The Role of Internal Auditing in the Effective Management Control of Local Government. (A Case Study Ikot Ekpene L.g.a.)
Chapter One
OBJECTIVE OF THE STUDY
The objectives of the study are;
- to find out the role of internal auditing in management control in local government.
- to find out whether the function of the internal audit department are performed in compliance with the established standards and policies and how much it has succeeded in achieving the objective of the local government.
- to find out the benefit that may be derived from effective audit control system in local government.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
It is essential that we have a fair knowledge of the content of the topic, and this knowledge is gained by reviewing some general works on the topic. For a good work to be achieved, literature review is a very crucial aspect of research that cannot be overlooked. Although literature on government accounting and auditing is very scanty, this possibly could be because of the lack of cohort existence among government Accountants (quite unlike their commercial counterparts), and the apparent reason that independence of government accounting and auditing is not very easy to establish. However, reasonable efforts have been made to review a few that are available and that of commercial auditing where necessary and applicable. According to Howard (1982) internal audit is “a review of operations and records, sometimes continuous, undertaken within a business by a specially assigned staff”. Where there is an internal audit department or unit this may form a valuable part of the whole system of internal control and according to its efficiency or otherwise may influence considerably the conduct of the audit. He further stated that internal auditing is carried out with a view to seeing that the system of operation is adhered to and that the internal control is as efficient as possible and that economies consistent with efficiency are applied to the business. Taylor & Glazen (1978) described internal auditing in their statement as the responsibilities of the internal auditors as “the independent appraisal activity within an organization for the review of accounting system and other operations as basis for protective and constructive services to management”. Millichamp (1984) defined internal auditing as “an independent appraisal activity within an organization for the review of operations as a service to management: it is a managerial control which functions by measuring and evaluating the effectiveness of other control. He further stressed that internal auditing involves such activities as: a) Reviewing and appraising soundness, adequacy and application of accounting, financial and operating controls; b) Ascertaining the extent of compliance with established policies, plans and procedures; c) Ascertaining the extent to which organization’s assets are accounted for, and safeguarded from losses of all kinds; d) Ascertaining the reliability of accounting and other data developed within the organization; and e) Appraising the quality of performance in carrying out assigned responsibilities. Section 123(1) of the 1979 Constitution of the Federal Republic of Nigeria stipulated measures for the control of public funds. These include the auditing of public accounts and appointment of Auditor-General. Sections 125 and 126 of the 1999 Constitution (Nigeria) dealt with the same matter. Ogunna (1996:37) observed that auditing of local government accounts is a crucial aspect of the financial management and effective control mechanism. The final accounts which are given in annual statement of accounts of the local government are subject to audit. In Nigeria, in the past, this was carried out by the State Government Auditor-General and his staff. Following the Babangida Administration’s reforms aimed at giving autonomy to local governments, the local government accounts are now audited by the Local Government Auditor-General of a State and his staff. Ogunna further stated that auditing of local government funds is a powerful financial control mechanism which ensures that the scarce financial resources are prudently and judiciously managed to effectively fulfill the functions allocated by law to the local governments. The 1988 Implementation Guidelines on the Application of Civil Service Reforms in the Local Government Service made it clear that Internal Audit Unit be established in each local government to provide a complete and continuous auditing of the accounts and records of revenue, expenditure, plant, allocated and unallocated stores where applicable. The Instruction furthermore established Audit Alarm Committee and Office of Auditor-General of Local Government in each state of Nigeria. According to Dale (1965:4), “the primary objective of an audit is to form and express an opinion concerning the truth and fairness of financial statements”. He posited that the words true and fair are probably the most important and yet the most ill-defined words for the auditor. They do not identify a unique picture, they do not mean correct in the mathematical sense nor even legally accurate. To be true and fair is to be not misleading and to be understandable by the educated layman. The examination and report of the auditor adds credibility to the financial statement. However, to maintain that credibility, the auditor must be independent of the management. Anything that indicates the involvement of financial interest in the managing of the enterprise will reduce the effectiveness of the auditor’s opinion. On the controls of auditing, the financial memoranda form the most comprehensive instrument through which an internal management of control of local government funds are carried out. According to Anambra State Financial Memoranda, the internal management and control of local government funds are to ensure that local government funds are properly accounted for in various accounting books and records described in the Financial Memoranda and to ensure proper control over local government expenditure. Some scholars are of the view that control exists in local government with little or no explanation on the effectiveness of the control. Okolo (1987:33) said that the greatest number of frauds committed in the local government councils are effected by printing of fake receipts by Revenue Collectors. Some of these receipts could be so well faked as to look genuine, and except by chance, an auditor does not ordinarily discover this type of fraud. Okolo opined further that it is the duty of the Council Treasure to watch closely the returns of each Revenue Collector. Revenue Collectors appear to be accounting far less than they should be collecting from a particular source (e.g. Motor Park Fees). He further said that another area auditor should be on watchout, is the employment and use of casual labour: There are known cases where people placed on council payroll as Road Workers are in fact engaged full-time on the private farms of some top local council officials. The inclusion of nonexistent casual labourers on the payroll is also a common type of fraud in local government council, and the auditor has to pay particular attention to this. Nwosu (1983:28) on his own part said that there is need for an effective cost control system in Nigerian local government councils. He posited that all public agencies in Nigeria should adopt effective cost control system which facilitates attainment of target objectives. Nwosu also suggested that Programme Planning and Budgeting System (PPBS) serves as both a cost control system and a management tool for accomplishing better results. Oladimeji (1986:171) picked hole with the state local government edict(s). According to him, the edict(s) have little to say about the manner in which the auditor should undertake his task. The provisions in the edict concentrated mainly on five matters only, viz: disallowance and surcharge, recovery of surcharges, taking evidence, appeals from decisions of the auditors, certification by the auditor of the annual financial statement. He also saw audit report as very vital aspect in the chain of financial management. He opined too that the entire edifice of financial management in government revolves around one single theme, the principle of accountability. Accountability is a comparison of the accounts submitted at the end of the cycle with the budget made at the beginning – a check of performance against legitimate authorizations. Oladimeji pointed out three main objectives of auditing, viz; 1) Assuring that the Annual Finanical Statement produced at the end of the financial year is a true and fair statement of its financial transactions during the year. 2) To assure the people that the affairs of the government have been properly conducted during the year”. Amaechi (1988:13) observed that in the past, some external audits were usually carried out two or three years after the end of the financial year to which they relate. Not only does such a practice run contrary to the provisions which require government and the auditors’ report thereon to be published within six months after the end of the financial year, but such a long delay often destroys completely the effectiveness of the provisions relating to disallowance and surcharge. Where, for example a substantial amount in fraud has been committed, it is unlikely that those concerned will be stupid enough and content to remain in post for very long. In the light of the above, he suggested that there is a strong case for the external audits of a government financial affair to be partly carried out during the financial year. This arrangement should enable prompt action to be taken, when necessary by way of disallowance and surcharge and it also facilitates the speedy completion of the audit after the end of the year. This will enable an early submission of the audit report to be made.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought the role of internal auditing in the effective management control of local government
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information the role of internal auditing in the effective management control of local government. 200 staff of ikot ekpen local government area, Akwa ibom state was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the role of internal auditing in the effective management control of local government. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the role of internal auditing in the effective management control of local government
Summary
This study was on the role of internal auditing in the effective management control of local government. Three objectives were raised which included: . to find out the role of internal auditing in management control in local government, to find out whether the function of the internal audit department are performed in compliance with the established standards and policies and how much it has succeeded in achieving the objective of the local government and to find out the benefit that may be derived from effective audit control system in local government. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of Ikot Ekpene local government area, Akwa Ibom state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made directors, administrative staff, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
This study depicted the status of internal audit at local government in Nigeria; it is a conceptual literature review. The study contributes to the existing literature on internal audit at local government particularly Nigeria. Therefore, more research is required to be conducted in internal audit at local government in order to contribute on the improvement of internal audit status at local and also to contribute in internal auditing literature.
Recommendation
The weak relationship identified in this study between internal audit and external audit effectiveness can be attributed to the inability of the internal audit unit of the local government surveyed to effectively review accounting records maintained and financial reports prepared by the bursary unit. There is therefore need for the internal audit unit of each of the Ikot Ekpene local government to reactivate its accounting and financial reporting review engine and maintain sufficient and appropriate documentation of work done to provide a basis for the external auditor’s reliance on internal audit work.
References
- Abdul Halim. (2004). Akuntansi Keuangan Daerah. Jakarta: Penerbit Salemba Empat.
- Anthony, N. Robert, and David W. Youget. (2003). Management Control in Nonprofit Organizations. 7 th Edition. New York: McGraw-Hill.
- Arens, Alvin A dan Loebbecke, James K. (2003). Auditing Suatu Pendekatan Terpadu. Diterjemahkan oleh Amir Abadi Jusuf. Salemba Empat. Jakarta.
- Arens, Alvin A. Randal J.Elder, Mark S.Beasley. (2012). Auditing and Assurance Services and ACL Software. 14 th Edition. New Jersey : Prentice Hall.
- Boland, Tony and Alan Fowler. (2002). A System Perspektive of Performance Management in Public Sector Organizations. The International Journal of Public Sector Management. Vol.13 No.5,pp1-37.
- Boynton William C., Raymon N.Johnson, Walter G. &, Kell. (2006). Modern Auditing. 8th Edition. USA. Richard D.Irwin Inc.
- Cangemi, Michael P. and Tommie, Singleton. (2003). Managing The Audit Function: A Corporate Audit Department Procedures Guide. Third Edition. John Willey & Sons.Inc. Committee of Sponsoring Organizations of The Treadway
- Commission (COSO). (1994). Internal Control – Integratet Framework, AICPA Publication.
- Cox, T. Clifford, and Henry Wichman, Jr. (1999). The Percived Quiality of Internal Control System and Reports for State and Local Government, Auditing:A journal of Practice & Theory. Vol 12.No 2.Fall.
