SOLUSI UNIVERSITY THE IMPACT OF INTERNAL CONTROL SYSTEMS ON REDUCING THE LOSS OF REVENUE IN AN ORGANIZATION

SOLUSI UNIVERSITY
THE IMPACT OF INTERNAL CONTROL SYSTEMS ON REDUCING THE LOSS OF REVENUE IN AN ORGANIZATION; A CASE OF MBERENGWA RURAL DISTRICT COUNCIL.

A RESEARCH PROJECT PRESENTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE BACHELOR IN BUSINESS ADMINSTRATION DEGREE OF ACCOUNTING.

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BY
MIRIRAISHE CHENGETA
DECEMBER 2018
TABLE OF CONTENTS
PAGE
Chapter 1: InroductionBackground of the study………………………………………………………………………………………………………..

Statement of the problem……………………………………………………………………………………………………..

Research question…………………………………………………………………………………………………………………
Purpose of the study …………………………………………………………………………………………………………….

Significance of the study……………………………………………………………………………………………………….

The Hypothesis……………………………………………………………………………………………………………………..

The Conceptual framework…………………………………………………………………………………………………..

Limitation of the study…………………………………………………………………………………………………………
Delimitation of the study……………………………………………………………………………………………………..

Definition of terms………………………………………………………………………………………………………………
Abbreviations……………………………………………………………………………………………………………………..

Organisation of the study……………………………………………………………………………………………………
CHAPTER 1
INTRODUCTION
Background of the study
Any entity of whichever form or size is expected to put in place its own systems of control in order to accomplish its objectives. According to Hamed (2009), internal control system refers to an organized amalgamation of function and procedures, within a complete system of controls established by the management and whose purpose is the successful function of the business. Kaplan (2011) says, businesses need to set up internal control systems In order to manage their risks. He further states that internal controls can be considered as part of the risk reduction method of responding to risk. The need for a strong system of internal control and risk management is seen as a key element of good corporate governance. In the UK for example, the Corporate Governance code requires the board of directors to review the system of internal control in their organisation, and satisfy themselves that a suitable system is in place. Internal controls are used in all parts and activities of a business. Loss of revenue is one of the present-day issues facing many organizations today. Therefore most companies and organisations in the world are facing this problem of loss of revenue due to poor internal controls. Zimbabwe as a whole has most of its local authorities in different parts of the country facing this problem of loss of revenue due to poor internal control systems and these include the control environment, risk assessment, information communication and accounting systems used.
Local authorities have been facing unbeatable challenges in raising sufficient finance to ensure effective service delivery for quite a long time and most of them have been having this struggle since the adoption of the multi-currency system in February 2009 though some struggles can be traced back to 1980. Most of these challenges are a result of failure to ensure effective financial management systems that result in failure to ensure cost recovery on essential services such as water and sewer provision as well as poor financial accounting systems (Coutinho, 2010). Local authorities should involve themselves in the use of software packages to strengthen their internal controls.

Loss of revenue is one of the present-day issues facing many organizations today. In a dynamic economic atmosphere like the one in Zimbabwe, it has been difficult for most organizations to attain their anticipated goals and objectives mainly because of lack of revenue. This is also the case with Mberengwa Rural District Council, an organization which operates like any other local authorities in Zimbabwe. The organization is facing serious encounters of loss of revenue which can be traced and concluded that it is caused by poor internal control systems. It has been noted that the organization is had been facing these serious challenges of loss of revenue particularly after the introduction of multi-currency denomination system in February 2009, a system which paved way to a general stabilization of the market which have seen an increase in business confidence through the adoption of more prudent economic policies. This new dispensation brought with it new challenges for local authorities and other players in the economy.

Local government has been at the forefront of a desire by government of whatever political persuasion to improve value for money in the provision of public sector services Coombs et al, (2002). Internal control measures are desired to get the best value for money, safeguard assets, and allow continuous service delivery at MRDC therefore there is need to consider revenue collection as a crucial plan for it to increase and overcome the organization’s financial crisis as well as achieving the objectives that are set by the government.

MRDC’s struggles to provide adequate services to the locals are seriously destabilized by loss of revenue therefore the need for an upgraded internal control system to facilitate efficiency is to be put in place such that all the revenue intended for the council is received, kept under adequate security, properly recorded, promptly deposited and properly used for the advantage of the organization and the community at large.

There is also an argument that there is need for revenue declaration in organizations by executing internal controls to cut revenue leakage and excess costs. In MRDC revenue collection and management is a critical area which requires attention as revenue is considered as the lifeblood of the organization. Controls should be aimed at preventing and deterring loss of revenue. It is against this background that the researcher wishes to determine the effectiveness of internal controls in a bid to reduce loss of revenue.

Statement of the Problem
The study was designed to explore the impact of internal control system used at Mberengwa Rural District Council in a way to reduce loss of revenue which would result in the organisation failing to deliver services efficiently to the local people and at the same time achieving its objectives as an organisation. The incidence of internal control weaknesses, unsatisfactory and deteriorating service delivery have the undesired effect of not only weakening the organization’s ability to effectively collect revenue but also encourages collusion, fraud ,loss of revenue, deliberate mistakes, corruption, lack of transparency and accountability for revenue collection and other assets. The major reason behind the study was because of loss of revenue, a problem that has affected the organization since the adoption of the multi-currency system in February 2009. Loss of revenue at MRDC is still the greatest challenge the organisation is facing this day which is a factor that is rising because of poor internal controls.

Research questions
The study seeks to answer the following questions:
What are the challenges of loss of revenue
What impact do internal controls have on revenue?
How can the internal control system be improved to reduce revenue loss?
How can loss of revenue be reduced using internal controls?
Purpose of study
The objectives of the study are as follows:
Outline the challenges of loss of revenue
Assess the effectiveness of internal control system in reducing revenue loss.

Show the impact of internal controls on revenue.

Suggest possible ways in which internal control system can be improved to reduce revenue loss.

Significance of the study
The study is important to stakeholders as follows;
Significance to the Researcher
The research is being undertaken in partial fulfilment of the requirements of the Bachelor of Business Administration in Accounting which the researcher is working towards at Solusi University. The research will also expand the scholar’s practical understanding relating to management of revenue in local authorities basing on the case of MRDC. At the same time the topic covered is in the syllabus for which the scholar has interest and passion therefore it will widen the knowledge of the researcher.
Significance to Solusi university
The university can adopt some of the measures suggested to improve its internal controls. In addition the university can provide material for further research by other scholars in future using this research as a result putting the university’s world map on high for producing quality research material.

Significance to MRDC
This will assist the management of MRDC to frame control systems that are intended to reduce revenue loss. The study is anticipated to improve practicality within the organization as it can adopt some of the proposed recommendations for future operations.

Hypothesis
The study proposing the following hypothesis:
H0- internal controls do not affect loss of revenue in MRDC.

The conceptual framework

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