Audit As A Tool For Prevention And Control Of Fraud

Project and Seminar Material for Accountancy / Accounting

Project and Seminar Material for Accountancy / Accounting


Abstract


Audit: An audit of financial statement is an exercise whose objective is to enable auditor express an opinion on the account presented by management at the end of the years on whether on his opinion the account show true and fair view or otherwise.

Internal control is the whole system of control, financial and other wise established by government to evaluate and checkmate the activities of the organization at every point in time.

For effective research work the researcher made use of secondary and primary data ,The primary sources of information include response from the respondents through the use of personal interview and questionnaire .the main objective of this research work is To identify the causes of fraud in public parastatals And To examine how audit could help in the prevention and control of fraud.


Chapter One


1.0 Intorduction

1.1 Background of the Study

The substance of every economic entity depends on its ability to achieve its goal and objectives management for the achievement of corporate goals. Wither or not management will achievement this goal depends on how strong and reliable the growth of any corporate body largely depends on the effectiveness and efficient of the internal control system.

Therefore management has a duty of or ensuring that a strong and reliable control system exists within the organization for accountability and country.

For accountability within the organization the conduct at audit is mentionable. This is because account prepared by management may not disclose fraud deliberately misleading or failed to confirm to regulations. Therefore the necessary of auditing to cooperative organization cannot be overemphasized as thus will help the safeguard of the assets of the organization by detection and prevention of all kind of misappropriation and fraud within the organization. Over the years business and corporate organizations run into problems of liquidation. Bankruptcy and insolvency as a result of not only economic fact in the business environment but as a result of management in adequate and inefficient to mange. The internal activities of the organization therefore creating room for financial malpractice within the organization. Thus many corporate bodies run into liquidation as a result of fraud and misappropriation of funds (working capital) within the organization. These are funds that are supposed to be used for expansion of business activities.

Thus, auditing as a professional activity is to birch the gaps and lapses of management activities and to repent to the owner of business on the financial position of the business.

According to the American Accounting Association (AAA) committee on basic Auditing concept (1971), auditing and evaluating process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events o ascertain the degree of corresponding between those assertion and establishment to interested users. The Nigeria auditing guidance sees auditing as an independent tax the appointed and or in pursuance of his appointment and in compliance within any relevant statutory obligations.

From the above, it is clear that despite need of auditing by management within the organization, government also requires the account are audit annually before they publisher. However there are two objective of auditing in any corporate entity, the primary and secondary objects, the projective of auditing require the auditor to give report on this opinion on account investigated.


1.2 Statement of the Problem

In our present business environment the news of insolvency, bankruptcy and liquidation have become frequency news handling in magazines. Several factors are responsible for those ugly issues. The issue of liquidation is not only attributed to the business environment bur internal management problems. Therefore the following problems are identified

  1. The issue of forgery of public fund for personal interest.
  2. Lack of sense of responsibility and other forms of social values.
  3. Low level of official awareness.
  4. Weakness of internal control system to monitor the activities of management.

1.3 Purpose / Objective of the Study

At the end of this study. The following objectives are expected to be achieved.

  1. To identify the causes of fraud in public parastatals
  2. To examine how audit could help in the prevention and control of fraud.
  3. To examine the existence of internal control system in the organization

1.4 Research Questions.

  1. What role can auditing play in the eradication minimization of fraud?
  2. Does this company have internal auditors?
  3. Does this company have external auditor(s)?
  4. Do the company allow the internal auditor(s) freehand to perform his function
  5. How does your company perceive auditing?
  6. Do you think fraud can draw this company liquidation?
  7. Does your company allow external auditor(s) freehand to perform their function?
  8. Has fraud know to have taken place on suspected on this company
  9. What type of fraud was suspected in the company
  10. Are all daily expenditure authorized and accounted for by concerned authorities?
  11. Does internal audit department check all sources and application of fund?
  12. Do you think audit can prevent the suspected fraud in your company?
  13. Are there any checks and balances in the administration and management of the company?
  14. Is the internal audit department independent?

1.5 Research Hypothesis

Hypothesis is a prediction or conjecture state well in advance of observation about what can be expected to occur induce stated or given condition Asika (2004)

This research work “audit as a tool for prevention and control of fund” will be tested in the process of the research analysis as follows

  • H1: there is a significant relationship between audit and the prevention and control of fraud
  • H2: there is no significant relationship between audit and the prevention and control of fraud.

1.6 Significance of the Study

This study will go a long way helping all corporate to organization on the possibilities and consequence of financial recklessness and misappropriation of fund in business and probably the solution to ineffectiveness in the management firms.

Secondly, this study is significant because focused on corporate bodies which are the bedrock of every economy at large, this granting the continuity of corporate entities.

The study will encourage management to review and establish strategies to achieve maximum efficiency and effectiveness in order to bring about the desired return to contributors (shareholder).

Finally, this study, by using auditing as a tool, for prevention of fraud will help to ensure accountability, reliability and discipline within the management of companies in Nigeria.


1.7 Scope of the Study

The research works was carried out in yenagoa capital city of bayelsa state, Nigeria. The scope of this research work is limited to companies operating in yenagoa within effective reference to scripan nig Ltd.

However, the study will cover relevant areas such as auditing, fraud prevention, detection and control of fraud in the management of companies operating in Nigeria.


1.8 Limitation of Study

This research is focused on the lack of adequate books and research inertial or the school library.

The company under study is at a consideration distance from the research institution. Hence distance problem, another glaring limitation here is financial constraint in carrying out the study.

However, an optimum balance of application scarce resources is maintained in carrying out the study.


1.9 Definition of Terms

Audit:

An audit of financial statement is an exercise whose objective is to enable auditor express an opinion on the account presented by management at the end of the years on whether on his opinion the account show true and fair view or otherwise.

Internal control system:

Internal control is the whole system of control, financial and other wise established by government to evaluate and checkmate the activities of the organization at every point in time.

External auditing(s):

These are set of professionally qualified auditors (Accountancy that members of ICAN /ANAN) who are not members of the organization, appointed by the shareholder/ directors to audit the financial statement prepared by management.

Error:

This is an un-intentional mistake in financial statement book of account.

Fraud:

This is an intentional act to falsely misrepresent the true state of monetary transaction as fund in the books of account.

Irregularities:

This is an intentional distortion of financial statement or book of account often accompanied by the false files and record.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary

The main objective of this study is to provide possible solution through audit practice to the problem of gross financial misappropriate in the private sector. This is important based on the pursuit for ensuring efficiency in the management of corporate funds in the economy. Specifically the companies.

Despite the fact that the primary objective is to give an opinion on the true and fair view of the financial statement prepared by management. The study is designed using the secondary objective of audit for the prevention and detection of fraud among companies in Bayelsa state Nigeria.

Also, the researcher also suggested the need for improving the concept and practices the necessity to establish a strong and reliable internal control was also emphasized so as to enable the companies detect and prevent frauds.

This is in view of the fact that fraud will eventually decrease working capital that is supposed to be for investment and other economic activities.

Finally it should be noted that frauds exist at every level, thus shareholders, directors and the management staff should allow ethical standards and guideline for prevention over every, fraudulent intention of fairest. This will help achieve corporate.


5.2 Recommendation

Having reviewed related literature intensively and analyzed the research question following discovered and recommendation are made in regard of the research work.

  1. One of the discovery that was made is that the auditors is subject to management control and at such, not independent of its function it is obvious that without independence of the auditor(s) auditing is irrelevant as it can be regarded as a wasted effort. This is in line with the ethical code of conduct has been lend down by the professional accounting bodies that auditors should and must be independent and put objective to bear in the discharge of their professional duties as an auditor. Thus, it is recommended that appointment of auditor(s) must be in line with professional guideline and not n the basis of tamilarity.
  2. The second discovery was that of lucks and balances in the management of the business. Without proper checks and balances workers will do work the way the y want and not the way they are required to do. Thus, for proper check and balance the internal control system should incorporate the following procedure to.
    • Verify that system is working
    • Review the system to evaluate continuous advancement and appropriateness.
    • Amend the system to accommodate new circumstance for new corporate policy
  3. The third discovery was lack of job supervision without supervision; the right thing cannot be done at the right time under the right condition, or circumstance.
    Thus, job should be periodically be reviewed and supervision in order to correct deviation from standard.
  4. The forth discovery is that there is no job rotation in the organization. Job rotation is necessary and over important to administrative and management staff. This is because it can give room to fraud single individual should not be allowed to complete a transaction . there should also be accountants department in order to avoid misappropriation of fraud.
  5. The fifth discovery is that of lack of experience and training among staff interned audit internal audit is a job that required adequate training and experience in order to tackle the challenges for effectiveness, efficiency and productive internal audit staff should be given adequate training and development to equip them in order to understand the nature of job they are undertaking
  6. Finally, it was discovered that the detection of fraud is not part of the audit engagement. These auditors ignore every suspicious transaction and only concentration on why transactions are treated and compliance statutory requirement. Thus given room for fraud. for this to stop management should engage fraud auditors to audit financial statement and every other transaction with the company for this is the only way audit can detect and prevent fraud among companies in Nigeria.

5.3 Conclusion

Auditing can actually prevent fraud in any company if the management actually wants to prevent fraud. Thus, the role of auditing in the detection and prevention of fraud cannot be over emphasized.

The need for auditing in every company is uncountable. This is because every company existing as a growing concern wants to succeed. The form of growth and expenditure economically. Shareholder and investors who pull money into business as investment do so expecting return in the funds divided and interest. How can this funds provided by the desire result. The solution lies with the management of the business.

The only hope eliminates a fraud in a management to establish a strong and reliable internal control system. Also the audit object should changed shareholder and director should engage fraud auditor to tackle all kind of fraud in existence in the business, thereby avoiding wastage of resources (fund).once this is done shareholders and investors can have a reasonable level of assurance of their investment and expert return from it.


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