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THE IMPACT OF INTERNAL CONTROL SYSTEM IN REVENUE GENERATION (A CASE STUDY OF ENUGU ELECTRICITY DISTRIBUTION COMPANY)

Dept: BUSINESS ADMINISTRATION File: Word(doc) Chapters: 1-5 Views: 2

Abstract

The objective of this case study was to evaluate the internal control system in operation at Enugu Electricity distribution Company of Nigeria Plc in Enugu State with a view of knowing its impact on revenue generation in the state. A sample of 40 was selected for the study randomly. The questionnaire 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 collision 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 syst

1.1  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 produce or sources 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 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 values increasing in the firm due to the physical event of production or services of the firm’s product or services.

In Kam, (1987:237), financial accounting standard (FABS) defines revenue as inflows or other enhancement of assets of an entry or statement of its liabilities (or combination of book) during period from delivery or producing goods, rendering service or other activities that constitutes the entry’s ongoing major or central operations. In addition, Hongreen et. Al (2002:568) described revenue as inflows of asset (almost always cash or account receivables) received for products or services produced to customers.

On the basics of the above, national electric power authority, now Enugu Electricity Distribution company of Nigeria is a government owned public whity establishment customer service chatered (2004) ber mission as a service industry is to satisfactorily meet customers electricity demand in the most cost effective manner using proven technology are were motivated customer friendly work force with adequate consideration for the environment.

Her goals include:

1. To continuously improve her service to her customer
2. To realize full payment for timely accurate and complete billing of electricity delivered

• Institutionalize business and commercial orientation among the work force

1. Gradually aiming at closing the gap between demand and supply by upgrading and expanding, generating, transmission and distribution of infrastructure.
2. To improve skills and motivation of staff
3. 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 value 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 organization is effectively controlled and that the accounting data it receives on a timely basis are accurate and depend able developing a strong system of internal control produce this assume.

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 records. In addition the American institute of certified public accountants in 1949 defined internal control as comprising the plan of organization and all the coordinate methods and measure adopted within a business (or non-profit making body) to safeguard its assets, check the accuracy and reliability of its accounting that promote operational efficiency and encourage adherence to prescribed management policies. A “system” of internal control extends beyond those matters which relate directly to the function of the accounting and financial department.

However, it is an established fact that all the business units and service centre of Enugu Distribution company of Nigerian Plc in Enugu State are often plagued by accounting and administrative control problems as it affects revenue generation and other assets. As a result the establishment revenue base has assumed a downward trend.

It has also been shown that despite considerable investment public service establishment it widely perceived.

The complete dependence on capital growth allocation from government is also known. What is not known is the degree to which internal control, weakness and reduced allocation from government contribute to the problem.

The incidence of internal control weakness unsatisfactorily and deteriorating service delivery have the undesired effect of not only weakening the establishment’s ability to provide electricity supply effectively, but also encourages collusion, fraud, asset conversion, genuine and deliberate mistakes, corruption, lack of transparency and accountability for revenue collection and accountability for revnue collection and other assets for the enhancement of the attainment of the mission and goals, it is against the abov background and evaluate that this research carried out to examine and evaluate the internal control system in operation at holding company of Nigeria in Enugu state.

Historical Background of the Case Study

Electric power development in Nigeria started toward the one of 19

th

 century when the first generating plant of 30KW was installed in the city of Lagos in 1988 from this data onwards and until 1950, the pattern of electricity development was inform of individual electricity undertaking set up in various towns somewhere by nature or Municipal Authorities. In 1946, the Nigerian government electricity undertaking was established within the then public works development (PND) to take over the responsibilities for electricity in Lagos state. In 1950 the government passed the electricity corporation of Nigeria Ordinance No.1 of 1950 to interrogate power development and make it effective. This ordinance brought all the electricity undertakings and the electricity section of PWD under control the electricity corporation of Nigeria (ECN) then became the statutory body responsible for generation, transmission, distribution and sales of electricity to all consumers in Nigeria. In 1962, the Niger Dams Authority was established by an act of the Parliament. The Authority responsible for the construction and maintenance of Dams and other works on the River Niger and elsewhere, generating electricity by means of water, improving navigation and promoting fisheries and irrigation. The electricity corporation of Nigeria (ECN) and the Niger Dams Authority (NDA) were merged to become National Electric Power Authority (NEPA) by Decree No. 24 of 1972. The authority was to develop and maintain an efficient, co-ordinate an economic system of electricity through two major sources. Hydro and thermal. The hydrostations are Kanji, Hydro power station with capacity of 760muo, Jebba Hydro Power station with 578.4mkl capacity, Shiroro Hydro Power Station 600mnl. He thermal power station are, Delta IV thermal power station with 600mks and Sapele thermal power station 1020mkl. However, the need to reform the electricity industry necessitated the transformation of NEPA into Power Holding Company of Nigeria (PHCN) in 2004.

The electricity reform act of 2005, unbundled PHCN into II distribution companies,/transmission company and 6 generation companies. Thus, Reform Act gave both to Enugu Electricity Distribution Company (EEDC).

1.2  Statement of Problem

The incidence on internal control weakness, unsatisfactory and deteriorating service delivery have to undesited effect of only weakening the company’s ability to effectively provide electricity supply but also encourages collusion, fraud, embezzlement, loss of cash (revenue), assets, conversion genuine and deliberate mistake, corruption, lack of transparency and accountability for revenue collection and other assets. Despite considerable investment public service delivery is unsatisfactory and degenerating. The company is not  able to break even and sustain itself from the revenue obtained there from. Thus impacts so negatively on the company’s existence

For the enhancement of the attainment of the mission and goals of the company. It is therefore necessary that the hinderances be removed. The management of the company should familiarize themselves with internal control procedures that will ensure effective service delivery and the desired revenue generation.

Unfortunately, there has been a dearth adequate information in this regard. No determined effort has been made to investigate the problem of weak internal control over service delivery and revenue generation. Therefore the main motivatory factors underlying this study is the desire to break new grounds with the intent of shedding more lightly on this problem and seeking avenues for solving it.

Thus, the purpose of thisn study is to examine and evaluate the internal control system in operation at Enugu Electricity distribution company of Nigeria in Enugu State with a view of knowing its impact on revenue generation in the state.

1.3  research objectivs

The main objectives of the study is to evaluate the internal control system in operations at ewnugu electricity distribution company of Nigeria in Imo State.

Other objectives off the study are;

1. To examine the types and techniques of internal control system for revenue generation adopted by Enugu Electricity Distribution company of Nigeria in Imo State
2. To determine the impact of internal control system on revenue generation.

• To identify the strengths and weakness of the system of internal control in all departments in Enugu Electricity Distributioon Company of Nigeria in Imo State.

1.4  Significance of the study

This study is significant for the following reasons.

1. These studies will highlight the accounting administrative control problems plaguing Enugu Electricity Distribution Company of Nigeria in Imo State
2. It will enable managers of services, organization and government owned public utility establishments to bring the accounting and he internal accounting standard and practices

• It will help government owned establishment to assess internal control measure and make amends where necessary

1. Then study could arouse further research into some other functional areas in the company by the students and accountants. It will also help to broaden existing literature on this topic

1.5  Scope of the study

Although the study was to evaluate the internal control system in operation at Enugu Electricity Distribution Company measure at the Enugu district  unit of Enugu Electricity distribution Company of Nigeria Plc. The covers internal control as it affects revenue generation (handling of cash) asset control administrative control and man power control.

1.6  Limitations of the Study

1. Inability to have access to some relevant document from the officials in the company
2. Financial and some constraint, which confoned the researcher to only Owerri district unit of the Enugu Electricity Distribution Company.
3. Research Hypothesis

Based on the objectives of the study, the following null and alternative

H

O

: Effective internal control does not ensure effective service delivering and desired revenue generation

H

A

: Effective internal control system ensures effective service delivery and desired revenue generation

H

O2

: Weak internal control system does not encourage collusion, fraud, embezzlement, loss of revenue, asaserstutemvston and computer in Enugu Electricity Distribution Company of Nigeria.

H

A2

: weak internal control system encourages collusion, fraud, embezzlement and loss of revenue, asset conversion and computation in Enugu Electricity Distribution Company of Nigeria.

Research Questions

The following are a few of the question, which were asked in the questionnaire in the carrying of this research work

1. Does the internal audit system ensure that operation comply with set policies and promote accuracy and reliability of transaction?
2. Are internal/external auditors independent of those whose functions they appraise?
3. Based in the evaluation of the internal control system, is it effective and efficient?
4. Is the accounting and operational routine set not in an accounting manual?

1.9  Definition  of Terms

Revenue: This describes the amount of money a company generates in set period of time through the sale of products or services

Internal Control System: This is the whole system of control, financial and otherwise establishment by the management in order to carry on the business of the enterprise in an orderly and efficient manner

Auditing: An actively earned on by the auditor when he verifies or examines accounting information determines the accuracy and reliability of the accounting statement and reports and then expresses his opinion.

Control Activities: Policies and procedures that management has established.

Audit: an independent examination of and thesubsequent expression of opinion upon the financial stqatement of an organization.

Internal check: this is the allocation of authority and work in such a manner as to afford checks as routine transactions of day to day work by means of the work of one person are being proved independently by another or the work person are being proved independently by another or the work of a person being complementary to that of another.