CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY
Fraud control is becoming an issue that the regulators and top business executives who are in saddle when fraudulent activities takes place or more succinctly when someone commit an act of fraud in the financial institutions under their management. It is quite clear that the installation of internal controls cannot be sufficient to eliminate dishonest activities, constantly rejigging of the controls already put in place to ensure that they are effective in reducing fraudulent activities in financial institutions from becoming successful should become important. Fraudulent activities are rampant in every organization but more rampant in business organizations. The acts of financial fraud has persisted in most firms in spite of strong internal controls put in place to forestall and control any planned intention to steal the business money. Strong controls that at times are antithetical to the efficient operations of the business having been put in place in certain cases but have not succeeded in reducing drastically the amount of funds lost. One of the reasons for the use and continuous revision of internal control systems in the bank is to ensure that losses occasioned by fraudulent activities are minimal if they occur, and attempts are discovered very early before losses can occur. The triumvirate of fraud prevention, fraud control and detection are coalesced into the effective internal control system that the bank employs.
The existence of internal audit in any organization is a means of controlling the incidence of errors, irregularities and frauds. Fraud is an intentional distortion of facts and figures; According to Howard (2002), the major role and responsibility of internal auditors is prevention and detection of fraud.
Error is defined by Awe ( 2005) as unintentional mistakes in financial statements whether of a mathematical or clerical nature or whether in the application of accounting principles or whether due to oversight or misinterpretation of the relevant facts. Errors must be reduced to the barest minimum so as not to render the financial statement meaningless.
The issue of fraud has become a serious food for thought for many corporate bodies nowadays. (Robertson and Louwers (2002): stated that fraud consists of knowingly making material misrepresentations of facts with the intent of inducing someone to believe the falsehood and act upon it and, thus, suffer a loss or damage. This definition encompasses all the ways people can lie, cheat, steal and dupe other people.It is therefore very important for business organization to have a separate department, which is referred to as the Internal Audit department to keep watch and monitor the activities in the system. Oseni (1994) and Lav (2004) stated that internal audit plays a vital role in enhancing corporate performance in organizations. It is on this backdrop that the study seeks to examine the role of internal auditors in fraud control in a business organization.
1.2 STATEMENT OF THE PROBLEM
Many organizations lack mechanisms for adequate monitoring of activities and operations, thereby not giving room for easy achievement of the business goals (Adeniji, 2004). Flaws and loopholes may still exist in an organization despite the existence of internal control system, which can easily be circumvented by individuals who are inclined towards fraudulent activities. Therefore measures have to be put in place to checkmate such fraudsters. One best way of curbing and/or minimizing the menace of fraud is through the institutionalization of a vibrant and effective internal audit unit.
The presence of an effective internal audit in an organization is not only to checkmate fraudsters, but also serves as a managerial control which functions by measuring and evaluating the effectiveness of other controls (Dandago, 2002). The primary function of the internal auditor is to evaluate processes that are in place to identify any weaknesses in internal controls that might lead to undetected fraud. When any such weaknesses are identified, they are reported to management for corrective action. The internal audit is expected to anticipate problems, visualize improvements and propose preventive actions (Effiok, 2003). The internal auditor has the responsibility to appraise the activities of other departments in an organization, and provides management with information that is useful in assessing operational effectiveness.
Despite the existence of internal audit departments in business organizations, there are still cases of errors and fraudulent activities in organizations. Fraud is regularly reported in national newspapers. It is on this backdrops that the study seeks to examine the role of internal auditors in fraud control in a business organization.
1.2 OBJECTIVES OF THE STUDY
The main objective of this study is to examine the role of internal auditors in fraud control in a business organization. The specific objectives are as follows:
iii. To examine the roles and importance of internal controls in corporate organizations
1.4 RESEARCH QUESTIONS
3. What are the roles and importance of internal controls in business organizations?
4. What are the factors that determine the quality of internal controls in business organizations?
5. To examine the role of internal audit in internal control quality in business organizations?
1.5 STATEMENT OF HYPOTHESES
HO: There is no significant impact of internal auditors in fraud control in a business organization.
HI: There is a significant impact of internal auditors in fraud control in a business organization.
1.6 SIGNIFICANCE OF THE STUDY
The study is expected to make recommendations to accountant and auditors in the role of internal auditor in fraud control in a business organization. The opinions of this study will also open up future vents for young practitioners /scholars in theaccounting profession and academic field in topical area under investigation and finally, this study will also be a useful guide and information to other students that will carry out their studies in the future.
1.7 SCOPE OF THE STUDY
The scope of the study covers the role of internal auditor in fraud control in a business organization with special reference to some selected telecommunication companies in Port Harcourt with special reference to MTN Nigeria and Globacom.
1.8 LIMITATION OF THE STUDY
In carrying out an investigation of this kind, the researcher must of necessity be faced the following constraint.
Time: The time frame provision for this study was too short.
Financial constraints: Usually, a study of this nature involved some level of expenditure therefore; finance was also a limiting factor.
Poor response: The poor response from the respondent and inability to access the entire population also was another constrain to the study.
Organizational policy: The policies of the organizations also were another factor that limited the study.
1.9 DEFINITION OF TERMS
Internal control: It is a process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.
Auditor: A person who conducts an audit.
Accountant: A person whose job is to keep or inspect financial accounts.
Internal auditor: An employee of a company charged with providing independent and objective evaluations of the company’s financial and operational business activities, including its corporate governance.
External auditor: An external auditor performs an audit, in accordance with specific laws or rules, of the financial statements of a company, government entity, other legal entity, or organization, and is independent of the entity being audited.