CHAPTER ONE INTRODUCTION BACKGROUND OF THE STUDY Auditing a term is derived from the Latin verb andire which

means, to hear. Auditing has had a long history both in the commercial and Government dealings. Its origins dates from the ancient times when the land owners allowed tenant farmers to work on their land whilst the land owners themselves did not become involved in the business of farming. On their own side, the land owners relied upon an overseer who listened to the accounts of stewardship given by the tenants.

The development of modern auditing is credited to the great expansion in industry and commerce, which has taken place since the industrial revolution. At the time when there were small business transactions, and proprietors took active part in the management of their business, it was perhaps felt

that there was little or no need for auditing. But as business transactions increased and investment in limited liability companies came into being, where the shareholders are not managers of their capital, the need for the managers to account to the shareholders became imperative.

On this note therefore, government made provisions trough the companies matters decrees for the accounts of

companies to be examined and reported on by persons other than those who manage the business. It is therefore this way that auditing developed and has continued to grow with increase complexity in the modern business and accounting system.

The legal backing of auditing is derived from several companies acts with the 1844 joint stock companies act credited as having started the legal lead. In Nigeria, the companies and Allied Matters Decree of 1990 are guiding auditing practices.

Internal auditing, which is the greater part of this work, appeared on the business scene much later than auditing by public accountants. Suggestive of the relatively recent origin of the maturation of internal audit is the fact that the first extensive treatise to the subject was published in 1941, (Stettler, 1977:82). While reporting on the statement of responsibilities of the internal auditor; Jack C. Roberts presented that internal auditing is an independent appraisal activity within an organization for the review of operations as a service to management. This is in line and agreement with the definition of internal audit as given by CIMA Official terminology. Furthermore, internal audit is a managerial control which functions by examining and evaluating the adequacy and effectiveness of other control with the increasing complexity in modern business and government functions, there has been an attendant expansion of span of control with hundreds and thousands of people on the payroll of government and business units, and operation sometimes being conducted from wide spread locations.

Therefore the need for a continuous audit became evident and imperative. Such continuous audit cannot be

economically carried out by the external auditors because such a continuous practice would impose strain upon the resources of both external auditors and the organization alike. More so, such an exercise will deprive the auditing firm insight to be gained when audit of several organizations are undertaken.

Apart from the above stated, another justification for internal audit is that it is continuous, it is a corrective measure and can be taken once a deviation is reported rather than once a year. This is made possible because internal audit is the examination of books of accounts by salaried officials of a business or government departments, known as internal auditors. (Shama, 1984:38). Internal auditors are qualified accountants with considerable

professional experience employed to carryout for business or government units internally much of the work which would

be performed by the external auditor. Since internal auditors are employees of government units and/or business units, it is therefore clear that the internal auditors are responsible to the management and does not serve a servant to the external auditor. But consultations between the two auditors and with management are essential. The consultants will make available practical assistance to the external auditor since the internal auditor is seen to be likely conversant with the activities of the business or government unit. All these and more, will be studied as applied to the Abia State Board of Internal Revenue, which is one of the numerous

government units in and within the state charged with the responsibility of revenue generation, as a case study and of course to determine the impact Internal auditing has had on its organizational performance.

STATEMENT OF THE PROBLEM Internal auditing since its origin and introduction into the accounting and auditing system, has been an area of debate

and controversy in both professional and non-professional sectors. Some critics maintain unequivocally that there is no need for internal auditing as they argue that the reports of these auditors are neither being objectively carried out are they used to effect any policy enforcement or changes in these organizations. Ifedi (1986) in sharing the view states that; in the Nigerian contest, internal auditors can be targets of workers hostility and vilification. He contended further that; reports are rampant that dedicated internal auditors were not only threatened but were also victimized. Even today they still live in the specter of fear and morbid distrust.

Secondly, it was advanced against internal auditors that reports made by them go to wrong hands and are not used to effect any change or in the detection of and prevention of errors and fraud in the organization. But proponents of internal auditing maintain that in spite of the threats, victimizations and vilification, it still remain useful in

facilitating policy execution in business, better decisionmaking, relevant and reliable information on the business.

The views of the critics portend jeopardy to organizational performance much more in government departments, which are established to manage and provide for public welfare. The effect of mal administration of Government

Departments is most apt to affect a greater number of persons. There is therefore the need that the statements and charges of the critics be looked upon as more opinions, which lack validity and reliability and as such are empirically empty.

Conversely, majority of the units and sectors which carry out internal auditing do not really appreciates its importance, while some other do so only because they have seen other done it. More so, many departments of Government even in the companies do not implement their internal audit reports

in their planning, organizing, decision-making, controlling and other related managerial functions.

This study therefore attempts to carry out a research on the effectiveness and/or impact of internal auditing as an aid to managerial and organizational performance in a government department in order to enhance its role in prevention and detection of errors and fraud and in ensuring compliance to policies in order to improve the overall internal control system of any government department.

3.2.1 RESEARCH QUESTION This research work intends to evaluate and address the following questions 1. Does the internal auditor play and role(s) which is/are significant objectives in of the a achievement government of the corporate and/or

department

government at large?

2. What leverage in terms of scope, independence or performance has the internal audit of a government department over internal audit of a non-government department or organization? 3. On evaluation, does the contributions of the internal auditor towards the achievement of the corporate objectives outweigh those of the external auditor? 4. Does management see any need for an internal audit work? 5. Is planning, decision-making, controlling et cetra by management based on internal audit report? 6. Of what magnitude has the use of internal audit report by managers contributed performance to managerial in a and/or

organizational department.

government

1.3 PURPOSE OF THE STUDY Although the practice of internal auditing can be applied to and adopted by any organizational set up or establishment,

its relevance in any government department or organization cannot be over estimated. This therefore gave focus and informs the following objectives of the researcher.

1. To establish where possible the relevance of otherwise of internal auditing in a government department.
2. To evaluate an/or assess the performance of internal

auditing in terms of comprehensiveness of scope and impact (i.e. value added). 3. To establish the degree to which internal audits aids management in prevention and detection of fraud and errors, and in ensuring compliance to policies in order to improve the overall internal control system of a government department. 4. To determine of the constraining audit factors functions to of the a

performance

internal

government department.

5. To recommend necessary measures to enhancing the performance of internal auditors in government

departments and/or other organization. 6. To see if possible, our findings could help in improving future performance of government department and/or other organizational set-up with similar or related problems.

1.4 RESEARCH HYPOTHESIS For this study to be made effective, meaningful and testable; it is therefore deemed imperative to the researcher to formulate the following hypothesis:
1.

Ho: Internal auditing does impact significantly in the achievement of the corporate objectives of a

government department. This is considered the null hypothesis (Ho).

2.

Ho: Internal audit report contributes positively to greater and better managerial performance in a

government departments. This thus, is considered the second null hypothesis (Ho).

1.5 SIGNIFICANCE OF THE STUDY TO GOVERNMENT AND ORGANIZATION The importance of internal auditing since its origin ahs not been fully appreciated and grasped in most organizations, especially in government departments. It is the hope of the researcher that the result of this study will serve a practical tool to provide guides to managers of business organizations and Chief Executives and management of government department in their assessment and evaluation of the usefulness of internal and its. It is also hoped that the study will prompt government departments and other

organizations to make changes where possible and enhance compliance to their internal control system, as it will provide guide for their decision as to whether to spend on internal audit and internal audit personnel.

TO ACADEMICS AND RESEARCHERS It is also hoped that the result of the study will provide guide for future researchers in this area and other related issues and fields, as it will also make contributions to the general knowledge existing an auditing in particular and accounting in general.

1.6 LIMITATIONS OF THE STUDY Research projects are often time constrained by a number of limitations ranging from finance to inordinate attributes of respondents, but in developing countries, these problems are seemed to assume greater dimensions. There is also the problems or limitations posed by limited stock of literature. Deteriorations in foreign exchange have at the present forced many libraries to down-cut their usual periodic stocking and acquisition of published materials, especially foreign materials like foreign journals. In the same vein, in government parastatals, departments and firms alike, there seem to be high level of deliberate unwillingness of

employees

of

releases

information,

with

incessant

rescheduling of appointments by respondents, which are hardly met. More so, an adoption of unscheduled visits as a way out were frustrated with many excubes ranging from want of time and lack of official permission to serve the researchers at the point in time. Further more, there was the problem of lack of fund to come by the necessary logistics equired to carrying out a research effectively.

1.7 DEFINITION OF OPERATIONAL TERMS In order to make this study relevant and understandable; some of the terms that apply more frequent are hereby defined as are used in the study.

IMPACT: This is relevance or effect one variable has on another variable in order for it to develop desired outcome. AUDITING: Auditing is a systematic but periodic service performed by an auditor when he or she undertakes the

checking of the books of accounts and related documents of a business. Auditing is basically subdivided into two.

EXTERNAL

(INDEPENDENT)

AUDITING:

This

is

an

independent checking and examination by certified public accountant in practice of a firms books of accounts of financial statement as presented by the management with the aim of finding out, establishing and confirming the reliability of information, contained there; communicating same to stake holders such as share holders, government and the public.

INTERNAL AUDITING: This is periodic appraisal of the financial books and records and of the analysis of the effectiveness of all parts of an entity (i.e. operation and management) as well as the evaluation of the internal control system, with a view to reporting the results of the findings as a service to aid management in decision making, planning, controlling and policy formulation.

INTERNAL CONTROL: This is a thrifty measure taken by an organization aimed at protecting and safeguarding the assets against waste, fraud and inefficient use, by means of division and segregation of duties and of strict compliance to organizational policies.

FRAUD: Fraud is the tendency of an individual or group of individual to falsify documents, misappropriate and/or steal items or value. Fraud can be subdivided into three; viz, theft, forgery, and manipulation.

THEFT: This is an unlawful act of possession of an item, which is not of the holders ownership.

FORGERY: Forgery is the act of falsification of documents and/or signatures.

MANIPULATION: Manipulation related to figures and it is concerned with giving accounts of sums that are either less

or more than actually with the aim of satisfaction of the culprits.

CONTINUOUS AUDIT: This is a practice of reviewing the account processes and other operations of an organization regardless of the accounting period, by an employees of the organization assigned to do so.

ORGANIZATION: This is a coordinated body of persons, operation and systems with pre-determined objectives.

ORGANIZATIONAL

PERFORMANCE:

This

sis

the

achievement by an organization of the objectives for which it was established.

GOVERNMENT DEPARTMENT: This is a corporate body established by government under enabling status with the main aim fo rendering services to the state and to the

people. Like parastatatis, Government Department depends on routine supply of government budgetary grants.

1.8 ORGAIZATION OF THE STUDY This work is systematically presented in a manner that is began with chapter one which is consisted of the background of the study, brief history of Abia State and Abia State Board of Internal Revenue Statement of the problem, research questions, purpose of the study, research hypotheses, significance of the study, limitations of the study, definition of operational terms, organization of the study, assumptions of the study, summary and references.

Chapter two is concerned with the review of related literature consisting of books and journals (academic and professional).

Chapter three delves into the methods and procedures of data collection and analysis.

Chapter four is concerned with statistical analysis of data collection and subsequent findings arrived at.

Finally, ends with chapter five consisting of summary of the research and findings, conclusion and recommendations.

1.9 ASSUMPTION OF THIS STUDY Government departments are usually constituted of various cadres of employment who carry out the day-to-day routine activities of the department. Given this fact and the need to create room for internal validity, the following assumptions are therefore made: 1. That internal auditing is a practice of every

government department.
2.

That

there

are

established

controls

measures

in

operation. 3. That the objective of a government department is to provide services efficiently and effectively.

4. That the internal auditing staff is district from those whoa re concerned with recording, keeping and asset custody. 5. That though the internal auditor is responsible to management, he/she maintains an appreciable level of independence in the discharge of his/her duties.

REFERENCES Adeniyi A.A. (2004) Auditing and Investigation, Analysis, Lagos, Integrated Press. Value

Anderson, R.S (1977) The External Auditor 1, Toronto Pitman Publishing. Baridan, D.M. (1990) Research Methods in Administrative Science, Port-Harcourt, Belk Publishers. Chambers, Andrew D. and others (1987) Internal Auditing, 2nd edition, Toronto, Pitman Publishing. Howard Leslie, R. (1982) Principles of Auditing 21st Edition, Lagos, MacDonald and Evans Limited. Millicamp, A.H (1990) Auditing: A Complete Course Text 5th Ed. D.P, London Publication, Hamsphire. Nwanyanwu L.A. (2002) Role of Internal Audit in Publish Sector Administration. The Enterprise, Port-Harcourt, Vol. 4 No. 2. Onyeanula M.A. (2004) Internal Audit Section (Duties), Unpublished manuscripts Abia State Board of Internal Revenue, Umuahia. Stettler, H.F. (1977) Auditing Principles, 4th Edition, England Prentice-Hall Inc.