THE IMPACT OF INTERNAL CONTROL SYSTEM ON REVENUE GENERATION (A CASE STUDY OF POWER HOLDING COMPANY OF NIGERIA (P.H.C.N) OKPARA AVENUE ENUGU)

THE IMPACT OF INTERNAL CONTROL SYSTEM ON REVENUE GENERATION (A CASE STUDY OF POWER HOLDING COMPANY OF NIGERIA (P.H.C.N) OKPARA AVENUE ENUGU)

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ABSTRACT

The objective of this study was to evaluate the internal control system in operation at power holding company of Nigeria Plc in Enugu State with a view to knowing its impact on revenue generation in the state. A sample of 40 was selected for the study randomly. The questionnaires were used in gathering the primary data while secondary data were collected from the work of others in the form of literature review. The data collected were analyzed using the chi-square (x2) as the statistical tool to determine the valuation of the hypothesis. The findings concluded that weak internal control system encourages collusion fraud loss of revenue, embezzlement and computation. This have always impeded the company’s ability to effectively supply electricity to customers and there from generate revenue. Internal audit system ensures operations compliance with set policies, promoting accuracy and reliability of transactions recording. In addition, effective internal control system ensure effective recommends the remodeling of the company’s internal control system and strengthening of the investigating unit. The components sectors of the present corporate Power Holding Company of Nigeria PLC should be unbundled into separate distinct independent entities that handle generation, transmission, distribution and marketing. It further recommends that prepaid meters should be seen as an alternative to further accumulate debts.

TABLE OF CONTENTS

Title page                                                                                                                      i          

Certification                                                                                                      ii

Dedication                                                                                                        iii

Acknowledgement                                                                                              iv         

List of figures                                                                                                    v

Abstract                                                                                                                        vi

Table of contents                                                                                               vii

CHAPTER ONE:  INTRODUCTION

1.      Background Of The Study                                                                      1

1.1        Statement Of Problem                                                                6

1.      Objective Of The Study                                                              8

2.      Significance Of The Study                                                                      8

3.      Scope and Limitation Of The Study                                            9

4.      Research Hypothesis                                                                             10

5.      Research Questions                                                                               11

6.      Historical Background of Power Holding Company of

Nigeria                                                                                                  12

7.      Definition of Terms                                                                                14

CHAPTER TWO:

REVIEW OF RELATED LITERATURE

2.1        What is Revenue?                                                                                  17

1.      What is Internal Control System                                                18

2.      Objectives of Internal Control System                             20

3.      Types of Internal Control System                                               21

4.      Components of Internal Control System                         23

5.      Functions of Internal Control System                             56

6.      Roles and Responsibilities.                                                        58

7.      Internal Control System And The Auditors                      62

8.      Operation Of Internal Control System At Power Holding Company Of Nigeria                                                                               64

9.      Limitation Of Internal Control System                           71CHAPTER THREERESEARCH METHODOLOGY

1.      Research Design                                                                                    73

2.      Sources Of Data                                                                                    74

3.      Population Of The Study                                                                        75

4.      Sample Size                                                                                          75

5.      Description Of Questionnaire                                                     76

6.      Method of Data Analysis                                                                        76

7.      Statistical Test For Hypothesis                                                  77CHAPTER FOUR         DATA PRESENTATION, ANALYSIS AND INTERPRTATION

1.      Data Analysis and Interpretation                                               78

2.      Test Of Hypothesis                                                                                84

1.      Hypothesis One                                                                         84

2.      Hypothesis Two                                                                                     86CHAPTER FIVESUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

1.      Summary Of Findings                                                               88

2.      Conclusion                                                                                           89

3.      Recommendation                                                                                   90

4.      Suggestions For Further Investigation                            91Bibliography                                                                                      92Appendices                                                                                        96


CHAPTER ONE

INTRODUCTION

1.      BACKGROUND OF THE STUDY

Every organization has a purpose, which includes making some product and rendering some services at a price. For normal operations of the business organization, it is the product or services of the firm that cause cash receipts (revenue) to flow into the firm. Revenue is associated with products or service of a firm as source of expected cash receipts. Revenue is an event; an increase that applies definitely to value that is monetary. This increase occurs because the firm undertakes certain activities or there is any performance by the firm.

Revenue therefore refers to the monetary event of asset valves increasing in the firm due to the physical event of production or sales of the firms’ products or services.

In Kam (1987:237), Financial Accounting Standard Board(FASB) defines revenue as inflows or other enhancements of assets of an entity or settlements of its liabilities (or combination of both) during a period from delivery or producing goods, rendering service or other activities that constitutes the entity’s ongoing major or central operations. In addition, Hongreen et al (2002:568) described revenue as inflows of asset (almost always cash or accounts receivables) received for products or services provided to customers.

On the basis of the above, National Electric Power Authority now Power Holding Company of Nigeria is a government owned public utility establishment enjoying almost total monopoly in generating, transmitting and delivering electricity to all homes and businesses in Nigeria. According to the establishments customer service chartered (2004), her mission as a service industry is to satisfactorily meet customers electricity demand in the most cost effective manner using proven technology and well motivated customer friendly work force with adequate consideration for the environment.

Her goals include:

I.       To continuously improve her service to her customer.

II.    To realize full payment for timely accurate and complete billing of electricity delivered.

III. Institutionalise business and commercial orientation among the work force.

IV. Gradually aiming at closing the gap between demand and supply by upgrading and expanding, generating, transmission and distribution of infrastructure.

V.    To improve skills and motivation of staff. 

To achieve the above mission and goals, the management of the establishment must adopt measures to ensure that available resources are prudently used to obtain valve for money from resources allocated to them. Management in turn should generate operational data with which they evaluate the efficiency and effectiveness of their operation. It is fundament aspect of management stewardship responsibility to provide interested parties with reasonable assurance that their organisation is effectively controlled and that the accounting data it receives on a timely basis are accurate and dependable. Developing a strong system of internal control provides this assurance.

Thus internal control is defined as the whole system of control, financial and otherwise established by the management in order to carry on the business of the enterprise in an orderly and efficient manner to ensure adherence to management policies safeguard the assets and secure as far as possible the completeness and accuracy of the records. In addition the American institute of Certified Public Accountants in 1949 defined internal control as comprising the plan of organisation and all the coordinate methods and measures adopted within a business (or non profit making body) to safeguard its assets, check the accuracy and reliability of its accounting data promote operational efficiency and encourage adherence to prescribed managerial policies. A ‘system’ of internal control extends beyond those matters which relate directly to the functions of the accounting and financial department.

However, it is an established fact that all the business units and service centr





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