THE ESSENCE OF EFFECTIVE AUDITING IN COMMUNITY BANKS

(A CASE STUDY OF OBOLLO COMMUNITY BANK NIGERIA LIMITED)

By

IDIKA MARGARET EKE

Presented To

Department of Accountancy

PROPOSAL

Auditing could be seen as an indispensable tool in the management of any business venture or organization. The management of business and organization, provided systems of checks and counter chocks. The users of financial statements i.e. (Bankers, Customers, Shareholders, public government and creditors) repose their unflinching confidence and high credibility on who will show them the true picture of companies profitability and liquidity they are investing their funds. Effective auditing and investigation of any establishment provides means of appraising a company's performance at any given period. It will as well bring to light the company's weakness in terms of adequate internal control.

This research is intended to highlight the effectiveness of Auditing in banking sector and other sectors of the economy. This research will also conduct indebt study on how and why a service oriented bank like Obollo community bank Nigeria limited sees auditing as inevitable tools for managements effective operation.

Also attempts will be made in this work to show why some banks built without adequate checks and controls in their operations and policy objectives are swept into a state of oblivion.

TABLE OF CONTENTS

TITLE PAGE II

APPROVAL PAGE III

DEDICATION IV

ACKNOWLEDGEMENT V

PROPOSAL VI

TABLE OF CONTENTS VIII

CHAPTER ONE

1.0 Introduction 1

1.1 Background of the study 3

1.2 Functions and objective of community bank 5

1.3 Statement of the problem 6

1.4 Objectives of the study 8

1.5 Significance of the study 10

1.6 Research questions 11

1.7 Hypothesis formulation 12

1.8 Scope and limitations of the study 12

References 15

CHAPTER TWO

2.0 Review of the literature 16

2.1 Internal audit 16

2.2 The compliance audit and efficiency audit 19

2.3 The system of approach to audit 32

2.4 The objective of auditing 35

2.5 Appointment of auditors 47

References 49

CHAPTER THREE

3.0 Research design and methodology 50

3.1 Sources of data 50

3.2 Procedure used 51

3.3 Research questions 52

3.4 Population of study 53

3.5 Sample used 53

3.6 Data collection instruments 55

3.7 Method of instruments 56

3.8 Data analysis technique 57

CHAPTER FOUR

4.0 Data presentation and analysis 58

4.1 Presentation of data 58

CHAPTER FIVE

5.0 Finding recommendations and conclusions 71

5.1 Findings 71

5.2 Recommendations 73

5.3 Conclusion 76

Bibliography 80

Questionnaire 82

CHAPTER ONE

10 INTRODUCTION

the question of how to increase the efficiency and positive result in audit work in the bank is perennial problem in Nigeria and one that is increasingly bother some to the generality of the people of this country

The response has been to up grade the quality of audit staff and increasing the powers conferred on the audit institutions in the banks The need for training of audit staff in modern techniques of auditing which is more effective and result - oriented rather than restricting themselves to the traditional methods "tricks and turnover" which recent development have proved inadequate have been stressed

The specific objectives of auditing in the banks are to ensure the proper and efficient use of public funds the development of sand financial management, the orderly executive of administrative activities and the communication of information to the public authorities and the publication of objectives reports Since these are necessary for the stability and the development of the nation, there is need for making the machinery's and the method of carrying out these functions effectively so as to produce the desired results

According to Stelter (1977:24) in the past the emphasis of an audit was in the traditional methods of auditing which has been mainly compliance audit seeming that all books and records comply with the laid dawn procedures and regulations but not there is the need for shift of emphasis to the modern concepts of effectiveness and efficiency It is essential however, to take a look into these two concepts Compliance and efficiency, and determine whether to sacrifice compliance totally for efficiency as to modify it and in what precise way, may then criterion of efficiency be pursued

In other words, what administration legal or constitutional adjustments are necessary only to effect the desired change and to what extent may the change be brought about if there is not going to be any adjustment in the constitution, laws or administrative regulation

11 background of study

Early practices of Auditing as discovered by Archaeologists stated some 3000 BC ago The Egyptians and Persians used tiny dots aides or sometimes ticking to indicate figures that have been checked against another Furthermore, the Greeks and Romans were highly interested in public finances In doing this, the Greeks, who were always suspicious preferred to use slaves as Auditors rather than freeman

They did this believing that the salves were more trustworthy since they were continuously placed under torture Nonetheless, it was argued that in some quarters the freeman who undertook to carry out the job under oath may sometimes be influenced by powerful men in the society

However, the true principles of auditing as practiced today was first done by Williams of Normandy when they conquered England in 1066 no

He therefore, took England as his personal property which he retained under his direct control At other times he leased their properties to his servants who return rendered services to him

As time progressed, he wanted to know the worth of his kingdom He carried out one of the most comprehensive audits in history This he referred to as some stay survey

This involved the recording of every land holding in England The authority by which the tenant held it and what the land was capable of producing This principles of checks and controls finally gave rise to the modern day auditing

Obollo community bank Ltd was incorporated in 1995 and started operated that year The bank is owned by about three hundred share holders

Community bank which is a form of specialized unit banking was introduced in Nigeria in 1990 National Budget to periodic grassroots financial services to any defined local community whether in the urban and rural areas The bank extended credit facilities to individuals, societies, corporation, industrialists, etc

The bank organized mass transit programme particularly Obollo community mass transit programme where some individuals will benefit from the programme It was through this programme that some of them can now boast of making a living

12 FUNCTIONS AND OBJECTIVES OF COMMUNITY BANK

Community Banking which is a form of specialized unit banking was introduced in the 1990 National Budget to provide grass roots financial services to any defined local community whether in the urban or rural areas

The objectives includes the following:-

1 The facilitation of productive activities in response to the identified needs of the community especially in the rural areas

2 The promotion of a national financial services that will integrate all actors at the financial needs of the local community, the guiding principles are self help and community participation

3 The provision of financial services to the communities lacking them, which imply the social banking habit and bridging the credit gap of its communities

4 The promotion of sense of ability and capability to own and manage a financial institution at the grass roots level;

5 The provision of owner for the development of leadership qualities for the management of their own enterprises

13 STATEMENT OF THE PROBLEM

There is a wide misconception in auditors all over the world their work is often misconstrued as fault finding and detective some see them as prospectors and judges and people to be avoided But in other words the auditor's job to result on the financial statement prepared by managers and directors of an organization, whether it shows true and fair view He detects errors and ensures that proper treatment is given to it He is neither a prosecutor nor a judge He audits the financial statements and reports its correctiveness and fairness to the users (public) Since the last eight years the ever-sick national economy has been with distress syndrome in the banking industry this effect eroded the public confidence in banks as custodian of fund Many financial institutions had gone into oblivion and many others feared sick

This research work is designed to highlight the essence of effective Auditing in community Banks There is glaring evidence that Banks do not institute effective Auditing to bring out the fraud that they perpetrate This work tends to portray the need of effective Auditing in Community Banks

14 OBJECTIVES OF THE STUDY

The objectives of the study includes the following:

1 To give critical appraisal of auditors work in a going concern

2 To disprove the erroneous view that auditors are fault finders and judges

3 To bring to bare why auditors are duties are likened to that of dedicated watchdog who barks loudly at the sight of a stranger in its master's place of abode

This barking is of two purpose:

i To awaken and inform the master of a strangers presence

ii To alert the stranger of any possible attack or - reprisal from the house owner Both the house owner and the stranger/visitor should keep to the dogs warning - books An auditor is a watchdog and not a blood hound/fault finder

4 To show the extent to which lack of auditors in an organization can cause untold havoc to the organization

5 To emphasize the need for proper investigation and auditing in any establishment

6 To determine the importance of auditors independence and indispensable nature of his job in a financial institution in a particular area and all other business outfit in general It is pertinent to state dearly here that auditors, as fax as this research work is concerned, means the external auditor who is hired to audit except where otherwise stated But internal auditors is taken as an employee of the Bank and equal with others, he is a staff of the bank on establishment, and does not always employ the type of absolute independence enjoyed by his external counterpart

7 It intends to be of assistance to all internal auditors in carrying out their duties effectively

15 SIGNIFICANCE OF THE STUDY

This work reviews the essence of effective auditing in community banks, with a view to highlighting the indispensable position of an auditor's work in an enviable industry like bank This piece of work will be of immense help to other establishment and organization both in public and private sector The need to install a viable internal audit check as a means of internal control should not be over - emphasized

The prospective investors, promoters, shareholders would find this study very useful It will serve as an eye opener to item on what it takes to invest in banks This will also help researchers and those who may wish to make reference to the topic of study may be while undertaking a similar research work

Government, agencies can install adequate internal control measures to avert the incessant colossal frauds and embezzlement rampant in ministries and parastatals today For prospective auditors and accountants it is a material of readings They should be able to understand what auditing is, where to audit, how and why auditing and investigation are inevitable in the business world

16 RESEARCH QUESTIONS

a To what extent do you partake in decisions that affect yours bank and your career?

b Is it possible for one staff to prepare and pay vouchers in a bank?

c How regular have the external auditors visited your bank to audit?

d Has there been any case of fraud or misappropriation of banks fund and property?

e What type of result does your bank obtain usually after carrying out audit work?

f Does the internal audit department issue reports to the management?

g To whom does the internal audit department report to in your banks?

h How regular is cash count and stock takings done by the internal auditors?

17 HYPOTHESIS FORMULATION

HO: Management of Community Banks do not use Audit report for effective decision making

HI: Management do us Audit report for effective decision making

18 SCOPE AND LIMITATION OF THE STUDY

The purpose of this research work is focused on effective auditing and investigation in community banks using Obollo community bank Nigeria limited as a case study This study should have been carried out in the entire banking industries in Nigeria, but carrying out research work of this type on a wider scope to embrace all banks would have been hampered by lack of time, financial constraint, distance covered in order to gather relevant data, and the inevitable risk to be taken trotting round the country in search of data/information

This work reviews the effectiveness of auditing in community banks It with a view of determining the problems of collecting the relevant data, summarizing, analyzing and hence making recommendation However because of time constraint and etc It should not suggest that a good work is not done Many administrative problems are encountered in carrying out research assignment

Frequently, co-operation should be sought, obtained and maintained from individuals employees and managers who might prejudice the exercise as interfering with normal work Community banks basically offer similar services to its customer and the society at large, hence they are confronted with similar problems generally

It would have been tantamount to writing on all banking institutions, commercial, central, Investment, Agricultural, community industrial or development banks And this would have resulted in a very copious and irrelevant research work

Consequently, the scope is limited to the topic of study and much efforts were made to give this study an indebt treatment Volume of questionnaire was specifically reduced to manageable level to make it easier for respondents to sell This reduction was equally made to facilitate data analysis

REFERENCES

Millichamp AH: (1984) Auditing: An Instructional manual for

accounting studies Homphire DP publications

Normanton EL (1966) The Accountability and Audit of

Government Manchester university press and New York, Fredrick a prayer incorporation

Osamwonyi IO (1993) Journal of the chartered institute of

Bankers of Nigeria

Steilter HF (1977) Auditing principles and practice Hallinco

New Jersy 4^th Ed

STATEMENT OF BASIC

AUDITING CONCEPT (1973) Studies in Accounting research

Stiatosoto: American accounting association No 6