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EFFECTIVE INTERNAL AUDIT AS A PANACEA
TO EFFICIENT LOCAL GOVERNMENT ADMINISTRATION IN NIGERIA
CHAPTER ONE
1.0
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Globally the
role of auditing is being appreciated for its avowed operations and activities.
Ihe and Umeaka(2006:370) defined auditing “as a process carried out by suitably
qualified auditors during which the accounting records and the financial
statements of an organization are subjected to examination by an independent
auditor with the main objective of expressing an opinion in accordance with the
relevant terms of appointmentpurpose” they also noted that the objectives of
auditing were grouped into two
a. Primary
objective: the auditor (one who carries out audit operation) is to report
whether the financial statements shows a „true and fair view‟ of the financial
affairs of the organization during the period under review and s end date.
b. Secondary
objective: This concerns the detection of frauds and errors and the prevention
of frauds and errors
The crux of
this research work however is based on internal Audit – which is a very
important aspect of auditing, how the internal audit unit of the government can
be made effective in order to assist in the efficient administration of local
Government Areas (LGA). Internal Audit as defined by Chukwu L. C. (2011: 28) is
“an independent appraisal of activity within the
organization
for the service of accounting, financial and other business practice as a
protective and constructive aim of management”. He further opined that, internal
audit is a type of control which functions by measuring and evaluating the
effectiveness of other types of control. Anosike. C. K (2009:29) noted that the
primary objective of internal audit, is to promote utmost efficiency and
security in conducting business, in our case, the business or operations of the
Local government areas. Azubike (2005:83) enumerated the features of internal
audit as follows:
a.
Independence: it is carried out by independent personnel through appointed by
the management.
b. Appraisal
Function: it appraises the activities of other. Example, reviewing the system
of checking employee expense claims.
c.
Management Service: Plans and controls work according to management policies,
so that information used by the management is complete and reliable.
d. It is
carried out skillfully and with due care.
e. The
Findings, conclusions and recommendations are communicated promptly and
efficiently.
He also
noted that internal audit seeks for effectiveness, economic and efficiency.
Effectiveness here: means achieving the program objective or goals. Economy
means operating at the lowest possible cost. Efficiency implies effectiveness
in outputs, avoidance of accessory waste of resources.
Having known
the definition of internal audit and its implications, It is seen that it plays
a significant role in the efficiency of local government administration.
However, as a group of the subject matter of this research work, explanation
and highlights of local government and its administration shall be attempted.
Several
definitions have been put forward by authors and scholars on local Government,
Okolie (2003), that local government is defined as “a unit of government below
the central regional or state government, established by law to exercise political
authority, through a representative cancel within a defined areas”.
The oxford
advanced learner‟s Dictionary defines local government as the system of
government of a town or an area by elected representation of the people who
live there “or” an organization that is responsible for the government of an
area”. Conclusively, for the purpose of this research work, the most acceptable
definition of local government is that which is given by the guideline for
local government is “government at the local the local level exercised through
representative councils established by law to exercise specific powers within
defined areas”.
Local
Government Administration in Nigeria, as defined by Okolie and Eze (2006:5) is
“the administration of the grassroots at the local government areas by the
Federal (National) or state government through the use of bureaucrats or an
agency of either or both tiers of government”.
With effect
from 1979, the constitution of the Federal Republic of Nigeria accorded local
government a higher status, as a third tier of the government where it now
enjoys relative autonomy from the state deriving also its powers from the
constitution and not surviving by the whims and caprice of d state as provided
in the guideline for local Government perform in Nigeria 1976. Following this
development the status of the local government in Nigeria is that of a
corporate entity, which can sue and be sued, also has perpetual secession.
The
Guideline gave the principal aim of local government as
I.
Grassroots political development and consciousness.
II. Embark
on and encourage self-help project
III. Deliver
social services to rural dwellers
IV. Provide
primary education and health care to its inhabitants.
V. Engage in
economic planning to foster rapid development of the areas.
VI.
Collection of rates, radio and television licenses
VII.
Establishment maintenance and regulation of markets, motor par]k]s and public
conveniences
VIII. Naming
of roads and streets and numbering of houses.
IX.
Registration of births, deaths and marriages.
X. Establish
a two-way communication between the people and the government.
Therefore,
the requirement of financial resources to effectively and efficiently translate
the administration of the above functions to service delivery which will impact
on the local people is crucial. In view of this enormous resources at the
disposal of the local government and obvious financial management ineptitude of
the political in the areas of fraud, maladministration, misappropriation of
pubic fund, etc, there is need an independent arbiter. To check these excesses,
hence the need an internal audit.
Ihe and
Umeaka (2006:375 and 392), enumerated the scope and objectives of internal
audit function to local government in ensuring the efficient administration of
the councils and its programsas
Scope
1 Review of
accounting and internal control system
2 General
examination of financial & operating information for management
3 Review of
economy, efficiency and effectiveness of operations and general controls.
4 Review of
the implementation status of local government plans policies and procedures
5 Proper
investigation of compliance with the financial memoranda and other circular.
OBJECTIVES
1 To
determine the level of adequacy of the system of internal control
2 Report
findings and recommendations to the council
3 To
investigate compliance with the financial memoranda and other circulars.
In carrying
out its duties, the internal audit department shall be working closely with the
treasury department and make use of the following financial statement provided
by local government as enumerated by Ihe and Umeaka (2006:204)
¯ Statement
of revenue and expenditure
¯ Statement
of actual expenditures and actual revenues
¯ Statement
of advance account deposit account balances
In the
context of the subject matter, the researcher has selected Isiala-mbano
localgovernment areasand Mbaitolilocal government areas for this study.
BRIEF REVIEW
OF ISIALA MBANO LOCAL GOVERNMENT
Isialambano
local government areas was carved out from the former mbano local government
areas during the creation of additional local government in September 1989,
with its headquarters situated at Umuelemai, a border town along Anara– Umuahia
Federal Road. It is made up of three clans, namely, Osu, Ugiri and mbama. The
local government is predominantly
inhibited by
Christians who practice subsistence farming under local government policies.
Isialambano
is located at the North – East of lmo state capitalOwerri. It is traversed by
Owerri / Okigwe / Anara / Umuahiaand Okigwe /Umuahiahighways. It is bounded on
the North by Onuimo local government areas and some parts of Nwangele local
government areas, on the east by Elumembano local government area and on the
south by Ikeduru andMbaitoli local government areas respectively. It occupies a
geographical land moss of 148sq kilometres. It has provisional census figure of
198, 736 as at 2006 census.
Isiala-mbano
local government has twenty-seven(27) autonomous communities namely Osuama,
Anara, OsuOwerri, Umuduru, Ikwuano, Ezumeha, Isiama, Umundie, Umuelemai,
Luwenneiri, Nneato – Nweator, Ibeme – Amaise, Umuneke, Oka, Umunkwo, Amaraku,
Amato – Amaraku, Amauzari, Ekwedim and Umuenyi. There are twenty-one(21)
recognized traditional rulers in Isialambano L. G. A
(Culled from
www.imo state.gov.ng.(c) 2011 ministry of local government and chieftaincy
Affairs).
BRIEF VIEW
OF MBAITOLI LOCAL GOVERNMENT AREA
Mbaitoli
local government area was created out of what used to be called Mbaitoli/
Ikedurulocal government under the leadership of General Ibrahim B. Babangida on
may11,1959.The local government shares common boundaries
with Orlu,
Njaba, Isu local area in the North, while it southernboundary is with Owerri
North and Owerri West local government areas. Its western boundaries isOguta
and Easternside are Isialambano and Ikeduru, local government areas.The
administrative headquarters of mbaitoli local government is at Nwaorieubi which
is situated along Owerri–Orlu Federal Road.
It covers an
area of approximately about 234sq kilometres. The local government is
indisputably the most populous in Imo state with a population figure of 255000
going by the census figure. The local government is made up of thirty –one (31)
autonomous communities with twelve independent Electoral commission (INEC)
wards.
1.2
STATEMENT OF THE PROBLEM
Internal
audit is beset by a number of problems which include
1 The
problem of corruption and misappropriation of funds in the internal audit
system of local government especially in Isiala-mbano and Mbaitoli local
government areas.
2 The
problem of ineffective/inefficient administration of the local government
officials.
3 The
problem of lack of understanding between the internal audit unit
and audit
alarm committee which affects the effective internal audit system.
1.3
OBJECTIVE OF STUDY
The purposes
of the research are as follows.
I. To
determine the misappropriation of funds by the administrators in the local
government council.
II. To
examine the ways of making the internal audit unit effective in the
administration of local government.
III. To
ascertain the extent of un cooperative attitude between the internal audit unit
and audit alarm committee
1.4 RESEARCH
QUESTIONS
There is no
draying that most political representatives at the local government levels lack
the managerial skills needed to efficiently administer the council, thereby,
giving rise to inefficiently in administration of the municipality. Due to all
these, it prompted the following question, this.
A. How best
can misappropriation and fraud be prevented in local government administration
by internal audit?
B. Has the
effectiveness of internal audit deferred administration excesses?
C. Has the
strained relationship between the audit committees and internal audit unit
cause the irresponsiveness to audit queries by the administrators
D. Has the
existence of effective internal audit capable of putting an end to
administrative abuse of power and inefficiencies?
E. What is internal
auditing‟s role in preventing, detecting and investigation fraud?
F. What
services can the internal auditors provide for the audit committee.
G. How does
effective internal auditing maintain its independence and objectivity?
H. How can
internal audit function by, measuring and evaluating the effectiveness of other
types of control?
I. How does
the internal audit activity go about prioritizing its resources?
J. How can
effective internal control be achieved?
K. How can
effective internal auditors can determine the level of adequacy of the system
of internal control?
L. Has the
findings and recommendations been reported to the council.
M. Did the
internal auditor express his opinion on whether or not the financial statement
shows a true and fair view
N. To what
extent does the internal audit give the administrators assurance regarding
efficiency of the operation of the internal control in assisting them in them
in the efficient administration of the municipality?
O. What are
the causes of inefficiencies and uneconomical practices?
1.5 RESEARCH
HYPOTHESIS
The
hypothesis will necessarily be derived from the problem (question) stated
earlier which the researcher intends to investigate. It shall be stated in Null
and alternative forms which will be represented by
„Ho‟ – Null
hypothesis
„Hi‟ –
Alternative hypothesis. These are stated as
A. Ho –
Corruption and misappropriation of funds affects the internal audit system of
local government especially in Isiala-mbano and Mbaitoli local government
areas.
Hi -
Corruption and misappropriation of funds does not affect the internal audit
system of local government especially in Isiala-mbano and Mbaitoli local
government areas
B. Ho -
Ineffective/inefficient administration will affect the local government officials
Hi -
Ineffective/inefficient administration will not affect the local government
officials
C. Ho - Lack
of understanding between the internal audit unit
and audit
alarm committee which affects the effective internal audit system.
Hi - Lack of
understanding between the internal audit unit
and audit
alarm committee which affects the effective internal audit system.
1.6
SIGNIFICANCE OF THE STUDY
The
significance of this study is to state the fact and the importance of efficient
local government administration in the society this study is significant to
these specific groups.
i. To the
researcher who has gained more knowledge on local government administrations.
ii. To
awaken the administrators of local government areas to theirresponsibilities of
efficient service delivery.
iii. To
arouse the consciousness of the internal audit as respect to their role in
ensuring efficient administration.
iv. To
provide interesting facts in areas to theirresponsibilities of efficient
service delivery.
1.7 SCOPE
According to
Nnamocha (2005:38), scope of study defines„the boundary for the work in terms
of time, institution and the extent of coverage promised in the study”.
The
researcher promised in the limit the research findings to the area of financial
procurement administrative departments, internal audit department and stores
department of the local government areas.
The areas
intended to be covered by this research is the local government areas in
Imostate, using Isialambano and mbaitoli local government area
1.8 LIMITATIONS
OF THE STUDY
The
limitations involved in the course of this research includes hostility and
non-cooperation on the part of some of the respondents, and also the
constraints of time was a limiting factor in the course of writing
1.9
DEFINITION OF TERMS
Audit alarm
committee; The intention was to prevent irregular payments before they are
made. Is membership comprised of the Auditor- General as chairman.Accountant
–General of the federation and one representative of the president as members.
The committee was charged with the responsibility to examine all cases of
alarms raised and brought before it. All prepayment audit queries raised by the
Internal Auditor but overruled by the Chief Excutive must be referred to this
committee.
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