INTERNAL AUDIT AS A TOOL FOR EFFICIENT PERFORMANCE IN AN ORGANIZATION

(A CASE STUDY OF PSYCHIATRIC HOSPITAL BENIN, EDO STATE)

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF STUDY

Very large organization and some small ones have found a need for internal audit in addition to an external audit. Internal auditors are employee of the organization and work exclusively for the organization. Their functions partly overlap those of the external auditors and in parts are quite different.

          The precise function of external auditors are either laid down by statute or embodied in a letter of engagement. The functions are determined by management and vary greatly from organization to organization.

          Internal audit defined as an independent appraisal functions established by the management of an organization for the review of the internal control system as a service to the organization. It objectively examines, evaluate, and report on the adequacy of internal control as a contribution to the proper economic, efficient and effective use of resources.

A)  Internal audit is thus:

i.                   Having the scope to arrange his own priorities and activities.

ii.                 Having unrestricted access to records, asset and personnel’s.

iii.              Internal audit personnel with an objective frame of mind set.

iv.              Freedom to report to higher management and where it exists to an audit committee.

v.                 Internal audit personnel who have no conflicts of interest or any restriction placed upon their work by management.

vi.              Internal audit personnel have no responsibility for line work or for new system. A person cannot be objective about some things he or she has taken responsibility for. On the other hand the internal audit should be consulted on new or revised system.

vii.            Internal audit personnel who have know non audit work.

Since internal auditors employee is difficult to ensure that they are truly independent in mind and attitude.

B)   as a service to the organization, the organization, the management requires that:

i.                   Its policies are fulfilled

ii.                 The information is required to manage effectively and should be and complete. This information is not only that provided by the accounting system.

iii.              The organization assets are safe guard.

iv.              The internal control system is well designed.

v.                 The internal control system work in practices

vi.              The internal auditor’s activities will be directed to ensure that these requirements are met.

C)   Other duties may include:

i.                   Being concerned with the implementation of social responsibility policies adopted by top management.

ii.                 Being concerned with the response of the internal control to errors and requires changes to prevent error.

iii.              Being concerned with the response of the internal control system to external stimuli. The world does not stand still and the internal control must continually change.

iv.              Acting as a training officer in internal control matters.

v.                 Auditing the information given to management particularly interim accounts and management accounting report.

vi.              Being concerned with compliance with external regulations such as those on the environment, money laundering, financial services, and related parties. etc.

1.2     STATEMENT OF PROBLEMS

Internal audit is an integral part of the internal control system of most organizations, at the heart of an organization is the audit function: This is evidenced by the fact that all other departments are linked with internal audit department. The importance of internal audit system cannot be overemphasized, since organizations have recognized internal audit function as a tool for ensuring effective workings of the internal control system.  

However, in Nigeria, the audit function in most government parastatalss has not been fully taped. This could be seen in the numerous cases of errors, intent to defraud and other fraudulent acts that exist in the government parastatals.

It is therefore, no wonder that the anguish in such parastatals in the nineties reflected lack of effective control mechanism of the audit function in the organization. The experience of low productivity of some public enterprises in Nigeria has called for reinforcement of audit and the strengthening of the control system in the public sectors. It is against this background that, this study seeks to evaluate the internal audit as a tool for efficient performance in organizations in Nigeria considering the fact that, the public enterprises are critical to the survival of any economy.

1.3     OBJECTIVE OF THE STUDY

1.     To examine the relevance of internal audit in an organization

2.     To determine the extent to which internal audit promote the efficient performance of an organization.

3.     To examine the impact of internal audit in the achievement of organizational objective.

4.     To observe the relationship between internal audit and organizational objectives.

5.     To investigate the impact of internal audit meetings on return on assets of organizations

1.4     RESEARCH QUESTIONS

          This research study will attempt to find answer to the under listed questions, which will obviously provide an insight into the subject of study internal audit and its efficient performance.

i.                   What qualities would you look for when appointing an auditor?

ii.                 To whom should an audit report to?

iii.              How will the internal auditor carry out their work?

iv.              How will the work be reviewed?

v.                 What are the roles of the organization in receiving report written by an internal auditor?

1.5     RESEARCH HYPOTHESIS

Hypothesis can be defined as a tentative statement or assumption, it is the relationship between two or more variables, an idea put forward but not yet validated. In the course of this research work some hypotheses were review. Theses hypothesis will be tested in order to ascertain their validity.

In this research these following hypothesis would be tested.

HO- internal audit does not promote the efficient performance of an organization.

HI- internal audit promote the efficient performance of an organization.

HO- lack of independence of the internal audit does not hinder to performance of the organization.

HI- lack of independence of the internal audit hinder to performance of the organization.

HO- management negative attitude to the internal audit report does not hinder the efficient performance of the organization.

HI- management negative attitude to the internal audit report hinder the efficient performance of the organization.

1.6     SIGNIFICANT OF STUDY

In practical sense, the significance of this study is to bring together the various new and facts as regards to subject matter, against this back drop, it is anticipated that the study will be of immense help to different categories of people both the managements and managers of government parastatal, students in various disciplines, the government, employees in different organizations and employers at large. It will also go further to remove the ambiguity that exists in the mind of individuals in most organizations.  

1.7     LIMITATION OF THE STUDY

          In carrying out this research, I observed that time limit available to produce this project is very short as compared to the trend and expected result of this research work and getting information from the organization. (case study) is not an easy task because in an organization of such, giving out vital information is usually very difficult. This went a long way in affecting the information the research would have gathered to carry out this research work to it expectation.

1.8     SCOPE OF STUDY

          In carrying out this research, my study would be restricted to the psychiatric hospital, Benin City, Edo state. In an attempt to achieve the objectives of the study, I would consider the genesis and development of the organization and the efficient performance of the organization with regards to the internal audit.

1.9     DEFINITION OF TERMS

AUDITOR: This is a person who officially examines the business and financial records of a company.

AUDITING: This is the official examination of business and financial records to see that they are true and fair.

EXTERNAL AUDITOR: This can be defined as a person who is appointed to independently investigate the organization records and financial statement, prepared from them and this from an opinion on the accuracy and correctness of the financial statement.

INTERNAL AUDITORS: It can be defined as a person that independently appraises functions established by the management of an organization, for the review of the internal control system as a service to the organization.

MANAGEMENT: A comprehensive term including all persons who have responsibility at various levels for activities, which may be the subject of internal audit.

ORGANIZATION: It can be defined as social unit of person that is structural and managed to meet a need or to pursue collective goals.

PERFORMANCE: The accomplished of a given task measured against preset known standard of accuracy, completeness, cost and speed.

Efficient:

This is the process of working in a well organized and competent way.

LETTER OF ENGAGEMENT: A written agreement to perform services in exchange for compensation. Engagement letters are traditionally used by certain professional services firms. Particularly in the field of finance, accounting, law and consulting to define the specifies of the business relationship.

TRUE AND FAIR VIEW: This is when the financial statements are free from material misstatement and faithfully represented the financial performance and position of the entity.

STATUTE: This can be defined as a law that is passed by a parliament, council etc and formally written down. It is also a formal rule of an organization or institutions.

MANAGEMENT LETTER: this is a letter written by an auditor to the many stressing on the weakness of the internal control system and the areas that need improvement in the system.