CHAPTER
ONE: INTRODUCTION
1.1
Introduction - - - - - - - - 1
1.2
Background of Internal Auditing- - - - - - 7
1.2.1
Statement of the Problem - - - - - - 9
1.3
Objectives of the Study - - - - - - - 10
1.4
Research Questions - - - - - - - 11
1.5
Significance of the Study - - - - - - 11
1.6
Scope of the Study - - - - - - - 12
CHAPTER TWO:
2.0 Literature Review - - - - - - - - 14
2.1 Introduction - - - - - - - - 14
2.2 Concept of Internal Auditing - - - - - - 16
2.3.1 Scope and Objective of Internal Audit - - - - 18
2.3.2 Qualities of Internal Audit Staff - - - - - 19
2.3.3 Responsibilities of an Auditor - - - - - - 20
2.3.4 Management Role of Internal Audit - - - - - 23
2.3.5 Operation of Internal Audit in Construction - - - 23
2.3.6 Essential Element of Internal Audit - - - - - 26
2.4 Relationship between the Internal and
External Audit - - 29
2.5 Reliance on Internal Auditor - - - - - - 31
2.6 Duty in Relation to Fraud on
Irregularities - - - - 34
2.7 Internal Auditors and Internal Control
System - - - 34
2.8 Internal Check - - - - - - - - 36
2.9 Reporting - - - - - - - - - 40
CHAPTER THREE
3.0 Research Methodology - - - - - - - 41
3.1 Introduction - - - - - - - - 41
3.2 Research Design - - - - - - - - 43
3.3 Secondary Sources of Data - - - - - - 44
3.4 Population of the Study - - - - - - - 46
3.5 Sampling Techniques - - - - - - - 46
3.5 Sample Size - - - - - - - - - 47
3.7 Method of Data Analysis - - - - - - 48
3.8 Limitations of the Study - - - - - - - 49
CHAPTER FOUR
4.0 Introduction - - - - - - - - 50
4.1 Analysis and Interpretation of Data - - - - - 50
4.1.1 Personal Data - - - - - - - - 51
4.1.2 Other Relevant Issues - - - - - - - 51
4.1.3 The Role of Internal Audit - - - - - - 53
4.1.4 Independence of Internal Auditors - - - - - 54
4.1.5 Performance of Internal Auditors - - - - - 54
4.1.6 Internal Auditors and Fraud Prevention - - - - 55
4.1.7 Duties of Internal Auditors - - - - - - 55
4.1.8 Problems Encountered by Internal Auditors - - - 56
CHAPTER FIVE
5.0 Summary, Conclusion and Recommendation - - - 57
5.1 Summary - - - - - - - - - 57
5.2 Conclusion - - - - - - - - - 60
5.3 Recommendations - - - - - - - 61
Bibliography - - - - - - - - 63
Appendix - - - - - - - - -
Questionnaire - - - - - - - -
CHAPTER ONE
1.1
INTRODUCTION
Internal
Audit Units are established in organizations in order to assist members of the
Organization in the effective discharge of their responsibilities, monitor the
use of resources and make recommendations for the improvement of the
organizational operations.
The
day-to-day operation of an organization is delegated to the management by the
Board of Directors. The head of the management often referred to as the
Managing Director and Chief Executive Officer serve as a link between the Board
of Directors and the management.
An internal
auditor is employed as an agent of the management for ensuring effective
working of Internal Control System. Independence of auditor is a cornerstone
for the quality of his performance.
However,
it is practically difficult for an internal auditor to possess any reasonable
degree of independence in mind and attitude because of the management influence
and scope of the work. It needs to be emphasized that internal audit function
as an integral part of the internal control system is concomitant to good corporate
governance.
The
purpose of internal audit in big companies is to ensure that the account on
which the auditor is reporting disclose a true and fair view of the transaction
summarized within the period under examination. To ensure completeness and effectiveness
in big companies, auditing is very important, the major work covered in the
exercising of auditing include examination of internal control, the system of
bookkeeping and account, to ensure whether they are appropriate for the nature
of the business or activities being carried out by the client and whether all
the transactions have been properly recorded under the system. The existence of
any internal audit units in big companies is a sign of good control system. If
properly conducted, internal audit units can have a great impact on the
effectiveness and efficiency of big companies.
Adeniji
(2004) suggest that internal audit as an independent appraisal activity
established within an organization as a service to it. It is a control, which
functions by examining and evaluating the adequacy and effectiveness of other
controls.
Adams
(2002), opined that internal auditing is an independent appraisal actively for
the review of operations as a service to the management. Internal auditor here
is one who is employed by the management of an enterprise who may or may not
attain minimum academic or professional qualification, that is he may not be a
member of any recognized body e.g. ICAN, ANAN.
It is
in the view of the above that this study would be conducted to find out the
role played by an internal auditor in big companies through proper installation
of effective Internal Control System in big companies. Internal control system
is examined by internal auditor in order for him to know if the control system
is effective. He does this by carrying out compliance test. Internal check is
done in order to prevent and detect errors and fraud. It involves the
arrangement of bookkeeping and other clerical duties.
Internal
Audit is a review of the operations, procedures and records of the business.
Internal Auditing is itself an Internal Control which operates by appraising
and reporting on the effectiveness of the other controls. Thus, its main
objective is to assist management in discharging its responsibilities and to
evaluate compliance with corporate procedures. It is often assigned for
reviewing the accounting system and related Internal Controls, monitoring their
operation and recommending improvement thereto, and also the examination of
financial and operating information.
Aquaisua
(2004) opines internal audit as the process of continuous review of financial
transactions in order to ensure that they are working as the management
intends. All the regulations, instructions, accounting system or procedures and
rules set should be controlled to ensure that they are working as prescribed.
It assures management of the adequacy and appropriateness of the system of
internal controls by testing their operations. Usually, Government, financial
instructions provide that the Accounting Officers of Ministries or Departments
or (non-ministerial) departments will ensure that, subject to the availability
of staff, an internal audit unit be established to provide a complete and
continuous audit of accounts of revenue, expenditure, plant, allocated stores
and un-allocated stores where applicable.
Omoya
(1984) suggests that the duty of the internal auditor, who should be
responsible to accounting officer will be to audit account and records and for
the examination of the systems and procedures in force. His report should be
submitted to the Accounting officer copying the Auditor-general of his state.
He should have an audit programme which should be submitted to the Accounting
Officer and for the acceptance of the Accountant General and Auditor General.
Such programmes should ensure that the programme of audit will extend to cover
all the records of the ministry, department or unit, in order to satisfy
himself that:
i)
The safeguards introduced for the prevention of
the prompt detection of fraud and loss of cash or stores or plants are
adequate. Normal safeguards include the observance of government and
departmental regulators and instructors and for existence of internal checks.
ii)
The system for the control of the collection of
revenue is adequate and that all monies received have been promptly brought to
account to the correct head and sub-head.
iii)
The system for the control of expenditure is
adequate and that all payments made are properly authorized and correct, that
they are paid to the right person, for whom they were authorized.
iv)
The system for the control of the issue and
consumption of stores is adequate, that issues are made to the right person and
are used for the purpose for which they are authorized.
v)
There are adequate means for which the
verification is done by him, of all cash, stores and plant held.
Bigg
and Davies (1994) postulates, Internal Auditing is an independent objective
assurance and consulting actively designed to add value and improve an
organization’s operations. It helps an organization accomplish its objectives
by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk Management Control are governance processes. Independence
is established by the organizational and reporting structure.
Objectivity
is achieved by an appropriate mind-set, the internal audit activity evaluates
risk exposures relating to the organization’s governance, operations and
information system in related to:
i)
Effectiveness and efficiency of operations
ii)
Reliability and integrity of financial and
operational information
iii)
Safeguarding of assets
iv)
Compliance with laws, regulations and contracts
Based
on the result of the risk assessment, the internal auditors evaluate the
adequacy and effectiveness of how risks are identified and managed in the above
areas. They also asses other aspects such as ethics and values within the
organization, performance management, communication of risk and control
information within the organization in order to facilitate or good governance process.
The
internal auditors are expected to provide recommendations for improvement in
those areas where opportunities or deficiencies are identified, while
management is responsible for internal controls, the internal audit actively
provides assurance to management and the audit committee that internal controls
are effective and working as intended.
1.2
BACKGROUND
OF INTERNAL AUDITING
The
proliferation of large, dispersed, complex corporation starting early in
twentieth century, spurred the accelerated development of the internal audit
function. The Institute of Internal Auditors (IIA) was founded in 1941, largely
in response to this development and modern internal auditing owes much of its
early expansion of the scope of internal audit activities and the professionalization
of the practice of internal auditing.
The
development of professional under pinning for the profession however did not
come all at once. It was not until 1947 that the Institute of Internal Auditor
issued its first statement of responsibilities.
The
code of ethics was issued in 1968 and standard in 1979. The first Certified
Internal Auditor (CIA) exams were written in 1974, indicating that, there was
that time deemed to be a recognized body of knowledge available for internal
audit professionals. The potential value of the internal audit function came
later to the public sector motivation. The United States Congress first
recognized the potential contribution of internal audit in 1950, in requiring
by statute that each executives agency include internal audit in the agency’s
of internal control.
In
1973, the Treasury Board made it mandatory for all departments and agencies to
internal audits performed on their systems of financial administration.
Direction 9.1 of the policy started, departments hall have financial audit
performed, which include:
Reviewing
and appraising the effectiveness and efficiency of department system of
financial administration including the safeguarding of assets. Ascertaining the
extent of compliance of department systems and procedures with financial
policies, regulations and other instruction of parliament, treasury board and
the department of agency.
The
internal audit policy component of review policy made no substantive changes to
the scope of internal audit, but bolstered the professional under pinning of
the practice by integrating treasury board and Institute of Internal Auditors
Standards and ethics provision. Also in this policy, frequency requirements
were dropped and the concept of risk based audit planning was introduced.
1.2.1
STATEMEMT
OF THE PROBLEM
Internal
audit provide advantages to the management, it is a tool of ensuring effective
implementation of Internal Control System and infact, and it allows such
internal control system to be reviewed where necessary. With internal audit,
management policies are seen to be complied with and adequate information is
made available for the management for decision making.
This research focuses on the weaknesses of internal audit
units in an organization, that make it impossible for an internal auditor to
carryout its duty at a specific time.
Problem of Appointment: The appointment of internal auditors has been encouraged
by some officials who would want to manipulate financial control system so as
to promote their fraudulent tendencies.
Problem of
Qualification: Since the law does not
stipulate a minimum qualification required of an internal auditor, it is not
impossible to find out that some internal auditors do not possess the needed
qualifications required.
Also to ascertain the level of independence of our auditors
and if indeed they have been able to use their professional skills to check and
correct the mis-happening in the organization.
Finally, which is the main focus of the research work, the
role and evaluation of internal audit in an organization, to check how internal
auditors are being frustrated by the chief executives, which makes it difficult
to disclose information.
1.3 OBJECTIVES OF THE STUDY
The objectives of this study is to examine the role, the
internal audit play in an organization, to identify problems hindering
effective operations of internal audit and to offer recommendations based on
the findings of the study.
1.4 RESEARCH QUESTIONS
This research work proposed to assess the role of internal
audit in big companies and to ensure adherence and effectiveness of audit work
in big companies. The study would see to provide answers to the following
research questions:
i)
How does internal audit
enhance the effectiveness and efficiency of operations of big companies?
ii)
What are the problems
that are likely to be encountered by the internal audit in carrying out its
duties?
iii)
How independent is
internal audit in big companies?
iv)
What are the problems
militating the effective operations of internal audit in big companies?
1.5 SIGNIFICANCE OF THE STUDY
The main significant of this research is that it would
enlighten the management on the importance of both internal auditing and
internal control. Also people who are not in the system such as those in the
academic cycle will have a picture of what internal audit and the role played
in big companies.
The management benefits from this work by knowing the actual
picture of their Internal Control so as to know whether or not it is reliable.
Also, government is not left behind in that when completed the research would
undoubtedly identify to the government areas where attention would be greatly
placed in order to sanitize the system for better revenue generation.
External auditors also benefits from this research work,
this is because internal auditor can assist external auditor in familiarizing
himself with the accounting system, and act as a liaison between the external
auditor and other members of the client staff.
This study would serve as a reference material to students
and researchers who would want to conduct further researches/studies on
internal auditors in big companies.
1.6 SCOPE OF THE STUDY
The scope of this research is limited to the area of
internal audit of a construction company in Kaduna State. The company is used
as the case study. The research tends to highlight the ways in which internal
audit is carried out in big companies and how the internal audits in itself is.
The scope of this research will also focus its attention to the status of the
internal auditor, his responsibilities, independence practice as well as the
problems encountered in the course of carrying its duties and the possible
solutions to the problems. It is hoped that the information gathered will
greatly reflect the generality of big companies.
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