AN EVALUATION OF THE INTERNAL CONTROL SYSTEM IN HOTEL INDUSTRY

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ABSTRACT

A sound internal control process is critical to an entity’s to reduce problems associated with lowering revenues and to enable the entity to meet its established objective. The study designed to investigate the effect of internal control systems on revenue of hotels. To do so, the study comprised 30 hotels from the two city to investigate the relationship and effect of control environment, risk assessment, controlling activity, information and communication systems, and monitoring activity on revenue of hotels via logistic model. The study found that not all internal control components have a positive significant effect for increasing of hotels revenue. However, the study found that control activity, information and communication and monitoring of internal control were predictors of hotels revenue.

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The Canadian institute of chartered accountants (Exposure draft of proposal auditing recommendation) describes internal control as comprising of the plan of an organization by the management of the emprise to achieve management objective of ensuring as far as is practical the orderly and efficient conduct of its business including the safe guarding of assets the reliability of accounting records and the timely preparation of reliable financial information.

The chartered institute of public and finance accountant (CIPFA) state that the internal control system comprise the whole system of controls financial and otherwise, established by management in order to carry on the business of the organization in an orderly and efficient manner, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the record individual component of internal control system are known as controls or internal control.

Internal control system therefore could be view as a firms organizational plan including all method and measure the firm takes to; Safeguard its assets; Ensure the accuracy and reliability of its accounting data; Promote operational efficiency and To encourage compliance with company policy Internal control can be divided into two main categories: Financial control which are primarily concerned with legitimacy of expenditure Security of assets and income and other control mainly administrative which are created and maintained by management to ensure that an activity is relevant to the needs of an organization and is carried out in the most effective and efficient manner. These categories are independent out should not be regarded in isolation as both have an impact on the performance of activities and their consequent cost and value to the organization.

The hospitality industry has a long colorful history beginning with inns, and lodges, and growing into the hospitality industry as stated by Michael & Richard. An incredible change in the industry of tourism in the world brought many changes in the field of hotel business. This means, the expansion and development of travel has contributed a lot for the development of hotel industry. On the contrary, businesses couldn’t achieve their objective due to the fact their internal control systems are weak. These internal control problem are more obvious in particular business sectors, such as the hotels business from the hospitality industry, which is one of the most growing sectors worldwide as mentioned by politics etal.

Further, globalization of economy, technological advancements, complexity of business, businesses failures and allegations of fraudulent financial reporting have recently sharpened the ever-increasing attention to internal controls karagiorgos etal. Because of, business without internal control is just a business not craft fashion shortly to achieve objectives, under no circumstances have a prospect to detect fraudulent activities, and demonstrate poor revenue as confirmed by kumar & sharma, Adeyemi etal, Edogbany etal