THE EFFECTS OF INTERNAL AUDIT AS A TOOL FOR MANAGEMENT EFFECTIVENESS AND CONSEQUENTLY ON THE ORGANIZATION PROFIT


Content

TABLE OF CONTENTS

                                                                                               

Certification                                                                                     i

Dedication                                                                                        ii

Acknowledgement                                                                           iii

Table of contents                                                                    iv

 

CHAPTER ONE: GENERAL  INTRODUCTION

1.0 Introduction                                                                                       

1.1 Background history of Bank in Nigeria                                           

1.2 Brief History of Union Bank of Nigeria Plc                    

1.3 Organization of Union of Nigeria Plc                                       

1.4 Conceptual Definition of Auditing, Management

      Efficiency, Organization and their Relationship.                    

1.5 Conceptual Definition of Internal Audit                                 

1.6 Internal Control and the Scope of Audit

1.7 Research Question

1.8 Purpose of study

1.9 Hypothesis Test

1.10 Relevant of study

1.11 Scope of study

 

 

CHAPTER TWO:  LITERATURES REVIEW    

2.0 The nature of auditing

2.1 Historical development of internal auditing                   

2.2 The purpose of internal auditing                          

2.3 Factors determining the scope and objective of

       internal audit                                    

2.4 Methods and procedures of carrying out

       internal audit work1 Purpose of Taxation                                                            

 

 

 

 

 

 

 

 

 

 

CHAPTER ONE

GENERAL INTRODUCTION

1.0 INTRODUCTION

The layman is generally under the impression that an auditor is primarily in search of errors and frauds of all types. This is a wrong notion. Various accounting society have however made efforts to educate both general public and the business community in order to dispel this incorrect impression. This tends to cast a dark veil over the accountancy profession, especially the auditing aspect. The result there is diminishing public confidence in Audit reports about financial statements of business. In its defense, the profession claims to have in place Audit standards,
procedures and ethnic practices which ensure that the quality of audit conducted in Nigeria needs of financial statement users. But there is equally widespread though not yet empirically verified counter claims that the auditors are not living up to expectations as audits conducted in Nigeria have continued to witness a steady decline in usefulness and reliability.

Given these divergent opinions and their growing strengths, one wonders which' among them is real or close to reality and which is based on written information. This study therefore, was embarked upon to serve as an instrument for whether internal Audit in banks yield any effects on management effectiveness.

 

However, in Nigeria today, the word "auditor" is synonymous with Detective. The officers and servants of companies seem to be ignorant of the main objective of an auditor. It is not surprising at an impending visit by auditors. I feel bad about this attitude. Difference scholars have expressed their view about this situation as to show fairness and reliability of state of affairs of a company but not to detect fraud as their main duty.

 

1.1 BACKGROUND HISTORY IN BANK IN NIGERIA

The development of banking in Nigeria dates back to 1892 when the African Banking Corporation opened its first branch in Lagos. Messrs elder Dumpster & company, a shipping firm based in Liverpool, was instrumental to its formation. The initial difficulties experienced y the bank made it transfer its interest to elder Dumpster & Company in 1893. This led to formation of a new bank Known as the British Bank of West Africa (BBWA) in 1893. It was registered in London as a limited liability company in 1894, and the first Lagos branch was opened the same year. The second Nigerian branch was opened in Old Calabar in 1900.

Another bank called the Anglo-Africa Bank was established in 1899 in Old Calabar by the Royal Nigeria Company (now UAC) to compete with BBWA. The bank later changed its time name to Bank of Nigeria and established branches in Burutu, Lokoja and Jebba. As a result of fierce competitio_ns and the monopoly for the importation of silver from the Royal Mint enjoyed by BBWA, they sold out to BBWA in 1912. The Barclays Bank DCa (dominion, colonial and oversea) now Union Bank of Nigeria Pic opened its first branch in Lagos in 1917. Soon after, nine other branches were opened. The Nigerian banking scene was therefore, dominated by these two British banks BBWA and Barclays bank DCO between 1894 and 1993.

 

British and French Bank, now known as United Bank for Africa PLC was established in 1949 making it the third expatriate bank to dominate early Nigeria commercial banking. These foreign banks monopolized banking services.    They largely ignored the development of local . Africa Entrepreneurship, controlling close to 90% of aggregate bank deposits. As a result of this, several abortive attempts were made between 1914 to the 1930 to establish locally owned and managed banks to break the foreign monopoly.

 

In 1929, the industrial and commercial bank was set up by a handful of patriotic Nigeria buts folded up in 1930 due to undercapitalization, poor management and aggressive competition from the expatriate banks. Another indigenous bank - the Nigerian Mercantile bank was established in 1931. Again, it went into liquidation in 1936. The same group of pioneers in 1933 launched the National Bank of Nigeria of Nigeria Limited that became the first surviving indigenous bank the next private indigenous bank to be established was the Agbonmagbe Bank founded 1945 by chief Okupa. This bank was later taken over by the Western state Government in 1969 and its is name change to Wema Bank. The fifty bank was the Nigeria Penny Bank, set-up early 1940's and collapsed in 1946 under the weight of mismanagement. This was followed by Nigerian farmers, and the commercial bank in 1947 failed in 1953. Themerchants Bank opened for business in 1952 and closed in 1960. 

 

Indeed, this was a period of free- for- all banking. Between 1947 and 1952 a total of twenty-two banks registered, but most could not start banking business. The next successfully established indigenous bank was the African continental Bank founded by Dr. Nnamdi Azikiwe in 1947.

As a result of constant failure of ,these banks, the colonial Government set up a commission of inquiry the Patton commission which consequently led to the banking legislation of 1952.

In spite of the enactment of the banking ordinance of 1952, banks were still indulging in some mal-practices that the act could effectively control. Therefore, the necessity of establishing a central Bank to supervise and control the banks became more apparent and pressing. Thus the central Bank came into being in 1959.

 

1.2 BRIEF HISTORY OF UNION BANK

Union of Nigeria Limited started with the opening of the colonial bank offices in Lagos, Jos and Port Harcourt in 1917. In 1925, the bank was acquired by Barclays Bank and its name changed to Barclays bank DCO (Dominion, Colonial and Oversea). The bank developed and grew rapidly over the years by 1957, branches had opened in almost all parts of the country. In compliance with the directive of the government in 1968, that all companies (including banks) must be incorporated locally in Nigeria, Barclays Bank DCO was. incorporated in Nigeria in 1969 and its name was consequently changed to Barclays Bank of Nigeria Ltd, with its registered Head Office at 40 Marina, Lagos. 

As a result of indigenization Decree of 1972 and 1977, the federal Government of Nigeria acquired 52% of the Bank's 'shares leaving 40% for taken Barclays Bank International Limited while the remaining 8% was taken up by the Nigerian public.

Barclays Banks plc sold 50% of its shares to Nigerians in 1979, thus reducing her equity holding to 20%. Following this development, the bank's name was changed to Union Bank of Nigeria Plc to reflect the new ownership structure i.e.

         Federal Government of Nigeria             52%

         Private Nigeria Investor                         28%

         Barclays Bank Plc                                  20%

With this new name, this bank is now an indigenous bank and no longer subsidiary to Barclays Bank Plc, although they still continue to offer technical and correspondent services as in the past.

1.3 ORGANIZATION OF UNION BANK NIGERIA PLC

The bank has organizational structure that is responsive to the challenges of our time. It is headed by a managing Director and chief Executive and Management team of Executive Directors, Deputy General Managers, Assistant General Managers, Principle Managers, Senior Managers, Senior Managers and Branch Managers.

 

For ease of administration, the organization is divided into two sections, namely: the Service and the operations. Under the services, we have the head office Department (internal Audit Department, Legal Department, Insurance Department, Registrar's Department, Business Advisory services Department, etc. to mention a few. While under the operations, we have the various branches zoned into areas. 

Although the ranch manager is responsible for the proper functioning and performance in the branch, he cannot do everything himself. Thus all branches have an organization chart, showing superior and subordinate relationship and equal rank. This chart varies depending on the size of the branch and sets out the official responsible for various sections of branch operations.

Union bank is made up of thousands of people, working together for a common goal, profit through efficient services. The various levels of official cannot function effectively without the co-operation of one . another. The principal/senor managers for instance, cannot functions successfully alone unless their branch manager perform. In the same light to branch manager relies to a large extent or his Accountant, heads of Department and other junior staff in order to perform efficiently.

 

Furthermore, the main thrust organization structure is to ensure that the bank is responsible to the demands and needs of customer and the challenge of today's competitive banking industry. .

 

Union bank has continue to engage in the provision of excellence services to her customer and discharges its corporate responsibility in full to the society in which it operates. All these have made it live up to its slogan - "The big, strong and Reliable Bank.

 

1.4 CONCEPTUAL DEFINITION OF AUDITING, MANAGEMENT EFFICIENCY, ORGANIZATION AND THEIR RELATIONSHIP
Auditing in its widest sense is the examination of a firm's book of . accounts by a person qualified to do so. Auditing is derived from the Although the ranch manager is responsible for the proper functioning and performance in the branch, he cannot do everything himself. Thus all branches have an organization chart, showing superior andsubordinate relationship and equal rank. This chart varies. depending on the size of the branch and sets out the official responsible for various sections of branch operations.

 

Union bank is made up of thousands of people, working together for a common goal, profit through efficient services. The various levels of official cannot function effectively without the co-operation of one another. The principal/senor managers for instance, cannot functions successfully alone unless their branch manager perform. In the same light to branch manager relies to a large extent or his Accountant, heads of Department and other junior staff in order to perform  efficiently.

 

Furthermore, the main thrust organization structure is to ensure that. the bank is responsible to the demands and needs of customer arid . the challenge of today's competitive banking industry. Union bank has continue to engage in the provision of excellence services to her customer and discharges its corporate responsibility in full to the Society in which it operates. All these have made it live up to its slogan - "The big, strong and Reliable Bank.

 

        1.4   CONCEPTUAL DEFINITION OF AUDITING, MANAGEMENT
EFFICIENCY, ORGANIZATION AND THEIR RELATIONSHIP
Auditing in its widest sense is the examination of a firm's book of accounts by a person qualified to do so. Auditing is derived from the Latin word "AUDIRE" which means to hear. It is defined, as the independent examinations of an expression of opinion on the financial statements of an enterprises by an appointed auditor in pursuance of that appointment and in compliance with any relevant statutory obligation. It avails the person the opportunity of checking whether such firm has conformed to the laid down rules of the firm (public companies). It includes not just a check of arithmetical accuracy but also inspection of vouchers to ensure that all documentation are adequate and accurate in the book of the firm.

 

Auditing therefore aims at low cost concept, suffice to saying that the· ultimate aim of auditing is to make sure that the prudent concept in any organization is not based. It is then no overstatement of firms fund given birth to the word "Auditing" in any organization with the basic aim of cost minimization.

 

Management efficiency in an auditing atmosphere may have various effects in any firm. Efficiency of a manger is the measure of how such manager is able to manipulate the scarce i.e materials, labour, cash. etc. to achieve an organizational goal at a defined time i.e. output measured by time.

By auditing manager's work, the zeal to achieve an organizational goal will be his ultimate aim thereby increasing his efficiency on the job. Conceptual way of tackling problem at a reduced cost to achieve organizational goal will undoubtedly become part and parcel of the manager.

This is so because auditing him serves as a sort of checking him or measuring his ability as a manager and as an individual. In this regards they will want to guide, save and boost their names by being efficiency in their managerial role. Auditing will therefore, no doubt have a positive have a effect on management efficiency in any organization.

 

By organization, one should be talking of a place where managers convert raw-materials to goods through subordinates. It is a place where production of goods and services takes place.

An organization is always aiming at a goal, which is production of output, i.e. producing or a service to the public. The overall objectives  of a firm are prosperity, growth and the continued life of the business. Some firms may have as their main objectives as the provision of the finest car in the word. Others may consider giving the public a service which provides the maximum value of money. Again" satisfaction rather than maximum profit may be the object, and prosperity may be measured by the annual profit which' gives a satisfactory return on capital employed. It is therefore, a know fact that are interested in growth and stability rather than profit making. Growth can be. measured by the actual turnover or by an increase in the share of the market and this appears to be an important objective of firms.

 

The continued life of a is related to growth and stability and this will suffer if managers are made efficient by way of auditing.

 

1.5 CONCEPTUAL DEFINITION IOF INTERNAL AUDITING

Large organization (and some small ones) have found internal audit as a need in auditing to external audit. Internal auditors are employees of the organization and work exclusively for the organization. Their functions partly overlap those of the external auditors and in part are quite different. . The functions of external auditors are either laid down by statues or embodied in a letter of engagement, the functions (which are rarely precisely laid down) of internal auditors are determined by management and vary greatly from organization to organization.

 

Internal auditing can be defined as an independent appraisal of activities in an organization for the review of operations as a service to management. It is a managerial control that functions by measuring and evaluating the effectiveness of other controls.

 

Internal of chattered Accountant of English and Wales, defined it as a review operations and records, sometime continuous undertaken within a business by special staff. On accounting matters, the main objectives of. an internal audit is to assure management that the check and the accounting system are effective in design and in operation.

 

Where there is an internal Audit department, the external audit will familiarize himself with the program of the department, in order to decide on what extent he can rely on the work of the internal auditor to enable him plan his own work.

Factors which would be taken into account in arriving at such decision will include.

     i.        The degree of independent of the internal auditor from those whose responsibilities he is reviewing.

   ii.       The number of suitably qualified and experienced staff employed in the internal audit function.

  iii.       The scope, extent, direction and timings of the test made by the internal audit  functions.

  iv.       The evidence available of the work done by the internal auditor.

    v.       The extent to management takes. action based upon the reports of the internal audit functions.

  vi.       The responsibilities of the internal auditor

vii.       The degree of cooperation experienced in the past

viii.       The adequately of planning and control in the internal audit department.

The auditors objectives in evaluating and testing internal control is to determine the degree of reliance that may place on the information.

Internal audit is carried out by independent out staff. This is not to say independent of management who appoints and controls them, but independent in that they report to the Board of Directors or to a special internal audit committee. Internal audits may then find themselves in a position of criticizing the work of their superior which are clearly unsatisfactory.

Their jobs is to appraisal of others, not to perform a specific part of data processing. For example, a person who spent his time checking employee expenses claims is not performing an internal audit functions but an employee who spent some time reviewing: the system for checking expenses claims may well be performing an internal audit function.

 

As a service to management, they (management) require' that its policies are fulfilled, the information it requires to manage effectively is reliable and complete, This information is not only that provided by the accounting system but also whether the organizations assets are safeguarded. The internal auditors activities are met. They can be seen as the eye of management within the enterprises.

 

A management control within any organization, other than the very smallest, there will be a system of internal control. The internal auditor is concerned with measuring and evaluating the continuous effectiveness of the internal control system. His role has many facts
including:

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

ii.           Being concerned with the response of the internal control system to errors and required changes to prevent errors.

iii.          Being concerned with the response of the internal control system to external stimuli. As a result of changing environment, internal control system must continually change.

iv.          Acting as a consultant on internal control matters

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

vi.          Auditing the information given to management particularly interim accounts and management accounting reports.

vii.        Taking a share of the external auditors responsibilities in relation to the figure in the annual accounts.

 

1.6 INTERNAL CONTROL AND THE SCOPE OF AUDIT

One of the essentials features of the auditors work is to make a critical review of the internal control in order to decide the extent of examination of the available evidence which is necessary. Detailed checking must be produced to the minimum consistence with the
system of internal control and the nature of evident available because of time and cost limitations.
 

When the system of internal control is sound in principle and efficient in practice, then not much extensive detailed checking is needed. However, where the system is not sound or is not properly practiced, then the nature of shortcomings in the system must be proffered in order for a decision to be made as the nature and extent of the detailed checking which should be undertaken. Internal control must, therefore, be given primary attention in any audit work.

 

 RESEARCH QUESTION

Management is a process of getting things done through people to achieve organizational goal. To achieve this, Management efficiency should be assured through internal audit. A genuine concern of management of any organization such as Union Bank of Nigeria PIc. Will be to maintain good management effort in efficiency but one still wonders why the problem of loafing on duty and fraud despite the internal audit machinery set out by the bank.

 

Hence the research question which this investigation sets to resolve include the followings

i.     What are the causes of inefficiency of managers?

ii.   Are workers dishonesty discovered by another workers?

iii. Is the internal audit system adequate?

iv. Will adequate internal audit system improve management efficiency?

v.  Will internal audit affect organizational audit?'

 

1.8 PURPOSE OF STUDY

Organization can be assessed base on the overall performance of various management staff, their efficiency, reliability and integrity. Most of these qualities have fallen drastically. The purpose of this study therefore, is to examine the contribution of internal audit management efficiency in Union Bank of Nigeria PIc. It is of considered opinion that if internal audit is adequate, the reliability of the bank would be enhanced and owners will benefits greatly from the ban. In this wise, the study is therefore committed to examine.

i.     Whether management who are audited internally actually increase
their efficiencies.

ii.   Analysis the cost implication and merit of the benefits in order to find out whether there is any justification for providing them.

1.9 HYPOTHESIS TEST

To confirm whether internal audit improves management efficiency, the following hypothesis will be tested.

HI. Internal has no effect on management efficiency.

H2. Internal audits has effect on organizational profit.

1.10 RELEVANCE OF STUDY

Banking is service oriented with the aim of making profit. The history of some branches today cannot be completed without mentioning a single fraud being committed by staff. Fraud cases are becoming too rampant that management/ owners of the bank become worried. This research therefore is to indicate very briefly the ways. internal auditors could be trained to prevent the incessant fraud in the bank.

 

1.11 SCOPE OF STUDY

For the purpose of this study, the scope of this research is concerned with the effect of internal audit on management effectiveness in Union Bank of Nigeria Plc. This study will be limited to Lagos branches. Available data indicates that Lagos control the highest number of branches.

 

 

 

 

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