EFFECTIVENESS AND EFFICIENCY OF INTERNAL AUDIT AS A TOOL FOR MANAGEMENT CONTROL

EFFECTIVENESS AND EFFICIENCY OF INTERNAL AUDIT AS A TOOL FOR MANAGEMENT CONTROL

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Abstract

This research work has investigated “ the internal audit as a tool for management control” (A case study of project development institute PRODA)which is located in Enugu East Local Government area in Enugu State.The major objective of this project or research was to find out those objectives that made the internal audit as a tool for management control at PRODA in Enugu. To accomplish the above objective therefore, the work has to be divided the following conclusion have drawn  from the major finding of the study.There is a misconception of the internal audit function by non-auditing personnel.This state of affairs, from information is due to ignorance or attempt to cover up fraud are errors.The existences of standard internal audit produce promotes efficient internal audit.The internal audit provides an economical a measure for safeguarding company funds and property.The objective of internal audit is to aid in management control of government enterprise. The internal auditor therefore, aids efficient control of organization activities.

CHAPTER ONE

INTRODUCTION

1.1      Background of the study

Annual budgets by the federal state and local government are generally incorporated into government accounting system and financial reports.

These budget estimates are central to the process of making and executing public sectors polices among which is the proper allocation of available resources and reduction in inequality of incomes of individuals. In order to achieve these public sector policies goals mentioned above, there is the need for internal audit operations within our ministries. The growing recognition by management of the benefits of a good internal control and the complexities in a large organization led to the development of internal auditing as an important component of the internal control system. The emergency of the internal auditor as a specialist in internal control is the result of an evolutionary process that is similar in some ways to the evolution of the independent audit (Howard 1976). The principal factor in its emergency was the extended span of control faced by management as concerns employing thousands of people and conducting operation from widespread locations. Defalcations and improperly maintained. Accounting records were obvious problem under these  circumstances. The growth in the volume of transactions meant a substantial bill for public accounting service for the business that endeavored to solve the problem by containing the traditional form of audit by public accountants.  

This solution according to Howard (1976) was to provide the needed auditing services on an internal basic particularly as the genitures of the problem made it possible their one or more persons to specializes in such auditing services and devote their full time to the needs of the enterprise. Other advantage that resulted from this internal approach to the problem was that the internal auditor tended to be problems of the company and the auditing activity could be carried on costively, rather than, once year when outside auditing of government ministries departments and extra ministerial department entrusted with public resources and the authority for applying them have a responsibly to render a full accounting of their activities. This accountability is inherent in the management process and which the public resources have been devoted nut also the manner and effort on their application

Auditing involves the independent examination of an expression person in accordance with the terms of engagement and the observance of statutory regulations and professional requirement (Okolie, 2008).  According to Milichamp (2003) the primary objective of an audit is to produce a report by the auditor of his opinion of the truth and fairness of financial statement, so that any person reading and using them can have belief in them. Management control has to do with management function aimed at achieving defined goals within an established timetable, and usually understood to have three components which include; setting standards, measuring actual performance, and taking corrective action. Management Control according to Wikipedia definition is one of the managerial functions like planning, organizing, staffing and directing. It is an important function because it helps to check the errors and to take the corrective action so that deviation from standards are minimized and stated goals of the organization are achieved in a desired manner.According to modern concepts, control is a foreseeing action whereas earlier concept of control was used only when errors were detected. Control in management means setting standards, measuring actual performance and taking corrective action.A typical process for management control includes the following steps: actual performance is compared with planned performance, the difference between the two is measured, causes contributing to the difference are identified, and corrective action is taken to eliminate or minimize the difference.The industrialization and dynamism of modern administration has created a vacuum to be filled by qualified and competent auditors. Auditing is a system that links management and the actual field of administration (Onu-chukwu, 1985). Internal audit is an independent function of auditing records, appraising the procedures and organization of a business and reviewing the effectiveness financial stability of the system of the internal checks with the aim of establishing a systematic disciplined approach that will aid in the evaluation of and improvement of the effectiveness of risk management, control and governance processes. Primarily, the internal audit function is to provide independent assurance over the internal controls and risk management of the Local Government council.

The system of internal check, audit or control in force in any undertaking is very important to the internal auditor because his task is to satisfy himself that the system is kept up to an efficient standard and also keep the system abreast of changes as are required. Onu-chuku (1985), described internal control as an independent appraised function established within an organization to examine and evaluate its activities as a service to the organization.Internal audit is concerned with the liability and adequacy of the accounting system through reliability and integrity of financial and operations information, effectiveness and efficiency of operation and material usage, compliance with laws, regulations, policies and procedures, adequacy and effectiveness of risk management frame work. The productivity of the internal audit system has to do with the extent to which the internal audit function has assessed and affected the administrative activity of the council.Corporate management has become complex in recent times. The emphasis on decentralization, increasing use of delegation of authority and even in volume of trade has made the art of management so complex and intriguing that only managers who master the modern scientific method of management can cope with the increasing demands scientific method of management can cope with the increasing demand required by the poison.  To assess the complexity of the art of management, in the current increasing wake of business fraud, embezzlement and the cash squeezes which has crippled many companies because of the Structural Adjustment Programmes (SAP) and its attended foreign exchange and raw materials security.In order to cope with the current situation and keep their business profitable, management has to look more inwardly, to increase the profitability of the company and to keep the overall activity of the company under control.  This can only be achieve through good effective internal control system of which internal auditing is a major problems and performance of every department in the company.As representative of top management, the internal auditor is interested in determining whether each branch or department has a clear understanding of its assignment whether it is adequately stated, maintains good records, protects cash and inventories and other assets properly, co-operates with other departments and in general carries out effectively the functions provided for it in the overall plan and organization of the business.

1.2     STATEMENT OF THE PROBLEM

It is important to note that auditing is an exercise done in order to verify the accounting procedures undertaken by the auditors internal or external. Productivity can only be seen if a firm or establishment is well audited against financial misappropriation. In addition, auditing brings about sanity in an establishment. However, if an establishment has been audited but the pertinent question arises: has the establishment been audited on regular or routine basis? If done are there accountability misappropriations discovered in the course of verification?

This study therefore tends to find out the influence of internal audit over the management control of business establishments. 

1.3     OBJECTIVES OF THE STUDY

1.   To find out how functional is internal auditing to management control.

2.   To appraise the contributions of the internal audit to management control towards the staff productivity.

3.   To find out to which extent the internal audit unit has been regularly checked to aid management control.

4.   To identify the problems associated with the internal auditing in management control and productivity.

1.4     RESEARCH HYPOTHESIS

The research hypotheses were formulated by the researcher in null and alternative statements.

Ho:   There is no significant relationship between internal audit system and productivity in management control.

H1:    There is significant relationship between internal audit system and productivity in management control.

H0:   Internal audit systemdoes not help management keep proper control of its activities and responsibilities.

H2:   Internal audit system helps management keep proper control of its activities and responsibilities.

H0:   Internal audit system does not give confidence to management on its activities.

H3:   Internal audit system gives confidence to management on its activities.

Ho: Internal auditing procedure does not point out material errors and frauds.

H4:   Internal auditing proceduredoes not point out material errors and fraud.

1.5     SIGNIFICANCE OF THE STUDY

It may seem unbelievable to discover that many citizen of this country still lack of fundamental idea or knowledge of internal audit function and productivity. It is therefore the aim of this study to examine internal audit function and productivity on management control. It is believed that at the end of the study, that the findings will enlighten the public on how to ascertain the concept of internal audit function and productivity in the company. The study will also provide critical information to government, companies at all level in their effort in managing internal auditors. However, the study will act as source of reference for further researches on this subject.Specifically, the research will provide useful and meaningful insight into weakness in the current internal audit even in the oil company and provide useful information for making changes in the implementation of audit function. The research will serve as a fuel of new reasoning and further research work in audit practice in the organization. The impact of the study on both accounting and auditing theory practice and standards could be tremendous. It is agreed by the researcher that the study shall be of immense benefits to the accounting students of higher institution, management of auditor general office and seasoned professional Accountants.

1.6    SCOPE OF THE STUDY

This study is centered on internal audit as a tool on management control.

In the cause of the study, the researcher encounters some limitations which limited the scope of the study;

Staff Reluctance: In most cases the staff of the used study often feels reluctance over providing required information required by the researcher. This result in finding information where the structured questionnaires could not point out.

Researcher’s Commitment: The researcher, being of full time student spent most of her time on other academic activities such as test, class work, assignment, examination etc which takes average focus from this study.

Inadequate Materials: Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.

1.7    DEFINITION OF TERMS     

Internal Audit

Seen here as the examination, monitoring and analysis of activities related to the companies’ operations, including business structure, employee behavior and information systems whilst reviewing company activities in order to identify potential threats to the organization's health and profitability, and to make suggestions for mitigating the risk associated with those threats in order to minimize costs and ensure proper financial management.

Accounting System: Royal Linlbery and Chon (1972) hold that accounting system is the total structure of record and procedures which discover record, classify and report information or on the financial position of a government unit or any funds balance account of a group and organizational components.

Auditing Procedures: According to R. Glymme Williams (1974). He defined auditing procedures as acts to perform during the course of an examination. Auditing procedures are based on professional judgment applicable in the circumstances.

Audit technique: R. Glymm Williams (1974) defined audit technique as a method or details procedures essentials to express or execution in an art of science technique and procedures are classed related.

Auditing Standards:These are measuring devices or models to which the audit must perform.

Auditing: the Institute of Chartered Accountant in England and Wales defined auditing as

“the independent examination and investigation of the books, accounts and vouchers of a business with a view of enabling the auditor to report whether the balance sheet and profit and loss account are properly drawn up so as to show a true and fair view of the state of affairs and the profit and loss of the business according to the best of the information and explanation obtained by the auditor”.

Productivity: According to Mali (2006) productivity is defined as the measure of how well resources are brought together in organization and utilized for accomplishing a set of results. Productivity is reaching the highest level of performance with the least expenditure of resources. It is the effective user of the factors of production to produce goods and services that means productivity is the output resulting from a given resources input in a given time.

Management control system:A management control system (MCS) is a system which gathers and uses information to evaluate the performance of different organizational resources like human, physical, financial and also the organization as a whole in light of the organizational strategies pursued.Management control system influences the behavior of organizational resources to implement organizational strategies. Management control system might be formal or informal.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.


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