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CHAPTER ONE

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) 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) 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 programs as

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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