Internal Audit Procedures and Problems in a Banking Institution
Chapter One
Objectives of Study
This research presented general and specific objectives.
General Objective
To investigate whether internal audit contributes to the financial performance of banking institutions in Nigeria.
Specific Objectives
Specific objectives have been drawn from the overall objective of the study and they include the following:
- To investigate the impact of internal audit on return of assets of Eco bank Nigeria;
- To examine the effectiveness of internal audit as appropriate means of detecting fraud in Eco bank Nigeria;
- To establish the relationship between internal audit and the financial performance of Eco bank Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
This chapter is detailed with the review of the relevant and related literature in comparison with the study. The literature is gathered from different sources such as books, reports and electronic sources.
Theoretical Literature
Banking Institutions Financial Performance
A commercial bank is every type of bank that provides services such as accepting deposits, making business loans, and offering basic investment products (Beyanga, 2011).
They are many aspects of the financial performance of commercial banks that can be analysed. Muga (2012) stated that the importance of bank performance can be appraised at the micro and macro levels of the economy. At micro level, profit is the essential prerequisite of a competitive commercial banking institution and the cheapest source of funds. It is not merely a result, but also a necessity for successful banking in a period of growing competition on financial markets. Hence the basic aim of every bank management is to maximize profit, as an essential requirement for conducting business. At the macro level, a sound and profitable banking sector is better able to withstand negative shocks and contribute to the stability of financial system.
Commercial bank profits provide an important source of equity especially if re-invested into the business. This should lead to safe banks, and as such high profits could promote financial stability.
Schiuma (2003) mentioned accounting-based performance using the three indicators: Return on Assets (ROA), Return on Total Equity (ROE) and Return on Investment (ROI). These are widely used to assess the performance of firms including banking institutions. Bank regulators and analysts have used ROA and ROE to assess industry performance and forecast trends in market structure. The main purpose of this study is to examine if internal audit can actually enhance growth of banking institutions.
Internal Audit
According to Robertson (1976), internal audit may be defined in several ways depending upon what purpose is to be served. Pickett (1976) stated that “internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.
It helps an organization accomplish its objectives by a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes”. This definition actually seeks to demonstrate the depth and breadth of the internal audit activity within an institution as against the previous orientation of reviewing payment transactions over the years.
Internal audit is an objective and independent appraisal service within an organization on risk management, control and governance by measuring and evaluating their effectiveness in achieving the organization’s agreed objectives. In addition, internal audit’s findings are beneficial to the Board of Directors and line management in the audited areas. The service applies the professional skills of internal audit through systematic and disciplined evaluation of the policies, procedures and operations that management put in place to ensure the achievement in the organization’s objectives, and through recommendations for improvement (Dumitrescu, 2004).
The Board of Directors of the Institute of Internal Auditors in June 1999 described internal audit as an independent, material and consultancy activity which adds value and improves the functioning of an organization. It helps the organization achieve its aims by means of a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control and management process.
Internal audit has several aims and principles which bears final responsibility that the bank’s management applies an appropriate and effective system of internal audit, a system of evaluating banking activity risk and risks concerning bank capital, appropriate methods of monitoring compliance with laws measures and internal procedures. Likewise, the bank’s management is responsible for drawing up procedures which identify measure, monitor and control the risks that the bank faces. Internal audit is a part of the repetitive monitoring of the internal control systems of the bank and its procedures for evaluating internal capital. As such, it assists management and the board of directors in the effective performance of their responsibility as outlined above (Gramling, 1977). Although the need for objectivity and impartiality is of particular importance for the internal audit department in a commercial banking institution, this does not exclude the possibility that this department, too, may contribute to advisory and consultancy activity, if the independence of analyses and evaluations is ensured.
Some banking institutions have also introduced a system of evaluating their activities, which does not replace, but supplements the function of the commercial bank’s internal audit. This is a formal and documented process whereby management and employees analyse their activities and evaluate the effectiveness of the related internal control procedures (Hawkes, 1994).
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter sets out various stages and phases that were followed in completing the study. It involved a blueprint for the collection, measurement and analysis of data. Specifically, the following sub-sections were included; research design, target population sample size and characteristics.
The chapter explained tools and techniques used in data collection, how research variables were analyzed, and procedures of data collection, data processing analysis and data interpretation. It outlines the study area, the population study, techniques of sample selection and its size.
Research Design
The study adopted a descriptive design which according to Kothari (2004) is used when the problem has been defined specifically and where the researcher has certain issues to be described by the respondents about the problem. Responses of Ecobank Nigeria staff were captured with use of structured questionnaire and percentage provided for comparison. It involved both qualitative and quantitative approaches. The use of two approaches at the same time in the basic research was recommended by (Gay, 2000) as the best way to get sufficient results.
Target Population
According to Ngechu (2004), a study population is a well-defined or specified set of people, group of things, households, firms, services, elements or events which are being investigated. Thus the population should fit a certain specification, which the researcher was studying and the population should be homogenous. The target population for this study was 200 Ecobank Nigeria staff.
CHAPTER FOUR
DATA ANALYSIS, FINDINGS AND INTERPRETATION
Introduction
This chapter presents analyses and discusses the findings. The chapter begins by identifying characteristics of the respondents. This is followed by the presentation of the views of Ecobank Nigeria staff. The third section focuses on verifying the achievement of objectives of the study. The analysis was both quantitative and qualitative. The analysis helped the researcher to interpret the results.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Introduction
This chapter presents the conclusion which is drawn from the major finding and the entire research, on considering the major findings and the general conclusion; some recommendations are put forward by the researcher.
Summary of findings
This research aimed to find the influence of internal audit on the financial performance of banking institutions. This research used survey, descriptive and explanation method. The research is used both qualitative and quantitative. Data collected through questionnaires and interview was analyzed statistically using descriptive via excel and SPSS with its current version named IBM SPSS. The summary of findings is presented here below.
Objective one
Objective one was to investigate the impact of internal audit on return of assets of Ecobank Nigeria. According to the information from the data analysis, 50% indicated to excellent, 42.1% of the respondents indicated to a very good impact, 5% of respondents indicated to fair impact whereas 0% of the respondents indicated to a poor impact. Basing on the above results and the financial reports from 2011-2015, a research concludes that internal audit has positive impact on return of assets of Ecobank Nigeria.
Objective two
The objective two aimed to examine the effectiveness of internal audit as appropriate means of detecting fraud in Ecobank Nigeria. From the findings, 53.1% indicated to excellent, 46.8% of the respondents indicated to a very good extent whereas 0% of the respondents indicated to a poor extent. Basing on the above results, we can confirm that internal audit is very useful in detecting fraud in Ecobank Nigeria.
Objective three
Objective three was to establish the relationship between internal audit and the financial performance of Ecobank Nigeria. From research findings all respondents viewed that there is relationship between internal audit function and financial performance of Ecobank Nigeria because they responded at 100%. This implies that there is a strong positive relationship between internal audit and financial performance of Ecobank Nigeria.
Conclusion
The conclusion is based on responses of research questions. In this survey the results from respondents showed at 50 % that internal audit has excellent impact on return of assets of Ecobank Nigeria, 42.1% indicated to a very good impact, 5% of respondents indicated to fair impact whereas 0% of the respondents indicated to a poor impact. Thus, these results helped to answer the question no 1 of this research.
The findings also shown that 53.1% of the respondents said that internal audit is an excellent way of detecting fraud in Ecobank Nigeria, 46.8 % of the respondents indicated to a very good extent and 0% of the respondents indicated to a poor extent. These results helped to answer the second question of this study. Finally, the third question of this study has been answered since all respondents confirmed that that there is relationship between internal audit function and financial performance of Ecobank Nigeria because they responded at 100%.
Recommendations
There is need for the internal auditors to continuously update themselves with the changing times and technologies and sharpen their skills. By applying skills to the most critical points, building personal and professional credibility and recognizing and responding to the needs, internal auditors can become indispensable thus speeding good governance and enhancing efficiency of internal audit.
The management of Ecobank Nigeria should keep organizing seminars and workshops whereby these internal auditors would be trained frequently by experts either internally or externally. Internal Auditors must have sufficient proficiency and training to carry out the tasks assigned to them. The auditor’s work must be carefully directed, supervised and reviewed. The amount of supervision required corresponds to the experience and skill of the auditor.
The management of Ecobank Nigeria should also procure the latest ICT audit software‘s. This would enhance fast delivery of services and detection of frauds or any mischief in this field. Internal auditors should be fully trained on how to use the software‘s and fresher courses should also be increased in this regard. Frequent upgrading of the software‘s should be done to keep abreast with the changing technology.
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