CHAPTER ONE
1.0
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Globally the role of auditing is being
appreciated for its avowed operations and activities. Ihe and Umeaka(2006:370)
defined auditing “as a process carried out by suitably qualified auditors
during which the accounting records and the financial statements of an
organization are subjected to examination by an independent auditor with the
main objective of expressing an opinion in accordance with the relevant terms
of appointmentpurpose” they also noted that the objectives of auditing were
grouped into two
a. Primary
objective: the auditor (one who carries out audit operation) is to report
whether the financial statements shows a „true and fair view‟ of the financial
affairs of the organization during the period under review and s end date.
b. Secondary
objective: This concerns the detection of frauds and errors and the prevention
of frauds and errors
The crux of this research work however
is based on internal Audit – which is a very important aspect of auditing, how
the internal audit unit of the government can be made effective in order to
assist in the efficient administration of local Government Areas (LGA).
Internal Audit as defined by
Chukwu L. C. (2011: 28)
is “an independent appraisal of activity within the
organization for the service of accounting,
financial and other business practice as a protective and constructive aim of
management”. He further opined that, internal audit is a type of control which
functions by measuring and evaluating the effectiveness of other types of
control. Anosike. C. K (2009:29) noted that the primary objective of internal
audit, is to promote utmost efficiency and security in conducting business, in
our case, the business or operations of the Local government areas. Azubike
(2005:83) enumerated the features of internal audit as follows:
a. Independence:
it is carried out by independent personnel through appointed by the management.
b. Appraisal
Function: it appraises the activities of other. Example, reviewing the system
of checking employee expense claims.
c. Management
Service: Plans and controls work according to management policies, so that
information used by the management is complete and reliable.
d.
It
is carried out skillfully and with due care.
e. The
Findings, conclusions and recommendations are communicated promptly and
efficiently.
He also noted that internal audit seeks
for effectiveness, economic and efficiency. Effectiveness here: means achieving
the program objective or goals. Economy means operating at the lowest possible
cost. Efficiency implies effectiveness in outputs, avoidance of accessory waste
of resources.
Having known the
definition of internal audit and its implications, It is seen that it plays a
significant role in the efficiency of local government administration. However,
as a group of the subject matter of this research work, explanation and
highlights of local government and its administration shall be attempted.
Several definitions
have been put forward by authors and scholars on local Government, Okolie
(2003), that local government is defined as “a unit of government below the
central regional or state government, established by law to exercise political
authority, through a representative cancel within a defined areas”.
The oxford advanced
learner‟s Dictionary defines local government as the system of government of a
town or an area by elected representation of the people who live there “or” an
organization that is responsible for the government of an area”. Conclusively,
for the purpose of this research work, the most acceptable definition of local
government is that which is given by the guideline for local government is
“government at the local the local level exercised through representative
councils established by law to exercise specific powers within defined areas”.
Local Government
Administration in Nigeria, as defined by Okolie and
Eze (2006:5) is “the
administration of the grassroots at the local government areas by the Federal
(National) or state government through the use of bureaucrats or an agency of
either or both tiers of government”.
With effect from 1979, the constitution
of the Federal Republic of Nigeria accorded local government a higher status,
as a third tier of the government where it now enjoys relative autonomy from
the state deriving also its powers from the constitution and not surviving by
the whims and caprice of d state as provided in the guideline for local
Government perform in Nigeria 1976. Following this development the status of
the local government in Nigeria is that of a corporate entity, which can sue
and be sued, also has perpetual secession.
The Guideline gave the principal aim of local
government as I. Grassroots political development and consciousness.
II. Embark on and encourage self-help project III.
Deliver social services to rural dwellers
IV. Provide
primary education and health care to its inhabitants.
V. Engage in economic planning to foster rapid
development of the areas. VI. Collection of rates, radio and television
licenses
VII. Establishment maintenance and regulation of
markets, motor par]k]s and public conveniences
VIII. Naming of roads and streets and numbering of
houses. IX. Registration of births, deaths and marriages.
X. Establish
a two-way communication between the people and the government.
Therefore, the
requirement of financial resources to effectively and efficiently translate the
administration of the above functions to service delivery which will impact on
the local people is crucial. In view of this enormous resources at the disposal
of the local government and obvious financial management ineptitude of the
political in the areas of fraud, maladministration, misappropriation of pubic
fund, etc, there is need an independent arbiter. To check these excesses, hence
the need an internal audit.
Ihe and Umeaka
(2006:375 and 392), enumerated the scope and objectives of internal audit
function to local government in ensuring the efficient administration of the
councils and its programsas
Scope
1
Review
of accounting and internal control system
2
General examination of financial &
operating information for management
3
Review of economy, efficiency and
effectiveness of operations and general controls.
4
Review of the implementation status of
local government plans policies and procedures
5
Proper investigation of compliance with
the financial memoranda and other circular.
OBJECTIVES
1
To determine the level of adequacy of the system of
internal control
2
Report
findings and recommendations to the council
3
To investigate compliance with the
financial memoranda and other circulars.
In carrying out its duties, the internal
audit department shall be working closely with the treasury department and make
use of the following financial statement provided by local government as
enumerated by Ihe and Umeaka (2006:204)
¯ Statement of
revenue and expenditure
¯ Statement of
actual expenditures and actual revenues
¯ Statement of
advance account deposit account balances
In the context of the subject matter,
the researcher has selected Isiala-mbano localgovernment areasand Mbaitolilocal
government areas for this study.
BRIEF REVIEW OF ISIALA MBANO LOCAL
GOVERNMENT
Isialambano local government areas was
carved out from the former mbano local government areas during the creation of
additional local government in September 1989, with its headquarters situated
at Umuelemai, a border town along Anara– Umuahia Federal Road. It is made up of
three clans, namely, Osu, Ugiri and mbama. The local government is
predominantly
inhibited
by Christians who practice subsistence farming under local government policies.
Isialambano is located at the North –
East of lmo state capitalOwerri. It is traversed by Owerri / Okigwe / Anara /
Umuahiaand Okigwe /Umuahiahighways. It is bounded on the North by Onuimo local
government areas and some parts of Nwangele local government areas, on the east
by Elumembano local government area and on the south by Ikeduru andMbaitoli local
government areas respectively. It occupies a geographical land moss of 148sq
kilometres. It has provisional census figure of 198, 736 as at 2006 census.
Isiala-mbano local government has
twenty-seven(27) autonomous communities namely Osuama, Anara, OsuOwerri,
Umuduru, Ikwuano, Ezumeha, Isiama, Umundie, Umuelemai, Luwenneiri, Nneato –
Nweator, Ibeme – Amaise, Umuneke, Oka, Umunkwo, Amaraku, Amato – Amaraku,
Amauzari, Ekwedim and Umuenyi. There are twenty-one(21) recognized traditional
rulers in Isialambano L. G. A
(Culled from www.imo
state.gov.ng.(c) 2011 ministry of local government and chieftaincy Affairs).
BRIEF VIEW OF MBAITOLI
LOCAL GOVERNMENT AREA
Mbaitoli local government area was
created out of what used to be called Mbaitoli/ Ikedurulocal government under
the leadership of General Ibrahim B. Babangida on may11,1959.The local
government shares common boundaries
with Orlu, Njaba, Isu local area in the North, while
it southernboundary is with Owerri North and Owerri West local government
areas. Its western boundaries isOguta and Easternside are Isialambano and
Ikeduru, local government areas.The administrative headquarters of mbaitoli
local government is at Nwaorieubi which is situated along Owerri–Orlu Federal
Road.
It covers an area of approximately about 234sq
kilometres. The local government is indisputably the most populous in Imo state
with a population figure of 255000 going by the census figure. The local
government is made up of thirty –one (31) autonomous communities with twelve
independent Electoral commission (INEC) wards.
1.2
STATEMENT OF THE PROBLEM
Internal audit is beset by a
number of problems which include
1
The problem of corruption and
misappropriation of funds in the internal audit system of local government
especially in Isiala-mbano and Mbaitoli local government areas.
2
The problem of ineffective/inefficient
administration of the local government officials.
3
The problem of lack of understanding
between the internal audit unit and audit alarm committee which affects the
effective internal audit system.
1.3
OBJECTIVE OF STUDY
The
purposes of the research are as follows.
I. To determine the misappropriation of funds by the
administrators in the local government council.
II. To examine the ways of making the internal audit
unit effective in the administration of local government.
III. To ascertain the extent of un cooperative
attitude between the internal audit unit and audit alarm committee
1.4
RESEARCH QUESTIONS
There is no draying that most political
representatives at the local government levels lack the managerial skills
needed to efficiently administer the council, thereby, giving rise to
inefficiently in administration of the municipality. Due to all these, it
prompted the following question, this.
A. How
best can misappropriation and fraud be prevented in local government
administration by internal audit?
B. Has the
effectiveness of internal audit deferred administration excesses?
C. Has
the strained relationship between the audit committees and internal audit unit
cause the irresponsiveness to audit queries by the administrators
D. Has
the existence of effective internal audit capable of putting an end to
administrative abuse of power and inefficiencies?
E. What
is internal auditing‟s role in preventing, detecting and investigation fraud?
F. What
services can the internal auditors provide for the audit committee.
G. How
does effective internal auditing maintain its independence and objectivity?
H. How
can internal audit function by, measuring and evaluating the effectiveness of
other types of control?
I.
How
does the internal audit activity go about prioritizing its resources?
J.
How
can effective internal control be achieved?
K. How
can effective internal auditors can determine the level of adequacy of the
system of internal control?
L.
Has
the findings and recommendations been reported to the council.
M. Did
the internal auditor express his opinion on whether or not the financial
statement shows a true and fair view
N. To
what extent does the internal audit give the administrators assurance regarding
efficiency of the operation of the internal control in assisting them in them
in the efficient administration of the municipality?
O.
What
are the causes of inefficiencies and uneconomical practices?
1.5
RESEARCH HYPOTHESIS
The hypothesis will necessarily be
derived from the problem (question) stated earlier which the researcher intends
to investigate. It shall be stated in Null and alternative forms which will be represented
by
„Ho‟ – Null hypothesis
„Hi‟ – Alternative
hypothesis. These are stated as
A. Ho
– Corruption and misappropriation of funds affects the internal audit system of
local government especially in Isiala-mbano and Mbaitoli local government
areas.
Hi - Corruption and misappropriation of funds does
not affect the internal audit system of local government especially in
Isiala-mbano and Mbaitoli local government areas
B.
Ho - Ineffective/inefficient
administration will affect the local government officials
Hi - Ineffective/inefficient administration will not
affect the local government officials
C.
Ho
- Lack of understanding between the internal audit unit
and audit alarm committee which affects the
effective internal audit system.
Hi
- Lack of understanding between the internal audit unit
and audit alarm committee which affects the
effective internal audit system.
1.6 SIGNIFICANCE OF THE
STUDY
The significance of this study is to
state the fact and the importance of efficient local government administration
in the society this study is significant to these specific groups.
i. To
the researcher who has gained more knowledge on local government administrations.
ii.
To awaken the administrators of local
government areas to theirresponsibilities of efficient service delivery.
iii.
To arouse the consciousness of the
internal audit as respect to their role in ensuring efficient administration.
iv. To
provide interesting facts in areas to theirresponsibilities of efficient
service delivery.
1.7 SCOPE
According
to Nnamocha (2005:38), scope of study defines„the boundary
for the work in terms of time, institution and the
extent of coverage promised in the study”.
The researcher promised in the limit the
research findings to the area of financial procurement administrative departments,
internal audit department and stores department of the local government areas.
The areas intended to be covered by this
research is the local government areas in Imostate, using Isialambano and
mbaitoli local government area
1.8 LIMITATIONS OF THE STUDY
The limitations involved in the course of this
research includes hostility and non-cooperation on the part of some of the
respondents, and also the constraints of time was a limiting factor in the
course of writing
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