Effect Of Internal Audit On Managerial Performance In Public Enterprise

This research examined the Effect of Internal Audit on Managerial Performance in Public Enterprise. Survey design was employed with the use of a well structured questionnaire. Respondents were selected based on simple random sampling technique. Seventy (70) staff were selected from NNPC. Two hypotheses were formulated and data collected were tested with the use of Chi-Square analysis. Findings from the result shows that Internal audit has significant impact on the reduction of embezzlement in public enterprises and established control has significant effect on managerial performance. The study recommends that internal auditor should continue to efficiently review various departmental functions with a view to enhancing effective accounting system and control.

Introduction

1.0 Background of the Study

The term audit is derived from the latin verb "Audire" which means "to hear". The origin of audit dates from ancient times when the land owners allowed tenant farmers to work on their land whilst landowners themselves did not become involved in the business of farming. The landlords relied upon an overseer who listened to the accounts of stewardship given by the tenants this period the word audit is described as:

The ,independent examination of, and expression of opinion on the financial statements of an enterprise by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation.

Furthermore, the introduction of the joint stock company increased the supply of capital for industry and commerce. The small privately owned business, which was financed by a sole trader or a partnership gave way to the form of organization now familiar as the limited company. The body of shareholders delegated some of their members to act as a board of directors, and periodically the board submitted accounts to the shareholders so that they could be aware of the state of affair of the enterprise in which they had an interest. It was therefore necessary for the shareholders to satisfied the accounts presented of the directors did provide an objective view of the state of affairs of the company.

The joint stock company Act of 1844 .was the fist legislation in Britain fore quire all incorporated businesses to hand their annual financial statements examined by an auditor. Early auditors were, in many cases non accountants who were required state whether the accounts showed a `true and correct" view of state of affairs of the, it was the company"s Act 1900 that required auditor to be independent and it was not until the 1948Companied Act that he was required to be professionally qualified. At this juncture, it was more appropriate to define audit as:

An exercise whose objective is to enable auditors to express an opinion whether the financial statement give a true and fair view (or equivalent) of the entity"s affairs at the period end and of its profit and loss (or income and expenditure) for the period then ended and have been properly prepared in accordance with the applicable reporting framework (for example relevant legislation and applicable accounting standards) or where statutory or other specific requirement prescribed the term, whether the financial statements "present fairly".

What Is Internal Audit

Internal audit are those audit that are being carried out by employees within an enterprise. Internal audit is an independent appraisal functions established by the management of an organization for the review of the internal control system as a service", to the organization. It objectively examines, evaluates and reports on the adequacy of internal control as a contribution to the proper economic efficiency and effective use of resource.

The institute of internal Auditors (IIA), the professional body of internal auditors, define the function in the following way. "Internal auditing is an impendent appraisal activity within the organization, for the review of operations as a service to management. It is a management control which functions by measuring and evaluating the effectiveness of the controls".

The scope of the internal audit within an organization is broad and may involve topic such as the efficacy of operations, there liability of financial reporting and investigating fraud, safeguarding assets compliance with laws and regulations.

Internal Audit and The Prevention Of Fraud

By definition, internal control is an independent appraisal function within an organization, carried out by employees of the organization, for the review of operations (financial and otherwise): as a service to management. It is a management controls which functions, by measuring and evaluating the effectiveness of other controls. Fraud or irregularities, which arise in the conduct of the affairs of a company, may be classified broadly into:

Defalcations involving the misappropriate of money or goods, suchacts may be performed by an individual or group of individuals without the knowledge of the board of directors, or sometimes, by the board with the intention of defrauding the member.

Fraudulent manipulation of , financial statements not involving defalcation. The main reasons for this are:

To attempt to improve the apparent position or the company e.g to justify a dividend that would not otherwise have been payable or to assist in raising new finance: or To attempt to defraud the tax authorities by reducing taxable profits.

The internal auditors should continuously review the existing controls to ensure that they are followed and update them when need be. This shall ensure that the occurrence of fraud is prevented and that when any such "frauds occur, they are easily and timely identified and reported to management. It is his duty to search for fraud, to examine the books, accounts and control/processes/system with the objective of discovering whether there have been defalcations or other irregularities by directors or employees of the company. However, if the directors of the company decide to defraud the members, there is not much the internal auditor can do. Being a staff of the organization, he probable reports to the directors and depends on the board for his remunerations, promotion and other employment incentives.

Similarly, where the management .of business wish to manipulate the a misleading impression without actually diverting any of the business assets, the internal auditors cannot do much as management misstate the assets or liabilities. While the more common target for manipulations is stock, other areas are also susceptible.

Financial statements to give. It is painful to observe that in practice, members in the employment of companies as accountants, finance controller, internal auditors etc are used to, enhance and perpetuate these management/ directors aided fraud. Members must always beings to bear on all activities they are carrying out for clients and employees the institute"s codes of professional conduct and ethics.

Misappropriation of cash may result from the making of fictitious payments or the diversion of cash receivable. The number of ways in which these may be done depend on the systems of control in existence and the ingenuity of the person or persons involved. In many cases, it is the attempt to cover of rather than the original theft that is detected. So prevention of fraud is continuous review of controls and operations. The opportunities for fraud will depend on the system of controls. Particularly, important are those leading to segregation of duties. Although frauds involving collusion are not uncommon, it is generally agreed that the chance of detection rises with the number of people involved.

1.1 Statement of Problem

Despite the fact that there are installed control and check of resources, embezzlement and fraud of resources misappropriate of funds, errors, irregularities and mistake stills find their ways into the public enterprises.

Internal audit department was established to reduce those excesses however, in Nigeria public enterprises this is not so, as there are series of problem which has been hindered in the internal audit efficiency.

1.2 Purpose of the Study

The broad objective of this is to examine the effect of internal audit on managerial performances in public enterprise (NNPC). However, some of the specific objectives are as follows:

To identify the factors that hinder audit efficiency in NNPC as a public enterprise.

Reduce excesses of the internal auditing department of NNPC Identifying problems and accountability in NNPC.

Examine the factors that hinder internal audit efficiency and how these factors are impinged. It is also shapes up performance of management

1.3 Significance of the Study

The role of internal audit department is called upon to play especially in public enterprise and the ignorance of the employees makes this study important With sound internal audit, management that is characterized by fraud, errors, irregularities, and mistakes in the public enterprises which has resulted by the notion that government business are not supposed to make profit is bound to be eliminated.

The management, employers, employees as well as student benefit from this study.

1.4 Relevant Research Questions

Below are some questions that would be answered during the course of this research works.

What is the impact of internal audit on the performance in public sector

Does establish control failed to enhance management performance in Nigeria public enterprise (NNPC)

Is there any factors that determine the performance of the management in NNPC

Does effective internal audit enhance reduction of fraud?

Is there any factor that prevent; internal audit from being effective and efficient in NNPC.

1.5 Statement of the Hypothesis

To ensure a mere analytical result oriented research, hypothesis are formulated and tested on the research objectives.

The decision criteria are to accept the null hypothesis (HO) and reject the alternative hypothesis (Hi) or otherwise based on the result of the test performed. The research hypotheses are stated below:

Hypothesis 1

HO: Internal audit has no significant impact on the reduction of embezzlement in public enterprises

Hi: Internal audit has significant" impact on the reduction embezzlement in public enterprises

Hypothesis 2

HO: Established control has no significant effect on managerial performance.

Hi: Established control has significant effect on managerial performance.

1.6 Delimitation of the Study

The scope of limited to various measurement of internal audit which are used in public enterprises. The constraints to this study are time, in adequate information, lack of enough literature on this subject arid information which are considered confidential were not revealed by some of the staff.

Summary, Conclusion and Recommendation

5.1 Introduction

This research work has so far addressed the internal audit in public enterprise and managerial "performance, looking at their relationship and differences between them.

The problem of management of the Nigeria public enterprise hasalways been a source of concern for both government and thepublic in general. This study was carried out in order to find outhow. the internal audit department of Nigerian National petroleum Corporation can help in solving this problem by serving as a controlfor efficient management.

This chapter therefore, deals with the summary of the study, the conclusion drawn from findings obtained after the objective analyses of data collected, recommendations on how effective internal audit can enhance managerial performance in Nigerian public enterprises and suggestions for further research work in areas not dissimilar from this study.

5.2 Summary

The study evaluates and establishes the historical reasons and factors that led to the development of audit in an enterprise. The background ofstudy was examined just as the problems statement was lucidly made. The purpose/ significance of the study, scope and limitation of the study, relevant research questions and a host of other relevant headings were clearly stated.

The literature examined bother on various facets and dimensions of internal audit in public enterprise. Internal audit dimension such as therole and duties of internal audit. in public enterprises, purposes of auditing system in Nigeria National Petroleum Corporation, Qualification of internal auditors, duties of internal control department, duties of internal auditors, economic implications of ineffective internal auditing system in the public enterprises management, management control in public enterprise and reasons for the ineffectiveness of internal auditing in the public enterprise management.

This finding agrees with Carter (1991) that, putting it in political roads performances excludes on aroma of action, dynamism and purposeful effort, The study reviews the literature on public enterprises, its management performance indicators and the measure of performance evaluation. In addition to this were relevant information on internalauditing, finance management and accountability in Nigerian National Petroleum Corporation. Again it revealed the methodology that was followed in addressing the techniques of analysis and model specification if this study. In this study, ` data were collected through the administration of questionnaire and statistical tools used in analyzing he gathered data were stated.

It also dealt with the presentation, analysis and interpretations of the gathered data utilizing statistical software called predictive analytics software (PASW) suffice it today that tools such as frequency distribution were used in presenting, analyzing and interpreting the data.

To this end, it is no gain saying that internal audit which is carried out by an internal auditor within an organization has been contribution greatly to the development of managerial performance in Nigeria Public enterprises. It is playing a" significant role in the reduction of embezzlement, detection of fraud. and its role in maintaining the reliability and soundness of financial information has been more pronounce than its functions as an appraisal or monitoring activity by examining, evaluating and reporting to management and the directors on the adequacy and effectiveness of components of accounting and internalconstant systems.

5.3 Conclusion

The primary objective of this research is to study the effect of internal audit on managerial performance in" public enterprise, a case study of the Nigerian National Petroleum Corporation. That internal audit enhance managerial performance is not in doubt. It is strategically position to monitor the managerial performance in an organization. With the growing size and complexity of public enterprises in the recent years, the importance of the internal audit has correspondingly increased so that itto day a major factor in establishing the quality of the public enterprise internal control and its development has made a considerable contribution to the improvement of the public enterprises management.

"The purpose of this research is to investigate the effect that internal` edit has on the managerial performance in public enterprises. Nigerian National Petroleum Corporation as a case study.

His study attempted to find out whether internal audit department of the public enterprises in Nigeria are adequately staffed to check fraud d fraudulent activities in such ministries. Also to find out thepersistent existence of frauds and fraudulent activities in ministries despite the existence and adequate functioning of internal audit departments.

From the output of the analysis and the test of significance of the hypothesis, it is clear that internal audit has strong effect on the managerial performance in the Nigeria National petroleum Corporation. From the hypotheses that were tested, it can be concluded that:

The internal audit has contributed to the reduction of embezzlement in NNPC. This was because internal audit activities assess reliability and soundness of financial information

An established control has significance effect on managerial performance in Nigerian National Petroleum Corporation, which was attributed to the activity of the internal auditor to checkmate all other internal control.

5.4 Recommendations

Order to make internal audit contributes immensely to the performance of management in public enterprises, the under-itemised recommendations are hereby provided;

The internal auditor should continue reviewing of various departmental functions.

There is also an inevitable need for today"s auditors to acquire the requisite technique and skills in computer operations and electronics data processing because of the impact, which the advent of computer has made in our lives. It is envisaged that some task such as salary preparation, pension account, automation of vote book recording and many other could be tapped.

In a system where manpower. or manual operation are in use as it is a known fact, auditors are expected to operate at a tolerate level of performance for total system to run properly. Therefore training personnel as well as other training infrastructure because an important ingredient in the successful operation of control in such government parastatals, public sector organization are carried out periodically in order to - identify weakness in executing responsibilities and make recommendations for improvements such reviews should either be weekly, bi-weekly or monthly.

Heads of internal audit unit should be in attendance at to management meeting to be aware of policies affecting organizational objectives.

5.5 Suggestions for Further Study

For more understanding on this research topic, the underlisted topics are suggested for further study;

Effect of external audit on managerial performance in public enterprises

Effectiveness of internal audit as instrument of improving public sector management

Internal and external audit as tools for measuring management performance.

Preliminary Page(s)

Title Page

Declaration

Approval

Dedication

Acknowledgement

Abstract

Table of Content

Chapter One:

Introduction

1.0 Background of the Study

1.1 Statement of the Problem

1.2 Purpose of the Study

1.3 Significance of the Study

1.4 Relevant Research Questions

1.5 Statement of the Hypothesis

1.6 Delimitation of the Study

References

Chapter Two:

Literature Review

2.1 Introduction

2.2 Roles and Duties of Internal Auditor

2.3 Characteristics of the Nigeria Public Enterprise

2.4 Purposes of Auditing System in a Public Enterprise Management

2.5 Management Control in Public Enterprise

2.6 Economic Implications of Ineffective Internal Auditing System in the Public Enterprise Management

2.7 Management of Performance Evaluation in NNPC

2.8 Internal Auditing in NNPC

2.9 Qualification of Internal Auditor

2.10 Accountability in NNPC

References

Chapter Three:

Research Methodology

3.0 Introduction

3.1 Research Design

3.2 Population of Study

3.3 Sample and Sampling Procedure

3.4 Sample and Sampling Technique

3.5 Restatement of Research Questions

3.6 Statement of the Hypothesis

3.7 Data Collection Instrument

3.8 Test of Validity and Reliability of the Study

3.9 Administration of the Data Collection Instrument

3.10 Procedure for Data Analysis

Chapter Four:

Data Presentation, Analysis and Interpretation

4.1 Introduction

4.2 Analysis of Respondents Bio-Data Department

4.3 Analysis of Operational Variables

4.4 Descriptive Statistics

4.5 Reliability Test

4.6 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendations

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendations

5.5 Suggestions for Further Study

Bibliography

Questionnaire

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• Responsibilities Of Internal Auditors In Controlling Fraud And Wastages In Corporate Organization
• Role Of Internal Auditors In Stock Taking

• Accounting Project Topics and Materials