial performance of Eco-bank?

1.5  Significant of the Study

This study will help management and executives of organizations understand how effective internal controls can positively influence organizational performance and guide them in making informed decisions regarding control implementation and improvement. Additionally, employees will benefit from effective internal control systems as  it will reveal to them on on how internal controls impact the overall performance and stability of the organization, potentially affecting employee job security and satisfaction. Further more, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regard to an examination on the impact of internal control system on the performance of an organization.

1.6 Scope of the study

The scope of this study is boarded on an examination on the impact of internal control system on the performance of an organization. Theoretically, this study will assess the existing internal control system, investigate the extent to which internal control system affect the performance of Eco-bank, Cameroon and investigate the correlation between the internal control system and financial performance of Eco-bank.

Geographically, the study will be delimited to employees of Eco-bank, Cameroon.

1.7 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed.

More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.8 Definition of Terms

Internal control: refers to the whole system of control financial and otherwise established by management in order to carry out the business of the enterprise in an orderly and efficient manner to safeguard the assets and secure as far as possible, the competence and accuracy of records, the prevention and detection of errors and fraud in accordance with the final preparation of financial statement.

Organizational performance: refers to the overall effectiveness and efficiency with which an organization achieves its goals and objectives.