CHAPTER ONE

INTRODUCTION

1.1      Background of the study

The Canadian institute of chartered accountants. Exposure draft of proposal auditing recommendation describes internal control as comprising of the plan of an organization by the management of the emprise to achieve management objective of ensuring as far as is practical the orderly and efficient conduct of its business including the safe guarding of assets the reliability of accounting records and the timely preparation of reliable financial information. The chartered institute of public and finance accountant (CIPFA) state that the internal control system comprise the whole system of controls financial and otherwise, established by management in order to carry on the business of the organization in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the record individual component of internal control system are known as controls or internal control. Internal control system therefore could be view as a firms organizational plan including all method and measure the firm takes to

Safeguard its assets

Ensure the accuracy and reliability of its accounting data

Promote operational efficiency

To encourage compliance with company policy Internal control can be divided into two main categories: Financial control which are primarily concerned with legitimacy of expenditure Security of assets and income and other control mainly administrative which are created and maintained by management to ensure that an activity is relevant to the needs of an organization and is carried out in the most effective and efficient manner. These categories are independent out should not be regarded in isolation as both have an impact on the performance of activities and their consequent cost and value to the organization. The hospitality industry has a long colorful history beginning with inns, and lodges, and growing into the hospitality industry as stated by Michael & Richard. An incredible change in the industry of tourism in the world brought many changes in the field of hotel business. This means, the expansion and development of travel has contributed a lot for the development of hotel industry. On the contrary, businesses couldn’t achieve their objective due to the fact their internal control systems are weak. These internal control problem are more obvious in particular business sectors, such as the hotels business from the hospitality industry, which is one of the most growing sectors worldwide as mentioned by politis etal. Further, globalization of economy, technological advancements, complexity of business, businesses failures and allegations of fraudulent financial reporting have recently sharpened the ever-increasing attention to internal controls karagiorgos etal. Because of, business without internal control is just a business not craft fashion shortly to achieve objectives, under no circumstances have a prospect to detect fraudulent activities, and demonstrate poor revenue as confirmed by kumar & sharma, Adeyemi etal, Edogbany etal

Accounting and financial control

These consist of all accounting, financial and monetary techniques and system built into the internal control system to promote and encourage the attainment of the objective of the internal control. Generally, accounting and financial control consist of:

Budgetary control

The organization should plan and control its expenditure and income to meet its predetermined objective

Legitimacy of income and expenditure

All  income and expenditure should be in accordance with the policies of the organization properly authorized and within the law

Security of assets

Assets of the organization should be kept in proper custody and not wrongly applied, either by error or intent

Accounting control

It include internal audit and internal checks

Management control

These consist of non accounting and non financial system and method which are building into the system to promote the attainment of the four major goal of internal control system.

These goal as enumerated before are:

To safeguard a firms assets

To ensure the accuracy and reliability a firms accounting data

To promote operational efficiency of a firm. To encourage compliance with a firms policy. Customer, increase of misuse of revenue or errors in operation, and increase of abuses. But also, the outcomes of weak internal control systems of the company as Cited in Abdul & Mohd. Likewise, Fengi etal confirm that company disclose ineffective internal controls system have larger tendency of experiencing management errors in their operation than those firms that report effective internal controls system. Precisely, company disclose poor revenue performance when devour a poor collection and poor analysis of performance data, poor internal control, poor internal organizational arrangement for revenue generation, improper handling cash, theft or fraud, lack of incentive, errors made by inefficient and inexperienced personnel, quality of service, pricing and fees, and quality of service among others. Moreover, add that company disclose ineffective internal controls system have larger tendency of experiencing management errors in their operation than those firms that report effective internal controls system. More specifically, company disclose poor revenue performance whenever have a poor collection and poor analysis of performance data, poor internal control, poor internal organizational arrangement for revenue generation, improper handling cash, theft or fraud, employee turnover due to lack of incentive, errors made by inefficient and inexperienced personnel, quality of service, pricing and fees, and quality of service among others as described by, Eze etal. Obviously, hotel revenue is not only obtained from a single source rather generates revenue through several activities such as :room division, food &beverages, function rooms, spa & fitness facilities, golf courses, casino and gambling facilities, and other additional services stanislav & Vladimir. Thus, there is also a need of management tool that can control and monitor income regularly from each hotels revenue sources due to the fact internal controls enable the hotels to maintain the quality of service, to get loyalty of customers and may enable the business to engage in more profitable activities that would be too risky for a competitor without those internal controls to generate more revenue as confirmed by kloot, chamber Moreover, effective internal controls provide an independent appraisal of the quality of managerial performance in carrying out assigned responsibilities for better revenue generation, reduce chance of loss of revenue, and it’s also help in meeting its revenue target levelBeeler etal. Ittner etal, Fadzil etal. [18]. In these dynamic environment it is obvious that things will go wrong so it’s better to make sufficient controls to limit the possibility of bad events occurring and to limit their damage when they occur Brewer & List

1.2 STATEMENT OF PROBLEM

Most government establishment in Nigeria of which hotel industry is one are known for their inability to keep complete and or accurate records and quite often lose some of the assets under their control to fraudulent workers and other enemies of progress who adopt any strategy possible to satisfy their selfish interest at the expense of public interest. To this and, therefore, the researcher has chosen as the main problem of this work, to identify the nature of internal control system in hotels

1.3      OBJECTIVE OF THE STUDY

The main objective of this study is to evaluate the internal control system in hotel industry;

But to aid the completion of the study, the researcher intend to achieve the following specific objective;

i)             To ascertain the effect of internal control system on the profitability of the firm

ii)           To examine the role of effective internal control system in attaining organizational objective

iii)          To examine the relationship between internal control system and organizational performance

iv)         To examine the impact of internal control system on the day to day operation of the firm

1.4 RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid the completion of the study;

H0: there is no significant relationship between internal control system and organizational performance.

H1: there is a significant relationship between internal control system and organizational performance.

H0: effective internal control system does not play any significant role in attaining organizational objective

H0: effective internal control system does play a significant role in attaining organizational objective

1.5      SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of great importance to the management of hotels in Nigeria this is because the study seek to explore the merit of a good internal control system in the organization, the study will also be of significance to investors an potential investor as this will show efficiency of management and smooth operation of the organization; the study will also be useful to researchers who intend to embark on a study in a similar topic as the study will serve as a reference point to further research; finally the study will be of importance to students, investors, potential investors, academia teacher lecturers and the general public as the study will add to the pool of existing literature on the subject matter

1.6      SCOPE AND LIMITATION  OF THE STUDY

The scope of the study covers an evaluation of the internal control system in hotel industry, but in the cause of the study, there were some factors that limited the scope of the study;

a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study       

b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Finance: Limited Access to the required finance was a major constrain to the scope of the study.   

1.7 OPERATIONAL DEFINITION OF TERMS

Internal control

Internal control, as defined in 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

Hotels

A hotel is an establishment that provides paid lodging on a short-term basis. Facilities provided may range from a modest-quality mattress in a small room to large suites with bigger, higher-quality

profitability

The state or condition of yielding a financial profit or gain. It is often measured by price to earnings ratio

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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