Effectiveness Of Audit Report On The Improvement Of Financial Management In Federal Parastatal

This study was carried out to examine the effectiveness of audit report on the improvement of financial management in Federal Parastatal using Federal Ministry of Finance, Abuja as a case study. The study was specifically carried out to determine whether audit reports effectively detect and minimize the misappropriations of financial resources in Federal Parastatal; determine whether audit reports effectively helps to detect and prevent fraudulent financial activities in Federal Parastatal; determine whether audit reports aids the effectiveness of internal contol system of Federal Parastatal; determine whether audit reports effectively helps to provide reliable financial statements required for appropriate management of funds in Federal Parastatal; and find out the factors affecting the effectiveness of audit reports in Federal Parastatal. The survey design was adopted and the simple random sampling techniques were employed in this study. The population size comprise of staff of Federal Ministry of Finance, Abuja. In determining the sample size, the researcher conveniently selected 57 respondents and 50 were validated. Self-constructed and validated questionnaire was used for data collection. The collected and validated questionnaires were analyzed using frequency tables, and mean scores. While the hypotheses were tested using Chi-square statistical tool. The result of the findings reveals that the effectiveness of audit report will improve financial management in Federal Parastatal. The study also revealed that the factors affecting the effectiveness of audit reports in Federal Parastatal including; Political Interference, Audit firm tenure, Significant financial interest, Intimidation of or undue influence on the auditor, and offer of pecuniary or material gifts to the auditor. Therefore, it is recommended that auditor"s independence should be strengthened by taking different measures such as reduction in the tenure of auditors,regular rotation of auditors and appropriate audit fees in Nigeria. To mention but a few.

Introduction

1.1 Background of the Study

Before this dispensation, businesses were owned and managed by owners and as such self accountability was eminent. But as businesses kept growing in an ever changing environment, there was a need to separate ownership from management. This gave rise to principal-agent relationship where owners (principals) entrusted the duty of running the day-to-day affairs of their businesses into the hands of professional managers (agents) (Zayol, Kukeng & Iortule, 2017). There then came a need for business owners to look for an intermediary whose duty was to supervise the work performed by management who holds little or no interests in the businesses and assure them of fair performance (Zayol, Kukeng & Iortule, 2017). This by implication ushered in auditing which is an examination of accounting records undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they relate (DeAngelo, 1981).

Imegi and Oladutire (2018) opine that audit involves performing procedures to obtain evidence about amounts and disclosures in the financial statements so as to evaluate the appropriateness of accounting estimates made by management. Also Masood and Afzal (2016) see audit as an independent inspection of an entity where the auditor delivers unbiased results about the appropriation of funds by underlying organization. Masood and Afzal (2016) buttress that the first and foremost goal of auditing is to bring transparency and accountability as well as prudent financial management in private or public sector, that also audit serves as a tool for making private and public entities responsible and accountable for their duties.

The public sector in Nigeria includes the federal government, the 36 states, the 774 local government councils, all government corporations, commissions and institutions (Omolehinwa & Naiyeju, 2011). Public sectors are mainly established to provide services to the general public; these services cannot be efficiently and effectively provided without public sector audit (El-Maude & Salihu, 2016). In Nigeria today, ineffectiveness of auditing policies had continue to hamper the drive for better performance and financial management across public sector of the country (Aduwo, 2019). Financial management of public sector in Nigeria had been declining over time owing to total disregard for efficient financial reporting, negligence and maladministration of regulatory authorities in the country (Akinbuli, 2013). Observably non-compliance with standard procedure of financial reporting has become the order of the day in most public sectors in Nigeria, culminating into lack of probity, accountability and prudency with the eminence of deficiencies such as unpaid remittances, improper record processing, indiscriminate print and use of revenue record and receipt, to mention but few (Adaramola, 2015). Efficiency of public sector in Nigeria had been eroded by ineffective audit system, with no or little reflection of lapses in audit reports over the years, despite the gravity of misappropriation and mismanagement of public fund, which had hitherto incapacitated most states in Nigeria (Aduwo, 2019).

According to Oloruntoba and Gbemigun (2019) the public sector had been saddled with different office holders for more than four decades without any evidence of sustainable development in Nigeria. The root cause of this ugly phenomenon is lack of accountability with respect to issues regarding capital and recurrent projects as fraudulent activities. Looting of public treasury, misappropriation of funds, bribery and falsification of results, man inhumanity to man, poor realization of national security, are all traceable to growth phenomenon of fraud (Oloruntoba & Gbemigun, 2019). Nigeria as a federal state needs the function and operation of a professional checkmating individual to be in charge of bodies such as Independent Corrupt Practices Commission (ICPC) and the Economic and Financial Crimes Commission (EFCC).

According to, Dada, Owolabi and Okwu (2013) one of the major challenges facing the development of the nation is fraudulent practices among the citizens of the country. Pathetically, Nigeria was ranked by Transparency International (TI) 134th in 2010 and 143rd in 2011 out of 183 countries surveyed in terms of public perception of corruption. They said that negative effect of corruption on development has made Nigerian government to seek for solution on how to combat the menace. This may explain why several such institutions have been established in Nigeria. Among these are the Code of Conduct Bureau, the Independent Corrupt Practices Commission (ICPC) and the Economic and Financial Crimes Commission (EFCC). The key feature here, however, is effectiveness and its lack may be one reason why the existence of these institutions has not, apparently, resulted in significant reductions in the perceived level of corruption in Nigeria.

Generally, public sector is designed as an agent of fruitful change and development in the state. Recently, most developing states have fashioned their public sector in a style to drive and invigorate their backward economies (Chukwuebuka & Chidubem, 2011). Successive scholars have noted that the public sector in Nigeria failed to measure-up with their counterparts across the globe because it lacks in transparency and public financial management (Chukwuebuka & Chidubem, 2011). According to Adejuwon (2018), the public sector in Nigeria is irrefutably beset with gross incompetence and ineffective financial management. Perplexing difficulties endure in the Nigerian public sector in spite of a number of reform programmes that have been designed to enhance efficient and effective service delivery for almost two decades. The fact that public service has failed abysmally to achieve its laudable objectives is the reason for the vote of no confidence passed on its administrators by majority of the Nigerian populace.

Onuora, Akpoveta and Agbomah (2018), opined that public sector audit fraud remains one of the biggest single causes of non-performance and distress in the general Nigerian economy. According to Akani and Ogbeide (2017), there is daily occurrence of financial frauds, embezzlements, fraudulent practices, corrupt and sharp practices which go unnoticed, undetected, uninvestigated in the public sector, thus leading to capital flights, amassment of wealth by the few to the detriment of the masses, consequently, stunting the growth of the Nigerian economy. The media is filled with myriads of reports as regard the varying degree of fraudulent practices perpetrated in the Nigerian public sector (Akani & Ogbeide, 2017). Based on the aforementioned, this study seek to examine the effectiveness of audit report on the improvement of financial management in Federal Parastatal.

1.2 Statement of the Problem

There is an alarming increase in the number of fraud and fraudulent activities in Nigeria public sector emphasizing the visibility of public sector audit services. Okoye and Akamobi (2009) Owojori and Asaolu (2009), Izedomin and Mgbame (2011), Kasum (2009) have all acknowledge in their separate works, the increasing incidence of fraud and fraudulent activities in Nigeria and these studies have argued that in Nigeria, financial fraud is gradually becoming a normal way of life. As Kasum (2009) notes, the perpetuation of financial irregularities are becoming the specialty of both private and public sector in Nigeria as individual perpetrates fraud and corrupt practice according to the capacity of their office. Consequently, there is a general expectation that public sector audit may be able to stem the tide of financial mismanagement witnessed in most public sectors of the Nigerian economy. However, there has not been adequate emphasis, research, especially survey evidence on how public sector audit enhance public financial management in the Nigerian public sector. The inadequate research on the relationship between public sector audit report and public financial management.

1.3 Objectives of the Study

This study generally is focused on the effectiveness of audit report on the improvement of financial management in Federal Parastatal. Below are the specific objectives;

Determine whether audit reports effectively detect and minimize the misappropriations of financial resources in Federal Parastatal.

Determine whether audit reports effectively helps to detect and prevent fraudulent financial activities in Federal Parastatal.

Determine whether audit reports aids the effectiveness of internal contol system of Federal Parastatal.

Determine whether audit reports effectively helps to provide reliable financial statements required for appropriate management of funds in Federal Parastatal.

Find out the factors affecting the effectiveness of audit reports in Federal Parastatal.

1.4 Research Question

The study will be guided by the following questions;

Does audit reports effectively detect and minimize the misappropriations of financial resources in Federal Parastatal?

Does audit reports effectively detect and prevent fraudulent financial activities in Federal Parastatal?

Does audit reports aid the effectiveness of internal control system of Federal Parastatal?

Does audit reports effectively helps to provide reliable financial statements required for appropriate management of funds in Federal Parastatal?

What are the factors affecting the effectiveness of audit reports in Federal Parastatal?

1.5 Research Hypothesis

Ho: The effectiveness of audit report will not improve financial management in Federal Parastatal.

Ha: The effectiveness of audit report will improve financial management in Federal Parastatal.

1.6 Significance of the Study

The findings of this research study are significant in a number of ways. First, the study has revealed a number of weaknesses in the audit Units in the municipals and district management thus the study point out critical areas that require immediate interventions to rectify the anomalies. Second, the study uncovers new knowledge in the area of audit service within the public institution thus providing a case study for other public institution to learn from.

Lastly, the findings of the current study are crucial in devising monitoring and evaluation mechanisms not only in the studied case but also in other public institution. The researcher wishes to conduct a research on the audit report and effective financial management of public institutions.

1.7 Scope of the Study

This study is structured to generally examine the effectiveness of audit report on the improvement of financial management in Federal Parastatal. The study will be delimited to staff of Federal Ministry of Finance, Abuja.

1.8 Limitation of the Study

Like in every human endeavour, the researcher encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. More so, the researcher simultaneously engaged in this study with other academic work. As a result, the amount of time spent on research will be reduced.

Moreover, the case study method utilized in the study posed some challenges to the investigator including the possibility of biases and poor judgment of issues. However, the investigator relied on respect for the general principles of procedures, justice, fairness, objectivity in observation and recording, and weighing of evidence to overcome the challenges.

1.9 Definition of Terms

Accounting:

Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company"s operations, financial position and cash flows.

Auditing:

Auditing typically refers to financial statement audits or an objective examination and evaluation of a company"s financial statements - usually performed by an external third party

Public Sector:

Public sector includes government ownership or control rather than mere function and thereby includes, for example, the exercise of public authority or the implementation of public policy.

1.10 Organization of the Study

The study is categorized into five chapters. The first chapter presents the background of the study, statement of the problem, objective of the study, research questions and hypothesis, the significance of the study, scope/limitations of the study, and definition of terms. The chapter two covers the review of literature with emphasis on conceptual framework, theoretical framework, and empirical review. Likewise, the chapter three which is the research methodology, specifically covers the research design, population of the study, sample size determination, sample size, and selection technique and procedure, research instrument and administration, method of data collection, method of data analysis, validity and reliability of the study, and ethical consideration. The second to last chapter being the chapter four presents the data presentation and analysis, while the last chapter (chapter five) contains the summary, conclusion and recommendation.

Summary, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on the effectiveness of audit report on the improvement of financial management in Federal Parastatal using Federal Ministry of Finance, Abuja as a case study. The chapter consists of summary of the study, conclusions, and recommendations.

5.2 Summary of the Study

In this study, our focus was to examine the effectiveness of audit report on the improvement of financial management in Federal Parastatal using Federal Ministry of Finance, Abuja as a case study. The study was specifically carried out to determine whether audit reports effectively detect and minimize the misappropriations of financial resources in Federal Parastatal; determine whether audit reports effectively helps to detect and prevent fraudulent financial activities in Federal Parastatal; determine whether audit reports aids the effectiveness of internal control system of Federal Parastatal; determine whether audit reports effectively helps to provide reliable financial statements required for appropriate management of funds in Federal Parastatal; and find out the factors affecting the effectiveness of audit reports in Federal Parastatal.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 50 responses were validated from the enrolled participants where all respondent were staff of Federal Ministry of Finance, Abuja.

5.3 Conclusions

Based on the findings of this study, the researcher concluded that;

Audit reports effectively detect and minimize the misappropriations of financial resources in Federal Parastatal.

Audit reports effectively helps to detect and prevent fraudulent financial activities in Federal Parastatal.

Audit reports aids the effectiveness of internal control system of Federal Parastatal.

Audit reports effectively helps to provide reliable financial statements required for appropriate management of funds in Federal Parastatal.

The factors affecting the effectiveness of audit reports in Federal Parastatal including; Political Interference, Audit firm tenure, Significant financial interest, Intimidation of or undue influence on the auditor, and offer of pecuniary or material gifts to the auditor.

5.4 Recommendation

Based on the findings the researcher recommends that;

Statutory bodies should formulate policies that will not forbids an external auditor from rendering audit and non-audit services to the same client. The study also recommended that audit engagement should base on competence and not on political affiliation of the auditor.

External auditors should report to the Auditor General for the Federation and the Public Accounts Committee (PAC) rather than the Board and Management of public sector organizations.

The Office of the Auditor General for the Federation should strictly monitor audit firms to ensure that relationship between external auditors and public sector organizations do not go beyond that of statutory annual audit. Thus external auditors must not perform any other financial or consultancy services for the public sector organizations they audit.

Auditor"s independence should be strengthened by taking different measures such as reduction in the tenure of auditors,regular rotation of auditors and appropriate audit fees in Nigeria.

Title Page

Certification

Dedication

Acknowledgement

Table of Content

List of Tables

Abstract

Chapter One:

Introduction

1.1 Background of the Study

1.2 Statement of the Problem

1.3 Objective of the Study

1.4 Research Questions

1.5 Research Hypothesis

1.6 Significance of the Study

1.7 Scope of the Study

1.8 Limitation of the Study

1.9 Definition of Terms

1.10 Organisations of the Study

Chapter Two:

Review of Literature

2.1 Conceptual Framework

2.2 Theoretical Framework

2.3 Empirical Review

Chapter Three:

Research Methodology

3.1 Research Design

3.2 Population of the Study

3.3 Sample Size Determination

3.4 Sample Size Selection Technique and Procedure

3.5 Research Instrument and Administration

3.6 Method of Data Collection

3.7 Method of Data Analysis

3.8 Validity of the Study

3.9 Reliability of the Study

3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

4.1 Data Presentation

4.2 Analysis of Data

4.3 Answering Research Questions

4.4 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

5.1 Summary

5.2 Conclusion

5.3 Recommendation

References

APPENDIX

QUESTIONNAIRE

• Internal Audit Effectiveness And Public Sector Financial Reporting Quality Of Selected Federal Government Health Institutions
• Effectiveness And Efficiency Of Internal Audit As Tool For Management Control
• Effectiveness Of Auditing And Accountability In The Public Sector
• Government Auditing Of The National Home Grown School Feeding Programme (NHGSFP) And Its Impact On The Programmes Efficiency And Effectiveness In Katsina
• Role Of Auditing In Ensuring Organizational Effectiveness
• Impact Of Regular Auditing To The Viability And Organization Effectiveness Of Commercial Banks In Nigeria (A Study Of Selected Banks)
• Appraisal Of Internal Auditors On The Effectiveness In Fraud Detection And Prevention

• Accounting Project Topics and Materials