CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Auditing, which has to do with a careful check or inspection on things is to a large extent important in every facet of life, specifically, organizations. This is because it carefully looks into, evaluates and analyses the diverse controls, examines divergence from relevant or useful levels of quality and any example or act of irregularity, inefficiency and unproductiveness with the idea of taking corrective action. In recent times, internal audit as a topic has been drawing a lot of attention and as a result, has been researched on by numerous researchers. It’s introduction has done a lot especially in its contributions to the management of public and private sectors in the aspect of organizational resources, Intakhan, 2011, this is because internal audit has for some time now been a control system in both public and private sectors which cannot be ignored, hence, it is time to completely look into the problem of internal audit. One of the importance of Internal audit is that it adds value to organizations by helping them attain efficiency and effectiveness.  Eleke 1999 pointed that internal audit provide two major services to an organization, which is guarantee and consulting services. An guarantied service are those service that has a lot to do with the ability of the internal auditor to render such as independent assessment on the level of risk management, control, and governance processes of the organization, financial aspect, performance, compliance, system security and due consistent engagements. In as much as consulting services are those services that have to do with the reports that give information and related client service activities that has to do with the nature and scope agreed upon with the client and are meant to add value and enhance the organization’s activities. Adding value may come as advice, counsel, facilitation, process design, and training. Irrespective of the service above, some researchers advised that those internal auditors that functions as consultant to organizations may not be able to hold on to for long their objectivity within such organization. For this reason, for the internal auditor to render both guarantied services together with consulting service, they have to be nondependent with objectivity, competency, and ethical behaviour. In addition, internal auditor needs to be independent and should have full right to look through to council’s records, personnel and must have enough authority to carry out the internal audit role. In Nigeria and other developing nations, research has discovered that Nigerian local government councils specificallyhave internal audit department with internal audit staff that performed internal audit activities. This establishment is consistent with the provision made by department of local government under the internal audit guidelines; which strongly recommends that all local government councils should have an internal audit function for the specific reasons:

(i) toreinforce good internal governance

(ii) tomake sure there is consistency with other levels of government

(iii) toenhance the effectiveness of risk management, control and governance processes

(iv) tohelp inflict public confidence in an organisation’s ability to perform duties effectively and productively.

Godwin 2000 also found out that there is always so much confusion in organizations that do not have internal audit departments with designated roles of internal audit within their operations. This is because, having such department might addvalue to organization in diverse ways which include; assisting the organization to reach its objectives, strengthens internal controls, enhances risk management, and improves overall corporate governance.

STATEMENT OF THE GENERAL PROBLEM

The problem of corruption and misappropriation of funds in the internal audit system of local governments in Nigeria have become a major clog on the wheel of local government and rural development in Nigeria.  This has resulted to the rise in the impoverishment of rural dwellers many Nigerian who reside in the local government areas which by extension does not augur well for socio economic development in Nigeria.

AIMS AND OBJECTIVES OF THE STUDY

The major aim of the study is to examine the effect of internal audit on public expenditure in Nigerian local government areas. other specific objectives of the study include;

1.  To determine the level of misappropriation of funds by the administrators in the local government council.
2. To assess the ways of making the internal audit unit effective in the administration of local government.
3. To examine the extent of un cooperative attitude between the internal audit unit and audit alarm committee.

RESEARCH QUESTIONS

1. What is the effect of internal audit on public expenditure in local government areas?
2. What is the level of misappropriation of funds by the administrators in the local government council?
3. What are the ways of making the internal audit unit effective in the administration of local government?
4. What is the extent of un cooperative attitude between the internal audit unit and audit alarm committee?

RESEARCH HYPOTHESIS

H0: Internal audit does not have an effect on public expenditure of local government areas.

H1: Internal audit has an effect on public expenditure of local government areas.

SIGNIFICANCE OF THE STUDY

The study would be of immense benefit to the growth and development of the local government level in Nigeria as it would reveal the effect of internal audit on public expenditure in Nigerian local government areas.

SCOPE AND LIMITATION OF THE STUDY

The study is on the effect of internal audit on public expenditure in local government areas using Ife local government area of Osun state as a case study.

LIMITATION OF THE STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.