ABSTRACT
The aim of this study was to ascertain the role of internal
auditing in organizational effectiveness focusing on Diamond Bank. The specific
objectives are; to determine the role of internal auditing in promoting
organizational performance of Diamond Bank, to examine the effect of internal
auditing in the internal control systems of Diamond Bank,to ascertain the
effect of auditors’ independence on the efficiency of internal auditors and to determine
the effectiveness of internal auditing in controlling fraud in Diamond Bank.
The study used simple survey. The population of study was management and staff
of Diamond Bank Plc with a total population of 79 staff while the simple size
was 72. Table and percentage were used for analysis while the hypotheses were
tested with chi square. The study found that internal auditing improves the
credibility of banks, internal auditing has aided in managerial decision making
in Diamond Bank and internal auditing has improved the profitability of Diamond
Bank. The study recommends that banks should endeavour to keep to professional
codes of conduct and ethical considerations as it enhances the activities of
internal auditor and in so doing eliminate cases of fraud in the banking
sector. Further, there should be audit education among the stakeholders of
diverse organizations.
CHAPTER ONE
INTRODUCTION
Background to the Study
At the heart of business establishment, is the audit
function; which is evidenced by the fact that all other departments are linked
with the internal audit department. The importance of internal audit system
cannot be overemphasized where a variety of requirements, processes that are
both manual and information communication technology-based (ICT) are used.
Organizations such as the banking sector have recognized
internal audit function as a tool for ensuring effective workings of the
internal control system. Okolo (2011) describes the internal audit function as
an aspect of control mechanism, within a business, manned by specially assigned
staff.
In today’s volatile business environment, firms in Nigeria
face a wide array of complex business challenges. These challenges come in the
form of regulatory compliance, litigation, competitive market pressure,
changing technology, investors demand, corporate governance, business ethics
and accountability. In a business environment, anyone given the opportunity and
the environment can commit fraud. The internal audit staff, in a non-automated
or particular environment, may be ill-positioned to investigate fraud. It is
established that an internal audit staff who is professionally certificated
with the right motivation and training can contribute to the efficiency and
effectiveness of the audit department.
Oseni (2014) reveals that an effective internal audit
function reduces overheads, identify ways to improve efficiency and minimize
exposure to possible losses. According to Lavy (2008), the internal audit
provides an independent and objective appraisal of activity for management.
Katz (2012) summarizes the core activities of the internal audit asanalysis of
data, recommendation,counsel and information activities. He argues that these
activities operate to accomplish the mission of organizations. Young (2010)
finds out that the internal audit functions assist management in achieving
organization’s financial and operating goals by evaluating controls,
identifying weaknesses, and providing recommendations through complete and
unrestricted access to records, property and personnel.
However, in Nigeria, the audit function in the banking
sector has not been fully tapped; consequently, cases of errors and intent to
defraud and other fraud cases exist in the industry. It is therefore no wonder
that the distress in most banks reflected lack of effective control mechanism
of the audit function. The experiences of failed banks in Nigeria, have called
for the reinforcement of internal audit and the strengthening of the controls
system. This becomes relevant, given the fact that the banking sector is
critical to the survival of any economy. In the light of the above, this study
critically appraises the role of internal audit in the management of fraud.
1.2 Statement of
the Problem
The duty of detecting fraud and irregularities lies with the
management. This could only be done through an effective and efficient internal
audit system. But even with the presence of the internal auditor some problems
are still inherent in the Nigerian banking sector that interferes with goal
attainment. These include:
Physical cash stolen while signatures are forged in cheques
also to steal cash. Out if untimely or inappropriate audit, there are cases of
monetary losses due to forged cheques.
Assets are either misappropriated or not accounted for. Due
to ineffectiveness of internal auditors cases of assets misappropriation
sometimes occur in the banking sector.
Frauds perpetuated are only being discovered after a long
time. Internal auditors can decide not to reveal the fraudulent activities of
staff or management. Such actions are mostly discovered by external auditors
after a long while.
Due to the above enumerated problems, there have been cases
of errors and intent to defraud and other fraud cases which exist in the
banking sector. This has been mainly as a result of lack of effective control
mechanism of the audit function.
1.3 Objectives of
the Study
The broad objective of this study is to appraise the role of
internal audit in the management of fraud with special emphasis to Zenith Bank
Plc.
The specific objectives include the following:
To examine the role of internal audit in the detection of
fraud in Zenith Bank Plc.
To examine the role of internal audit in the prevention of
fraud in Zenith Bank Plc.
To examine the role of internal audit in control of fraud in
Zenith Bank Plc.
Research Questions
The following questions are stated for this study:
To what extent does internal audit aid in the detection of
fraud in Zenith Bank Plc?
To what extent does internal audit aid in the prevention of
fraud in Zenith Bank Plc?
What is the role of internal audit in thecontrol of fraud in
Zenith Bank Plc?
Research Hypotheses
The following hypotheses are formulated for the study:
HOI: Internal audit
has no significant role in the detection of fraud in Zenith Bank Plc.
HAI: Internal audit
has significant role in the detection of fraud in Zenith Bank Plc.
HO2: Internal audit
has no significant role in the prevention of fraud in Zenith Bank Plc.
HA2: Internal audit
has significant role in the prevention of fraud in Zenith Bank Plc.
HO3: Internal audit
has no significant role in the investigation of fraud in Zenith Bank Plc.
HA3: Internal audit
has significant role in the control of fraud in Zenith Bank Plc.
Significance of the Study
The findings of this work will be of immense significance to
the banking sector in Nigeria. It will go a long way in enlightening them on
the concept of internal audit as well as its role in the management of fraud.
It will also benefit other organizations. The findings from
this study will aid them to apply better internal auditing strategies or
effective control mechanisms in checking fraud in their diverse organizations.
It will as well benefit the general populace. They will be
enlightened on the concept of internal auditing as well as its roles.
Students and researchers will as well benefit from this
study. They will widen their scope from the information contained in this
study.
Scope of the Study
Internal audit covers a large area in every organization.
However, this study will concentrate only on the aspect that concerns fraud
detection, fraud prevention and fraud control. Other aspects of internal
control will be considered in this study.
Definition of Terms
Auditing:Auditing is a branch of accounting concerned with
the efficient use of resources to achieve a previously determined objective or
set of objectives contained in a plan (Obazee, 2012).
Internal Audit:Internal auditing is the whole system of
auditing, financial and otherwise, intended to secure management information
and reliability of accounting records (Gbenga, 2011).
Bank Fraud:Bank fraud is defined as the use of fraudulent
means to obtain money, assets, or other property owned or held by a financial
institution, or to obtain money from depositors by fraudulently representing to
be a bank or financial institution (Daniel, 2012).
Internal Control System: This is defined as the whole system
of control, financial and otherwise established by management in order to carry
on the business of the enterprises in an orderly and efficient manner (Beattie,
2006).
Bank:A bank is a financial intermediary that accepts
deposits and channels those deposits into lending activities, either directly
by loaning or indirectly through capital markets (Doolan, 2009).