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THE ROLE OF INFORMATION TECHNOLOGY IN THE DEVELOPMENT OF EFFECTIVE INTERNAL CONTROL SYSTEM

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND TO THE STUDY

Internal control system is a framework used by organizations for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies (Chenhall, 2003). A broad concept, internal control system involves everything that controls risks to an organization. Hence, before there can be high performance and productivity in an organization, there have to be an effective internal control system in place.

An effective internal control system also incorporate means by which an organization’s resources are directed, monitored, and measured. It plays an important role in detecting and preventing fraud and protecting the organization’s resources, both physical (e.g., machinery and property) and intangible (e.g., reputation or intellectual property such as trademarks). At the organizational level, internal control system objectives relate to the reliability of financial information, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations. At the specific transaction level, internal control system refers to the actions taken to achieve a specific objective (e.g., how to ensure the organization’s operational information is intact and valid).

According to Amudo & Inanga (2009), everyone in an organization has responsibility for internal control system to some extent. Virtually all employees produce information used in the internal control system or take other actions needed to affect control system. Also, all personnel are responsible for communicating upward problems in operations, noncompliance with the code of conduct, or other policy violations or illegal actions. However, application of technology is needed to ensure that each personnel play its own role in developing and maintaining an effective internal control system. At this point, information technology should be considered as a tool for developing an effective internal control system considering the level of advancement in technology and globalization. the researcher is of the opinion that information technology will have a way of influencing effective internal control system in an organization.