1.1 Introduction
Internal auditing is of fundamental importance as an effective means of ensuring the reliability of internal records for information and use, through proper internal control systems within an organization without which such records will present chaos and the whole system may fail to succeed for lack of orderliness, accuracy, reliability of information, safety of its assets and the general security of records. Auditing is a process carried out by auditors to assure owners of a business that their resources are well managed by persons acting on their behalf. Auditing is regulated by statutes, professional regulations in form of accounting standards and auditing standards issued by Institute of Chartered Accountants of Nigeria (ICAN) and in some cases adapted from those of some more developed countries (Boyd et al 2001:56).
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitation of the study and Definition of technical terms.
1.2 Background of Study
Government organizations have played a greater part in the economic growth of any economy, especially in the Nigerian economy. The contributions they have made so far cannot be overemphasized because their utmost aims of establishment is to provide some vital or essential services to improve the social and economic well being of the people. These government organizations are mainly being funded either by the federal or state government through their budgetary allocations made to them yearly and they can also obtain loans or overdraft from commercial bank as well as subvention from government. These funds are expected to be utilized effectively and efficiently.
Effective internal control is necessary to be able to determine whether all transactions have been reflected within accounting record. It is therefore, important to recognize that the auditor concerns himself with internal control throughout the client’s organization and not merely within the finance and supplies department alone. He ought to understand the organizational operations as a whole ascertain and evaluate the whole system of control operating within the organizations.
According to Millichamp (2000), internal audit is viewed as an independent appraisal function established within an organization to examine and evaluate the activities of an organization as a service to the organization. It is also a process generally adopted towards ensuring and safeguarding the resources and promoting operational efficiency in organizations. An important aspect about controls is the fact that it has to be timely otherwise the whole exercise will be futile. Internal auditors are appointed by the management of the organization to examine and evaluate the effectiveness and soundness of financial administrative activities as well as procedure put in place. They are essentially regarded as the watchdog of management. They monitor, examine and ensure adherence to management operational policies and guidelines. They evaluate the effectiveness of the system of internal control and check.
Okereson (2013) further asserts that the responsibilities for ensuring effective internal auditing normally rest on with the internal auditors who are staff of the internal audit department. The internal auditor helps management to achieve organizational objectives effectively through his report. Such reports have to contain express opinion of the auditor on the areas he undertakes to audit. The nature and extent of the internal control system and internal auditing, appropriate to anyone organization is the management’s responsibility and depends on the organizations typology and geographical distribution.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Internal Auditing as a Tool of Control in Federal Government Parastatals.
1.3 Statement of Problems
Investigation revealed that in any business Organization in which allocation and application of funds serves as a backbone for financial activities to be carried out the following are problems in which are bound to be encountered.
- Embezzlement of fund by some government Officials
- Failure to exercise due professional care and the appropriate level of professional skepticism.
- Overreliance on inquiry as a form of audit evidence
- Deficiency in confirming accounts receivable
- Loss of funds through misappropriation or abscondment of accounts staff.
- Failure to recognize related party transactions and assuming internal control exist when they may not.
1.4 Aim and Objectives of Study
The aim of the study is to examine the Internal Auditing as a Tool of Control in Federal Government Parastatals. In achieving this aim, the following specific objectives were laid out as follows:
- To ascertain the internal audit quality that affects the efficiency of Federal Government Parastatals;
- To examine the internal audit quality and effective management control in Federal Government Parastatals; and
- To investigate the relationship between internal audit quality and effective financial controls in Federal Government Parastatals.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Does internal audit quality affect the efficiency of Federal Government Parastatals?
- Does internal audit quality and effective management serve as a tool of control in Federal Government Parastatals?
- Is there any significant relationship between internal audit quality and effective financial controls in Federal Government Parastatals?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There is no relationship between internal audit role and effective financial controls in Federal Government Parastatals
- H1: There is relationship between internal audit role and effective financial controls in Federal Government Parastatals.
Hypothesis Two
- H0: There is no relationship between the internal audit role and management controls in Federal Government Parastatals.
- H1: There is relationship between the internal audit role and management controls in Federal Government Parastatals.
Hypothesis Three
- H0: Internal audit does not significantly affect efficiency on Federal Government Parastatals service delivering.
- H1: Internal audit significantly affects efficiency on Federal Government Parastatals service delivering.
1.7 Significance of Study
The study where audit principles and procedures are carried out in government organizations the following benefits are derived of which these work will be beneficial to the following people and establishments:
- Government good audit work will prevent, expose fraud, errors and irregularities in government establishment.
- Auditors: will benefit by knowing the challenges facing them in their audit work and thereafter the prospects.
- Banks; will also benefit because it will give them insight on how to handle audit work successfully.
- Students and researchers will benefit by gaining knowledge on the audit challenges to banks and the prospects.
1.8 Scope of Study
The scope of this research is focused on the Internal Auditing as a Tool of Control in Federal Government Parastatals in Nigeria.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Auditor: An auditor is the qualified accountant who is professionally licensed to audit or examine financial statements or report of business or non-business organizations.
Auditing or Audit: Is concerned with an independent examination of financial statements and accounting records by an independent certified or chartered accountant and expression of an opinion by the public accountant on the financial statements of an organization stating whether the finance; al statements present fairly by the financial position of the firm concerning the period covered by the financial statement.
