THE IMPACT OF INTERNAL AUDITING IN LOCAL GOVERNMENT ADMINISTRATION

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

This work “impact of internal Auditing in Local Government Administration” aims at analyzing whether the internal auditing enables management to ensure efficient use of resources. In modern business organizations, Management and ownership are distinguished. The purpose management is to make it possible for people to operate in groups through the use of available human and material resources in order to make gain. Many organizations render valuable service to both members of the public and government. Examples are Local Government Areas whose services include provision and maintenance of road, Motor park, market, health service and primary school, as well as the maintenance of peace and order in the society. It is through Local Government that State and Federal Government generate enough revenue to finance their projects yearly. The nature of services offered by Local Government place the state and Federal Governments at high level of generating revenues. It is based on these reasons that efficient operational results are demanded from the various Local Government Administration. Efficient management only result through sound internal control and other control measures adopted by management. However, the introduction of control measures cannot itself guarantee profitability of any enterprise without the activities of the organization being reviewed, measured, evaluated and appraised. An important tool used for this purpose is the Internal Audit Function. Auditing, in general, involves an independent examination and investigation of the guidance from which the financial statement has been prepared with a view to enabling the independent examiner report, whether in his opinion and according to the best of the information and explanations obtained by him, the statements is properly drawn up and gives a true and fair view of what of reports to show and if not, to report in what respects he is not satisfied. (Ayasi, 1982). Internal auditing, as a branch of auditing, is defined by the international federation of accountant (1984) as “an element of internal control system set up by management of an enterprise to examine, evaluate and report on accounting and other controls and operation”. Commenting on the role of internal auditors, Authens Holmes ad Wyane Overniyem (1976) said the internal auditor appraises  financial records, accounting and operating procedures, evaluates the system of internal control periodically, summarizes the results of the continuous investigation and prepares recommendation for better operation and report the result o f his findings to top management. The internal auditing is a management tool which functions by appraising all activities of the organization with a view to helping management attain its defined goals and objectives efficiently and effectively. Besides, internal auditing assists the operation of the independent auditor ensuring that a good system of internal control is maintained within the organization.

1.2    STATEMENT OF THE PROBLEM

The researcher observed that the importance of internal auditing has not been realized by the management of most organizations including Local Government Councils. It is also observed that most assets of the Local Government Councils are exposed to waste and fraud as a result of poor or weak internal auditing carried out by internal audit unit. In addition, the researcher observed that failure by the management to realize the benefits of internal auditing and the inability of the management to implement efficient management of the assets of the council which has negative effect on the council’s productivity.

1.3    PURPOSE OF THE STUDY

The study was carried out by the researcher in order to discover the following:- The reason for creating in the Local Government Council and administration. If internal auditing enables management to ensure efficient use of resources. The benefits management derives from the services of internal audit department. The scope of work for internal audit department in the Local Government Council. The possible problems always confronting internal auditors and how to solve them.

1.4    RESEARCH QUESTIONS

To obtain accurate and concise facts for this study, few research questions were selected and answered in the study. What is the purpose of creating internal audit department in Ini Local Government Council? Is there any benefit derived from internal auditing by the management of Local Government Council? What is the extent of work covered by the internal audit department in the council? What are the major problems encountered by the council internal auditors in the process of their work?

1.5    SIGNIFICANCE OF THE STUDY

This study was taken to shade more light on “The impact of Internal Auditing in Local Government Administration” in Local Government Council. It is essential in a number of ways such as: The study will reveal the reasons responsible for frequent loss of assets and occurrence of frauds leading to inefficient management by consecutive Local Government Council Management. The study will also enlighten the management of Local Government Council on the need to establish a strong internal audit department in their respective councils and also improve their functions. The study is further intended to point out  to the management and other employee of the Local Government that internal auditing is not a threat to their jobs but is mainly to ensure compliance with established system and polices set up by management.

1.6    SCOPE AND LIMITATION

This study was limited in scope by the following three factors:- The study was conducted on the impact of internal auditing in Ini Local Government Council in Akwa Ibom State. No such study was conducted in any other Local Government Council within or outside the state. The study investigated the impact of internal audit.

1.7    DEFINITION OF TERMS

For the purpose of this study, the following terms were used as defined.

AUDIT:      Audit is an examination of the books of accounts and vouchers of a business organization, as will enable the auditor to satisfy himself/ that the balance sheet is properly prepared  so as to give a true and fair view of entity for the financial year (Bigg, 1965).

ACCOUNTING: This is the process of recording classifying, selecting, measuring, interpreting and communicating financial data of an organization to enable user make assessments and decision. It is a discipline which comprises a set of theories and concepts for processing financial data into information. (Longe and Kazeem,1999).

AUDITING: Auditing is the independent examination of, an 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 (Adeniji, 2004).

AUDITOR: An auditor is an independent public accountant who has the sufficient professional qualification to express an opinion as to the truth a d fairness of the financial statement of an organization.

INTERNAL AUDIT: According to Okolo (1987) internal audit is the independent review or appraise within an organisation of the accounting, financial and other operations as a basis for protective and constructive service to management.

MANAGEMENT:- The is an enquiry into the effectiveness of management. Management audit is an enquiry into the advisability of any of the polices of the directors in furthering the objectives of the company as defined with which they are securing the execution of the policies (Mithchamp, 1987).

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