AN EVALUATION OF THE ROLE OF INTERNAL AUDITORS IN A CONSTRUCTION COMPANY [A CASE STUDY OF NALADO CONSTRUCTION COMPANY LIMITED, KADUNA]
ABSTRACT
The role of internal auditors in construction companies cannot be overemphasized. This research work is aimed at assessing the role of internal auditors in a construction companies in Kaduna State. The sample size is Nalado Construction Company, Kaduna. Both primary and secondary methods were used to collect data, for the primary sources, 10 questionnaires were administered and were filled and returned. It was found in the course of this study that internal auditors are very much relevant in a construction company in Kaduna without which an enterprise cannot operate efficiently. It is recommended that owners, managers of construction companies should do everything possible to encourage and motivate the efforts of internal auditors for better performance.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
CHAPTER TWO:
2.0 Literature Review - - - - - - - - 14
2.1 Introduction - - - - - - - - 14
2.2 Concept of Internal Auditing - - - - - - 16
2.3.1 Scope and Objective of Internal Audit - - - - 18
2.3.2 Qualities of Internal Audit Staff - - - - - 19
2.3.3 Responsibilities of an Auditor - - - - - - 20
2.3.4 Management Role of Internal Audit - - - - - 23
2.3.5 Operation of Internal Audit in Construction - - - 23
2.3.6 Essential Element of Internal Audit - - - - - 26
2.4 Relationship between the Internal and External Audit - - 29
2.5 Reliance on Internal Auditor - - - - - - 31
2.6 Duty in Relation to Fraud on Irregularities - - - - 34
2.7 Internal Auditors and Internal Control System - - - 34
2.8 Internal Check - - - - - - - - 36
2.9 Reporting - - - - - - - - - 40
CHAPTER THREE
3.0 Research Methodology - - - - - - - 41
3.1 Introduction - - - - - - - - 41
3.2 Research Design - - - - - - - - 43
3.3 Secondary Sources of Data - - - - - - 44
3.4 Population of the Study - - - - - - - 46
3.5 Sampling Techniques - - - - - - - 46
3.5 Sample Size - - - - - - - - - 47
3.7 Method of Data Analysis - - - - - - 48
3.8 Limitations of the Study - - - - - - - 49
CHAPTER FOUR
4.0 Introduction - - - - - - - - 50
4.1 Analysis and Interpretation of Data - - - - - 50
4.1.1 Personal Data - - - - - - - - 51
4.1.2 Other Relevant Issues - - - - - - - 51
4.1.3 The Role of Internal Audit - - - - - - 53
4.1.4 Independence of Internal Auditors - - - - - 54
4.1.5 Performance of Internal Auditors - - - - - 54
4.1.6 Internal Auditors and Fraud Prevention - - - - 55
4.1.7 Duties of Internal Auditors - - - - - - 55
4.1.8 Problems Encountered by Internal Auditors - - - 56
CHAPTER FIVE
5.0 Summary, Conclusion and Recommendation - - - 57
5.1 Summary - - - - - - - - - 57
5.2 Conclusion - - - - - - - - - 60
5.3 Recommendations - - - - - - - 61
Bibliography - - - - - - - - 63
Appendix - - - - - - - - -
Questionnaire - - - - - - - -
CHAPTER ONE
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:
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:
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.
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:
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