INTERNAL AUDIT AS INSTRUMENT FOR MANAGEMENT CONTROL (A CASE STUDY OF NIGERIA COAL CORPORATION ENUGU)

CHAPTER ONE

INTRODUCTION

The word internal audit comes into existence as entity within an establishment or organization because management cannot do without it in the past year’s organization or establishment were small in size and could for, the fact that management or establishment once getting more advanced, there are immense expansion of these establishment together with the increase in the scope or management functions required to cope with the situation, management could not control all the activities alone. For this purpose there was a great need for an assistant to be attached to the management of the organization.

As an integral part, being internal audit controls internal system, was then established as a district limit within the organization to help management in advisory capacity and also to ensure effective and operational control of internal system in the organization also according to Agudlu (1988) in his own view sees internal audit as independent appraisal of the functions and quality of performance of an organization by a special assigned staff as part of the internal control system. In addition to the performance of the statutory still need the services of an internal auditor in order to enhance the efficiency of the operations.

However, in line with terms audit is to ensure an effective performance, a suitable arrangement is made to ensure the in dependence of the internal auditor.

BACKGROUND OF THE STUDY 

                The word audit was derived from a lat in word Audire, meaning to hear or Audit us meaning hearing. The practice of auditing in the primitive form can be traced back to ancient times where the receipts and payments of an estate or main or were read to the head or proprietor or the lord of a manor with industrial revolution.

This was an increase in business transactions and there emerge partnership and joint stock companies. The evolution of mechanized industries involved the provision of financed far in excess of what is used to be business become more complex and required more formal and improved accountability.

                In the opinion of Ubesie (2000) in the light of the general misconception of the word audit, there is every need to state that audit is not fault finding, out aimed at black mailing or discrediting of a public servant but rather the word audit means to hear it is because of this that an auditor can be likened to a referee in a football match. He can be also being referred to a mediator such as a case and render an objective opinion.

                In the years back, when establishment were small in size and could be controlled by the management alone, the objective of auditing was limited on ascertaining correctness of the sum of money collected and used. The idea of audit then being to check accuracy of each entry and record and to verify the balance of every individual account. There was no defined of internal audit function as we have it today.

                As said ear her, internal audit was constituted as an organ of management and was charge with the responsibility of a division of a management function and enforcing the operation of internal check within the organization. but in order to achieve all these objective, internal has to

(i)            Assess the soundness of accounting and financial control of the organization.

(ii)           To review establishment policies regularly and recommend remedies for improvement.

(iii)          Asses the accuracy and relevance of the management.

(iv)          Asses to prevent or detect error and fraud today services of internal audit are very essential in many industries and government establishment due to expansion.

STATEMENT OF PROBLEM

                In some organization, internal audit is established and controlled by the management themselves and to this situation has, subjected internal audit to various problems. Many professional auditors has been fighting on way to remove these issues yet there was no improvement.

                The following below are the problems encountered by internal audit.

CO-OPERATION:

                In an organization, some department are aware of the importance role which internal audit plays the welfare of the under taking. The causes lack of co-operation between the department and internal audit especially, during audit engagement in such department. This is because of ignorance of importance play in the organization. some employees of the organization cannot be properly examines as result of Negative attitudes toward internal audit.

MANAGEMENT ATTITUDE

One of the major problems of the internal audit is the attitude of management to audit report actions on internal audit report depends on the discretion of the chief Executive or the officer to whom the internal audit will be submitted to, after the audit work. This can also arise where an internal auditor in an organization reports to chief Accountant, or to the assistance chief executive, prompt action is not taken on his reports.

FREEDOM:

                In same situation in an organization internal auditor cannot act independently because he is directly under the chief executive or chief Accountant. He takes instruction from him and report back to him. His operation is sometimes limited to some areas according to the instructions of the boss. The auditor therefore has no define function and cannot carry out an audit very well in such organization without the authority being given to him and the area of important remain elusive.

LOW STATUS:

The head of internal audit department in most companies or establishment occupies a low hierarchy compared with these his counter parts who perform function within the same organization the managing director or the chief Executive appoints an auditor who takes directions from him and the managing director or chief Executive who is now to determine the auditors fate in an organization.

                Although the internal auditor is in charge of internal audit department, he is not regarded as having full status of head of department.

                Such important, management meeting and decision even elude him and causes depressed feeding and inferiority on the part of internal auditor and low productivity.

LOW QUALIFICATION:

For an audit to b e effective it requires a will educated or professional to be at the head, while in some establishment the contrary is the case. The chief Executive often used his position to influence the employment of the chief internal auditor, who will be his puppet be under his control in this case, a person with low qualification and without enough experience will be employed to be in charge of the department. In some cases, employees or enough experience or book keeping knowledge or enough experience are posted to work in internal audit department and where such a situation prevails area of important are directed by management directive to internal auditor.

                Due to this, the pressure of work will be too much on department and the financial records of the organization cannot be properly examined.

OBJECTIVE OF THE HISTORY:

The overall objective of internal auditing is to assist all member of management in the effective discharge of their responsibilities by furnishing objective analysis appraisal, recommendation and pertinent comments careening the activities reviewed.

The internal auditor is duty bound to render services to the management. Some of the objectives include reviewing adequately and application of accounting financial and operation control ascertaining the extent of compliance with established polices and procedures, ascertaining the extent which the company assets are counted and safe guarded from losses of all kind, ascertaining the reliability of accounting as other data developed within the organization.

As a summary of this objective, it will be stated that internal audits is primary concerned with evaluation compliance and verification is take up first in as much as activities related to this objective have been the most important and historically. In the development of internal auditing.

VERIFICATION:

Internal auditors activities related to verification compares of two area the accounting records and reports and the underlying assets, equities and operating results concerned for these matter implied in the work of the rail-road of the traveling auditors already mentioned and one on a more extensive scales. Typical internal audit activities in the area of verification of assets would include counting of cash funds and deposited receipt, proof of bank reconciliation confirmation of account receivable by correspondence with customers comparison of inventory quantity as determined by physical counting of insurance expenses and comparison of plants assets records with the machinery equipment, or other items actually in use examples of verification activities designed to achieve the reliability of company records and report includes comparison of report figures with sources information proof of entries on sources records fooling of records and proof of posting accuracy from such to ledger test of accuracy of expenses  distribution  coding on vendor involves, accounting for all copies on serially numbered from such as checks customers problem, invoices purchases order and credit names for sales return and allowances, and providing him agreement of data in accounts receivable control account.

                The verification activities performed by an internal auditor are closely related to the work of independent auditor because this forms of directly to the credibility of a clients accounting records therefore, causing a reduction in the independent auditors.

EVALUATION:

This is perhaps, the broadest of the three objective and the major development and charges in the concept of internal auditing in recent year have accrued in relation to these objective.

                Entry of the internal auditor into the area of evaluation auditor into the area of evaluation followed logically form the verification activities that once occupied, the major portion of the time of the typical internal auditor. After the facts, verification of accounting record and report suggested that even more useful activity would be to uncover and to remedy any weakness in the manner in which records and reports were prepared in the first place. The successful performance of such evaluation activities and the realization by management of the benefit to be derived led to gradual expansion so that evaluation objective commonly includes all or most of the following activities by internal auditors in the company that have taken a progressive and forward looking approach to internal auditing.

                Evaluation of internal control provides for the following, information, this is adequate and accurate control over all phase of operation. Protection of resources of the business from losses due to theft embezzlement and evaluation of clerical and accounting efficiency from the stand point of such matter as effectiveness of personal, use of mechanical and electronics equipment.

                Lastly, evaluation of all the performance in the various operation department are as follow, individual performance, polices in effect procedures being followed, plan of organization.

COMPLIANCE:

Control, procedures and policies are of no value, unless they are practically followed. Immediately the internal auditors has evaluated a plan in an organization, he will endeavour to carryout what he planned with the techniques he used in carrying out the projects and record reports prepared with proof of completed work to show that the work has been performed properly.

                These compliance activities of an auditor are very important mainly to companies or organization with many branches. The procedure to follow in such branches will be designed carefully in the home offices then, the internal auditor will concentrate on compliance and of cause verification in making his examination braches operation.

HYPOTHESIS: The research to aid in testing the validity of                          the data obtained formulated the following hypothesis.

(1)                           Ho:          Internal audit procedures ensure compliance with management control in an organization.

                 Hi:          internal audit procedures do not ensure compliance with management control in an organization.

(2)           Ho:          Internal audit is a useful instrument for prevention of irregularities in Nigeria Coal corporation

                Hi:           internal audit is not a useful instrument for prevention of irregularities in Nigeria coal corporation.

(3)           Ho:          An efficient internal audit enhances management performance.

                HI:          An efficient internal audit does not enhance management performance.

SIGNIFICANCE OF THE STUDY  

The Nigeria coal co-operation was formally under the federal Ministry of mines, power land steel before the board was later dissolved on twenty first of January 1980. The board was dissolved because the federal government declared its intention to commercialized some of the corporation owned by the country and Nigeria Coal Corporation happen to be one of them to be commercialization.

Coal as defined by new oxford dictionary “described coal as hard black mineral used for burning as fuel coal is important sources of energy and being an under ground element, before it will be used, must firstly be extracted. The coal corporation take it’s as a duty to move it, sell and generate income for further operation and other investments. It then serves the dual purpose of providing job securities or employment.

Opportunity for individual through regular operations, finally it also serves as sources of power especially in area of electricity it generate power that guide or provides electricity called thermal electricity.

SCOPE AND LIMITATION OF THE STUDY

The area of the study in Nigeria coal corporation here in Enugu. The scope of this study is very wide if it has to be carried out in all the states where coal corporations operating in Nigeria. The study is limited means and material resources to see to the whole Nation. For the fact that this study is limited to (Enugu State Capital). The findings may not reflect the situation in the whole country.

                Thus internal audit an instrument for management control being the issue to be concentrated. The incidence of poor performance by government owned establishment attributed to various irregularities has being on increase management. But by and large what happens in Enugu can be said to apply to other states.

DEFINITION OF TERMS:

Internal audit had been defined by the institute of internal auditors as an independent activities carried on within an organization for the review of operation as a service to management.

                Internal audit is a management control which functions by measuring and evaluating the effectiveness of other control.

                According to Nwabueze (2000) defined internal audit as the review of operations and records sometime continuous under taken within a business by specially assigned staff.

HYPOTHESIS:

This is idea or suggestion put forward as a starting point for reasoning or explanation.

Watch dog a person or organization that tries to guard against stealing wasteful use of public money, undesirable practice etc ,management according to organization (2000) defined it as process or series of systematic, sequential or overlapping and interdependent steps by which goals and objectives of an organization is achieved.