Effect Of The Internal Audit Functions On Corporate Efficiency

Effect Of The Internal Audit Functions On Corporate Efficiency

Abstract

This study’s objective is to investigate how the internal audit function affects organizational effectiveness, specifically with regard to First Bank Nig Plc. The impact of First Bank Nig Plc’s internal audit function on its profitability was assessed by the researcher. discovered the forms and root causes of dishonest behavior at First Bank Nig Plc. determined how the internal audit function had an impact on the growth of the Nigerian banking sector. Primary and secondary sources of data collection served as the study’s primary sources of data. Primary data: to gather information from the respondents, questionnaires and oral interviews were employed. Journals and other pertinent materials pertaining to the subject of my inquiry will be reviewed as secondary data. A thorough assessment of the direct and indirect literature, including books, journals, and previous publications, was done. The oral interview and questionnaire were the research tools used in this study. The structure of the survey calls for both closed- and open-ended questions. To treat the data, straightforward tables and percentages were employed. The hypotheses were tested using the Chi-square method. The researcher’s findings revealed that internal auditing significantly affects bank profitability in Nigeria. Additionally, it was discovered that First Bank Nig Plc’s profitability is significantly impacted by its internal auditor. The investigation also found that First Bank Nig Plc engages in a variety of fraudulent operations. Internal auditing was found to have a major influence on the growth of the Nigerian banking sector. The researcher also noted that numerous issues are impeding internal auditors’ ability to perform their services to the Nigerian banking sector. Based on the findings, the researcher suggests that post entry officers not be in charge of overseeing the movement of clerks and cashiers, especially those who deal with sensitive transactions. To have a committed, devoted, and contented workforce, a good organizational structure and career opportunities for personnel should be developed. The organization’s staff should be capable, trustworthy, and morally upright. An effective training program is crucial for employees at all levels. A technique of supervision needs to be created. Every transaction needs to be approved by the appropriate offices.

Chapiter 1

Introduction

1.1 The study’s context

Given the enormous trust and responsibility placed in this department of a corporation, the role and necessity of the internal audit department cannot be overstated. This makes it clear why the author decided to conduct study on the topic of internal auditing as a tool for efficient management.

Internal auditing (IA) is a crucial component of the business and financial reporting processes used by for-profit businesses and nonprofit organizations (Reynolds 2000). According to Goodwin-Steward and Kent (2006), internal auditors are crucial in monitoring a company’s risk profile and seeing opportunities to enhance risk management. Through constructive criticism, internal auditing seeks to increase organizational effectiveness and efficiency. IA consists of four key parts: In order to ensure that procedures, internal services, and staffing are effective and appropriate for the organization’s policies, they must be evaluated for logic and completeness. Finally, they must be reported with recommendations for management improvement (Eden and Moriah 2006).

The extended range of control that the management must have over the use of people and resources in the performance of organizational operations makes internal auditing vital. The work of internal auditors is crucial. In the most contemporary organizations, it is the management’s duty to provide advise and ensure that internal controls and checks are implemented. The organization’s general day-to-day inefficiencies is under control.

Internal audit is a service provided by the business to the management that involves independent evaluation.

The management typically specifies the following as duties:

ongoing evaluation of the internal control system’s sufficiency and efficiency;

routine inspections to stop and identify frauds and errors;

giving management hiring guidance on internal control issues;

examination of all reported instances of practices;

providing statistical information for management information and decision-making; performing other unique tasks including asset disposal and personnel audits.

Despite the fact that this seems to be a demanding and difficult task for the internal audit department. Internal auditors in certain organizations are underfunded, understaffed, and undertrained. Internal audit needs to be credible, and credible internal audit requires honest internal auditors.

The above characteristics of internal auditors were a factor in the organization’s worldwide internal audits being ineffective.

When it comes to issues that typically impact internal audit departments, some organizations’ workforce refers to internal audit as “blood hounds” rather than “watch dogs.” When it comes to providing information that should be used for an effective check of the work in organizational activities, the fraudulent personnel will typically not cooperate with the internal auditors.

The absence of a clear understanding of an auditor’s responsibilities in connection to fraud detection has frequently resulted in unjustified complaints of his function in our society, where the business culture has recently been subverted by fraudulent methods permeated by management and staff. A financial statement’s accuracy and fairness as presented by management to the company’s shareholders is something that auditors are reputed to express with objectivity and objectivity. The reputation that the accounting industry has developed over time encourages people to trust the opinions that auditors give. Serious repercussions may occur and in fact have occurred if these opinions are ambiguous or even unreliable.

The auditor’s responsibility is to look over the company’s financial records and take necessary precautions to ensure that they accurately reflect the company’s financial situation. The auditor is required to draft a thorough report for the company’s members, in which they must find the information listed in schedule 6 of this act. Additionally, the auditor must decide if the data in the director’s report for the fiscal year for which the accounts are being prepared is consistent with those accounts. If the auditor comes to the conclusion that it is not, they must note this in their report. Every other officer who is in default shall be guilty of an offense and subject to penalties if the subsidizing firm and its auditors fail to give this information. One of the most contentious issues in auditing is that an auditor is responsible for the prevention, detection, and reporting of fraud, other illegal acts, and errors. This topic is frequently discussed by auditors, politicians, the media, regulators, and the general public (Gay et al. 2007). The worldwide failure of both small and large enterprises has brought this argument to light in particular. Following financial scandals involving several Nigerian institutions, including Intercontinental Bank, Oceanic Bank, Afribank, and Bank PHB, among others, the auditing industry in Nigeria has attracted public attention.

According to Idris (2009), there is currently a misperception that an auditor’s primary responsibilities are to prevent, detect, and report fraud. To ascertain how readers of financial reports view the auditor’s role in spotting fraud and carrying out relevant audit procedures, as well as how much fraud they believe exists in Nigeria. The study also intends to determine whether the report’s users’ perceptions of auditors’ obligations regarding fraud are in line with the auditing profession’s obligations as articulated in Nigeria’s auditing standards.

Fraud is defined as a purposeful act by one or more members of management, employees, or third parties that results in a falsification of financial statements by Adeniji (2004) and ICAN (2006). In addition to embezzlement, theft, and any attempt to steal or unlawfully obtain, misuse, or harm an organization’s asset, fraud can also be defined as the intentional misrepresentation, concealment, or omission of the truth for the purpose of deception or manipulation to the financial detriment of an individual or an organization (Adeduro, 2008; Bostley and Drover, 2002). Professionals feel that fraud has significantly increased in recent years and that this tendency is likely to continue. Fraud is an ongoing danger to the efficient use of resources, and management will always be concerned about it, according to Brink and Witt (2002). Fraud is defined as “an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage” in ISA 240, “The Auditor’s Responsibilities to Consider Fraud in an Audit of Financial Statements (Revised)”. Fraud is defined by Aderibigbe and Dada (2007) as a purposeful deception that is planned and carried out with the intention of robbing another person—whether directly or indirectly—of his or her property or rights.

Fraud is defined as “intentional deception, cheating, and stealing” by Weirich and Reinstein (2000, quoted in Allyne & Howard 2005). Creating bogus debtors, adding “ghosts” to the payroll, misrepresenting cash sales, concealing stock, taking unlawful “write-offs,” and claiming exorbitant or fictitious costs are a few examples of frequent fraud types. According to Pollick (2006), fraud is “deliberate misrepresentation that results in one suffering damages, typically monetary losses.” Employee theft, management fraud, investment fraud, vendor fraud, customer fraud, and other fraud were the categories into which Albrecht et al. (2005 quoted in Allyne & Howard, 2005) divided fraud. Fraud also comprises intricate financial transactions carried out by business professionals with criminal intent who are white collar criminals (Pollick 2006).

Even though they are theoretically and legally separate, the terms fraud, waste, and abuse are frequently used synonymously. However, they commonly coexist and frequently result from the

the same underlying causes, and they frequently respond well to the same preventative actions. Government fraud is easier to commit in an environment of fiscal and administrative laxity. In fact, it’s possible that a sizable part of income loss stems from ineffective or irresponsible administration of public resources rather than dishonesty. In any case, fraudsters may take advantage of the appearance of carelessness and slowness.