Feli K Project 21 August

RÉPUBLIQUE DU CAMEROUN
REPUBLIC OF CAMEROON Paix-Travail-Patrie

Peace-Work-Fatherland
MINISTERE DE L’ENSEIENGNEMENT
MINISTRY OF HIGHER EDUCATION
SUPERIEUR
THE UNIVERSITY OF BAMENDA UNIVERSITE DE BAMENDA
HIGHER INSTITUTE OF COMMERCE INSTITUTE SUPERIEURE DE
AND MANAGEMENT COMMERCE ET GESTION
DEPARTMENT: MANAGEMENT AND ENTREPRENEURSHIP

LEVEL: 400
The Effects of Internal Control on Organizational Performance
Case Study Azire Coopertative Credit Union Limited
A Project Submitted in Partial Fulfillment of the Requirements for the Award

of a Bachelor Degree in Business Administration(BBA) in the field of
Accounting and Finance
PRESENTED BY:
KALINGO FELICIA EMAGHEN
MATRICULE: 15C0215
PROJECT SUPERVISOR
Mr. LIASON INNOCENT
AUGUST 2018
The effects of internal control on organizational performance
CERTIFICATION
I hereby certify that this work is written and presented by KALINGO FELICIA
EMAGHEN, a student of the Higher Institute of Commerce and Management. I
have examined and found that it meets the standards required for the award of the
BBA in Management/Entrepreneurship
Signed ………………………………… Date ………………......
(Project supervisor)
Signed ………………………………… Date ………………….
(Head of Department)
ii
DECLARATION
I, KALINGO FELICIA EMAGHEN with registration No. 15C0215 of the

Management and Entrepreneurship department in the Higher Institute of Commerce
and Management (HICM) of the University of Bamenda, hereby declare that, this
research work titled “The effects of Internal Control on organizational
Performance case of Azire Cooperative Credit Union” has been carried out by
myself and submitted in to the department of Management and Entrepreneurship of
the Higher institute of Commerce and Management of the University of Bamenda in
partial fulfillment of the requirements for the award of a Bachelor of Business
Administration (BBA) in Management. I also declare that, this work has not been
presented anywhere before for a degree programme. All borrowed ideas have been
dully acknowledged by way of references.
Sign: .............................................
iii
DEDICATION
This piece of work is dedicated to the Almighty GOD for seeing me through my
research successfully, and to my beloved family.
iv
ACKNOWLEDGEMENTS
I want to specially thank project supervisor for his relentless efforts put in to see that
I came out with this piece of work.
I must sincerely appreciate the director and all the teachers of the Higher Institute of
Commerce and Management for the professionalism they have embedded in me all
these years.
I am forever grateful to the internal auditors, accountants, internal controllers and

staff of AZICCUL that aided my research with all their commitment, support,
questions and encouragements.
For making my dream a reality, for love, encouragements, relentless and unselfish
support I want to be eternally grateful to my parents and loved ones.
Also I’m so grateful for my pastor Philemon Bein, my mentor Br Bessong Ndip,
Elder Nji and all the members of jubilee gospel center.
Last but certainly not the least, I thank my Lord and Saviour Jesus Christ who is
able to make something out of nothing; thank you father for your faithfulness and
mercy for without you, none of this would have been possible.
v
TABLE OF CONTENTS
CERTIFICATION .................................................................................................... ii
DECLARATION ..................................................................................................... iii
DEDICATION ......................................................................................................... iv
ACKNOWLEDGEMENTS .......................................................................................v
TABLE OF CONTENTS ......................................................................................... vi
LIST OF TABLE ..................................................................................................... ix
LIST OF FIGURES ...................................................................................................x
LIST OF ABBREVIATIONS .................................................................................. xi
ABSTRACT ............................................................................................................ xii
RESUME................................................................................................................ xiii
CHAPTER ONE ........................................................................................................1
GENERAL INTRODUCTION ..................................................................................1
1.1 Background of study .........................................................................................1
1.2 Problem statement.............................................................................................2
1.3 Research questions ............................................................................................3
1.3.1 Main research questions .............................................................................3
1.3.2 Specific research questions .........................................................................3
1.4 Research objectives...........................................................................................3
1.4.1 Main research objective ..............................................................................3
1.4.2 Specific research objectives........................................................................3
1.5 Research Hypothesis .........................................................................................3
1.6 Significance of the Study ..................................................................................4
1.7 Scope of the study .............................................................................................4
1.8 Definition of Terms ..........................................................................................5
1.9 Organization of the Study .................................................................................6
CHAPTER TWO .......................................................................................................7
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LITERATURE REVIEW ..........................................................................................7

2.1 Conceptual Review ...........................................................................................7
2.1.1 Internal Control and related Literature .......................................................7
2.1.2 Categories of Internal Control ..................................................................10
2.1.3 Importance of internal control ..................................................................11
2.1.4 Effectiveness of Internal Control System .................................................12
2.1.5 Internal Controls and Organizational Performance ..................................13
2.1.6 Limitations of internal control ..................................................................15
2.2 Theoretical Framework ...................................................................................16
2.2.1 The Agency theory ...................................................................................16
2.2.2 Fraud Triangle Theory by Donald Cressey (1973) ..................................17
2.2.3 Institutional Theory ..................................................................................18
2.3.4 Contingency Theory .................................................................................19
2.3.5 The Theory of the Firm ............................................................................21
2.3 Empirical Review ...........................................................................................22
CHAPTER THREE..................................................................................................24
RESEARCH METHODOLOGY .........................................................................24
3.1 Scope and Study Area...................................................................................24
3.1.1 Scope ........................................................................................................24
3.1.2 Study Area ................................................................................................24
3.2 Research Design ............................................................................................29
3.3 Sources and Method of Data Collection .....................................................29
3.4 Sample size.....................................................................................................29
3.5 Sampling technique.......................................................................................30
3.6 Method of Data Analysis ..............................................................................30
3.7 Limitations of study ........................................................................................30
CHAPTER FOUR ....................................................................................................31
DATA PRESENTATION AND ANALYSIS .........................................................31
4.1 Descriptive Statistics.......................................................................................31
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4.1.1 Response Rate ...........................................................................................31

4.2.2 Respondents Profile ..................................................................................31
4.2.3 Level of Education of the respondents .....................................................33
4.2.4 Questions Related to Internal Control and its functionality in an
Organization.......................................................................................................35
4.2.5 Internal Control and Organizational Performance ...................................39
4.3 Hypothesis testing ...........................................................................................40
CHAPTER FIVE......................................................................................................41
SUMARRY, CONCLUSION AND RECOMMENDATIONS ..............................41
5.1 Summary .........................................................................................................41
5.2 Conclusion ......................................................................................................41
5.3 Recommendations ...........................................................................................42
5.4. Suggestions for Further Research ..................................................................42
BIBLIOGRAPHY ....................................................................................................44
APPENDICES .........................................................................................................47
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LIST OF TABLE
Table 1: Gender and Marital Status of Respondents ...............................................32

Table 2: Respondents Level of Education ...............................................................33
Table 3: Internal control and its effects on organizational performance .................35
Table 4: Internal Control and Organizational Performance ....................................39
Table 5: Chi Square Test..........................................................................................40
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LIST OF FIGURES
Figure 1:Age Structure of Respondents ...................................................................32

Figure 2: Sex Structure of Respondents ..................................................................33
Figure 3: Internal Control and Organizational Performance ...................................39
x
LIST OF ABBREVIATIONS
AZICCUL: Azire Cooperative Credit Union Limited
BOD: Board of Directors
CamCCUL: Cameroon Cooperative Credit Union League
COBAC: Banking Commission for Central African States
COSO: Committee of Sponsoring Organizations of the Treadway Commission
G.A: General Assembly
IC: Internal Control
IIA: Institute of Internal Auditors
RECCU-CAM: Renaissance Cooperative Credit Unions in Cameroon Ltd
ROI: Return on Investment
SAS: Statement of Accounting Standards
UK: United Kingdom
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ABSTRACT
This study was aimed at investigating the effects of internal control on organizational
performance using the AZICCUL as the case study. To begin with, the researcher
reviewed the theories related to internal control in order to get a good takeoff point
on the aspect of internal control. This piece of work equally comprises a conceptual
and an empirical evidence for the interaction between internal control and its effects
on organizational performance. Data required for the realization of this piece of work
is mainly gathered from staff AZICCUL. Questionnaires are used to obtain the
needed information. Data collected from the research is analyzed and hypotheses
tested using Microsoft Excel 2016. The outcome from the findings shows a
satisfactory compliance of the respondents to the fact that internal control has a
significant impact on organizational performance.
xii
RESUMÉ
xiii
CHAPTER ONE
GENERAL INTRODUCTION
1.1 Background of study
In managing a business, directors need to have strong risk management process in

place as one of the requirements of corporate governance. So, one way of managing
risk is “internal control” which mainly reduces risk and auditors need to gain a full
understanding of how internal control systems of a micro finance institution work in
order to successfully perform the audit process.
Internal control system is a topical issue following global fraudulent financial

reporting and accounting scandals. This requires a critical evaluation of internal
controls systems and their impact on organizational performance, for an internal
control system to be considered effective.
The opinion about the meaning of internal control has existed long ago. Many people
interpreted internal control as the steps taken by a business to prevent employees’
fraud and fraudulent financial reporting. Others believed that internal control had an
equal role in assuring control over management, accounting, manufacturing and
other processes.
Internal control systems are engrained within good corporate governance through
guidance and acts (laws) corresponding respectively to the UK approach and the US
approach to internal control systems.
 UK approach to internal control systems: Turnbull report 1999: This approach

is highly influenced by the Turnbull report 1999, issued by the Turnbull
Committee put in place by the UK government to establish the requirement
for a strong internal control system to business. This report simply provided
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recommendations advice, and guidance on what a good internal control

system should be. These requirements are not enforceable by law.
 US approach to internal control systems: This approach is highly influenced
by the Committee of Sponsoring Organizations (COSO), formed in 1985 to
sponsor the national commission on fraudulent reporting. The sponsoring
organizations included the American Accounting Association and American
Institute of Certified Public Accountants.
1.2 Problem statement
Despite the fact that organizations set up internal control departments to ensure
efficiency, mitigate frauds and errors or totally eliminate them; it can still be said
that internal control faces major setbacks. Even with the presence of internal
controllers, there is no 100% assurance in the sense that they cannot eliminate or
catch all arenas of frauds and therefore some chances of frauds happening even after
control is done is always there; As a matter of fact, with all these setbacks the
organization cannot boast of being efficient in its affairs even with the presence of
internal controllers.
On account of the aforementioned setbacks of internal control, this piece of work

will seek to find solutions to these problems.
2
1.3 Research questions
1.3.1 Main research questions
What is the effect of Internal control on organizational performance?
1.3.2 Specific research questions
1) In what ways does internal control contribute to the financial success of

organizations?
2) How does internal control improve organizational systems and procedures?
1.4 Research objectives
1.4.1 Main research objective
The main objective of this study is to investigate the effects of internal control on
organizational performance.
1.4.2 Specific research objectives
The specific objectives are:
1) To examine the effect of internal control on the financial performance of an

organization.
2) To investigate the innovative role of internal control in organizations.
3) To make recommendations
1.5 Research Hypothesis
H0: Internal Control has no effect on organizational Performance
H2: Internal Control has a significant effect on organizational Performance
3
1.6 Significance of the Study
This study is significant to the researcher, the management and shareholders of

organizations and to the general public. This study will allow the researcher to gain
more knowledge with regards to the concept of internal control, its scope, objectives,
importance and its usability.
This study will equally enable company management to know better ways to check
and prevent employee fraud, build a solid and impregnable control system and also
monitor compliance with company policies and government regulations.
To shareholders, this study will help reassure them of the benefits and importance
of implementing internal control. This study will also help instill in shareholders a
sense of trust and confidence in the work and report of internal controllers.
Furthermore, this piece of work will be a source of enlightenment and knowledge to

the general public (nationally and internationally) on the concept of internal control,
its uses and benefits to the company, the government and potential investors.
Moreover, this piece of work will serve as a platform for further research.
1.7 Scope of the study
This study provides some insights on the concepts of internal control, its importance
in organizations as concerns organizational performance. Findings from this
research show whether internal control has an impact on organizational
performance. It equally helps to understand how properly implemented internal
control systems help to mitigate and/or eliminate all arenas of fraud and errors in
organizations.
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1.8 Definition of Terms
 Internal Control
Internal control as defined by COSO is a process affected by an entity’s board of

directors, management and other personnel designed to provide reasonable
assurance regarding the achievement of objectives in the following categories;
1. Effectiveness and efficiency of operations: that is base business objectives

including performance goals and safeguarding resources.
2. Reliability of financial reporting: including the preparation of any published

financial information.
3. Compliance with applicable laws and regulations to which the company is subject.
Also, Internal control as defined by the Institute of Chartered Accountants of

England and Wales does not only mean internal checks or internal audit, but a system
of controls both financial and otherwise, established by management in other to carry
on the business of the company in an orderly manner, to safeguard assets, and secure
the accuracy and reliability of records.
Simply put by the American Institute of Public Accountants as the plan of the
organization and all the coordinate methods and measures adopted within a business
to safeguard assets, check the accuracy and reliability of its accounting data, promote
operational efficiency and encourage adherence to prescribed managerial policies.
 Organizational performance: Organizational performance is the level of

productivity on organization experience in the course of carrying out its functions
and activities.
5
 Internal audit: According to the Institute of Internal Auditors (IIA) “internal

auditing is an independent appraisal function established within an organization
to examine and evaluate its activities as a service to the organization”
 Fraud: According to Robertson Louwers “fraud consists of knowingly making
material misrepresentations of facts, with the intent of inducing someone to
believe the falsehood and act upon it and, thus, suffer a loss or damage”. This
definition encompasses all the ways people can lie, cheat, steal, and dupe other
people.
1.9 Organization of the Study
This piece of work consists of five chapters. The first chapter presents background
of the study, the statement of the problem, the research questions, the objectives of
the study, the research hypothesis, and the significance of the study, scope of the
study and the outline of the thesis.
Chapter two focuses on the theoretical and academic literature regarding Internal
Control presented as a summary of the existing and past studies in the theoretical
perspective, major theories, critical review of the literature, conceptual framework
and finally Gap analysis.
Chapter three of this study deals with the background of the study area, the research
design, methods of data collection and presentation, sampling technique,
questionnaire design and administration, method of data analysis and the limitations
of the study.
Chapter four contains data presentation and analysis of results and findings. The
study terminates with chapter five which deals with the summary of findings,
conclusion and Recommendations.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Conceptual Review
2.1.1 Internal Control and related Literature
The United Kingdom Auditing practices committee (1979) defined internal control
as “the whole system of control, financial and otherwise established by management
in order to carry on the business of the enterprise in an orderly and effective manner
to ensure adherence to managerial policies and directives, safeguard assets and
ensure as far as possible the completeness and accuracy of records; the prevention
and detection of errors and fraud, and the timely preparation of financial
information”.
According to statement of accounting standards, (SAS) internal control is the

combined plan, method and procedures which can safeguard the firm’s assets
promote operational efficiency and encourage adherence to prescribed policies”.
Also, according to Robertson and Davis (1988:169) “internal control system is a set
of client procedures both computerized and manual imposed on the accounting
system for the purpose of preventing, detecting and correcting errors and
irregularities that might enter the system and affect the firm’s financial statement.
The SAS further explains that internal control maybe categorized as either
accounting or administrative controls. Accounting control is concerned with the plan
of the organization and all the coordinated methods and procedures which are
implemented with a view of safeguarding assets and enhancing reliability of
financial records. On the other hand, administrative control comprises of the plan of
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the organization and all coordinates methods and procedures that are concerned with
operational efficiency and adherence to management policies and directives. This is
also known as operational controls.
The definition of internal control is divided into financial internal control and non-
financial (administrative) internal control. Financial internal control pertains to
financial activities and may be exemplified by controls over company’s cash receipts
and payments financing operations and company’s management of receipts and
payments. Non-financial internal control on the other hand deals with activities that
are indirectly financial in nature i.e. controls over company’s personnel section and
its operations, fixed assets controls and even controls over laid down procedures
(Reid and Ashelby, 2002). A sound internal control system helps an organization to
prevent frauds, errors and minimize wastage. Custody of assets is strengthened; it
provides assurance to the management on the dependability of accounting data
eliminates unnecessary suspicion and helps in maintenance of adequate and reliable
accounting records.
Mawanda (2008), states that “there is a general perception that institution and
enforcement of proper internal control systems will always lead to improved
financial performance”. It is also a general belief that properly instituted systems of
internal control improve the reporting process and also give rise to reliable reports
which enhances the accountability function of management of an entity. Preparing
reliable financial information is a key responsibility of the management of every
public company. The ability to effectively manage the firm’s business requires
access to timely and accurate information. Moreover, investors must be able to place
confidence in a firm’s financial reports if the firm wants to raise capital in the public
securities markets. Management’s ability to fulfill its financial reporting
responsibilities depends in part on the design and effectiveness of the processes and
8
safeguards it has put in place over accounting and financial reporting. Without such
controls, it would be extremely difficult for most business organizations especially
those with numerous locations, operations, and processes to prepare timely and
reliable financial reports for management, investors, lenders, and other users. While
no practical control system can absolutely assure that financial reports will never
contain material errors or misstatements, an effective system of internal control over
financial reporting can substantially reduce the risk of such misstatements and
inaccuracies in a company’s financial statements (Kaplan, 2008; Cunningham,
2004).
2.1.1.1 Internal Checks

Internal checks involve employees outside the immediate work area conducting
checks on transactions to ensure that they are being done with the proper authority,
are being recorded properly, and are accurate. This is referred to as peer audit. They
should be organized and conducted in a way that they do not disrupt the business
operations to a big extent. Employees conducting peer audits should be influenced
by the people being checked. This means they should be of high integrity or not
known on personal levels. This role should be carried on rotational basis to reduce
the chances of collusion that might develop between the fraudster and the person
checking the transactions (COSO, n.d).
According to COSO’s fraud control model, the internal checks may involve the
following activities; (a) Reconciling separately maintained records, for instance
reconciling a bank account on cash book to the bank statements(b) Comparison
between physical and recorded quantities of stock or assets. (c) Adhering to
accounting principles of double system. (d) Surprise checking all parts of
transactions to ensure that all parts are being done appropriately by all parties
involved.
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2.1.1.2 Segregation of Duties

Segregating duties is an effective measure to deter commission of occupational
fraud, especially if combined job rotation. About 7 out of 10 occupational frauds are
committed by one person acting alone. Including other people in functions makes
collusion necessary, or makes the fraud far more difficult to commit. Having to
involve or avoid another person in committing a fraud discourages most would-be
fraudsters. This policy increases the belief that one will be caught, and reduces the
chances of committing fraud. This is an easier method of fraud control to implement
(COSO, n.d). The purpose of segregating duties is to thwart occupational fraud in
the form of asset misappropriation and intentional financial misstatement.
Segregation of duties can be simplified by staying focused on this purpose and
enhancing practical risk assessment. Segregation of duties ensures that no employee
or group of employees should be in a position to perpetrate and conceal errors or
fraud in the normal course of their duties. (Stone, 2009). The lesser people involved
in the transaction, the greater the opportunity for fraud. The basic internal control
concept requires that different employees should be assigned different financial and
accounting tasks. Segregation of duties limits the probability of loss
(Capodanno,2012).
2.1.2 Categories of Internal Control
1) Preventive Controls:
They are designed to keep errors or irregularities from occurring. Preventive controls
attempt to stop undesirable events from happening. They are protective controls and
help to prevent losses. Control activities here include;
Segregation of duties
Physical controls
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Authorization and approval of transactions

Keeping adequate records and documents for all transactions.
2) Detective Controls
They attempt to detect undesirable activities. They provide evidence that a loss has
occurred but do not prevent a loss from occurring. They are designed to detect errors
and irregularities that have occurred.
Control activities here include;
Supervisory controls over day to day sales

Arithmetic and accounting controls
Counting of inventory.
3) Corrective Control
These are controls or procedures designed to correct errors or irregularities that have
been detected. These are follow-ups required to address previously detected errors
by detective controls. They include management controls which are corrective in
nature. Their actions should be geared towards evaluation of internal controls and
corrective measures taken.
2.1.3 Importance of internal control
Internal control is the most important and fundamental concept that internal auditors
must understand. Auditors review both operational and financial aspects of the
organization with an objective of evaluating their risks, and to provide reasonable
assurance in pursuit of the entity’s mission. The following are importance of internal
control:
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 A company’s system of internal control has a key role in the management of

risks that are significant to the fulfillment of its objectives. A sound system of
internal control contributes to safeguarding of the investment and assets,
including the prevention and detection of fraud.
 Internal control facilitates the effectiveness and efficiency of operations, helps
to ensure reliability of internal and external reporting and assets compliance
with laws and regulations.
 Effective financial controls, including the maintenance of proper accounting
records are an important element of internal control. They help ensure that
organizations are not unnecessarily exposed to avoidable financial risks and
that financial information used within the organization and for publications is
reliable.
 A company’s objectives, its internal organization and the environment in
which it operates are continually changing. A sound internal control system
therefore depends on a thorough and regular evaluation of the nature and extent
of the risks to which an organization is exposed to.
2.1.4 Effectiveness of Internal Control System
Internal control effectiveness is related to the fluidity of the system’s internal

interaction and how rooted the system is in the company’s processes. One of the
important factors that ensure internal control effectiveness and assurance is the
institution of ―agents of effectiveness‖ (Ayagre, Appiah-Gyamerah, and Nartey,
2014). These agents of effectiveness are vibrant board and autonomous internal audit
office. Even though internal control is procedural, its effectiveness is a state of the
process. Ayagre, et al (2014) indicated that it is important to continually evaluate the
internal control systems intermittently. Internal control effectiveness is assessed on
three levels. These are: 1) the degree to which the directors comprehend that the
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organization's objectives are being realized; 2) the reliability of published financial

statements; and 3) compliance with appropriate rules and guidelines.
According to COSO (1994), an internal control framework can be judged to be

viable on the high level Amudo and Inanga (2009) stated that a deficient internal
control system is the one that ignores how internal control components can be
measured but emphasized on elaborate control framework. CoSO (2011) indicated
that the effectiveness of the individual components determines the effectiveness of
the entire control structure. Thus the effectiveness of the five control components
determines the control framework’s effectiveness. Accordingly, evaluating control
structure effectiveness must be in tandem with the individual components. However,
the effectiveness of control a framework is a subjective decision on the individual
components of entire the control system (CoSO, 2011). The internal control
evaluator must comprehend the individual workings of the five control elements, the
working philosophies of the control elements, and the application of the components
throughout the company (Agyare, et al, 2014).
The essence of internal control is to prevent, correct and detect errors and possibly
frauds in the business. In view of this, this researcher is of the view that, an effective
internal control is the one that is able to: prevent errors from occurring; detect errors
if they occurred; and correct detected errors.
2.1.5 Internal Controls and Organizational Performance
Internal control systems including internal audits are intended primarily to enhance
the reliability of financial performance, either directly or indirectly by increasing
accountability among information providers in an organization (Jensen, 2003).
Internal control therefore has a much broader purpose such that the organization
level of control problems associated with lower revenues, which explore links
13
between disclosure of material weakness and fraud, earnings management or

restatements Internal controls provide an independent appraisal of the quality of
managerial performance in carrying out assigned responsibilities for better revenue
generation (Beeler et al, 1999). Fadzil et al (2005) said that an effective internal
control system unequivocally correlates with organizational success in meeting its
revenue target level. Effective internal control for revenue generation involves;
regular a review of the reliability and integrity of financial and operating
information, a review of the controls employed to safeguard assets, an assessment
of employees' compliance with management policies, procedures and applicable
laws and regulations, an evaluation of the efficiency and effectiveness with which
management achieves its organizational objectives (Ittner, 2003).
Most organizations no longer set up internal control system as a regulatory

requirement but also because it helps in ensuring that all management activities are
appropriately carried out (Kenyon and Tilton, 2006). Further, organizations are
making it a point of duty to train, educate, and sensitize their employees on how to
use these internal control systems since its effectiveness depends on the competency
and dependability of the people using it. All these control actions ensure that any
risks that may affect the company’s ability to achieve its goals are appropriately
avoided and should occur at all levels and in all functions of the organization ((Doyle
et al, 2005). There are three major classifications of internal controls; preventive,
detective, and corrective. Preventive controls predict potential problems before they
occur, make adjustments, and prevent an error, omission or malicious act from
occurring. The detective controls are used to detect and report the occurrence of an
omission, an error or a malicious act. Finally, the corrective controls help in ensuring
that the impact of a threat is minimized, identify the cause of a problem as well as
the correct errors arising from the problem. Corrective controls correct problems
14
discovered by detective controls and modify the processing system to minimize

future occurrence of the problem (Singleton, 2006).
2.1.6 Limitations of internal control
A system of internal control is designed to prevent or detect errors and fraud.

However, no matter how well designed they are, they can only provide reasonable
assurance (not absolute assurance) that objectives have been achieved. Some
limitations inherent in all internal control systems, these include:
 Judgment: the effectiveness of controls will be limited by decisions made

with human judgment under pressure to conduct business based on the
information at hand.
 Breakdowns: even well designed internal controls can break down.
Employees sometimes misunderstand instructions or simply make mistakes.
Errors may also result from new technology and the complexity of
computerized information systems.
 Management override: high level personnel may be able to override
prescribed policies and procedures for personal gain or advantage. This should
not be confused with management intervention, which represents
management actions to depart from prescribed policies and procedures for
legitimate purposes.
 Collusion: control systems can be circumvented by employee collusion.
Individuals acting collectively can alter financial data or other management
information in a manner that cannot be identified by control systems.
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2.2 Theoretical Framework
2.2.1 The Agency theory
This theory explains the relationship between principal (shareholders) and agents
(employees) of a company that is aimed at achieving objectives of the business.
Agency theory describes firms as necessary structures to maintain contracts, and
through firms, it is possible to exercise control which minimizes opportunistic
behavior of agents. Accordingly, another posits that in order to harmonize the
interests of the agent and the principal, a comprehensive contract is written to
address the interest of both the agent and the principal. This theory further explains
that the relationship is strengthened by the principal employing an expert to monitor
the activities of agents. This point of view supported by Adams M. B. (1994) who
maintains that the contract provides for conflict resolution between the agent and
principal, the principal determines the work and agent undertakes the work. He
however, proposes that the principal suffers shirking which deprives him or her from
benefiting from the work of the agent. Nevertheless, the theory recognizes the
incomplete information about the relationship, interests or work performance of the
agent described as adverse selection and moral hazard. Adams M. B. (1994) explains
that moral hazard and adverse selection affects the output of the agent in two ways;
not doing exactly what the agent is appointed to do, and not possessing the requisite
knowledge about what should be done. This therefore, affects the overall
performance of the relationship as well as the benefits of the principal in form of
cash residual.
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2.2.2 Fraud Triangle Theory by Donald Cressey (1973)
The fraud triangle originated from Donald Cressey's hypothesis: “Trusted persons
become trust violators when they conceive of themselves as having a financial
problem which is non-shareable, are aware this problem can be secretly resolved by
violation of the position of financial trust, and are able to apply to their own conduct
in that situation verbalizations which enable them to adjust their conceptions of
themselves as trusted persons with their conceptions of themselves as users of the
entrusted funds or property” (Akelelo, 2012). This theory was first coined by
Cressey in 1973. Fraud triangle theory identifies that lead culprits to commit fraud.
Fraud triangle describes three major factors that are present in any fraud situation:
(a) perceived pressure, (b) opportunity, and (c) rationalization. Fraud. The elements
are explained below under each heading.
Perceived pressure for committing fraud in financial institutions Pressure in case of

fraud can be likened to the motivation that is what in one’s life that drives one to
commit fraud. Pressure sometimes involves personal situations that create a demand
for more money; such situations might include vices like drug use or gambling or
merely life events like a spouse losing a job Addictions such as gambling and drugs
may also motivate someone to commit fraud (Ruankaew, 2013).
Opportunity for committing fraud is one of three elements of the Fraud Triangle,
opportunity is often hard to spot, but fairly easy to control through organizational or
procedural changes. The Opportunity to commit fraud is possible when employees
have access to assets and information that allows them to both commit and conceal
fraud. Employees are given access to records and valuables in the ordinary course
of their jobs. Unfortunately, that access allows people to commit fraud. Over the
years, managers have become responsible for a wider range of employees and
17
functions. This has led to more access for them, as well as more control over
functional areas of companies. Access must be limited to only those systems,
information, and assets that are truly necessary for an employee to complete his or
her job (Lebanese Association of Certified Public Accountants (LACPA), 2009)
Opportunity is created by weak internal controls, poor management oversight, and/or
through use of one’s position and authority. Failure to establish adequate procedures
to detect fraudulent activity also increases the opportunities fraud for to occur,
(Ruankaew, 2013).
Rationalization involves a person reconciling his/her behavior with the commonly

accepted notions of decency and trust. There are two aspects to rationalization: (1)
the fraudster must conclude that the benefits to be realized from a fraudulent activity
outweigh the possibility for detection. (2) The fraudster needs to justify the fraud.
Justification can be related to job dissatisfaction or perceived entitlement, or a
current intent to make the victim whole sometime in the future, or saving one’s
family, possessions or status. For those who are generally dishonest, it is probably
easier to rationalize a fraud. For those with higher moral standards, it is probably not
so easy. Fraudsters have to convince themselves that to defraud is alright with
“excuses” for their behavior. This explains the need for good internal control system
to check all these malpractices in many organizations.
2.2.3 Institutional Theory
Recent studies used the new institutional theory as a framework to identify factors
driving the existence of internal control (Al-Twaijry, Brierley, & Gwillian 2003:
Arena et al. 2006). This theory assumes that organizations are driven to incorporate
the structures, practices and procedures institutionalized in society to increase their
legitimacy and their survival prospects, independent of the immediate effect. In
18
addition, Di Maggio and Powell conclude that the effect of institutional pressures is
an increased homogeneity of organizations in a given institutional environment.
2.3.4 Contingency Theory
Contingency theory is an approach to the study of organizational behavior in which

explanations are given as to how contingent factors such as technology, culture and
the external environment influence the design and function of organizations. The
assumption underlying contingency theory is that no single type of organizational
structure is equally applicable to all organizations. Rather, organizational
effectiveness is dependent on a fit or match between the type of technology,
environmental volatility, the size of the organization, the features of the
organizational structure and its information system. Contingency theories were
developed from the sociological functionalist theories of organization structure such
as the structural approaches to organizational studies by (Woods, 2009).
Contingency theory is used to describe the relationships between the context and
structure of internal control effectiveness and organizational performance, especially
reliability of financial reporting. Empirical study suggests that internal auditors who
are specialized and higher in internal audit ability will achieve internal control
effectiveness analysis and that the firm will benefit from the organizational
effectiveness via internal control mechanism efficiency (Cadez and Guilding, 2008).
Cadez and Guilding (2008) identified some factors, which impact management
control systems; these are: external environment, technology, structure and size,
strategy and national culture. It suggests that the demands imposed by technical tasks
in the organization encourage the development of strategies to coordinate and
control internal activities. The location of information in relation to technology and
19
environment has an important influence on organization structure. In uncertain

environments with non-routine technology, information is frequently internal.
Where environments are certain, or where technology is routine, information is
external. The dimensions of structure and control include authority structure and
activities structure, i.e., rules and procedures that determine the discretion of
individuals. Authority relates to social power. In the contingency model,
decentralized authority is more appropriate where uncertain environments or non-
routine technology exist. Centralized authority is more appropriate when
environments are certain.
Contingency theory states that “the design and use of control systems is contingent
upon the context of the organizational setting in which these controls operate,”
(Fisher, 1998). Therefore, the idea of contingency theory is that the selection and
use of a management control system is contingent on a variety of internal and
external factors. It is therefore clear that, factors such as external environment,
technology, structure and size, strategy and national culture impact management
control systems. The theory suggests that the demands imposed by technical tasks
in the organization encourage the development of strategies to coordinate and
control internal activities.
Daft (2012) in his book writes: “Contingency means: one thing depends on other
things” and “Contingency theory means: it depends.” Audit functions are task
oriented and can be loosely structured. The functions also can vary considerably,
depending on the area of a company under audit and the type of business model, so
auditors must carefully manage their inspections and take variables into account to
get the job done. The contingency theory also can be applied to an audit team’s
structure. Typically, audit team managers receive audit projects. They then create ad
hoc audit teams for the projects, selecting auditors based on expertise and experience
20
in the subject areas, and on auditor availability, all of which add up to contingencies
for any given audit project.
2.3.5 The Theory of the Firm
In simplified terms, the theory of the firm aims to answer these questions: Existence,
Boundaries, Organization, why are firms structured in such a specific way, for
example as to hierarchy or decentralization?, heterogeneity of firm actions and
performances, what drives different actions and performances of firms, and lastly,
the evidence, what tests are there for the respective theories of the firm (Thomas,
2008). The theory of the firm consists of a number of economic theories that
describe, explain and predict the nature of the firm, company, or corporation,
including its existence, behavior, structure, and relationship to the market. This
theory affirms that a firm is a “black box” operated so as to meet the relevant
marginal conditions with respect to inputs and outputs, thereby maximizing profits,
or more accurately, present value. The theory helps to explain why an entrepreneur
or manager in a firm which has a mixed financial structure containing both debt and
outside equity claims will choose a set of activities for the firm such that the total
value of the firm is less than it would be if he were the sole owner and why this result
is independent of whether the firm operates in monopolistic or competitive product
or factor markets (Kantarelis, 2007). This study will thus be guided by three theories
namely; agency theory, contingency theory and the theory of the firm. Agency
theory shows the relationship between the principal and agent and the agent's
responsibilities which include financial reporting, budgeting and providing any other
additional information to the principal. The contingency theory on the other hand
explains that organizations' behavior and functions are dependent on factors such as
technology, culture and the external environment that the organizations operate in
while the theory of the firm asserts that, a firm is operated so as to meet the relevant
21
marginal conditions with respect to inputs and outputs, thereby maximizing profits,
or more accurately, present value.
2.3 Empirical Review
According to Angela Amudo (2009), an internal control system is a topical issue

following global fraudulent financial reporting and accounting scandals in both
developed and developing countries. A proactive preventive approach to the
problem requires a critical evaluation of existing internal control structures in
organizations to determine their capacity to ensure that the organization’s activities
are carried out in accordance with established goals, policies and procedures. In their
write up, they implied that when companies suddenly collapse, the often-resounding
question is ‘what went wrong? A break down in the internal control system is the
usual cause. Internal control is a process that guides an organization towards
achieving its objectives. These objectives include operational efficiency, reliability
of financial reporting, and compliance with relevant laws and regulations
(COSO1992). Absence of these variables often results in organizational failure.
Hitt, Hoskisson, (1996) argued that there are two types of major internal controls
associated with the management of large firms, particularly diversified firms, which
have an important effect on firm innovation, these are; strategic controls and
financial controls. Strategic controls entail the use of long-term and strategically
relevant criteria for the business-level managers' actions and performance. Strategic
controls emphasize largely subjective and sometimes intuitive criteria for evaluation
(Gupta, 1987). The use of strategic controls requires that corporate managers have a
deep understanding of business-level operations and markets. Such controls also
require a rich information exchange between corporate and divisional managers
(Hoskisson, Hitt, ,1994). On the other hand, financial controls entail objective
22
criteria such as return on investment (ROI)in the evaluation of business-level

managers' performance. Thus, top-level managers establish financial targets for each
business and measure the business-level managers' performance against those
targets. Such an approach can be problematic when the degree of interdependence
among business units is high. Thus, emphasis on company controls requires each
division's performance to be largely independent.
23
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Scope and Study Area
3.1.1 Scope
This study will be limited to the investigation of the effects of Internal Control on
the performance of organizations with AZICCUL as case study.
3.1.2 Study Area
AZICCUL is a financial cooperative union owned and controlled by its members. It

organizes savings account and grant loans to its members which the interest rate is
1.5% and 1.7%. AZICCUL is the largest credit union in South Saharan Africa. It
started as a tribal group known as the Metta Welfare Union which existed in 1967 at
Bamenda with 13 members and had no permanent business premises. The idea of a
credit was introduced by some members and spearheaded by Mr. Marcus Ngwe.
Meetings were held at Sonac Street but was later moved to Azire hence the name
Azire Cooperative Credit Union. That same year an account was opened with a
commercial bank with total savings of 665,000 FCFA.
In 1968, the number of members increased to 88 and in this same year it was
affiliated to CAMCCUL. It received its certificate of registration in No. WC365 on
the 19th of August 1958. Later on in 2013, it left CAMCCUL to RECCUCAM.
AZICCUL is also recognized under COBAC Decision No. D2001 58 code No.
19426 of 03/07/2001 and a ministerial Decision No. 00395/MINFI of 20/08/2001.
The first annual meeting was held in 1970 and also employed full time staffs in 1971.
AZICCUL first building in Mankon Motor Park was completed in 1973.
In 1994, a women’s committee was elected during the annual meeting. Later in 1997,
two women were sponsored by the World Council of Credit Unions to work with
24
AZICCUL for a week. This assistance helped AZICCUL to improve on its products
and services. In 2005, the Yaoundé branch went operational and the arrangements
for the Douala branch were made. As at 30th September 2013, AZICCUL registered
a membership of 29,367 with share / savings of 15,595 million FCFA. Presently, the
union has ten main branches offices with two in Douala, two in Yaoundé, five in
Bamenda and last one in Kumba besides two collection centers at Ntarikon and
Nkwen market.
AZICCUL is registered under COBAC Decision Number D-2009/58 code number

19426 of 30/07/2009 and Ministerial Decision Number 00395/MINEEI or
20/08/2001. Even though AZICCUL was registered in 2001 as a MFI affiliated to
CAMCCUL but today it has no affiliation with CAMCCUL rather, it is under the
umbrella of RECCUCAM.
3.1.3.1 Product and Services

AZICCUL offer various types of goods and services of which are as follows.
1) Savings Account
This account earns annual interest depending on what the credit union realizes at the
end of the year as income. This account helps members to obtain loans. Withdrawal
from this account requires a notice of at least one month in order not to pay charges
or the member pays a saving withdrawal charge of 10frs per one thousand francs. In
order to deposit money into this account, the member or account holder is asked to
present his passbook or account number. The money is received by the teller and
recorded in the cash receipt. The account holder then signs the cash receipt to
confirm the money saved. The cashier then receipt. In order to withdraw money from
this account, the cashier fills the payment voucher on the amount to be withdrawn.
The member then signs it to confirm the amount to be withdrawn. The cashier
25
updates the member’s ledger and passbook from the payment voucher and the money
is given to the member.
2) DEPOSIT ACCOUNT
Money from this account can be withdrawn at any time owing to the fact that it is
considered an emergency account. Transactions in the deposit account are done the
same way as in the savings account. Money is withdrawn from this account without
paying charges because it yields no interest.
Account for children less than 18 years can be opened at AZICCUL. With this
account you can prepare for your child’s education, health care and others,
Withdrawals can be done at any time with no charge. With minor accounts loans
can be taken even though the accounts belong to the minor, he or she has no free
access to the accounts. It is managed by their parents or guardians.
3) LOAN ACCOUNT
You can only obtain a loan when you need money and when you are sure of the
means to repay the loan. AZICCUL however encourages members to obtain loans
especially for productive ventures.
4) Share Account
This is the account that makes you a member and owner. This can increase decision
of the general meeting providing that the total shares of AZICCUL should constitute
10% total assets as required.
26
5) Group Account
Groups can open accounts with AZICCUL. A delegation of three from the group
comes to the office to sign on behalf of the group. Interest is paid yearly on share
savings. Withdrawal can be done at any time with no charge provided two of the
delegated members are present. Groups here include; Church, Meetings, Njangi
groups, Development organization etc.
3.1.2.2 Other services offered by AZICCUL

 Money can be saved and withdrawn whenever need arises.
 Gain the privilege of being within a family on financial transactions.
 Easy access to loans at good conditions including a low interest rate.
 Free insurance coverage on amounts saved and on loans taken. Maximum
insurance coverage is 1000,000frs for savings and 2500,000frs for loans at
death.
 Facility to open accounts for specific purposes and to withdraw the amounts
saved as programmed for example school fee account, Christmas or University
account, Children’s account and group account.
 Facility to an “authorization to pay” (special withdrawal slip) to enable you
withdraw money while at home.
 Fast and safe money transfer between AZICCUL branches in Bamenda, Douala
and Yaounde and the credit union network salary payments to civil servants and
workers of the private sector institutions.
 Ability to participate in decision making on the management and future of
AZICCUL.
27
3.1.2.3 Organization structure of AZICCUL

 The General Assembly
They stand at the top position of the union’s organizational chart. It is made up of
all the members of this credit union who are shareholders. At this G.A. of
shareholders, everybody has an equal right, as a result of equal share capital. That
is, the right to vote and to be voted as a Board of Director or a committee member.
The general assembly votes a group of seven persons to continue the Board of
Directors.
 The Board of Director

The General Assembly elects the Board of Director into whose hands the business
of the union is entrusted. This is to set strategic objective of the union. They plan for
the union. It is made up of seven members, within the Board of Director a credit
committee is appointed oversee the loans situation of the union. Furthermore, an
education committee is appointed still amongst the seven Board Members. After
coming out with the objective of the union, they then hand it over to the general
manager for implementation.
 Supervision committee
This committee is elected by the general assembly to act as an internal audition for
the union. It is made up of three members. These are responsible for the big
operational activities to ensure that they are effectively doing to reduce cost. They
also see that there should be no fraud.
28
 The Women Committee

They are out to help the union in sensitizing the public concerning the women. They
encourage female farmers to acquire agricultural loans.
 Credit Committee
The committee comprises of three members. Their function is to see into the loan
policy and put into practice. That is, inspecting collateral securities and making
comment either positive or negative to the loan granting.
 Education Committee
Their function is to educate the general public on the importance of joining the credit
union and its advantages of becoming a member.
3.2 Research Design

The research design chosen for this study is the Survey Research design. This is
because it defines groups of organizations which the researcher will work with;
which will represent the whole. It is a plan specifying how data related to the
problem under study would be collected and analyzed.
3.3 Sources and Method of Data Collection

The sources of data for this study will be primary and secondary. Primary data will
be collected through the use of questionnaires while secondary data will be gotten
from the internet and other studies carried out by experts and other technicians.
3.4 Sample size
The population and sample size of this research will consist of a sample of staff of
AZICCUL head office and some of its branches.
29
3.5 Sampling technique

The sampling technique used in selecting the respondents is the judgmental sampling
technique. This is because not all staff of all departments of AZICCUL have a good
knowledge of the functioning of the Internal Control department.
3.6 Method of Data Analysis

The method of Data Analysis used in the study will primarily be descriptive by the
use of tables and charts and the chi square method will be used to test the hypothesis.
3.7 Limitations of study
In the course of this study, the researcher encountered some problems. The greatest
of which was the unavailability of AZICCUL staff due work and the unwillingness
of some to respond to questionnaires.
Another major problem the researcher faced was the problem of none response to
the questionnaires. The sample population regularly claimed to be too busy to fill
the questionnaires making the work of the researcher cumbersome and very
expensive.
30
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
This chapter contains the results and the interpretation relating to the sample
characteristics of the surveyed respondents. The presentation was guided by the
research objectives and the statistics were generated with the aim of generating
responses from the research questions.
4.1 Descriptive Statistics
4.1.1 Response Rate
Questionnaires were distributed to the staff of several departments of AZICCUL

headquarter. 20 questionnaires are distributed from which 18 questionnaires were
collected giving the response rate of 90%. This shows good response rate because
almost all the staff who received the questionnaires responded and in time.
4.2.2 Respondents Profile
The table and charts below describe the general findings regarding the respondents
age, sex, marital status and level of education.
31
4.2.2.1 Age Structure of Respondents
25-30 31-40 41-50 Above 50
Figure 1:Age Structure of Respondents

The figure above shows that most of the staff of AZICCUL who responded fall
between the age range of 25-30 years that is 9 respondents, this number is followed
by those who fall within the age range of 31-40 years with 5 respondents. The lowest
is the range above 50 years with just one respondent.
4.2.2.2 Gender and Marital Status of Respondents

OBSERVED FREQUENCY PERCENTAGE
Gender Male 12 67%
Female 6 33%
Total 18 100%
Marital status Single 8 44%
Married 10 56%
Total 18 100%
Table 1: Gender and Marital Status of Respondents
32
SEX STRUCTURE
FEMALE
33%
MALE
67%
MALE FEMALE
Figure 2: Sex Structure of Respondents

From the table 1 and figure 2 above, it can be observed that more male staff members
(67%) responded to the questionnaires than female respondents (33%). This
indicates that male staff of AZICCUL were more enlightened on the concept of IC
and were equally willing to respond.
4.2.3 Level of Education of the respondents
LEVEL OF EDUCATION FREQUENCY PERCENTAGE

UNDERGRADUATE 12 67%
GRADUATE 6 33%
POSTGRADUATE 0 0
TOTAL 18 100
Table 2: Respondents Level of Education
From the table above it can be seen that a majority of respondents have an
undergraduate degree. This shows that they have an adequate knowledge of IC and
its functionality. Thus, well placed to objectively and adequately answer the
questionnaires.
33
It can also be observed that 33% of the respondents had or where pursing a graduate
degree and there was none with a postgraduate degree.
34
4.2.4 Questions Related to Internal Control and its functionality in an

Organization
Table 3: Internal control and its effects on organizational performance
QUESTIONS YES % NO % TOTAL %

Do you recognize the importance of the internal 15 83% 3 17% 18 100%
controller’s function?
Is the organizational chart up to date? 0 0% 18 100% 18 100%
Are BOD and its committees independent of 13 72% 5 28% 18 100%
management?
Are the activities of one staff checked by other staff 11 61% 7 39% 18 100%
members?
Do the control measures introduced have an effect 10 56% 8 44% 18 100%
on fraud?
Is there adequate physical security where cash 18 100% 0 0% 18 100%
handling occurs?
Are cash controls done on regular basis? 18 100% 0 0% 18 100%
Does your organization’s software have appropriate 10 56% 8 44% 18 100%
control measures?
Are they regular updates of the software? 0 0% 18 100% 18 100%
Is there appropriate segregation of staff duties? 6 33% 12 67% 18 100%
Is there a standard procedure for the authorization 17 94% 1 6% 18 100%
and approval of transactions
Does internal control help improve this 18 100% 0 0% 18 100%
organization’s systems and procedures?
Is physical control of assets carried out on regular 12 67% 6 33% 18 100%
basis?
Are corrective measures taken in the event of fraud? 18 100% 0 0% 18 100%
35
From table 3 above, it can be seen that 83% of the respondents agree that the
activities of the internal controller are important to the functionality and growth of
AZICCUL mean while 17% are of the opinion that the organization can function just
as well without having to spend more on internal controllers. This implies that the
IC function is viewed to be of colossal importance and thus should not be
underestimated.
From table 3, it can be observed that the organizational chart of AZICCUL is not up
to date. This shows a lapse in the activities of the management and of the internal
controller because if staff are not fully aware of the flow of authority, the functioning
of the organization will be impaired and internal controller’s proposed policies may
not be followed to the latter.
Also from table 3 above, it can be noticed that the BOD and its committees are not
completely independent from management as 18% of respondents disagreed to that
fact. This shows that there are possibilities of fraud amongst the BOD members and
Management because without complete independence colluding is still possible.
From table 3 above, we observed that 61% of respondents affirm that the activities
of workers are being monitored by other workers. This indicates that the workers
and management do collaborate, they will help to correct some errors their
colleagues make, and this will help to facilitate part of the work of the internal
control department.
In the table above, we also notice that 54% of respondent accept the fact that internal
control measures introduced have an effect on fraud which is one of the things that
the internal control department is working hard to limit it in order maintain the good
reputation of AZICCUL. On the other hand, 44% of the respondents do not agree
36
to it, which means that AZICCUL really need to improve on their internal control
system.
From table 3 above, we notice that there is a 100% security to physical cash handling,
this is excellent for the organization and it customers as they will always feel secured
in their dealings with AZICCUL.
We also observed that cash controls are done on regular basis, this helps to clear
doubt on the minds of workers and clients, and also there is transparency in every
cash transaction, this makes every worker to always be responsible for every little
step they take.
From the table 56% of the people accept that the software used in AZICCUL has
appropriate control measures which is good but they still need to improve on that
since up to 44% haven’t seen that the control system is appropriate.
Statistics show that there are no regular updates of the software used in AZICCUL,
this is really dangerous to the organization, because for the software to be for long
without update will open avenues for fraud and even mistakes and glitches that
outdated software have.
From table 3 above, we see that there is no segregation of staff duties as 67% attest
to that fact. With a situation like this, a particular staff working in one post for a long
time may be fraudulent and it would be difficult to detect.
Also from table 3 above, it can be observed that there are standard procedures put in
place for the authorization and approval of transactions in AZICCUL. This
encourages accurate control of staff activities by management which goes a long
way to prevent errors and prevent fraud.
37
All the respondents believe it is the task of the internal controller to help improve
the organization’s systems and procedures. With observations by the internal
controller, suggestions from staff members and even management staff, the internal
controller is well equipped to make these procedural improvements.
Also from table 3 above, 67% of respondents affirm that physical control of assets
is done on regular basis. This activity aids the prevention of fraud on company assets,
it also assures the organization of the smooth functioning of its activities.
Finally, from table 3 above we can see that all the respondents believe that corrective
measures are taken in the event of fraud. This measure helps prevent future avenues
of fraud and errors to the latter.
38
4.2.5 Internal Control and Organizational Performance
RESPONSE FREQUENCY PERCENTAGE

Yes 15 83%
No 3 17%
Total 18 100%
Table 4: Internal Control and Organizational Performance
90% 83%
80%
70%
60%
50%
40%
30% 17%
20%
10%
0%
YES NO
PERCENTAGE
Figure 3: Internal Control and Organizational Performance

From the figure and table above, it can be observed that 83% of the sampled
population agrees that internal control impacts organizational performance. On the
other hand, 17% still believe IC is dead weight to the organization and that
organizations can function just as well without its interference.
39
4.3 Hypothesis testing
The hypotheses of this study are:

H0: Internal Control has no effect on organizational Performance
H1: Internal Control has a significant effect on organizational Performance
These hypotheses are tested using results from the Chi Squared test and the results
are presented on the table below.
Hypothesis Testing
RESPONSE Oi Ei (Oi-Ei) (Oi-Ei)2 (Oi-Ei)2/Ei
YES 15 9 6 36 4
NO 3 9 -6 36 4
TOTAL 18 8
Table 5: Chi Square Test
D F = (2-1) x (2-1) = 1
Level of significance = 0.05
X2 = 8
X2 critical value = 3.84 (from chi-square probability distribution table – see

Appendix 2)
Since the calculated value 8 is greater than chi-square critical value of 3.84, Ho is
rejected and the alternative (H1) is accepted. This implies that Internal Control plays
a very significant role on the performance of AZICCUL in particular and all other
organizations in general.
40
CHAPTER FIVE
SUMARRY, CONCLUSION AND RECOMMENDATIONS
This chapter presents the summary, conclusions and recommendations arrived at

according to the researcher’s findings.
5.1 Summary
This overriding purpose of this study was to explored the effect of internal control
on organizational performance. The researcher developed research objectives and
hypotheses based of the two major control activities. From the data collection
instrument (questionnaire) it was revealed that majority of the respondents (90%)
agreed that there were aware of the importance of internal control activities in
AZICCUL.
The study established that there is a significant relationship between Internal Control
and Organizational performance. The hypothesis was tested using information from
questionnaires administered to staff of AZICCUL using the Chi-Square Test with a
level of significance of 5%. The test statistic was X2 = 8. The Chi square test value
obtained above fell in the accepted region when compared with critical value at the
degrees of freedom.
5.2 Conclusion
Based on the findings of this study, it can be concluded that the role and function of
Internal Control on organizational performance is of prime importance and cannot
be under looked, under minded or over emphasized therefore organizations that fully
let the internal controllers to carry out their activities and implement their
recommendations will certainly perform efficiently and experience high growth
rates.
41
5.3 Recommendations
The researcher established that internal control practices had a positive impact on
organizational performance, but also makes the following recommendations:
The management of AZICCUL needs to modernize its internal control system to

increase efficiency. Improving control practices calls for a high degree of
collaboration and visibility across all departments and services as well as utilizing
modern technology.
The internal controller should be allowed to regularly make recommendations and

adjustments to company policies. Adjustments such as the updating of the
organizational chart to establish proper flow of authority which will go a long way
to improve performance.
Lastly, while the current Internal Control activities are showing desired results, the
concept of continuous improvement cannot be ignored. There are numerous areas
that require improvement to make the control activities more efficient and hence the
management and employees AZICCUL must continuously seek new ways of
improving on their control activities.
5.4. Suggestions for Further Research
This study was limited to a AZICCUL due to financial and time constraints making
the results relatively less representative of the general case of all organization and
institutions in Cameroon. It is therefore recommended that further research be done
on a wider scope that covers a greater geographical area.
Equally, due to the fact the world, Africa and even Cameroon is becoming a global
village and IT is taking over paper work and analogue systems; it is therefore
recommended that further research should be carried out on automating IC which
42
will aid management, internal as well as external auditors to be more efficient in

carrying out their activities.
Finally, the study recommends that there should be a deliberate attempt by the
management to forge a cordial working relationship with other employees in order
to ensure any information gathered by the employees can be passed effortlessly to
the management for action to be taken. This relationship may help the employees to
appreciate their jobs, thus improving their input, reduce cases of errors and curb
fraud to the latter.
43
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fromhttp://www.eisneramper.com
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46
APPENDICES
APPENDIX 1: QUESTIONNAIRE
Dear sir/madam
A REQUEST FOR THE COMPLETION OF QUESTIONAIRE
I am KALINGO FELICIA EMAGHEN a final year student in the department of

Management and Entrepreneurship in Higher Institute of Commerce and
Management (HICM) University of Bamenda conducting a research on the topic:
“The effects of internal control on organizational performance”. I will be very
grateful if you would assist complete the attached questionnaires to the best of your
knowledge to enable me complete a successful research on the topic. Be assured that
the information received will be used solely for academic purpose and will be treated
confidentially.
Yours faithfully,
Kalingo Felicia
SECTION A: Demographic Information
1. Age: 25-30 31-40 42-50 51 and above
2. Sex: Male or Female
3. Marital status: Single Married
4. Level of education: Undergraduate Graduate Post Graduate
47
SECTION B: QUESTIONS RELATED TO INTERNAL CONTROL AND

ITS EFFECT ON ORGANIZATIONAL PERFORMANCE
S/N QUESTIONS YES NO

5 Do you recognize the importance of the internal controller’s function?
6 Is the organizational chart up to date?
7 Are Board of Directors and its committees independent of management?
8 Are the activities of one staff checked by other staff members?
9 Do the control measures introduced have an effect on fraud?
10 Is there adequate physical security where cash handling occurs?
11 Are cash controls done on regular basis?
12 Does your organization’s software have appropriate control measures?
13 Are they regular updates of the software?
14 Is there appropriate segregation of staff duties?
15 Is there a standard procedure for the authorization and approval of
transactions
16 Does internal control help improve this organization’s systems and
procedures?
17 Is physical control of assets carried out on regular basis?
18 Are corrective measures taken in the event of fraud?
19 Do you think internal control has an effect on organizational
performance?
48
APPENDIX 2: CHI SQUARE DISTRIBUTION TABLE
Source: www.google.com
49
APPENDIX 3
ORGANIZATIONAL CHART OF AZICCUL
GENERAL ASSEMBLY
WOMEN COMMITTEE BOARD OF DIRECTORS SUPERVISORY COMMITTEE
SECRETARY GM
INTERNAL CONTROL
DRIVER
AGM
ADMINISTRATIVE
STAFF
DATA ACCOUNTING ADM/PERSONNEL

DEPARTMENT DEPARTMENT
BASE
INTERNAL
BRANCH MANAGER
CONTROL
ADMINISTRATION
STAFF COSTUMER
SERVICE
ACCOUNTING OFFICER LOAN OFFICER
CASHIER LOAN CLEAR
ACCOUNTING CLERK
DAILY COLLECTORS
SOURCE: AZICCUL
50

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RÉPUBLIQUE DU CAMEROUN

REPUBLIC OF CAMEROON Paix-Travail-Patrie

DEPARTMENT: MANAGEMENT AND ENTREPRENEURSHIP

The Effects of Internal Control on Organizational Performance

Case Study Azire Coopertative Credit Union Limited

A Project Submitted in Partial Fulfillment of the Requirements for the Award

KALINGO FELICIA EMAGHEN

Mr. LIASON INNOCENT

Signed ………………………………… Date ………………......

Signed ………………………………… Date ………………….

I, KALINGO FELICIA EMAGHEN with registration No. 15C0215 of the

I am forever grateful to the internal auditors, accountants, internal controllers and

LITERATURE REVIEW ..........................................................................................7

4.1.1 Response Rate ...........................................................................................31

Table 1: Gender and Marital Status of Respondents ...............................................32

Figure 1:Age Structure of Respondents ...................................................................32

AZICCUL: Azire Cooperative Credit Union Limited

BOD: Board of Directors

CamCCUL: Cameroon Cooperative Credit Union League

COBAC: Banking Commission for Central African States

COSO: Committee of Sponsoring Organizations of the Treadway Commission

G.A: General Assembly

IC: Internal Control

IIA: Institute of Internal Auditors

RECCU-CAM: Renaissance Cooperative Credit Unions in Cameroon Ltd

ROI: Return on Investment

SAS: Statement of Accounting Standards

UK: United Kingdom

1.1 Background of study

In managing a business, directors need to have strong risk management process in

Internal control system is a topical issue following global fraudulent financial

 UK approach to internal control systems: Turnbull report 1999: This approach

recommendations advice, and guidance on what a good internal control

1.2 Problem statement

On account of the aforementioned setbacks of internal control, this piece of work

1.3 Research questions

1.3.1 Main research questions

What is the effect of Internal control on organizational performance?

1.3.2 Specific research questions

1) In what ways does internal control contribute to the financial success of

2) How does internal control improve organizational systems and procedures?

1.4 Research objectives

1.4.1 Main research objective

1.4.2 Specific research objectives

The specific objectives are:

1) To examine the effect of internal control on the financial performance of an

2) To investigate the innovative role of internal control in organizations.

1.5 Research Hypothesis

H0: Internal Control has no effect on organizational Performance

H2: Internal Control has a significant effect on organizational Performance

1.6 Significance of the Study

This study is significant to the researcher, the management and shareholders of

Furthermore, this piece of work will be a source of enlightenment and knowledge to

1.7 Scope of the study

1.8 Definition of Terms

Internal control as defined by COSO is a process affected by an entity’s board of

1. Effectiveness and efficiency of operations: that is base business objectives

2. Reliability of financial reporting: including the preparation of any published

Also, Internal control as defined by the Institute of Chartered Accountants of

 Organizational performance: Organizational performance is the level of

 Internal audit: According to the Institute of Internal Auditors (IIA) “internal

2.1 Conceptual Review

2.1.1 Internal Control and related Literature