CHAPTER ONE

INTRODUCTION

1. Background to the Study

Through out the past decade, Nigeria has witnesseda rise and fall in several businesses. The businesses or organizations whichare still in existence and experiencing growth set up structures and practicesof boards so as to monitor the performance of the organizations. This is doneso as to impress the shareholders of the various businesses and attract newinvestors.

The companies or establishments whichdid not make it could have suffered from one problem or another. The mostprominent one which can not be ignored is that of fraud. This alone has causeda lot of damage in the financial markets and the entire economy has beenplunged into a terrible crises. The fall of a company like Enron in the United States of Americacaused an up rise and raised so many eyebrows hence leading to a sagging investor’sconfidence.

On the other hand, there are someorganizations growing in strength. One of the factors that could contribute tothe steady growth of companies is the setting up of an Internal Auditing Department.As fraudulent financial reporting and restatements of earnings have become moreprevalent, auditing (be it external, internal or governmental audits) hasbecome more important. So to monitor the procedures and adherence to principlesto an organization, internal auditing could be looked upon as a key. A typicalexample is seen in the case of World com, (a financial establishment in United States of America)when Cynthia Cooper (Vice President of the internal auditing team) and herstaff unveiled several auditing practices which were not in line with theGenerally Accepted Accounting Principles (GAAP). In carrying out this audit, itwas discovered that for previous two years, $3.8 billion in cost had beencapitalized rather than expensed. This announcement was made in June 2002.

 Pinero (2001), in his paper presented at aworkshop for internal auditors stated that “the prime objective if the InternalAuditing Department (IAD) in any bank is to evaluate whether the bank’sframework of risk management, internal control and corporate governance processesare adequate and functioning properly and carried out throughout the year. Headded that the objective of the internal auditing department (IAD) includessuggesting and recommending the management for improvement in internal controland risk mitigating factors. Internal audit services provided by the IADtherefore exist to add value to the organization, to concentrate on the keyrisks, to evaluate and assess the Internal Control System (ICS) and contributeto the proper economic, efficient and effective use of resources in banks andother organizations (Miten Keynes Council,2002). As such the IADs of Oceanicbank plc, UBA plc and First bank plc could be looked up to as monitors in theirvarious organizations as they check the risks and ICS of the organizations. Thereforeinternal auditors in Nigeria,in carrying out their function and roles judiciously could as well save acompany or organization from a fall.

From the above, it will be reasonableenough to agree with Frigo (2000) who points out that it is wrong to think ofauditing as only “financial” in nature. According to him the scope of internalauditing within an organization is very broad and may involve topics such as:

• Theefficiency of operations
• Thereliability of financial reporting
• Deterringand investing fraud
• Safeguardingassets and
• Compliancewith laws and regulations

As a result of the broad scope ofinvolvement, internal auditors (those who carry out the profession of internalauditing) may have a variety of higher educational and professionalbackgrounds.

It can be interpreted from the above that audit departments in organization function in a particular way to ensure the growth and development of the organizations.