The Importance Of Internal Audit Of Public Sector Management (A Case Study Of Ministry Of Finance, Imo State)
ABSTRACT
This research work highlights the authors effort in finding out the importance of internal audit in public sector management in the ministry of finance Imo state.
The entire work is divided into five chapters, chapter one is an introductory analysis of the topic, then the background of the study, significance, scope and limitation, the purpose and hypothesis organizational objectives
The second chapter i.e chapter two dealt with the Literature Review and Theoretical consideration. Here related past works were reviews and the theoretical consideration on the present study was also brought into focus. As well as scope and nature of internal audit and the result of auditing management.
Then, chapter three contains an explanation of how and where the needed information for the study was obtained and how the sample size was determined and the limitations encountered in the course of conducting the research. It also contains the method of investigation.
Chapter four dealt with the presentation and analysis of data collected during the field survey, after which the postulated hypotheses were tested.
Lastly, chapter five makes up the summary, conclusion and recommendations.
ABSTRACT
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF PROBLEM
1.3 OBJECTIVES OF THE STUDY.
1.4 RESEARCH QUESTIONS.
1.5 STATEMENT OF HYPOTHESIS
1.6 SIGNIFICANCE OF STUDY
1.8 DEFINITION OF TERMS
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.2 OBJECTIVES OF INTERNAL AUDIT
2.3 CHARATERISTICS OF INTERNAL AUDIT
2.3 PLANS OF ORGANIZATIONS
2.5 RESPONSIBILITY OF AN MANAGEMENT
AUDITOR TO MANAGEMENT
2.6. INTERNAL AUDIT AS A VERITABLE CONTROL MACHINERY
OF FRAUD PREVENTION
2.7. INTERNAL AUDIT AS A MANAGEMENT
PART OF ORGANIZATION CONTROL.
RELEVANCE OF ORGANIZATION CONTROL SYSTEM
2.8 CO-OPERATION BETWEEN
ORGANIZATION AND EXTERNAL AUDIT
CHAPTER THREE
RESEARCH METHODOLGY
3.1 RESEARCH DESIGN
3.2 DATA COLLECTION METHOD
3.3 RESEARCH POPULATION AND SAMPLE SIZE
3.4 DISTRIBUTION OF QUESTIONNAIRE
3.5 VALIDATION AND RELIABILITY OF THE INSTRUMENT
3.6 METHOD OF DATA ANALYSIS
3.7 DECISION CRITERION FOR VALIDATION OF HYPOTHESIS.
CHAPTER FOUR
DATA ANALYSIS, TEST OF HYPOTHESIS
AND SUMMARY OF FINDINGS
4.1 DATA ANALYSIS
4.3 TESTING OF HYPOTHESES
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 SUMMARY FINDINGS.
5.2 CONCLUSION
5.3 RECOMMENDATION
References
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
There is a general awareness all over the world of the need to pay greater attention to the improvement of public sector management. The reason is obvious government in most if not all nations, constitutes the largest single business entity and in many places the care of the economy. It’s pattern of expenditure through various parastatals, agencies and commissions or manners of resources allocation determines the extent to which accountability for economy, efficiency and effectiveness can be achieved. Hence, initiative is being taken all over the world towards improvement of the standards of accounting and auditing in government. The United Nations department for technical co-operation for development and international consortium on government (1987) has also joined in a worldwide crusade for more effective management functions in public sector of which the key ingredients is “AUDITING”. The development of modern accounting and auditing should be credited to great organization in commerce and industry which has taken place since the industrial resolution. At the time when there were small business transactions and properties took active part in the management of their business, it was perhaps felt that there was little or no need for auditing. But as business transaction increased and investment in public sector came along, the need for accountability for find and properties of the business became necessary. On this note, government made provision for the account of public sector to be examined and reported on by persons other than the people managing the business. Thus, auditing and internal audit continue to grow with the increasing complexity in the modern business and accounting systems. In the public sector management, internal audit serves as a good instrument, internal audit cannot be discussed without discussing internal control and it’s nature. Internal control is defined according to the auditing guidelines as the “whole system of control financial and otherwise established by the management in order to carry on the business of the enterprise in an orderly and efficient manner, ensures adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of records”. Internal control extends beyond accounting and financial functions. It includes method adopted by management to delegate authority and assign responsibilities for various functions. Apart from internal audit, it comprises also of internal checks, accounting controls and other forms of control. According to Okezie (1995:46) internal audit is therefore defined as an independent appraisal function within an organization for the review of systems of control and quality of performance, as a service to the organization. It objectively examine, evaluate and reports on the adequacy of internal control as a contribution to the proper economic, efficient and effective sue of resources. Internal audit department is responsible to the accounting officer. The public sector accounts and records are audited by the internal auditor and a report to that effect is submitted to the accounting officer. According to Ogbonna (1938:20) public sector accounting deals with the account of government institutions or organization and as an information tool that provides management with primary data which can be sued with other data generated elsewhere in the system to develop analytical device for purposes of preparing economic development plans. Public sector auditing on the other hand means an independent examination of an expression of opinion on the financial statement of government establishment and in compliance with the enabling decree. The public sector auditor has to satisfy himself that the account have been prepared in accordance to statutory and constitutional requirements and regulations and that proper accounting practices have been observes in their complication. The duties of an external auditor in relation to internal audit in government establishments are similar to those applied other business organizations. The external auditor should consider to which extent he should rely on the work of the internal auditor. Since modern internal auditing began to flourish as organizations rapidly expanded, the problems of widespread operations posed serious challenges to management control and hence the need to delegate responsibility and authority to many levels, supervision to become necessary. In view of the delegation, management had to turn to internal auditors for assistance in maintaining surveillance over management control network. Hence, internal audit has direct bearing on public sector management.
- BACKGROUND OF THE STUDY
The ministry of finance is one of the twelve ministries of the Imo state government. It came to being on creation of Imo state in 1976. The ministry has the ultimate goal of working towards the attainment of health economic growth. It’s basic objective is to formulate and execute ideas designed to facilitate the effective management of the financial resources of the state. The chief executive of the ministry is an honourable commissioner in the person of chief Ekwegh. A permanent secretary in the person of Mr. C. Okoye and the accountant general Dr. Emeka Adinmadu are assisting him. There are six functional departments in the ministry, these departments are:
- Department of administration and finance
- Department of accounts
- Departments of planning research and statistics
- Investment and loan department
- Department of planning operations
- Department of accounts operations
This is the historical evolution of the topic which is seen and explained briefly above with the permanent secretary and the accountant general who is also assisting him in the Imo state ministry of finance.
- STATEMENT OF RESEARCH PROBLEMS
The problems related/associated with this topic that will be addressed by this research are:
- Majority of fraud in the public sector have been trace to lapses in the internal control in the ministries and parastatals.
- The accountant general of the federal reportedly said that between 10-15% of the country’s annual recurrent budget is lost each year through stealing, wastage and misappropriation.
- Lack of adequate qualified staff: here most of the senior staff still consists of people who joined public service with basic qualification.
- Lack of audit independence: the internal auditors are easily controlled are ordered about by the chief executive.
- Absence of functional audit programme: lack of competent and qualified internal auditors have also resulted in inability to prepare and utilize a functional audit programme.
- The adventure of the computer: the rapid growth of the electronic data processing is having a great impact in the internal audit of public sector. The inadequate computer knowledge hinders the ability of the internal audit staff to meet with current development and techniques.
- Management responses to internal audit reports: This is where in government organizations, enough attentions are not given to internal audit reports.
- Hostility of other staff: The fraudulent tendencies in the public sector is very high as a result, mere sight of an auditor repulse many staff.
- Politics: This is where the struggle for succession is usually fought with so much hatred that some staff even lose their lives in the process and during such struggle, the internal auditors are not left out.
1.3 OBJECTIVES OF THE STUDY.
Objectives of the study include:
- To ascertain if internal audit assist Imo state ministry of finance in achieving its objectives.
- To ascertain if there exist co-operation between internal auditors and external auditors.
- To find out if internal audit assists in the detection and prevention of fraud in the organization.
1.4 RESEARCH QUESTIONS.
- Does internal audit assist Imo state ministry of finance in achieving its objectives?
- Does co-operation exist between the internal auditors and external auditors?
- Does internal audit assist in the detection and prevention in Imo state ministry of finance?
1.5 STATEMENT OF HYPOTHESIS
HYPOTHESIS ONE
- H0: There is no relationship between internal audit and organization.
- H1: There is a relationship between internal audit and organization.
HYPOTHESIS two
- H0: internal audit does not assist in the defection and prevention in Imo state ministry of finance.
- H1: internal audit assist in the detection and prevention in Imo state ministry of finance.
1.6 SIGNIFICANCE OF THE STUDY
The need for effective internal audit in public sector management cannot be over emphasized. The public sector concerns everybody in the society and the welfare of the populace depends on the effective management of the public sector resources. Internal audit department maintains good records and protects cash and other assets, hence the importance of this study is obvious and include:
- It will help to ensure that management policies and government policies are adhered to by all the departments and members of the organization.
- The society at large will benefit if the internal audit department in the public sector are able to monitor the use of resources in the pursuit of the defined government objectives.
- The external auditor’s job will become much easier and the assets of the organization sage guarded.
- The appraisal of the soundness, adequacy and operating control will ensure efficiency in all units of the sector at reasonable cost.
- It will help to achieve effective management by being fed with quality analysis, appraisal, findings and recommendations on every activity reviewed.
- The internal audit department maintains good records by examining, evaluating and reporting on the adequacy of internal control as a contribution to the proper, economic, efficient and effective sue of resources.
1.6 SCOPE AND DELIMITATION OF THE STUDY
The scopes of the internal audit vary quite widely and are dependent upon the responsibilities assigned to it by the management. The study intends on involving one ministry which is the ministry of finance of Imo state government. Furthermore, the study will not extend physical examination of cash, stock and other assets and liabilities as auditors do but to accept any written evidence as may be provided by the auditor’s management officers. The questionnaire itself will not go beyond the relevant areas that will help in the effective management of public sector through the internal audit. In adopting to this expanded role, the auditor faces many difficulties such as:
- The scope of the internal auditor should be to support management by assisting in pointing out deficiencies and advising on possible course of action.
- The internal auditor is concerned with policy but with it’s effect and whether such effects corresponds with the intention of the policy.
The definition of “INTERNAL AUDIT” according to Whittingtn and Panny (1998:229) sees it as an important aspect of the organization monitoring system. With the above definition, we can see that the scope is a very wide one in the study of the importance of internal audit as a tool of public sector management (A case study of ministry of finance, Imo state).
1.7 LIMITATION OF THE STUDY
Certain things served as limitation of the study “the importance of internal audit as a tool of public sector management (A case study of ministry of finance Imo state). Being the researcher researching the study, it also gives rise to certain limitations because the researcher is also part of the study. This limitations are:
- The problems faced are the refusal of respondents: In this situation, a lot of questions are sent across to various departments in other to get responses, but there are always refusal of respondents.
- Improper understanding of questions by them are also limited to the study done by researchers.
- Loss of memory can also be a limitation of the study in the sense that a researcher can not be able to recollect all the results acquired due to poor loss of memory. Also being reluctant can also be a limitation of the study due to the poor way certain information are furnished.
- The investigator (researcher) must have respect for the client values in the sense that during the course of the research of this study, the personal values of both the clients and researcher are held in high esteem during the research process. By so doing there won’t be limitation to this study.
- The quality of research findings (results) depends upon the soundness of decisions made by the researcher in Imo state ministry of finance. Such crucial stages are like the definition of the unit of study, operationalization of concepts, selection of sampling techniques and statistical technique. Any mistake in any of these decisions will vitiate the validity of his findings.
1.9 DEFINITIONS OF TERMS
INTERNAL CHECKS
These are those checks on day to ay transactions which operate on continuous basis. It covers the detection of fraud or errors and of inferior quality of work. It involves a lot of matters such as the delegation of authority and division of work, the method of recording transactions and the independently ascertain totals against which a large number of individual transaction can be proved. ACCOUNTING CONTROLS: Accounting control are those portions of internal control system which affect the reported accounting figures. FINANCIAL REGULATIONS: These are set of rules of procedures issued by the government to guide the conduct of financial transactions in all department of government; they are issued under the authority of the financial (control and management) act of 1958 as amended and therefore have force of law. EFFICIENCY: Achieving results with minimum points (input) that is the quality of being able to do a task successfully without wasting time or energy. To safeguard cash also preventive auditing involves ensuring that no excessive cash is kept in the office while regular cash count is ideal. It is management’s responsibility therefore to achieve this minimum level of internal and it activity and to do so, internal audit on it’s own part should have a plan of all internal control areas to be reviewed, report adequate findings to management and management is duty bound to respond to their recommendations. (Johnson 1993).
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