Auditing As An Instrument For Ensuring Accountability

AUDITING AS AN INSTRUMENT FOR ENSURING ACCOUNTABILITY

Internal auditing appeared on the business scene much later than auditing by public accounts.  The principal factor in its emergence was the external span of control that employ thousand of people conducting operations from widespread locations.  What is more, defalcations and improperly maintained accounting records were the obvious problems under these circumstances.  The growth in the volume of transactions presented substantial problems for public accountants too.

Similarly, the incidence and scale of fraud in various organizations have been on a dramatic increase in recent years.  And this is the reason the management of Premier Breweries Limited, Onitsha, deems it necessary to make use of internal auditors and hence the need to have auditing as an instrument for ensuring accountability, in Premier Breweries Limited, Onitsha.

Internal Auditors are employees of the company whose records and procedures they examine.  They owe their primary allegiance to that company.  Their jobs, compensation and opportunities for advancement are all controlled by the same management that controls and supervises the accounting department under examination.  This is not to say that a high degree of independence in both organization and attitude is entirely impossible within an internal audit department.

But as an independent contractor, the independent auditing firm reserves the right to direct and control its own employees without interferences by its client companies.  Once the general terms of the agreement have been determined, the independent auditor is free to use such methods to expand or reduce the amount and the kind of work he does at his discretion.  At the conclusion of his examination, he emphasizes himself in his reports without fear of retaliation.

 

  • THE INTERNAL AUDIT DEPARTMENT:

This is an independent appraisal activity within an organization for the purpose of accounting financial and other operations as the basis for protective and constructive services to the management.

A large company like the Premier Breweries Limited, Onitsha, has an internal audit department which is responsible for checking the accounting system of the company.  This is to ensure that the controls are effective and too, that there is no embezzlement of funds or goods and services of the company.  In this company, the department is responsible to the general manager and the board of directors.  Besides, this effective control, the researcher was informal that there is an audit committee whose terms of reference are to ensure that the organization operations are efficient and too, to help check frauds and wastes.

 

  • AUTHORITY RELATIONSHIP:

The company Premier Breweries Limited, Onitsha has a district department that is responsible for adequate recording and controlling of its financial transaction.  The chief internal auditor as the head of the department controls the audit department while the accounts department is being handled by the financial controller as the head of that department.

The organization chart as shown depicts the authority relationship in the department.  The diagram above shows that the overall authority of the breweries is the general manager and the internal audit manager.  The chief internal auditor supervises the overall activity of the company and reports to the general manager who finally passes it to the board of directors if the need arises.  The chief accountant gives instruction to the accountants under him who in turn gives to the accounts clerk under his supervision. This is what happens in other departments.  The chart shows that there is proper definition of duties and division of labour which helps for the preparation and production of a good financial information.

The effective and efficient operations of the auditing system in Premier Breweries Limited, Onitsha gives room for a good flow of auditing information in the company.

 

  • FRAUD – DEFINITION, CLASSIFICATION AND TYPES:

Fraud is referred as the international distortions of financial statement for whatever purpose, and to misappropriations of assets involved in the use of criminal deception.  Fraud is perpetuated to obtain an unjust or illegal advantages.

 

Fraud is of three classifications namely:

THEFT:

Which involves the unlawful taking from another’s possession or unlawful appropriation of property by a person to whom it has been entrusted.

FORGERY:

This involves the falsification of document/signature.  It is the fraudulent imitation or counterfeiting of document/signature.

MANIPULATION OF FIGURES:

This involves the accounting for sums either lesser or greater than those received depending on the objective of the fraudulent party.

 

TYPES OF FRAUD:

It is inconceivable to discuss exhaustively the varieties of fraud that one is likely to encounter in practice.  This is because even as the researcher is attempting to discuss the known ones there are people who are busy devicing “cleverer fraudulent schemes”. Nevertheless, the researcher deems it necessary to list the ones that may be very common.s  these include:

 

Cash/bank balance theft and misappropriation.  These are the most readily and immediately useful of all corporate assets.  Fraud involving cash are of various types of ranging from outright theft to falsification of cash record documents.

Teeming and Leading: This means misappropriating receipt from customers and using later receipts to cover the misappropriation.  Teeming and Leading is likely to continue for a long time if the person involved is not checked or supervised.

Ghost workers on payroll:   This means, including the names of non-existent employees on the payroll and pocketing their pay.

Misappropriating unpaid wages:  This is pocketing the wages which are not claimed by employees who had left the services of the organisation.

Making payments to non-existent supplies created by the fraudulent employees.

Leaving gaps in writing the words and figures in cheques so that the amount can be increased and the extra pocketed.

 

 

  • FRAUD METHODS – THEFT CONVERSION AND

CONCEALMENTS:

 

Theft acts are assisted by the concealment that takes the form of misrepresentation of a physical reality or by conversion.  An inventory discrepancy may be the first indication of such frauds.

If the suspect admitted to have committed the offence, it is advisable that such a person should not be handed over to the policy for prosecution but be removed from that office to that is less sensitive.  This is to enable him to pay the amount involved.  If the amount involved is too large to be done in that way an internal auditor should carry out an investigation to locate his assets.  When it is located, the company seeks for court injunction to sell the assets to recover the stolen goods or money.

 

2.6     TYPES OF AUDIT ACTIVITY:

The audit activities to be carried out within the organisation are:

 Accounts and Records:

This audit is intended to discover errors, attempts of fraudulent conversion and to minimize the details to be checked by the external auditors in their annual audit.

 

Management Audit:

This is concerned with the reviewing of the adequacy and effectiveness of the management structure, the working relationships and the level of authority and responsibility of managerial posts.

 

Fixed Assets Audit:

This audit involves two major factors, the procedure for authorizing capital expenditure and the accounting control assets.  Internal auditor usually take note of this credit suspect.

 

Wages and Salaries Audit:

This is an extension of accounts audit, but due to the variety of remuneration schemes in existence, it is essential to conduct an audit to detect irregularities in the application of the various schemes.

Personnel Audit:

This audit is concerned with the reviewing of the procedures relating to personnel matters such as how personnel are employed and the criteria for selecting such personnel for promotion by checking the accuracy and reliability of accounting data, by promoting operational efficiency of the company.

It is also observed too that this internal audit department submits regular reports to the general manager and board of directors.  These reports cover the performances at the head office and at the depot levels highlighting the general administration as a whole, their work with respect with accounting functions.

In the course of their audit business, auditors usually visit the branches of this company scattered all over the States of the Federation.  There, they usually call for the balance sheet for inspection.  Later they proceed to count the physical stocks in the warehouse.

“A balance sheet is a statement drawn up at the end of each trading of financial period, setting forth the various assets and liabilities of the entity as at the final date”.  It shows both the solvency and insolvency of a firm.

The researcher gathered that the purpose of examining the balance sheet is to ensure that the procedures must be adopted by the company to conform with the regulation of the company’s act, check the rate of depreciation, how it is being computed by the company and whether the company is deviating from the laid down policies of the organisation.

The auditors therefore check the current assets, examine all entries made in the debtors ledger and obtain a written note on the balance from the debtors.  This is to ensure efficiency in the operation of the business.

To ensure that the incidence of misappropriation of fund is abated, auditors ensure that all the vouchers are fully maintained by the authorized signatories.  They check the entries in the debit note to detect falsification or error, and check the physical stock to ensure adherence to the prescribed management policies.  This is because stocks are more compared physically with the stock ledger book every quarter.

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