THE IMPACT OF INTERNAL AUDIT ACTIVITIES ON THE
PERFORMANCE OF BANKS IN NIGERIA.
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
In view of the recent global recession of 2009-10, when investments
made by banks and financial institutions proved unsafe and almost
triggered a financial meltdown that required strong input and
investment
by
most
democratic
governments,
the
need
for
internationally regulated and well-audited financial institutions are
greater than ever. Therefore financial institutions have started to
concentrate on rigorous internal audit processes undertaken by an
internal audit team that conducts regular control self assessments.
According to Obazee, (2009), internal audit can be define as an
independent
activity
objectively,
confirmatory,
and
consultant
determined to add value and improve the organization’s operations and
by helping them to achieve their objectives through a systematic and
disciplined method to evaluate and improve the effectiveness of risk
management and control processes and governance.
The financial institutions accountant has the responsibility of
developing systematic arrangements to assist management in the
performance of the services of the institution while the financial
institution auditor has among other duties the complementally role to
examine whether management actually performs that efficiently. The
financial institutions auditor has to satisfy himself that the presented
have been prepared in accordance with statutory and constitutional
requirements and regulation and that proper accounting practice have
been observed in their Compilation. With the growing size and
complexity of financial institutions in the recent years, the importance of
the internal audit has correspondingly increased so that it is today a
major factor in establishing the quality of the financial institutions
internal control and its development has made considerable contribution
to the improvement of the financial institutions management (Klein,
2002).
The internal audit is one of the important means for management to
confirm and verify the compliance of administrative units in the
financial and administrative policies, legislations, financial and
administrative systems and the adopted public policies. The internal
audit has been developed and increased the attention to it and
standards, guidelines and moral constitutions had been issued and
became one of the important units in most banks in the world. Banks
forms the chief corner-stone of any financial system, and indeed of the
economy of a nation (James, 2003). At the heart of banking, is the audit
function, this is evident by the fact that all other departments are linked
with the internal audit department. Organizations have recognized
internal audit as a tool for ensuring effective working of the internal
control system. Efficient performance entails achieving goals with
minimum waste of resources that is making the best use of resources
that is making the best use of money, time materials and people (Lewin
and Johnson 2000).
1.2
Statement of the Problem
Internal audit is an integral part of the internal control system of
financial institutions, at the heart of banking is the audit function: This is
evidenced by the fact that all other departments are linked with internal
audit department. The importance of internal audit system cannot be
overemphasized, since organizations have recognized internal audit
function as a tool for ensuring effective workings of the internal control
system. Okolo, (2001) describes internal audit functions as an aspect of
control mechanism, within a business, manned by specially assigned
staff.
However, in Nigeria, the audit function in the banking sub-sector
has not been fully taped. This could be seen in the numerous cases of
errors, intent to defraud and other fraudulent acts that exist in the
banking industry. It is therefore, no wonder that the distress in the
banking sub-sector in the nineties reflected lack of effective control
mechanism of the audit function in the banking industry. The experience
of failed banks in Nigeria and other nations have called for
reinforcement of audit and the strengthening of the control system in the
Nigerian banks. It is against this background that, this study seeks to
evaluate the role of internal auditing in enhancing efficient performance
of financial institutions in Nigeria considering the fact that, the banking
institutions is critical to the survival of any economy.
1.3 Objectives of the Study
The objective of the study is to examine the impact of internal
audit activities on the performance of banks in Nigeria. The specific
objectives are stated below:
i.
To investigate the impact of internal audit meetings on
Return
on assets of banks.
ii.
To investigate the impact of financial expert on return on assets of
banks.
1.4 Research Questions
i.
Does
internal
influence
ii.
audit
committee
meeting
significantly
the returns assets of banks?
Does financial expert significantly influence the return on assets of
bank?
1.5
Research Hypotheses
The following hypotheses have been formulated and stated in null
form to be tested in the course of this study.
Ho1: Audit committee meeting does not significantly influence the
returns on assets of banks?
Ho2:
financial expert does not significantly influence the return on
assets.
1.6
Significance of the Study
This study will be of immense importance in the sense that it will
assist management to realize the company’s set performance goals; this
will be achieved through projecting to the public the impact of internal
audit on performance of firms.
This work will also broaden not only the researcher’s knowledge
but also the general public on how the internal audit committee can
assist management in realizing profitability and accountability. More so,
this work shall be found useful to those who may want to carry out
further on this topic.
1.7
The Scope and Limitation of the Study
The scope of this study covers Nigerian banking sector. First Bank,
Access bank and Eco-bank Plc have been selected as a study reference.
The study shall cover a period between 2007-2011. The financial
statement of the aforementioned banks in these periods shall be
examined and values of internal audit and performance proxies will
extracted for investigation.
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