Effect of Internal Audit in an Organization

Chapter One of Effect of Internal Audit in an Organization

INTRODUCTION

BACKGROUND OF RESEARCH

The method of examining the evidence of financial transactions could be traced back to the time when there was need to transact business beyond one’s immediate needs. But such method of examining or checking the evidence of such transaction-known as Audit did not start immediately until after the trade by barter era. It came at a time when individuals noticed that no one is self sufficient thus, the need for individuals to pool resources together to form what is known today as business.

Management as the central directing and controlling elements in a business organization came as a result of individuals pooling their resources together to strengthen their co-ordinate and integration of specific activities in the organization to ensure effectiveness and efficiency of human cooperation in recent times, business organization are increasing due to scientific breakthrough and economic development. As a result, the need for decentralization, which means authority is systematically delegated or pushed down the line in an organization arises. This makes corporate management becomes so complex and the increasing volume of trade among business organization have made the art of management so complex and challenging. The only managers with mastered skills in modern scientific method of management can cope with the increasing demand required by their position.

In addition to this complexity of corporate management, is the increasing wave to fraud and misappropriation of funds in the private and public sectors of the economy at large. In an attempt  to cope with this situation and keep their business profitable, management have to look inwardly to increase control system, by which all the policies and activities are put to check to conform with the set objectives. This involves the subdivision of duties by means of which no one person is entirely responsible for one transaction but a some stage of its performance, each person work come to the notice of at least one other person.

Internal audit also forms a integral part of this internal control system, which is a management function, which appraise the problems, and performance of every department in the organization.

STATEMENT OF PROBLEM

Corporate managers may delegate their authority but the responsibility to get the assignment done cannot be delegated, but rather rest on the managers. In this understanding managers manage conceptual system which will ensure that physical assets represented by conceptual assets are protected and managed properly. Since management can only manage through delegation of authority, it is only through a good internal auditing system that the top managers can check the level of compliance to delegated authority. Internal audit is needed to ensure that all delegated duties are carried out effectively and also that the policies and procedures of the company are adhered to strictly, this include the following:

1.           Internal audit  are not independent.

2.           they are employed by management and therefore are responsible to the management.

3.           Some of them are responsible to the director of financing accounts.

4.           They are not professionally qualified.

5.           They are not well paid.

OBJECTIVES OF THE STUDY

An audit is not primarily aimed at detecting Fraud and errors, or dinging fault with accounting staff of an organization.  Naturally, in the process of examining the documents which from the basis of a financial statement, the auditor, may detect fraud or errors and weaknesses in the accounting system.

The primary objectives of audit is the examination of all available and relevant evidence by the auditor with intent to reporting on the correctness and to be able to determine the following:

i.        To determine the extent to which management does not allow auditors to perform their function.

ii.       To examine the level of education of internal audit staff.

iii.      To determine the extent to which internal audit staff are professionally qualify.

iv.      To examine the salaries of internal audit staff as compared with other company’s staff.

v.       To determine the relationship between the internal audit department and the Accounting Department and Management.

RESEARCH QUESTION

The introduction of internal control by management is not enough to safeguard asset without internal audit department which exercise a managerial control which is concerned with measuring and evaluating the continuous effectiveness of the internal control system of an organization.

i.        Are internal auditor well paid in the organization

ii.       Who is the internal audit department responsible to.

iii.      What is the level of qualification required for employment into the internal audit department of the organization.

The above question should be considered without further delay.

 RESEARCH HYPOTHESIS

This research project will based on the following hypothesis.

 Ho:    Internal audit aids corporate management in an organisation.

Hi:     Internal audit does not aid corporate management.

  Ho:    Internal auditing makes frauds and embezzlements less possible in an organization.

Hi:     Internal audit does not make frauds and embezzlements less possible in an organization.

    Ho:    Internal audit helps management to keep proper control of its assets, activities and responsibilities.

Hi:     Internal audit does not help management to keep proper control of its assets, activities and responsibilities.

  Ho:    Internal audit gives confidence to management on its activities.

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

SCOPE AND LIMITATION OF THE STUDY

The study focused on the importance of internal audit as awn aid to corporate management.  Internal auditing is a component of internal control system.  Through, this study will not concern itself with the review of the internal control system.  Thus, the study of auditing in its producers, programmers and the standard of the general auditing and its functions will not be covered in this study.  However, auditing and internal control system that involves internal auditing will be emphasized.

The Nigeria financial system has witnesses some set back from auditor, due to unfaithful people of the nation.

The introduction of an Auditor in a public and private enterprises has mis-used by some Auditors as opportunity to become over-right affluence.

The independence of an Auditor has also voided due to mis-management of the companied

SIGNIFICANCE OF THE STUDY

The process of allocating financial resources from the surplus sector of the Economy to the deficient sector in the course of generating economic activities is guided with series of regulations to ensure that the totality of the financial system is operated with some measure of sanity.  Hence, we have such regulatory agencies like the Banks, National Insurance Art, the securities Exchange Acts, and the other operators of the financial system are expected to carryout their operation strict compliance to these regulation failing which the erring company is penalized by various means which at the extreme may include the outright with drawal of the operating licence of such company e.g the case of savannah Bank in distress.