CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Internal control systems are amongst the trending topics often talked about in the audit world. It is mentioned that internal control belongs to risk management, particularly in aiding the business escape from bankruptcy. Additionally, the internal control system is likewise essential for the enterprises to continuously increase their revenue and to help in reducing the negative occasions (Kurniadi & Zio, 2011). In this regard, internal control describes controls and balances used to avoid losses of a firm and provide precise financial reporting (Biegelman & Bartow, 2006). The well-designed and efficient internal control helps to avoid and deter errors and abnormalities (Davis et al., 2017). Furthermore, the internal control system in enterprises makes up a basis for an efficient accounting system. Thus, there is an increased interest in the internal control technique (Ademola et al., 2015).
The hospitality sector anywhere in the world is targeted at creating a conducive environmental capital of providing leisure services, which are fascinating and rewarding at a price. It was found recently that to create such an environment, a great deal of professionalism and control needs to come into focus and obviously guarantee continuity with generations of good returns on investment. Prominent amongst such professionalism control activities of the internal control system which have to be dealt with all its antecedence.
The place or position of internal control in any type of hotel or leisure services cannot be over stressed. This is due to the fact that internal control for hotel sectors or services and any other business issue is really essential. A weak internal control system of any hotel can hinder general acceptability, profitability or continuity just as an excellent internal control system of any hotel can guarantee its wide acceptability, productivity that it can continuously exist and to remain in the industry or business and make profit, the internal control system has been to be set in consonance with perceived value of the offer for the system.
Businesses are dealing with some issues that occur when they try to determine their strengths and evaluate their risks (Politis et al., 2009). It is plainly understood that hotel enterprises primarily have a labor-intensive framework. It is likewise suggested that a specific amount of capital invested in this sector provides more jobs than the very same amount of investment in other industries (Kusluvan, 2003). Since hotel business are classified under the services sector, the products offered in this sector are more specific compared to in other sectors. For that reason, the management ought to be more mindful regarding the implementation of internal control procedures in daily operations. Any inaccurate procedure in the hotel business can directly impact the quality of the service provided to guests (Kurniadi & Zio, 2011). Consequently, it is an essential task for hotel business to provide an excellent service to their guests and to ensure its continuity.
Furthermore, high turnover rates and a lot of employees working very closely to the inventory items can trigger the increased possibility of errors and cheating, since the operations in such business are carried out by small units independent of each other. In this regard, hotel managers have to be aware of the nature of internal control problems and the kinds of procedures that can be applied to manage these problems (Guilding, 2014), since they are typically in charge of the establishment of an internal control system in enterprises. It can be suggested that developing an efficient internal control is crucial in hotel business. Thus, the primary goal of this study is to determine the understandings of hotel managers to the internal control system.
1.2 Statement of the Problem
Lots of company failures all over the world, in the recent past, have been partially credited to lack of no or proper internal control. It is common understanding that the collapse of some companies throughout the world, notable amongst which are Enron Energy Corporation, WorldCom, Tyco (in the US); Maxwell Communications Corporation, the Mirror Group Newspaper (in the UK); in addition to NITEL and NAFCON (in Nigeria) resulted from internal control failure and by extension lack of corporate governance. Couple of years back, a number of hospitality firms in Nigeria which were understood to be performing wonderfully in financial terms collapsed regardless of the existence of internal controls. Lots of hotels in Nigeria are no more out there because of absence of internal control system. Internal controls are anticipated to help organisations, whether profit making or otherwise, attain their goals. Additionally, several empirical studies like those conducted by Kinyua (2016), Kiabel (2007), Nyakundi, Nyamita & Tinega (2014), Njeri (2014), Ejoh & Ejom (2014), Etengu & Amony (2016), simply to state a few, focus on industrial sectors such as manufacturing, banking, tertiary education, agriculture along with oil and gas. There seems to be no empirical study, particularly in the nation Nigeria, on the role of internal control in the hospitality industry. Thus, there is a need to examine the impact, if any, of internal control on the financial performance of hospitality industry in Nigeria.
1.3 Objectives of the Study
The primary purpose of this study is to investigate the role of internal control in the hospitality industry of Nigeria. However, the specific objectives are:
i) To establish the roles of internal audit in the management of hotels in Nigeria
ii) To investigate level of relevance of internal audit in Nigeria
iii) To find out the significance of internal control system in the hospitality industry
1.4 Research Questions
The following statements were considered as the research questions for this study:
i) What are the roles of internal audit in the management of hotels in Nigeria?
ii) What is the level of relevance of internal audit in Nigeria?
iii) What is the significance of internal control system in the hospitality industry?
1.5 Research Hypotheses
The following statements were considered as the research hypotheses for this study:
i) There is a significant relationship between internal audit and the management of hotels in Nigeria
ii) There is a significant influence of internal control system in the hospitality industry
1.6 Significance of the Study
The results of this study will allow the management of the hotels to point out loopholes in the control processes in their companies. It is will also help the administration as well as the ones responsible for the financial management of the company resources since they will appreciate the control processes and come up with ways on the manner to restructure the internal control systems thus safeguarding greater performance and attainment of the company anticipated aims. It will similarly help policy makers in setting policies that are relevant to the enterprise’s performance and make the necessary adjustments to the already existing ones to ensure better enforcement of standards.
Researchers and scholars will get to know the extent at which internal controls affect financial performance of Hotels in Nigeria since the investigation will augment the present body of knowledge pertaining to internal controls and will therefore use the findings herein as reference to other studies and further investigation.
1.7 Scope of the Study
The scope of the study covers the role of internal control in the hospitality industry of Nigeria
1.8 Limitations of the Study
The researcher met several drawbacks associated with the investigation and mainly in data collection process. Owing to insufficient resources, the researcher undertook this investigation under financial limitations hence amassed data from a single urban center. Some respondents could be uncooperative and some of them could provide irrelevant information and even opt to leave some of the research questions unanswered thinking that the study will be of no help to them. To overcome this challenge, the researcher will engage the respondents and explain to them the importance of the research, hence creating a good rapport with which the respondents could give the required information.
The hotel administration ought to recognize mechanisms of instituting suitable internal control measures so as to enhance the system as the findings here reveal that most of the respondents rated the overall processes of internal control of the organization as weak.
1.8 Definition of Terms
For an effective apprehension of the objective and direction of this study, the following operational definition of terms is attached:
Audit: An independent examination of a set of financial statements of an organization and the expression of opinion on the financial statements by an appoint auditor in compliance with statutory provisions and his terms of appointment.
Auditor: A competent and impartial critic appointed to verify financial or other accounting statements and to satisfy that the statement exhibits a true and fair view of the state of affairs of the business or organization concerned.
Audit Report: This is the statutory final product of the audit process and it contains the auditor’s opinions as to whether the accounts show a true and fair view and comply with CAMA, 1990
Internal Control: It is not only defined as internal check or internal audit, but the whole system of control both financial and otherwise established by the management to safeguard its assets and secure as far as possible the accuracy and reliability of its records.
Internal Audit: It has been defined as an independent appraisal of activities within an organization for the review of operations as a service to management. It is a management control that functions by measuring and evaluating the effectiveness of other controls.
Fraud: It is an intentional act by way of cheating with the aim of gaining undue advantage.
Error: A thing done wrongly. A mistake which is unintentional
System: An assembly of components or parts that work together as whole to achieve a given aim.
