Internal Control and Risk Management in Oil and Gas Companies in Nigeria
Internal Control and Risk Management in Oil and Gas Companies in Nigeria
Internal Control and Risk Management in Oil and Gas Companies in Nigeria
ISSN No:-2456-2165
Abstract:- Over the years, Nigerian oil and gas greatly affected. (Munir, 2018). The rules even allow
companies have faced significant mismanagement risks national organizations to allocate their resources using the
and problems. These failures include management issues same risk management that drives the company's revenue
for oil and gas companies, capital requirements issues, (Mulyono, Asmawi & Nuriah, 2018).
idiosyncratic financing issues, and bankruptcy for oil
and gas companies. This study explores the impact of In South Africa, oil and gas companies faced similar
internal controls on risk management in Nigerian oil and challenges in developing an effective approach to risk
gas companies. Research approach was adopted in this management. Oil and gas companies are exposed to
study. Topics of this study include 100 internal control uncertainty that occurs in many organizations (Akwaa-
officers, executives in oil and gas finance companies, Sekyi& Moreno, 2017). Therefore, most of these companies
compliance officers, senior and middle managers, and are top level in credit management, business, financial and
internal audits of selected oil and gas companies in Lagos financial risk.
State, Nigeria.Analyze data using descriptive and
inferential statistics. This study shows that internal However, in order to balance the situation in most
control has no significant effect on the credit risk organizations with various risks, it is important to
management of Nigerian oil and gas companies (p>0.05). understand all the risks involved and to use effective
This study shows that internal control has a significant methods for internal control and management to prevent or
impact (p>0.05) on the commercial risk management of mitigate the impact of these hazardous situations. they
become (Zubarev, Glukhova & Makovetsky, 2016).
Nigerian oil and gas companies.This study shows that
Therefore, optimizing the benefits that an enterprise-wide
internal control has a significant impact (p < 0.05) on the
financial risk management of Nigerian oil and gas risk management approach brings to organizations is
companies. The study concluded that internal control critical. Risk management is a valuable management tool
affects risk management in Nigerian oil and gas that contributes positively to the success of the company by
companies. A regular review of the internal management reducing and optimizing negative consequences. , choose
of oil and gas companies is recommended to ensure appropriate risk management techniques to address the risk
compliance with guidelines set out in international best of loss, and implement and maintain risk management
practice to minimize fraud, fraud and error. systems for all organisations. In general, effective internal
control procedures allow the company to mitigate risk and
Keywords:- Risk Management, Internal Control, Credit Risk prepare to survive unexpected problems. The fact that good
Management, Market Risk Management, Financial Risk internal controls are in the best interests of management,
Management. shareholders and other stakeholders is sometimes
jeopardized when new regulations and compliance costs are
I. INTRODUCTION imposed on companies due to poor performance.
Recently, risk management has become an important Implementing effective internal controls allows
phenomenon for businesses and the way they interact with organizations to invest in opportunities while reducing risks,
them to avoid impacting the safety of the facility business. which can save time and money and facilitate productivity
Traditionally, risk management has focused on internal and and retention (Mendoza and Rivera, 2017). Peter (2016) also
external risks affecting all international organizations, stated that the importance of implementing internal controls
whether established or established. Both developed and such as employee compliance, fraud investigation and
developing countries face financial risks that can lead to loss financial reporting in the organization is unacceptable in
of investment or business risks (Olivier, 2018). This is more financial institutions. A good internal control system can
common because companies in developing countries such as help the organization achieve its objectives. Currently, most
the United States and the United Kingdom are concerned organizations in many countries are evaluating and
about financial losses from risks affecting the economy and implementing internal control provided by COSO. Due to
growth (Zubarev, Glukhova and Makovetsky, 2016). the above-mentioned problems of risk management in
business organizations, this study focuses on investigating
Australian organizations are exposed to financial risks the relationship between internal control and risk
due to a variety of macroeconomic factors, changes in management. 444 1.
market interest rates and the prospect of business or
economic growth. The main impact of poor risk management is how oil
and gas company management can improve supply in cost,
There are also other financial risks when they decide time and quality decisions. This is because Nigerian oil and
to earn their income and solvency in the organization, which gas companies have had low oil risk in the past, which has
they think they can fix in the months after the event and be affected the government's allocation of funds to state
Akinwumi, The effect of employees Secondary data and The study made use of Pearson
Micheal and compliance on credit risk regression analysis. correlation coefficient technique and
Raymond (2017) in Nigeria the empirical results revealed that
there is a statistically significant
relationship between employees
compliance and credit risk
Muriithi and The effect of employees Panel data techniques of The study revealed that Internal
Waweru (2017) compliance on credit risk random effects estimation control design influences risk
and generalized method of management in Nigeria
moments
Chebet, Karaba and Effect of fraud audit on Descriptive research design, Fraud audit has significant effect on
Ombui (2017) market risk stratified sampling market risk
technique, primary data via
questionnaire and regression
analysis
Dimitrijevic, The role of a company’s Exploratory research design It was found a positive relationship
Milovanovic and internal control system in and logit regression between internal controls
Stancic (2020) fraud prevention and fraud audit.
Shou, Hu, Kang, Li The effect of fraud audit Survey based methodology Fraud audit has significant effect on
, and Park (2018) on market risk and structural equation market risk
model
Abbas and Abu The impact of Survey research design, Governance control mechanisms has
(2019) governance control simple random sampling significant effect on financial risk
mechanisms on financial technique and Pearson’s
risk in Nigerian Product Moment Correlation
manufacturing sector
Shou, Hu, Kang, Li The impact of risk Primary data, simple random The results showed that risk
, and Park (2018) management and firm sampling and regression management has significant effect on
performance analysis as well as ANOVA firm performance
Lai, Li, Lin and Wu The influence of internal Primary and secondary data Internal control weaknesses have a
(2017) control weaknesses on and multiple regression negative impact on firm performance
firm performance in analysis
Texas
Bannier, Bofinger, The effect of governance Secondary data and multiple The study showed that there is a
Bauer and Ewelt- control on financial risk regression positive relationship between
Knauer (2019) in Germany governance control and financial risk
The scale is 5 (agree), 4 (agree), 3 (undecided), 2 This study explores the effectiveness of internal
(disagree), and 1 (strongly disagree). control and risk management in Nigerian oil and gas
companies. This section includes the findings, interpretation
F. Data Analysis Methods and discussion of the findings. The results of this study are
Analyze data using descriptive and fact-check discussed through descriptive and inferential statistics.
techniques. Responses were defined using frequencies, Based on the views guiding the research, the data were
percentages, means, and standard deviations. Descriptive collected and presented in the form of words and
statistical analysis was used to present demographic data percentages. As stated in Chapter 1, the aim of this study is
and variables. to provide the basis for data analysis. The results of the three
proposed targets are also tested and discussed in this section.
Analyze the relationship and effects of independent
variables on a set of variables using inferential statistical A. Response rate
techniques such as regression analysis. In particular, A total of 100 questionnaires were distributed to all
multiple regression analysis was used to analyze the respondents. After the data were correctly coded and
hypotheses. In this case, the relationship between ethical analyzed, 88 questionnaires were found to be useful for the
accounting practices and the quality of financial reporting. study. The result was a response rate of 88% with 12
The analysis was made with the help of the Statistical questionnaires or 12% of the total distribution not being
Standard for Social Sciences (SPSS) 21.0 program. returned. Therefore, data from all 88 studies were used in
the analysis. Table 2 shows the correct and incorrect
answers to the questions.
B. Analysis of participants' demographic information done and the results showed all the demographics and
Demographic information includes participants' gender, characteristics of the people studied. Each feature is then
age, education, and years of employment. Analysis was measured using frequency and percentage.
Table 3 presents the demographic and personal profile C. Data Analysis, Results and Discussion of Findings.
of respondents used for this study. Gender distribution Statistical Package for Social Sciences (SPSS) version
revealed that 48(54.5%) respondents are male, and 27 was used to analyze the data relating to the effect of
40(45.5%) respondents are female; indicating that more of Internal Control and Risk Management in Oil and Gas
the respondents are male. The age showed that 3(3.4%) were Companies in Nigeria, descriptive analysis of respondent’s
below 20 years, 17(19.3%) respondents were between 21-30 replies and the creation of data on the effect of Internal
years, 38(43.2%) respondents were between 31-40 years, Control and Risk Management in Oil and Gas Companies in
27(30.7%) respondents were between 41-50 years and Nigeria were noted. The following replies from the research
3(3.4%) respondents were 51 and above. study were presented and analyzed using a 5-point Likert
scale:
Table 3 also revealed that 24(27.3%) respondents are
OND/NCE holders, 27(30.7%) respondents are HND/B.Sc RESTATEMENT OF OBJECTIVE AND RESEARCH
Holders; 18(20.5%) respondents are M.Sc/MBA Holders; ONE
and 19(21.6%) respondents are Ph.D Holders. Finally, Table Objective One: To examine the effect of internal
3 also revealed that 27(30.7%) respondents have less than 5 controlon credit risk management of oil and gas
years of experiences; 41(46.6%) respondents have between companiesin Nigeria.
6-10 years of experiences; and 20 (22.7%) respondents have Question One:What is the effect of internal controlon
between 11-15 years of experiences and 9(11.4%) credit risk management of oil and gas companiesin
respondents have above 16 years of experience. Nigeria?
Table 4 shows the description of respondents' established a risk management system to support the growth
responses to credit risk management. Combining acceptable of the institution".
and acceptable responses, 75 (84.2%) respondents, “Credit
risk management helps Nigerian oil and gas companies RESTATEMENT OF HYPOTHESIS ONE:
achieve their goals”, 63 (Chapter 71). 6% of respondents Internal control does not have a significant impact on
agreed that “Credit risk management is defined as a measure the credit risk management of Nigerian oil and gas
of the organization's monitoring and remediation principles” companies. Simple regression analysis was used to test
and 79 (89.7%) of respondents agreed that “Nigeria has a Hypothesis 1. Credit risk management information is
model for describing the credit risk management process, obtained by adding items under each variable. The results of
most important 68 people (77.3%) answered the question the hypothesis tests are shown in Table 4.
"For the growth of the institution" as "Our company has
1 pound
The table 5 shows the model summary of both the summary in table 5 established the effect of Internal
dependent variable (Credit risk management) and Controlon credit risk management in oil and gas companies
independent variable (Internal Control). The model in Nigeria.
Table 6: ANOVAa
Model Sum of Squares Df Mean Square F Sig.
1 Regression 82.096 1 82.096 1.901 .172b
Residual 3714.620 86 43.193
Total 3796.716 87
a. Dependent Variable: Internal Control
b. Predictors: (Constant), Credit Risk Management
Source: Researcher’s Field Survey Result, 2023.
Table 7: Coefficientsa
Unstandardized Coefficients Standardized Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 37.667 4.150 9.076 .000
Credit Risk Management .332 .241 .147 1.379 .172
a. Dependent Variable: Internal Control
Source: Researcher’s Field Survey Result, 2023.
Table 9 shows the descriptive analysis of the provide information on how market risk can be reduced to
respondent’s response on Market risk. By combining the barest minimum.”
responses of strongly agree and agree, 61(69.3%)
respondents agreed that “Internal control processes provide RESTATEMENT OF HYPOTHESIS TWO:
supportive measures for market risk in our companies”, There is no significant effect of internal control on
59(67.1%) respondents agreed that “Internal control ensure market risk management of oil and gas companies in
prevents market risk in our companies base on some choice Nigeria. In order to test hypothesis two, standard simple
of certain accounting measures”, 59(67.1%) respondents regression analysis was used. Data on market risk was
agreed that “Internal control allows for positive events obtained by adding the items under each of the variable. The
towards market risk in oil and gas companies in Nigeria”, result of the test of hypothesis are presented in Table 9.
and 65(73.8%) respondents agreed that “Our companies
The table 9 shows the model summary of both the established the effect of Internal Control on market risk
dependent variable (market risk) and independent variable management in oil and gas companies in Nigeria.
(Internal Control). The model summary in table 9
The table 13 shows the model summary of both the established the effect of Internal Control on finance risk in
dependent variable (finance risk) and independent variable Oil and gas companies in Nigeria.
(Internal Control). The model summary in table 13
Interpretation of Result
Findings in table 13 reveals that Internal Control had no R= 31.847+ 0.657frm+ Ɛ ………………… (equ. iii)
relationship with credit risk management and this effect was
Where:
statistically significant at p=.000 [R =.257, p<.05]. This
shows that Internal Control and finance risk management FRM = finance risk management
have a relationship, this indicate that as Internal Control IC = Internal Control
increases, finance risk managementincreases in oil and gas Ɛ= Error term
companies. The model (coefficient of determination) was
.257 indicating that Internal Control explained 25.7% of VI. SUMMARY, CONCLUSIONS AND
finance risk management in oil and gas industry. In table 14, RECOMMENDATIONS
the F statistic =6.097 was significant at p=0.05 which
revealed that the model for hypothesis three was significant This study is divided into five different parts. The first
in running the relationship between Internal Control and section reviews the background of the research, explores and
finance risk management in Oil and Gas companies. This is addresses current problems of the research, sets the
supported by a positive and significant unstandardized B objectives of the research, raises research questions, and sets
coefficient in table 15, Internal Control is [B=0.657, out research hypotheses to guide research. This section also
t=2.469, p<0.05]. Therefore, the null hypothesis three (Ho3) outlines the importance and importance of research and the
that states that Internal Control has no significant organization of other sections. Finally, this chapter serves as
relationship with finance risk management is hereby the direction of this study.
rejected. The regression model used to explain the variation
is when finance risk management is affected by Internal
Control of oil and gas companies can be stated as follows: