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The role of internal auditing in the effective management control of local government. (A case study Ikot Ekpene L.G.A.)

Abstract

This study was on the role of internal auditing in the effective management control of local government. The total population for the study is 200 staff of ikot ekpene local government area, akwa ibom state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made directors, administrative staff, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

 

Chapter one

Introduction

1.1Background of the study

This research investigation falls within the area of internal auditing in Ikot Ekpene local Government area.

Internal Auditing is an audit function which is being used by local governments as a part of its overall system of internal control. Such auditing is carried out by local government employees who are responsible to local government management. The activities of internal auditors were originally intended to verify secrecy and dependability of the accounting systems, data and information, but currently they are operating in non-accounting functions, verifying local government operation and efficiency.

From the foregoing, internal auditing is therefore, a day to day verification process, which operates continuously throughout the local government financial year. According to Akanyanwu (1990) internal auditing is “The independent appraisal within a local government of the accounting, financial and all other operations as a basis for protective and advisory services to management”.

The new civil service move with designed to made the service more functional, professional, productive and responsive to the socio-economic needs of the nation. The federal government has also recently revamped and restructure the local government system to enable it perform its role of promoting, coordinating and implementing community services, enhancing citizens participation and maximizing the use of local resources. Enormous amount of money if flowing to the local government from the federation accounts (20%), the 10% if the state internally generated revenue and the revenue of the local government.

The federal government of Nigeria came up with a financial instruction in 1979 instructing all local government to set up internal audit unit in each local government. But the behavior and attitude of operation of local government system resulted in many local governments not setting up internal audit units or if set up, they were not functional. The federal government in 1988 set in motion a real wave of change. A real frame work of internal auditing in the local government was spelt out in order to make it less difficult for management of the local government to have perfect control of the activities of staff of the local government as the greatest contributing factor to the poor performances of the local governments.

Local government forms the third tie of government in Nigeria; in Nigeria so to say we have the federal government at the apex, the state government at the middle and local government at the bottom. Local government was created to help in catering for the rural populace. Its operations include the provision of same social amenities, such as cottage hospitals, rural roads, and bridges, management of primary schools that is before now. At the head of affairs in each local government is the chief executive of the local government who is referred to as the local government chairman. We also have the legislators of the local government who were elected in various wards.

The local government administration has the chairman at top of affairs, followed by his deputy, and then come the secretary, the personnel executive officer (PEO), the treasurer and the internal auditor. The internal auditor reports to the auditor general of the state through the executive chairman of the local government.

1.2 STATEMENT OF THE PROBLEMS

The local government has three broad sources of revenue. They include 20%direct from the federation accounts, 10% of internally generated revenue of the state government and revenue internally generated by the local government herself. The internal source available to the local government area include, rents from market stores, royalty paid by some residents companies in a local government, contractors registration, sales of car/bus emblems, etc.

Since the local government has a whole lot of possible source of revenue the problem therefore include:

  1. How can efficient management controls be achieved?
  2. What is the role of internal auditing in ensuring this control?
  3. How can the internal auditing be made a useful tool for management control?

1.3 OBJECTIVE OF THE STUDY

The objectives of the study are;

  1. to find out the role of internal auditing in management control in local government.
  2. to find out whether the function of the internal audit department are performed in compliance with the established standards and policies and how much it has succeeded in achieving the objective of the local government.
  3. to find out the benefit that may be derived from effective audit control system in local government.

1.5 RESEARCH HYPOTHESES

Based on the research questions the researcher developed the following hypotheses;

Ho: Internal auditing does not play any role in management control in local Governments.

H1: Internal auditing plays significant roles in management control in local Governments.

Ho: Internal audit department do not perform its duties in compliance with the established standards and policies.

Ho: Internal audit department performs its duties in compliance with the established standards and policies.

1.6 SIGNIFICANCE OF THE STUDY

This research is an attempt to survey the constructive parts, which internal auditing can play in the local government system in Nigeria with particular reference to ikot Ekpene local government area – Akwa Ibom State.

A lot of problems are facing the local government areas as not having  an effective audit control system. One of these problem is the management seems to gloss over the operation of the local government, which are carried out in disorganized manner. The researcher was motivated to choose this topic because of her belief that if management of Ikot Ekpene local government have complete control of the activities of the members and staff of the local government, an efficient management which is pre-requisite for high productivity will be assured.

This is so because an efficient control system will enable the management to monitor the performance of the executives and take necessary and adequate corrective actions to ensure high performance of the executives and take necessary and adequate corrective actions to ensure high performance at the levels.

1.7    SCOPE OF THE STUDY

The scope of the study is limited to Ikot ekpene local government area of Akwa Ibom State. This is because of the limited time available for the researcher for the submission of the report and the financial involvement of the scope is further widened. Furthermore, from the related literature reviewed, it was observed that there was enough bases for generalizing the result of the study.

1.8   LIMITATIONS OF THE STUDY

This study has been limited by a number of factors. Notable among the limitations was our people’s poor reaction to researches question and reading meaning into any attempt at any form of interview.

One of the vital documents needed for this investigation could not be supplied because it was audited account for 1998 and 1999 financial year. The last audited account was in 1983.

It took the researcher much time and effort to convince some respondent that she is not in any way trying to find out how well or otherwise they are carrying out their work.

  1. DEFINITIONS OF TERMS

The following terms, which due to their technical nature carry special meanings, need some definition to aid proper understanding of this paper. The writer therefore, wishes to define them briefly here but those of them that need further explanations were explained in later chapters.

Internal Audit: This is a continues review of operations and records understanding within an organization by specially assigned staff.

Internal Control: This is the whole system of control established by the management to enable it carry out its management function efficiently. Institute of Chartered Accounts of England and Wales (ICAEW) defines internal control as “the whole system of control, financial and otherwise, established by management in order to carry on the business of the company in an orderly manner, safeguard its assets and secure as far as possible the accuracy and reliability of the records.

From the above definition, it is clear that the main purpose of internal control is to safeguard assets and keep proper records.

The important features of internal control are:

  1. The plan to the organization with particular reference to the allocation of staff duties (segregation of duties)
  2. Authorization, recording and custody procedure including internal checks.

iii.        Managerial supervision and reviews (including internal checks). This is the point where the internal auditor comes into focus.

 CHAPTER TWO 

REVIEW OF RELATED LITERATURE

  2.1INTRODUCTION

It is essential that we have a fair knowledge of the content of the topic, and this knowledge is gained by reviewing some general works on the topic. For a good work to be achieved, literature review is a very crucial aspect of research that cannot be overlooked. Although literature on government accounting and auditing is very scanty, this possibly could be because of the lack of cohort existence among government Accountants (quite unlike their commercial counterparts), and the apparent reason that independence of government accounting and auditing is not very easy to establish. However, reasonable efforts have been made to review a few that are available and that of commercial auditing where necessary and applicable. According to Howard (1982) internal audit is “a review of operations and records, sometimes continuous, undertaken within a business by a specially assigned staff”. Where there is an internal audit department or unit this may form a valuable part of the whole system of internal control and according to its efficiency or otherwise may influence considerably the conduct of the audit. He further stated that internal auditing is carried out with a view to seeing that the system of operation is adhered to and that the internal control is as efficient as possible and that economies consistent with efficiency are applied to the business. Taylor & Glazen (1978) described internal auditing in their statement as the responsibilities of the internal auditors as “the independent appraisal activity within an organization for the review of accounting system and other operations as basis for protective and constructive services to management”. Millichamp (1984) defined internal auditing as “an independent appraisal activity within an organization for the review of operations as a service to management: it is a managerial control which functions by measuring and evaluating the effectiveness of other control. He further stressed that internal auditing involves such activities as: a) Reviewing and appraising soundness, adequacy and application of accounting, financial and operating controls; b) Ascertaining the extent of compliance with established policies, plans and procedures; c) Ascertaining the extent to which organization’s assets are accounted for, and safeguarded from losses of all kinds; d) Ascertaining the reliability of accounting and other data developed within the organization; and e) Appraising the quality of performance in carrying out assigned responsibilities

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