Internal Auditing as an Instrument for Effective Management

Internal Auditing as an Instrument for Effective Management

Internal Auditing – According to millichamp (1988:548): internal auditing is an independent appraisal activity within organisation for the review of operations as a service to the management.  Internal audit is a management control, which measure and evaluate the effectiveness of other controls. Settler (1971:15) defined internal auditing as independent appraisal activities within an organistion for the review of accounting, financial and other operations as a basis for service to management.  It adds that the internal auditing is a management controls which functions by measuring and evaluating the effectiveness of other controls.

Hotines (1964:5) defined internal auditing as “independence appraisal activity within an organisation for the review of an accounting, financial and other operations as a basis for protection and constructive service to management.

INTERNAL CONTROL
Holines: 1964: Defined “the whole system of control, financial or otherwise established by management in order to carry on the business of enterprise in an orderly and efficient manner, ensure adherence to management policies, safeguard its assets and secure as far as possible the accuracy and reliability of its record”.
These involve financial control cost and management controls cost and management controls.
MANAGEMENT CONTROL
The management may often review particular items such as stocks, the operation of wages department, these yet constitute another instrument of control management review and supervision is essential element in effective internal control system.
The function of management is delegated for the detailed examination and hence the internal audit of some firm are well staffed for the onerous taste of the internal audit activities of the organization.
The internal audit work is concerned with the measuring and evaluating the effectiveness of internal control.  He plays the role of:
(i)    Involvement in the implementation of some social policies adopted by top management;
(ii)    Involving a new internal control strategies;
(iii)    Internal control errors and changes to prevent such an error;
(iv)    Acting as a consultant on internal control matters;
(v)    Acting as a training officer in internal control matters;
(vi)    Auditing and investigation of information gives to management in case of interim accounts and management accounts reports; and
(vii)    Being a partner in with the external auditors in the auditing of final accounts of the organization.

METHOD AND PROCEDURES ADOPTED BY INTERNAL AUDITORS
The nature of approach and procedure of the work of internal audit work depend on the formatter method directed by the organization.
The following method of internal audit usually exist in typical organisation:
(i)    Operational audit –        Specific set of operation;
(ii)    Organizational audit –    Audit of the organizational set-up;

(iii)    Functional audit –        this means that an audit of specific functions in
the organization;
(iv)    Company audit –        Auditing of company accounts; and
(v)    Special/Ad hoe work –    The internal auditors can be investigate on
special areas of the organization as required by management
INTERNAL CHECKS
According to statement on auditing 114 – internal checks the allocation of authority and work in such a manner as to afford checks on the routine transaction of the day to day work by means of work of one person being provide independent by another or the work of a person being complementing to that of another.  It requires the method of duty separation in which no one person is in a position of carrying out the whole duties which fraud is possible.

THE IMPORTANCE AND THE ROLE OF INTERNAL AUDIT DEPARTMENT
The importance of internal audit in the organization cannot be over emphasized.  The layman in accounting find it difficult to understand the role which internal audit play in the organisation despite the fact that internal auditors are staff of the organisation.  The internal auditor is an advises, an internal controller and promote the ideal of self control to the officer of the organisation.
The internal audit is concerned with ensuring that financial operations are conducted in accordance with a set of rules and standard that apparent procedures and operations are sun on minimal cost and that expected results are being obtained.
Pearce in his comment on the objective of internal audit has this to say.  “It is to assist all members of the management team in the effective discharge of their responsibility by furnishing them, thus are: analysis, appraisals, recommendations and pertinent concerning their activities”.
Onler & Brown on the objective of internal audit said that internal audit aims at the protection of management against errors of principles and negligence of duties.
The function and the role of an internal audit department includes the survey of accounting, financial costing and other operation and subjecting them to critical appraisal to ensure effectiveness and giving constructive advice to management on any changes in the system which seem to call for”.
As earlier stated the internal audit is to provide a positive service to the management.  This involves the appraisal of the inability and effectiveness of control procedure and the employment of management information for organizational decision making.
Internal audit assures management that the presentations, which reach them, are reliable and that Loopholes for errors and fraud are eliminated.  Holiness stated that the internal audit department is concerned with control of transaction and operation with the improvement of the accounting methods from the point of view of efficiency.
The internal audit in government ministries and department are created to appraise the performance of each sections of the establishment and ensure that they adhere to the rules and regulations guiding the operation of such an orgnisation set up.

AREAS OF INTERNAL AUDIT AND INTERNAL AUDIT REPORT:
MANAGEMNT AUDIT
This is also called operational audit and focuses on more qualitative term.  It accesses the performance of management.  This performance of management.  This should extend to the highest level of management.

COST AUDIT
Cost audit is the process of vouching and ticking.  It evolves the examination of documents of evidence that is available to support the authenticating of transaction entered in the client records.
The internal auditors will ask for the following in this job:-
(i)    Independent evidence to support the transaction;
(ii)    The authorizations of the transactions;
(iii)    The nature of transaction of the organistion; and
(iv)    The term of the transaction.

In vouching, the auditor should be check out the following:
(a)    The document;
(b)    What special point in the documents;
(c)    Corroborative evidence to look for; and
(d)    What entries should be making in the books.
(e)    How the transaction should be reflected in the profit and loss accounts and the balance sheet.

DETECTION OF ERROR AND FRAUD
The first step the internal auditor takes when deleting fraud is to establish the initial scope of his inquiry:
(i)    Who is evolved?
(ii)    How long has he been evolved?
(iii)    What area in the system is evolved?
(iv)    The nature of fraud

INTERNAL AUDIT REPORT
The internal audit report is usually forwarded to the managing director or copied to the chief accountant as the case may be.  In the case of institute of management and technology (IMT) Enugu, it is forward to the Rector for his further directives.

THE FORMAT OF INTERNAL AUDITORS REPORT
(i)    ADDRESS:  To the appropriate level of management;
(ii)    INTRODUCTORY PARAGRAPHY:  The purpose of the report should e sated and which emanated from the theme  of his assignment.
(iii)    MAIN BODY OF THE REPORT:  This contains observation and recommendation, which the auditors see that will be useful to the management.  The report should be accurate precise and specific.

FUNCTIONS OF INTERNAL AUDIT
The function of internal audit department varies other, but in specific themes, the function of internal audit in organisation includes:
(i)    Reviewing and appraising the soundness accuracy and application of accounting financial and other operation control and promoting effectiveness control at reasonable cost;
(ii)    Ascertaining the extent to which organizations assets are accounted for and safeguard from losses of all kinds;
(iii)    Ascertaining the extent of compliance with established policies, plays and procedures;
(iv)    Appraising the quality of performance in carrying out assigned responsibilities;
(v)     Ensuring the reliability of management data and or information generated within the organisation;
(vi)    Recommending operating improvement according to Woolf observed the function of the audit as follows;
(vii)    Verification of the accuracy of financial and accounting records and of related reports and statistics;
(viii)    Ascertainment of adherence to standard accounting practice of the organization;
(ix)    Ensuring that there has been proper authority for the acquisition of retirement and disposal of assets of the organization;
(x)    To conform that inability has been incurred only on respect of the legitimate operation of the organisation;
(xi)    To analyse and improve the system of internal checks;
(xii)    The prevention and detection of fraud with emphasis on the former;
(xiii)    The examination of the protection afforded the assets and the use to which they are put;
(xiv)    To make special investigation for the management wherever occasion calls for such; and
(xv)    To provide a clearing house or conduct for new method.

The internal audit perform the following function with respect to
Receipt and payment of cash cheques should be crosses while all taking should be banked daily.  The cheques for withdrawal of the comparing money should be signed by at least two persons.
Purchases of Goods:  Those who authorized the purchase of goods should not be concerned with the checking of the actual receipt or authorization of payment.  Those who authorize the payment should not be concerned with purchases  ledger.

SALES OF GOODS
The sales invoice should be prepared by the different person.  Cash collection officer should have assess to sales ledger.

PAYMENT OF WAGES
Those who prepare wages sheets should not be responsible for the actual payment of the wages.

STOCK AND STORE ACCOUNTS
The stock accounts should be done on weekly basis and weekly balance of stock and shores item known.
PETTY CASH PAYMENT / RECEIPTS
The auditor should check the receipt of the cashier and his payment on an irregular basis.

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