THE PROBLEMS OF AUDITING OF GOVERNMENT ACCOUNTS
A CASE STUDY OF GOVERNMENT HOUSE ENUGU
Accountability is a function of auditing, Auditing contributes immensely in ensuring efficient, effective and economic use of resources available to any legal entity. To substantiate this assertion the researcher chooses Government House Enugu to discuss on auditing as an aid to accountability.
Chapter one dealt with the introduction on auditing as an aid to accountability and the problems that hinders auditing function (accountability). In Chapter two related literatures were reviewed with he view of giving the work proper background. Four research questions and hypothesis guided this study. The researcher used this to survey the opinions and perceptions of staff of Government House Enugu on the roles auditing play and its status on accountability.
Major findings in the survey conducted are:
(a) The management did not allow the internal auditors to do their work because of fraudulent reasons.
(b) Government House accounts are not usually audited by external auditors.
(a) The internal auditors were interested in making personal money than effective checks expected of them.
On this discoveries the researcher made these recommendations:-
(1) Management must sit up to redress these fraudulent practices with severe punishments.
(2) Positive motivation of external auditors.
(3) The internal auditors’ remuneration should be improved.
(4) Management should identify and correct inequalities with keenness to minimize the fraud of spending money without authority.
TABLE OF CONTENTS
1.1 Background To The Study
1.2 Statement of problem
1.3 Purpose of the study
1.4 Significance of the study
1.5 Research questions
1.6 Null hypotheses
1.7 The significance of the study
2.0 Review of related literature
2.1 Accountability of government establishment
2.2 Government accounting standards and concepts
2.3 Auditing and its various types
2.4 Summary of related literature
3.0 Research design and methodology
3.1 Source of data
3.2 Sample used
3.3 Method of investigation
4.0 Data presentation and analysis
4.1 Data presentation and analysis
4.2 Test of hypotheses
5.0 Discussion of results and conclusion
5.1 Discussion of results
1.1 BACKGROUND TO THE STUDY
The word Audit was derived from a Latin word ‘AUDIRE’, meaning to her or ‘AUDITUS’ meaning hearing. In medical period, the steward was responsible for the welfare of his master’s estate. The method by which the master uses in checking the financial statement or the estates under control was to read it over.
At that time, the objectives of audit was probably limited to ascertaining the correctness of the sum of money collected and used. The idea of audit then being to check the accuracy of each entry and each record and to verify the balance of every individual account. Auditing however is an examination of books, accounts and vouchers of a business as will enable the auditor to report whether he is satisfied that the balance sheet is properly drawn up as to give a true and fair view of the state of affairs of the business and that of the profit and loss account for the financial period according to the best of the information and explanation given him and as shown by the books or state in which respect he is not satisfied’. (Auditing Standards Board).
The object being to :
(i) Report on the views presented by the accounts of the clients in accordance with terms of the auditor’s assignments
(ii) Detect frauds and
(iii) Detect errors in the accounts.
Auditing as it is today is an offshoot of stewardship accounting of the olden days. Steward in the dictionary mean a person that manages another persons property. these properties may be land, money, estates and other tangible assets or investments. Accountability places two obligations upon a steward; he must render an account of his dealings with the stewardship resources, and then he must submit to an examination (non as ‘audit’) of that account by or on behalf of the person or body to whom he is accountable. This means that must not only allow the audit to take place, but that he must provide the evidence from which the auditor can verify the accounts rendered. This double duty of stewards including an audit, has a long and continuous history. The need for independent check or control (audit or inspection) … lies … deep in human nature.
Around 15th Century trade and commerce was becoming more significant in Italy.. This gave rise to gradual development of Accounting System (LUCA PACIOLO). Industrial revolution as at the time in Europe and new assisted this development. This evolved into a more perfect system of checking and “audire” (hearing) the accounts. This was an embryonic stage of accountancy and Auditing.
The period of 1884 brought a big change in Accounting and Auditing profession. Ownership of business were demarcated from their management in the stock Act of that year bringing in a new dimension – jperiod preparation of financial statements. Shareholders needed to be satisfied as to the security of their investments. It was instituted in the Act then that “Full and Fair View” of the companies activities have to be communicated to the shareholders annually in the companies balance sheet.
Audit charter was later created in 1888 to cut down on management deceit on shareholders. It became compulsory that financial statements of companies must be examined by independent auditors with sound training on financial matters. This became binding on all limited companies in 1908. The statutes alongside with numerous judicial decision as at these period immensely helped to streamline the procedures, methods and practice of auditing.
Nowadays, majorities of the businesses are operated by limited companies, which are owned by their shareholders and managed by directors appointed by the shareholders. Similarly, the public (tax payers) own central government resources including the national industries, but they are managed by the government and persons appointed by then government and persons appointed by the government according to Millichamp (1990).
Owners who trusted their properties in the hand of those they appointed managers of the properties needed to know what happened eventually to the properties. A notable example St. Matthew’s Gospel (chapter 25) is glaring. On the return of the master, he inquired of his servants about the wealth he gave them to manage on his behalf. He meted some punishment on the unprofitable servant.
Government establishments and some humanitarian organizations are not profit oriented as most business entities. They are more of service oriented. Whichever is the case legal entities are always financed by their owners and those who manage organizations resources have to report to owners annually on what has happened. Government manages the nations affairs for the citizens of the nation. The citizens or tax payers’ money mainly is used to finance government operations and activities. Government through annual reports on financial transactions feeds tax payers back on what they have done with their money. The public accounts committee with the Auditor General serves as the independent examiner of the report. Government ministries and other establishments are further encouraged to establish internal audit units to enable ministerial management to control operations and ensure adequacy and efficiency of internal checks to prevent errors and fraud.
The essence of all accounting and financial reporting as hinted by Nwabueze (1995) is to provide information used to assess management stewardship. The same information is required of government accounting. He further divided the primary objective of public sector accounting is:
(i) Management Control:- The means of provision of information for faithful, efficient, effective and economic administration of operations and of the resources voted for them.
(ii) Accountability:- Furnishing of information required by managers to report on their responsibilities with a view to making public officials report to the public on the result of government operations. It behoves every government establishment to show the public how it is financed, the nature of its operations, objectives and method of achieving such objectives.
Financial reports of government establishments like any other business entity is required to portray a “true and fair view” of their operations and transactions. This view in most cases is in doubt. Millichamp (1990) asked a pertinent question, “… can the owner believe the report”? The report may:
(a) Contain errors
(b) Not disclosed fraud
(c) Be inadvertently misleading
(d) Be deliberately misleading
(e) Fail to disclose relevant information
Management knew that severe cases of misconduct by way of fraud is detrimental to their continued stay in office. They use internal audit department as their eyes and ears in ensuring that their operations conform with laid down rules and procedures. Internal auditors embark on pre-audit checks on transaction. They need to pass a transaction before it is financed and raise audit alarm where the transaction is in dispute. Once audit alarm is raised the transaction is withheld pending Auditor Generals certification to continue the transaction. Timely and regular auditing of transactions even before financial execution is very necessary for accountability. The end result of audit work on the annual financial statements of Government establishments by the Auditor General is the audit report. Once an unqualified audit report is attached to the financial statement the statement is deemed to show a true and fair view of the operations of the establishment.
The seat of government of Enugu State is the Government House Enugu and is usually where the office of the Executive Governor of the state is situated. Presently, the Executive Governor is a civilian administrator who is elected by popular mandate and political authority is exercised under a presidential system of government. The Government house also accommodates the mandatory key officers who are civil servant and also politically appointed personal staff. The key officers include, The Chief Press Secretary to the State Government, ADC, Chief Security Officer, Personal Assistant, Chief of Staff, Chief Admin. Officer, Co-ordinator Economy Development, Personal Assistant to the State Governor, Director Personnel Management, Chief of Protocol, Head of Department Finance and Supplies. The tenure of politically appointed officers expires at the end of the tenure of the administration that appointed them.
Government House does not embark on specific government projects like building and maintenance of electricity, digging of pipe-borne water and electricity projects, but it is indirectly involved in every activity that goes on in the state. The more direct involvement is from the department and sections under Government House. It is the centre where the executive governor of the state before such activities, approves major ministries activities, projects or transactions are legally carried out. Documentation of policy matters on the administration of the state is also made here. the administrator as the head of the state represents the state throughout the federation in relevant meetings, conferences and occasions. These movements go with huge amount of expenditure.
Government House has a single source for the funding of these activities. The single source is budgetary allocation that is monthly released through issue of warrants by the Ministry of Finance via their budget department. The executive governor in the fiscal year’s approved budget must first approve the warrant. The administration of these activities entails a lot of expenditure and commitments of the scarce resources in huge sums. This is why the internal audit department was established to conduct a pre-examination of any government transaction while the Auditor-General of the State conducts post examinations. Whether it is the internal auditor or the Auditor-General examining government transactions, the purpose is the same, to ensure compliance to laid down procedures for incurring costs. Auditing in government house need to be timely and making good use of audit alarm.
1.2 STATEMENT OF PROBLEM
The problem associated with uncommitted accountability has become our problem in Enugu State. These are anomalies encountered in accountability and auditing that this work intends to address. These problems include
(i) The internal auditors were not allowed to do their work by the management for fraudulent reasons.
(ii) External auditors who would have discharged the duty diligently did not usually audit government house accounts.
(iii) The internal auditors were interested to make personal money from the staff the were auditing than the effective checks expected of them
(iv) Money spent in the government house were without any instrument or authority,
(v) Proper records on resources generation and allocation were not kept as a result no meaningful developments were recorded because resources were being wasted.
1.3 PURPOSE OF THE STUDY
The overall objective of auditing is to assist all members of management in the effective discharge of their responsibilities by furnishing them with objectives, analysis, appraisals, recommendations and pertinent comments concerning the activities reviewed
The aims of this study are:
(1) To identify the major causes of persistent fraudulent practices in Government House Enugu.
(2) To examining the roles of external auditors in the audit of government house accounts.
(3) To find out why the internal auditors are still interested to make their own money at the detriment of internal and effective checks expected of them.
(4) To identify the reasons why money were spent without instrument or authority
(5) To make recommendations on proper records of the resources based on the findings of the study so as to eliminate wasting of resources.
1.4 SCOPE OF THE STUDY
The scope of this study on Auditing as an Aid to Accountability in establishment is limited to Government House Enugu. The study will primarily direct its attention on factors that militate against accountability, role of auditors as regards internal checks and controls. And it will attempt to give recommendations for further studies.
1.5 RESEARCH QUESTIONS
The following are relevant questions to this study:
(1) What factors cause fraudulent practices in Government House Enugu?
(2) What vital roles do external auditors play in promoting accountability in government entities?
(3) Why were the internal auditors interested in making money at the expense of effective checks expected of them?
(4) What were the reasons why money spent were without instrument or authority?
(5) In what ways are government resources being wasted daily in various departments?
1.6 NULL HYPOTHESIS (Ho)
The key assumptions guiding this study are as follows:
Ho1 There will be no significant difference pi (0.05) between the Finance and Supplies department and personnel Management department on Accountability has been seriously impaired by the fraudulent practices in government establishments.
Ho2 There will be no significant difference pi (0.05) between the Finance and Supplies department and Personnel Management department on Accountability has no credibility without auditing.
Ho3 There will be no significant difference pi (0.05) between the Finance and Supplies department and Personnel Management department on Auditors fetch money at the expense of their jobs.
Ho4 There will be no significant difference pi (0.05) between the Finance and Supplies department and Personnel Management department on public fund are spent without financial instrument or authority
Ho5 There will be no significant difference pi (0.05) between the Finance and Supplies department and Personnel Management department on Non compliance with auditors recommendations results in daily wasting of government resources.
1.7 THE SIGNIFICANCE OF THE STUDY
This study will carefully examine how and why accountability especially in the public sector has become a mere word. This is the bane of the public in general and government in particular.
This work there fore will be of significant benefit to anybody that values accountability not only in public sector but as well in the private sector. Managers, Chief Executives, Directors General and all Heads of different government establishment will see in this work challenges facing them if they really want to ensure accountability in their various establishments.
It is needed by students of Accountancy in higher institutions who may one day gain employment in any public office. This prepares them for real assignment in government offices.
Teachers and lecturers will value this work also. At times what is taught in lecture rooms differ from the obvious situation in the field. What Nigerian economy needed today is an applied study in all disciplines.
Finally, all the three tiers of government will see in this work where auditors needed their inevitable assistance to dig new grounds in auditing and safely carry out their duties to achieve desired results which is accountability in real sense of the word, the type that endure. This work is therefore good for any progressive society at large.
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