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THE EFFECT OF INTERNAL CONTROL ON ORGANIZATION PERFORMANCE IN REFERENCE TO MOHA SOFT DRINKS COMPANY, ETHIOPIA: A CASE STUDY IN HWASSA PEPSI COLA FACTORY
ABSTRACT
Internal controls promote efficiency, reduce risks of assets loss and help to ensure the reliability of financial statements and compliance with laws and regulations (Coco, 2005). Thus successful organizations set performance measures that focus attention that identifies and communicates the success, support organization learning and provide a basis for assessment and reward (Brown, 2001). In order to be able to perform, organizations should critically look at customers and all stakeholders in business and know how best they are satisfying their needs. Kloot (1999), adds that organizations should continuously improve their services through assets accumulation, create value, improve quality services and flexibility, internal control system is intervened with organizations operating activities and it is most effective when controls are built into the organizations infrastructure becoming part of the very essence the organizations success in terms of continued improvement on performance standards as part of the competitive advantage of the organization. However according to how work is carried out some companies, there have poor documentations, no segregation of duties which affect organizational performance. This study will investigate the purpose of ascertaining the effect of internal control system on organizational performance. This study used descriptive design in soliciting information on the effect of internal control system on organizational performance. Data was collected from the respondents using questionnaires, and analyzed using descriptive statistics. The study findings indicated that the organization carried out proper authorization and approval of transactions. Sometimes transactions were carried out without proper authorization and sometimes there were no approval, this created room for conducting fraudulent activities like misappropriations. The result of the study also shows that that almost 2/3 of the respondents did agree with the fact that the organization reconciled physical cash with cash book balances, while 21% disagreed on the facts. This was because most business purchases (receipts) were not recorded so identifying the actual value of the assets was difficult leaving accountants with no knowledge on the assets. Based on this results, the study recommends that management should develop more effective strategies that will ensure that internal control is effective and efficient, so that fraud perpetration in the organization will be significantly reduced. The study also recommends that the company should work to correct its internal control system by periodic reconciliation of accounts.
Key words: Internal Control, Organizational Performance, effective Control, Fraud