ROLE OF AUDITORS IN CONTROLLING FRAUD IN GOVERNMENT OWNED ESTABLISHMENTS

By

NWANGWU CHINEDU .W.

Presented To

Department of Accountancy

TABLE OF CONTENTS

COVER PAGE I

TITLE PAGE II

APPROVAL PAGE III

DEDICATION IV

ACKNOWLEDGEMENT V

TABLE OF CONTENT VII

CHAPTER ONE: INTRODUCTION

1.1 Background of the study 1

1.2 Statement of the problem 4

1.3 Objective of the study 5

1.4 Significance of the study 6

1.5 Scope and limitation 7

CHAPTER TWO: LITERATURE REVIEW

2.1 Origin of auditing 10

2.2 Auditing in Nigeria 12

2.3 Independence of auditors 16

2.4 Classification of audit 17

2.5 Who is an auditor 21

2.6 Qualities of an auditor 23

2.7 Duties of an auditor 24

2.8 Rights of an auditor 26

2.9 Auditors report 28

2.10 Fraud, error and irregularities defined 30

2.11 Audit approach 31

2.12 Prevention of fraud 33

2.13 Relationship between external and

internal auditors 34

CHAPTER THREE

3.1 Summary of findings 36

3.2 Conclusion 38

3.3 Recommendation 39

BIBLIOGRAPHY 41

CHAPTER ONE

INTRODUCTION

1.1 THE BACKGROUND OF STUDY

It has been said that in the role of every financial account was to give account of stewardship to the owner of business who were divorced from management of the business.

Also there is always the tendency for the owner to doubt the content of the report presented to him. The fear is that the report may contain errors, conceal fraud and deliberately misleading or lack in the information content.

In other to solve this problem of credibility in report and account, there is always the need to appoint an independent person to investigate the report on his findings. Therefore, auditing can be defined as the independent examination of the book and account of individual, organization etc. With a view to confirming or refusing the assertion in the report. It is because of this purpose that the professional bodies such (ICAN), companies and Allied Matters Decree 1990, stipulates the mode of appointment of Auditors all to ensure a true and fair view of their report of financial matters.

However, every organization sets up accounting techniques and procedure that will suit its purpose with an eye to establish accounting principles and guidelines.

This is a manufacturing industry introduces such accounting techniques that will take care of every stages of processes of manufacturing of such unit of its product, likewise a contracting from introduce such accounting state.

Professional audits like accounting firm, medical clinics, legal partitions etc run their audit using such accounting techniques as would adequately lake care of money received and expenses paid.

To ensure that the financial statement portray true and fair view, the auditor will require whether the company is well run. In particular whether:

- The directors may be negligent.

- They may exercise bad judgment

The directors may be incompetent and whether Board of directors are competent energetic men, tend to appoint as colleagues people who are also competent and energetic whole board of mediocre tend to perfect colleagues who are also mediocre.

The aim of the management audit is therefore to inquire into and report on how well he company has followed the wishes of its members and carried them out completely. It is quite surprising that irrespective of all the stipulated role of the statutory auditors in controlling fraud in government establishment, yet mis-appropriation of fraud by all kinds seem to be establishment, to the extent that some of the establishment one put into bankrupt.

The auditor however has other secondary roles which will be discussed in the review but the main aim of this project is to verify, enlighten and analysis expressly the role of auditors and recognize the possibilities of materials misstatement or irregularities or fraud which state of affairs shown by the financial statement. The auditor should also see that errors could distort the trueness and fairness of the final account are not committed. Therefore, a statutory auditor is said to be a watchdog and not a blood hound.

Finally, the basic lies on the management who may often obtain reasonable assurance that the duties will be discharged by establishing an adequate system of internal control.

1.2 STATEMENT OF PROBLEM

The issue of the outside world regarding auditors as fraud detectors has to be corrected. The auditor is only expected to express opinion on the true and fair view of the financial statement and not to detect fraud unless specified on the letter of engagement.

He owes the management and shareholders a duty to report to them wherever he discover any fraud in the course of his normal audit.

1.3 OBJCTIVE OF THE STUDY

The objectives of this study are stated as follows:

1. Establishing systems of internal control monitoring effectiveness and taking corrective action

2. Establishing internal auditor function

3. Having Audit committee

4. Developing a code of conduct, monitoring compliance and taking action against breaches.

5. setting up a compliance function, that is a separate department of the enterprise especially charged with ensuring compliance with rule and regulation of all sorts.

6. Audit test.

1.4 SIGNIFICANCE OFSTUDY

This significance of the study is that it will x - ray the internet disabilities and limitation of auditing in government owned establishment.

The research work could also be beneficial in respect to the following categories:

i. As to the academic society

ii. As to the auditors

iii. As to the society at large.

This significance to academic society will be to broaden the knowledge of student of accountancy of the competency of accountability and the extent of versatility of auditors as regard to auditing of financial statement. It will also enlighten and encourage accounting students to take the study more serious and which their knowledge on the extent to which the impact of auditor are felt and their role. It will also help them to appreciate the course to the end.

To the auditors, it will enable them to know the limit which they will be liable in the cause of a fraud being perpetuated and will also enable them to implement their professional code of conduct instituted by the institute of Chartered Accountants of Nigeria 1968so it will attempt to define the roles and competence of the auditors in their audit work and professionalism in respect of the fraud detention and irregularities.

To the society at large, this significance is to expose to the public, how important auditors are to the society, their integrity and the ability of the auditors to give professional advice.

1.5 SCOPE AND LIMITATION

The scope of the study embraces:

- The definition of fraud

- Responsibility for the prevention and detection of fraud

- Ways of ensuring prevention and detection of fraud and errors.

- Action to be taken on discovery by an auditor portential fraud.

- Various types of fraud that may be discovered.

- Fraud auditing

- Causes of frauds

- Bank fraud

- Measures for controlling frauds in Banks.

The limitation of the study shall focus on the effective or the internal control.

Usually internal controls are very important features of any commercial enterprise that is run efficiently and effectively. However, for every coin, there must be two sides. It is necessary to acknowledge that internal controls have inherent limitation which include:

i. Internal controls tend to be channeled at routine transactions.

ii. Likely human error caused by stress of work load alcohol, careless, distraction, mistake of judgment, and the misunderstanding of interaction.

iii. A requirement that the cost of internal control is not disproportionate to the potential loss which may result from its obsence.

iv. The possibility of circumvention of controls either alone or through collusion with parties outside or inside the enterprises.

v. Abuse of responsibility etc.