EFFECTIVE INTERNAL CONTROL SYSTEM AS A MEASURE OF FRAUD PREVENTION IN THE PUBLIC SERVICE. (A CASE STUDY OF BOARD OF INTERNAL REVENUE ENUGU STATE).
ENUGU State was caved out of the old Anambra State on 27th August, 1991. The staff of board of internal revenue Enugu State own stayed back their new state with the same set up and function on and.
The organization board of internal revenue is in anarchical order. At the apex of the organizational chart is the honorable commissioner for finance. The others are the board members, administrator of internal revenue \ chairman the directors of the function and mandatory departments comprise two operational departments of?
( 1) income tax
(2) Other revenue and mandatory departments of
(3) Planning, research and statistics
(4) Administration and France
it is illustrated in the chart following
As can be seen from the organogam, the honorable commissioner for
Finance is the apex followed by the board members.
The functions of the board are as following _
- Enugu effective and optimum collection of all taxes and penalties due to the government under relevant laws.
- Doing all such things as may be deemed necessary and expenditure for the assessment and collection of taxes and shall account for all amounts so called in a manner to be prescribed by the commission.
- Making recommendations where appropriate to the joint tax police, tax reform, tax legislation, tax treaties and exception as many be required from time to time.
- Generally condoling the management of the state internal revenue service and appointing, promoting, transferring and imposing discipline on employees of the state internal revenue services.
Administration of the board is divided into headquarters administration field offices and motor ucening . for effective headquarters administatio, various management techniques are put in place. Rate is internal audit sections that andirons the revenue earning books, cash and so on that are used by both the tax officers and the motor ucensing fees.
2-1.2. PERSONAL INCOME TAX UNTIES .
- Assessment and collection of direct tax from self employed persons.
- Collection of withholding tax on contract rets bank interest, plividend.
- Assessment and collection of taxes of employees of establishment in both the public and private sectors within the state and outside the state for cases where the pay – points are located outside the state . Examples of such establishment are government ministries, educational institutions, companies, firms, parastatals, board, commission,
- Collection of capital gains tax.
1.1.3 OTHER REVENUE UNTIES
- Motor licensing, motor veiled registration and other reacted charges.
- Pools betting tax and licenses.
- Casing and gaining machines licenses.
- Entertainment tax and licenses.
- Stamp duties and penalties.
- 1.4 PLANNING RESEARCH AND STATISTICS
1 Development plans (rowing, medium and perspective )
- Monitoring and evaluation of plan implementation.
- Secretarial to the sectors over which the ministry has jurisdiction.
- Constant Collection and Processing of data and statistics relating to the ministry.
- ADMINISTRATION AND FINANCES
- budgeting (recurrent expenditure, Capital expenditure revenue)
- Financial Administration
- Management of Transport facilities
- Establishment matters.
- INTERNAL AUDIT IN EFFECTIVE INTERNAL CONTROL SYSTEM
This chapter is designed to review the relevant literature that has been researched and would open by experts and another’s on this study in order to give this project a sound theoretical background.
The Institute of Internal Auditors defined Internal Audit as follows ;
“An independent appraisal activity within the organisation for the review of operations as a service to management”.
Here, the job of the internal auditor is to investigate and appraise the system to internal control and the efficiency with which the various units of the business are performing the duties they have assigned and also to report findings and make recommendation to top management.
Internal audit is an appraisal of internal control and accounting procedures within an organisation for the purpose of reviewing the operations of such an organization. Internal audit is a managerial control that function by measuring and evaluating the effectiveness of internal control system.
Members of staff of an organisation carry out internal Auditing but are usually independent of the people whose work they appraise. That is why the internal audit department is completely separate from the accounts department in most organisations. They report directly to top management and not the chief accountant. It is a service to management to be reassured that their arrangement for control is satisfactory from management perspective, Internal audit is part of the total system of control. Internal checks on the other hand are the measure established by management to ensure that the detailed elements of each of the functions of the enterprises operate satisfactorily. The operation of those checks occurs within the functional area of the enterprises whether technical, commercial or financial.
They are the day to day administrative control within the Internal control system, which aims at detecting and minimizing the risk of fraud and error.
- Segregation of duties
- Supervisory controls
- Control ensuring the work of one person proved independently by another.
- Personnel control
- Organizational control.
They are further explained;
- SEGREGATION CONTROLS
These are control designed to ensure proper segregation of functional duties like those of authorization, execution, custody and recording.
- SUPERVISORY CONTROL
These are control over the day to day activities of the organization which ensures that the work of less experienced staff are reviewed and controlled by independent, more sew or and experience staff.
- CONTROL ENSURING THE WORK OF PERSON IS PROVED INDEPENDENTLY BY ANOTHER.
These controls are put in place to ensure that during the normal course of work of one person within the enterprises is proved independently by that of another.
- PERSONNEL CONTROL
These controls are designed to regulate the movement and control of works within the organization, that is, issuance of identify card
- ORGANASATIONAL CONTROL
These are designed to ensure the entire protection of the organization from within or outside. The Internal audit is set up by management to examine, evaluate and report on the accounting and other controls in operation. The aim of Internal audit is to aid the members of an organization to discharge to their responsibility effectively.
Internal audit is a management tool and in putting it in place by management, the size and circumstances of each organisation be taken into cognizance.
- RELATIONSHIP BETWEEN INTERNAL AND EXTERNAL
External Audits as the name goes are not employed by the organization being audited. External bodies known as chartered accountants mainly carry out external audit. In the process of carrying out their work, there would be the need to raise with management. It is the external auditors that will advice management to constitute a strong internal control within an organization.
An internal audit function on the other hand is supposed to assist both management and the external auditors. For instance, it is almost impossible for the external auditor to visit all the branches of the Board of internal revenue but if they have a strong internal audit department, the external auditors can rely on the returns presented from such branches. Note that the degree of reliance to be placed on the work of the Internal audit committee by the external audit will depend on the experience and qualifications of the members of the audit committee for instance the report of the department, how it affects the management decisions, the degree of documentation of their reports as well as their independence in the organisation will determine the relevance to be placed on their work by the external auditors.
An effective internal audit department can facilitate the task of the external auditors. In many respects both operates in ascertaining that there is:-
- An effective system of internal checks
- An adequate account system.
However, there are certain fundamental differences. They are the following:
- SCOPE OF WORK
EXTERNAL AUDITORS: The function of an external auditor is enormous in nature. It is usually specified by the professional code of conduct.
The extent of their work is determined and deregated to them by the management; when in turn they report back to in the case of the board of Internal Revenue. The Internal Auditors report back to in the case of the Board of Internal Revenue-the Internal Auditor report back to the honourable commissioner for Finance.
- APPROACH TO WORK
The external auditor is interested primarily in the truth and fairness of the account and therefore has to be sure he has enough information to report to the board members
The Internal auditor is interested in satisfying its constituted authority that is the management by appraising the efficiency of the Internal control systems.
The external auditor is responsible to the government who appoints them.
The Internal auditor is responsible for the board members and the honourable commissioner for finance at the board of Internal revenue Enugu state.
It is statutory that an external an external auditor must be a qualified accountant with a practicing licence.
The Internal auditor needs not to be qualified before taking the responsibility of an internal auditor or before practicing as internal auditor.
- FACTORS THAT WILL BE CONSIDERED BY AN EXTERNAL AUDITOR BEFORE RELYING ON THE WORK OF THE INTERNAL AUDITOR.
The factors that will be considered by an external auditor before relying on the work of the Internal auditor are the professional competence, the level of experience of the Internal auditors, the qualities of the Internal auditors, previous work, the degree of independence of the Internal auditor as well as the scope of work under taken. The Internal auditor gains a lot experience from the external auditors who have various experiences on many area of different organisation. The existence of an internal auditor department brings forth internal control. The external auditors will thus cut down their detailed work and the area in which this will be done will of course be those where the internal auditor has been operating.
The following aspects of the department should be considered:
- The scope of the internal auditors works.
- The quality and the ability of the member of the department.
- The quality of the work of the department.
- The external to which the recommendations of the internal auditor department have been adapted.
- Where the internal audit department is placed in the board and attention to be paid to the level of management to which it reports.
The higher this is the more independent the approach is likely to be.
The financial training of the accountants in auditing is to assist all members of management in the effective discharge of their responsibilities.
These objectives are achieved by:
- Assessing the soundness of accounting and financial control.
- Ensuring that bound of directive are computed.
- Appraising the efficiency of established polices and reviewing them in the light of charging circumstances and reporting upon method of improvement
In a book titled “company Auditing Concept and Practice” written by Thomas A. Lee, Thomas believes that co-operation with the external auditors by the internal auditor is achieved through working partnership of professional persons having similar but not necessarily the same objective.
Examples of specific area of co-operations by Thomas A. Lee are:-
- The use of internal control questionnaires and adult programmes.
- Practical information being given to the external auditor as to the degree of detail in any one of financials period which the internal audit department is to ascribe to the various section of his work.
- The making available of internal audit report and working papers to the external auditors.
- AUDIT COMMITTEE
A part from the Internal Auditor and the external the management of the board of Internal Revenue Enugu State has formed an audit committee.
The committee examples the auditors report and make recommendations there on. For the purpose of auditing the audit committee ascertains whether the accounting and reporting polices to the board are in accordance with the legal requirements.
The audit committee of the board also reviews findings of management matters in conjunction with the external auditors and gives responses when suitable the audit committee reviews the scope and planning of audit requirements.
The audit committee authorizes the internal auditor to carry out investigation into any activities of the company which may be of interest or concern to be the committee.
RELATIONSHIP BETWEEN THE AUDIT COMMITTEE AND THE EXTERNAL AUDITOR.
The establishment of an auditor committee doesn’t affect the work of the external auditors in any way although the committee could be beneficial to the external auditors.
Usually, the relationship depends on the circumstances but the committee would probably discuss.
- The content of the management letter
- Any qualification in auditor report.
- Any problem that arise and the best suited accounting treatment of contention items and the manner and degree of disclosure of any item.
- Any matter where the auditor and the board might disagree.
- ESSENTIALS OF INTERNAL CONTROL
An internal control system as has been defined in chapter one shows that management is responsible for establishing a sound system of internal control. It can be deduced from the definition that internal control has three objectives which are :-
- To carry on the business of the organisation in an order and efficient manner.
- To safeguard the assets of the organisation
- To ensure that accurate and reliable records are being kept.
Hence a good internal cannot system must ensure that difference people perform the following functions in an organisation and that no person performs two or more functions:-
- Initiation and authorization of transactions.
- Documentation and recording the consequences of the result of contracted obligation.
- Custody and handling of assets whose movement is recorded in (2) above.
- INTERNAL CHECK
It is defined as:
“The check on the day to day transactions that operates continuously as part of the routine system whereby the work of one person is proved independently or in complementary to the work of another, the objective being the prevention or early detection of errors and fraud. It includes matters of recording transactions and the use of independent ascertained to totals against which a larger number of individual items can be proved.
2.9 TYPES OF INTERNAL CONTROL SYSTEM IN THE BOARD OF INTERNAL REVENUE ENUGU STATE.
The various departments in operation the board of Internal Revenue are:-
Two operational department of
- Income tax
- Other revenue.
And two mandatory departments of
- planning research and statistics
- Administration finance.
To guide against frequent activities and to ensure an effectiveness and efficient system. Various measure are taken within each department to guide their daily activities. These measures are otherwise known as INTERNAL CONTROL SYSTEM.
In other words, each department has its own laid down procedures of operations, which serves as the guidance for efficient and smooth running of the system. A careful study of internal control system operation in the Board of internal revenue Enugu State, revealed the following:
- CASH CONTROL
The handling of cash in the board of internal revenue has been greatly reduced by the use of payment instruments, with this, handling of physical cash is minimized. Cash lodgments are paid directly to designate banks. This involves the use of cheque and tellers