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IMPACT OF AUDITING IN GOVERNMENT PARASTATALS: A CASE STUDY OF ENUGU STATE AGRICULTURAL DEVELOPMENT PROGRAMME ENUGU

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The primary goal of any business entity, whether private or public, is to make profit. Profit is made only when the total revenue exceeds total cost, and loss incurred when the reverse is the case. A breakeven situation occurs when total revenue is equal to total cost. Since excess of income over expenditure is profit, there is the need for any business entity to exercise full or at least reasonable control over cost so as to make profit or breakeven, but with the high and disgusting rate of losses and eventual failures of public enterprises in spite of government annual grants and subventions, one is inclined to ask questions as to whether some reasonable control is exercised over public enterprises. The ineffectiveness of government parastatals does not only affect the government, but also the entire economy.

Government participation in business (through public enterprise) unlike every other private enterprise has not yielded the desired result in terms of social, economic and political considerations. It is against this backdrop that this study seeks to examine the effectiveness of audit in government parastatals. Nevertheless, the economic consideration as a major business objective of any enterprise, be it, public or private will dominate other considerations in this study. Thus, the economic considerations of government establishing public enterprises are to fulfill her social responsibilities to the masses.

Profits are needed from the government parastatals not only for sustaining the existing parastatals but also for establishment of new ones. Government does not have in mind to establish parastatals for profit making but intervenes where the system of perfect competition has broken down. Nevertheless, we are primarily concerned with mobility of public enterprises in Nigeria to at least breakeven vis-à-vis some of their private counterparts that make surplus profits. There could have been no better time for this study than now when government debts are accumulating daily and foreign exchange earnings declining. These points to the fact, why government wants their parastatals to generate enough profit to at least pay for their consumables and argument on their salaries where possible. No wonder the government stance on public enterprises tagged “privatization”.

The term auditing came into use when accountants have to add to their existing function.  It is not new though the interest shown in it is of relatively recent origin.  Auditing particular task is to provide information to managers, shareholders and investors on the outcome of turnover rate in an organization.

Auditing is a broad based subject drawing upon relevant Laws and Cases, financial account, taxation, costing and management accounting.  It could be reasonably assumed that if there is a sound auditing department in an organization or parastatals is bound to financially perform well, if such information gotten is effectively and efficiently utilized.

The extent of which the above assumption is true using the Nigerian parastatals as the subject of the study. It is my ultimate desire as a researcher that at the end of this thesis I should be able to show the impact of auditing in government parastatals.  Hence auditing is one key to the success of any parastatal set-up.

According to Okorie Onovo’s book (2011) he views auditing as the expression of an opinion on the financial statement of an organization or parastatal within recording principles.  While in NWEKE and UNEGBU (2011), views auditing to be a form of stewardship where the messenger is expected to account for what was left under him by the shareholders so as to know, if it actually increased, or reduced and if they were the way they gave it to them, just as the case in, in the Holy Book of Matthew Chapter 25:14-30.

Many Directors and Managers are better and stronger when they have good idea of the actual work of auditing in what have been under their care.  Their performance and reward are determined by the correctness of the shareholders during the annual general meeting of the organization or parastatals. It is however assumed in this thesis; that it is an efficient and effective auditing system that is the only high cause of financial performance in parastatals.

1.2       Statement of the Problem

So many managers have failed to recognize the efforts of auditing in the financial performance and as a result; it has led them to poor planning, control and decision making.

Implications:

-  It retards the growth of the parastatals

-  It leads to loss in shareholders fund

-  It will welcome the idea of take overbid

-  The reputation of the company will be at stake

-  It will hinder corporation objectives of the company

-  The loss of public confidence in the company and shifting of interest to other company.

It is a well-known fact that officers of the parastatals i.e. (ENADEP) are entrusted with the management of both material and human resources of their establishment and in most cases, these officers are not brought under thorough control or question; the ultimate consequence of this is that much of the resources are indiscriminately mismanaged.  Equally, some accountant and key personnel in most parastatals and companies do not resist the temptation of colliding with other workers to embezzle their organizations funds to the detriment of the masses and owners of business or even the shareholders.  Also some parastatals do not seem to have an audit department or engage the service of the external auditor or where such a unit exist, they allow it to exist only in name as a mere compliance to the statutory requirement.  An audit department of such standard will not make or have any impact as regards to internal control.  This state of affairs from investigation is usually deliberate attempt by management to execute its exploitation, plans without any hindrance. Another aspect of this is lack of adequate regulatory standards in Nigeria regarding the duties, rights, responsibility and qualification of auditors.

However, am more interested in the impact which a paper auditing system will achieve under these conditions in government parastatals and other organizations.  Thus the proper care is taken towards auditing, the purpose of these parastatals should be achieved, and the fear of the auditor will be for every section, department and staff of the management.

1.3       Objectives of the Study

The main objectives of this study among others include:

1)   To determine the function which an auditing department can perform in a government parastatals or other organizations.

2)   To ascertain how far these functions have contributed in the overall performance of the parastatals.

3)   To find out whether an auditing system exist within those parastatals or organizations.

4)   To find out the qualifications of those who control the auditing units where it exists.

5)   To provide a basic understanding of auditing and its procedures.

1.4      Significance of the Study

It is the view of the researcher that this study will be relevant to the government parastatals, society at large and academic encouragement.  Also, it will help highlight the impact of auditing in an organization or establishment; and this can be seen in the following ways:  negatively and positively.

Auditing department could be seen as the “watch dog” to the management of an organization on the ground that it will contribute to the successful and timely implementation of the management policies as well as safeguarding assets and ensuring financial accountability of the employee in an organization.

It works as grease to the effectiveness of the internal control system thereby enhancing efficiency and adherence to the laid down rules.

This study will also make it clear to all, that auditing has control and impact in the effectiveness of internal control and achievement of financial accountability of all the staff of an organization.

Moreso, the activities of auditing department encompasses all segments of the organization, hence a collected act between the auditors and management will have a devastating effect on the generality of the programme and the entire organization in general

Frantically, the impact of auditing is not those who benefit from the projects executed by the establishment.

1.5     Research Questions

Based on the purpose of the study, the following questions are raised to provide a guide and solution to the research problems: 

i.    What is the impact of auditing in government parastatal.

ii.    Do the management rely heavily on the reports generated by the auditor.

iii.    What is the management perception on the role of the auditor in the prevention and detecting of fraud and error in the parastatal.

1.6      Research Hypotheses

In carrying out this research work these conceptual statements are made to serve as a guide on which the work will be anchored.

i.   Ho:    Auditing has no impact in government parastatal.

ii.   Ho:    The management does not rely on the report generated by the auditor.

iii.   Ho:    The management perception on the role of an auditor has not helped in the prevention and detection of fraud and error.

1.7       Scope/Limitations of the Study

This study is on the impact of auditing in government parastatals using Enugu State Agricultural Development Programme, Enugu, Nigeria as the case study.

Limitations of study

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8       Definition of Terms

The study finds it worthy to define some important terms in the research work for a better understanding of their meaning and the context in which they are applied in the work.

Auditing: This is an improved calling by an organization seeking to investigate on the totality of stock remaining and financial statement prepared by the company’s accountant so as to know whether or not the organization is doing well.

Shareholder: These are the owners of the parastatals (major contributors) who contribute their quota towards the upkeep of an organization or starting-up the parastatals.

External Auditor: This is the invited auditor who is elected by the shareholders so as to express its view about the account carried out by the internal accountant or the company or parastatal.  Telling them if the account shows a free and fair view.

Internal Auditor: This is the company’s staff (Accountant) who is elected by the management board to investigate and present the raw view of the statement of account of the company or organization and he can be seen as an auditor within the management.

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