THE ROLE OF FINANCIAL ACCOUNTABILITY IN A PUBLIC LIMITED COMPANY
The website 3rd international dictionary defines financial as relating to finance and financers or in good standing as to payment of dues. This same dictionary defines accountability as the quality or state of being accountable, liable or responsible, when these two words are put together as financial accountability, its meaning can therefore easily discerned to, according to Rosenberg, (1988) as the process of making top corporate leaders responsible for their actions, goals and so on, utilizing available objective measures.
According to Ugwuoke, (1999). “Accountability can also be said to mean rendering the account of stewardship on performance”. Accountability in the corporate setting (private or public) originates primarily in the procedures and guideline which the individual firm devices as a means of ensuring the control of cost.
Financial accountability is geared towards ensuring that there is control over fraudulent practices as defalcation, embezzlement or inflation of contact prices. A regards to accountability in the public sector, there is not much to be said here except that the enterprises are obligated to produce not to publish annual report and accounts which are being subject to financial audit by the auditor general.
Khder (1975), defines accountability as the obligation of an employees, agents or other persons to supply satisfactory report, often periodic of an action or failure to act following delegated authority, this means that for there to be proper accountability in the organization, someone must be responsible for even the most minute aspect of the operation of the firm. This could be brought under scruting by instituting a periodic review body. It further denotes a situation of feedback on worth carried out, on how efficiency the assigned task was executes.
Accountability also connotes an exercise questioning how the individual in an organization has utilized the financial, human and other resources put his disposal for the other resources put his disposal for the achievement of the firms desired objectives. The questioning is done after carrying out some necessary audit work, tries to form an opinion about the truthfulness and fairness of the accounts of the reporting entity.
The roadblocks to accountability could be dismantled with the mere presence of audits, which acts as a moral check upon the client’s staff and on the procedure of operation. The knowledge that the records are subsequently to be subjected to an independent check, the timing and event remaining largely unknown to the staff and other officers acts as a far more powerful spur to honesty and accurate performance of managerial and clerical tasks than some people realize.
It is fashionable to be cynical these days and point out innumerable insurance where incompetent behaviour of officers has through unhampered audit report and other measure provided by law and custom. This suggests their ineffectiveness to signal their own demise, one thing certain is there will be more pronounced lack of accountability without the presence of audit, which will result to a one way ride to financial losses.
Pratt (1989), relates that unless duties are clearly defined and allocated to specific persons, unauthorized action will become difficult to defeat. Financial accountability suffers in a good number of firms partly due to:
- Inadequate working capital,
- Indefinite wait on government or board’s decisions regarding price fixing on the companies product.
- Lack of over hauling or modernizing obsolete accounting system.
- Lack of feasibility studies before commencing a new project and disregard for audit observation. Where such lapses have been sensed in the organization, a way of resorting to accountability should be sought. This may include:
- Provision of a sound management information system (MIS).
- The appointment of a management audit committee for periodic review, analysis of account and developing information reports.
- Development of performance review committees and cost efficiency or cost effective groups.
2.1 THE NETWORK OF THE INTERNAL CONTROL SYSTEM
According to the researcher, internal control is the whole system of control, financial otherwise established by management, in order to secure as far as possible the reliability of the records, run the business in an orderly manner and safeguard the companies assets. Its objective being the prevention or early detection of fraud and errors.
A second definition of internal control comes from the guideline of auditing standard No1 which defines the internal control system quite explicitly as follows, “the whole system of controls, financial and otherwise, established by the management in order to carry out business of the enterprise in an orderly manner, ensure adherence to management policies, safeguard the assets and secure as far as “checks” and internal audit”.
The striking thing about the definition is its all embrace nature. It is clear that internal control is concerned with the control operative in every area of corporate activity, and also with the way in which individual control interrelate. It is the responsibility of the management to decide on the network or the extent of the internal control system which is appropriate to the enterprise.
The nature and the extent of controls with vary between enterprises and also from one part of an enterprises to another. The control used will depend on size and volume of the transactions. It will also depend on the geographical distribution of the enterprises and in the degree of the control, which the members of the management are able to exercise personally.
The operating procedure and method of recording and processing transactions used by small organization often differ significantly from those of large organization like the multi national corporations, say shall, Agip, are not practical appropriate or necessary to small or medium enterprises like the premier breweries plc. Management of small enterprise have less need to depend on formal internal control for the reliability of the records and other information since they involve themselves personally within the operations of the enterprise.
However, the following are description of control type to be found in enterprise, and on some degree of reliance may be placed.
- SEGREGATION OF DUTIES; One of the prime means of control is the separation of those responsibility or duties, which would if combined, enable one individual to record and process a complete of transaction. Segregation of duties reduces the risk of intentional manipulation of error and increases the element of checking. Such area to be segregated include those of authorization, execution, documentation, custody, computer system development and daily operation.
- AUTHORISATION AND APPROVAL;- All transaction should require authorization or approval by an appropriately responsible person. However, the limits of this act should be clearly specified.
- PHYSICAL CONTROL;- These are concerned mainly with the custody of assets and involve procedures and security measures designed to ensure that access to assets is limited to authorize personnel.
- PERSONNEL CAPABILITIES;- there should be procedure to ensure that personnel have capabilities commensurate to their responsibilities. Inevitably, the proper function of any function of any system depend on the competence and integrity of those operating it. The qualifications selection, training as well as the innate personal involved are important feature to be considered in setting up any control system.
- ARITHMETIC AND ACCOUNTING;- these are the control within the recording function, which check the transition to be recorded and processed have been authorized. It shows that all transactions ate include and that they are correctly recorded and processed accurately. These controls relate to checking the arithmetical accuracy of records, the maintenance and checking of totals, reconciliation, control accounts, trial balance and accounting for document.
- MANAGEMENT CONTROLS;- these are controls exercised by management outside the daily routine of the system. They include the overall supervisory control exercised by management, the review of management accounts and comparison thereof with budgets, the internal audit function and other special review procedure.
- SUPERVISION;- any system of internal control should include the supervision by responsible officials of daily transactions and its recordings thereof, presently, the aim of establishing internal control can be summarized as follows;-
I To increase the efficiency of the business by preventing fraud and safe guarding assets.
ii Securing the accuracy and reliability of the record by enhancing profitability which is the man objective of every profit oriented firm.
iii Reducing the necessity of detailed work of both the internal and the internal auditors.
iv To have stated the type of internal control available for use by the auditor, it is also pertinent to say that achievement of the aims stated above will, to a very large extent depend on the use to which the auditor puts internal controls.
The auditors objective in evaluating and testing internal control is to determine the degree of reliance which he may place on the information contained in the accounting records. If he obtains reasonable assurance by means of compliance tests that the internal control are effective in ensuring the completeness and accuracy of accounting recording and the validity of entries there in, he may limit the extent of his substantive testing.
For the inherent limitation in even the most effective internal control system, it will not be possible for the auditor to rely solely on its operation as a basis for his opinion on financial statement.
2.2 INTERNAL CHECKS AND AUDITING PRACTICES
Internal checks and internal auditing are very important aspect of internal control. The auditor uses these tools with an eye to satisfy the company or client and also to observe certain professional standards, which lend reliability to his work, “internal checks concerns those detailed administrative aspect of an organization which are designed purely for the purpose of prevention or early detection of errors and fraud.
As such, internal checks will include the allocation of book keeping and other clerical duties, according to Oyajide (1995). The purpose of allocating these functions are to ensure that:
No single task is carried out from its conclusion by only one person that the work of each clerk engaged person upon a task is subjected to independent check in the course of another’s duties. Internal audit can be conveniently classified into four interlocking capacities via:-
The advisory role of internal audit will include the recommendations of improvements in current system of operation where necessary. The executive role of internal audit is the part it plays the implementation of its iwn proposals e.g. a new computer application.
The reporting role will embrace reporting a routine matters as well as reports on special matters under investigation.
Finally, the routine testing role is the system which the internal audit uses in testing role clearly laid down procedures in the marvels of flow chart series.
Question bothering on the aforementioned matter should be more appropriately directed to a member of the board, which the internal auditor reports to. The answers to such questions will guide the statutory auditor to conclude whether the firm’s internal audit is operating in name only.
Furthermore, it aids the auditor in concluding whether the work of this internal exercise makes a useful and an independent contribution to effective management control.
Certain facts must be put clear perspective, here, “the internal audit is not a unit of its own rather an element of the internal control system set up by the management of the organization to examine, evaluate and report on accounting and other controls on operations. It exists either voluntarily or in certain circumstances because of statutory requirement. The scope and objectives of internal audit vary widely. They depend on the responsibility assigned to it by management, size of the firm, the skill and experience of the internal auditor(s).
Normally, the sphere of internal audit will include:
- Review of accounting systems and related internal controls.
- Examination of financial and operating information for management.
- Review of the economy, efficiency, effectiveness of operations and the functioning of non – financial controls.
- Review of the implementation of corporate policies, plans and procedures, and special investigation.
It is necessary for the external investigator to make a good general assessment of the effectiveness and relevance of the internal audit before any decision to place reliance on it is made. The criteria for this assessment includes:
- The degree of independence
- The scope and objective of internal audit
- Due professional care and
- Technical competence.
After being satisfied about the areas covered and the general assessment, the auditor may decide to place reliance on the internal audit. It then considers the following;
- The materiality of the areas or items tested
- The level of risk inherent in such items.
- The sufficiency of complementary audit evidence.
Therefore, it will be correct to related that internal checks and internal audit should retain basic auditing principles before the internal control system can be relied upon.
- RESPONSIBILITY SHARING AS A CONTROL MEASURE
An accounting system, which measures the performance of the manager in his segment of the business is termed responsibility accounting.
Responsibility accounting attempts to fit the functions of information gathering and internal reporting to the organization structure of business. In this way the effectiveness of individual maneuvers can be judged on the basis of the cost and revenue directly under their control. When a responsibility accounting system is used, the amount of expenses that a segment or department incurs in generating review of improving service to the other department will be clearly reported. In this manner, the departmental manager is held accountable for a specific area of responsibility without being able to pass the blame of poor overall company performance to other people.
Departmental information may be developed by using two basic approaches:-
- Maintaining only one general ledger account for each type of revenue and expenses.
- Maintaining separate departmental account for various types of revenue and expenses.
In the second method, the total amount is allocated among the various departments at end of the accounting period. Many organization use a combination of the two.
An organization plan should indicate clearly the department or persons responsible for such functions as purchases receipt of goods, maintaining accounting records, credit approval, and payroll preparation.
2.4 ACCOUNTABILITY AND GENERAL ECONOMIC GROWTH
In government operation, internal auditing warrants special consideration as a result of their size and complexity. Suggestions have been made for the audit of government activities to involve maximum independence.
This should cover the three elements of fiscal, managerial and programme accountability. The practice of government internal auditing has evolved to a supernatural independence of all aspects of the operation of the government.
The internal audit helps in fostering adequate operational controls within the department and agencies of the government. It encourages these units to develop its own accounting systems. The researcher wishes to limit herself to discussing the development of accountability in the central and state government.
However, the central government have and are acting as the motor which pulls forward developments through out the public forward developments through out the public sector.
This the present discussion on financial accountability and related system provide. Some insights into the pressures for change in the public sector as a whole.
Comparing the private sector with the public, the latter employs fewer accountants. Improving this trend will assist in oiling the wheels of better financial management.
There are real difficulties in assiting performance in the public sector. There is also the question of responsibility. What actually is it that civil servants are responsible for in terms of value for money? They can hardly beheld liable for the success of failure of a particular programmer, since many factors are outside their control, the researcher suggests they should be held responsible for not devised and introducing their boss on the extent to which policy sector can acquire some useful techniques from the private sector in such area as policy management.
The main goal of the firm is either profit maximization for shareholders or cost maximization for providing the higher level of social welfare. It justifies, since it meets the purpose which it was set up to serve. The firm is set up to achieve a set of objectives subject to a number of constraints. Management of the firm with a sense of accountability can make any sector the corner piece of the strategy. In a centrally planned economy, the public services is the key. In a mixed economy like ours, the private sector together with the financial sector is the key. The growth in the economic activities of the country is therefore dependent on the management of the key sector. Though, a particular sector cannot be the key factor at all times, it is on the manager of an economy at any particular period to know which is the key. For instance, Japan Lacking in raw materials has been able to transform its economy into a vast machinery, producing for exports with large imported raw materials.
It is correct therefore to submit that accountability in individual firms in the country can influence the state of growth in the general economic sphere.
2.5 ENHANCING FINANCIAL ACCOUNTABILITY BY HUMAN RESOURCE PLANNING.
An organization would not build a new plan, conduct the ribbon cutting ceremony, and then begin to worry about how to staff the facility. An organization cannot hire several hundred engineers and get there on board overnight, not if develop management talent in just a few weeks. Foresight is necessary to assure that appropriate staffing will be available for an organization’s future plans. Likewise, in a declining economy, planning ahead is critical to prevent overstaffing and the subsequent need for layoffs.
In its broadest form, human resource planning is concerned with the follow of people into, through and out of an organization. This necessarily involves a focus on employee’s changing skill levels and the way in which these skills match organization needs.
Human resource planning, then can be defined as follows, the process through which organization goals, as put forth in mission statement and business plans, are translated into human resource objectives concerning staffing levels and flow rates and form these into an integrated set of personnel policies and programs. Human resource planning help to assure that organization are neither over nor understaffed, that jobs are done at the right time, that organizational and environmental change is anticipated and adjusted to with a minimum of cost, and that there is direction and coherence to personnel activities.
The first step in human resource planning is to collect information. A forecast or plan cannot be any better than the data on which it is needed for human resource planning, data from the external environment and data from the inside organization. Data from the external environment include information on current condition and predicated in changers in the general economy of the specific industry, relevance technology and the competition.
Below is the typical human resource planning model.
Human resource planning model
- Collect Information
- From the External environment.
- Economy general and specific industry
- Labour market
- Government Regulations
- From inside the organization
- Long Range Plans
- Business plans
- Current Human Resources
- Rates of turnover and mobility
- Forecast demand for Human Resources.
- Short and long – term
- Aggregate or individual positions.
III. Forecast supply of Human Resource
- Internal supply
- External supply
- Plan and conduct Needed programs
- Increase or Reduce Work – force size
- Change skill mix
- Develop managerial successors
- Feedback on the planning process
- Were the forecasts Accurate?
- Did the programmer meet the Needs?
Any of these may affect the organization’s business plan and thus the need for human resources. Furthermore, planners must be aware of labour market condition such as unemployment rates, and sex distribution of the labour force.
Financial planners need to be aware of deferral and state regulations, those that directly affect personnel and practices, such as affirmative action or retirement age legislation and those that indirectly affect requisite staffing levels.
An example of the latter might be environmental protection rules that increase the need for in – house environmental specialists to monitor compliance with the rules. Consider the cases of Midwestern University, a state supported four year educational institution. What kind of information about the external environment will the university need for human resource forecasting?
Clearly, the need for faculty, and support staff depends heavily an enrollment, so university human resources planners must learn all they can about present enrollment trends, and the projected sizes of high school graduating classes in the state.
They will also want to know about environmental factors that may affect the number of graduates contributions in the state, and the availability of low cost student loans.
Furthermore, the planners will need information about their competitors. Will a new community college be opening? Will other four years institutions in the state be attracting a larger or smaller than usual share of college bound students?
Planners might also wish to look at the availability of university needs more staff members, will it be able to find qualified applicants for the openings?
The second major type of necessary information comes from inside the organization. Internal information includes short and long-term organizational plan. Obviously, plans to build, close or mechanize facilities will have human resources implications, as will plans to modify the organizations structure, buy or sell businesses, and enter or withdraw from markets.
Information is also need on the current state of human resources to assure that supply will match demand in the further. These programs often include recruiting plans and may also include development activities, incentives or disincentives to early retirement, modifications of carrier paths in the organization, or a variety of other human resource management programs.
Usually, a major planning effort is mounted once a year, but modifications can be made based on new information throughout the year. For instance, an unexpected recession certainly would indicate that near term recruiting plans should be reconsidered.
Furthermore, if experienced reveals that aspects of the planning and forecasting procedures are deficient, the feedback loop assures that the procedures can be changed next time around.
WHO, PLANS? FOR WHO?
Human resource planning is usually initiated and managed by the personnel/human resources department. However, the need for information from all parts of the organization requires that line managers have some involvements in the human resources planning process.
Some planning methods require more manager involvement than others. If strategic human resources planning are undertaken, high level of manager and the corporate planning process.
In designing a human resources planning system, there are several choices regarding who to plan for. One choice is to plan at the aggregate level, for jobs. This type of planning is typically used for jobs with multiple incumbents and for jobs at or below the middle management level.
An organization may forecast that 35 electrical engineers will be needed at the California development lab or that a total of 540 semi skilled assemblers will be needed in the whole organization. The focus is on the number of persons needed for a particular job not on he special individuals who will fill the positions.
Many large organization plan for each job, but this may not always be necessary. The alternative is to plan for only those jobs that logic of past experiences indicate are problematic. For instance, a large hospital may need to plan carefully for pharmacists and nurses because there is often a shortage of these professionals, but the hospital may not be engaged in long range planning for food services personnel, as they can hired and trained quickly if demand increases.
As top manager consider plans and new directions for ten and even twenty years into the future, human resource managers advise them on the staffing implication of various courses of action. Once strategic plans are determined, human planner go to work, considering in detail what integrated set of plans and programs will meet future human resource needs.
For example, historically, international business machines corporation (IBM) has been committed to full employment (no layoffs) so its human resource planners are especially sensitive to situation that could lead to a surplus of workers. In a recent planning cycle at IBM, issues, identified include a growth need for new skills, as computer aided design and robotics are used to a greater extent, and a possible in need for sales people, because of proposed changes in marketing strategy.
These are relatively long term concerns that surfaced during five years planning sessions. Two-year action plans outlined specific activities to monitor and prevent potential problem. When strategic human resource planning is properly implemented, it becomes as activity that is owned and valued by the whole organization. Line managers at many levels becomes as activity that is owned and valued by the whole organization. Line mangers at many levels become involved in human resource planning for their units. Their plans must be presented to and approved by the division and corporate executives. Top human resource planners hold high rank in the organization and may even be located in the planning group, rather than in the personnel function.
A thorough planning effort results not only in recruitment plan for the next year but also in a careful consideration of longer term issues and in the integration of divers human resource management programs so that all are contributing optimally to the final goals of the organization.
FORECASTING THE DEMAND FOR LABOUR
Forecasts are grounded information about the past present and in assumnption about the future. Different of human resource demand forecasting required differed assumption are that past trends and relationship among variables will hold up in the future, that the productivity ratio is constant, as the number of units produced increases, and that the business plans of the organization, sales forecasts and so on are reasonably descriptive of what will actually happen. It is always wise to list explicitly one’s assumptions on which base.
Demand forecasting methods can be divided into two categories, Judgmental and mathematical. In practice, most organization uses combination of the two methods. For example, expert judges might estimate the values in prediction equation experts might integrate the result of mathematical methods with less quantifiable information into a final forecast.
Judgmental methods make use of knowledgeable people to forecast the future. These methods may be used by small organization or by those new to human resource forecasting who do not yet have the database or expertise to use some of the more complex, mathematical models. Judgments methods may also be preferred when an organization or environment is in a state of transition or turmoil, at such times, past trends and correlations cannot be used to make accurate prediction.
Perhaps the simplest judgmental method is bottom up or unit forecasting. In this method, each unit branch, or department estimates its own future need for employees. Ideally, managers are provided with some information which they combine with their own perspectives to reach the estimates.
The sum of estimated unit needs is the demand forecast for whole organization. Human resource planners may wish to review the unit forecasts carefully before summing, in order to control managers natural tendencies to exaggerate the needed size and importance of their units.