EFFECT OF AUDITING AND PREVENTION OF FRAUD IN AN ORGANIZATION (A CASE STUDY OF COCA-COLA BOTTLING COMPANY, ILORIN.)

CHAPTER ONE

1.0      INTRODUCTION

Background of the study the word auditing comes from a Latin Word ‘’AUDIRE’’ ‘’TO HEAR’’, This is so because in those days the account of nobleman was checked by being read out to him by his steward. The steward has the responsibility of looking after the affairs at the estate during the absence of the noblemen.

        However, today auditing involves the checking at the account of an enterprise by a suitably qualified auditor in order to enables the auditor to form an opinion in the truth and fairness.

Fraud it is an act of criminal deception formed by many people in an establishment or within two people. These examples range from the public office holders who wish to embezzle public fund, a passenger who board a bus and refuses to pay and a contractor who criminally inflate the cost of executing the contract work.

It is also the international misrepresentations of financial information by one or more individuals among management, employees, or third parties. It involved the use of criminal deception to obtain an unjust or illegal financial advantage. The impact of fraud can be quote subsentire on a company’s operation. Therefore internal controls must be excellent.

        The origin of an audit dates from ancient times when the land owners allowed tenant farmers to work on their land while the landowners themselves did not become involved in the business of farming. The land owners relied upon on overseer who listened to the account of the stewardship given by the tenants.

        In those days, the receipt and payment of an establishment were read to the hearing of an individual termed as the AUDITOR. The word ‘’Auditor’’ was derived from the Latin verb ‘’AUDIRE’’ which means ‘’to hear’’ therefore, the individual to whom the receipts and payment of an organization were read to was called the auditor. In the early days of auditing, the prime qualification for the position of auditor was reputation.  A man known for his integrity and independence of mind would be sought for his honored position, the matter of technical ability being entirely secondary, and consequently, his function, in those days, was never confused with that of accountant.

        However, as accounting gradually becomes more complex and concerned with technicalities, auditors found themselves out of their depth and in turn, become increasingly  dependent upon the expertise  prouded by the accountant until eventually , the Audit function  itself become totally dominated by the accountancy professional. It is for this reason that the description auditing profession and accountancy profession are today used synonymously until the advent of limited liabilities companies where ownership is deferent from the management.

        Kola Olowookere ‘’fundamentals of auditing “recent edition’’ (2007).

1.2   STATEMENT OF THE PROBLEM

        Auditing which are the independent critical examination of and the expression of opinion on, the financial statement and underlying records of an enterprise by an appointed auditor in pursuance of the audit objectives and in compliance with his appointment.

A good internal audit function in an organization is a sign of existence of good internal control system. And auditing has to be carried out in away to avoid both management and shareholders conflict. Through the secondary objectives of auditing are to prevent errors and fraud, it is the responsibilities of the management to safeguard the company’s asset.

        However, attempts have been made in this project to examine critically the followings:

·        How the goal of asset safeguarding will be achieved.

·        Means of achieving adequate internal control.

·        To know what the impact of the internal audit function will be to the success of the organization.

·        How the audit strategy will be determined.

·        How the records of accounts, and internal control system are documented.

·        How the control will be evaluated to know if it can be relied upon to prevent or detect irregularities that may arise.

·        The relevance of audit committee in achieving effectiveness.

1.3   OBJECTIVES OF THE STUDY

The objectives of this work are as follows:-

·        To know the procedure to be followed by the system of internal control in discharging its responsibilities in relation to fraud and errors.

·        To know the conditions that increases the possibility of the existence of irregularities within the enterprises.

·        To determined the conditions of arrangement in operation and defection fraud.

·        To ensure the importation of quality control policies and procedure design to ensure that all audits are conducted in accordance with relevant national standard.

·        To determine the means of  achieving  internal control

 1.4  SIGNIFICANCE OF THE STUDY

            The significance of this project work amongst others hall be as follow:

·        To know how the internal audit committee of the organization beep the internal control system of the organization to entrance efficiency and reliance on the audit work

·        To help the organization adapt ways of keeping asset physically secured, by the verification.

·        To ensure that the controls are designed to ensure that transactions are currently calculated, recorded and proceed.

·        To ensure segregation of duties within the organization that is, no single individual should be responsible for all aspect of the transaction from the beginning to the end.

·        To help the organization ensure that documentation  takes the form of:

a)   Internal control questionnaire.

b)  Written narratives.

c)   Flow charts.

·        To ensure information are obtained about the internal control bys

a)   Inquiry of appropriate client personnel.

b)  Inspecting the organizations documents and records.

c)   Observing and control activities and operations as they are performed.

Auditors and company owners also failed to see auditing as a vital tool for ensuring efficiency and accountability in an organization

It is commonly, and mistakenly through that the purpose of an auditor is to detect errors and fraud.

This might be the case when investigation of a set accounts and supporting documents are conducted, but this is not the main purpose of an audit. The main purpose of an audit is to give an opinion of the truthfulness and fairness of the financial statement.

The main of this study is to the know the method of auditing and prevention of fraud in coca-cola bottling company Plc in line with public accounting system procedure.

1.5   SCOPE OF THE STUDY

This project work covers auditing and prevention of fraud in the case of (the coca-cola bottling plc). The researchers have tried as much as possible to clearly define and explain what auditing and fraud means and their relevance in auditing and fraud control or prevention in coca-cola bottling company plc.

        Due to the nature of the topic, the researcher has limited their finding and study to the auditing department of the place chosen as a case study from the year 1995/1996.

1.6   LIMITATION OF THE STUDY

The most obvious limitation to this study is the size of sample.

More samples could be used to yield more significant result but because of time and financial constrains, this was impossible.

      Similarly, reluctance in giving information is another limitation.

Despite the fact that the researchers introduce themselves as students of kwara state polytechnic, most of the respondents were still very skeptical about the motives behind the study.

1.7   PLANS OF THE STUDY

The research work takes the following format.

        Chapter one contains introduction to the topic of the project work, which includes the problem of the study, objectives of the study, significance of the study, limitation of the study, scope of the study, definition of the terms, and research questionnaire.

Chapter two embodies literature review, various scholars review on auditing and fraud, nature and classification of fraud and auditing in an organization as a means of control, qualification and qualities of an auditor and auditor independence.

Chapter three contains the historical background of coca-cola bottling company plc research design, method of the data collection, population and administration of the questionnaire, the sampling techniques and method of data analysis.

Chapter four includes the data analysis of the chosen case study it will examine critically the department of auditing and fraud control in coca-cola bottling company plc, the internal and external auditor.

Chapter five concludes the project by devising possible solution to potential problems that is summary, recommendations and conclusion which might help adequate auditing to be carried out.

The external auditor and internal auditor are considered as having common objectives such as:-

·        Effective internal auditor control system and accounting system.

·        Continuous effective operation of such system.

·        Reliable and adequate management information.

·        Verify asset liabilities and carry out observation.

However, the extent to which the eternal auditors can rely on the internal auditor depends on the external auditor’s general assessment of the effectiveness and relevance of the internal audit function in term of:-

i.        Degree of independence of the internal auditor in doing his work.

ii.        The number of qualified skilled and experience staff employed in the internal audit units.

iii.        The evidence of internal auditors work and review of its quality by the external auditor.

iv.        The scope, extent and timing of the tests made by the internal auditor.

v.        The quality of internal audit reports and the extent to which management takes action based upon the report.

Gene Brown, hard book for auditor edit

1.8   DEFINITION OF TERMS

The followings are terms that one could come across during the reading of this project work.

AUDITING: It is the independent examination of, and expression of an enterprise by an appointed auditor in pursuance of that appointment and compliance with any relevant statuary obligation.

 FRAUD: Deception either stating what is false or by suppressing what is true, in order to induce a person to give up something of value.

INTERNAL AUDIT: The function came within an organization in examining, evaluation and reporting on accounting and other controls in the operation of the organization.

INTERNAL CONTROL SYSTEM:- The whole system of controls, financial and otherwise, established by the management in order to carry on the business of the company in an orderly and efficient manner, ensure  adherence  to management policies, safeguard the asset and secure as far as possible the completeness and accuracy of the records.

EXTERNAL AUDITING:  This is an audit carried out by an auditor, who is not employed by that entity or by its manager and, as far as for possible, independent of the person who manage the entity.

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