CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The issue of distress in Nigeria of recent has called to question the need for a closer examination of internal auditing as an instrument for effective financial discipline have raised serious doubts in the minds of the public and the customers as to the effectiveness of the internal controls which is the “internal audit” in these banks. The wide and strongly held belief is that if the banking industry in Nigeria had a well developed and managed internal control system or auditing practice, most of these errors that contributed to the distress and consequent liquidation of some bands recent1y would have been detected early enough and remedial action taken.

The general assumption is that if the banking industry in Nigeria has made good use of internal auditing checks the standard of financial management in the banks would have been higher and more reliable than what it is today. In order to examine the authenticity or otherwise of this statement or assumption, we feel it is necessary as a part of the background to the study to briefly discuss the concept of internal auditing and its background.

Internal auditing is an independent appraisal activity within an organization for the review of operation as a service to management development of internal auditing, public accountants were finding an increasing demand for independent audits leading to the expression of an opinion on financial statements, and they recognized that they could seldom perform the function of detailed verification as effectively or efficiently as could the company’s own specialist.

To ensure the judicious application of funds and inculcate in the banking industry the culture of probity and accountability, internal auditing was made the corner stone for effective financial management in the establishment of the community banks.