THE EFFECT OF INTERNAL CONTROL SYSTEM ON REVENUE GENERATION ( A STUDY OF JOS ELECTRICITY DISTRIBUTION PLC (JED) MAKURDI BENUE STATE.

CHAPTER ONE INTRODUCTION 1.1 BACKGROUND TO THE STUDY Every organization has a purpose, which includes making some product and rendering some services at a price. For normal operations of the business organization, it is the product or services of the firm that cause cash receipts (revenue) to flow into the firm Revenue is associated with products or service of a firm as source of expected cash receipts. Revenue is an event; an increase that applies definitely to value that is monetary. This increase occurs because the firm undertakes certain activities or there is any performance by the firm. Revenue therefore means to the monetary event of asset valves increasing in the firm due to the physical event of production or sales of the firms' products or services. In Kam (1987:237), Financial Accounting Standard Board (FASB) defines revenue as inflows or other enhancements of assets of an entity or settlements of its liabilities (or combination of both) during a period from delivery or producing goods, rendering service or other activities that constitutes the entity's ongoing major or central operations. In addition, Hongreen et al (2002:568) described revenue as inflows of asset (almost always cash or accounts receivables) received for products or services provided to customers. On the basis of the above, Power Holding Company now Jos Electricity Distribution of Nigeria is a government owned public utility establishment enjoying almost total monopoly in generating, transmitting and delivering electricity to all homes and businesses in Nigeria. According to the establishments customer service chartered (2004), her mission as a service industry is to satisfactorily meet customers electricity demand in the most cost-effective manner using proven technology and well-motivated customer friendly work force with adequate consideration for the environment. Her goals include: i. To continuously improve her service to her customer. ii. To realize full payment for timely accurate and complete billing of electricity delivered. iii. Institutionalize business and commercial orientation among the work force. iv. Gradually aiming at closing the gap between demand and supply by upgrading and expanding, generating, transmission and distribution of infrastructure. V. To improve skills and motivation of staff. To achieve the above mission and goals, the management of the establishment must adopt measures to ensure that available resources are prudently used to obtain valve for money from resources allocated to them. Management in turn should generate operational data with which they evaluate the efficiency and effectiveness of their operation. It is fundament aspect of management stewardship responsibility to provide interested parties with reasonable assurance that their organisation is effectively controlled and that the accounting data it receives on a timely basis are accurate and dependable. Developing a strong system of internal control provides this assurance. Thus internal control is defined as the whole system of control, financial and otherwise established by the management in order to carry on the business of the enterprise in an orderly and efficient manner to ensure adherence to management policies safeguard the assets and secure as far as possible the completeness and accuracy of their cords. In addition, the American institute of Certified Public Accountants in 1949 defined internal control as comprising the plan of organization and all the coordinate methods and measures adopted within a business (or non-profit making body) to safeguard its assets, check the accuracy and reliability of its accounting data promote operational efficiency and encourage adherence to prescribed managerial policies. A 'system' of internal control extends beyond those matters which relate directly to the functions of the accounting and financial department. However, it is an established fact that all the business units and service centre of Jos Electricity Distribution of Nigerian Plc in Benue state are often plagued by accounting and administrative control problems as it affect revenue generation and other assets. As a result the establishment revenue base has assumed a downward trend. It has also been shown that despite considerable investment, public service delivery by the establishment is widely perceived to be unsatisfactory and deteriorating from bad to worse. The complete dependence on capital grants allocation from government is also known. What is not known is the degree to which internal control weaknesses and reduced allocation from government contribute to the problem. 1.2 STATEMENT OF PROBLEM The incidence of internal control weaknesses, unsatisfactory and deteriorating service delivery have the undesired effect of not only weakening the company's ability to effectively provide electricity supply but also encourages collusion, fraud, embezzlements, loss of cash (revenue), assets conversion genuine and deliberate mistakes, corruption, lack of transparency and accountability for revenue collection and other assets. Despite considerable investment, public service delivery is unsatisfactory and degenerating. The company is not able to break even and sustain itself from the revenue obtained there from. This impact so negatively on the company's existence. For the enhancement of the attainment of the mission and goals of the company, it is therefore necessary that these hindrances be removed. The management of the company should familiarize themselves with internal control procedures that will ensure effective service delivery and the desired revenue generation. Unfortunately, there has a dearth of adequate information in this regard. No determined effort has been made to investigate the problem of weak internal control over service delivery and revenue generation. Therefore, the main motivating factor underlying this study is the desire to break new grounds with the intent of shedding more light on this problem and seeking avenues for solving it. Thus, the purpose of this study is to examine and evaluate the effect of internal control system on revenue generation study of JED. 1.3 OBJECTIVES OF THE STUDY The main objective of this study is to evaluate, the effect of internal control system on revenue generation of Jos Electricity Distribution Benue state Makurdi. Other objectives of the study include: i.To determine whether the internal audit system, ensure that the operations with set policy and promote accuracy and reliability of transaction. ii. To determine whether the internal or external auditors they are independent in discharging their duties. iii. To examine whether internal control system is effective and efficient. 1.4 RESEARCH QUESTIONS The researcher formulated the following research questions for this study. 1.Does the internal audit system ensure that operations comply with the policies and promote accuracy and reliability of transactions? 2. Are the internal /external auditors are independent in discharge of their duties? 3. Is there any effective and efficient in the internal control system of the organization? 1.5 RESEARCH HYPOTHESIS The research formulated the hypothesis Hypothesis One Ho: Effective internal control does not ensure that the operations with set policy can promote accuracy and reliability of transaction. Ha. Effective internal control ensures that the operations with set policy can promote accuracy and reliability of transaction. Hypothesis Two Ho: Weak internal control system does not determine whether the internal or external auditors are independent to discharge their duties. Ha accuracy and reliability of transaction. Hypothesis Three Ho: Effective internal control system does not examine whether internal control system is effective and efficient. Ha: Effective internal control system examines whether internal control system is effective and efficient. 1.6 SIGNIFICANCE OF THE STUDY This study is significant for the following reasons: I. These studies will highlight the accounting and administrative control problems plaguing Jos Electricity Distribution of Nigeria in Benue state. ii. It will enable managers of services, organizations and government owned public utility establishments to bring the accounting and the internal control procedures inherent in them in conformity with internal accounting standards and practices. iii. It will help government owned establishments to assess then internal control measures and make amends where necessary. iv. The study could arouse further research into some other further research into some other functional areas in the company by students and accountants. It will also help to broaden (my) researchers' knowledge. 1.7 SCOPE OF THE STUDY Although the study was to evaluate the internal control system in operation at Jos Electricity Distribution Gboko Benue state, to ensure accurate and reliable data collection it was limited to the study of the internal control measures at the Benue district unit of Jos Electricity Distribution Plc. This covers internal control as it affects revenue generation (handling of cash) assets control administrative control and manpower control as well. 1.8 DEFINITION OF TERMS REVENUE: This describes the amount of money a company generates in a set period of time through the sale of products or services. INTERNAL CONTROL SYSTEM: This is the whole system of control, financial and otherwise established by the management in order to carry on the business of the enterprise in an order to carry on the business of the enterprise in an orderly and efficient manner. AUDITING: An activity earned on by the auditor when he verifies or examines accounting information determines the accuracy and reliability of the accounting statement and reports and then expresses his opinion. CONTROL ACTIVITIES: Policies and procedures that management has established AUDIT: An independent examination of and the subsequent expression of opinion upon the financial statements of an organization. INTERNAL CHECK: This is the allocation of authority and work in such a manner as to afford checks as the routine transactions of day-to-day work by means of the work of one person are being proved independently by another or the work of a person being complementary to that of another. COLLUSION: this is a secret or illegal cooperation or conspiracy in order to deceive others. SHEDDING: This is a small building, usually made of wood, used for storin