THE ROLE OF AUDITORS IN FRAUD DETECTION AND PREVENTION IN RIVERS STATE
1.1 background of the study
As the world globalises, and people venture in various business. Whenever owners of funds provide capital for an enterprise there is a need for accounts. If only one person contribute to the project, then he can himself scrutinize the accounts to gain assurance that they are reasonable, he can perform his own audit assuming that he has sufficient skill and experience (Baridam 1995:1-4). But as soon as a group of people come together to form a joint project, it is no longer feasible for each of them to check and validate the accounts. And in order that no individual entrepreneur should be accused or having advantage over the others, it is reasonable to appoint a personality independent of both the providers and the users of the capital.
The primary aim of an audit is to enable the auditor to say, “The accounts show a true and fair view” or of course say that they do not. That is, to produce a report of his opinion of the truth and fairness of financial statements so any person reading and using such information can have belief in them. (Baridam 1995:191-192).
The information of an opinion by the Auditor is important because such public report presented may
- Contain errors;
- Not disclose fraud;
- Be deliberately misleading;
- Be inadvertently misleading; and
- Fail to disclose relevant information.
Obviously, it is not the auditor’s duty or purpose of work to detect fraud, errors and other irregularities in the clients’ records. The responsibility of detection and prevention of fraud lies with the management of the organization. The auditor in the course of his audit is expected to discover any material fraud or error. This is due to a material fraud or error which will hardly make a financial statements give a true and fair view.
It is the duty of the auditor to evaluate the internal control system in his tests. Those items that are special or unusual in nature should be vouched. If the fraud has been committed by an employer, a confidential report should be made to management (Emile, 1997:1-2).
Statement of the problem
The preparation and presentation of schedules, report or accounts are of great importance to every stakeholder, but the availability of such public report in local government system is difficult. Every head of this unit (Khana local government council) of the government is prone to incidence of forgery, embezzlement, misappropriation, misstatement, lack of sense of responsibility among others, and therefore place only those people that will yield to their desire in the auditing section. It is also worthy to mention some of the items that cannot be audited. Example is the amount voted and spent on security in the area. The result of it is an ineffective and inefficient auditing section because it is not run by the qualified and experienced personnel. It is envisaged that the findings will be useful in addressing;
- How to institute an effective auditing section in Khana local government system;
- Why there should be periodic external examination of the council’s financial statements among others. If the above is carefully put in place, it will be easier for the auditor to detect and prevent fraud.
1.3 The objective of the study
The most important reason for this research project is to ascertain how the auditor can be used to prevent and detect fraud in local government system using Khana local government as a case study.
(1) He can be used to detect and prevent fraud if he is employed to control the internal control.
(2) He should be visiting the council quarterly to ascertain the level of performance.
(3) He should assign and segregate the duties of the staffs so as to get the work of one person checked by the others and also leave should be granted to them.
1.4 Research Questions
Research questions normally asked during the research project for answers in the form of hypothesis.
- How can fraud be detected and prevented in a local government system?
- How can effective internal control system be administered to prevent and detect fraud in a local government administration?
- To what extent can preventive, detective and corrective control model be useful for fraud detection and prevention in the system?
- Does clear-cut segregation of duties in the system be used for fraud detection and prevention?
- To what extent are there qualified internal audit personnel in the local government system?
- How can fraud be detected and prevented using an independent auditor in the local government system?
1.5 Research Hypothesis
These hypotheses are to be tested in the course of this project work for a decision rule to be concluded thus;
- H0: Fraud cannot be prevented and detected in a local government system.
H1: Fraud can be detected and prevented in a local government system.
- H0: Effective internal control cannot be used by an auditor to prevent and detect fraud.
H1: Effective internal control can be used to detect and prevent fraud in the system.
- H0: Preventive, detective and corrective (PDC) control model cannot be used to prevent and detect fraud in the system.
H1: Preventive, detective and corrective (PDC) control model can be used in the system to detect and prevent fraud.
- H0: Clear-cut segregation of duties cannot be a measure for fraud prevention and detection.
H1: Clear-cut segregation of duties can be a measure for fraud prevention and detection.
1.6 Significance of the Study
The usefulness of these findings will not be limited to only writers but also to accountants and other heads of the council that is yet to come. The information generated and provided in this project work shall immensely educate and enlighten the workers of the local government system (Khalga; Rivers State) of the need for proper accountability, thereby checking the existence and occurrence of fraud.
1.7 The limitations and delimitations of the study
First, the limitations of the study are numerous in the Nigerian economy. They are thus:
- The most affecting factor responsible for the carrying out of this project smoothly is the needed fund required for the acquisition of the necessary information. There is lack of fund.
- Secondly, a major limitation to access of official documents is another critical factor.
- Thirdly, lack of time on my side to carry out the detailed investigation is another constraint. More so, the unavailability of materials in the related areas of study also is another impediment, which affects my expansion.
Below are the de-limitations of the study.
In the smooth course of this study, it is necessary that there should be the availability of these constraints mentioned so this research project is carried out. For example,
- The availability of the funds.
- There should be the availability and access to the needed official document needed for the research project.
- The explanation of time factor in implementing this research work and lastly, there should be the availability of needed materials, conducive environment and necessary facilities, which empowers the necessity of this project, work.
- 1.8 Research Methodology
The information requirement of this research work is mostly that of personal contact.
Thus, questionnaires are distributed to workers at various levels in the council and personal interviews will also be conducted for more detailed analysis.
Past records will constitute great part of our secondary data. That is, that which is relevant to our study.
- 1.9 Definition of Terms
Certain simplified definition need to be apportioned to some terms/concepts used for easy comprehension by a layman trying to have access to this project. They are listed and defined thus:
- FRAUD: This entails the use of deception to obtain an unjust or illegal financial advantage. It is an intentional misstatement in, or omission of amount, or disclosing from, an entity’s accounting records or financial statements.
- ERRORS: It can be described as unintentional mistakes. Errors can occur at any state in business transaction. Processing transaction occurrence, documentation, and records of prime entry. Error can be any of a multitude of ways mathematically or clerical, or in the application of accounting principles.
- IRREGULARITIES: It simply means that proper accounting records have not been kept. It may exist which prevents the financial statements from showing a true and fair view and comply with companies act requirement.
- INTERNAL CONTROL: Internal controls are designed in part to prevent and detect errors and irregularities. It is the whole system of controls; financial and otherwise, established by the management in order to carry out an organization orderly and efficiently, ensure adherence to management policies, safeguard the assets and secure as far as possible the completeness and accuracy of the records.
- INTERNAL AUDIT: Internal auditing is defined similarly as an independent appraisal activity within the organization for the review of operation as a service to management. It is a management control, which functions by measuring and evaluating the effectiveness of other controls.
- STATUTORY AUDIT: It is an audit conducted because it is mandatory by law and the term of reference and scope of work is as directed by law.
- FINANCIAL STATEMENT: This is the end product of accounting processing. Accountants during the year, collects data analyse and interpret and present the results in a summary at the end of the year for the users, which includes the shareholders, the creditors, investors and the government as well, etc.
- AUDITOR: Ordinarily it means a person who is saddled with the responsibility of examining the records and accounts of an organization or association in such a detail as could enable him to form an opinion as to true and fairness, of the financial system.