AN EVALUATION OF THE ROLE OF INTERNAL AUDITORS IN A
[A CASE STUDY OF
NALADO CONSTRUCTION COMPANY LIMITED, KADUNA]
TABLE OF CONTENTS
page - - - - - - - - - - i
Declaration - - - - - - - - - - ii
page - - - - - - - - - iii
Dedication - - - - - - - - - - iv
Acknowledgment - - - - - - - - - v
Abstract - - - - - - - - - - vii
of Contents - - - - - - - - - viii
CHAPTER ONE: INTRODUCTION
Introduction - - - - - - - - 1
Background of Internal Auditing- - - - - - 7
Statement of the Problem - - - - - - 9
Objectives of the Study - - - - - - - 10
Research Questions - - - - - - - 11
Significance of the Study - - - - - - 11
Scope of the Study - - - - - - - 12
2.0 Literature Review - - - - - - - - 14
2.1 Introduction - - - - - - - - 14
2.2 Concept of Internal Auditing - - - - - - 16
2.3.1 Scope and Objective of Internal Audit - - - - 18
2.3.2 Qualities of Internal Audit Staff - - - - - 19
2.3.3 Responsibilities of an Auditor - - - - - - 20
2.3.4 Management Role of Internal Audit - - - - - 23
2.3.5 Operation of Internal Audit in Construction - - - 23
2.3.6 Essential Element of Internal Audit - - - - - 26
2.4 Relationship between the Internal and
External Audit - - 29
2.5 Reliance on Internal Auditor - - - - - - 31
2.6 Duty in Relation to Fraud on Irregularities - - - - 34
2.7 Internal Auditors and Internal Control
System - - - 34
2.8 Internal Check - - - - - - - - 36
2.9 Reporting - - - - - - - - - 40
3.0 Research Methodology - - - - - - - 41
3.1 Introduction - - - - - - - - 41
3.2 Research Design - - - - - - - - 43
3.3 Secondary Sources of Data - - - - - - 44
3.4 Population of the Study - - - - - - - 46
3.5 Sampling Techniques - - - - - - - 46
3.5 Sample Size - - - - - - - - - 47
3.7 Method of Data Analysis - - - - - - 48
3.8 Limitations of the Study - - - - - - - 49
4.0 Introduction - - - - - - - - 50
4.1 Analysis and Interpretation of Data - - - - - 50
4.1.1 Personal Data - - - - - - - - 51
4.1.2 Other Relevant Issues - - - - - - - 51
4.1.3 The Role of Internal Audit - - - - - - 53
4.1.4 Independence of Internal Auditors - - - - - 54
4.1.5 Performance of Internal Auditors - - - - - 54
4.1.6 Internal Auditors and Fraud Prevention - - - - 55
4.1.7 Duties of Internal Auditors - - - - - - 55
4.1.8 Problems Encountered by Internal Auditors - - - 56
5.0 Summary, Conclusion and Recommendation - - - 57
5.1 Summary - - - - - - - - - 57
5.2 Conclusion - - - - - - - - - 60
5.3 Recommendations - - - - - - - 61
Bibliography - - - - - - - - 63
Appendix - - - - - - - - -
Questionnaire - - - - - - - -
Internal Audit Units are established in organizations in
order to assist members of the Organization in the effective discharge of their
responsibilities, monitor the use of resources and make recommendations for the
improvement of the organizational operations.
The day-to-day operation of an organization is delegated to
the management by the Board of Directors. The head of the management often
referred to as the Managing Director and Chief Executive Officer serve as a
link between the Board of Directors and the management.
An internal auditor is employed as an agent of the
management for ensuring effective working of Internal Control System.
Independence of auditor is a cornerstone for the quality of his performance.
However, it is practically difficult for an internal auditor
to possess any reasonable degree of independence in mind and attitude because
of the management influence and scope of the work. It needs to be emphasized
that internal audit function as an integral part of the internal control system
is concomitant to good corporate governance.
The purpose of internal audit in big companies is to ensure
that the account on which the auditor is reporting disclose a true and fair
view of the transaction summarized within the period under examination. To
ensure completeness and effectiveness in big companies, auditing is very
important, the major work covered in the exercising of auditing include
examination of internal control, the system of bookkeeping and account, to
ensure whether they are appropriate for the nature of the business or
activities being carried out by the client and whether all the transactions
have been properly recorded under the system. The existence of any internal
audit units in big companies is a sign of good control system. If properly
conducted, internal audit units can have a great impact on the effectiveness
and efficiency of big companies.
Adeniji (2004) suggest that internal audit as an independent
appraisal activity established within an organization as a service to it. It is
a control, which functions by examining and evaluating the adequacy and
effectiveness of other controls.
Adams (2002), opined that internal auditing is an
independent appraisal actively for the review of operations as a service to the
management. Internal auditor here is one who is employed by the management of
an enterprise who may or may not attain minimum academic or professional
qualification, that is he may not be a member of any recognized body e.g. ICAN,
It is in the view of the above that this study would be
conducted to find out the role played by an internal auditor in big companies
through proper installation of effective Internal Control System in big companies.
Internal control system is examined by internal auditor in order for him to
know if the control system is effective. He does this by carrying out
compliance test. Internal check is done in order to prevent and detect errors
and fraud. It involves the arrangement of bookkeeping and other clerical
Internal Audit is a review of the operations, procedures and
records of the business. Internal Auditing is itself an Internal Control which
operates by appraising and reporting on the effectiveness of the other
controls. Thus, its main objective is to assist management in discharging its
responsibilities and to evaluate compliance with corporate procedures. It is
often assigned for reviewing the accounting system and related Internal
Controls, monitoring their operation and recommending improvement thereto, and
also the examination of financial and operating information.
Aquaisua (2004) opines internal audit as the process of
continuous review of financial transactions in order to ensure that they are
working as the management intends. All the regulations, instructions,
accounting system or procedures and rules set should be controlled to ensure
that they are working as prescribed. It assures management of the adequacy and
appropriateness of the system of internal controls by testing their operations.
Usually, Government, financial instructions provide that the Accounting
Officers of Ministries or Departments or (non-ministerial) departments will
ensure that, subject to the availability of staff, an internal audit unit be
established to provide a complete and continuous audit of accounts of revenue,
expenditure, plant, allocated stores and un-allocated stores where applicable.
Omoya (1984) suggests that the duty of the internal auditor,
who should be responsible to accounting officer will be to audit account and
records and for the examination of the systems and procedures in force. His
report should be submitted to the Accounting officer copying the
Auditor-general of his state. He should have an audit programme which should be
submitted to the Accounting Officer and for the acceptance of the Accountant
General and Auditor General. Such programmes should ensure that the programme
of audit will extend to cover all the records of the ministry, department or
unit, in order to satisfy himself that:
The safeguards introduced for
the prevention of the prompt detection of fraud and loss of cash or stores or
plants are adequate. Normal safeguards include the observance of government and
departmental regulators and instructors and for existence of internal checks.
The system for the control of
the collection of revenue is adequate and that all monies received have been
promptly brought to account to the correct head and sub-head.
The system for the control of
expenditure is adequate and that all payments made are properly authorized and
correct, that they are paid to the right person, for whom they were authorized.
The system for the control of
the issue and consumption of stores is adequate, that issues are made to the
right person and are used for the purpose for which they are authorized.
There are adequate means for
which the verification is done by him, of all cash, stores and plant held.
Bigg and Davies (1994) postulates, Internal Auditing is an
independent objective assurance and consulting actively designed to add value
and improve an organization’s operations. It helps an organization accomplish
its objectives by bringing a systematic, disciplined approach to evaluate and
improve the effectiveness of risk Management Control are governance processes.
Independence is established by the organizational and reporting structure.
Objectivity is achieved by an appropriate mind-set, the
internal audit activity evaluates risk exposures relating to the organization’s
governance, operations and information system in related to:
Effectiveness and efficiency of
Reliability and integrity of
financial and operational information
Safeguarding of assets
Compliance with laws,
regulations and contracts
Based on the result of the risk assessment, the internal
auditors evaluate the adequacy and effectiveness of how risks are identified
and managed in the above areas. They also asses other aspects such as ethics
and values within the organization, performance management, communication of
risk and control information within the organization in order to facilitate or
good governance process.
The internal auditors are expected to provide
recommendations for improvement in those areas where opportunities or
deficiencies are identified, while management is responsible for internal
controls, the internal audit actively provides assurance to management and the
audit committee that internal controls are effective and working as intended.
OF INTERNAL AUDITING
The proliferation of large, dispersed, complex corporation
starting early in twentieth century, spurred the accelerated development of the
internal audit function. The Institute of Internal Auditors (IIA) was founded
in 1941, largely in response to this development and modern internal auditing
owes much of its early expansion of the scope of internal audit activities and
the professionalization of the practice of internal auditing.
The development of professional under pinning for the
profession however did not come all at once. It was not until 1947 that the
Institute of Internal Auditor issued its first statement of responsibilities.
The code of ethics was issued in 1968 and standard in 1979.
The first Certified Internal Auditor (CIA) exams were written in 1974,
indicating that, there was that time deemed to be a recognized body of
knowledge available for internal audit professionals. The potential value of
the internal audit function came later to the public sector motivation. The
United States Congress first recognized the potential contribution of internal
audit in 1950, in requiring by statute that each executives agency include
internal audit in the agency’s of internal control.
In 1973, the Treasury Board made it mandatory for all
departments and agencies to internal audits performed on their systems of
financial administration. Direction 9.1 of the policy started, departments hall
have financial audit performed, which include:
Reviewing and appraising the effectiveness and efficiency of
department system of financial administration including the safeguarding of
assets. Ascertaining the extent of compliance of department systems and
procedures with financial policies, regulations and other instruction of
parliament, treasury board and the department of agency.
The internal audit policy component of review policy made no
substantive changes to the scope of internal audit, but bolstered the
professional under pinning of the practice by integrating treasury board and
Institute of Internal Auditors Standards and ethics provision. Also in this
policy, frequency requirements were dropped and the concept of risk based audit
planning was introduced.
OF THE PROBLEM
Internal audit provide advantages to the management, it is a
tool of ensuring effective implementation of Internal Control System and
infact, and it allows such internal control system to be reviewed where
necessary. With internal audit, management policies are seen to be complied
with and adequate information is made available for the management for decision
This research focuses on the
weaknesses of internal audit units in an organization, that make it impossible
for an internal auditor to carryout its duty at a specific time.
of Appointment: The appointment of
internal auditors has been encouraged by some officials who would want to manipulate
financial control system so as to promote their fraudulent tendencies.
of Qualification: Since
the law does not stipulate a minimum qualification required of an internal
auditor, it is not impossible to find out that some internal auditors do not
possess the needed qualifications required.
Also to ascertain the level of
independence of our auditors and if indeed they have been able to use their professional
skills to check and correct the mis-happening in the organization.
Finally, which is the main
focus of the research work, the role and evaluation of internal audit in an
organization, to check how internal auditors are being frustrated by the chief
executives, which makes it difficult to disclose information.
1.3 OBJECTIVES OF THE STUDY
The objectives of this study is
to examine the role, the internal audit play in an organization, to identify
problems hindering effective operations of internal audit and to offer
recommendations based on the findings of the study.
1.4 RESEARCH QUESTIONS
This research work proposed to
assess the role of internal audit in big companies and to ensure adherence and
effectiveness of audit work in big companies. The study would see to provide
answers to the following research questions:
does internal audit enhance the effectiveness and efficiency of operations of
are the problems that are likely to be encountered by the internal audit in
carrying out its duties?
independent is internal audit in big companies?
are the problems militating the effective operations of internal audit in big
1.5 SIGNIFICANCE OF THE STUDY
The main significant of this
research is that it would enlighten the management on the importance of both
internal auditing and internal control. Also people who are not in the system
such as those in the academic cycle will have a picture of what internal audit
and the role played in big companies.
The management benefits from
this work by knowing the actual picture of their Internal Control so as to know
whether or not it is reliable. Also, government is not left behind in that when
completed the research would undoubtedly identify to the government areas where
attention would be greatly placed in order to sanitize the system for better
External auditors also benefits
from this research work, this is because internal auditor can assist external
auditor in familiarizing himself with the accounting system, and act as a
liaison between the external auditor and other members of the client staff.
This study would serve as a
reference material to students and researchers who would want to conduct
further researches/studies on internal auditors in big companies.
1.6 SCOPE OF THE STUDY
The scope of this research is limited to the area of
internal audit of a construction company in Kaduna State. The company is used
as the case study. The research tends to highlight the ways in which internal
audit is carried out in big companies and how the internal audits in itself is.
The scope of this research will also focus its attention to the status of the
internal auditor, his responsibilities, independence practice as well as the
problems encountered in the course of carrying its duties and the possible
solutions to the problems. It is hoped that the information gathered will
greatly reflect the generality of big companies