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AUDITING AND
FRAUD CONTROLLING IN GOVERNMENT SECTOR
ABSTRACT
In recent
years the importance of good corporate governance has received significant
public and regulatory attention. A crucial part of an entity’s corporate
governance is its internal audit function. At the same time, there has been
significant public concern about the level of fraud within organizations. The
purpose of this study is to assess whether organizations with an internal audit
function are more likely to detect fraud than those without.the technique to be
employed in testing the hypotheses is the chi-square (X2) distribution, data
analysis is done with technical precision so as to avoid erroneous inferences
which could affect the objective of the study. The main objective is to
determine the views of the respondents on the questions contained in the
questionnaires.
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Financial audits may be performed
for Government sectors, registered charities, some governmental and public
entities certain forms of Government sectors are required to have an external
audit. Government sectors typically request financial audits year after year
because lenders may have required an audit or owned may want to have external
unbiased eyes look at the financial statements to determine if the company is complying
with all the required accounting principles charities would require a financial
audit to show the financial status of the organization to potential donors.
Private businesses are required to be audited by status to determine if all the
money budgeted has been properly spent. Government financial reports are not
always audited by outside auditor, but Government sectors are. It is the duty
of the auditor to examine the financial statement and consequently form an
opinion of their fairness in conformity with generally accepted accounting
principles. As a secondary function, it is also his duty to uncover any act of
omission, which in view is fraudulent in nature. It is alarming to state here
that private liability companies have become a target of the fraudsters who
take advantage of the irregularities and professionalism of the Government
sectors to perpetrate their nefarious deeds. There is a long list of Government
sectors with publicized fraud cases in various degrees which are hundreds of
millions, they include uni-petrol and Agip Company now known as Oando Company,
Total company Swallowed ELF, Oceanic bank and intercontinental bank e.t.c. Even
the government ministries and parastals are not spared. Auditing has over the
years gone considerably to a commendable length to expose various fraudulent
practices both in private and public sector. One of the primary reasons for an
independent audit is the inherent potential conflict between an entity’s
management and users of its financial statements. Management has an incentive
to the information presented in financial statements since it is the means used
to evaluate management’s performance. Management exercises a great deal of
discretion in preparing financial statements and in using resources entrusted in
it’s operating the entity. An audit provides reasonable assurance that
management’s representations on these activities are liable. Thus, audit has
value because management’s representatives on its performance and stewardship
are examined and reported or by expert outside management’s control. The
purpose of audit therefore, is to provide assurance to the shareholders’,
bankers, creditors, government agencies and authorities, investors, and the
public at large. These people need confidence that the picture of the company
as given by the directors to obtain a second opinion from an expert (the
auditor). Other than exposing errors and fraud and testing the reliability of a
firm’s controls financial audits can alert management to weaknesses in the
firm’s control as well as suggest operational improvements that could be
undertaken. These are highlighted in the management letter from the auditors.
Strategic systems auditors provide a top down approach to auditing by first
examining a firm’s business strategy and keys to competitive advantage.
It has become inevitably necessary
to critically evaluate the role of auditors in fraud prevention particularly in
the Government sectors. It is not misleading to categorically say here that the
cause of the companies’ woes and problem has its roots from the numerous
fraudulent activities perpetuated by so many of the shareholders and mangers.
These managers accounted for the unimaginable amount of money running into
billions of naira squandered and stored away in foreign bank accounts. The most
vocal of such recent cases of fraudulent acts by banks is that of five (5) bank
CEO’S operated without identified values and they are Mrs. Cecilia Ibru of
oceanic bank accrued 278.20 billion, Mr. Erastus Akingbola of intercontinental
bank with N210.9 billion, Mr. Sebastian Adigwe of Afri bank owes N141.86
billion, Barth Ebong of Union bank owes N73.58 billion and Mr. OkeyNwosu of Fin
bank recorded N42.45 billion, who had to face the music for their appropriating
temporarily bank funds.
Since 357 of the companies and
Allied matter Decree of 1990 (CAMD) requires that out registered limited
liability companies both private and public must have their financial records
audited annually by external auditors so appointed. It is the duty of the
auditors in the cause of their work to uncover any fraudulent practice either
by omission or commission.
1.2 STATEMENT OF THE PROBLEM
Since the early 80’s the country
has been experiencing increase fraudulent practices in Government sectors
despite the fact that these companies are annually subjected to audit. The
bureaucratic nature of Government sectors causes a lot of unnecessary delays,
which allows enough space and time for fraud to be conceived and perpetrated.
Some of the fraudsters take advantages of this set back to explore all avenues
that will help them succeed in their shameful acts. Inefficiency of company
staff results in improper book- keeping system and in cases where they refuse
to co-operate fully with the auditor’s, vital information may elude him and
consequently he is left cross road.
One cannot also ignore the great
threat posed to be the auditor by the manipulation of money as a form of
“settlement”. Nigeria’s banking sector was rocked in August, when the
regulatory bank initially injected over N400 to bail out five (5) banks
considered distressed. Unfortunately, IMO STATE UNIVERSITY OWERRI convocation
and bank managements are generally unwilling to release details of fraud that may
have been perpetrated for fear of losing their corporate image.
1.3 OBJECTIVES OF THE STUDY
This research work is aimed at achieving
the following:-
1. To identify the causes of fraud in Government
sectors.
2. To examine the statutory principle of
auditors in relation to fraud.
3. To seek
how the scope of present day audits can be entered to include prevention and
not only discovery of fraud.
4. To
suggest solution for combating fraud in Government sectors.
1.4 SIGNIFICANCE OF THE STUDY
The role of the auditor and his
influence on the decisions made by users of financial statement cannot be over
emphasized. Shareholders, bankers, creditors, government agencies, and private
investors’ e.t.c all rely on the auditor’s report to base their investment
decisions. They require that they are not being mislead by the financial
statements and this assurance be provided by the auditor (external) who in his
capacity is viewed to be an expert in the impartial and above all independent.
The big question remains, why is fraud on the increase in Government sectors
despite the continuous audit of financial statements? The contribution of this
study is to the improvement of the role of auditor’s in the prevention and
total eradication of fraud in Government sectors. Audit will no longer be a
periodic affair but a routine exercise which will keep every employee, not only
financial staff as in case of normal audit aware that any deed within and
outside the working environment is being monitored.
It is placed that at the end of
this study, the following resultant benefits will accrue to companies,
shareholders, other researchers and the Nigerian economy at large.
(i) Further classification on the role of
auditors in fraud prevention and detection as these had been a prolonged mis
conception by many that is the duty of the auditors to prevent and detect
fraud.
(ii) Users of financial statement will after
the study know whom to hold responsible for any loss/losses incurred upon
reliance on audited financial statements.
(iii) Suggest ways to make auditors more
relevant in fraud prevention and detection.
(iv) Further encirclement of available
literature on the subject matter and other related works.
1.5 RESEARCH HYPOTHESES
The following hypotheses were
postulated as a guide to the researcher
Hypothesis
one
Ho: Auditing
cannot truly prevent fraud in public enterprises
Hi: Auditing
can prevent fraud in Government sectors
Hypothesis two
Ho:
Effective auditing does not control fraud.
Hi:
Effective Auditing controls fraud.
1.6 THE SCOPE AND LIMITATION OF THE STUDY
Fraud occurs in Government sectors
with reckless abandon. This study is to cover areas as it concerns auditors
(both internal and external) and fraud prevention. The case study for this
research has also been confined to the Imo State University Owerri, whose image
and status as one of the main strength of the communication in Nigerian economy
has made it target point for numerous fraudster.
From the indication the research
anticipates some principal limitations to the study. Some of these limitations
are:-
Time
The time required for the completion of
the study is limited and not long enough to enable the researcher carryout an
elaborate study on the topic
Finance
The researcher has limited financial
resources to enable him expand the area of the study.
1.7 DEFINITION OF TERMS
Audit
Official examination of books of
records to see that they are in order
Auditing
A process of examination of accounts of
books of records of an organization/entity in order to express an opinion as to
whether the records or the accounts so prepared by the organization show a true
and fair view about the company’s position.
Bureaucratic
A situation
whereby employees stick to much rules, carried on according to official roles
and habits. Negating tactical decisions that would have enhance organization
overall performance.
Book keeping
This is the book whereby an organization
record all the transactions of the company upon which the auditors check to
evaluate her performance.
Creditors
These are set of people who lend
money/fund to an organization for the purpose of running such an organization
and are to be settled immediately after mortgage assets in terms of liquidation
Directors
A director is defined by section 650 as
including any person occupying the position of director by whatever name
called. He is the highest body of people governing a company.
Exploit
Use available loopholes discovered
selfishly to the detriment of the entity of organizational resources
Share
holders
This means a holder of share in a
company. However, in a company having share capital members generally will be allotted
shares, which is to measure the financial interest such as member as in the
company.
Fraud
Irregularities
involving criminal deception to gain an unjust or illegal advantage. It may be
perpetrated with the intention of making money or obtaining good for it maybe
perpetrated when a person deceive others by pretending to have abilities or
skills that he does not really have.
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