Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.

1)( 2*1)

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Effectiveness of Internal Auditor in Controlling Fraud and Other Financial Irregularities in Private Universities in South-West, Nigeria.
A+,-&S&( Jonathan Adego.e1 &/A+,J&( 0a1ode Sa2son2 A0,SINR&( A3a1o2i Sunda1) +e"art2ent of Accounting( Jose"h A1o 4a3alola 5ni6ersit1( !.7.4 8**6 I.e9i-Ara.e9i( &sun State( Nigeria. ,2ail of the corres"onding Author: go.eadetoso;1ahoo.co2(0a1<olade9o$);1ahoo.co2 sun.esh78;1ahoo.co2 A stract -he stud1 e=a2ined the effecti6eness of internal auditor in controlling fraud and other financial irregularities in "ri6ate uni6ersities in Southwest( Nigeria. It has is s"ecific o39ecti6e as to e6aluate the rele6ance of internal audit re"ort in e="osing 6arious for2 of financial related institutional fraud. -he "o"ulation of the stud1 consist of all "ri6ate uni6ersities in Southwest( Nigeria and "ur"osi6e sa2"ling was ado"ted to choose the sa2"led uni6ersities. -he data for the stud1 was collected through the use of structured >uestionnaire. Regression anal1sis techni>ues was ado"ted to test the for2ulated h1"otheses and results shows that internal auditors were effecti6e in controlling fraud and other financial irregularities in "ri6ate uni6ersities in Southwest( Nigeria. Since fcalculated 6alue of $8.)88 was greater than the f-ta3ulated 6alue of 8.)2*( it also shows that auditor re"orts were rele6ant in e="osing 6arious 2eans of financial related frauds since F-calculated of 1$.79% was 66greater than Fta3ulated of 8.99* -he stud1 conclude that internal auditor is effecti6e in e="osing frauds in "ri6ate uni6ersities in Nigeria if the structural co2"ositions of the uni6ersit1 allow the2 to do their wor.. -he stud1 reco22ended internal control in6ol6e the chec. and 3alances( 3oth o"erational and financial( should 3e e2"lo1ed 31 the 2anage2ent of e6er1 uni6ersit1( to ensure that the uni6ersit1?s assets are safeguarded( of which cash is one. !e"#ords$ Internal Audit( Fraud( Financial State2ent( Financial irregularities( Internal control s1ste2( Auditor?s re"ort %ac&ground to the Stud" Fraud is the intentional distortion of financial state2ents or other records 31 a "erson internal or e=ternal# to the organisation which is carried out to conceal the 2isa""ro"riation of assets or otherwise for gain@ Adeni9i 2**% and Institute of chartered Accountant Nigeria-IAAN 2**6#.It can also 3e define fraud as in6ol6ing Bthe use of dece"tion to o3tain an un9ust or illegal financial ad6antageC intentional 2isstate2ent in( or o2issions of a2ounts or disclosure fro2 an entit1?s accounting records or financial state2entsC or theft whether or not acco2"anied 31 2isstate2ents in accounting record or financial state2ent 7ani(199)#. Archi3ong 1992# descri3es Fraud as a "redeter2ined and well "lanned tric.1 "rocess or de6ice usuall1 underta.en 31 a "erson or grou" of "ersons( with the sole ai2 of chec.ing another "erson or uni6ersit1( to gain ill-gotten ad6antages( 3e it 2onetar1 or otherwise( which would not ha6e accrued in the a3sence of such deceitful "rocedure. Fraud in6ol6es recording of transactions without su3stances( su""ression or o2ission of the effect of transaction fro2 records or docu2ent( Intentional 2isa""lication of accounting "olicies and wilful 2isre"resentation of transaction of the entit1?s state of affairs. &latun9i2**9#. According to !ollic. 2**6( fraud can 3e regarded as a Bdeli3erate 2isre"resentation( which causes one to suffer da2ages( usuall1 2onetar1 losses. Dowe6er( auditors ha6e a significant role to "la1 in the detection and "re6ention of fraud 3ecause the1 are not onl1 agents of shareholders 3ut their access to internal and e=ternal infor2ation 2a.es the2 efficient 2onitor +1c.( 7orse and Eingales ( 2**$#. -he e=istence and in fact( the high incidence of fraud in uni6ersit1 3rings to 2ind the >uestion of co2"etence( s.ills( due care( honest1( and integrit1 of auditors in uni6ersit1 or 3usiness enter"rise( >ualities are e="ected to 3e dis"la1ed 31 an auditor in e6er1 ti2e in e6er1 circu2stances &lofin(2**8 and Ag3a9e(2**7#. /orsase 2**%# notes that when fraud occurs in wor. "lace( the >uestion as.ed is Bwhere were accountants and auditorsF -hat an auditor has the res"onsi3ilit1 for the "re6ention( detection( and re"orting of fraud( and other illegal acts and errors is one of the 2ost contro6ersial issues in auditing( and has 3een one of the 2ost fre>uentl1 de3ated areas a2ongst auditors( "oliticians( 2edia( regulators and the "u3lic Ga1 et al 2**2# Dowe6er( there see2s to 3e 2isconce"tion that auditors duties are largel1 the "re6enting( detecting and re"orting of fraud Idris(2**9#. -he internal audit unit is 6ested with the "ower of inde"endent chec.s( in order to assess co2"liance with esta3lished rules and regulations of the uni6ersit1 &.o1a(2**2#. +es"ite the fact that audit e=ist in 6arious uni6ersit1 with internal control s1ste2 in "lace( 3ut the act of financial cri2e still continues e.g. fraud( irregularities and e6en 3reaches of other control and no an1 strong 2easures 3eing ta.en to "re6ent such occurrence.

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.1)( 2*1)

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Auditors are "ri2aril1 concerned a3out fraud as it relates to 2isstate2ent in the financial state2ent 4ells H Aarcello(2***#. So( auditing has a greater i2"act in the control of fraud and financial irregularities in uni6ersities that 2a.e effecti6e use of their auditing s1ste2. -he stud1 tends to identif1 financial re"ort users? "erce"tions of the e=tent of fraud in uni6ersit1 and to deter2ine their "erce"tions of the auditor?s res"onsi3ilities in detecting fraud and the "erfor2ance of related audit "rocedures 7oreo6er( according to the Institute of Internal Auditors 1991#( the internal audit unit is e="ected to re6iew the 2eans of safeguarding assets and where a""ro"riate( 6erif1 the e=istence of such assets. Financial control has concentrated on the cash out flow( "urchasing "rocedures and accounta3ilit1 of 3udget holders for current e="enditure on resources in"uts 7aino2a( 2**7# and 4uhari( 2**1#.-herefore( internal auditing furnishes authorities with anal1sis( a""raisals( reco22endations and infor2ation concerning all acti6ities re6iewed. -he sur6i6al of e6er1 organisation de"ends on its effecti6e and efficient utilisation of resources 3oth financial and non-financial#. -he internal audit unit is 6ested with the "ower of inde"endent chec.s( in order to assess co2"liance with esta3lished rules and regulations of the organisation &.o1a( 2**2#. According to -ho2"son 2**)#( internal auditing should not 3e restricted to financial transaction onl1. Internal auditors can e>uall1 assist 2anage2ent 31 ensuring that ade>uate financial and 2anage2ent controls ha6e 3een i2"le2ented and are o"erating effecti6el1 or 31 identif1ing the wea.ness in such s1ste2 and 2a.ing reco22endations toward their i2"ro6e2ent which include a2ong othersC with internal audit( errors are 2ore li.el1 to 3e disco6ered in their earl1 stages. ,=istence of assets is 6erified so as to "rotect the assets of the uni6ersit1( errors in account can 3e corrected earl1 once detected 31 the internal auditor( its acts as 2oral influence on the staffs and "ro2otes efficienc1 31 co2"elling the officers to .ee" their 3oo.s of account entered u" to date( a detailed e=a2ination of the financial account su32itted 31 contractors is facilitated( cash dis3urse2ent( such as for wages and salaries( 2a1 3e chec.ed 3efore the1 are cashed. -he res"onsi3ilit1 for ensuring that internal control is esta3lished in the uni6ersit1 lies with 2anage2ent. -he internal audit is su""osed and to 3e custodian of internal control 31 "ro6iding assurance to the 2anage2ent that the uni6ersit1 has "ut in "lace ade>uate and effecti6e internal control s1ste2( and 2ust not hesitate to draw 2anage2ent?s attention to la"ses o3ser6ed in the control. A good and 6ia3le internal control s1ste2 increases o"erational efficienc1( there31 2a.ing it 2ore difficult for the "re"aration of fraud 7a1o( 2**)#. ,ffecti6e internal control re>uiresC a""ro"riate accounting "rocedure and s1ste2( di6ision of duties i.e. se"aration of res"onsi3ilities( es"eciall1 those of authoriIation( regular 6erification of su"er6ision of each "erson?s wor. 31 their su"erior officers. Internal control in its 3road sense includes all controls o"erated 31 an uni6ersit1 to facilitate its acti6ities and i2"ro6e its efficienc1 and "roducti6it1. It also includes all ad2inistrati6e controls designed to effect( su"er6ise and chec. 2anage2ent "olicies and strategies within an uni6ersit1 such as wor. stud1( "roduction control( 2ar.eting( selling and distri3ution( financial and accounting control. -he 2ain o39ecti6e of internal auditing is to "ro6ide assurance to 2anage2ent that the internal control s1ste2 in the uni6ersit1 is sound in design and effecti6e in o"eration. It also hel"s to achie6e 6alue for 2one1 7o2oh( 2**8#. &.woli 2**%# also shares the 6iew that the "resent re>uire2ent of internal audit is not the detection of fraud and errors( 3ut re6iewing the s1ste2 of internal control. -his is 3ecause in "ri6ate uni6ersit1( internal audit is 2eant to carr1 out an inde"endent a""raisal of the effecti6eness of internal controls and other financial controls in such 2inistr1. Nor2anton( as cited in +aniel 1999#( e2"hasiIes the i2"ortance of internal audit 31 sa1ing that Bwithout audit( no accounta3ilit1( no controlC without audit( no efficienc1C without efficienc1( no de6elo"2ent. -he growth of an1 econo21 de"ends to a large e=tent on the s1ste2 of control ado"ted 31 the 2anage2ent and the success and sustenance of the internal control lies on internal auditing. -he a3o6e o3ser6ation underscores the i2"ortance of internal audit in e6er1 uni6ersit1 of the internal control to effect State'ent of the Pro le' Fraud can 3e said to 3e the use of one?s occu"ation for "ersonal enrich2ent through the deli3erate 2isuse or 2isa""lication of the e2"lo1ing organiIation?s resources or assets( and is unfortunatel1( 2uch 2ore co22on in "ri6ate than so2e owners realiIe. It has reall1 3een the undoing of 2an1 unluc.1 3usinesses. !ri6ate 5ni6ersities are "articularl1 li.el1 to 3e 6icti2s of internal fraud( e6en 2uch 2ore than their larger counter"arts Aon6entional 5ni6ersities# as owners tend to "ut 3lind faith in their e2"lo1ees. -he1 2a1 also neglect to ta.e "ro"er "recautionar1 2easures against fraud( which can add to the cost of doing 3usiness. -he "ro3le2 is that the trust that 2an1 owners of "ri6ate uni6ersities "laced in their e2"lo1ees is not alwa1s 9ustified. All it ta.es is for one e2"lo1ee to decide the1 deser6e a 3igger slice of the "ie than the1 are currentl1 recei6ing( and that could 3e enough to e6entuall1 sin. the 3usiness. Alearl1( fraud is a "er6asi6e cor"orate "ro3le2( affecting organiIations across industries and sectors without regard to siIe. 4ecause of fraud?s disastrous conse>uences( failure to "ut deterrent "rocedures in "lace could "ut a uni6ersit1 out of 3usiness within da1s. Fraud "re6ention( then( is a defined "rogra2 of "roacti6e 2easures to a6oid or 2itigate fraud. Failing to address these issues "laces a uni6ersit1 at a co2"etiti6e disad6antage when

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.1)( 2*1)

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fraud 3eco2es a cost of doing 3usiness. -herefore( this stud1 tends to e=a2ine the effecti6eness of internal auditor in controlling fraud and other financial irregularities in "ri6ate uni6ersities in Southwest( Nigeria. O (ectives of the Stud" -he general o39ecti6e of the stud1 is to e=a2ine J,ffecti6eness of internal auditors in controlling fraud and other financial irregularities in "ri6ate uni6ersities in Southwest( Nigeria( other o39ecti6es include are to: i. ,6aluate the rele6ance of internal audit re"ort in e="osing 6arious for2s of financial related institutional fraud. ii. ,=a2ine the effecti6eness of auditing as an a""ro"riate 2eans of detecting fraud in "ri6ate uni6ersities in Southwest( Nigeria. )"*otheses Do1: Internal auditors are not effecti6e in controlling fraud and other financial irregularities in "ri6ate uni6ersities in Southwest( Nigeria( Do2: Internal audit re"orts are not rele6ant in e="osing 6arious for2s of financial related institutional fraud. +ethodolog" !ur"osi6e sa2"ling 2ethod was used to select the sa2"le siIe of this stud1. -he source of data for the was through "ri2ar1 source. +ata were collected through the use of structured >uestionnaire and the stud1 2ade use of regression anal1tical techni>ues to anal1se the data collected. ,esults and -iscussions )"*othesis . Ahart 1 shows that 2ost res"ondents agreed to the effecti6eness of Internal auditor in controlling fraud( this infer that auditor effecti6eness in controlling fraud and other financial irregularities in "ri6ate uni6ersities in Southwest Nigeria 2ust 3e of "ara2ount i2"ortant to the owners of these uni6ersities. Chart .. $ Internal auditor effectiveness in controlling fraud and other financial irregularities in *rivate universities in South#est, Nigeria

Source$ Field Surve", /0.1 ANO2A Source variation ,egression ,esidual of -egree Freedo' 1 $ of Su' of S3uare 8$8%.$%$ 8%$.782 +ean S3uare 8$8%.$%$ 6$.89% of F- calculated $8.)88 F-ta ulated 8.)2*

9 6%*).6**9 4otal Source: Research Fra2ewor.( 2*1) Since f-calculated 6alue of $8.)88 was greater than the f-ta3ulated 6alue of 8.)2*( then( the null h1"othesis was re9ected and the stud1 concluded that internal auditors were effecti6e in controlling fraud and other financial irregularities in "ri6ate uni6ersities in Southwest Nigeria.

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.1)( 2*1)

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COEFFICIEN4S +odel Unstandardi5ed coefficient % Internal auditors effectiveness $.%2% std.error *.912 Standardi5ed coefficient %eta *.986 9.2)9 *.*** 4 Sig

17.$67 8.68$ )(18$ *.*1) Constant Source: Researcher Fra2ewor.( 2*1) Since the "-6alue for internal auditors was less than *.**8( then( the regression coefficient internal effecti6eness was significant on financial irregularities control. )"*othesis / In h1"othesis 2( the chart shows "ercentage of all res"ondents who agreed to all the test ite2s( the researcher found out that all the res"ondents agreed to the test ite2s( that referred to the >uestions of rele6ance of audit re"ort in e="osing 6arious 2eans of financial irregularities( the stud1 would li.e to conclude that auditor?s re"ort were rele6ant and 6er1 i2"ortant in e="osing 6arious 2eans of financial related institutional fraud Chart /. Audit re*orts relevant in e6*osing various 'eans of financial related institutional fraud

Source$ Field Surve", /0.1 ANO2A Sources variation ,egression ,esidual of -egree Freedo' 1 6 of Su' of S3uare 111*.$87 )8%.6%) +ean S3uare 111*.$87 89.1*7 of F-calculated 1$.79% F-ta ulated 8.99*

7 1%68.8** 4otal Source$ Stud" Fra'e#or&, /0.1 Since F-calculated of 1$.79% was greater than F-ta3ulated of 8.99* then the Do is re9ected. -herefore( the stud1 concluded that auditor re"orts were rele6ant in e="osing 6arious 2eans of financial related frauds. COEFFICIEN4S +odel Unstandardi5ed coefficient % Auditor7s re*ort 8.1%) std error 1.1$6 Standardi5ed coefficient %eta *.$71 %.))8 9.)66 *.**8 *.** 4-calculated Sig

86.1*7 8.991 Constant Source: Stud1 Fra2ewor.( 2*1)

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.1)( 2*1)

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Since the "-6alue for auditor re"ort of *.**8 was less than *.*82 then( the null h1"othesis was re9ected and the researcher concluded that auditor?s re"ort were significant in e="osing frauds. Conclusion and ,eco''endations 4ased on the stud1( the following conclusion and reco22endation were reached -hat internal auditor is effecti6e in e="osing frauds in "ri6ate uni6ersities if the structural co2"ositions of the uni6ersit1 allow the2 to do their wor.. -hat audit re"orts are rele6ant in e="osing frauds -hat auditing is an a""ro"riate 2eans of detecting fraud and other financial irregularities. -he stud1 therefore reco22ends that: i. Internal control should 3e e2"lo1ed 31 the 2anage2ent of e6er1 uni6ersit1( to ensure that the uni6ersit1?s assets are safeguarded and this would go a long wa1 in reducing and cur3ing fraud in uni6ersit1. ii. 5ni6ersit1 should tr1 as 2uch as "ossi3le to ha6e an effecti6e internal Audit de"art2ent( which should 3e headed 31 a >ualified accountant. In addition( the accountant should 3e res"onsi3le to the 7anage2ent or a higher authorit1 in the uni6ersit1 onl1. iii. 7anage2ent 31 ,=a2"le( should 3e the watch word of e6er1 2e23er of staff for internal audit to 3e effecti6e and staffs should also co2"l1 with the laid down "olicies and "rocedures in the "erfor2ance of e6er1 uni6ersit1 functions. ,eferences Adeni9i( A. 2**%#: Auditing and Investigation. /agos( 'alue Anal1sis !u3lishers. Ag3a9e( F. 2**7#. Nigeria Auditors and the +istressed Finanancial Sector. -he National Accountant( 6 %# )6-)7. 4uhari 2**1#.Internal auditor control system. Journal of auditor 2**1# %2. %2)-%28. +1c.( A.( 7orse( A. and Eingales( /. 2**$#. Kho 3lows the whistle on the Aor"orate fraudF www.ssrn.co2 Retrie6ed $L*)L2*11# Ga1( G.( Schelluch( !.H Reid( I. 2**2#: 5sers? !erce"tions of the Auditing Res"onsi3ilities for the !re6ention( +etection and Re"orting of Fraud( &ther illegal acts and error. Austrialia Accounting Re6iew. 7 1#:81-61 Dei2an-Doff2a '.4(IAAN 2**6#: Financial Re"orting and Audit !ractice. /agos( 'I !u3lishing /td. Idris( J. 2**9#: Nigeria Auditors are -oothless 4ulldogs. &cto3er ) htt":LLwww.saharare"oters.co2LarticlesLe=ternal-contri3L)$72-nigerias- 3an.s-auditors-are-toothless-3ulldogs.ht2l /orsase( G.0. 2**%#. Accountants( 4est !ractices in the !re6ention of Fraud And Financial Ari2es. -he Aertified National Accountant( 12 2#( 2%- )1. 7ani( A.7. 199)#: Internal Auditing: Principles and Guidelines, paper presented at NationalSeminar on Fraud Prevention, Detection and Investigations, or banised 31/uton7anage2ent Ser6ices held in 7inna. Niger State( Nigeria. 7aino2a 2**7#.Internal auditor control system.Journal of auditor 2**7# %2. %2)- %28 &latun9i( &.A.( 2**9. Impact of internal control system in banking sector in Nigeria.!a.. J. Social Sci.( 6: "".1$1-1$9. &.a1a 2**2#. Internal auditor s1ste2.7anagerial Auditing Journal. 2* )#:2$%-)*). &.o1a( 7 2**2#. ,li2inating the Audit ,="ectation Ga": Realit1 or 71thF A6aila3le at: htt":LL2"ra.u3.uni2uenchen.deL2)2L. &lofin( -.A. 2**8# Ari2inal /ia3ilit1 of auditors of colla"sed financial Institutions. -he Aertified National Accountants( 6 7#( 19-21 !ollic.( 7.M. 2**6#. !at is Fraud:htt":LLwww.wisegee..co2Lwhat-is-fraud.ht2Accessed:18 Fe3ruar1 2*1*. -ho2"son( J. 2**)#( BAccounta3ilit1 and AuditN <International "ournal of Government Auditing# $ol# %&, No# '#

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