INTERNAL AUDIT AS A TOOL FOR MANAGEMENT CONTROL

INTERNAL AUDIT AS A TOOL FOR MANAGEMENT CONTROL

(A CASE STUDY OF TOTO LOCAL GOVERNMENT COUNCIL NASARAWA STATE)

ABSTRACT

This research attempts to study Internal Audit Department in the area council (a case study of Toto Local Government Council, Nasarawa State). The main objectives of this research are to find out the effort made by the internal audit department to comply with auditing standard in carrying out there work, to review the accounting and internal control system via the operation of internal audits department while the other objectives are to examine the financial and operating information which may include review of the means used to identified, measure, classify and report information and specific inquiry into individual items including detailed testing transaction, balances and procedures. The significance of the study is to review and aid the area council to ensure that due procedures for revenue receipt and expenditures and protection of assets acquire are adequately followed. This study will also aid the parastatals to improve the area of heir weakness and appropriate solutions to their problems.

CHAPTER ONE

1.1     Background Of The Study

Audit as a discipline emerged from the stewardship function. Stewardship refers to the practice of business where by owners of resources – (of capital business) give the other manager to manage for them. As these organizations (both profit making and non profit making organizations) grew in size and became more complex, the need to have complete independent person to attest to these records by those who managed the resources provided by other people emerged. The attest function is known as auditing. The objective being to give credibility to such records and statements produced by the managers. The independent persons who examined these records and statements report back to the providers of resources and inform them of their findings. It is relevant here to mention that initially the only qualification required of an auditor was good reputation, true and fairness. The issue of technical ability was not given any serious consideration in selecting an auditor. This practice of serving as watchdogs for the owners of resources in respect of how their resources were managed by others developed over time and has today given rise to auditing as a profession. The Accountant profession has taken over the audit function because of high technical skill and competence expected from today’s professional accountants are now required to examine financial records and books maintained by organization and express an opinion on the accuracy and correctness of the financial statements. The auditor is expected to state whether in his opinion the financial statement give a true and fair view of the state affairs of the organization – this is primary duty of the auditors. In addition to expressing his professional opinion, the Auditor is expected to perform certain tests which will enable him to highlight errors and fraud where they exist. He can also prevent errors and frauds by the deterrent effect of his work, these also constitutes the secondary duty or function of the Auditor. It is also same stewardship status that is applicable in the Local Government Administration. The local government is the third tier of government and it consist of department namely personal, account. Social services, works, agriculture. Primary health care and statistic department which is just been approved with several units among of such personal department which has the audit unit regulating the affairs of the local government and keeping proper daily transaction for future used.

1.2     Statement Of The Problem

The principal aim of this project is to show how useful of internal audit is to management decision taken in business organization policies and safeguarding of business assets as a whole. It will further reveal how an internal auditor can be helpful in aiding management with sufficient information for economic decision making. It will also reveal the importance of internal audits as a managerial tool for effective control.

As a result of the societal attitude to wealth today and the desire of many to be among the wealthy class, there has been wide rate of fraud in several private and public organizations through out the country. Some time ago, the members of the public were bitter over the fraudulent activities of people entrusted with the responsibilities of taking care of the government funds they further argued that the problem of the country is not lack of resources, human, material and otherwise but the amount of fraud by people in authority across the country, this unlucky incidence occurs everyday, hence the need to consider the present situation in the country today. Should the reckless misappropriation of funds and materials be allowed to continue? This therefore calls for a functioning, monitoring unit within the organization to be a barrier to fraudulent activities, which is the internal Audit.

1.3     Objectives Of The Study

          The objectives of this study are:

1.     To determine the importance of internal audit in the Local Government.

2.     To identify the causes of frauds and misappropriation in the Local Government

3.     To proffer useful suggestions towards how these frauds and misappropriation can be corrected.

1.4     Research Questions

          The research addresses the following questions:

a.     What are the importances of internal audit in the Local Government?

b.     What are the causes of frauds and misappropriation in the local government?

c.      What methods can be used to proffer solution to reduce these frauds and misappropriations in the local government?

1.5     Statement of Hypothesis

HO₁: Internal control units is not very important in the Local Government

H1₂: Internal audit unit is very important in the Local Government..

HO₂: The internal audit unit in Local Government does not need a careful review and evaluation on causes of fraud.

H1₂::The Internal audit unit in Local Government needs a careful review and evaluation on cause of frauds.

HO_3: There are no proper measures put in place to reduce frauds in  local government.

H1₃ There are proper methods put in place to reduce frauds in local government.

 1.6    Significance of the Study

This study is to enlighten interested persons on the roles which the internal audit plays in an organization. The study also aims at identifying the causes of frauds and misappropriation of funds in the public and private service and find possible solution to stop the practice. It will ascertain whether auditing plays any significant role towards ensuring public accountability. More so, it will examine the roles of both external and internal audit department and provide a rationale of assessing the performance of each of the department with a view of improving the present trends.. It will offer useful suggestions towards making the Audit departments more effective and ideal. A thorough and detailed examination of this project work reveals the impact of auditing as a management effective control, since many people do not know how to improve the system of internal Auditing in their organization.

1.7     Scope of the Study

The research work covers internal audit in public sector with more emphasis on the Internal Audit Unit of Toto Local Government Council Nasarawa state. The limitation of the scope of this research is also due to the fact that all required information cannot be gathered from any text book or publication because the report of the internal Auditors are not published they are strictly kept secret. It covers a period of 2008 to 2013

1.8     Definition of Terms

Evaluation: To asses or form an idea of the quality or value of managerial control over asset in the organization.

Control: Is the monitoring and modification of organizational activities and resources utilization to ensure that plans are carried out according to pre – determined.

Internal Checks:There are precautionary measure internally instituted by organization for prevention and early detection of errors and fraud by the management.

Organization: It is a conscious grouping of person together for the purpose of effectively accomplishing a common objectives. L.G.C: Local Government Council.

Authorization: This is the right to command base on power to exercise it.

Internal Audit/Inspection: Is an independent appraisal of activities within an organization for the review of operations by measuring and evaluating the effectiveness of the internal controls.

Verification: It is the substantiation of the existence of financial record and value of asset and liabilities as at the date of balance sheet.

Remoteness: Users of financial information are usually separated from a company accounting record by distance and the time as well as lack of expertise.

Consequences: The enormous wealth of the investor and other wealth represent a large amount and massive efforts.

Internal Auditing: This is defined as an “independent appraised activity within an organization for the review of operation as a service of management control which functions by measuring and evaluating the effectiveness of other controls”.

Revenue: Revenue is fund raised by a government for public purpose and consisting of licenses, taxes, including direct taxes and exercise fees, special assessment fine, e.t.c.

Assets: Assets consist of property of all kinds such as building, machinery, stock of goods and motor, vehicle and also amount of money in the bank account, it also include physical cash.

Liabilities: Liabilities consist of all obligations to a company or an individual. It consists of money, loan e.t.c.

Capital: capital which is often called the “owner’s equity” or net worth consist of the monetary value of property and money introduced into the business by the proprietors.

Cash Book:Cash book is a subsidiary book in which are recorded all cash receipts and payments it forms the posting medium or base for other accounts by cash transactions.

Ledger: The ledger is the principal book of the original entry in which are recorded all transactions after their classification into suitable groups.

Journal: This is otherwise as sale journal or purchase Journal. It is a subsidiary book in which we make the initial entry or the originating entries or prime entries excluding cash transaction in a chronological order (day by day). It is one of the book of account in which all credit transaction made are entered or recorded.

Creditor: Creditor are customer that have sold goods or services rendered or lend money to a company which has not been paid.

Debtors: Debtors are company customer who have not paid for goods sold or services rendered to them or money lent to them.

Cashier: A cashier is a person who receive and pays out money.