AN ASSESSMENT OF INTERNAL AUDITORS ROLE IN FEDERAL MINISTRIES

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AN ASSESSMENT OF INTERNAL AUDITORS ROLE IN FEDERAL MINISTRIES

(A CASE STUDY OF FEDERAL MINISTRY OF TRANSPORT ABUJA)

ABSTRACT

This research work assesses internal auditors role in Federal Ministries Transport, the main objective of this research work is to determine the extent of effectiveness of fraud detection and control mechanism, to examine the procedures in fraud detection and control in government organizations. In undertaking this research work, both primary and secondary data were used. The primary data were obtained through the use of questionnaires: the secondary data were obtained from the review of related literatures.  Questionnaires were administered and Ninety nine were duly completed and returned. Anova method was used for analysis of the questionnaires, it was found out from study that there is presence of effective and adequate internal control system in operation to curtail the future occurrence of fraud in Federal Ministry of Transport Abuja. And that without doubt, this fraud detection and control mechanisms are effective and also it was noted that fraud could be detected through normal audit. In the light of the above findings, the researcher recommends among others that staff should be made to rotate their job from time to time to eliminate any possible exploitation caused by long stay on a particular job to commit fraud. The researcher also recommended that the welfare of the staff in the Federal Ministries should be given priority as this will go a long way to reducing the rate of fraudulent activities in public offices. The researcher further stated that, thorough supervision should be carried out during and after a task is executed that is to say the activities of junior staff should be properly checked by another senior staff that has more years of experience in the field. Finally, Staff Welfare: since average remuneration has been identified as one of the reasons responsible for persistent cases of fraud, it is recommended that the audit staff in particular and the other staff in general, should adequately be remunerated. This will bring contentment to the staff and hence reduces the temptation to get involve in fraudulent activities in the Federal Ministries. All other benefits should equally be improved and paid as at when due.

CHAPTER ONE: INTRODUCTION

1. Background to the study

Auditing is the examination of accounting records with a view to ascertaining their accuracy and compliance with relevant statutory provisions, accounting standards, professional pronouncements, and the organisational policies.

The Chartered Institute of Public Finance and Accountancy (CIPFA), as cited by Johnson (1996:47), defined internal audit as “an independent appraisal function within an organisation for the review of activities as a service to all levels of management. It is a control which measures, evaluates and reports upon the effectiveness of internal control, financial and otherwise, as a contribution to the efficient use of resources within an organisation.”

According to Gupta (1999), internal audit is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization.

Jocelyn (2003:67) traces the definition of internal auditing given by the Institute of Internal Auditors as “an independent appraisal function established within an organisation to examine and evaluate its activities as a service to the organisation.” The objective of internal auditing is to assist members of the organisation in the effective discharge of their responsibilities.

Internal auditing is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization. The objective of internal auditing is to help members of the organization in the effective discharge of their responsibilities. In view of this, internal audit furnishes them with analysis, appraisal, recommendations, counsel and information concerning the activities reviewed (Institute of Internal Auditors, 1991).

According to Institute of Internal Auditors (1991), the scope of internal auditor is defined as “The examination and evaluation of the adequacy and effectives of the organization’s system of internal control and the quality of performance in carrying out assigned responsibilities”.

Danbatta (2004) concludes that a properly conducted internal audit is expected to reveal errors, strengths or weaknesses of internal control system of the organization. Base on his conclusion, there is significant positive relationship between internal audit and internal control.

Vos (1997) said that objective of internal auditor is to evaluate effectiveness of financial and operating control, confirm compliance with company policies, procedure, protect assets verify the accuracy and consistency of organization’s external and internal reports. Stoner (1994) was of the opinion or view that the objective of internal audit is to evaluate several of the organization’s reports for accuracy and usefulness and also recommending improvement of the control system.

Tracey (1994) is of the view that it is the responsibility of the internal auditor to review how well the accounting system works and also evaluate the effectiveness and efficiency of many operations in the organization. A lot of public sector has been operating without internal auditor. This can be attributed to the fact that few people outside the accounting profession realize the importance of the internal auditor. Emphasis was laid on discharging accountability for the use of owners fund through the internal auditor report. Some public sector management adduces the argument that internal auditors, being employees in public sector do not have the liberty to exercise the unbiased and independent attitude so necessary to an auditor.

1. Statement of the Problem

In spite of various pronouncements on internal audit in the Nigerian Public Sector, the general opinion according to literature is that most of the public enterprises have failed to deliver on the purposes for which they were established. Many people accuse managers of public enterprises in Nigeria of ineffectiveness and inefficiency in terms of resource control. They argue that poor application of internal audit principles and procedures leads to blatant diversion of scarce resources with its attendant consequences on the traditional accountability of government to the public. However, mention must be made that the ineffective implementation of internal audit procedures in the Nigerian public sector is not only attributable to unavailability of adequate legislations. It also hinges on whether there are adequate punishments for violations of internal audit procedures and whether the punishments are justly and effectively applied whenever need be. With these looming cases against the performance of internal audit procedures the researcher considered it a matter of urgency to have an in-depth assessment of internal auditors role in Federal ministries with particular interest in Federal Ministry of Transport Abuja.

1. Research Questions

To achieve the objectives of the study the following research questions are answered:

1. To what extent is the effectiveness of fraud detection and control mechanism used by internal auditors in Federal Ministries?
2. Are there procedures used in fraud detection and control in government organisation?
3. Do internal auditors report irregularities to the management?

1. Objectives of the Study

The main objective of this study is to assess the internal auditors role in Federal Ministries.

The following are the specific objectives:

1. To determine the extent of effectiveness of fraud detection and control mechanism in Federal Ministries by internal auditors
2. To examine the procedures in fraud detection and control in government Organizations.
3. To evaluate whether internal auditors report irregularities to management.

1. Statement of Hypotheses

H₀₁: Fraud detection and control mechanism used by internal auditors is not effective in the Federal Ministries.

H_A2: Fraud detection and control mechanism used by internal auditors is effective in Federal Ministries.

H₀₂: Internal auditors do not have procedures to use in fraud detection and control.

H_A2: Internal auditors have procedures to use in fraud detection and control.

1. Significance of the study

This study brings to light the role of internal auditor in fraud detection and control in Federal Ministries which is been limited to Federal Ministry of Transport Abuja as a case study.

Therefore this research study will be of great benefit to ministries, government parastatals, and corporation in order to know the weakness of internal control system of the organization that give room for the fraud and also to determine the existence of the fraud in the organisation.

It will also be of importance to those in academic and researchers in accounting and audit field to have more knowledge on the role of internal auditor, in fraud detection and control.

The above mentioned benefits will improve extensively if they use report Submitted by the internal auditor to management for corrective measures and also all the recommendations will be put into consideration.

1. Scope of the study

The researcher embarks on an assessment of internal auditor’s role Federal Ministries in Nigeria as a whole. But the resources and duration of the time and cost did not give enough room to cover the entire Ministries in Nigeria at large. For this reason, the researcher took Federal Ministry of Transport as a case study. The period under consideration and review was year 2016.

1. Limitations of the study

This research is limited to the role of internal auditor in fraud detection and control in Federal Ministry of Transport Abuja; this is because the researcher will not be able to cover all the ministries and government parastatals within the limited time.  The researcher also finds it difficulties in gathering data from the research population as they considered such information as confidential.

1. Definition of Terms

Auditor: An auditor is an independent person who is appointed to investigate the organisation, its records and financial statement prepared for them, and thus form and opinion on the accounting and correctness of the financial statement.

Errors: This refers to an unlimited mistake or act committed by employee in the financial statement and accounting records, whether of the mathematical or clerical nature, whether in application of the accounting principles or due to oversight or misinterpretation of relevant facts

Fraud: This is an intentional act by one or more individuals among management those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.

Fraudulent practice: This is an intentional violation of internal control system in an organisation for the acquisition of unjust benefits either in monetary terms or in kind by a fraudster in the Federal Ministry of Transport Abuja Nigeria Misrepresentation: this refers to the reporting of wrong facts in financial statement for the use of the management and other regulatory bodies.

Irregularities: This refers to intentional distortion of financial statements and accounting records for whatever purpose and misappropriation of assets whether or not accompanied by distortion of financial statement and accounting records.

Misappropriation: This could be seen as taking somebody’s money or property for yourself especially when they have trusted you to take care of it.

Finance: the management of large amounts of money, especially by governments or large companies.

Financial Statements: Financial statements present the results of operations and the financial position of the company. Four statements are commonly prepared by publicly-traded companies: balance sheet, income statement, cash flow statement and statement of changes in equity.

Parastatal: A company, agency, or intergovernmental organisation, that possesses political clout and is separate from the government, but whose activities serve the state, either directly or indirectly.

Fiction: Is a deliberately fabricated account of something. It can also be a literary work based on imagination rather than on fact, like a novel or short story. The Latin word fictus means “to form,” which seems like a good source for the English word fiction, since fiction is formed in the imagination.