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Auditors and Method of Internal Control

The Role of Auditors and the Method of Internal Control in Local Governments  

CHAPTER TWO

2.1     INTRODUCTION

 Local government in Nigeria came into being in 1979 with its entrenchment as the third tier of government in the constitution. Since then, attention has been drawn to the activities of local government.

The 1979 constitution guaranteeing a system of democratically elected local government leader specified a list, made it mandatory for the federal and state government to make direct financial grants to the local government.

In the civilian administration era (1979-1983) elections were never held at local government level chairman and councilors were appointed by the governors. Since this was the case, the chairman and councilor were appendages of the state and administration. Ministers of local government had direct control over the local government. They interfered extensively in the affairs of the local governments. Governors even created local governments contrary to the provision of the 1979 federal constitution.

Realizing that the civilian administration made it impossible to achieve the objectives of the 1979 reformed local government system, the chief of staff, supreme headquarters, major general tuned Idiagbor set up a twenty (20) man committee under distinguished chairmanship of Alhaji Dasuki, the sultan of existing structure, function and financial resources of local governments.

The committee noted that the system of local government in the country after the 1979 reforms has more of operational problems than structural problems. The committee recommended that there should be at least 10 years internal in creating new local governments. The following criteria for the creation of new local government were also recommended.

  1. Minimum population of between 100,000 and 150,000
  2. Minimum tax paying population of 20,000
  • Geographical settings
  1. Financial variability of the area in question, ability to generate internally, at least 50% the revenue required to fund the local government annual recurrent expenditure.
  2. Administrative governance

Moreover, sections 27 and 28 local government decree N0 15, 1989 and also the fourth schedule part one of the constitution decree republic of Nigeria promulgation decree N0 12, 1989 outline the functions of local governments as follows:

  1. Formation of economic planning and development schemes for the local government area.
  2. Collection of rates and issuance of radio and television license.
  3. Establishment and maintenance of cemeteries, burial grounds and homes for the destitute or infirm.
  4. Licensing of motor cycles, trucks, canoes, wheel-barrows and carts.
  5. Construction and maintenance of roads, street light, drains, parks, gardens, leisure centers, open spaces, or such public facilities as may be prescribed from time to time by governors or house of assembly of a state
  6. Naming of roads streets and numbering houses.
  7. Provision and maintenance of sewages and refuge dumps.
  8. Registration of all births, deaths and marriages more so, the functions also extended to participating in the government of a state in the following matters;
  9. The provision and maintenance of health services. However, some other functions may be conferred upon a local government by the governor or the house of assembly of a state.

2.2     THEORETICAL FRAMEWORK

At the local government levels, the treasury department is the center of accounting and financing matters, Ubaka C.E. and Ani Wilson (2002), puts out all receipts and expenditure of account. It is headed by the treasurer shoulders and most responsibilities in the day to day operation of financial memoranda in local government. A part from rendering or giving advice concerning the financial implication of proposed policies, the treasurer has the following duties and responsibilities to take care of;

–        Administrative controls of the financial department and chief accounts officers of receipts and payment.

–        Facilitating the work of the audit committee

–        Budgeting control and supervision of departmental accounts

–        Preparing and publishing monthly and annual financial statements of the local government.

–        Signatory to local government cheques and voucher.

–        Ensuring prompt collection of revenue due to the local government and prompting payments into local government fund.

CURRENT LITERATURE REVIEW

The aim of this chapter is to review and briefly discuss the relevant literature in the area of research investigation C. settiz et al acknowledge the fact that the reviewing the works of experts is necessary for a sound knowledge of a particular study when he argued that one of the ways of economizing efforts in an inquiring is to review and build upon world already done. In order to appreciate the recent trend in internal auditing in the local government circle in Nigeria. I consider appreciating the trend in internal auditing in the local government. I consider the federal government pronouncement in this correction as recorded in the financial memoranda and guidelines on the application of the civil servants reforms in the local government service.

An internal audit shall be set up in every local government under the internal auditors which shall be directly responsible to the local government council for the performance of his duties. The financial memoranda clearly spelt out the duties of the internal audit as follows:

  1. i) To assist in protecting the assets and inherence of the local government by carrying out a continuous examination of activities in order to detect fraud, misappropriation, irregular expenditure and losses due to waste, extravagance and non-administration.
  2. ii) To reviews and here necessary, make recommendations for the improvement of systems control procedures to ensure that they are both efficient and effective and that they remain adequate in the light of changing circumstance and are adhere to in practice.

iii)     To monitors the use of resources in the pursuit of the defined objective of the local government.

Akuanyian on a paper presented to local government clerk officers (Accounts) at the community center. Agwu, on 28th June 1990 maintained that through the above financial institution came into full force in 1976, the behaviour and attitude of the persons who operated the local government resulted in many local governments not setting up internal audit unit or if set up, will not be functionable. The federal government has set in motion real leave of change, in 1998. A new framework of internal auditing in the local government is consequently, described in the guidelines as summarized. In part as follows; “There shall be established in each local government an internal audit unit headed by a qualified account to provide a complete and continuous audit of the accounts and records of revenue, expenditure, plants allocated and allocated stores where applicable.

The guidelines further stated that, “The internal audit of each local government shall be directly responsible to the accounting officer. He shall submit to the accounting officer and the monthly to them on the true progress of the audit”.

The guidelines also spelt out the role of the audit alarm committee and established the work of the audit alarm committee shall be facilitated by the following officials;

  1. i) Secretary to the local government
  2. ii) Treasures to the local government

iii)     Head of internal audit.

Nzeribe 1991 maintained that the internal audit of the local government should be concerned with the following

  1. i) Control of cost
  2. ii) Detecting errors

iii)     Detecting errors and errors of principle

  1. v) Means of distribution of social amenities to government areas.

She maintained that the internal audit is the most powerful instrument of reducing most form of larcency and embezzlement as well as falsification of documents and records. In her opinion, the prevention of fraud is of course, one of the more obvious justifications for a system of internal check. Since increasing the risk of detection is by far the means of preventing it. There must be in all class an established system under which the internal audit must operate. This is generally known as “standard procedures” the aim of the “standard procedure” applied within the framework prescribed by the object clause establishing the local government provides the internal auditors with terms of reference.

The work of the internal audit is a delicate one. The internal auditor must be independent and responsible only to the top management. In many cases, the internal auditors should be responsible to the local government treasurer. Treasurer is probably the most desirable attribute of internal audit staff of all grades.

Although, the internal audit staff should be removed from the ordinary day to day work of thought and action. Unless this special relationship is observed, the purpose of internal audit become somewhat blurred. Chinedu Nwoko in his article in July September 1995, issue of Nigeria accountants described the role of an internal auditor to any organization as that of “watch Dog” to his master.

He was of the opinion that the dogs were trained for the purpose and as such protects the master’s property from passer by becoming “hostile, barking and possibly attacking any stubborn fellow that functions to trespass on the property, the watch dog function is centered on prevention. Mr. Nwoko summarized the important characteristics of the watch dog as follows and likened it to that of the internal auditors.

  1. i) The dog is present during the action or transaction
  2. ii) Its main function is to prevent, not to detect, it is not a blow bound.

iii)     It is the employment of its master to whom it reports.

Nwosu, writing in the Nigeria journal of republic administration and local government, volume 1, number I of June 1998 and the need for an effective internal audit control system in the Nigeria local government councils and the increased economic problems facing Nigeria, as manifested in price, exhalation, general scarcity of essential goods and services and low liquidity of money has necessitated the need for local government councils to adopt more effective internal audit control system which will enable to get full value for their limited resources. He was of the opinion that any local government where internal auditing is effectively utilized by the officials and selected councilors, planned objectives are easily accomplished.

Nwosu summarized the advantages of using an effective audit control system as follows;

  1. i) It helps to eliminates waste and extravagant expenditure
  2. ii) It helps to ensure that both the recurrent and capital budget are realistic in terms of available fund and achievable objectives.

iii)     It ensures that proper and regular financial procedures are faithfully followed in disbursement of funds. The standard for the professional practice of internal auditing states that “the objectively of internal auditing is to assist members of the organization in the effective discharge of their responsibilities to this end. Internal auditor owes responsibilities of both providing management and board with information about the adequacy and effectiveness of the organization’s system of internal control and quality of performances.

Chinedu Nwoko, in his article “the internal auditor is the watching” states that management of any sort entails responsibility for the effective and economic planning and regulation (control and co-ordination, etc), the operations of an enterprise in the fulfillment of a given purpose.

HISTORICAL BACKGROUND

This function of the internal auditing is very important to any organization regardless of size, profit making or non profit making in addition to an external audit According to the National association of College and University Business Officer (NACUBO), the development of internal auditing as a major element of management control, resulted from the need of managers for information relating to all significant aspects of multifunctional operations. The expansion of colleges and universities which began in early 1950’s (in the United States) caused increased difficulty monitoring their operations as well as in determining the effectiveness with which objectives were met, policies were being followed and control system was functioning. It goes on to say that internal auditing as an appraisal activity within an organization, reviews operations of the organization within established policy guidelines and provides the manager (executives) with reports, conclusion and recommendation and the results it’s reviewed. In addition, internal auditing is an element of managerial control and is responsible for measuring and evaluating the effectiveness of such controls with organizations.

PRINCIPLES:

The local government like other bodies is required by law to keep proper books of accounts in respects of every transaction that they undertake. They are also required to keep such books as are necessary given a true and fair view of the state of the local government affairs and to explain their transaction.

The internal auditors of the local government are expected to avoid the affair of the local governments in the process ensuring the reliability of its records as well as the accuracy of the accounts. It does appear that thee duties of the internal auditors are specialized and professional.

Some of these internal auditors have different background and varying degrees of competence in this regard. It is necessary to point out that all of the workers are not professional accountants or administrations and therefore do not posses such knowledge and training as would enable then discharge their duties creditable.

OPERATIONAL DEFINITION OF INTERNAL AUDITING

The institute of Chartered Accountants of England and Wales (ICAEW) defined auditing as a “a review of operations and records sometimes continuous, under taken within a business by specially assigned staff”. This definition in the opinion of the researcher is not adequate for the purpose of this study. The researcher believes that internal auditing encompasses more than reviewing of operations etc, but also includes enforcement and monitoring of compliance. The researcher therefore considers the following definition as contained in auditing by A.H. Mill chanps 1984 as more acceptable. He defined internal auditing “An independent appraisal activity within an organization for the review operations as a service to management, it is a managerial control which functions by measuring and evaluating the effectiveness of the other control”

INTERAL AUDITING IS THUS;

  1. a) Carried on by independent personnel: This is to say, not independent of management who appoints and control them, but independent in the sense that they report to the board of directors or to a special internal audit committee.
  2. b) An appraisal activity: The job of the internal auditor is to appraise the activity of others not to perform a specific part of data processing.
  3. c) A service to management: The management requires that: (i) Its policies are fulfilled (ii) the information it requires to manage effectively is reliable and complete (iii) the organization assets are safeguarded.
  4. d) A managerial Control: In any enterprise other than the smallest, there will be a system of internal control. The internal audit is concerned with measuring and evaluating the continuous effectiveness of the internal control this role has many facets including;
  5. i) Being concerned with the implementation of social responsibility policies adopted by top management.
  6. ii) Being concerned with responses of the internal control system to external stimuli.

iii)     Being concerned with responses of the internal control of errors and required changes to present errors.

  1. iv) Acting as a consultant on internal control
  2. v) Acting as training officers in internal control
  3. vi) Auditing the information given to the management

vii)    Taking a shame of external auditor’s responsibility in relating to the figures in the annual accounts.

FUNCTIONS OF AN INTRNAL AUDITOR

The main functions of an internal auditor can be said to consist of the following;

  1. a) Enforcing compliance with laid down principles and procedures.
  2. b) Monitoring enforcement of compliance ensuring that things are done how and when they should be done, not side tracking of laid down principles and procedures.
  3. c) Preparation and submission of regular reports to management, reviewing the whole internal control Making suggestion for improvements as appropriate and necessary

BENEFITS FROM AN INTERNAL AUDIT FUNCTION

I summarized the various benefits that may be derived from internal auditing in local government administration.

  1. a) To aid the accounting officer and overall local government management in satisfying regulatory, statutory and custodial requirements
  2. b) To aid management as a means of financial control. Through internal auditing, assess their effects and the conditions and efficiency of the overall local government.
  3. c) To assist management to review operations throughout the year and make recommendation in any breaches in systems, control and procedures.
  4. d) To assist management in protecting, safeguarding and monitoring the use of the assets and interests of the local government.
  5. e) To assist management through use of relevant techniques in system analysis and input analysis to achieve economy and efficiency in local government functionaries are managing or utilizing its resources (personnel) in an economic and efficiency manner.
  6. f) To assist management in assessing determining program result (i.e. effectiveness) through the internal audit process the local government management is able to determine whether the desired result or benefit are being achieved.
  7. g) To aid the public by preventing frauds illegal and irregular payments by local government management.

The thrust of the internal audit process is to aid management in financial and operating controls.

THE INTERNAL AUDITOR’S ROLE IN AREA OF MANAGEMENT AUDIT

It is the duty of the internal auditor to review the whole internal control system within an organization. For the internal auditor to perform creditably in this regard he should put in a lot of efforts and this will extend his will into the field of management audit.

  1. a) Measuring of management audit: Mill Champs (1984), some of the areas which might be subjected to management audit enquiry are:
  2. i) The objective of the organization: Are they right? Are they being pursued? Do all executives have the same understanding of the organization’s objectives?
  3. ii) They standing of the organization with the public suppliers, customers and other organization. Does the organization activity promote good public relations?

iii)     Relations with unions and employees labour turnover, health and safety matters training polices and welfare facilities, pension arrangement. Does the organization provide understandable account to employees?

  1. iv) Morals: Are there positive measures to motivate management by for example, in continue scheme and precise job specifications
  2. v) Financial rations: Return a capital employed on assets, on investments in subsidiaries, payment ratio, liquidity ratios, such as stock turnover and sales to debtors, capital gearing, the ratios can be compared with previous years, with those the organization / councils and with budgets.
  3. vi) Financial control: Does the organization use modern methods e.g. budgeting control and standard costing?

vii)    Information flow: Is their management information system?

viii)   Modern management techniques: Are operational research and other modern management techniques in use?

  1. ix) Specialist: Does the organization use specialist agencies for example, insurance brokers, lawyers, management consultants, for particular problems?
  2. x) Social audit: Is the organization concerned about social and environmental matters? For example in employment of minorities and pollution control.
  3. xi) Waste extravagance and restrictive practice: Is there an emotive area but it might well be the task of management auditor to uncover the bringing of or provision of gratuitous goods and services to public officials or the payment of executive or non-executives through bank account in tax heavens.

CURRENT PRACTICE

Milli Champs (1984) maintained that of present time management auditors are carried out by two types of agencies

  1. a) Internal to the organization: The personnel may be internal auditors or specially established teams.
  2. b) External to the organization: These are usually adhoc investigation by management consultants

EXTERNAL AUDIT:

The institutes of chartered Accountants of Nigeria (ICAN) have demanded from the federal and state government co-operations to carryout their auditing work in accordance with company’s decree of 1968. The companies decree states that “the statutory process and duties of external auditors is to examine the original books of account kept by the company, to discover any abnormalities, inaccuracies or omissions, there in to ensure that they agree with the original books of accounts (as correct) and to report on the annual accounts.

Internal audit is described as an independent, objective assurance and consulting activity 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 and governance processes. Internal audit’s role is primarily one of providing independent assurance over the internal controls and risks management framework of the council. Management has primary day-to-day responsibility for the design implementation and operation of internal controls. Internal audit has no direct involvement in day-to-day operations, but it has a direct functioning relationship with the executive chairman and the council. An effective internal audit function should evaluate and monitor the adequacy and effectiveness of the internal control frameworks as a minimum.

Risk management is also an essential part of a councils management and internal control framework. It looks at what risk the council may face and the best way to address these risks assessment and management of risk is central to determining internal audit activities. Internal audit core competences are in the area of internal control, risk and governance. Typically internal audits scope will include some or all of the following areas.

  1. i) Reliability and Integrity of financial and operation information
  2. ii) Effectiveness and efficiency of operations and resources usage

iii)     Safeguarding of assets

  1. iv) Compliance with laws, regulations, policies, procedures and contracts.
  2. v) Adequacy and effectiveness of the risk management framework.

WHY A LOCAL GOVERNEMENT SHOULD HAVE AN INTERNAL AUDIT FUNCTION?

All local government councils should have an internal audit function for the following reasons;

  1. i) It supports good internal governance
  2. ii) To ensure consistency with other levels of government

iii)     To improve the effectiveness of risk management control and governance processes

  1. iv) Helps to instill public confidence in an organizations ability to operate effectively. When considering an internal audit function, councils should consider the following issues;
  2. a) The need to extend councils understanding of risk management beyond traditional areas of public liability and occupational health and safety into areas such as internal governance, fraud risk and broader regulatory risk.
  3. b) Whether council should have a uniform approach to assessing and managing risk, regardless of size or location.
  4. c) Whether it is feasible for council to pool resources with like councils or arrange through regional organizations of council for internal audit services.
  5. d) Whether small management teams can feasibly conduct audits or internal reviews in the absence of an audit function, with appropriate degree of independence and objectivity.
  6. e) How council can properly resource internal audit and internal control

HOW DOES INTERNAL AUDIT FIT IN WITH OTHER GOVERNANCE FUNCTIONS AND ACTIVITIES

Good governance requires an internal organization to have a proper framework in place to ensure excellence in decision making, and that decisions are implemented efficiently.

Thus it is necessary and essentially desirable that the service of external auditors should be engaged by local government. The use of both internal and external auditors will definitely ensure effective financial management and more successful efficient operations of local government in Nigeria. This researcher paper differs from those reviewed because the researcher has concentrated on how internal auditing can be utilizes as an effective management control mechanism for the running local government in order to achieve greater efficiency. Based on the above postulations. Efficient managerial control can be established in local and other parastatals.

In order to achieve the objectives of this research, the following question must be answered.

1)      What is internal auditing? This question his been answered in chapter 1 and chapter 2.

2)      Why did government decided to set up on internal audit department within the local? This question has been answered in chapter 2.

3)      How is the internal audit department functioning in the local are presently? This question will be answered in chapter 4.

4)      What are the present problems facing the internal audit department in the local ? This question will be answered in chapter 4.

5)      How can the activities of internal auditing department in the local areas improved? This question will be answered in chapter 5.

 INTERNAL CONTROL:

Internal control is defined as a process affected by an organization’s structure, work and authority flows, people and management information systems designed to help the organization accomplish specific goals or objectives. It is a means by which an organization’s resources are directed, monitored and measured. It plays an important role in preventing and detecting fraud and protecting the organizations resources both physical (e.g. reputation or intellectual property such as trade marks).

At the organization level, internal control objectives relate to the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals and compliance with law and regulations. At the specific transaction level, internal control refers to the actions taken to achieve a specific objective (e.g. how to ensure the organization’s payments to third parties are for valued services rendered). Internal control procedures reduce process variation, leading to more predictable outcomes. Internal control is a key element of the foreign corrupt practices Act (FCPA) of 1977 and the Sarbanes – oxley Act of 2002, which required improvements in internal control in united state public corporations. Internal controls within business entities are also referred to as operational controls.

 TYPES OF INTERNAL CONTROL

Milli Champ (2002) states the following as the types of internal control for the purpose of auditing: they are activities which are in the form of policies and procedures structural to achieve organizational objectives.

1)      Organizations: There must be well defined organizational structures showing how responsible and authority are delegated that is in entity’s organizational authority and boundaries of responsibility. This makes it designated areas or to prepare fraud, unexpected in area of responsibility.

2)      Segregation of duties: Mill Champ (2002 describes segregation of duties as follows: no person should be responsible for the recording and processing of a complete transaction. The involvement of several people reduces the risk of intentional manipulation or accidental error and increases the element of checking of work

3)      Physical: This concerns physical custody of assets involves procedure designed to limit assess to authorize personnel only. Activities for safeguarding of records may include maintaining control at all items over un-issued documents as well as other journal and ledgers and restricting access to computer programs and data files.

4)      Authorization and approval: All transactions should required authorization or approval by or appropriate person. The limit to these authorizations should be specified.

5)      Personnel: All potential employers should be interviewed and their references obtained and confirmed. This is to ensure that only qualified and honest staffs are recruited.

6)      Supervision: An important aspect of any control system is the existence of supervisory procedures by the organization. This means that all members of staff should be supervised and their works reviewed to ensure that work done is of required standard and procedures being adhered to.

7)      Management: These controls exercised by management are outside and over and above the day-to-day of the system. They include overall supervisory controls, reviews of management accounts, comparisons with budgets, internal audit and any other special review procedures. Management has a fundamental responsibility to develop and maintain effective internal control. The proper stewardship of state resources is an essentials responsibility of agency manages and staff state employees must ensures that state program operate and state resources are used efficiently and effectively to achieve desired objectives. Programs must operate and resources must be used constantly with agency mission in compliance with law and regulations and management.

Roberson and Lowers (2004) states that, management in responsible for developing and maintaining effective internal control. Effective internal control provides assurance that, significant weakness in the design or operation of internal control that could adversely affect the agency’s ability to meet its objectives, would be prevented or detected in a timely manner.

Fraud Detection, prevention and control in Local Government

I.E. Okonkwo (2013; 42) has fraud as the use of deception to obtain unjust, undue and illegal financial advantage and intentional misrepresentation affecting the financial statement by one or more individuals among management, employees or third party. It is a phenomenon that is growing in method, magnitude and sophistication. It is the misappropriation of the assets account and other records of the business organization.

Government and organization are exposed to fraud because of two principal factors, the existence of individual who have some nefarious needs to satisfy and the availability of opportunity to satisfy such need with the entity. Individuals do not perpetrate fraud for the fun of it. They do it because of their desire to satisfy unbridled appetite to a mass wealth in order words, people commit fraud because their existing financial position is not sufficient to enable them attain the desired status or maintain their existing status it should be noted that status seeking and maintaining are products of social, political economic and cultural factors in a given society.

2.4     SUMAMRY OF THE LITERATURE REVIEW

In a nutshell, local government being the third tier of government has some roles of function to do concerning the citizenry. The treasury department which is being headed by a treasurer is where all accounting and financial matters of the council is being taken care of, the most of which is rendering or advising on financial implications of proposed policies. The treasurer, amongst other thing is the financial adviser to local government.

However, they are been held responsible for any mishap that occurs. The auditing techniques employed by the local government council are system compliance and monitoring audit. In this same vein, these systems of audit are also meant to be carried out by the auditor general inspection audit, project monitoring and evaluation audit and statutory audit.

Internal control in the broadest sense includes the plan of organization, method and procedures adopted by management to meet its goals. it should be designed to provide reasonable assurance regarding prevention of or prompt detection of unauthorized acquisition use or disposition of assets. Appropriate internal control should be integrated into each system established by organizations management to detect and guide its operations.

Generally, identifying and implementing the specific procedures necessary to ensure effective internal control and maintaining how to assess the effectiveness of those control is left to the discretion of the organizations head while the procedures may vary from organization to organization, management should have a clear organized strategy with well-defined documentation process that contains an audit trial verifiable results and specify document retention periods so that someone not connected with the procedures can understand the assessment process. To ensure senior management involvements, many organizations have established their own senior management board or council, often chaired by the head of the institution to address management accountability and related issues within the boarder contact of organization’s operations.

Recent issues for such a council provide management with reasonable assurance that the department’s policies and procedures are implemented and consistently followed. The internal control plan consist of all the methods used to safeguard assets to promote accuracy and reliability of the department’s accounting data and records to ensure compliance with all state laws and regulations, department polices and procedures and to promote the operational efficiency of the department.

A sound system of internal control therefore, provides reasonable, but not absolute, assurance that an organization will not be hindered in achieving its business objective or in orderly and legitimate conduct of its business, by circumstances which may reasonably be foreseen. A system of internal control cannot, however, provide protection with certainty against an institution or organization failing to meet its objective or all materials errors, losses, fraud or braches of laws or regulations. However, effective and strict adherence to internal control procedures should be put in place to facilitate effective and efficient operation by enabling organization to respond appropriately to significant business, operational financial, compliance and other risks to achieving the local government or organization’s objective, which includes the safeguarding of asset from inappropriate use or form loss and fraud and ensuring that liabilities are identified and managed.

This also calls the setting up of internal audit units to be managed by internal auditors in every organization depending on its need to monitor. The daily transactions in a broad spectrum as well as evaluating the system of internal control measures, so as to cut the incidence of fraud and improve on efficiency

SAS 300 quoted form Milli Champs (2002), requires auditors must always perform some substantive test of materials items as well as relying on internal controls.

The inherent limitations of internal controls are the reason. The service of an external auditor is to ensure complete compliance on procedures, rules and regulations. Management of any entity on their part should be the pivot of implementation of the control procedures revise it form time to time based on the report and recommendations of internal auditors and external auditors to block loopholes that might come up in the course of time as a results of technological advanceman in business practices.

Internal audit is described as the verification of the operations within the business by a specially assigned staff. It is an important tool of management to evaluate the correctness of records on a continuous basis in an organization. Internal audit can be defined as “an independent appraisal function established by the management of an organization for the review of the internal control system as a serviced to the organization (Milli Champ 2000:492). According to CPA (2014), internal audit is an appraisal activity established within an entity and functions under the direction of the organization’s management and board. It is a management tool and forms part of the entity’s internal control structure. In the words of Mammada (2010), internal audit is an independent examination of; and expression of opinion on true and fair view of the activities of an enterprise; ensuring of economy, efficiency and effectiveness of its financial and non-financial operations; evaluation of the adequacy of the established Internal control system, checks, methods, procedures as well as other control measures put in place by the management; as a service and in compliance with any relevant statutory and professional pronouncements. Internal audit is an independent appraisal of activity within an organization for review of operations as a basis of service to management. Section 1701 (1) of financial regulations (2009) as amended defines Internal audit as a managerial control which functions by measuring and evaluating the effectiveness of Internal control system of an organization. The Internal audit can be referred to as a quality control and quality assurance service following its establishment to ensure holistic system of control in an organization.

Internal audit is a process generally adopted towards ensuring and safeguarding of resources and promoting operational efficiency in organization (OKERESON 2013:4)

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