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CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND OF THE STUDY

Internal audit is the set of accounting and administrative control and practices that helps managers in operating their organization more effectively and efficiently. It ensures that both the accounting and administrative activities are in order with the laid down procedures, standards, and statutory requirements. It also detects deviation if any and calls for immediate corrective measure. In any profit-oriented organization, the objective of management is to maximize profit, and internal audit is a technique that can be of assistance in attaining such maximizations. Banking is a venture undertaken primarily for profit and whose operation should at least include taking money on account and releasing of such money wholly or partly on demand or authority of the depositor.

An important object of banking particularly in the developing countries is the promotion of economic development. In pursuance of this economic development as well as banks’ profitability, banks tends to improve on their services by devising methods of sound and effective system of internal audit. This study therefore, intends to evaluate how the internal audit policies have affected the productivity of commercial banks with particular reference to Orient Bank of Nigeria Plc and United Bank for Africa Plc.

1.2 STATEMENT OF THE PROBLEM

There have been incessant cases and stories been told about high frequency of fraud, embezzlement, overcharging, manipulation, missing files and ledger cards and other banking malpractices in banks today, with the management and shareholders not knowing how to handle the adverse situation. The Orient Bank of Nigeria (OBN) Plc and United Bank of Africa (UBA) Plc were not left out in these increase in crime – wave problems and banking malpractices, despite the existence of inter-control and devices adopted to detect fraud. This situation has culminated in the lack of confidence by the staff, shareholders and customer over the growth and profitability of the banks. Moreso, with the proliferation of banks and also the increase in rural banking, with commercial bank’s branches, the volume of accounting records has drastically increased, thereby necessitating the appraisal of the adequacy and reliability of records, and overall efficiency of operations. Furthermore, with the public interest in the “truth and fairness” of financial statements – profit and loss account and balance sheet, whose stratum of reliable is on the internal audit functions, the research is therefore aimed at investigating the extent of adherence to the internal audit functions and its impact on the productivity of the banks.

1.3     OBJECTIVES OF THE STUDY

The objective of this research include among others the following:

1.  To identify and appraise the internal audit designed, installed and operated by the management of OBN and UBA with a view to assessing its impact on productivity.

2.  To examine the extent of adherence or compliance to the policies, standards and procedures by the members of the staff in order to recommend operating improvement.

3.  To identify possible deficiencies and weaknesses of the existing internal audit to find means of ameliorating them.

4.  To review the productivity of the banks OBN and UBA and relate it to

their internal audit.

5.  To critically analyze the effectiveness, adequacy and applicability of the various internal audit. 

6.  To offer useful recommendation to proper design, installation and operation of an adequate and good internal audit functions.

1.4       SIGNIFICANT OF STUDY

The research is intended to define the level of internal audit and its impact on profitability of OBN and UBA Plc. It will be of great importance to the banking staff especially the managers and officers whose interest are geared towards the enhancement of the chances of bank profitability; in serving as a guide in the performance of their duties. It will assess the effect of fraud, manipulations, errors, improper authorization, dishonesty, inadequate accounting records etc on profitability in view of the existing internal audit functions.

A comprehensive knowledge of system of internal audit will form a foundation on which the auditor’s report on “true and fair view” final account is based and as such, the study will be of immense values to the practicing Accountants, Auditors, Lawyers, shareholder and other interested parties for acceptance and reliance of financial statement. Furthermore, it will include more research in the improvement of banking services in Nigeria for the interest of the shareholders, customers and government.

Finally, the study will provide the basis for recommendation to the management of the best approach to designing, installing and operating an improved system of internal audit aimed at promoting operational efficiency and eliminating or at least minimizing waste.

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