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Internal Auditing System Effectives for Detecting Fraud

INRODUCTION

The chapter shall talks about the background of the analysis, statement of the situation, research questions, aims of the analysis, purpose of the analysis, hypothesis, assumptions of the analysis, delimitation of the analysis, limitations of the study, and the organisation of the analysis.

BACKGROUND WITH THE STUDY

Auditing was firstly introduced in the entire year 1879, in the bank sector when banking institutions were required by the statute to have an audit system, that was not generally prolonged until 1900 (Millichamp and Taylor: 2012). It had been described by Mainoma, (2007) as an independent study of the financial claims, and expression of your judgment on the financial claims of an company by the determined auditor, in line with their professional requirements and the required statutory regulations. Which means that the appointed auditor is responsible to expressing an judgment on the financial assertions of an company, the auditor here mean an individual or a firm doing audit of organisation. The auditor should be approved and will need to have personal and operational independence in order to execute his responsibility effectively.

Since it was launched, auditing is principally divided in to two wide-ranging categories as interior and exterior auditing. Internal auditing as its name implies, operates within the organization and external auditing also functions externally. The Chartered Institute of Public Fund and Accountancy (CIPFA), as cited by Johnson (2006:47) defines inner audit as "an independent appraisal function within an company for the review of activities as a service to all levels of management. It really is a control which measures, evaluates and accounts upon the potency of inner control, financial and usually, as a contribution to the useful use of resources in a organisation. " From this definition then this means Internal audit's objective is to aid organisational participants in the effective release of their obligations and also most organisations in the world either large or small undertake interior auditing as a vital measure of interior control systems in their procedures.

Internal auditing is a legal requirement in all tiers of the government including local regulators. The reason behind this is the fact local authorities and all general public sector organisations are funded by the general public funds and for that reason must be accountable for its use, hence auditing procedure for the general public sector body' place greater reliance on the potency of inner auditing than what the private industries does. Municipality as a portion of the public sector is one of the three tiers of federal government in Zimbabwe. At local government level, all local authorities are entrusted with general population resources and they're charged to truly have a duty of guaranteeing proper utilisation of those resources. Within a bid to optimise proper utilisation of these resources, laws and regulations are enacted in order to control costs and the options to financing these expenditures. To make sure adherence to laid down laws and regulations inner auditing system was set up in the local authorities (Badara 2012).

According to the Institute of Internal Auditors (2001) Internal auditing system in a organisation is expected to safeguarding the assets of the organisation and where appropriate, they check the life of such documented assets. That it means internal auditors have forces to undertake observations, enquiries and also self-employed checks on the firm's procedures, documents and resources good organisational rules and regulations to come up with an efficient audit output. Despite the fact that inner auditing system prevails in a variety of local regulators worldwide with inside control systems set up, the act of financial crime such as fraudulence and other irregularities still continue and usually discovered by the external auditors.

Regardless of the inner auditing system in Zimbabwean organizations (both open public and private), the value of fraudulence and other financial irregularities is incredibly high; in six months to Dec 2012 it was reported at US$1. 2 billion which is approximately 32 percent of the overall value of scam and other financial irregularities circumstances in Africa (KPMG 2012). Internal auditing was presented in Zimbabwean local government bodies by the Ministry of Local Government[M1] in a bid to reduce the chance of scam and other financial irregularities; to assisting the external auditors; to identifying opportunities for increasing current economic climate, efficiency and performance and to examine the organization's inner handles (Zimbabwe Councils Act 29:13).

ZRDC is one of the seven administrative area councils in Masvingo province. It really is a structured firm with the inner auditing system set up. Its inside auditors article functionally to the councilors through the audit committee and administratively to the chief executive officer, in addition they communicate and work together straight with the council through the audit committee, including in executive lessons and committee meetings as appropriate (ZRDC Internal Audit Charter 2012). Regardless of the existence of inside auditing system at ZRDC, numerous situations of fraudulence and other financial irregularities were consistently reported by the external auditors (ZRDC Alternative Auditors Report 2012).

This prevailing situation at ZRDC provided rise to questions on the unit's competence and efficiency mostly in scams and other financial irregularities diagnosis and prevention by local government authorities and all the interested stakeholders as since their goals were not fulfilled. This is mainly seen as a misunderstanding on what users of the council's financial information expect management to do, and what management expects internal auditors to do so far as fraud and other irregularities recognition and prevention can be involved. Users of the council's financial information portrayed their matter on the system's weakness as given that they expect the machine to be the council's "watchdog" on any deceptive activity existing (Zimbabwe Councils Action 29:13).

The research study will therefore looked for to evaluate the potency of interior auditing system in Zimbabwean local regulators mostly in discovering, preventing and lowering fraud and any other financial irregularities in the day to day operations of Zaka Rural Region Council.

STATEMENT FROM THE PROBLEM

Numerous situations of fraudulence and other financial irregularities have been consistently reported at ZRDC regardless of the existence of interior auditing system. The council is shedding more earnings from its income creating assignments, rates collection, donations and federal government grants scheduled to fraudulent activities, errors and distortion of results in the preparation of financial assertions by the council employees and management. Internal auditing system is failing woefully to detect almost all of these cases in a way that they take too much time uncovered or sometimes never been found. Because of this the council is failing to meet its statutory obligations and providing quality services to its clients. To the end the potency of the council's inner auditing system in scam and some other financial irregularities diagnosis needs to be evaluated

RESEARCH QUESTIONS

  • How effective is the inner Auditing system at ZRDC in discovering scams and other financial irregularities
  • Why are most materials scams and other financial irregularities go for so long undetected and some never detected by the inner Auditing system?
  • To what extend is ZRDC Internal Auditor's self-reliance considered by both users and management?
  • Are all the suggestions passed by the inner Auditors acted upon by management?

OBJECTIVES ON THE STUDY

The aims of the analysis are to:

  • evaluate the effectiveness of the inner auditing system in detecting fraud and other financial irregularities at ZRDC.
  • discover why most materials fraudulence and other financial irregularities take too much time to be recognized plus some never discovered by the inner auditing system at ZRDC.
  • establish the self-reliance of ZRDC inside audit device.
  • establish whether the inside audit unit's tips are acted after by management.

PURPOSE IN THE STUDY

  • The research is to be completed in partial fulfilment of the Bachelor of Commerce (Hon) Level in Accounting at Great Zimbabwe College or university. The study will broaden the researcher's academic knowledge through comprehensive research of the project
  • The researcher needs to attract an analysis of the effectiveness of the council's inside audit unit in detecting fraud and mistakes that will save to reduce discrepancies between the particular users, management and the audit device feels to be the goal of the inner audits and the actual nature of the internal auditor's tasks.
  • To find the key reason why the internal auditing system is failing woefully to detect most materials fraud and other financial irregularities that the exterior auditors detects.
  • The last researched work can be utilized as guide by other students who may choose to do the same or related matter.
  • HYPOTHESIS

Null hypothesis

  • ZRDC's interior auditing system is not effective in discovering fraud and other financial irregularities.

Alternative hypothesis

  • ZRDC's interior auditing system is effective in detecting fraud and other financial irregularities.

ASSUMPTIONS

  • The researcher assumed that the analysis would achieve success and technique used was appropriate to create true results.
  • The researcher will collect information which is free from bias and relevant to the area under study.
  • There will be good assistance between your researcher and the respondents.
  • The test to be picked representing the whole organisation of ZRDC and its environment.
  • ZRDC is the nice representative of most local specialists in Zimbabwe.

DELIMITATION ON THE STUDY

  • The study will concentrate on effectiveness of internal auditing in Zimbabwean local Regulators using a Circumstance of Zaka Rural District Council in Masvingo province for the period of 2012 to 2013. It will be confined to the CEO, council employees, inner auditors, audit committee, money committee, councilors and area administrator of Zaka Rural District Council from which information and data will be collected.

LIMITATIONS FROM THE STUDY

  • The researcher may have limited access to information because of the need to respect moral code of the council in the process of gathering information. Usage of information will be facilitated by the Treasurer because of the good relationships that have been established while on connection.
  • Limited resources will be a problem; however most of the typing will be achieved by the researcher in order to reduce costs. The researcher started to conduct the study during the vacation which started in Dec 2013 to February 2014 in order to lessen pressure during the learning period
  • Organisation of the Study

Chapter one can be an introductory chapter that paves out the research study. It offered a brief format of the advantages and track record of the analysis, statement of the issue, research questions, goals of the analysis, justification of the study, declaration of hypothesis, assumptions of the analysis. The section also highlighted the restrictions and delimitations of the study.

Chapter two gives a specific review on the conceptual, theoretical and empirical overview of related literature regarding the potency of interior auditing in local specialists. Chapter three also explain the study methods that were used in the research research including, research design, research instrument, data connection methods and data display and analysis strategies.

Chapter four focuses on data display, interpretation and examination of the info gathered from respondents during the research. Last but not least, chapter five focuses on the conclusions which can be drawn from the research and making advice where necessary to various stakeholders.

Summary

This chapter concentrates on brief information of the background to the study, justification of the study and what the research sought to attain. The next section focuses on review of related literature.

[M1]When?

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