Internal Audit As A Management Tool
The relevance of internal audit as a management tool cannot be over-emphasised. This paper on internal audit as a management tool extends the literature of internal auditing, and its originality and the argument is on the agency theory. The descriptive survey method is employed with carefully drafted questionnaires. Two hypotheses were posited and tested with the chi-square.200 staff of Access Bank were administered the questionnaires. Data obtained were analysed using frequencies and percentages. After careful analysis of the data, conclusion and recommendations were made in chapter five of this work.
1.1 Background of the Study
This is a research project. The subject of study is “Internal Audit as a Management Tool”. The choice of the subject matter reflects the researcher desire to shed light on the efficiency and effectiveness of internal audit of corporate organization such as Banks, Manufacturing Company, Government parastatals, etc, through findings, contribute towards evolving an established policies and procedures, thereby ensuring a sound and reliable internal control system.
Oladipupo (2005: 96), pointed out that internal audit is a managerial tool which functions by examining, evaluating and reporting on the adequacy of internal control as a contribution to the proper economic, efficient and effective use of resources within an organization.
Internal audit is a control which measure evaluates and reports upon the effectiveness of internal control, financial and otherwise, as a contribution to the efficient use of resources within an organization, which was stated by Nwabueze, (2000: 278).
It is the requirement of the Companies and All Matter Act (CAMA) 1990, that management should keep and maintain accounts, which presents a true and fair view of the organization financial position which must be attested to by an external auditors report. To achieve this management do establish its own policies which all the operational and service units of the organization must comply with to assure itself that its policies and programme are properly implemented, management does establish various internal control system among which the internal audit.
Internal audit is an independent arm of the organization which help in appraising both financial and other operations with the specific purpose of rendering protective and constructive services to management.
The proper administration of any organization is solely dependent on the management which sees to the effective and efficient utilization of the limited resources available to it through proper planning controls to ensure the realization of corporate objectives.
With the growth in size and complexity of many organizations, the need for internal audit has correspondingly increased, so that it is today a major factor in establishing the quality of an organizations internal control system and its development.
The establishment of the internal audit is not required by law but is the brain-child of management with the specific objective of fulfilling its stewardship function. This is why the internal audit unit has been identified not only as an arm of management but also as an important tool the management uses in the discharge of its duties.
This study will therefore go a long way to ensuring the efficiency and effectiveness of the internal audit. Thereby ensuring a sound and reliable control system.
1.2 Statement of the Problem
The rationale for choice of the subject matter is the inability of management in ensuring a proper internal audit system coupled with the absence of a sound and reliable internal control system.
Ojaide (200: 6) pointed out that the role of an internal audit department is to assist management in ensuring that the system of accounting, internal control and internal check are operating effectively and efficiency.
1.3 Objectives of the Study
The objectives of the study are:
- To ascertain if accounting records are accurate and reliable.
- Serving as a training unit on internal control matter.
- Review of operational performance and reporting on variance.
- To ascertain whether the internal check and the accounting system.
- To ascertain the independence of the internal audit department.
- To find out whether periodic report on operation of the organization are made to management.
- To look at the performance of the different departments, branches and assess the impact on the over all performance of the academic institution or organization.
- To find out whether the internal control system is sound in principle and effective in operation.
- To find out whether periodic reports on operation of the organization are made to management.
1.4 Research Hypotheses
- Ho: There are significant differences in the method of establishing policies and plans.
- Hi: There are no significant differences in the method of establishing policies and plans.
- Ho: The periodic report made every year are not the same.
- Hi: The periodic report made every year are the same.
1.5 Scope of the Study
The nature, scope and responsibility of the internal audit may vary from parastatal to parastatal this study will hence, cover the internal audit department or unit of corporate organization such as Banks, oil & gas companies, manufacturing company, government parastatals, etc. in Nigeria.
1.6 Research Hypothesis
- There are significant differences in the method of establishing policies and plans.
- The performance of the different departments differs.
- The periodic report made every year are not the same.
- The accounting records of the organization made every year differ.
1.7 Significance of the Study
This study will be of immense benefit to the management, as good quality of work rendered by the internal auditor to management will improve the quality of services rendered by the units, thus ensuring the realization of corporate objectives.
It would highlight defects and problems in the system and suggest ways of rectifying them, thereby ensuring improvement in the quality of work of the internal audit department and hence increase the confidence imposed on them by the management.
Furthermore, the study will throw more light on the importance of efficiency and effectiveness of internal audit in the organization.
An insight into the extent of efficiency and effectiveness of internal audit of the organization will help not only in sensitizing management of the organization on the needs for an established policies and procedures but also contribute towards evolving a sound and reliable control system.
1.8 Limitation of the Study
The researchers were confronted by some certain constraints, which almost undermined the objectives and aims of the research.
The researchers were confronted by the inability to participate and observe some of the activities carried out by the staff of the internal audit such as stock taking and the internal auditor’s visitation to other department and unit of the organization. Thus, vital information that would have been gathered were denied the researchers.
Also, as a result of the limited time available to the researchers, it was not possible to reach the organization external auditors who would have given information on how reliable the report of the internal auditor is.
1.9 Operational Definition of Terms
1. Internal Audit:
This is an independent appraisal activity within an organization for the review of operation as a service to management; it is a management control which functions by measuring and evaluating the effectiveness of other controls.
These are the group of people who engage in performing routine and strategic duties so as to ensure the realization of corporate objectives.
An investigation is the examination of records and accounts of an organization for a special purpose.
4. Audit Report:
It is the statutory final product of audit process.
This is an independent examination of, and expression of opinion on the financial statement of an enterprise, organization by an appointed auditor in pursuance of that appointment and in compliance with any relevant law and regulation.
6. Internal Control:
This is not only about internal audit or internal check but the whole system of control established by management to ensure that the organization is run in an orderly and efficient manner. This can be achieved by ensuring adherence to management policies, safe guarding of asset and securing as far as possible the accuracy and completeness of records.
7. Internal Check:
This is the segregation of duty such that no one person is responsible for the processing and recording of a particular transaction.
8. True and Fair:
This is a term common in auditing which can be likened to mean a fact which conform to standard that is, it is free from bias and meats users expectation.
This is assessing the value of quality of work done by management.
1.8 Organization of the Study
This research work is organized in five chapters, for easy understanding, as follows
- Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
- Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
- Chapter three deals on the research design and methodology adopted in the study.
- Chapter four concentrate on the data collection and analysis and presentation of finding.
- Chapter five gives summary, conclusion, and recommendations made of the study
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was to ascertain a critical analysis of internal audit as a management tool.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefit in addressing the challenges of internal Auditing.
This study aimed at having a critical analysis of internal audit as a management tool. Some objectives were raised to serve as a guide to this study.
Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
Internal audit is a tool every organisation must employ to achieve organisational aim. Both the internal audit quality and management support have a strong influence on internal audit effectiveness. Effective internal audit can not only provide assurance over a company’s risk controls and governance processes, it can make sure that everyone is working effectively to that end with little waste or duplication. In addition, it can give comfort to directors and board committees that the decisions they make are based on sound assumptions and risk assessments and can advise on how to improve the effectiveness of information flowing to the board.
Every financial organisation should employ the internal auditing tool in order to improve organisational efficiency
Internal audit recommendations should be implemented by the organistaion
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