REGENT UNIVERSITY COLLEGE OF SCIENCE AND TECHNOLOGY

THE EFFECTIVENESS OF INTERNAL AUDITING IN THE PRIVATE SECTOR

OF GHANA: A CASE STUDY OF JAPAN MOTORS LIMITED, ACCRA.

CHRISTIAN ELENDU

OCTOBER, 2016
 REGENT UNIVERSITY COLLEGE OF SCIENCE AND TECHNOLOGY

THE EFFECTIVENESS OF INTERNAL AUDITING IN THE PRIVATE SECTOR

OF GHANA: A CASE STUDY OF JAPAN MOTORS LIMITED, ACCRA.

BY

CHRISTIAN ELENDU
03000213

A DISSERTATION SUBMITTED TO THE SCHOOL OF BUSINESS AND

LEADERSHIP IN REGENT UNIVERSITY COLLEGE OF SCIENCE AND

TECHNOLOGY IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

THE AWARD OF A BACHELOR OF SCIENCE DEGREE (HONORS) IN

ACCOUNTING AND INFORMATION SYSTEMS

OCTOBER, 2016
 DECLARATION

I, hereby state and declare that this dissertation is the result of my own original research,

and that no part of it has been presented for another degree in this University or

elsewhere. I have personal knowledge of the facts stated in this project, and if I were to

be called as a witness, I would competently testify about what I have written in this work

I bear sole responsibility for any shortcoming, mistakes, omissions and misinterpretations

which might evolve from this project.

………..………………………….. ………………………….
CHRISTIAN ELENDU DATE
(STUDENT)

SUPERVISOR’S DECLARATION

I hereby declare that the preparation and presentation of this dissertation were supervised

in accordance with the guidelines on supervision of dissertation laid down by the Regent

University College of Science and Technology

………………………………… ………………………………
MR. (AZUMAH MAMUDU) DATE
(SUPERVISOR)

i
 DEDICATION

I dedicate this research work to God Almighty, for his enhanced and immense wisdom,

knowledge and strength. Also to my late grandfather Boniface Elendu whose

encouragement and support enabled me to pursue this programme.

ii
 ACKNOWLEDGEMENTS

First, I wish to express my heartfelt gratitude to my supervisor, Azumah Mamadu, who in

spite of his busy schedule painstaking guided me to bring this research to a successful

end

I am also grateful to my friend – Michael Adalong, for his encouragement and

information gathering help, my proactive friend – Mercy Dawson, for her assistance in

the organisation of the dissertation.

Finally, I wish to thank all those who in diverse ways contributed to the success of this

project.

iii
 ABSTRACT

Current business trends have made it imperative for almost all large organisations to

maintain effective internal control systems. Internal control has attracted intense debate

and scholarly attention across industries in accountancy and auditing literature over the

past decades. It is against this background that this study was conducted into the

effectiveness of the internal audit control systems of Japan Motors. The main objective of

the study is to appraise the internal audit control systems of Japan Motors. The specific

objectives included; to review the control environment of the company; to examine the

effectiveness of the risk assessment procedure; to assess the adequacy of the established

control activities; to review the information and communication system etc.

Related literature was reviewed. The study adopted the descriptive research design since

the study was a case study type. The study population was staff of Japan Motors. A

sample size of fifty (50) respondents was used for the study. Simple random sampling

technique was adopted. Data was collected through questionnaire. The data collected

were analysed using tables and graphs and some finds were made as a result of that.

Some of the findings made included: It was revealed from the study that, the control

environment at Japan Motors is very effective as majority of the respondents agree to that

assertion with a few not being sure of the effectiveness of Control environment.

iv
Again the empirical evidence from the study indicated that, majority of the respondents

agree to the assertion that there is an effective control activity functioning at Japan

Motors. The last element of internal control considered by the study was monitoring and

this happened to be the most effective in the company with nearly all respondents

showing that, they perceive monitoring to be effective.

TABLE OF CONTENTS

CONTENTS PAGE

DECLARATION..................................................................................................................i
DEDICATION....................................................................................................................ii
ACKNOWLEDGEMENTS...............................................................................................iii
ABSTRACT.......................................................................................................................iv
TABLE OF CONTENTS....................................................................................................v
LIST OF TABLES...........................................................................................................viii
LIST OF FIGURES............................................................................................................ix
CHAPTER ONE..................................................................................................................1
BACKGROUND OF THE STUDY....................................................................................1
1.0 Introduction....................................................................................................................1
1.1 Problem Statement....................................................................................................5
1.2 Objectives of the Study..................................................................................................6
1.2.1 Main Objective...........................................................................................................6
1.2.2 Specific objectives................................................................................................6
1.3 Research Questions........................................................................................................7
1.4 Significance of the Study...............................................................................................7
1.5 Scope of the Study.........................................................................................................7
1.6 Limitations of the study.................................................................................................8
1.7 Organisation of the study...............................................................................................8

v
CHAPTER TWO.................................................................................................................9
LITERATURE REVIEW....................................................................................................9
2.0 Introduction................................................................................................................9
2.1 Definition of Audit........................................................................................................9
2.1.1 External Audit...........................................................................................................10
2.1.2 Internal Audit............................................................................................................11
2.2 Internal Control............................................................................................................12
2.3 Objectives of Internal Controls....................................................................................13
2.4 Types of Internal Controls...........................................................................................14
2.5 Establishment of Internal Control System...................................................................16
2.6 Types of Internal Control System................................................................................17
2.7 Importance of Effective Internal Control....................................................................18
2.8 Types of Internal Auditing...........................................................................................19
2.8.1 Financial Internal Auditing.......................................................................................20
2.8.2 Operational Internal Auditing...................................................................................20
2.8.3 Management Internal Auditing.................................................................................20
2.9 Challenges of Internal Auditing...................................................................................21
2.10 Limitations of Internal Controls................................................................................22
2.11 Measures that can be put in place to Enhance Effective Internal Controls...............23
2.12 The Need for Internal Auditing.................................................................................24
2.13 Chapter Summary......................................................................................................25
CHAPTER THREE...........................................................................................................26
METHODOLOGY............................................................................................................26
3. 0 Introduction.................................................................................................................26
3.1 Research Design..........................................................................................................26
3.2 Research Strategy........................................................................................................27
3.2.1 Mixed Methods.........................................................................................................27
3.3 Population....................................................................................................................27
3.4 Sampling Technique....................................................................................................28
3.5 Sample Size.................................................................................................................28
3.5 Source of Data.............................................................................................................29

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3.5.1 Primary Data.............................................................................................................29
3.5.2 Secondary Data.........................................................................................................30
3.6 Data Collection............................................................................................................30
3.7 Data Analysis...............................................................................................................31
3.8 Chapter Summary........................................................................................................31
CHAPTER FOUR.............................................................................................................32
DATA ANALYSIS AND DISCUSSION OF RESULTS.................................................32
4.0 Introduction..................................................................................................................32
4.1 Personal Information...................................................................................................32
4.1.1 Gender of Respondents.............................................................................................32
4.1.2 Age Distribution of Respondents..............................................................................33
4.1.3 Marital Status of Staff...............................................................................................33
4.1.4 Academic Qualification of Respondents..................................................................34
4.1.5 Number of Years spent at Japan Motors...................................................................35
4.2 Control Environment...................................................................................................36
4.3 Risk Assessment..........................................................................................................40
4.4 Monitoring and Control Systems.................................................................................42
CHAPTER FIVE...............................................................................................................47
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS.....................................47
5.0 Introduction..................................................................................................................47
5.1 Summary of Key Findings...........................................................................................47
5.2 Conclusion...................................................................................................................49
5.3 Recommendations........................................................................................................50
REFERENCES..................................................................................................................52
APPENDIX I.....................................................................................................................55

vii
 LIST OF TABLES

Table 4.1: Gender of Respondents

Table 4.2: Age Distribution of Respondents

Table 4.3: Number of Years spent at Japan Motors

Table 4.4: Response for Control Environment

Table 4.5: Response for Risk Analysis

Table 4.6: Response for Monitoring and Control Systems

viii
 LIST OF FIGURES

Figure 4.1: Marital Status of Respondents

Figure 4.2: Academic Qualification of Respondents

ix
 CHAPTER ONE

BACKGROUND OF THE STUDY

1.0 Introduction

The origin of the private sector in Ghana’s economy can be traced back to the very

beginnings of colonial capitalism in the then Gold Coast. Even at such an early stage an

essential feature of labour in the informal sector was its heterogeneous character that

provided for varieties of peasant proprietors and agricultural labourers, distribution

agents, buyers, transport owners and employees, porters, repairers, etc. (Ninsin, 1991;

Adu- Amankwah, 1999).

According to Nyamekye (2009), the size of the informal sector employment in the 1980s

was twice that of the formal sector. However, by the 1990s, informal sector employment

had increased by five and half times that of the formal sector. Growing informality is

partly explained by low educational attainment. About 31 percent of Ghanaians aged 15

years and above have never attended school. A total of 55.7 percent of Ghanaians have

attained only basic education and 13.6 percent have attained secondary education or

higher. Generally, Ghanaian men have higher educational attainment than women (GSS,

2008).

The private sector in Ghana is made up of proprietary of micro and small-scaled

enterprises. It consists of producers, wholesalers, retailers and consumers. There are also

intermediary service providers along the value chain such as suppliers of raw materials to

manufacturers on contractual basis. Private sector workers are largely self-employed

persons such as farmers, traders, food processors, artisans and craft-workers to mention

but a few. The sector consists of varied activities. In rural Ghana, private sector work

1
mainly involves agriculture (75%) (GSS, 2008), fishing and fish processing, agro-based

processing. In contrast, more urban workers (43%) are engaged in non-agricultural

activities.

A system of effective internal audit controls is a crucial component of company

management and a foundation for the safe and sound operation of organisations.

However, ineffective internal audit controls result in ineffective programmes and losses

(Financial Management Manual, 2005).

According to an International Monetary Fund (2009), internal audit control refers to the

mechanism put in place on a permanent basis to control the activities in an organisation,

both at a central and at a departmental or divisional level. A key component of effective

internal control is the operation of a solid accounting and information system. Internal

control is a process that guides an organization towards achieving its objectives. These

objectives include operational efficiency and effectiveness, reliability of financial

reporting, and compliance with relevant laws and regulations (COSO, 1992). Absence of

these variables often results in organisational failure. The findings of the Tread Way

Commission Report of 1987 in the United States of America (USA) confirmed absence

of, or weak, internal controls as the primary cause of many cases of fraudulent company

financial reporting.

The widespread global corporate accounting scandals that assumed near epidemic

proportions in recent years were blamed on failure of internal controls. Notable cases

include Enron and WorldCom in the United States of America, Parmalat in Europe, and

Chuo Aoyama in Asia. In South Africa, cases of accounting scandals have been recorded

2
in Johnson Controls Incorporated (JCI) and Rand Gold and Exploration Companies

(Amudo & Emanga, 2010).

Similarly, in Nigeria, the Managing Director and Chief Financial Officer of Cadbury

Nigeria Public Limited Company (PLC) were dismissed in 2006 for inflating the profits

of the company for some years before the company’s foreign partner acquired controlling

interest (Amudo & Emanga, 2010).

These issues emphasize the need to evaluate, scrutinize, and formulate systems of checks

and balances to guide corporate executives in decision-making. These executives are

legally and morally obliged to produce honest, reliable, accurate and informative

corporate financial reports periodically.

At the organisational level, auditing objectives relate to the reliability of financial

reporting, timely feedback on the achievement of operational or strategic goals, and

compliance with laws and regulations (Anderson, 2008).

According to FICA (1977) the responsibility of the Executive Management or

management Board to inform the board and Staff of the main features of the internal

control systems. The Executive Management can exercise its powers if the need be to

institute controls and verification mechanism to enhance organisation performance. The

internal control system, which is adapted to the characteristics of each company, provides

for the following:

i. An organisation comprising a clear definition of responsibilities, with suitable

resources and competencies and supported by appropriate procedures, information

systems, tools and practices;

3
 ii. The in-house dissemination of relevant and reliable information, the awareness of

which enables everyone to exercise their responsibilities;

iii. A system for identifying and analysing the main identifiable risks in relation to

the company’s objectives and for ensuring that procedures exist for managing

those risks;

iv. Control activities proportionate to the implications of each individual process and

designed to reduce the risks that could affect the company’s ability to achieve its

objectives;

v. On-going monitoring of the internal audit control system together with a regular

review of the way its operating. This monitoring, which can usefully be reliant on

the company’s internal audit functions when there is one, can lead to the internal

control system being adapted? Executive Management or the Management Board

should assess the parameters for notifying the Board of the main results of the

monitoring and reviews thus performed (FICA, 1977).

Internal audit controls exist in all well established institutions, at least in some form of a

policy document, even if the implementation of the practice is ineffectual or nonexistent.

Inadequate internal controls may be evidenced in weak internal and external auditing less

than factual loan portfolio examinations and less than accurate record keeping. Those

inadequacies in internal audit control can contribute to erroneous decisions (Financial

Management Manual, 2005).

An effective system of internal audit controls gives assurance regarding the integrity of

financial reporting and safeguarding of assets.

4
Fraud can easily be detected through internal audit controls. Such controls also help

accuracy in financial reporting (Asare, 2006).

Internal audit controls are used by organisations to make sure financial information is

accurate and valid. The existences of internal financial controls are important because

they protect the integrity of an organisation's financial information and allow

stakeholders a measure of financial health. Strong internal controls can also increase the

profitability of a company (Krishnan, 2005).

From the above, it is therefore essential to say that, internal auditing plays a crucial role in

helping managers to achieve their goals hence the need for this study to investigate the

effectiveness of internal auditing at Japan Motors Limited, Accra.

1.1 Problem Statement

Internal audit control systems have become a contemporary academic and professional

issue following global fraudulent financial reporting and accounting scandals in both the

developed and developing countries (Asare, 2006). A proactive preventive approach to

the problem requires a critical evaluation of existing internal audit control structures of

firms and making the needed adjustments to ensure that the organisation’s internal

control system is up to date.

Having an up-to-date internal audit control system is desirable. However, the

implementation of such systems is usually challenging to management and staff of

institutions (Krishnan, 2005).

Business areas have ineffective security and integrity of assets, unsecured ways of

purchases, ineffective issuing methods and ineffective establishment of proper business

links.

5
These relevant series of control methods, measures and procedures which tends to

minimize the occurrences of frauds and corruptions in the private sector are normally not

issues to address in an organisation (Krishnan, 2005).

Japan Motors Limited was set up to sell and service Nissan and Toyota cars in the

Ghanaian Market. Though internal auditing controls are in place, if not properly managed

it could lead to irregularities and errors which might promote unreliable and inaccurate

accounting records.

It is against this background that the study tends to examine the effectiveness of internal

auditing in the private sector using Japan Motors, Accra as a case study.

1.2 Objectives of the Study

The objectives of the study entail the main objective of the study and the specific

objectives of the study to be examined.

1.2.1 Main Objective

The research examined the effectiveness of internal auditing in the private sector: A case

study of Japan Motors Limited, Accra.

1.2.2 Specific objectives

The following are the specific objectives of the study:

a. To determine whether internal audit controls exist at Japan Motors, Accra.

b. To identify the types of internal audit controls at Japan Motors, Accra.

c. To review the effectiveness of the internal audit control systems at Japan Motors,

Accra.

6
 d. To examine the measures put in place to enhance the effectiveness of internal

audit controls at Japan Motors.

1.3 Research Questions

In order to accomplish the objectives of this study, the following questions were used for

the research:

1. Do internal audit controls exist at Japan Motors, Accra?

2. What are the types of internal audit control systems at Japan Motors, Accra?

3. How effective are the internal audit control systems at Japan Motors, Accra?

4. What measures need to be put in place to enhance effectiveness of internal audit

control systems at Japan Motors, Accra?

1.4 Significance of the Study

The study would help the Japan Motors to put in place measures for their day to day

management of safeguarding assets, prevention and detection of frauds, errors and

irregularities. The study would also help to identify weaknesses, risk and potential areas

of fraud which will serve as a guide to management to fashion out policies and strategies

that will mitigate the perceived and inherent dangers in organisations. The study will help

the general public to identify factors affecting the internal auditors that serve as a

hindrance for them to perform satisfactory to improve the fortune of public service.

1.5 Scope of the Study

The study assessed the effectiveness of internal in the private sector using Japan Motors

as a case study and the focus was on the Accra branch.

7
The emphasis was on the practices and procedures of internal auditing. The reason for

choosing Japan Motors in Accra was that the researcher can have access to information

and reaching those who matter most in Japan Motors Limited as far as the regional level

was concerned.

1.6 Limitations of the study

The limitation of the study is that of time. The study is expected to be completed and

submitted within a given period. Therefore, even though the study could have been

extended to cover a wider population, doing so would invariably lead to an increase in the

time spent on the study. This may have led to missing the deadline for the submission of

the final work.

1.7 Organization of the study

The research was organised in five main chapters. Chapter one discussed a general

introduction and an overview of the background to the research, statement of the

problem, research objective, research questions, significance of the research, scope and

limitation of the research and the organisation of the study.

Chapter two took a look at the literature review of the research. Chapter three focused on

the research methodology in terms of research design, research population, sampling

technique, sampling size, data collection procedure and data collection and analysis.

Chapter four looked at the presentation and analysis of findings.

8
 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter deals with the assessment of literatures which relate to the topic the

effectiveness of internal audit control in the private sector. The internal control system of

an entity is strictly interrelated to the structure used by management to oversee the

activities of the organisation. Several literatures would be selected and relevant areas

would be reviewed and evaluated. This chapter provides information about aspect of

previous works which relate to this study. In view of this, a number of presentations

culled from various sources are under review here.

2.1 Definition of Audit

Numerous definitions have been given to the term “Audit” by various researchers and

authorities. However, according to Soltani (2007) in An International Approach to

Auditing, an audit can be defined as a systematic process of objectively obtaining and

evaluating evidence regarding assertions about economic actions and events to ascertain

the degree of correspondence between those assertions and established criteria and

communicating the results to interested parties.

Millichamp (2002) defined auditing as a systematic process based on logic and reasoning.

It is an activity that must be planned and conducted in a methodical manner but not a

process that can be performed haphazardly.

9
Furthermore, the auditor obtains and evaluates evidence. The auditor gathers evidence as

he or she makes decisions related to financial information presented by an entity. This

evidence is used in relation to the third key aspect related to auditing (Okai, 1996).

The Audit Practice Committee of UK, (1980), is believed to have given a general

definition of the term audit as an independent examination and expression of opinion on

the financial statements of an enterprise by an appointed auditor in pursuance of his

appointment and in compliance with the relevant statutory obligations.

2.1.1 External Audit

External auditing as defined by the Audit Practice Committee of U.K (1980), is “an

independent examination and expression of an opinion on the financial statements of an

enterprise whether profit oriented or not, irrespective of its size and legal forms”.

External audit is defined as the independent examination and expression of opinion on

the financial statement of an entity (Millichamp, 2002). An independent person is brought

in from outside the organisation to review the accounts prepared by management. The

primary aim of external audit is to enable the auditor to express opinion as to the truth

and fairness of the financial statements so as to add credibility to them (Millichamp,

2002).

An objective of external audit is to detect and prevent errors and fraud, and help the client

to improve upon his accounting and internal control systems. External audit is not

designed to identify errors, fraud and weakness in the client’s system but the audit work

is carried out in such a manner as to be able to unearth errors, frauds, and weaknesses

(Attwood & Stein, 1986).

10
Okai (1996) stated that external audit is a sovereign body which resides outside the

organisation, they focus on financial accounts or risk associated with finance and they are

appointed by shareholders. The main function is to perform statutory audit of the

financial accounts providing an opinion on whether it is true and fair reflection of the

company’s financial position.

2.1.2 Internal Audit

Arens and Loebbecke (1994) in Auditing Integrated Approach, argue that internal audit

“is a process by which a competent independent person accumulates and evaluates

evidence about quantifiable information related to a specific economic entity for the

purpose of determining and reporting on the degree of correspondence between the

quantifiable information and established criteria”.

Cosserat and Rodda (2008) Modern Auditing, gives the opinion that internal auditing

merely refers to “any audit activities carried out by audit professionals who are

employees of the entity that is being audited”.

Millichamp and Taylor (2008), express their view on internal auditing as “an independent

and objective assurance and consulting activity designed to add value and improve an

organisation operation”. From this we can deduce that internal auditing helps an

organisation to accomplish its objectives by bringing a systematic disciplinary approach

to evaluate and improve the effectiveness of risk management, control and governance

process. It is also clear that internal audit is intended to be proactive not reactive, their

intention is to add value to the organisation and not to be simply an overhead cost

(Millichamp & Taylor, 2008).

11
According to Stettler (1977), the growing recognition by management of the benefits of

good internal controls and the complexities of an adequate system of internal control in a

large organisation have led to the development of internal auditing as a form of control

over all other internal controls. The emergence of the internal auditor as a specialist in

internal control is the result of evolutionary process that is similar in some ways to the

evolution of independent auditing (Millichamp, 2002).

According to Rittenberg and Schwieger (2000), the internal auditing profession defines

internal auditing as ‘an independent and objective assurance and consulting activity that

is designed to add value and improve an organisation’s operations.

From the above definitions, auditing can be seen as independent and objective

investigation of an entity’s financial statement whether it is public or private and

establishment of opinions on the truth and fairness of the financial position, financial

performance and cash flow position of the entity.

2.2 Internal Control

Okai (1996) in his book “Auditing for you” argues that the term internal control

comprises all the methods, procedures and arrangement adopted within an organisation to

ensure, as far as practicable the safeguarding of assets, the completeness, accuracy and

adherence to management.

Millichamp (2002) also define internal control system as the whole system of controls,

financial and otherwise, established by the management in order to carry on the business

of the enterprise in an orderly and efficient manner, ensure adherence to management

12
policies, safeguarding the assets and secure as far as possible the completeness and

accuracy of the records.

According to the COSO report issued in 1992, internal control is a process, effected by

the entity’s board of directors, management and other personnel, designed to provide

reasonable assurance regarding the achievement of objective in the following categories:

i. Effectiveness and efficiency of operations

ii. Reliability in financial reporting and

iii. Compliance with applicable laws and regulations

Whittington and Pany (2004) defines internal control as a set of processes, functions,

activities, sub-systems, and people who are grouped together or consciously segregated to

ensure the effective achievement of objective and goals.

All the above definitions of internal control have identified the main objectives of

internal controls to be the assurance that organisational resources will be put to economic,

efficient and effective use in order to achieve the objectives for which the organisation

was set up.

2.3 Objectives of Internal Controls

According to Howard (1984), increasing attention has been paid to the methods of

internal control in recent years.

13
Howard (1984) argues further that not only the complexity of modern business

techniques but also the increased size of business units have encouraged the adoption of

methods which, whilst increasing the efficiency of the business, also act as safeguards

against error or fraud. The objectives that internal controls must meet to prevent errors

and to be efficient so as o provide reasonable assurance are that:

i. Recorded transactions are valid. The system should not permit the inclusion of

fictitious or non - existent transactions in accounting records.

ii. The transactions are properly authorized. The system should ensure that

transactions are properly authorized.

iii. Transactions are recorded. The procedures must provide controls to prevent

omissions of transactions from the records.

iv. Transactions are properly valued. An adequate system must include procedures to

avoid errors I calculating and recording transactions at various stages in the

recording process.

v. Transactions are properly classified. Proper account classification accounting to

appropriate categories or divisions must be ensured by the system.

2.4 Types of Internal Controls

According to Okai (1996) there are eight (8) types of internal controls. They entail:

1. Organization – Every enterprise should ideally have a plan of their institution,

defining and allocating responsibilities and identifying lines of reporting for all

aspects of the enterprise’s operations. Authority delegation within the institution

and responsibilities should be clearly specified.

14
2. Segregation of duties – It is important to separate those responsibilities or duties

which would if combined enable one individual to record and process a complete

transaction. Segregation of duties thus reduces the risks of international

manipulation or errors and increases the element of checking. The functions

which should be separated entail authorization, execution, custody, and recording

and in the case of computer based accounting systems development and daily

operations.

3. Physical – These are concerned mainly with the custody of assets and involve

procedures and security measures designed to ensure that access to assets is

limited to authorized personnel. This includes both direct and indirect access

through documentation. These controls assume importance in the case of

valuable, portable, exchangeable or desirable assets.

4. Authorization and Approval – All transactions should require authorization or

approval by an appropriate responsible person. The limits for those authorizations

should be specified.

5. Arithmetic and Accounting – These are the controls within the recording

function which check that the transactions to be recorded and processed have been

authorized. Such controls include checking the arithmetical accuracy of the

records, maintenance and checking of totals, reconciliations, control accounts and

trial balances and accounting for documents.

15
 6. Personnel – There should be procedures to ensure that personnel have

capabilities commensurate with their responsibilities. Inevitable, the proper

functioning of any system depends on the competence and integrity of those

operating it.

The qualification, selection and training as well as the innate personal

characteristics of the personnel involved are important features to be considered

in setting up any control system.

7. Supervision – Any system of internal control should include the supervision by

responsible officials of day-to-day transactions and the recording thereof.

8. Management – There are controls exercised by management outside the day-to-

day routine of the system. They includes the overall supervisory control exercised

by management, the review of management accounts and comparison thereof with

budget, the internal audit function and any other special review procedures.

2.5 Establishment of Internal Control System

Millichamp (2002) stipulates that management establish internal control system, either

directly or by means of external consultants, internal audit, or accounting personnel.

It follows that management is responsible for designing controls in order to carry on the

business of the enterprise in orderly and efficient manner, ensure adherence to

management policies, safeguard its assets and secure as far as possible the completeness

and accuracy of the records.

Attwood and Stein (1986) also argued that every business has some kind of accounting

system by which transactions are processed, and records of those transactions maintained.

16
It must be noted that the establishment of internal control system is purely a managerial

function and the internal audit department contributes significantly in the design of these

controls.

Since internal auditors are professionals who possess the necessary skill to evaluate the

potential impact of any control system to be instituted, their input is vital in establishing

effective internal controls (Attwood & Stein, 1986).

2.6 Types of Internal Control System

Galloway (1994) posits that controls can be either preventative or detective. Preventative

controls attempt to deter or prevent undesirable events from occurring. Separation of

duties, proper authorization, adequate documentation, passwords and physical control

over assets and even traffic signs are all examples or preventative controls.

According to Galloway (1994), detective controls attempt to detect errors or irregularities

which have already occurred. Reviews, analyses, reconciliations, periodic physical

inventories, audits and surveillance cameras are all examples of detective controls. Both

types of controls are essential to an effective internal control system. From a quality

standpoint, preventative controls are essential because they are proactive. However,

detective controls play a critical role providing evidence that preventative controls are

functioning effectively.

Zabihollah (2002) also explains that controls can be either preventive or detective. The

intent of these controls is different. Preventive controls attempt to deter or prevent

undesirable events from occurring.

17
They are proactive controls that help to prevent a loss. Examples of preventive controls

are separation of duties, proper authorization, adequate documentation, and physical

control over assets. Detective controls, on the other hand, attempt to detect undesirable

acts (Zabihollah, 2002). Detective controls provide evidence that a loss has occurred but

do not prevent a loss from occurring (Okai, 1996). Examples of detective controls are

reviews, analyses, variance analyses, reconciliations, physical inventories, and audits.

Preventive and Detective controls are essential to an effective internal control system.

From a quality standpoint, preventive controls are essential because they are proactive

and emphasize quality (Millichamp, 2002).

Zabihollah (2002) further explains that management authorizes employees to perform

certain activities and to execute certain transactions within limited parameters.

In addition, management specifies those activities or transactions that need supervisory

approval before they are performed or executed by employees. A supervisor’s approval

(manual or electronic) implies that he or she has verified and validated that the activity or

transaction conforms to established policies and procedures (Zabihollah, 2002).

2.7 Importance of Effective Internal Control

Price (2005) asserts that corporate governance and accountability processes are geared at

seeking and protecting shareholders interest, which has become a number one priority of

most organisations.

18
Price (2005) therefore argues that effective internal controls are essential to ensure that

the stewardship responsibility placed on management is carried out effectively and

efficiently by;

a. protecting its resources against waste, fraud, and inefficiency;

b. ensuring accuracy and reliability in accounting and operating data;

c. securing compliance with the policies of the organization; and

d. Evaluating the level of performance in all organizational units of the organization

to ensure that objectives are achieved as planned.

The organisational checks and balances provide authority functions that minimize the

potential waste, fraud, abuse and mismanagement (Millichamp, 2002). Thus, internal

controls perform a watchdog's role on behalf of management. it implies that any

organisation, profit and not for profit alike, without effective internal control system is

more prone to irregularities and errors such as waste, fraud, inefficiency, as well as fines

for non-compliance with the necessary regulations.

2.8 Types of Internal Auditing

The Audit Practice Committee of U.K (1980) gives the following types of internal audit

into which the duties of internal audit can be divided:

1. Financial Internal Auditing

2. Operational Internal Auditing

3. Management Internal Auditing

19
2.8.1 Financial Internal Auditing

The financial internal auditing is described by Okai (1996) as embracing the conventional

tasks of examining records and evidence in order to detect errors and prevent fraud.

It includes reviewing routine financial and management reports, looking for trends within

the figures thus, being able to identify significant deviation from the norm (Okai, 1996).

2.8.2 Operational Internal Auditing

The term operational audit was referred to by Whittington and Pany (1995) Principle of

Audit and Assurance, as a comprehensive examination of an operating unit or a complete

organisation to evaluate its performance as measured by management objectives. This

covers the examination of the control procedures and whether or not they are being

adhered to. Such examination would seek to identify areas of improvement in efficiency

as well as in internal control and control check.

2.8.3 Management Internal Auditing

The management internal audit relates to the review and evaluation of the management

structure within the organisation and the performance of managers as a group or

individually (Millichamp, 2002).

It also includes the appraisal of the environment for the exercise of management skills as

well as the measurement of external management performance against established criteria

(Millichamp & Taylor, 2008).

20
2.9 Challenges of Internal Auditing

According to Kinney et al. (1999) internal auditing may face the following challenges:

a. Image: In most organizations in Ghana, the image of internal auditors is rather a

bad one. Internal auditors have come to be seen as "enemies of management" in

some organizations; this may stem from misunderstanding of the roles and duties

of internal auditors (Kinney, 2000).

b. Communication: Although communication has always been of utmost

importance for internal auditors, it is now taken an even more prominent role.

Auditors have to speak clearly and succinctly while conveying often sensitive

issues and findings to appropriate parties, such as the audit committee (Kinney,

2000). Lately, it has become even more apparent that audit committees must

receive more information about the company's risk and controls - a responsibility

that falls to the chief audit executive and the internal audit unit with input from

the external auditors (Kinney et al., 1999).

c. Staff competency: With the myriad changes in today's business community,

keeping the internal audit team members up to date will require serious

commitment to continuing professional education. Reputations fall very quickly

when incompetent or untrained staff is assigned to tasks beyond their ability.

Management in most instances is even reluctant to release funds for the training

and development of the internal audit staff. The lack of training and development

of the audit staff hampers the effective discharge of duties (Kinney et al., 1999).

21
 d. Ethical conduct / independence: Another challenge for individual internal

auditors as well as entire internal audit departments is ensuring ethical conduct in

their operations; demonstrating the willingness to do the right thing at the right

time, even in the face of opposing views. The tendency for management to pry

into the activities of the internal audit department is very high.

2.10 Limitations of Internal Controls

According to Millichamp and Taylor (2007), internal controls are essential features of

any organisation that is run efficiently.

However, it is important to realise that internal controls have inherent limitations which

include:

i. A requirement that the cost of an internal control is not disproportionate to the

potential loss which may result from its absence.

ii. Internal controls tend to be directed at routine transactions. The one-off or

unusual transaction tends not to be the subject of internal control.

iii. Potential human error caused by stress of worker-load, alcohol, carelessness,

distraction, mistakes of judgment, apathy and the misunderstanding of

instructions.

iv. The possibility of circumvention of controls either alone or through collusion with

parties outside or inside the entity.

v. Abuse of responsibility by senior managers resulting in management override of

controls.

vi. Changing in environment making control inadequate.

22
vii. Fraud.

2.11 Measures that can be put in place to Enhance Effective Internal Controls

According to Kinney (2000), increasing attention has been paid to the methods of internal

control in recent years. He argues further that not only the complexity of modern business

techniques but also the increased size of business units have encouraged the adoption of

methods which, whilst increasing the efficiency of the business, also act as safeguards

against error or fraud. The objectives that internal controls must meet to prevent errors

and to be efficient so as o provide reasonable assurance are that:

a. Recorded transactions are valid. The system should not permit the inclusion of

fictitious or non - existent transactions in accounting records.

b. The transactions are properly authorized. The system should ensure that

transactions are properly authorized.

c. Transactions are recorded. The procedures must provide controls to prevent

omissions of transactions from the records.

d. Transactions are properly classified. Proper account classification accounting to

appropriate categories or divisions must be ensured by the system.

e. Transactions are recorded at the proper time. The recording of transactions either

before or after the time they took place increases the likelihood of failing to

record transactions or recording them at the wrong amount. Therefore, effective

control system should ensure timely recording of transactions.

23
2.12 The Need for Internal Auditing

Whittington and Pany (2001) rightly stipulate that an imperative aspect of the

organisation’s monitoring system is the internal audit function. He further argues that as

representative of top management, internal auditors are interested in determine whether

each branch or department has a clear understanding of its assignment, adequately

staffed, maintains good records, properly safeguards cash, inventories and other assets,

and cooperates harmoniously with other departments.

According to Millichamp (2002) management is responsible for establishing and

maintaining a system of internal controls within an organisation.

Internal controls are those structures, activities, processes and systems which help

management effectively mitigate the risks to an organisation’s achievement of objectives.

Management is charged with this responsibility on behalf of the organisation’s

stakeholders and is held accountable for this responsibility by an oversight body

(Millichamp, 2002).

A dedicated, independent and effective internal audit unit assists both management and

oversight body in fulfilling their responsibilities by bringing a systematic and disciplined

approach to assessing the effectiveness of the design and execution of the system of

internal control and risk management processes (Okai, 1996). The objective assessment

of internal controls and risk management processes by the internal audit unit provides

management, the oversight body, and external stakeholders with independent assurance

that organisation’s risks have been appropriately mitigated (Kinney et al., 1999).

24
Amudo and Inanga (2010) stated that organisations that do not have internal audit

function are therefore missing the valuable benefits that professional internal auditors

provide. In addition, they are also running the risk o relying on management who may not

be in the best position to provide skilled, independent, and objective opinions on internal

controls.

Some organisations assign internal auditors on a part-time basis to an existing staff

member who has other responsibilities. When this occurs, the person does not have the

professional internal audit training or experience necessary for optimal effectiveness

(Okai, 1996). Such organisations run the risk of poorly performed audits and reviews, and

this individual, who may be relatively junior in the organisation, may lack the

organisational status and stature to achieve positive results in this environment, high risk

processes may not be identified for review and serious internal control deficiencies may

be overlooked (Galloway, 1994).

2.13 Chapter Summary

From the above discussions and contributions on the study area, it is evident that internal

control system plays a major role in the internal auditing and accounting principles of an

organisation and the private sector is no exception. Management therefore has the

onerous duty to effect appropriate internal audit control system in their organisation

which is a major step in achieving organisational success.

Hence the need for employers in the private sector institutions to establish the right

internal audit control system that would help inure to the benefits of the organisation as

far as growth, profit maximization and overall success are concerned.

25
 CHAPTER THREE

METHODOLOGY

3. 0 Introduction

This chapter presents the procedures and activities employed in conducting this research.

Research methodology according to Saunders et. al. (2007) is the technique and

procedures used to obtain and analyze research data. It takes into account issues such as

the research design, research strategy, research population, sample size, sampling

technique, data collection procedure, and finally the data analysis.

3.1 Research Design

According to Burns and Bush (2002) research design is defined as a set of advance

decisions that make up the master plan specifying the methods and procedures for

collecting and analyzing the needed information. This helps the researcher to formulate

the sort of data to collect for the study. Burns and Bush (2002) stated that the main types

of research designs entail exploratory, explanatory, descriptive and cross – sectional

research design. The study adopted a descriptive research design. Descriptive research

design seeks to provide an accurate description of observations of phenomena. It deals

with “what” questions rather than answering questions about how or why the phenomena

occurred and its most distinguishing feature is that, the researcher has no control over

variables.

26
A case study was used and as such the survey method of data collection was employed to

collect data of qualitative nature. A structured questionnaire was prepared for respondents

to give appropriate answers.

3.2 Research Strategy

There are two main research approaches by which social science research including

business studies is conducted. These are qualitative and quantitative research approach.

According to Merriam (2009), qualitative researchers are interested in understanding the

meaning people have created in particular how they make sense of their world and the

experience they have in the world.

Tashkkori and Teddlie (1998) perceive qualitative research as using methods such as

participant observation or case studies which result in a narrative, descriptive account of a

setting practice. The study used the mixed method.

3.2.1 Mixed Methods

Different names have been given to this new research method including multi-strategy

(Bryman, 2004), mixed methodology (Tashkkori and Teddlie, 1998), or mixed methods

(Creswell, 2003). Combining the two methods helped the researcher to increase the

study’s credibility compare to what would be achieved by using a single method.

The researcher adopted the mixed method which combines quantitative and qualitative

techniques for the reasons of achieving credibility of result, for better interpretation of

result, to offset the weaknesses associated with using one method and to achieve

corroboration between the two methods.

27
3.3 Population

Saunders et al. (2007) defines research population as the full set of cases from which a

sample is taken.

In line with this, Cohen et al. (2000) stated that, population is a group of people who are

subjected to a piece of research. The target population is the population to which the

researcher ideally would like to generalise the results. In attitude surveys, population

validity is of extreme importance; therefore, great care should be taken to obtain a

representative sample in order to prevent a biased result (Welman & Kruger, 2005).The

target population for this study is made up of all employees of Japan Motors, Accra. The

total population of Japan Motors, Accra is made up of 60 employees.

3.4 Sampling Technique

Probability sampling method was adopted in selecting the study organisation. Probability

sampling ensures that each element of the population of interest has an equal chance of

selection as they are drawn from the sampling frame (Haer & Becher, 2012).

In selecting the respondents, convenience sampling techniques were used to select all

staff of Japan Motors, Accra. Convenience sampling (sometimes known as grab or

opportunity sampling) is a type of non-probability sampling which involves the sample

being drawn from that part of the population which is close to hand (Saunders et. al,

2007). The researcher used convenience sampling because respondents that the

researcher could easily reached out to be used for the study.

28
3.5 Sample Size

In research it is often impossible to study every member of the population involved.

However, some researchers do overcome this difficulty in situations where the study

population itself is small and also not very scattered.

To address the challenge of access to the complete population, representative samples are

thus prescribed and accepted in any scientific study.

A sample is a finite part of a statistical population whose properties are studied to gain

information about the whole, when dealing with people, it can be defined as a set of

respondents (people) selected from a larger population for the purpose of a survey

(Saunders et. al., 2007).

A sample can refer to a set of people or objects chosen from a larger population in order

to represent that population to a greater extent (Haer & Becher, 2012). Therefore, the size

of the study sample and the way in which it is chosen will certainly have implications for

the confidence in the results and the extent to which generalizations can be made.

A sample size of 50 was drawn from a target population of Japan Motors, Accra.

3.5 Source of Data

Data was obtained from both primary and secondary data sources using varied

techniques.

3.5.1 Primary Data

Primary source of data was obtained through questionnaire. Questions that were used in

the research included both closed and open-ended questions.

29
The closed ended questions were intended to restrict respondents’ answers; this provided

an objective based for comparative analysis. The open-ended questions were intended to

give respondents the latitude of freedom to express their views in an unconstrained

manner.

3.5.2 Secondary Data

Secondary data are information or data already collected by other researchers or

institutions, usually for different purposes (Saunders et al., 2007). Secondary data

enables the researcher to place the study in the context of existing knowledge as well as

broadens the researcher’s understanding to the research topic (Saunders et al., 2007).

Secondary data sources were gathered from newspapers and manuals on the subject

matter which gave the researcher information about the effectiveness of internal auditing

in the private sector using Japan Motors as the case study. The internet as well as other

relevant publications was also consulted.

3.6 Data Collection

The object of data-collection is to get a good overall picture of how a process performs.

All respondents must fully understand what is going on and what is required of them. The

data collected should accurately reflect the performance of the process (Dale et al., 2007).

The main instrument used to collect data for the study was the questionnaire. The

questionnaire was used to collect data from the Japan Motor’s employees. The items were

designed after carefully reviewing literature which specified variables of interest for the

study. After careful scrutiny by the supervisor, the questionnaires were administered to

30
the employees at Japan Motors, Accra over a period two weeks. Permission was earlier

sought from the manager before administering the questionnaires. The self-completed

questionnaires were then retrieved from the respondents for data analysis.

3.7 Data Analysis

The analysis and interpretation of data was presented using descriptive and inferential

statistics.

According to Welman and Kruger (2005), descriptive statistics involve the description

and summary of data, while inferential statistics involve the inferences that are drawn

from the results.

The study used both qualitative and quantitative analysis. Before the quantitative

analysis, data collected was sorted, edited, and entered in the software (SPSS).

Data was processed and analyzed using Statistical Package for Social Scientist (SPSS –

V16) software as well as Microsoft Excel 2010 and generated into percentages, pie

charts, bar charts and tables to give good visual impression and clarity of information.

3.8 Chapter Summary

This chapter focused on the procedures of data gathering and analysis employed in the

study. The research instrument and the research design used in this study were the

questionnaire and descriptive research design. The research method presented in this

chapter was related with the statement of problem and objectives of this study. This

chapter entailed the research method, the research design, population of the study, sample

size determination, sampling techniques and procedure, sources of data and data

collection, research instrument and design.

31
 CHAPTER FOUR

DATA ANALYSIS AND DISCUSSION OF RESULTS

4.0 Introduction

This chapter encompasses the presentation, discussion and analysis of data collected from

the field. Research findings constitute a very important stage of the research exercise. It is

an essential part of the survey and it is affected by its overall quality. This chapter

explains information gathered from the field through the use of questionnaires.

4.1 Personal Information

These entail gender, age group, marital status academic qualification and length of time

of job. Frequency tables were used in analyzing the data gathered from the respondents.

4.1.1 Gender of Respondents

This was to find the gender of the respondents in the survey.

Table 4.1: Gender of Respondents

Gender Frequency Percentage (%)

Male 35 70
Female 15 30

Total 50 100

32
Source: Field Data, 2016

From table 4.1, it is realized that 35 of respondents representing 70% of the total number

of participants were males while 15 representing 30% of the total number were females.

This clearly shows that there were considerably more male participants than female in

this survey and it may be as a consequence of the sample technique used in selecting

respondents or that the Japan Motors has more male workers than females.

4.1.2 Age Distribution of Respondents

This showed the age distribution of the respondents in the study.

Table 4.2: Age Distribution of Respondents

Age Frequency Percentage (%)

Less than 20 years - -

21 – 30 years 30 60
31 – 40 years 15 30
41 – 50 years 5 10

Older than 50 years - -

Total 50 100

Source: Field Data, 2016

Table 4.2 above shows that 60% of the respondents were between the ages of 21 – 30

followed by 31 – 40 (30%) and 41 – 50 (10%). The result shows that majority of the

Japan Motor’s employees are quite young and falls between 21 – 30 years.

33
4.1.3 Marital Status of Staff

From figure 4.1 below, out of the 50 respondents surveyed, 20 (40%) of them were

married and 30 (60%) were single.

The majority of the respondents being single could be partly as a result of the majority of

these respondents being in the 21 – 30 years age bracket.

Marital Staus of Respondents

40% Married
Single

60%

Figure 4.1: Marital Status of Respondents

Source: Field Data, 2016

4.1.4 Academic Qualification of Respondents

This was to find out the highest qualification of the various respondents in the study area,

responses are as follows:

34
 Academic Qualification of Respondents

35
30
25
35
20 70%
15
10
10 20% 5
5 0 10%
0
WASCE HND Bachelor Degree Masters Degree

Figure 4.2: Academic Qualification of Respondents

Source: Field Data, 2016

From the figure 4.2 above, it was realized that 35 respondents had First Degree from

various fields, while 10 had Higher National Diploma (HND), 5 had master’s degree

qualifications. Figure 4.2 evidently shows that majority of the respondents have a

bachelor’s degree which shows that the level of education of respondents in this survey is

very high.

4.1.5 Number of Years spent at Japan Motors

This was to find out the number of years respondents had spent at Japan Motors, answers

are illustrated as follows:

35
Table 4.3: Number of Years spent at Japan Motors

Years Frequency Percentage (%)

0 – 1 year 6 12
2 – 3 years 9 18
4 – 5 years 30 60
6 years and above 5 10

Total 50 100

Source: Field Data, 2016

Table 4.3 above indicates how long employees have spent working with Japan Motors,

60% representing majority of the respondents said they have been working with Japan

Motors for the past 4 – 5 years followed 18% (2 – 3 years), 12% (0 – 1 year) and 10%

said they have been with Japan Motors for 6 years and above. The implication is that, the

Japan Motors employees are relatively loyal to the company.

4.2 Control Environment

The responses of workers on the various items are indicated by the numerals 1, 2, 3, 4,

and 5 respectively for strongly disagree, disagree, uncertain, agree and strongly agree.

36
Table 4.4: Response for Control Environment
Statement 1 2 3 4 5
5 3 1 18 23
Management decisions are made collectively (10%) (6%) (2%) (36%) (46%)
and not controlled by one dominant individual.

34 6 3 4 3
Codes of conduct or ethics policies exist in (68%) (12%) (6%) (8%) (6%)
Japan Motors
5 6 9 10 20
Policies regarding the importance of internal (10%) (12%) (18%) (20%) (40%)
audit controls and appropriate conduct are
communicated to all staff of Japan Motors.
4 2 4 15 25
Audit or other control systems exist to (8%) (4%) (8%) (30%) (50%)
periodically test for compliance with codes of
conduct or policies.

Management periodically reviews policies and 6 4 7 11 22

procedures to ensure that proper audit controls
(12%) (8%) (14%) (22%) (44%)
are in place.

Source: Field Data, 2016

Table 4.4 shows that a high percentage of workers either agree or strongly agree that

management decisions are made collectively and not controlled by one dominant

individual as compared to those who either disagree or strongly disagree with the same

issue.

37
 Workers who either agree or strongly agree number 41(or 82%) out of a total of 50

respondents while those who either disagree or strongly disagree with the same issue

number 8 (or 16%) of the total respondents. Workers who are not sure with this issue

represent the remaining percentage.

Table 4.4 again indicates that a large percentage of respondents either disagree or

strongly disagree that codes of conducts and ethics polices exist at Japan Motors as

compared to those who either agree or strongly agree with the same issue.

Workers who either agree or strongly agree with this issue number 7 (or 14%) out of the

50 respondents. Those who either disagree or strongly disagree with the issue number 40

(or 80%) out of a total of 50 respondents. The rest of the respondents were not sure.

Additionally, Table 4.4 shows that a high number of the respondents either agree or

strongly agree that policies in regards to internal control and conduct is communicated to

all employees. Workers who either agree or strongly agree number 30 (or 60%) out of a

total of 50 respondents. Their counterparts who either disagree or strongly disagree with

the same issue number 11 (or 22%). The rest of the respondents were not sure.

Table 4.4 further indicates that respondents who either agree or strongly agree that audit

or other control systems exist to test for compliance outnumber those who either disagree

or strongly disagree with the same issue. Workers who either agree or strongly agree with

this issue number 40 (or 80%) out of the total of 50 respondents.

Those who either disagree or strongly disagree with the issue number 6 (or 12%) out of

the total. The rest of the respondents were not sure. The implication of the responds form

employees is that most of the systems in placed are well understood.

38
There are no ambiguities so far as internal controls are concerned. It all means that

employees are comforted working with the systems as most of them seems to appreciate

the system.

Table 4.9 also shows that respondents who either agree or strongly agree that

management periodically reviews policies and procedures outnumber those who either

disagree or strongly disagree with the same issue. Workers who either agree or strongly

agree with this issue number 33 (or 66%) out of the total of 50 respondents.

Those who either disagree or strongly disagree with the issue number 10 (or 20%) out of

the total. The rest of the respondents were not sure.

Table 4.4 above, indicated that the control environment of Japan Motors is quite

effective. However, in terms of codes of conducts and ethical policies, it was found that

the control environment was weak according to the respondents surveyed. Although most

employees confirmed that there are controls in place, they also confirm that adherence to

it has been poor. This implies that most of the controls are bent in order to get thing done.

This is a seeming disaster for management as things might not go as expected. The

adherence rate should be improved.

From table 4.4 above, it is also stated that internal control systems actually exist in the

organisation. This is because majority of respondents are aware. It thus implies that those

who break control procedures can be legally sanctioned by management.

39
The findings confirmed the assertion of the Treadway commission of the committee of

sponsoring organisations (COSO), that it is management responsibility to set up the

internal control system and that the internal auditor‘s role is to evaluate the effectiveness

or otherwise of the system. Control environment is the component that provides the

foundation needed for the other components to build on in internal financial controls

systems (Kinney, 2000). Overall, the control environment in Japan Motors was very

good.

4.3 Risk Assessment

The responses of workers on the various items are indicated by the numerals 1, 2, 3, 4,

and 5 respectively for strongly disagree, disagree, uncertain, agree and strongly agree.

Table 4.5: Response for Risk Analysis

Statement 1 2 3 4 5
- 1 4 17 28
Japan Motors has clear objectives and these have (-) (2%) (8%) (34%) (56%)
been communicated so as to provide effective
direction to employees on risk assessment and
audit control issues.
4 7 8 14 17
There are sufficient staff members who are (8%) (14%) (16%) (28%) (34%)
competent and knowledgeable to manage
company activities and these have been provided
with adequate resources.
13 20 5 8 4
Significant internal and external operational, (26%) (40%) (10%) (16%) (8%)
financial, compliance and other risks are
identified and assessed on an ongoing basis.
Source: Field Data, 2016

40
Table 4.5 shows that majority of workers either agree or strongly agree that Japan Motors

has clear objectives and these objectives are communicated so as to provide effective

direction to employees on risk assessment and audit control issues.

Workers who either agree or strongly agree with this issue number 45 (or 90%) out of a

total of 50 respondents while those who either disagree or strongly disagree with the

same issue number 1 (or 2%) out the total. The rest of the respondents are not sure.

On whether there are sufficient staff members who are competent and knowledgeable to

manage company activities, Table 4.5 shows that majority of workers either agree or

strongly agree that members in their appreciate their work.

Workers in the majority group number 31 (or 62%) out of a total of 50 respondents.

Workers who feel that there are not sufficient staff members who are capable and

knowledgeable to manage the company’s activities number 11 (or 22%) of the total

population. The rest of the workers are not sure.

Table 4.5 further indicates that workers who either agree or strongly agree that there is a

significant internal and external operational, financial, compliance and other risks that is

identified and assessed on an ongoing basis. The number of workers who either disagree

or strongly disagree outnumber their counterparts who either agree or strongly agree with

this statement.

Workers in the second category number 12 (or 24%) out of a total of 50 workers while

their counterparts in the first category number 33 (or 66%) out of the total. The rest of the

workers are not sure.

41
Table 4.5 above indicates that in general risk assessment in Japan Motors is effective.

However in terms in terms of risk analysis, identification and assessment of risk was

weak.

All organisations seem to be aware of the common risks, but risks are not documented or

formalized, periodical re-assessments are not made, and formal or informal risk policies

are lacking (Galloway, 1994).

In risk analysis component, the COSO framework does not state specific approaches, but

rather principles which should be followed in risk assessment (Soltani, 2007).

According to Lannoye (2009) an internal control provides reasonable assurance not

absolute assurance. Therefore, regardless of how well designed and operated an internal

control system is, it cannot provide absolute assurance that all objectives will be met.

4.4 Monitoring and Control Systems

The responses of workers on the various items are indicated by the numerals 1, 2, 3, 4,

and 5 respectively for strongly disagree, disagree, uncertain, agree and strongly agree.

42
Table 4.6: Response for Monitoring and Control Systems
Statement 1 2 3 4 5
- 1 4 15 30
There are ongoing processes within Japan (-) (2%) (8%) (30%) (60%)
Motor’s overall business operations and these
are addressed by senior management to monitor
the effective application of the policies,
processes and activities related to internal audit
control and risk management

- 4 8 13 25
There are effective follow-up procedures to (-) (8%) (16%) (26%) (50%)
ensure that appropriate change or action occurs
in response to changes in risks and control
assessments.
15 20 5 6 4
Reports on significant failings or weaknesses are (30%) (40%) (10%) (12%) (8%)
reported to management on a timely basis.
There are established channels of - 6 4 16 24
communication for individuals to report
(-) (12%) (8%) (32%) (48%)
suspected breaches of laws or regulation or other
improprieties
There are effective reporting procedures in 5 4 6 15 20
communicating a balanced and understandable
(10%) (8%) (12%) (30%) (40%)
account of the company’s position and
procedures.
All staff understands their role in the internal 6 8 15 12 9
audit control system. (18%)
(12%) (16) (30%) (24%)

Source: Field Data, 2016

Table 4.6 shows that workers who either agree or strongly agree that there are ongoing

monitoring processes at Japan Motors outnumber their counterparts who either disagree

or strongly disagree with the same issue.

43
Workers in second group number 45 (or 90%) out of a total of 50 respondents while those

in the first group number 1 (or 2%) out of the same total. The remaining percentage of

workers indicated that they were not sure of this issue.

Also, Table 4.6 indicates that majority of the respondents either agree or strongly agree

that there are effective follow up procedures in place at Japan Motors. Workers who

either agree or strongly agree with the issue number 38 (or 76%) out of a total of 50

respondents while their counterparts who either disagree or strongly disagree with the

issue number 4 (or 8%) out of the same total. The rest of the respondents are not sure.

Again, Table 4.6 shows that workers who either disagree or strongly disagree that reports

on significant failings or weaknesses are reported to management on a timely basis

outnumber those who either agree or strongly agree with the same issue. Workers in the

latter group number 10 (or 20%) while those in the former group number 35 (or 70%).

The remaining percentage of worker represents those who are not sure.

Additionally, Table 4.6 shows that workers who either agree or strongly agree that there

are established channels of communication for individuals to report suspected breaches of

laws or regulation or other improprieties outnumber those who either disagree or strongly

disagree with the same issue.

Workers in the second category mentioned number 40 (or 80%) out of a total of 50

respondents while their counterparts in the first category number 6 (or 12%) out of the

same total. As shown in the table 4.6, 8 % of the respondents are not sure.

44
Table 4.6 further shows that workers who either agree or strongly agree that there are

effective reporting procedures in communicating a balanced and understandable account

outnumber those who either disagree or strongly disagree with the same issue. Workers

who either agree or strongly agree with the issue number 35 (or 70%) out of a total of 50

respondents while their counterparts who either disagree or strongly disagree with the

same issue number 9 (or 18%) out of the total. 6 (or 12%) workers are not sure as shown

in Table 4.6 above

Table 4.6 also shows that workers who either agree or strongly agree that all staff

understands their role in the internal audit control system outnumber those who either

disagree or strongly disagree with the same issue. Workers in the second category

mentioned number 21 (or 42%) out of a total of 50 respondents while their counterparts

in the first category number 14 (or 28%) out of the same total. As shown in the Table 4.6,

15 (30%) of the respondents are not sure.

Table 4.6 above indicates that the on-going monitoring processes at Japan Motors were

generally effective. However, separate evaluation and reporting deficiencies were

average.

According to COSO (1992) monitoring component includes allowing managers clear

responsibility guidelines so that they are able to effectively do their jobs.

Table 4.6 also indicated that there are right communication channels in place for

individuals to report suspected breaches of laws or regulation or other improprieties.

Japan Motors information system was also integrated to capture all relevant information

in the organisation.

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Information and communication component is designed to allow employees the ability to

carry out their responsibilities in the best manner possible. COSO Internal Control -

Integrated Framework, (1992)

46
 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.0 Introduction

This chapter concludes the study. It begins with a brief summary of the study which is

followed by the major findings and conclusions. The recommendations of the study are

finally presented.

5.1 Summary of Key Findings

The research revealed that majority of accounting and administration personnel are

males, the age group of 21 – 30 years constitutes the majority of employees in Japan

Motors and many of the respondents had acquired tertiary education.

The establishment of internal control system has made the operations of the company

effective. The control system in Japan Motors comprises authorization and approval,

segregation of duties, physical controls, arithmetical and accounting, management,

organisation, supervision, personnel, and acknowledgement of performance controls. For

example, the organisational structure defines the formal relationship among groups and

individuals in the company. The structure determines the authority, responsibility, and

reporting line in the company.

Management involves all the units which are affected by or affect the control system in

its design. For instance, the internal auditor is involved since he is an expert and

possesses the skills to suggest appropriate control measures.

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It was found that Japan Motors has a systematic, comprehensive approach to internal

audit control, which is consistently documented, understood at management level and

communicated to personnel.

However, there were still some inconsistencies concerning how internal controls were

implemented and enforced and also all responsibilities were not clearly defined.

The overall objectives for instituting the internal controls in Japan Motors have been

achieved. This is because the company's assets are being protected against waste, fraud,

and inefficiency; accounting and operating data have been accurate and reliable; and

policies have been complied with. These have been possible through segregation of

duties, authorizations, physical control, and supervision, acknowledgement of

performance, periodic reviews and evaluation of the system.

The controls at Japan Motors have been designed with recourse to the existing laws and

regulations. The procedures enable the company to declare the right profit and tax. The

company has, therefore, been saved from penalties and other legal cost associated with

non-compliance with applicable laws, rules, and regulations.

Even though the company has competent staff, the number of personnel is woefully

inadequate. This constraint makes the personnel overwork and at times leave out some

outlets.

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5.2 Conclusion

Careful analyses of the findings from the analysis in chapter four prove that:

i. No organization can operate effectively without internal control system: This

is because the internal control system, which comprises authorization and

approval, segregation of duties, physical controls, arithmetical and accounting,

management, organization, supervision, personnel, and acknowledgement of

performance controls, ensures orderly, efficient and effective operation.

For example, the absence of an organizational structure, which defines the formal

relationship among groups and individuals in an organization, will be a recipe for

chaos since the structure determines the authority, responsibility, and reporting

line in an organization.

ii. Adequate controls result from all inclusive design process: Inputs from the

various departments give a clear picture of the likely outcome if certain actions

are taken, and thus appropriate control measures are suggested. For instance, the

financial accountant is aware that no one person should be responsible for the

recording and processing of a complete transaction, and thus suggests segregation

of duties.

iii. Effective internal control system is a pre - requisite for achieving overall

organizational objective: This is because effective internal controls ensure

efficient and effective management, adherence to management policies, asset

protection, and complete and accurate records. This results in profitability and

achievement of other objectives of the organization.

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 iv. Internal audit requires certain qualities to be effective: Qualities of an

effective internal audit consist of independence, objectivity, authority, adequate

resources, and competent staff. Independence of the internal auditor means the

internal auditor has a dual reporting relationship to management and the

organization’s most senior oversight group. Competent staff, on the other hand,

means that the internal auditor must possess the required skills and qualification

to work as internal auditor.

v. Effective control system helps organizations to avoid penalties: Effective

controls are designed with recourse to the existing laws and regulations, which

help organizations to declare the right profit and tax. This goes a long way to save

such organizations from penalties and other legal cost associated with non

compliance with applicable laws, rules and regulations.

5.3 Recommendations

In view of the conclusions drawn above, it is imperative for Japan Motors Limited to:

a. Establish effective control system: This can be done by including all the

functional heads in its design, and have it reviewed, evaluated and examined

periodically by internal auditors.

b. Institute an audit committee: An audit committee should comprise board members

independent of management. Such committee should be responsible for receiving

internal audit reports and ensuring that management implements such reports.

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 The appraisal and promotion of internal auditors should be the responsibility of

the committee other than management. The existence of audit committee ensures

independence of internal audit department.

c. Recruit competent personnel as internal auditors: Personnel who are member of a

professional body with its competence and ethical implications are essential in

ensuring effective internal audit. Besides ongoing training in specialist area, such

as computers, is useful.

d. Provide adequate logistics and personnel to its internal audit department:

Logistics such as computers, communication gadgets and cars will enhance

effective internal audit. Moreover, having adequate personnel will enable the

internal audit department undertake thorough review of the control system.

Internal auditors must be provided with resources that commensurate their scope

of work.

51
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 APPENDIX I

QUESTIONNAIRE FOR STAFF

REGENT UNIVERSITY COLLEGE OF SCIENCE AND TECHNOLOGY,

ACCRA

THE EFFECTIVENESS OF INTERNAL AUDITING IN THE PRIVATE SECTOR

OF GHANA: A CASE STUDY OF JAPAN MOTORS LIMITED, ACCRA.

This research will examine and study the variables most often associated with the

effectiveness of internal auditing in the private sector of Ghana. It should take less than

10 minutes for you to complete this survey. No personal information will be collected

and your answers will be completely classified and anonymous. Your participation is

voluntary. You may refuse to participate in this study, skip questions, or end your

participation at any time. Thank you for your co-operation.

Please tick the appropriate box or write in the space provided.

SECTION A: PERSONAL INFORMATION

1. Gender

Male [ ] Female [ ]

2. Age

Less Than 20 [ ] 21 – 30 [ ] 31 – 40 [ ] 41 – 50 [ ] Older Than 50 [ ]

3. Marital Status

Yes [ ] No [ ]

4. Highest level of education

WASSE [ ] HND [ ] Bachelor Degree [ ] Masters Degree [ ]

55
5. How many years have you been working with Japan Motors?

0 – 5 years [ ] 6 – 10 years [ ] More than 10 years [ ]

SECTION B: CONTROL ENVIRONMENT

Please indicate whether you strongly disagree, disagree, are uncertain, agree or strongly

agree with the statements that follow by ticking (√) 1, 2, 3, 4 or 5 as appropriate.

KEY
1-Strongly disagree 2-Disagree 3-Not sure, 4-Agree and 5-Strongly Agree

1 2 3 4 5
Strongly Disagree Not sure Agree Strongly
Disagree Agree

Statement 1 2 3 4 5

1. Management decisions are made collectively and not

controlled by one dominant individual.

2. Codes of conduct or ethics policies exist in Japan Motors

3. Policies regarding the importance of internal audit

controls and appropriate conduct are communicated to all
staff of Japan Motors.

4. Audit or other control systems exist to periodically test

for compliance with codes of conduct or policies.

5. Management periodically reviews policies and

procedures to ensure that proper audit controls are in place.

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SECTION C: RISK ASESSMENT

Please indicate whether you strongly disagree, disagree, are uncertain, agree or strongly

agree with the statements that follow by ticking (√) 1, 2, 3, 4 or 5 as appropriate.

KEY
1-Strongly disagree 2-Disagree 3-Not sure, 4-Agree and 5-Strongly Agree

1 2 3 4 5
Strongly Disagree Not sure Agree Strongly
Disagree Agree

Statement 1 2 3 4 5

1. Japan Motors has clear objectives and these have been

communicated so as to provide effective direction to
employees on risk assessment and audit control issues.

2. There are sufficient staff members who are competent

and knowledgeable to manage company activities and these
have been provided with adequate resources.

3. Significant internal and external operational, financial,

compliance and other risks are identified and assessed on
an ongoing basis.

SECTION D: MONITORING AND CONTROL SYSTEMS

Please indicate whether you strongly disagree, disagree, are uncertain, agree or strongly

agree with the statements that follow by ticking (√) 1, 2, 3, 4 or 5 as appropriate.

KEY
1-Strongly disagree 2-Disagree 3-Not sure, 4-Agree and 5-Strongly Agree

1 2 3 4 5

57
Strongly Disagree Not sure Agree Strongly
Disagree Agree

Statement 1 2 3 4 5

1. There are ongoing processes within Japan Motor’s

overall business operations and these are addressed by
senior management to monitor the effective application of
the policies, processes and activities related to internal audit
control and risk management

2. There are effective follow-up procedures to ensure that

appropriate change or action occurs in response to changes
in risks and control assessments.

3. Reports on significant failings or weaknesses are

reported to management on a timely basis.

4. There are established channels of communication for

individuals to report suspected breaches of laws or
regulation or other improprieties.

5. There are effective reporting procedures in

communicating a balanced and understandable account of
the company’s position and procedures.

6. All staff understands their role in the internal audit

control system.

Thank you for your time.

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