This research examined the Effect
of Internal Audit on Managerial Performance in Public Enterprise. Survey design was employed with the use of
a well structured questionnaire. Respondents were selected based on simple
random sampling technique. Seventy (70) staff were selected from NNPC. Two
hypotheses were formulated and data collected were tested with the use of
Chi-Square analysis. Findings from the result shows that Internal audit
has significant impact on the reduction of embezzlement in public enterprises
and established control has significant effect on managerial performance. The
study recommends that internal auditor should continue to efficiently review various
departmental functions with a view to enhancing effective accounting system and
CHAPTER ONE: INTRODUCTION 1.1 Introduction
1.2 Purpose of the Study
1.3 Significance of the Study
1.4 Relevant Research Questions
1.5 Statement of the Hypothesis
1.6 Delimitation of the Study
CHAPTER TWO: LITERATURE REVIEW
Roles and Duties of Internal Auditor
Characteristics of the Nigeria Public
Purposes of Auditing System in a
Public Enterprise Management
2.5 Management Control in Public Enterprise
2.6 Economic Implications of Ineffective
Internal Auditing System
in the Public Enterprise Management
2.7 Management of Performance Evaluation in
2.8 Internal Auditing in NNPC
2.9 Qualification of Internal Auditor
2.10 Accountability in NNPC
CHAPTER THREE: RESEARCH METHODOLOGY
and Sampling Procedure
and Sampling Technique
of Research Questions
of the Hypothesis
of Validity and Reliability of the Study
of the Data Collection Instrument
for Data Analysis
FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
of Respondents Bio-Data Department
of Operational Variables
FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
for Further Study
BACKGROUND OF THE STUDY
The term audit is derived from the
latin verb "Audire" which means "to hear". The origin of
audit dates from ancient times when the landowners allowed tenant farmers to
work on their land whilst landowners themselves did not become involved in the
business of farming. The landlords relied upon an overseer who listened to the
accounts of stewardship given by the tenants this period the word audit is
The ,independent examination of, and
expression of opinion on the financial statements of an enterprise by an
appointed auditor in pursuance of that appointment and in compliance with any
relevant statutory obligation.
Furthermore, the introduction of the
joint stock company increased the supply of capital for industry and commerce.
The small privately owned business, which was financed by a sole trader or a
partnership gave way to the form of organization now familiar as the limited
company. The body of shareholders delegated some of their members to act as a
board of directors, and periodically the board submitted accounts to the
shareholders so that they could be aware of the state of affair of the
enterprise in which they had an interest. It was therefore necessary for the
shareholders to satisfied the accounts presented of the directors did provide
an objective view of the state of affairs of the company.
The joint stock company Act of 1844
.was the fist legislation in Britain fore quire all incorporated businesses to
hand their annual financial statements examined by an auditor. Early auditors
were, in many cases non accountants who were required state whether the
accounts showed a `true and correct' view of state of affairs of the, it was
the company's Act 1900 that required auditor to be independent and it was not
until the 1948 Companied Act that he was required to be professionally
qualified. At this juncture, it was more appropriate to define audit as:
An exercise whose objective is to
enable auditors to express an opinion whether the financial statement give a
true and fair view (or equivalent) of the entity's affairs at the period end
and of its profit and loss (or income and expenditure) for the period then
ended and have been properly prepared in accordance with the applicable
reporting framework (for example relevant legislation and applicable accounting
standards) or where statutory or other specific requirement prescribed the
term, whether the financial statements "present fairly".
IS INTERNAL AUDIT
Internal audit are those audit that are
being carried out by employees within an enterprise. Internal audit is 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, evaluates and reports on the
adequacy of internal control as a contribution to the proper economic
efficiency and effective use of resource.
The institute of internal Auditors
(IIA), the professional body of internal auditors, define the function in the
following way. "Internal auditing is an impendent appraisal activity
within the organization, for the review of operations as a service to
management. It is a management control which functions by measuring and
evaluating the effectiveness of the controls".
The scope of the internal audit within
an organization is broad and may involve topic such as the efficacy of
operations, there liability of financial reporting and investigating fraud,
safeguarding assets compliance with laws and regulations.
AUDIT AND THE PREVENTION OF FRAUD
By definition, internal control is an
independent appraisal function within an organization, carried out by employees
of the organization, for the review of operations (financial and otherwise): as
a service to management. It is a management controls which functions, by
measuring and evaluating the effectiveness of other controls. Fraud or
irregularities, which arise in the conduct of the affairs of a company, may be
classified broadly into:
Defalcations involving the
misappropriate of money or goods, such acts may be performed by an individual
or group of individuals without the knowledge of the board of directors, or
sometimes, by the board with the intention of defrauding the member.
Fraudulent manipulation of , financial
statements not involving defalcation. The main reasons for this are:
To attempt to improve the apparent
position or the company e.g to justify a dividend that would not otherwise have
been payable or to assist in raising new finance: or To attempt to defraud the
tax authorities by reducing taxable
The internal auditors should
continuously review the existing controls to ensure that they are followed and
update them when need be. This shall ensure that the occurrence of fraud is
prevented and that when any such 'frauds occur, they are easily and timely
identified and reported to management. It is his duty to search for fraud, to
examine the books, accounts and control/processes/system with the objective of
discovering whether there have been defalcations or other irregularities by
directors or employees of the company. However, if the directors of the company
decide to defraud the members, there is not much the internal auditor can do.
Being a staff of the organization, he probable reports to the directors and
depends on the board for his remunerations, promotion and other employment
Similarly, where the management .of
business wish to manipulate the a misleading impression without actually
diverting any of the business assets, the internal auditors cannot do much as
management misstate the assets or liabilities. While the more common target for
manipulations is stock, other areas are also susceptible.
financial statements to give It is
painful to observe that in practice, members in the employment of companies as
accountants, finance controller, internal auditors etc are used to, enhance and
perpetuate these management/ directors aided fraud. Members must always beings
to bear on all activities they are carrying out for clients and employees the
institute's codes of professional conduct and ethics.
Misappropriation of cash may result
from the making of fictitious payments or the diversion of cash receivable. The
number of ways in which these may be done depend on the systems of control in
existence and the ingenuity of the person or persons involved. In many cases,
it is the attempt to cover of rather than the original theft that is detected.
So prevention of fraud is continuous review of controls and operations. The
opportunities for fraud will depend on the system of controls. Particularly,
important are those leading to segregation of duties. Although frauds involving
collusion are not uncommon, it is generally agreed that the chance of detection
rises with the number of people involved.
STATEMENT OF PROBLEM
Despite the fact that there are
installed control and check of resources, embezzlement and fraud of resources
misappropriate of funds, errors, irregularities and mistake stills find their
ways into the public enterprises.
Internal audit department was
established to reduce those excesses however, in Nigeria public enterprises
this is not so, as there are series of problem which has been hindered in the
internal audit efficiency.
1.2 PURPOSE OF THE STUDY
The broad objective of this is to
examine the effect of internal audit on managerial performances in public
enterprise (NNPC). However, some of the specific objectives are as follows:
identify the factors that hinder audit efficiency in NNPC as a public
excesses of the internal auditing department of NNPC Identifying problems and
accountability in NNPC.
the factors that hinder internal audit efficiency and how these factors are
impinged. It is also shapes up performance of management
1.3 SIGNIFICANCE OF THE STUDY
The role of internal audit department is
called upon to play especially in public enterprise and the ignorance of the
employees makes this study important With sound internal audit, management that
is characterized by fraud, errors, irregularities, and mistakes in the public
enterprises which has resulted by the notion that government business are not
supposed to make profit is bound to be eliminated.
The management, employers, employees as
well as student benefit from this study.
RELEVANT RESEARCH QUESTIONS
Below are some questions that would be
answered during the course of this research works.
is the impact of internal audit on the performance in public sector
establish control failed to enhance management performance in Nigeria public
there any factors that determine the performance of the management in NNPC
effective internal audit enhance reduction of fraud?
there any factor that prevent; internal audit from being effective and
efficient in NNPC.
1.5 STATEMENT OF THE HYPOTHESIS
To ensure a mere analytical result
oriented research, hypothesis are formulated and tested on the research
The decision criteria are to accept the
null hypothesis (HO) and reject the alternative hypothesis (Hi)
or otherwise based on the result of the test performed. The research hypotheses
are stated below:
HO: Internal audit has no significant impact on the reduction of
embezzlement in public enterprises
Hi: Internal audit has significant' impact on the reduction
embezzlement in public enterprises
HO: Established control has no significant effect on managerial
Hi: Established control has significant effect on managerial
1.6 DELIMITATION OF THE STUDY
The scope of limited to various
measurement of internal audit which are used in public enterprises. The
constraints to this study are time, in adequate information, lack of enough
literature on this subject arid information which are considered confidential
were not revealed by some of the staff.
Adeniyi A. Adeniji: Auditing and
Investigation page 1,2, 12
Akpala A. (1991): Principles of
management. A Nigeria approach. Page 9 first edition, fourth edition, fourth
dimension publisher LTD.
Badmus Olusesan and Elegbede David
(2003): Auditing and Investigation page 1, first edition, Abel printers Lagos.
Etuk A.I.J (1989): Alarm system-Roles
of public accounts and audit committee. An unpublished paper presented at Work
Shop Organized by NNPC.
Isidore Ojuku Nwankwo: Auditing
concepts issues and principles page 114124
Johnson I.E (1992): Public sector
accounting and financial control Lagos financial training.