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AN EVALUATION OF THE ROLE OF INTERNAL AUDITORS IN AN
ORGANIZATION
AN EVALUATION OF
THE ROLE OF INTERNAL AUDITORS IN AN ORGANIZATION
[A CASE STUDY OF COCA-COLA, IBADAN]
CHAPTER ONE
1.1
INTRODUCTION
Internal Audit Units are established in organizations in
order to assist members of the Organization in the effective discharge of their
responsibilities, monitor the use of resources and make recommendations for the
improvement of the organizational operations.
The day-to-day operation of an organization is delegated to
the management by the Board of Directors. The head of the management often
referred to as the Managing Director and Chief Executive Officer serve as a
link between the Board of Directors and the management.
An internal auditor is employed as an agent of the management
for ensuring effective working of Internal Control System. Independence of
auditor is a cornerstone for the quality of his performance.
However, it is practically difficult for an internal auditor
to possess any reasonable degree of independence in mind and attitude because
of the management influence and scope of the work. It needs to be emphasized
that internal audit function as an integral part of the internal control system
is concomitant to good corporate governance.
The purpose of internal audit in big companies is to ensure
that the account on which the auditor is reporting disclose a true and fair
view of the transaction summarized within the period under examination. To
ensure completeness and effectiveness in big companies, auditing is very
important, the major work covered in the exercising of auditing include
examination of internal control, the system of bookkeeping and account, to
ensure whether they are appropriate for the nature of the business or
activities being carried out by the client and whether all the transactions
have been properly recorded under the system. The existence of any internal
audit units in big companies is a sign of good control system. If properly
conducted, internal audit units can have a great impact on the effectiveness
and efficiency of big companies.
Adeniji (2004) suggest that internal audit as an independent
appraisal activity established within an organization as a service to it. It is
a control, which functions by examining and evaluating the adequacy and
effectiveness of other controls.
Adams (2002), opined that internal auditing is an independent
appraisal actively for the review of operations as a service to the management.
Internal auditor here is one who is employed by the management of an enterprise
who may or may not attain minimum academic or professional qualification, that
is he may not be a member of any recognized body e.g. ICAN, ANAN.
It is in the view of the above that this study would be
conducted to find out the role played by an internal auditor in big companies
through proper installation of effective Internal Control System in big
companies. Internal control system is examined by internal auditor in order for
him to know if the control system is effective. He does this by carrying out
compliance test. Internal check is done in order to prevent and detect errors
and fraud. It involves the arrangement of bookkeeping and other clerical
duties.
Internal Audit is a review of the operations, procedures and
records of the business. Internal Auditing is itself an Internal Control which
operates by appraising and reporting on the effectiveness of the other
controls. Thus, its main objective is to assist management in discharging its
responsibilities and to evaluate compliance with corporate procedures. It is
often assigned for reviewing the accounting system and related Internal
Controls, monitoring their operation and recommending improvement thereto, and
also the examination of financial and operating information.
Aquaisua (2004) opines internal audit as the process of
continuous review of financial transactions in order to ensure that they are
working as the management intends. All the regulations, instructions,
accounting system or procedures and rules set should be controlled to ensure
that they are working as prescribed. It assures management of the adequacy and
appropriateness of the system of internal controls by testing their operations.
Usually, Government, financial instructions provide that the Accounting
Officers of Ministries or Departments or (non-ministerial) departments will ensure
that, subject to the availability of staff, an internal audit unit be
established to provide a complete and continuous audit of accounts of revenue,
expenditure, plant, allocated stores and un-allocated stores where applicable.
Omoya (1984) suggests that the duty of the internal auditor,
who should be responsible to accounting officer will be to audit account and
records and for the examination of the systems and procedures in force. His
report should be submitted to the Accounting officer copying the
Auditor-general of his state. He should have an audit programme which should be
submitted to the Accounting Officer and for the acceptance of the Accountant
General and Auditor General. Such programmes should ensure that the programme
of audit will extend to cover all the records of the ministry, department or
unit, in order to satisfy himself that:
i) The
safeguards introduced for the prevention of the prompt detection of fraud and
loss of cash or stores or plants are adequate. Normal safeguards include the
observance of government and departmental regulators and instructors and for
existence of internal checks.
ii) The
system for the control of the collection of revenue is adequate and that all
monies received have been promptly brought to account to the correct head and
sub-head.
iii) The
system for the control of expenditure is adequate and that all payments made
are properly authorized and correct, that they are paid to the right person,
for whom they were authorized.
iv) The
system for the control of the issue and consumption of stores is adequate, that
issues are made to the right person and are used for the purpose for which they
are authorized.
v) There
are adequate means for which the verification is done by him, of all cash,
stores and plant held.
Bigg and Davies (1994) postulates, Internal Auditing is an
independent objective assurance and consulting actively designed to add value
and improve an organization’s operations. It helps an organization accomplish
its objectives by bringing a systematic, disciplined approach to evaluate and
improve the effectiveness of risk Management Control are governance processes.
Independence is established by the organizational and reporting structure.
Objectivity is achieved by an appropriate mind-set, the
internal audit activity evaluates risk exposures relating to the organization’s
governance, operations and information system in related to:
i)
Effectiveness and efficiency of operations
ii)
Reliability and integrity of financial and operational information
iii)
Safeguarding of assets
iv)
Compliance with laws, regulations and contracts
Based on the result of the risk assessment, the internal
auditors evaluate the adequacy and effectiveness of how risks are identified
and managed in the above areas. They also asses other aspects such as ethics
and values within the organization, performance management, communication of
risk and control information within the organization in order to facilitate or
good governance process
The internal auditors are expected to provide recommendations
for improvement in those areas where opportunities or deficiencies are
identified, while management is responsible for internal controls, the internal
audit actively provides assurance to management and the audit committee that
internal controls are effective and working as intended.
1.2
BACKGROUND OF INTERNAL AUDITING
The proliferation of large, dispersed, complex corporation
starting early in twentieth century, spurred the accelerated development of the
internal audit function. The Institute of Internal Auditors (IIA) was founded
in 1941, largely in response to this development and modern internal auditing
owes much of its early expansion of the scope of internal audit activities and
the professionalization of the practice of internal auditing.
The development of professional under pinning for the
profession however did not come all at once. It was not until 1947 that the
Institute of Internal Auditor issued its first statement of responsibilities.
The code of ethics was issued in 1968 and standard in 1979.
The first Certified Internal Auditor (CIA) exams were written in 1974,
indicating that, there was that time deemed to be a recognized body of
knowledge available for internal audit professionals. The potential value of
the internal audit function came later to the public sector motivation. The
United States Congress first recognized the potential contribution of internal
audit in 1950, in requiring by statute that each executives agency include
internal audit in the agency’s of internal control.
In 1973, the Treasury Board made it mandatory for all
departments and agencies to internal audits performed on their systems of
financial administration. Direction 9.1 of the policy started, departments hall
have financial audit performed, which include:
Reviewing and appraising the effectiveness and efficiency of
department system of financial administration including the safeguarding of
assets. Ascertaining the extent of compliance of department systems and
procedures with financial policies, regulations and other instruction of
parliament, treasury board and the department of agency.
The internal audit policy component of review policy made no
substantive changes to the scope of internal audit, but bolstered the
professional under pinning of the practice by integrating treasury board and
Institute of Internal Auditors Standards and ethics provision. Also in this
policy, frequency requirements were dropped and the concept of risk based audit
planning was introduced.
1.2.1 STATEMEMT OF
THE PROBLEM
Internal audit provide advantages to the management, it is a
tool of ensuring effective implementation of Internal Control System and
infact, and it allows such internal control system to be reviewed where
necessary. With internal audit, management policies are seen to be complied
with and adequate information is made available for the management for decision
making.
This research focuses on the weaknesses of internal audit
units in an organization, that make it impossible for an internal auditor to
carryout its duty at a specific time.
Problem of Appointment: The appointment of internal auditors
has been encouraged by some officials who would want to manipulate financial
control system so as to promote their fraudulent tendencies.
Problem of Qualification: Since the law does not stipulate a
minimum qualification required of an internal auditor, it is not impossible to
find out that some internal auditors do not possess the needed qualifications
required.
Also to ascertain the level of independence of our auditors
and if indeed they have been able to use their professional skills to check and
correct the mis-happening in the organization.
Finally, which is the main focus of the research work, the
role and evaluation of internal audit in an organization, to check how internal
auditors are being frustrated by the chief executives, which makes it difficult
to disclose information.
1.3 OBJECTIVES OF
THE STUDY
The objectives of this study:
1. To examine the
role the internal audit play in an organization
2. To identify
problems hindering effective operations of internal audit in Coca-Cola company
3. To examine the
preventive measures to applied by internal auditor in coca-cola company
4. To offer
recommendations based on the findings of the study.
1.4 RESEARCH
QUESTIONS
This research work proposed to assess the role of internal
audit in big companies and to ensure adherence and effectiveness of audit work
in big companies. The study would see to provide answers to the following
research questions:
i) How does internal audit enhance the
effectiveness and efficiency of operations of coca-cola company?
ii) What
are the problems that are likely to be encountered by the internal audit in
carrying out its duties?
iii) How
independent is internal audit in coca-cola company?
iv) What
are the problems militating the effective operations of internal audit in
coca-cola company?
1.5 SIGNIFICANCE
OF THE STUDY
The main significant of this research is that it would
enlighten the management on the importance of both internal auditing and
internal control. Also people who are not in the system such as those in the
academic cycle will have a picture of what internal audit and the role played
in coca-cola company and organization.
The management benefits from this work by knowing the actual
picture of their Internal Control so as to know whether or not it is reliable.
Also, government is not left behind in that when completed the research would
undoubtedly identify to the government areas where attention would be greatly
placed in order to sanitize the system for better revenue generation.
External auditors also benefits from this research work, this
is because internal auditor can assist external auditor in familiarizing
himself with the accounting system, and act as a liaison between the external
auditor and other members of the client staff.
This study would serve as a reference material to students
and researchers who would want to conduct further researches/studies on
internal auditors in big companies.
1.6 SCOPE OF THE
STUDY
The scope of this research is limited to the area of an
evaluation of the role of internal auditors in an organization a case study of
coca-cola company, Ibadan, Lagos state Branch. The company is used as the case
study. The research tends to highlight the ways in which internal audit is
carried out in organization and how the internal audits in itself is. The scope
of this research will also focus its attention to the status of the internal
auditor, his responsibilities, independence practice as well as the problems
encountered in the course of carrying its duties and the possible solutions to
the problems. It is hoped that the information gathered will greatly reflect
the generality of organization.
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