Effect of internal audit on managerial performance in public enterprise

Project Abstract

Internal audit plays a crucial role in enhancing the performance of public enterprises through its oversight functions. This study aims to investigate the effect of internal audit on managerial performance in public enterprises. The research will focus on how the internal audit function influences the decision-making process of managers, the effectiveness of internal controls, and the overall performance of public enterprises. The study will employ a mixed-methods approach, combining quantitative analysis of financial data and qualitative interviews with key stakeholders in public enterprises. The theoretical framework for this research is grounded in agency theory and the principal-agent relationship between managers and shareholders in public enterprises. Internal audit is seen as a mechanism to align the interests of managers with those of shareholders by providing independent assurance on the reliability of financial information and the effectiveness of internal controls. The study will also consider the role of internal audit in risk management and compliance with regulations in public enterprises. The research hypotheses posit that a strong internal audit function positively affects managerial performance by enhancing decision-making, improving internal controls, and reducing the incidence of fraud and errors. The study will test these hypotheses by analyzing financial performance metrics, such as return on assets, profitability ratios, and liquidity ratios, in public enterprises with varying levels of internal audit effectiveness. The methodology will involve collecting financial data from public enterprise annual reports and conducting interviews with managers, internal auditors, and board members to gather qualitative insights on the impact of internal audit on managerial performance. The data will be analyzed using statistical techniques to identify correlations between internal audit effectiveness and managerial performance indicators. The findings of this research are expected to provide valuable insights for public enterprise management, internal audit practitioners, and policymakers on the importance of a robust internal audit function in enhancing managerial performance. By understanding the mechanisms through which internal audit influences decision-making and controls in public enterprises, stakeholders can make informed decisions to improve governance practices and accountability. The study also contributes to the existing literature on internal audit and corporate governance by examining its impact on managerial performance in the context of public enterprises.

Project Overview

<p> <b></b></p><p><b><b>BACKGROUND OF THE STUDY</b></b></p><p><b><b></b></b></p><b><b><p><b>1.0 &nbsp; &nbsp; INTRODUCTION</b></p><p><b></b></p><b><p>The term audit is derived from the<br>latin verb “Audire” which means “to hear”. The origin of<br>audit dates from ancient times when the landowners allowed tenant farmers to<br>work on their land whilst landowners themselves did not become involved in the<br>business of farming. The landlords relied upon an overseer who listened to the<br>accounts of stewardship given by the tenants this period the word audit is<br>described as:</p><p>The ,independent examination of, and<br>expression of opinion on the financial statements of an enterprise by an<br>appointed auditor in pursuance of that appointment and in compliance with any<br>relevant statutory obligation.</p><p>Furthermore, the introduction of the<br>joint stock company increased the supply of capital for industry and commerce.<br>The small privately owned business, which was financed by a sole trader or a<br>partnership gave way to the form of organization now familiar as the limited<br>company. The body of shareholders delegated some of their members to act as a<br>board of directors, and periodically the board submitted accounts to the<br>shareholders so that they could be aware of the state of affair of the<br>enterprise in which they had an interest. It was therefore necessary for the<br>shareholders to satisfied the accounts presented of the directors did provide<br>an objective view of the state of affairs of the company.</p><p>The joint stock company Act of 1844<br>.was the fist legislation in Britain fore quire all incorporated businesses to<br>hand their annual financial statements examined by an auditor. Early auditors<br>were, in many cases non accountants who were required state whether the<br>accounts showed a `true and correct’ view of state of affairs of the, it was<br>the company’s Act 1900 that required auditor to be independent and it was not<br>until the 1948 Companied Act that he was required to be professionally<br>qualified. At this juncture, it was more appropriate to define audit as:</p><p>An exercise whose objective is to<br>enable auditors to express an opinion whether the financial statement give a<br>true and fair view (or equivalent) of the entity’s affairs at the period end<br>and of its profit and loss (or income and expenditure) for the period then<br>ended and have been properly prepared in accordance with the applicable<br>reporting framework (for example relevant legislation and applicable accounting<br>standards) or where statutory or other specific requirement prescribed the<br>term, whether the financial statements “present fairly”.</p><p><b>WHAT<br>IS INTERNAL AUDIT</b></p><p><b></b></p><b><p>Internal audit are those audit that are<br>being carried out by employees within an enterprise. Internal audit is an<br>independent appraisal functions established by the management of an<br>organization for the review of the internal control system as a service’, to<br>the organization. It objectively examines, evaluates and reports on the<br>adequacy of internal control as a contribution to the proper economic<br>efficiency and effective use of resource.</p><p>The institute of internal Auditors<br>(IIA), the professional body of internal auditors, define the function in the<br>following way. “Internal auditing is an impendent appraisal activity<br>within the organization, for the review of operations as a service to<br>management. It is a management control which functions by measuring and<br>evaluating the effectiveness of the controls”.</p><p>The scope of the internal audit within<br>an organization is broad and may involve topic such as the efficacy of<br>operations, there liability of financial reporting and investigating fraud,<br>safeguarding assets compliance with laws and regulations.</p><p><b>INTERNAL<br>AUDIT AND THE PREVENTION OF FRAUD</b></p><p><b></b></p><b><p>By definition, internal control is an<br>independent appraisal function within an organization, carried out by employees<br>of the organization, for the review of operations (financial and otherwise): as<br>a service to management. It is a management controls which functions, by<br>measuring and evaluating the effectiveness of other controls. Fraud or<br>irregularities, which arise in the conduct of the affairs of a company, may be<br>classified broadly into:</p><p>Defalcations involving the<br>misappropriate of money or goods, such acts may be performed by an individual<br>or group of individuals without the knowledge of the board of directors, or<br>sometimes, by the board with the intention of defrauding the member.</p><p>Fraudulent manipulation of , financial<br>statements not involving defalcation. The main reasons for this are:</p><p>To attempt to improve the apparent<br>position or the company e.g to justify a dividend that would not otherwise have<br>been payable or to assist in raising new finance: or To attempt to defraud the<br>tax authorities by &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; reducing<br>taxable profits.</p><p>The internal auditors should<br>continuously review the existing controls to ensure that they are followed and<br>update them when need be. This shall ensure that the occurrence of fraud is<br>prevented and that when any such ‘frauds occur, they are easily and timely<br>identified and reported to management. It is his duty to search for fraud, to<br>examine the books, accounts and control/processes/system with the objective of<br>discovering whether there have been defalcations or other irregularities by<br>directors or employees of the company. However, if the directors of the company<br>decide to defraud the members, there is not much the internal auditor can do.<br>Being a staff of the organization, he probable reports to the directors and<br>depends on the board for his remunerations, promotion and other employment<br>incentives.</p><p>Similarly, where the management .of<br>business wish to manipulate the a misleading impression without actually<br>diverting any of the business assets, the internal auditors cannot do much as<br>management misstate the assets or liabilities. While the more common target for<br>manipulations is stock, other areas are also susceptible.</p><p>financial statements to give It is<br>painful to observe that in practice, members in the employment of companies as<br>accountants, finance controller, internal auditors etc are used to, enhance and<br>perpetuate these management/ directors aided fraud. Members must always beings<br>to bear on all activities they are carrying out for clients and employees the<br>institute’s codes of professional conduct and ethics.</p><p>Misappropriation of cash may result<br>from the making of fictitious payments or the diversion of cash receivable. The<br>number of ways in which these may be done depend on the systems of control in<br>existence and the ingenuity of the person or persons involved. In many cases,<br>it is the attempt to cover of rather than the original theft that is detected.<br>So prevention of fraud is continuous review of controls and operations. The<br>opportunities for fraud will depend on the system of controls. Particularly,<br>important are those leading to segregation of duties. Although frauds involving<br>collusion are not uncommon, it is generally agreed that the chance of detection<br>rises with the number of people involved.</p><p><b>1.1<br>&nbsp; &nbsp; STATEMENT OF PROBLEM</b></p><p><b></b></p><b><p>Despite the fact that there are<br>installed control and check of resources, embezzlement and fraud of resources<br>misappropriate of funds, errors, irregularities and mistake stills find their<br>ways into the public enterprises.</p><p>Internal audit department was<br>established to reduce those excesses however, in Nigeria public enterprises<br>this is not so, as there are series of problem which has been hindered in the<br>internal audit efficiency.</p><p><b>1.2 &nbsp; &nbsp; PURPOSE OF THE STUDY</b></p><p><b></b></p><b><p>The broad objective of this is to<br>examine the effect of internal audit on managerial performances in public<br>enterprise (NNPC). However, some of the specific objectives are as follows:</p><p>· &nbsp; &nbsp; &nbsp;<br>To<br>identify the factors that hinder audit efficiency in NNPC as a public<br>enterprise.</p><p>· &nbsp; &nbsp; &nbsp;<br>Reduce<br>excesses of the internal auditing department of NNPC Identifying problems and<br>accountability in NNPC.</p><p>· &nbsp; &nbsp; &nbsp;<br>Examine<br>the factors that hinder internal audit efficiency and how these factors are<br>impinged. It is also shapes up performance of management</p><p><b>1.3 &nbsp; &nbsp; SIGNIFICANCE OF THE STUDY</b></p><p><b></b></p><b><p>The role of internal audit department is<br>called upon to play especially in public enterprise and the ignorance of the<br>employees makes this study important With sound internal audit, management that<br>is characterized by fraud, errors, irregularities, and mistakes in the public<br>enterprises which has resulted by the notion that government business are not<br>supposed to make profit is bound to be eliminated.</p><p>The management, employers, employees as<br>well as student benefit from this study.</p><p><b>1.4<br>&nbsp; &nbsp; RELEVANT RESEARCH QUESTIONS</b></p><p><b></b></p><b><p>Below are some questions that would be<br>answered during the course of this research works.</p><p>· &nbsp; &nbsp; &nbsp;<br>What<br>is the impact of internal audit on the performance in public sector</p><p>· &nbsp; &nbsp; &nbsp;<br>Does<br>establish control failed to enhance management performance in Nigeria public<br>enterprise (NNPC)</p><p>· &nbsp; &nbsp; &nbsp;<br>Is<br>there any factors that determine the performance of the management in NNPC</p><p>· &nbsp; &nbsp; &nbsp;<br>Does<br>effective internal audit enhance reduction of fraud?</p><p>· &nbsp; &nbsp; &nbsp;<br>Is<br>there any factor that prevent; internal audit from being effective and<br>efficient in NNPC.</p><p><b>1.5 &nbsp; &nbsp; STATEMENT OF THE HYPOTHESIS</b></p><p><b></b></p><b><p>To ensure a mere analytical result<br>oriented research, hypothesis are formulated and tested on the research<br>objectives.</p><p>The decision criteria are to accept the<br>null hypothesis (HO) and reject the alternative hypothesis (Hi)<br>or otherwise based on the result of the test performed. The research hypotheses<br>are stated below:</p><p><b>Hypothesis<br>1</b></p><p><b></b></p><b><p>HO: &nbsp; &nbsp; Internal audit has no significant impact on the reduction of<br>embezzlement in public enterprises</p><p>Hi: &nbsp; &nbsp; &nbsp; Internal audit has significant’ impact on the reduction<br>embezzlement in public enterprises</p><p><b>Hypothesis<br>2</b></p><p><b></b></p><b><p>HO: &nbsp; &nbsp; Established control has no significant effect on managerial<br>performance.</p><p>Hi: &nbsp; &nbsp; &nbsp; Established control has significant effect on managerial<br>performance.</p><p><b>1.6 &nbsp; &nbsp; DELIMITATION OF THE STUDY</b></p><p><b></b></p><b><p>The scope of limited to various<br>measurement of internal audit which are used in public enterprises. The<br>constraints to this study are time, in adequate information, lack of enough<br>literature on this subject arid information which are considered confidential<br>were not revealed by some of the staff.</p><p><b>REFERENCES</b></p><p><b></b></p><b><p>Adeniyi A. Adeniji: Auditing and<br>Investigation page 1,2, 12</p><p>Akpala A. (1991): Principles of<br>management. A Nigeria approach. Page 9 first edition, fourth edition, fourth<br>dimension publisher LTD.</p><p>Badmus Olusesan and Elegbede David<br>(2003): Auditing and Investigation page 1, first edition, Abel printers Lagos.</p><p>Etuk A.I.J (1989): Alarm system-Roles<br>of public accounts and audit committee. An unpublished paper presented at Work<br>Shop Organized by NNPC.</p><p>Isidore Ojuku Nwankwo: Auditing<br>concepts issues and principles page 114­124</p><p>Johnson<br>I.E (1992): Public sector accounting and financial control Lagos financial<br>training.</p></b></b></b></b></b></b></b></b></b></b></b></b></b></b> <br><p></p>