Challenges of Internal Audit Function in the Public Sector
(A study of kaduna state ministry of finance)
The Internal Audit function in the Public Sector faces a multitude of challenges, stemming primarily from the complex and diverse nature of governmental operations. These challenges include ensuring independence and objectivity amidst political pressures, navigating ever-changing regulatory landscapes, coping with limited resources and staffing constraints, and addressing the unique risks inherent in public sector activities such as fraud, waste, and abuse of public funds. Additionally, the need to adapt to evolving technologies and data analytics while maintaining a thorough understanding of traditional auditing methods presents further hurdles. Moreover, the constant demand for transparency and accountability, coupled with the necessity to communicate effectively with stakeholders, imposes significant pressures on the internal audit function within the public sector. Thus, overcoming these challenges requires a proactive approach, strong leadership, continuous professional development, and collaboration with other governance functions to uphold integrity and effectiveness in governmental operations.
This research work deals with the challenges of internal audit function in the Nigerian public sector with reference to Kaduna state ministry of finance. Internal auditing is a process generally adopted towards ensuring and safeguarding of resources and promoting operational efficiency in organization. The objective of this study has been to evaluate the internal control system in the Nigerian public sectors, to ascertain the non- implementation of routine audit report and the lack of proper segregation and assignment of duties. In recent times, a combination of forces has led to a quiet revolution in the profession. Government moving towards democracy must demonstrate accountability in the use of public money and efficiency in the delivery of service. In many cases internal control system are weak, staffs are poorly paid making them unmotivated, coupled with nonimplementation of routine audit report by appropriate authorities. The Responses from staffs were analyzed using relevant statistical tools from which three hypothesis were formulated and tested using Z-test statistics, while questionnaire were analyzed in tabular form using simple percentage. It was discovered that the internal audit is facing a lot of challenges which includes inadequate staffing, lack of independence, lack of facilities to carry out audit function and also poor funding. As a result of some of these challenges the effectiveness of the internal audit in the Nigerian public sectors, has been hindered as well as the organizational change it can bring to its environment. I recommend that for internal audit to be effective, it must be a completely independent group, adequately funded and equipped with qualified internal auditors as well as sufficient opportunities for internal auditors to become qualified.
Approval page ii
Certification iii
Dedication iv
Acknowledgment v
Abstract vii
List of tables’ xi
CHAPTER ONE:
INTRODUCTION
1.1 Background of the study
4 1.2 Statement of the study 5 1.3
Statement of the objectives 6 1.4
Research questions 6 1.5
Research hypotheses 7 1.6
Significance of the study 8 1.7
Scope of the study 9 1.8
Limitations of the study 9 1.9
Definition of terms 9
CHAPTER TWO:
REVIEW OF RELATED LITERATURE
2.1 Introduction 12
2.2 Organizational structure of ministry of finance 14
2.3 Definition of auditing 15
2.4 Types of auditing 16
2.5 Meaning of internal audits 17
2.6 Meaning of internal control 18
2.7 Meaning of internal check 20
2.8 Objective and purpose of internal audit 21
2.9 Qualities required of an auditor 23
2.10 Elements of internal audit 25
2.11 Scope of internal audit 27
2.12 Duties and responsibilities 28
2.13 Role of internal audit in the Nigerian public sector 29
2.14 Challenges of internal audit 30
2.15 Factors responsible for the problem of internal 32
CHAPTER THREE:
RESEARCH METHODOLOGY
3.1 Research design 34
3.2 Sources of data 35
3.3 Area of the study 36
3.4 Population of the study 36
3.5 Determination of population size 37
3.6 Reliability Test 39
3.7 Validity test 39
3.8 Method of data collection 39
3.9 Techniques for data analysis 40
CHAPTER FOUR:
PRESENTATION OF DATA, INTERPRETATION
AND ANALYSIS OF DATA
4.1 Presentation of data 42
4.2 Test of hypotheses 55
4.3 Discussion of findings 68
CHAPTER FIVE:
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of findings 70
5.2 Conclusion 71
5.3 Recommendations 71
Bibliography 73
Appendix 75
INTRODUCTION
The Kaduna state ministry of finance started when the country was pre
independent in 1958 during the northern region, the ministry of finance is the
custodian of public fund and stores and is therefore essentially a controlling
ministry as opposed to other executing agencies of the government. The ministry is
headed by a commissioner as the chief executive officer and deputized by the
permanent secretary who is a carrier and servant and is the chief officer of 145
staff including accounting officers on monthly basis. The ministry consists of three
(3) major departments and seven (7) sub-treasuries.
1. Administration and finance which further sub-divided into stores and
verification division.
2. Treasury which is further sub-divided into final accounts and debts
management and ministry of finance Incorporated division and sub-treasury.
3. Internal audit (state)
1. ADMINISTRATION AND FINANCE DEPARTMENT.
The department is headed by the director and is responsible for the general
administration of the ministry which includes maintenance of staff records,
processing of staff promotion, recruitment training discipline and welfare etc.
STORES AND VERIFICATION DIVISION.
This division is headed by the chief stores officer who is charged with the
responsibility of purchasing and disturbing of office equipment’s the ministry of
finance is in custody of the public funds and stores, and is therefore a protective
clothing to all government ministries and department and boarding of
unserviceable equipment/ vehicles.
2. TREASURY DEPARTMENT
This department is headed by the accountant general and is charged with the
responsibility of keeping receipt of government funds banking and maintenance of
bank accounts, disbursement of all approved fund released, bank reconciliation,
control of treasury documents and control of pooled accounting staff of the state.
MINISTRY OF FINANCE INCRPORATED (MOFI) DIVISION
This division is headed by the deputy director and is responsible for revenue
collection management. Appraisal of investment opportunity for government,
management, of investment of government companies and ensuring the receipts of
dividend and other funds due to government.
FINAL ACCOUNT AND DEBT MANAGEMENT DIVISION
The division is headed by the deputy director and is responsible for the collection
and accounting data from ministry department, analysis of accountant-general’s
reports, maintenance of external internal loan records and supervision of the state
computer center.
3. INTERNAL AUDIT DEPARTMENT (STATE)
The department is headed by the director and is charged with the responsibility of
drawing up of internal controls and checks ensuring the adherence to the
administrative and finance controls, investigation of fraud and other malpractices.
SUB-TREASURY
There are seven (7) sub-treasuries located at Kaduna, Zaria, Ikara, Saminaka,
Kafanchan, Kachia and Birnin gwari. They are charged with the responsibility of
collecting revenue and payment of pension.
1.1 BACKGROUND OF THE STUDY
Internal audit had been defined “as an independent appraisal function established
within an organization to examine and evaluate its activities as a service to the
organization”. Internal auditing is a process generally adopted towards ensuring
and safeguarding of resources and promoting operational efficiency in
organizations. The responsibilities for effective internal auditing normally rest on
with the internal auditors who in turn rely a great deal on the soundness and
effectiveness of internal control system.
The business world is developing so in the complex nature of the organizations.
This complexity of modern organizations and hence the management has led to the
much broader role at the internal audit. The role of internal audit is fast moving
from mere checking of documents and physical duties to analyzing the ability of
organization to react to changing circumstances.
Auditing for the public sector is aimed at prevention of mistakes, shortcomings and
misdeeds in the public administration. The internal audit has become a good
control measures that can foretell all the incidence of fraud and misappropriation
of fund in government ministries if properly put in place.
1.2 STATEMENT OF THE PROBLEM
Many business organizations are rapidly assuming complexity resulting to
remarkable reliance to internal audit and management as a wider range area of
control.
In spite of the existence of internal audit departments in organizations, it is often
argued that the rate of fraud and misdeeds is still on the increase, particularly in the
public sector. Some people argues that the internal auditors are creating more
problems than they are solving, others see it as tools for witch-hunting and
therefore sees them as unnecessary evil.
The internal control system in Nigeria public sector may be insufficient based on
some predicaments.
Lack of proper segregation and proper assignment of duties as well as
shortage of qualified staff to carry out internal audit and accounting duties.
Lack of implementation of routing audit report by appropriate authorities.
Inadequacy of internal control system leading to improper investigation.
The above reasons greatly affect the effectiveness of internal audit in the public
sector. This gives the researcher the impetus for undertaking a study on this study
with a view coming up with solution of those challenges.
1.3 OBJECTIVES OF THE STUDY
The objective of this research is to outline the specific task to be set out towards
achieving the purpose of a research problem. However, appears to be inhibiting the
proper discharge of the role of internal auditing in the Nigerian public sector due to
the necessity for public Accountability. Many people do not know why internal
audit department should exist and it should be part of internal control in public
organization.
The research project is expected to achieve the following objectives:
To ascertain the lack of proper segregation and proper assignment of duties
as well as shortages of staffs to carry out audit duties.
To ascertain reasons for improper implementation of routine audit report by
appropriate authorities.
To evaluate the internal control system in the Nigerian public sector.
1.4 RESEARCH QUESTIONS
The following are the various research questions. They are as follows:
1. Are there challenges of internal audit function in the Nigerian public sector?
2. Are the impacts of Nigerian public sectors on the internal audit function?
3. Can public organization do with an internal audit function?
1.5 RESEARCH HYPOTHESES
The following hypotheses were found relevant to the above stated problems and
objectives, and thus tested in this study.
Hypothesis i:
HO: The inadequacy of the internal control system in Kaduna state ministry of
finances not the motive for the trials of the internal audit.
HI: The inadequacy of the internal control system in Kaduna state ministry of
finance is the motive for the trials of the internal audit.
Hypothesis ii:
HO: The lack of proper segregation and assignment of duties as well as shortages
of staff to carry out audit duties does not influence the effectiveness of the internal
audit.
HI: The lack of proper segregation and assignment of duties as well as shortages of
staff to carry out audit duties influences the effectiveness of the internal audit.
Hypothesis iii:
HO: The lack no of implementation of routine audit report by appropriate
authorities.
HI: There is lack of implementation of routine audit report by appropriate
authorities.
1.6 SIGNIFICANCE OF THE STUDY
The project intended to bring to light the challenges of internal audits department
in the Nigerian public sector with a view of coming up with possible ways to
overcome such challenges.
The research work will be of vital importance to the government, bringing to light
the challenges hampering the efficiency of the internal audit and how these
challenges can be tackled.
The research work will also be of significance to the management or head of
department of various government ministries and public corporations so as to see
the importance of effective internal control system and the discharge of their
responsibilities to the internal auditors as a yardstick to improve organizational
performance. It is also necessary for the internal auditors to understand their
loopholes so that necessary adjustments could be made to enhance their efficiency.
1.7 SCOPE OF THE STUDY
The scope of this research work in the Nigerian public sectors as a whole
specifically the internal audit and accounting department, with particular interest in
the Kaduna state ministry of finance.
1.8 LIMITATION OF THE STUDY
The limitation to this research work is the lack of adequate information from the
senior staff of the ministry considering such information as “Top Secret”. In ability
to have access to vital documents in the ministry considering such document as
confidential.
1.9 DEFINITION OF TERMS
In every study, there are some terms that are frequently used; also in the course of
this study the following terms relating to the subject matter will frequently be used.
FRAUD: This is defined as criminal deception in an act of acquiring other people
money kept in one’s possession deceitfully.
INTERNAL AUDIT: A.H. Millichamp defined internal audit as “an independent
appraisal function within an organization for the review system of control and
quality of performance as a service to the organization”. The objective is to
examine, evaluate and report on the adequacy of internal control as a contribution
to the proper economic efficient and effective use of resources.
INTERNAL CONTROL: Internal control is the whole system of control, financial
and otherwise, established by management in order to carry on with the business to
an enterprise in an orderly manner, ensure adherence to management policies,
safeguard its asset and secure as far as possible the completeness, accuracy and
reliability of books and other records.
INTERNAL CHECK: Internal check is the aggregate of the check and balance
imposed on the day to day transactions in an organization where by the work of
one person are verified independently by or is complementary to the work of one
another.
MINISTRY OF FINANCE: This is a ministry that is responsible for the
administration of government finance [public fund].
PUBLIC SECTOR: consist of all organization whose control lies in the hands of
the public and whose objective involves the provision of services where profit is
not the primary motive.
SHARE PROJECT MATERIALS ON:
Challenges of Internal Audit Function in the Public Sector:
The internal audit function in the public sector faces a unique set of challenges and complexities due to the nature of government organizations, their objectives, and their accountability to the public. Some of the key challenges include:
- Political Interference: Public sector organizations are often subject to political influence, which can affect the independence of the internal audit function. Political pressures may lead to interference in audit processes or influence audit findings and recommendations.
- Budget Constraints: Public sector organizations frequently operate with limited budgets, and internal audit departments may struggle to secure adequate resources to effectively carry out their responsibilities. This can hinder the hiring and retention of skilled auditors and the implementation of necessary technology and tools.
- Complex Regulatory Environment: Public sector entities are often subject to a complex web of regulations, compliance requirements, and reporting standards. Keeping up with changes in these regulations and ensuring compliance can be challenging for internal auditors.
- Large and Diverse Operations: Public sector organizations are often large and encompass a wide range of activities and services. Auditors may find it challenging to comprehensively audit such diverse operations and identify risks across the organization.
- Lack of Specialization: Internal audit departments in the public sector may be required to audit a wide variety of functions, from finance to healthcare to transportation. This lack of specialization can make it difficult for auditors to develop deep expertise in specific areas.
- Data Privacy and Security: Handling sensitive citizen data is a significant responsibility in the public sector. Auditors must ensure that data is protected and that the organization complies with data privacy regulations, adding an extra layer of complexity to their work.
- Complex Stakeholder Relationships: Public sector organizations often have multiple stakeholders, including elected officials, the public, oversight bodies, and regulatory agencies. Managing these diverse stakeholder relationships while maintaining independence and objectivity can be challenging for internal auditors.
- Public Scrutiny: Unlike private sector organizations, public sector entities are subject to intense public scrutiny. Audit findings and reports are often made public, which can create additional pressure and the need for careful communication.
- Resource Allocation: Deciding where to allocate audit resources can be challenging. Internal auditors must prioritize areas with the highest risk, but these may not always align with political priorities or public expectations.
- Resistance to Change: Public sector organizations can be resistant to change, making it difficult to implement audit recommendations. Bureaucratic structures and entrenched practices can hinder the adoption of audit-driven improvements.
- Talent Attraction and Retention: Attracting and retaining top audit talent can be difficult in the public sector, especially when salaries and benefits may not be as competitive as in the private sector.
- Ethical Dilemmas: Public sector auditors may face ethical dilemmas when they encounter fraud, waste, or abuse involving colleagues or superiors. Reporting such issues can be politically sensitive and challenging.
To address these challenges, internal audit functions in the public sector should emphasize the principles of independence, objectivity, and professionalism. Additionally, they should collaborate with oversight bodies, implement robust risk assessment processes, leverage technology to improve efficiency, and continuously invest in the professional development of their audit teams.