CHAPTER ONE

1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Globally the role of auditing is being appreciated for its avowed
operations and activities. Ihe and Umeaka(2006:370) defined auditing “as
a process carried out by suitably qualified auditors during which the
accounting records and the financial statements of an organization are
subjected to examination by an independent auditor with the main
objective of expressing an opinion in accordance with the relevant terms
of appointmentpurpose” they also noted that the objectives of auditing
were grouped into two
a. Primary objective: the auditor (one who carries out audit operation) is to
report whether the financial statements shows a „true and fair view‟ of the
financial affairs of the organization during the period under review and s
end date.
b. Secondary objective: This concerns the detection of frauds and errors and
the prevention of frauds and errors
The crux of this research work however is based on internal Audit –
which is a very important aspect of auditing, how the internal audit unit of the
government can be made effective in order to assist in the efficient
administration of local Government Areas (LGA). Internal Audit as defined by
Chukwu L. C. (2011: 28) is “an independent appraisal of activity within the organization for the service of accounting, financial and other business practice
as a protective and constructive aim of management”. He further opined that,
internal audit is a type of control which functions by measuring and evaluating
the effectiveness of other types of control. Anosike. C. K (2009:29) noted that
the primary objective of internal audit, is to promote utmost efficiency and
security in conducting business, in our case, the business or operations of the
Local government areas. Azubike (2005:83) enumerated the features of internal
audit as follows:
a. Independence: it is carried out by independent personnel through appointed
by the management.
b. Appraisal Function: it appraises the activities of other. Example, reviewing
the system of checking employee expense claims.
c. Management Service: Plans and controls work according to management
policies, so that information used by the management is complete and
reliable.
d. It is carried out skillfully and with due care.
e. The Findings, conclusions and recommendations are communicated
promptly and efficiently.
He also noted that internal audit seeks for effectiveness, economic and
efficiency. Effectiveness here: means achieving the program objective or goals.
Economy means operating at the lowest possible cost. Efficiency implies
effectiveness in outputs, avoidance of accessory waste of resources.

Having known the definition of internal audit and its implications, It is
seen that it plays a significant role in the efficiency of local government
administration. However, as a group of the subject matter of this research work,
explanation and highlights of local government and its administration shall be
attempted.
Several definitions have been put forward by authors and scholars on
local Government, Okolie (2003), that local government is defined as “a unit of
government below the central regional or state government, established by law
to exercise political authority, through a representative cancel within a defined
areas”.
The oxford advanced learner‟s Dictionary defines local government as
the system of government of a town or an area by elected representation of the
people who live there “or” an organization that is responsible for the
government of an area”. Conclusively, for the purpose of this research work,
the most acceptable definition of local government is that which is given by the
guideline for local government is “government at the local the local level
exercised through representative councils established by law to exercise
specific powers within defined areas”.
Local Government Administration in Nigeria, as defined by Okolie and
Eze (2006:5) is “the administration of the grassroots at the local government
areas by the Federal (National) or state government through the use of
bureaucrats or an agency of either or both tiers of government”.

With effect from 1979, the constitution of the Federal Republic of Nigeria
accorded local government a higher status, as a third tier of the government
where it now enjoys relative autonomy from the state deriving also its powers
from the constitution and not surviving by the whims and caprice of d state as
provided in the guideline for local Government perform in Nigeria 1976.
Following this development the status of the local government in Nigeria is
that of a corporate entity, which can sue and be sued, also has perpetual
secession.
The Guideline gave the principal aim of local government as
I. Grassroots political development and consciousness.
II. Embark on and encourage self-help project
III. Deliver social services to rural dwellers
IV. Provide primary education and health care to its inhabitants.
V. Engage in economic planning to foster rapid development of the areas.
VI. Collection of rates, radio and television licenses
VII. Establishment maintenance and regulation of markets, motor par]k]s and
public conveniences
VIII. Naming of roads and streets and numbering of houses.
IX. Registration of births, deaths and marriages.
X. Establish a two-way communication between the people and the
government.

Therefore, the requirement of financial resources to effectively and
efficiently translate the administration of the above functions to service delivery
which will impact on the local people is crucial. In view of this enormous
resources at the disposal of the local government and obvious financial
management ineptitude of the political in the areas of fraud, maladministration,
misappropriation of pubic fund, etc, there is need an independent arbiter. To
check these excesses, hence the need an internal audit.
Ihe and Umeaka (2006:375 and 392), enumerated the scope and
objectives of internal audit function to local government in ensuring the
efficient administration of the councils and its programsas
Scope
1 Review of accounting and internal control system
2 General examination of financial & operating information for
management
3 Review of economy, efficiency and effectiveness of operations and
general controls.
4 Review of the implementation status of local government plans policies
and procedures
5 Proper investigation of compliance with the financial memoranda and
other circular.

OBJECTIVES
1 To determine the level of adequacy of the system of internal control
2 Report findings and recommendations to the council
3 To investigate compliance with the financial memoranda and other
circulars.
In carrying out its duties, the internal audit department shall be working
closely with the treasury department and make use of the following financial
statement provided by local government as enumerated by Ihe and Umeaka
(2006:204)
¯ Statement of revenue and expenditure
¯ Statement of actual expenditures and actual revenues
¯ Statement of advance account deposit account balances
In the context of the subject matter, the researcher has selected Isiala-
mbano localgovernment areasand Mbaitolilocal government areas for this
study.
BRIEF REVIEW OF ISIALA MBANO LOCAL GOVERNMENT
Isialambano local government areas was carved out from the former
mbano local government areas during the creation of additional local
government in September 1989, with its headquarters situated at Umuelemai, a
border town along Anara– Umuahia Federal Road. It is made up of three clans,
namely, Osu, Ugiri and mbama. The local government is predominantly inhibited by Christians who practice subsistence farming under local
government policies.
Isialambano is located at the North – East of lmo state capitalOwerri. It is
traversed by Owerri / Okigwe / Anara / Umuahiaand Okigwe
/Umuahiahighways. It is bounded on the North by Onuimo local government
areas and some parts of Nwangele local government areas, on the east by
Elumembano local government area and on the south by Ikeduru andMbaitoli
local government areas respectively. It occupies a geographical land moss of
148sq kilometres. It has provisional census figure of 198, 736 as at 2006
census.
Isiala-mbano local government has twenty-seven(27) autonomous
communities namely Osuama, Anara, OsuOwerri, Umuduru, Ikwuano,
Ezumeha, Isiama, Umundie, Umuelemai, Luwenneiri, Nneato – Nweator,
Ibeme – Amaise, Umuneke, Oka, Umunkwo, Amaraku, Amato – Amaraku,
Amauzari, Ekwedim and Umuenyi. There are twenty-one(21) recognized
traditional rulers in Isialambano L. G. A
(Culled from www.imo state.gov.ng.(c) 2011 ministry of local government and
chieftaincy Affairs).
BRIEF VIEW OF MBAITOLI LOCAL GOVERNMENT AREA
Mbaitoli local government area was created out of what used to be called
Mbaitoli/ Ikedurulocal government under the leadership of General Ibrahim B.
Babangida on may11,1959.The local government shares common boundaries with Orlu, Njaba, Isu local area in the North, while it southernboundary is with
Owerri North and Owerri West local government areas. Its western boundaries
isOguta and Easternside are Isialambano and Ikeduru, local government
areas.The administrative headquarters of mbaitoli local government is at
Nwaorieubi which is situated along Owerri–Orlu Federal Road.
It covers an area of approximately about 234sq kilometres. The local
government is indisputably the most populous in Imo state with a population
figure of 255000 going by the census figure. The local government is made up
of thirty –one (31) autonomous communities with twelve independent Electoral
commission (INEC) wards.

1.2 STATEMENT OF THE PROBLEM
Internal audit is beset by a number of problems which include
1 The problem of corruption and misappropriation of funds in the internal
audit system of local government especially in Isiala-mbano and
Mbaitoli local government areas.
2 The problem of ineffective/inefficient administration of the local
government officials.
3 The problem of lack of understanding between the internal audit unit
and audit alarm committee which affects the effective internal audit
system.

1.3 OBJECTIVE OF STUDY
The purposes of the research are as follows.
I. To determine the misappropriation of funds by the administrators in the
local government council.
II. To examine the ways of making the internal audit unit effective in the
administration of local government.
III. To ascertain the extent of un cooperative attitude between the internal
audit unit and audit alarm committee

1.4 RESEARCH QUESTIONS
There is no draying that most political representatives at the local
government levels lack the managerial skills needed to efficiently administer
the council, thereby, giving rise to inefficiently in administration of the
municipality. Due to all these, it prompted the following question, this.
A. How best can misappropriation and fraud be prevented in local government
administration by internal audit?
B. Has the effectiveness of internal audit deferred administration excesses?
C. Has the strained relationship between the audit committees and internal
audit unit cause the irresponsiveness to audit queries by the administrators
D. Has the existence of effective internal audit capable of putting an end to
administrative abuse of power and inefficiencies?
E. What is internal auditing‟s role in preventing, detecting and investigation
fraud?
F. What services can the internal auditors provide for the audit committee.
G. How does effective internal auditing maintain its independence and
objectivity?
H. How can internal audit function by, measuring and evaluating the
effectiveness of other types of control?
I. How does the internal audit activity go about prioritizing its resources?
J. How can effective internal control be achieved?
K. How can effective internal auditors can determine the level of adequacy of
the system of internal control?
L. Has the findings and recommendations been reported to the council.
M. Did the internal auditor express his opinion on whether or not the financial
statement shows a true and fair view
N. To what extent does the internal audit give the administrators assurance
regarding efficiency of the operation of the internal control in assisting them
in them in the efficient administration of the municipality?
O. What are the causes of inefficiencies and uneconomical practices?

1.5 RESEARCH HYPOTHESIS
The hypothesis will necessarily be derived from the problem (question)
stated earlier which the researcher intends to investigate. It shall be stated in
Null and alternative forms which will be represented by
„Ho‟ – Null hypothesis
„Hi‟ – Alternative hypothesis. These are stated as A. Ho – Corruption and misappropriation of funds affects the internal
audit system of local government especially in Isiala-mbano and
Mbaitoli local government areas.
Hi - Corruption and misappropriation of funds does not affect the
internal audit system of local government especially in Isiala-mbano
and Mbaitoli local government areas
B. Ho - Ineffective/inefficient administration will affect the local
government officials
Hi - Ineffective/inefficient administration will not affect the local
government officials
C. Ho - Lack of understanding between the internal audit unit
and audit alarm committee which affects the effective internal audit
system.
Hi - Lack of understanding between the internal audit unit
and audit alarm committee which affects the effective internal audit
system.

1.6SIGNIFICANCE OF THE STUDY
The significance of this study is to state the fact and the importance of
efficient local government administration in the society this study is significant
to these specific groups.
i. To the researcher who has gained more knowledge on local government
administrations.
ii. To awaken the administrators of local government areas to
theirresponsibilities of efficient service delivery.
iii. To arouse the consciousness of the internal audit as respect to their role in
ensuring efficient administration.
iv. To provide interesting facts in areas to theirresponsibilities of efficient service
delivery.

1.7 SCOPE
According to Nnamocha (2005:38), scope of study defines„the boundary
for the work in terms of time, institution and the extent of coverage promised in
the study”.
The researcher promised in the limit the research findings to the area of
financial procurement administrative departments, internal audit department
and stores department of the local government areas.
The areas intended to be covered by this research is the local government
areas in Imostate, using Isialambano and mbaitoli local government area.

1.8 LIMITATIONS OF THE STUDY
The limitations involved in the course of this research includes hostility and
non-cooperation on the part of some of the respondents, and also the
constraints of time was a limiting factor in the course of writing.

1.9 DEFINITION OF TERMS
Audit alarm committee; The intention was to prevent irregular payments before
they are made. Is membership comprised of the Auditor- General as
chairman.Accountant –General of the federation and one representative of the
president as members. The committee was charged with the responsibility to
examine all cases of alarms raised and brought before it. All prepayment audit
queries raised by the Internal Auditor but overruled by the Chief Excutive
must be referred to this committee.