ABSTRACT
This study was carried out to examine internal audit as an instrument of management control using Jigawa State Judiciary, Jigawa State. Specifically, the study examined the need for assisting the financial statement of government parastatal i.e the importance of auditing to management of a government parastatals. At the end of this research work an attempt would have been made to look critically into the problems mentioned and their impact in an organization. The contribution of internal audit in solving the problem. And this project work will also cover the role of internal audit as an instrument of internal check to management it will also touch internal control. The study employed the survey descriptive research design. A total of 30 responses were validated from the survey. From the responses obtained and analyzed, the findings revealed that there is a relationship between the internal audit and management control. Also, co-operation exist between the internal auditor and internal check to management. Furthermore , internal audit assist in the detection and prevention of fraud in the management. The study hereby recommend that the internal audit unit of the organization should keep ethical standard by keeping up to date internal audit manual and train its internal auditors in forensic accounting. Also, Internal audit units should always draw annual audit plan which is the focus of the company as it will help them to have efficient operation. Lastly, The internal audit unit of the organization should always submit their audit plan to the management who will have to be pro-active and take action according to findings of the plan.
TABLE
OF CONTENTS
Title page - - - - - - - - - - -i
Declaration - - - - - - - - - - -ii
Approval page- - - - - - - - - - -iii
Dedication- - - - - - - - - - - -iv
Acknowledgement- - - - - - - - - - -v
Table of
contents- - - - - - - - - - -vi
Abstract- - - - - - - - - - - -viii
CHAPTER
ONE: INTRODUCTION
1.1 Background of the study - - - - - - - -1
1.2 Statement of the problem - - - - - - - -7
1.3 Objective of the study - - - - - - - - -8
1.4 Research Questions - - - - - - - - -8
1.5 Statement of Hypothesis - - - - - - - -8
1.6 Significance of the study - - - - - - - -9
1.7 Scope and Limitation of the study - - - - - - -9
1.8 Definition of the terms - - - - - - - -10
CHAPTER
TWO: REVIEW OF LITERATURE
2.1 Conceptual Framework - - - - - - - -11
2.2 Theoretical Framework - - - - - - - -19
2.3 Empirical Framework - - - - - - - - -22
CHAPTER
THREE: RESEARCH METHODOLOGY
3.1 Introduction - - - - - - - - - -26
3.2 Research Design - - - - - - - - -26
3.3 Population of the study - - - - - - - -26
3.4 Sample size - - - - - - - - - - -27
3.5 Sampling Technique and procedure - - - - - - -27
3.6
Research Instrument and
Administration - - - - - -27
3.7 Method of data collection - - - - - - - -28
3.8 Method of data analysis - - - - - - - -28
3.9 Validity of the study - - - - - - - - -28
3.10 Reliability of the study - - - - - - - -28
3.11 Ethical consideration - - - - - - - - -29
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction - - - - - - - - - -30
4.2 Data Presentation - - - - - - - - -30
4.3 Descriptive Analysis - - - - - - - - -32
4.4 Test of Hypotheses - - - - - - - - -33
CHAPTER
FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary - - - - - - - - - -35
5.2 Conclusion - - - - - - - - - -35
5.3 Recommendations - - - - - - - - -35
References - - - - - - - - - -37
Appendix - - - - - - - - - -43
CHAPTER ONE
INTRODUCTION
1.1 Background of
the Study
An effective internal
audit department is a prerequisites to the growth and survival of any business
organization since all organization either small or big, profit oriented,
operate within the conditions or resources constraints and also run high risks
of fraud and errors, in view of this, there is a need to introduce or establish
operating rules and procedure by establishing on internal audit department in
other to ensure that the use of their resource are maximized and that the
potential risk of internal risk and unintentional irregularities are reduced to
the minimum.
This study attempts to
examine the internal audit as practiced by government parastatals which is
described as those parastatal whose means of operation is less than average
comparing with company(s) for the government of the federation through an
assessment of Jigawa State Judiciary, for the purpose of these write up a
review of internal audit would be carried out to determine the effectiveness
and problems of internal audit department in a government parastatals. In the
light of this study, a brief discussion of information protection and control
as vital aids to management would be explained. Most information needed by
management in order to keep informed about finance and the progress of
operations comes from the accounting records. The information to be maximum
value must be variable complete and timely. Therefore inaccurate information is
no little better than no information at all.
The classification of
account, all aspect of the accounting system must be designed to assist
management gather information as to answer the question “do we have enough
staff to meet the anticipated vital aspect of internal control” protection of
the resources of government is important against a multitude of possible losses
ranging from embezzlement to such cases as careless use of government
properties.
Internal audit is
necessary to ensure that government policies and directives are properly
adhered to management internal audit is a key factor in the effectiveness and
efficient management of a government parastatals. Internal auditing can be said
to be a form of auditing.
Auditing can be said to be
such an examination of the books, voucher and accounts of a business and shall
enable the auditors to satisfy himself whether or not the balance sheet and
profit and loss account are properly complied so as to exist it a true and fair
view of the affair to the business, whereas internal audit is independent
appraisal or review activities with the organization for the review of the
operation as a service to management, it is a management control which function
by measuring and evaluating the effectiveness of other control.
Internal audit as defined
by Millichamp as an independent appraisal function established by the
management of an organization for the review of the internal check and internal
control system as a service to the organization, it objectively examines,
evaluate and report on the accuracy of internal controls as a contribution to
the proper economics efficient and effective use of resources.
From the above definition
it is clear that:-
a)
Internal
audit is an internal function which means that it is conducted by the employees
of an organization specially assigned for that purpose.
b)
Internal
audit is a service to management i.e is a managerial control, consequently the
scope and objectives depend upon the management assessment of what is needed
and its willingness to assign the task to the internal audit departments.
c)
Part
of the internal audit function is to review and to appraise the organizations
operation and records.
The functions of internal
audit or auditor are to be independent i.e to be a special and separate entity.
(It means separate department from the account department and it reports to the
top managements).
The definition of internal
audit is broader than the meaning sometimes attributed to the term, it
recognizes that internal audit extends beyond those matters which relates
directly to the function of the accounting department. This broad definition
may be summarized by stating that internal audit is the means by which
management obtains the information and protection of errors and fraud that are
vital to the successful operation of government parastatals.
A good internal audit
department has a direct bearing on the reliability of a concern accounting
records permitting the independent auditor (extend) to place a great confidence
and
relevance.
In the accounting and
audited records and thereby justifying reduction in the scope of the auditors
examination and redirection of loss efforts.
Many management of
government parastatals large organization and small one had found a need for an
internal audit in addition to external audit. Internal auditors are employee of
the parastatals and work exclusively for the management. Their functions partly
overlap those of the external auditors and impacts are quite different.
The precise function
rarely laid-down of internal audit are determined by the management and varies
greatly from organization to organization.
There is a laid down rule
issued in June 1990 to guide the internal audit department.
Internal auditing is thus
carried out by independent personal called internal auditor who are employees
of the establishment and this independence is not always easy to conceive.
However it can be assisted by:
(a)
Reporting
to the top management of his funding without being bias.
(b)
Having
no conflicts of interests or any restrictions placed upon their work by
management.
(c)
Having
no non-audit work.
(d)
Having
the scope of arranging its own priorities and activities.
(e)
Having
unrestricted access to records assets and personnel.
The management of a
government parastatal need a complete and accurate accounting and other
departmental records because:
(i)
The
parastatals cannot be otherwise controlled.
(ii)
The
financial statements which are required for numerous purpose can only be
prepared it adequate primary records exists.
(iii)
Statutes
often have a specific requirement on record keeping for specific form of
government parastatals.
The basic need for an
audit is to restore the problem which exist between the managers and the owners
in terms of report which they believe may contain errors, not disclosed fraud,
deliberately misleading, inadvertently misleading, fail to disclose relevant
information. The solution to this problem of credibility in reports and account
lies in appointing an independent person called an auditor to investigate the
report and their report on their finding.
Auditing an instructional
manuals for Accounting students by H.A. Millichamp expressed the auditing
guideline issued in June 1990 give a very good summary of the stages in a
system of audit as:-
a)
Identifying
the system parameter.
b)
Determine
the control objectives
c)
Identifying
the expected control to meet control objectives.
d)
Review
the system against expected control.
e)
Test
the operation of control in practice.
f)
Give
an opinion based an audit objective as to whether the system provides an
adequate basic for effective control and whether it is properly operated in
practice.
In carrying out an
internal audit of an organization or government parastatals there is need to
follow the under listed stages of planning an internal audit thus:
a)
Identifying
the objectives of the organization.
b)
Define
internal audit objectives
c)
Take
account of relevant changes in legislation.
d)
Obtain
a comprehensive understanding of the organisation’s system structure and
operation.
e)
Identify,
evaluate and rank risk to which the organization is exposed to.
f)
Take
account of change in structure or major system in the organization.
g)
Take
account of known strength weakness to the internal control
system.
h)
Take
account of management concerns and expectations.
i)
Identify
audit areas by services, functions and major systems.
j)
Determine
the type of audit e.g system, verification or values of money (e.g stock
control, cash balances)
k)
Take
account of the plan of internal audit and other review agencies.
l)
Assess
staff resources required and match with resources available.
Internal audit as an
instrument of management involves a periodic review of the accounting and
internal control system as well as the result of operations in order.
i.
To
report on the efficiency and effectiveness of the internal control and
accounting system and to suggest improvement where necessary such as continuous
update of existing controls to block loopholes.
ii.
To
report on result of operations, variations from plans and the reason thereof.
iii.
Safeguard
the asset of the parastatal effectively.
iv.
Study
the environment and recommended improvement on review of existing controls.
The success of internal
audit will depends on the degree of support it receives form the management
which must be seen in a positive light rather there as a big stick to weild
against line management and must also be seen to be independent.
A quality internal audit
services will make a positive contribution of the objectives of any
organization. The key areas where an internal audit department can be effective
are:
a. Government Policies:
Management at a distance can be aided by utilization of internal audit more
traditional policy role, while also accounting compliance with corporate
policies and procedure.
b. Value by Money:
A value of money audit is an independent appraisal of the performance of
management in seeking to secure economy efficiency and effectiveness in the use
of resources at its disposal. This value for money approach can be adopted when
undertaking of a product service department.
c. Management Information: One of the key to successful is the quality of the management
information available, its accuracy and its reliability. Here the internal
audit department has a big role to play in assessing the adequacy and
suitability.
d. Financial Control:
Whereas the external will take a view of the financial controls operated within
the establishment during their annual audit, this may not cover establishment
during their annual audit, this may not cover items or areas where there are
value which would be considered immaterial such as pretty cash or expense. But
the accuracy of controls over these activities can often give a good indicator
as to the control exercised over financial activities as a whole. The internal
auditor is again ideally situated to ensure that these and other basis
financial control are in place at each of the parastatals operation.
1.2 Statement
of the Problem
In designing, the management and internal audit
department function were seen as contradictory rather than complementary.
Internal audit department is setup to ensure adherence to management policy but
this objective cannot be achieved because of interference and undue influence
by the top management.
More so, monthly
or quarterly internal audit report as the case may be in an organization is
expected to provide information required by management to determine how
effective their policies and implementation are. It is on this realization that
this study will attempt to determine how effective are those information to aid
management in solving day to day problems. It signifies defects or problems;
the research will examine number of them namely:
a)
There exists no relationship
between the internal audit and management.
b)
Co-operation does not exist
between the internal auditor and external auditor.
c)
Internal audit does not assist in
detection and prevention of fraud.
1.3 Objective
of the Study
This write-up is intended
to study the need for assisting the financial statement of government
parastatal i.e the importance of auditing to management of a government parastatals.
At the end of this research work an attempt would have been made to look
critically into the problems mentioned and their impact in an organization. The
contribution of internal audit in solving the problem, and this project work
will also cover the role of internal audit as an instrument of internal check
to management it will also touch internal control.
1.4 Research Questions
The following questions
have been prepared for the study
i.
Is there any
relationship between the internal audit and management control?
ii.
Does co-operation
exist between the internal auditor and internal check to
management?
iii.
Does internal audit
assist in the detection and prevention of fraud in the management?
1.5 Statement of Hypothesis
To
justify the research topic “Internal
Audit as an Instrument of Management Control”, and to enable the
researcher to draw a logical conclusion, there is need to make guesses as
solutions to the topic which are subject to acceptance and rejection are based
on the result of the test.
Hypothesis One:
H0: There is no relationship
between the internal audit and management control.
H1: There is relationship
between the internal audit and management control.
Hypothesis Two:
H0: There is no co-operation
exist between the internal auditor and internal check to
management.
H1: There is co-operation
exist between the internal auditor and internal check to
management.
Hypothesis Three:
H0: Internal audit does not assist in the detection
and prevention of fraud in the management.
H1: Internal
audit assist in the detection and prevention of fraud in the management.
1.6 Significance of the Study
This research work will be
carried out with the aim of checking for the problem of fraud, extended of
relevance on internal audit by external audit in an establishment by some set
of people through their department mainly account department in the course of
this study attempt will be on finding out if internal audit department has any
effect to the management and shall be compared with external audit.
1.7 Scope and Limitation
of the Study
Auditing as a whole is a
wide spread course and much have this already been written about it. However,
for the purpose of this study the researcher will be limited to the impact of
internal audit to management of Jigawa State Judiciary.
1.8 Definition of the Terms
Internal Audit: Internal
auditing is an independent, objective assurance and consulting activity
designed to add value and improve an organization’s operations.
Audit: means a
conscientious and objective examination of and injury into any statement of
account
Internal Control: Internal
control is defined as a process effected by an entity's board of trustees,
management, and other personnel designed to provide reasonable assurance
regarding the achievement of objectives in effectiveness and efficiency of
operations; Reliability of financial reporting.
Management: Management
is the administration of an organization, whether it is a business, a
non-profit organization, or a government body. It is the art and science of
managing resources.
Control: Control is
a function of management which helps to check errors in order to take
corrective actions. This is done to minimize deviation from standards and
ensure that the stated goals of the organization are achieved in a desired
manner.
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