Effectiveness of Internal Auditing to Ensure Internal Control in the Ministry of Finance

 

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The system of record keeping adopted by government ministries, Parastatals, public corporation etc. to record and keeps their transaction or activities either in monitory terms or otherwise (cash and commitment basis) calls for an effective internal audit control unit and internal control system.

Internal auditing started to emerge as a function distinctly different from external auditing about the middle of 20th century, then, a significant event brought internal auditing to the forefront. This according to foreign corrupt practices Acts - 1977. The Acts was passed to prevent secret funds and bribery. It specifically prohibited offering of bribe to foreign officials. It also required organization to maintain adequate system of internal controls and maintain complete and accuracy of financial records. Birkett and Williams (1999).

Before an effective internal audit is adopted in an organization, a programme which will carry it out on daily basis must be set up. This is called “internal control system and procedures”. An audit (internal check) is the aggregate of the checks and balance imposed on day-to-day transaction in an organization where work of one person is the work of another. The objective being the prevention early detection of fraud or error. Sharma (2005).

The responsibility for the prevention and detection of irregularities and fraud in an organization rest with the management of that organization. These responsibilities can only be achieved through the continues operation and implementation of an adequate system of internal control which is mostly fulfilled through the establishment of an internal audit section within the organization.

An internal audit therefore, is the independent review or appraisal within an organization of the accounting, financial and other operation as a basis for protective and constructive service to management by the organization’s own specially assigned staff.

According to Dandago (1999), defined the internal control system as the “ whole system of control financial and otherwise established by the organization in an orderly and efficient manner to ensure adherence to management policies, safeguard the assets and secure as much as possible the completeness and accuracy of the organizational records. In this study work therefore, the researcher will examine those factors which influence the effectiveness of internal audit and control system in an organization and also how they operate with special emphasis to ministry of finance Yobe state.

Ministry of finance yobe state is one the ministries that was created a week after the creation of the state out of the then, Borno state of states Genera! Ibrahim Badamasi Babangida on the 2nd August, 1991. Section 129 (2) of the state civil service provides for the establishment of the state ministries.

Being one of the mandatory ministries in the state, Yobe state ministry of finance is responsible for the safe keeping and releasing of funds on behalf of the state. It is also responsible for generating, recording, transacting and developing the economic plan of the state, as well as budgeting and translating the financial position of the state. The ministry is headed by a commissioner who oversees the affairs of the ministry, and permanent secretary who is the accounting officer of the ministry. The ministry has three (3) arms which comprises of the treasury division, the board of internal revenue and the budget and planning division.

Considering the statutory function of the ministry, it is therefore necessary for the organization to establish a sound internal audit unit and control system to ensure accountability and accuracy of financial records and to safeguard the assets (cash) of the state so that government can perform to the laid-down developmental policies.

1.2 STATEMENT OF THE PROBLEM.

The failure of organization’s internal audit and control system to comply with the laid down rules and regulations suffers numerous problems such as fraud, errors inadequate control, lack of risk assessment, internal check, negligence to managerial supervision and the periodic overview of the result of operation.

Generally, every organization be it public or private has some motives behind internal control system, all or some of them have different units, such as cost centers, investment centers, revenue centers, etc. In view of this, the researcher identifies some problems as applied in the title of the study. The ignorance of audit objectives and lack of absolute independence for the existence of internal audit and control unit in the organization set up, result into the overall problem. As such, there is need to look into the effectiveness of the internal audit and control system in the Yobe state ministry of finance with a view to find out the causes/reasons for the ineffectiveness of such controls.

1.3 AIM AND OBJECTIVES OF THE STUDY.

For an organization to achieve its set goals and objectives and to perform in accordance with the organizational policies and procedures, it has become necessary for the management to establish internal audit section to appraise the efficiency and effectiveness of internal control system. This study therefore, is aimed at looking into the need for installation of internal audit and examining those factors which influence the effectiveness of internal audit and control system in Yobe state ministry of finance.

1.4 RESEARCH QUESTIONS

For any research work to be successful, some important question should be made that will guide the researcher in arriving at his findings. Such as:-

i. Does the organization establish a sound and effective internal audit and control system?

ii. Does the installation of internal audit ensure compliance to the internal control procedures?

iii. Can internal audit be used as a means of appraising the efficiency of staff toward service delivery?

iv. Does the internal audit have total independence in the discharge of their responsibilities?

1.5 SIGNIFICANCE OF THE STUDY.

In most organization today, the need for internal control has created the need for internal audit so as to have an internal check on management activities, hence, the need for the establishment of internal audit and control system. This research work is aimed at selecting one of such organization with a view to examine and see if there is a dc feet or if they are in conformity to assessment of internal control guidelines with the aims of making suggestion to the organization. The major significant to this study is to enhance the understanding of student in research/tertiary institution on internal control system as a tool for effective internal audit in Yobe state ministry of finance.

Another significant of this research is to enable the student understand the effect of internal audit as a tool for effective management by reducing the risks of public fraud. It will enable the management to understand the importance of internal audit as a too1 that provide unbiased objective assessment of whether public or private resources are effectively managed in achieving accountability, integrity, confidence among shareholders and in supporting the governance responsibilities.

1.6 SCOPE AND LIMITATION.

This work is focused on the Yobe state ministry of finance. Thus, the research study can be operated and assessed in many organizations, but for the purpose of this research it is limited to the area of the study. It is further drown to cover the system of internal control with respect to each receipt and cash disbursement in the organization. In addition to that, the research also covers or reviews the following areas a:-

i. The inflow and outflow of cash of the ministry.

ii. The cash within the ministry.

iii. The sources and application of funds.

iv. The application of internal audit and control system.

v. The labour performance toward the efficient distribution of resources to activities as a service to the organization.

1.7 DEFINITION OF TERMS

INTERIN AL CONTROL

Internal control refers to the managerial functions of defining and allocating responsibilities and identifying lines of reporting that encompass all aspect of operations for the attainment of the corporate objectives of an organization.

Williams (1999).

INTERNAL CHECK.

Okolo {1987), defines internal cheek as the aggregate of the checks and balance imposed on the day-to-day transactions in an organization where by the work of one person is verified independently by or is complementary to the work of another.

AUDITING.

This refers to the process or act of independent examination and investigation of the evidence from which a financial statement has been prepared with a view to enable the independent examiner to report on whether in his opinion and according to the

informal ion and explanation obtained by him, the statement is properly drown up and give 5 a true and fair view of what is supposed to show and if not to report in what respect l e is not satisfied.

FRAUD AND ERROR

According to encyclopedia (2012), fraud is a false representation of a matter of fact weather word, conduct, false or misleading allegation or by concealment of what should have being disclosed. Fraud is an intentional act while, error is an unintentional misrepresented

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