International Journal of Research in Business Studies and Management

Volume 7, Issue 3, 2020, PP 10-19

ISSN 2394-5931

The Effect of Internal Control on Organization Performance in

Reference to Moha Soft Drinks Company, Ethiopia: A Case Study
in Hwassa Pepsi Cola Factory
Ayneshet Agegnew Alemu
Department of Accounting and Finance, College of Business and Economics, Wolaita Sodo
University, Ethiopia
*Corresponding Author: Ayneshet Agegnew, Msc in Accounting and Finance, Lecturer in Wolaita
Sodo University

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

INTRODUCTION implemented to provide reasonable assurance

that an organization’s business objectives will be
The survival of any organization depends on the achieved and undesired risk events will be
effective and efficient utilization of resources prevented or detected and corrected based on
(financial and non-financial) at the disposal of either compliance or management initiated
the organization. Hence, to optimize the
concerns (Awe, 2005). Internal controls enable
utilization of resources entrusted to all management to deal with rapidly changing
employees in an organization, various form of economic and competitive environment, shifting
control are put in place by management of the customer demands and priorities and
organization, among these major controls are
restructuring for future growth. Internal controls
internal control and internal audit to mention a promote efficiency, reduce risks of assets loss
few. Internal controls are policies, procedures,
and help to ensure the reliability of financial
practices and organizational structures

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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

statements and compliance with laws and effective when controls are built into the
regulations (Coco, 2005). The Institute of organization’s infrastructure becoming part of
Chartered Accountants of England and Wales the very essence of the organization’s success in
(ICAEW), defined internal control as the whole terms of continued improvement on
system of controls, financial or otherwise, performance standards as part of the competitive
established by management in order to carry on advantage of the organization.
the business of an enterprise in an orderly and
Despite the fact that internal control system
efficient manner, to ensure adherence to
have been in existence for many years in most
management policies, safeguard the assets and
organization, the problem of financial crimes,
secure as far as possible, the completeness and
have continued to be on the increase. Examples
accuracy of the records. They are tools used by
of this financial crime include; financial
management every day for the smooth running
irregularities within the departments, collusion
of their organization or businesses. Internal
among senior or highly trusted employees,
controls also refer to the measures instituted by
breaches of control, to mention a few. Various
an organization so as to ensure attainment of the
researchers, have affirmed that internal control
entity’s objectives, goals and missions.
set by management in most organization has not
Because internal controls serve many been able to completely prevent these fraudulent
component purposes, there are increasing calls occurrences because these controls have not
for better internal control systems; internal significantly reduced the reoccurring fraud and
control is looked upon more and more as a corruption perpetuated by employees in most
solution to a variety of potential problems organizations. Therefore, the main objective of
(Coco, 2005). According to Chambers (2000), this study is to investigate the effect of internal
Cosserate (2009), Ridley and Chambers (2000), control system on organizational performance
internal controls are systems comprising of the with reference to MOHA Soft Drinks Company
control environment and control procedures. in the case of Hawassa Pepsi Cola Factory.
They further stated that internal control systems
include all the policies and procedures adopted REVIEW OF LITERATURE
by the management and directors of an entity to Definition Of Internal Controls
assist in achieving their objective of efficient
Martin (1994), describes the internal control as
conduct of its business, including their
including internal checks and internal auditing,
adherence to internal policies, the safeguarding
it projects the whole system of controls to be
of assets, the prevention and detection of fraud
applicable to sales, purchases, finance, cost,
and error, the accuracy and completion of the
production and others. These controls provide
accounting records and timely preparation of
safety and security to assets and continuous
reliable financial information. Successful
checks on the day-to-day transactions.
organizations ensure that they attain and
Ramaswamy M. S (1994) defines internal
consolidate continued survival in a competitive
control as the plan of the organization and all
environment, (Drucker, 2003). Thus successful
the methods and procedures adopted by the
organizations set performance measures that
management to achieve its organizational goals.
focus attention that identifies and communicates
Emiles Woolf (1992) defines internal control as
the success, support organization learning and
the system of control, financial or otherwise
provide a basis for assessment and reward
established by the management in order to carry
(Brown, 2001).
out business in an orderly and efficient manner,
Organizational performance is measured in safeguard his assets and secure accurate records.
terms of customer satisfaction, through reduced Rosenburg (1983) defines internal control as
customer complaints (Kloot, 1999). In order to those methods, procedures and measures
be able to perform, organizations should employed to promote efficiency, encourage
critically look at customers and all stake holders acceptance of managerial procedures and
in business and know how best they are policies to check the validity of management
satisfying their needs. Kloot (1999), adds that and to protect assets. According to Asuquo
organizations should continuously improve their (2005), internal control is made up of internal
services through assets accumulation, create checks, internal audit, accounting controls and
value, improve quality services and flexibility, other forms of control such as budgetary and
internal control system is intervened with physical control. According to Van Creveld
organization’s operating activities and it is most (2005), internal control has further been defined

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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

as a process affected by an organization’s investigates differences and takes corrective

structure, work and authority flows, people and action when necessary.
management information systems, designed to
Corrective controls
help the organization accomplish specific goals
and objectives. These controls help to minimize the impact of a
threat, identify the cause of a problem, correct
From these definitions, it can be deduced that
errors arising from the problem. They also
internal control comprises the plan of an
correct problems discovered by detective
organization and all of the coordinate methods
controls and modify the processing system(s) to
and measures adopted within it, to safeguard its
minimize future occurrence of the problem.
assets, check the accuracy and reliability of its
According to IS handbook, (2012), Corrective
accounting data, promote operational efficiency
controls restore the system or process back to
and encourage adherence to prescribed
the state prior to a harmful event. For example, a
managerial policies. Internal control objectives
business may implement a full restoration of a
are channeled towards ensuring adherence to
system from backup tapes after evidence is
managerial policies and achieving
found that someone has improperly altered the
organizational goals in general.
payment data.
Fraud as Related to Internal Control
The Major Elements of an Internal Control
Fraud is an intentional strategy to achieve a Process
personal or organizational goal or human needs
According to Jacksonville,2000, the internal
by deceit. A layman definition of fraud includes
control process, which historically has been a
dishonesty in the form of an intentional
mechanism for reducing instances of fraud,
deception or a willing full misrepresentation of a
misappropriation and errors has become more
material fact, lying, the willful telling of an
extensive, addressing all the various risks faced
untruth, and cheating, the gaining of an unfair or
by organizations. It is now recognized that a
unjust advantage over another. Fraud involves
sound internal control process is critical to the
coercing people to act against their own best
organization’s ability to meet its established
interest.
goals. Internal control consists of five
Types of Controls interrelated elements: and these elements are
explained with it and of suitable principle to be
Preventive Controls
followed by concerned people in an organization
These are controls that predict potential and these elements are; Management oversight
problems before they occur and make and the control culture, Risk recognition and
adjustments. They also prevent an error, assessment, Control activities and segregation of
omission or malicious act from occurring. duties, Information and communication; and
Examples of preventive controls includes: using Monitoring activities and correcting
well-designed documents to prevent errors, deficiencies.
establishing suitable procedures for
Various Internal Controls Employed in
authorization of transactions, employing only
Organizations
qualified personnel. e.g. segregation of duties.
Sawyers (2002) guide for internal Auditor
Detective Controls
pointed out the various internal controls and
According to the Office of Internal Audit and they are as follows.
Institutional Risk Management (2012), these are
Documentation
designed to find errors or irregularities after they
have occurred. Examples of detective controls The PCAOB release No. 2004-006 stated that
are: (1) Reviews of Performance: Management documentation involves preserving evidence to
compares information about current substantiate decision, event, transaction or
performance to budgets, forecasts, prior periods, system. Documentation should be complete and
or other benchmarks to measure the extent to accurate and recorded promptly; this is as it’s a
which goals and objectives are being achieved requirement by ISA 230. It should contribute to
and to identify unexpected results or unusual achieving organizations mission, help managers
conditions that require follow-up. (2) in controlling their operations and assist in an
Reconciliations: An employee relates different operation. Documentation without a clear
sets of data to one another, identifies and purpose will hinder the efficiency and

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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

effectiveness of the organization. such issues as time lines, achievement of goals,

budget status and end concerns (Business
Verification
Dictionary, 2002).
The Business dictionary, the academia stated
Limitations of Internal Controls in
that verification is the determination of the
Organizations
competences, accuracy, authenticity and validity
of transactions, events or information. It is a Internal controls can prove reasonable assurance
control activity that enables management to that the management objectives in establishing
ensure activities are being done in accordance the system are achieved. This is due to the fact
with directives. Management should determine that any internal control system has some
what needs to be verified based on the risk to limitations and they include; It is very difficult
the organization if there were no verifications. to prevent or detect errors and fraud when there
Management should clearly communicate these has been collusion between two or more
decisions to those responsible for conducting persons. Control may be circumvented through
verifications. fraudulent collusion with parties outside the
entity or employees of the entity (Millichamp,
Supervision
1996) There is a possibility that the person
Supervision refers to helping someone to extend responsible for exercising control could abuse
their professional skills and understanding. that responsibility for example authorization
These aspects will be relevant to varying controls could be abused by the person in whom
degrees depending on the context. It can be authority is vested (Woolf, 1986). The financial
helpful to think about supervision both in terms accountability handbook (2013) also talks about
of development which is related to ongoing the limitations of internal controls as follows;
professional learning and clinical governance Most controls are directed to transactions of
and standard setting. Provide the necessary usual nature and therefore transactions of
guidance and training to help minimize errors, unusual nature might escape being subjected to
wastes and to follow management directives. vigorous control, collusion by staff for personal
Clearly communicate the duties and gain or other motive, the potential human error
responsibilities assigned to those performing the remains in any system of control. This is mainly
activities; this is as per the Auditing Standard caused by stress of working environment, staffs
No.10 and PCAOB release No. 2010-004. taking short-cuts instead of following
procedures, staff carelessness, poor judgment or
Safeguard Assets
lack of knowledge and controls must be cost
The Auditing Standard No. 2 (CI), Kendra effective to the cost of the control procedure
James (2001) stated that, safeguarding the asset cannot be disproportionate to the potential loss
is to restrict access to resources and information due to fraud or error.
to help to reduce unauthorized use or loss.
Management should adequately protect the Organizational Performance
organization’s assets, files, documents and other Brown (1996) argues that performance measures
resources that could be wrongfully used, in organization must focus attention on what
damaged or stolen. makes, identifies and communicates the drivers
of success, support organizations learning and
Personal Controls
provide a basis for assessment and reward.
This refers to the extent to which they are able Dixion (1990), adds that appropriate
to control or influence outcomes. A wide variety performance measures are those which enable
of theorists have emphasized the importance of organizations to direct their actions towards
perceptions of personal control and have achieving their strategic objectives. This is
suggested that the desire to control the world because according to him, a firm’s performance
around us (Schultz et al, 1994) is central to the future wellbeing and prosperity
Reporting of any enterprise. Study by Whyte (1991) shows
that performance can be measured at both
ISA 700 states that reporting is a mean of organizational and individual levels. This
conveying information. It serves as a control measurement is sometimes referred to as
when it prevents or reduces the risk that performance appraisal. Whyte argues that
unfavorable event will occur. Reporting assists organizations have desired potentials in terms of
in monitoring when providing information on capacity, attraction, and manual share. Financial

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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

strength and performance is the difference organizations should be examined in terms of

between those potentials and those that have quality of services, flexibility, utilization and
been achieved. Whyte argues that human innovations.
capital, asset accumulation have significant
Relationship between Internal Controls and
impact on the organizations ability to introduce
Organizational Performance
new products, compete within markets thus
influencing the level of performance. It Coco (1992) provided a criterion against which
increases knowledge base within the effectiveness of internal controls can be
organization’s success and performance. assessed. Internal control can be judged
effective if the entity’s operations objectives are
Remelt (1994) asserts that availability and level
being achieved; appropriate financial statements
of resources can also be used to analyze the
are being prepared, reliable, applicable laws and
performance of an organization. Remelt
regulations are being complied with. While
emphasizes that resources which may include
internal control is a process, its effectiveness is a
assets financing, employee skills and
state or condition of the process at a point in
organizational process are key indicators of the
time. Accordingly, the effective functioning of
organizations performance one time. In
components of internal control provides a
agreement with this, Barney (1991) suggested
reasonable assurance regarding achievement of
that resources could be grouped into physical,
one or more of the stated categories of
human and capital resources and that a firm can
objectives to ensure high level of the
increase its performance only when the firm is
organizational performance.
unable to mitigate its resources. Ryne (1994)
argues that although a strong financial One of the five interrelated components of
performance indicates a strong institution, internal control system is a control environment
qualitative indicators like the nature of factor. It refers to the integrity, ethical value and
management and education level of the labour competence of the entity’s people (COSO,
force must supplement the qualitative indicators 1994). Internal control should be viewed in a
in order to enable the enterprise ability to meet broader context for example it should as well be
its focus and objectives. reorganized as a function of people’s ethical
values as it is of standards and compliancy
Palmer (1993) emphasizes that performance in
mechanisms (Coco, 1995). Wells (2001)
organizations is looked at in terms of economy,
illustrates practical fraud occurrences
efficiency and effectiveness. Economy and
discovered by competent accountants within
efficiency are usually measured in financial
organizations and what the accountants say
terms and data such as costs, volume of sales
about how they detect fraudulent transactions.
and productivity are used. Economy is defined
Internal controls system helps an organization to
as acquiring resources in appropriate quantities
achieve its objectives such as its efficiency and
and at the least cost. Drucker (1999) defines
effectiveness, reliable financial reporting and
efficiency as maximizing inputs for a required
compliance with regulations (Coso, 1994).
output. On the other hand Drucker defines
Controls serve the systems goals, they interact
effectiveness as the extent to which the defined
with the system and its environment thus
task has been accomplished and is consistent
directing the energy of the system towards
with notions of non-financial accountability.
fulfillment, in the same way changes in the
Effectiveness may partly be measured in terms
environment are easily noticed and adapted to
of quality service, customer satisfaction and
(Coco, 1995). (ACMAD, 1994) recognizes that
achievement of goals.
internal controls can enhance the productivity
Morton (1992) is also in agreement with and competitiveness of the organizations.
Drucker’s (1999) contention that performance
should be measured in terms of customer METHODOLOGY
satisfaction. Morton argues that in order to be Research design used was descriptive in nature.
able to perform, organizations should critically Qualitative and quantitative data was collected.
look at their customers and know how best they The data was collected from primary sources
are satisfying their needs. He adds that and secondary sources using questionnaires and
organizations should continuously improve on interview guides and analysis of documents. The
their services through innovations. Kloot (1999) study population was employees of Moha Soft
adds that in order to assess performance, Drinks Company, Hawassa Pepsi factory with a

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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

total number of 163 employees in all authorization and sometimes there were no
departments. Human resources consisted of 12 approval at all as shown by (18%) and (45%)
workers, sales & marketing with 19 workers, respectively, this created room for conducting
finance with 24 workers, spare parts and service fraudulent activities like misappropriations.
(mechanics) with 29, manufacturing unit with
56 workers, delivery with 23 workers while
departmental managers with 6 workers. When
the population is known, the sample size can be
derived by using Yemane (1967) method.
𝑁
𝑛=
1 + 𝑁(𝑒)2
Where: N = Total Population, n = Sample Size
and e = Sample error
Thus, the sample size for the respondents was;
(163) ÷ [1+163(0.1)2] = 62 (rounded). Therefore Source: Primary data
the sample size was 62 employees. Figure4.1. showing the analysis of findings whether
the organization carries out proper authorization and
Generally out of 163 workers in the factory, a approval of transactions.
sample of 62 respondents was selected to
represent the rest due to limited time and From the above figure 4.1, it was observed that
resources. 5 out of 12 was selected to represent a number of respondents (37%) agreed that the
the rest in Human resources, 7 respondents out organization carried out proper authorization
of 19 in sales and marketing was selected, 9 out and approval of transactions. Sometimes
of 24 was selected in finance, 10 out of 29 was transactions were carried out without proper
selected in spare parts and service (mechanics), authorization and sometimes there were no
21 out of 56 was selected in manufacturing approval at all as shown by (18%) and (45%)
units, 8 out of 23 was selected in delivery, 2 out respectively, this created room for conducting
of 6 in departmental managers was as well fraudulent activities like misappropriations.
selected. The sample was selected using the The Carrying Out of Proper Recording of
non-purposive and non-probability sampling Transactions in an Organization
methods because it gave the researcher a chance
to select a sample basing on personal knowledge Data regarding recording of transactions in an
and experience of the group sampled. This was organization was generated by investigating the
based on the assumption that respondents have extent to which the organization carries out
information that is required by one. proper recording of transactions. Below are the
findings.
Data were analyzed after editing, coding and
tabulation. This analysis was based on
percentages that were obtained to show the
relationship between the study variables. The
information was summarized according to the
objectives of the study.
DATA ANALYSIS AND PRESENTATION OF
FINDINGS
The Organization Carries Out Proper
Authorization and Approval of Transactions
Source: Primary data
One of the objectives of the study was “to assess Figure4.2. Showing the finding on whether the
the level of internal control system in the organization carries out proper recording of
Company. Below are the responses. transactions
From the figure 4.1, it was observed that a Figure 4.2 showed that the majority of the
number of respondents (37%) agreed that the respondents (45%) did agree that the organization
organization carried out proper authorization carried out proper recording of the transactions
and approval of transactions. Sometimes whenever they took place. However (25%)
transactions were carried out without proper disagreed that the organization does not carry

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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

out proper recording of transactions and this to authorized persons only; however (30%) said
loophole was used to carry out fraudulent that sometimes whereas 18% of respondents
activities by employees. said not at all. This meant that much as security
was put in place in order to prevent missing of
Handling of Sensitive Duties Like Cash
assets that caused loses to the organization, there
Recording by More Than One Individual
were still some gaps to cover.
Respondents were asked whether there are
The Approval of Payment Vouchers before
segregation of duties on cash handling and cash
Cash Disbursements by Responsible People in
recording and below are the findings of their
the Management of the Organization
responses.
Table4.1. Shows the findings on handling of sensitive Respondents were asked to respond on whether
duties like cash recording by more than one responsible people in the management of the
individual. organization examined and approved payment
vouchers before cash disbursement and the
Respondents Frequency Percentage response was as below.
(%)
Always 34 55 Table4.2. Shows findings on whether responsible
Sometimes 17 27 people in the management of the organization
Not at all 11 18 examine and approve payment vouchers before cash
Total 62 100 disbursements.

Source: Primary data Respondents Frequency Percentage (%)

Always 35 56
From the above table 4.1, it was observed that Sometimes 19 31
the majority of the respondents (55%) did agree Not at all 8 13
that sensitive duties were not handled by one Total 62 100
individual, however (27%) of the respondents
Source: Primary data
said that sometimes handling of sensitive duties
were not handled by one individual, whereas Data from the above table 4.2 showed that the
18% said not at all. This gave room for majority of the respondents (56%) agreed that
employees concerned in the operation to vouchers were approved before disbursement;
misappropriate and engage in fraudulent however (13%) disagreed with the fact that
activities that created losses to the organization. vouchers were not approved before
disbursement and this created room for
Restriction of Assets of the Organization to
collusion and fraudulent acts by the employees.
Authorized Personnel Only
Response on Whether the Organization Carries
Respondents were tasked to respond on whether
Out Regular Internal Audit
there is restriction of authorized personnel to
organization assets and recording them and the Internal auditing is a major factor and as far as
response was as follows on figure 4.3. this is concerned, respondents were tasked to
respond to whether the organization carries out
internal audit regularly and below are the
various responses.

Source: Primary data

Figure4.3. Shows the findings on regards to
restriction of assets of the organization to authorized
personnel only. Source: Primary data
Figure 4.4: Response on whether the organization
From the figure above 4.3, it was clearly
regularly carries out internal audit.
observed that most of the respondents (52%)
agreed that the organization restricted its assets From the above figure 4.4 showed that the

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The Effect of Internal Control on Organization Performance in Reference to Moha Soft Drinks Company,
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highest number of the respondents (72%) said respondents were asked to respond to whether
that organization carried out regular internal the organization uses trading profit and loss
audit however (28%) said sometimes; while account generated to monitor its performance.
none did say not at all. This meant that the Below are the responses.
strength of the organizational policies were not Table4.5. Shows finding as to whether the
well checked, fraud and errors are detected organization uses trading profit and loss account
sometimes later in such cases. generated to monitor its performance through sales
Response on Whether the Organization Carries revenue and profits and communicate them
out Regular (Periodic) Bank Reconciliation Respondents Frequency Percentage (%)
Always 33 53
Respondents were tasked to respond on whether
Sometimes 29 47
the organization carried out regular bank
Not at all 0 00
reconciliation, below are the findings. Total 62 100
Table4.3. Shows finding on whether the organization
Source: Primary data
carries out regular (periodic) bank reconciliation.
From the above table 4.5, it was observed that
Respondents Frequency Percentage (%)
Always 46 74 the majority of the respondents (53%) did agree
Sometimes 16 26 that the organization used the trading profit and
Not at all 0 00 loss account generated to monitor its
Total 62 100 performance through sales revenue, (47%) of
the respondents said that the organization
Source: Primary data sometimes did so. This implies that the
It was observed that the Company always employees do understand the importance of
carried out regular (periodic) bank communicating the revenue and profits to the
reconciliations as shown by the majority of the public.
respondents (74%) whereas none of the Response to the Fact that an Internal Control
respondents said that it was not carried out and System Improves Employees’ Performance
(26%) said sometimes as per table 4.3.
Respondents were tasked to respond on whether
Response on Whether the Organization the internal control systems improve employee’s
Prepares its Trial Balances Periodically performance and below are the findings.
One of the objectives was “to assess the level of Table4.6. Shows response to the fact that an internal
performance of the Company”. Below are the control system improves employees’ performance.
responses.
Respondents Frequency Percentage (%)
Table4.4. Shows the findings on whether the True 37 60
organization prepares its trial balances periodically. False 25 40
Respondents Frequency Percentage Total 62 100
Always 39 63 Source: Primary data.
Sometimes 23 37
Not at all 0 00 From the above table 4.6, it was observed that
Total 62 100 the highest number of the respondents (60%)
Source: Primary data was true that internal controls increased
From the above table 4.4 it was observed that employee performance while (40%) said it was
not true. This because good internal control
the majority of the respondents (63%) did agree
systems which were flexible created good
that the organization prepares its trial balances
working environment which motivates
periodically while (37%) said the organization
employees to work hard with effectiveness and
does it sometimes however this is due to too
such internal control tools included training of
much over load of work in accounting
workers.
departments. This was able to detect errors and
fraud. Response on Whether Internal Control
Response on Whether the Organization uses Systems Decrease Cost of Operation
Trading Profit and Loss Account Generated to The questionnaires were distributed to the
Monitor its Performance respondents randomly and analyzed to show
Regarding the organizational performance, the their different opinions as showed below.

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Table4.7. Establishment as to whether internal such as prompt payments made and are
control systems decrease cost of operation properly recorded in the appropriate books,
Respondents Frequency Percentage (%) division of duties to discourage individual’s
True 39 63 recording and processing of a complete
False 23 37 transaction. This is so because the handling of
Total 62 100 sensitive duties like cash recording is not
handled by one individual as revealed by the
Source: Primary data
employees.
Table 4.7 showed that respondents (63%) agreed
The Finding on How the Organization Monitors
that internal control systems decreased operation
its Performance
costs while (37%) of them disagreed with the
fact that internal control systems decreased the Basing on the findings made in chapter four, the
costs of operation. This implied that as researcher discovered that the organization used
efficiency and effectiveness was attained, costs trading profit and loss account generated to
of operation decreased as revenue and profits monitor its performance through revenue,
went high. profits and communicated them to the public
hence the organization monitors its
Response on Whether Internal Control
performance. However there was still more
Systems Increased Overhead Costs
emphasis needed to communicate the
The respondents were asked to state whether organizational sales revenue and profits each
internal control systems increased overhead and every time the trading profit and loss
costs and below are the findings. account was generated. The majority of the
Table4.8. Responses to the fact that internal control respondents indicated that the organization used
systems increases overhead costs trading profits and loss account generated to
compare its trends of performance over the
Respondents Frequency Percentage period of years. This showed that the
(%) organization monitors its performance. However
Always 37 60
there was still a need for it to be done
False 25 40
periodically and regularly over the years.
Total 62 100
Source: Primary data Factors Affecting Performance of the Company

From the above table 4.8, the majority of the The study showed that performance is
respondents (60%) agreed that internal controls influenced by several factors which if not
increased overhead costs while (40%) disagreed looked at critically, can divert the objectives of
that internal controls did not increase overhead organization. The study revealed that ability,
costs. This was in line with cost benefits concept effort, equity and expectation gains were the
which in the long run yields higher profit than major factors affecting the performance of the
costs. company though other factors such as
motivation and environmental factors were also
SUMMARY OF FINDINGS, CONCLUSION AND inclusive hence factors affecting performance
RECOMMENDATION should be considered highly.
Summary of Findings Relationship between Internal Control Systems
Internal Controls and Performance of the Company

From the findings, the study established that the The study established that there is a significant
major control procedures such as vouching of all positive relationship between internal control
payments, segregation of duties, close systems and performance of organizations in
supervision, authorization of payments by MOHA Soft Drinks Company, a case study of
approving personnel, to mention but a few are in Hawassa Pepsi Cola Factory. This implies that if
existence at the company. The study also more efforts are put towards a stronger internal
revealed that controls are effective such as control system, there will be better performance
monthly bank reconciliations and they are often of the company. The researcher also proved that
reviewed usually monthly in the entire the costs of operation are reduced by internal
organization as revealed by most employees. control systems that enable it to gain more
However, the researcher also learnt that there profits hence there is a positive relationship.
are some controls that are not quite effective Basing on the findings, it indicated that internal

International Journal of Research in Business Studies and Management V7 ● I3 ● 2020 18

The Effect of Internal Control on Organization Performance in Reference to Moha Soft Drinks Company,
Ethiopia: A Case Study in Hwassa Pepsi Cola Factory

control systems improve employees’  Generally internal control systems put in

performance leading to organizational place should be strengthened to yield profits
performance hence there is a positive to the organization hence the performance.
relationship.
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Citation: Ayneshet Agegnew Alemu “The Effect of Internal Control on Organization Performance in
Reference to Moha Soft Drinks Company, Ethiopia: A Case Study in Hwassa Pepsi Cola Factory”
International Journal of Research in Business and Management, 7(3), 2020, pp. 10-19.
Copyright: © 2020 Ayneshet Agegnew Alemu, This is an open-access article distributed under the terms of
the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in
any medium, provided the original author and source are credited.

19 International Journal of Research in Business Studies and Management V7 ● I3 ● 2020