THE ROLE OF INTERNAL AUDITORS IN FRAUD CONTROL IN A BUSINESS ORGANIZATION

ABSTRACT

This research study was conducted to investigate the role of auditors in fraud control in business organizations with particular interest and attention on Champion Breweries Plc, Uyo. The staff of Champion Brewery constitutes the population of the study from which a sample size of forty (40) respondents was selected. Three hypotheses were formulated and tested, Chi-square and percentage distribution was the statistical tool used in testing the hypothesis, while questionnaires were the method used for the collection of data for the study. The result reveals that internal auditors play a significant role in keeping the organization accounting records in order. They also help in checking fraud. The problem affecting internal auditor in the champion brewery plc Uyo are enumerated.

 

  CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

It is pertinent at this introductory part to note the term auditing, its primitive and rudimentary form can well be traced back to the ancient firms but the term auditing is seen today in its formed state and was established in the later part of 19th century. Originally an auditor was one whom the receipt and payments of an establishment were read. The definition of auditing came as independent examination and investigation of the evidence from which a financial statement has been prepared with a view of enabling the independent examiner to report whether in his opinion and according to the best of his knowledge, the information and the explanations obtained by him is properly drawn up and gives a fair view of what it reports to show if not in what respect he is not the independent examiner who does the investigation and report thereupon is referred to as the auditor. The auditor being an independent examiner who should be professionally qualified examine the book of account and vouchers of the company as will enable him to report whether he satisfied or not that balance sheet is properly drawn upon so as to show a true and fair view of the profit and loss for the financial period. The role of the auditor is rigorous and from the above description of auditor positions in this dynamic business do represent a true and fair view of financial position and earning and that the accuracy of the account is not distorted by any fraud and error which the auditor came across in the course of auditing. (Normond 2009).  The detection of fraud and error is not the primary responsibility of the auditor in a business organization, it is, therefore, important to note with great concern that the auditors are not absorbed from the responsibility of fraud or error committed by directors or managers of a company. The auditor must therefore satisfy himself that the accounts are incorrect in the consequent of fraud or error committed in director managers’ consequent upon the paradox position in which the auditors have found himself as regards the detection and prevention of fraud and errors the mechanism need to be instituted the efficiency by which the auditor can rely upon in carrying out his work. This brings us to internal check and control as the system of control, financing and otherwise, established by the government in order to carry on the enterprise business in an orderly and efficient manner. It is designed to ensure adherence to management policies, safeguard the assets and secure as far as possible. The completeness and the accuracy of the records. It brings into play both internal check and internal audit (auditing guidelines 2004).

 

1.2 HISTORICAL BACKGROUND OF CHAMPION BREWERIES COMPANY PLC. UYO

Champion breweries plc was incorporated as a private limited liability company on 31st of July 1974 with the name southeast breweries limited. Because of political imperative in Nigeria, the company’s name was changed from southeast breweries to cross river breweries and thereafter to champion breweries limited. The later name, champion breweries plc, on the 1st of September 1992. On the 20th of November 1974, the government of the southeastern state of Nigeria signed an agreement with Messers Haable Barrie GMBH of Hambling (Technical partner) for the supply and construction of a Turkey Brewery in Uyo with a capacity of 150.00 hectoliters. The foundation stone of breweries was laid on the 19th of March 1975. On 11th December 1976, the brewery was officially commissioned and its products champion larger beer launched into the market with success. On the 22nd of July 1977, a second contract was signed with the technical partners to increase the capacity of the brewery from 150,000 10 500,000 hectoliters. The foundation stone for the expansion was laid on the 24th of December 1977. The expansion which uncorrupted more sophisticated machinery was completed and put on the trial run in September 1979. The second production line was officially commissioned on the 11thof December 1979, the same year the company’s product “champion ledger beer” and “Champ Malta” won a silver medal at an international contest in Paris, France. Champion lager beer had previously won the election for beer and non-alcoholic beverages in Luxemburg. The champion breweries located at Aka Offot along Nung Udoe Road about 3km from Ibom Plaza, are mainly engaged in the production and distribution of champion beer and champion Malta (soft drink). Consequently, upon the pressure of demand for its products, the company took a decision to double its capacity to one million hectoliters. This third expansion which gulped substantial resources could not be realized. The non-completion of the expansion program coupled with a lack of working capital, and inadequate maintenance of the plants forced the company to close its doors for business between 1990 and 1991. All subsequent reactivation attempts did not yield the desired result.  With the advent of democracy in Nigeria in May 1999, the government of Akwa Ibom State made the reaction of the brewery a cardinal activity.  Consequently, Akwa Ibom investment and industrial promotion council (AKIIPOC) was charged with the responsibility to reactivate the company pursuance to this mandate, AKIIPOC, in conjunction with the board of directors of the company went to the market to solicit for core investor technical managers. In the process, Messrs, Montgomery ventures incorporated of Paroma (with offices in Geneva, Switzerland was identified and brought into the company as core investors/technical managers after a memorandum of understanding was signed.  Based on a memorandum, the reactivation committee was set up by the board of the company to work with the core investors and technical managers for revamping the company. The reactivation process, which commenced in February 2000, lasted about nineteen months. Now the plants have been revamped and restricted to use one hundred percent locally sourced raw material. The brewery is now fully operational and the capacity is 500,000 hectoliters per annum. The reactive brewery was officially commissioned on 23rd October 2001. Champion larger beers are now in the market and doing well, other products of the company including Champ Malta will follow soon. Already the company has successfully held an extraordinary general meeting of the shareholders during which approval was given for authorized share capital of the company to be increased from N26 million to N 45 million. The second phase of the reactivation program has begun already. The aim is to diversify the company’s product and bring the capacity to 1,000,000 hectoliters per annum. Moreover, the company has been able to create employment opportunities for both the people in the locality and Akwa Ibom State at large. The staff strength is three hundred (300) which is made up of administrative, personnel, finance, marketing, and operations.

 

1.3   STATEMENT OF THE PROBLEM

The research attempts to investigate the problem of the role of internal auditors in a business organization such as lack of independence, confidence among others. How the combined effect of these problems hinders organizational progress. The negligence of auditor’s reports by management also constitutes a problem.

 

1.4   SCOPE OF THE STUDY

The study was Concentrated on the structure of auditors’ role in a business organization. The study will also go further to deal with the role of internal auditor’s fraud control, type of auditor, who is an auditor, duties/responsibilities of internal auditors and so on.

 

1.5   PURPOSE/OBJECTIVE OF THE STUDY

The purpose and objective of the study are:-

To know the role of internal auditors in a business organization

To evaluate whether auditors’ role is important in a business organization.

To know the contributions of internal auditors to the progress of an organization.

To identify the possible causes of fraud in champion brewery plc. Uyo of which auditors try to prevent.

To evaluate the procedures of auditing by internal auditors of champion brewery plc. Uyo and finally to know the reason auditors’ role has failed to prevent fraud in champion brewery Plc Uyo.

 

1.6     SIGNIFICANCE OF STUDY

a) It will increase and expand the knowledge of prospective students of accountancy on the role of internal auditors in a business organization.

b) Proffer solution thereby trying to solve the problem arising from the role of internal auditors in a business organization.

c) It will definitely serve as a reference point of criticism for further research.

d) It will suggest and also proffer solutions that will help moderate and regulate the role of internal auditors in a business organization.

 

1.7    RESEARCH HYPOTHESIS

HO: Internal auditors do not play an important role in an organization.

HI: Internal auditors play a very important role in an organization.

HO: internal auditors do not help in keeping the proper and efficient financial records in an organization.

HI: internal auditors do help in keeping a proper and efficient financial record in an organization.

HO:  internal auditors do not help in checking fraud and error in an organization

HI:    internal auditors do help in checking fraud and error in an organization

 

1.8     LIMITATION OF THE STUDY

The lack of time and finances, the unavailability of reliable and authority texts by authorities in the field of auditing were some of the limitations of the study. Again most people are skeptical when it comes to giving out information especially such that are required for research work like this.

 

DEFINITION OF TERMS AND ACRONYM

a) AUDIT: Audit is interpreted to mean an independent examination of an expression of an opinion on those financial statements so examined by external audit regarding a firm’s financial position at a particular period and to ensure that all applicable laws, regulations and policies and comply with Akpakpan 2002.
b) AUDIT REPORT: this is a communicated statement of opinion (judgment) based upon convincing evidence by an independent, word potent and authoritative person concerning the degree of correspondence, in all materials respects of accounting and information communicated by the entity (individual) companies government unit) established (American committee of auditor concept, Okezie 1991)
c) BUSINESS ORGANIZATION: this is a business unit or an enterprise that undergoes business transactions with the aim of making a profit.
d) FRAUD: the crime of deceiving somebody in order to get money or goods illegally, a person who pretends to have qualities, abilities, etc. that they don’t really have in order to deceive others (Advance Learners Oxford Dictionary 6th Edition 472)
e) ERROR: a mistake especially one that causes problems affects the result of something.
f) Accountability: this means keeping proper records of revenue or income and making remittance to the account (Anyanwu, 1997:27).

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