ABSTRACT
The study examined the relationship between the internal audit and financial performance of deposit money banks; a case study of Ecobank Nigeria. The research has three objectives: to investigate the impact of internal audit on return of assets of Ecobank Nigeria, to examine the effectiveness of internal audit as appropriate means of detecting fraud in Ecobank Nigeria and to establish the relationship between internal audit and the growth of Ecobank Nigeria. The study adopted a descriptive design, which according to Kothari (2004), is used when the problem has been defined specifically and where the researcher has certain issues to be described by the respondents about the problem. Responses of Ecobank Nigeria staff were captured with use of structured questionnaires and percentage provided for comparison. It involved both qualitative and quantitative approaches. The use of two approaches at the same time in the basic research was recommended by (Gay, 2000) as the best way to get sufficient results. The total population was 200 Ecobank Nigeria staff and the study purposively selected 64 staff from six departments of the bank as a sample population. The heads of departments were interviewed too. The data were analyzed using both quantitative and qualitative methods. Quantitative data were checked and sorted to ensure completeness especially questionnaires. It was coded and computed using Statistical Package for Social Sciences (SPSS) with its current version named IBM SPSS. The validity of instruments was ensured through the diversity of interviews and crosschecking data sources. The study conducted in a period of 10 months. The findings shown that internal audit contributes a lot to the financial performance of banking institutions since it has a positive impact on return of assets, it is very useful in detecting errors and fraud and it was shown that there is a strong positive relationship between internal audit and the financial performance of Ecobank Nigeria. This study will help in increasing the role and image of internal audit in banking institutions to make more effective and professional. It will help the shareholders appreciate the role of the internal audit as one of the most important managerial control systems in an organization required to safeguard their interests. We are sure that our objectives have been verified and confirmed. At the end of this dissertation, we have proposed some topics to future researchers.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The Internal Auditing profession evolved steadily with the progress of management science after World War II. It is conceptually similar in many ways to financial auditing by public accounting firms, quality assurance and banking compliance activities. While some of the audit technique underlying internal auditing is derived from management consulting and public accounting professions, the theory of internal auditing was conceived primarily in 1941 by Lawrence Sawyer, often referred to as "the father of modern internal auditing"; and the current philosophy, theory and practice of modern internal auditing as defined in 1999 by the International Professional Practices Framework (IPPF) of the Institute of Internal Auditors owes much to Sawyer's vision.
With the implementation in the United States of the Sarbanes-Oxley Act of 2002, the profession's exposure and value was enhanced, as many internal auditors possessed the skills required to help companies meet the requirements of the law. However, the focus by internal audit departments of publicly traded companies on related financial policy and procedures derailed progress made by the profession in the late 20th century toward Larry Sawyer's vision for internal audit. In Nigeria due to the government effort to promote investment and achieve economic development, banking institutions have grown fast. The government embarked on the development of the country through encouraging foreigners to invest in the country. There has been a deliberate effort by the government of Nigeria to create an environment that can allow health competition among financial institutions (BNR, 2008). Banking institutions in a country play greater role in its economic growth and development as they contribute in providing services and improvement of infrastructure and contribute highly in socio-economic life of people through provision of employment opportunities and, facilitate saving of money and these result to well manage and plan for future, Hassan and Jung-Suk (2007).
In order to become more efficient, banking institutions need to design and operate sound internal audit control which will enable them to maximize profitability and achieve their expected goals and objectives. That is why banking institutions apply internal audit methods, procedures and other forms of controls that assist it in management, in achievement of objectives and efficiency of conduct of its business (Bruce, 2008).
The need of internal audit arises primary due to the fact that business organizations have grown enormously in size and operations. Many of them employ thousands of persons and conduct operations from various locations. It has therefore become necessary for the management of such organizations to have a team of specialists to review the procedures and operations of various units and report case of non-compliance, inefficiency and lack of control so that action to be taken (Dushimumukiza,2006).
Internal audit may be regarded as an important development tool within an organization because it is an independent activity established to evaluate its internal control system. Many organizations do not know how an effective internal audit helps them to manage their resources effectively and efficiently in order to improve the level of performance and controls (DeMarco, 1980).
However, banking institutions had introduced the internal audit department as an independent appraisal function to evaluate their internal control system. Its objective is to assist all members of the institutions in the effective discharge of their responsibilities to this end, internal audit furnish them recommendation, advice and information concerning the activities reviewed. In order to achieve this, audit activities should be conducted in accordance with professional standards. The auditors perform routine duties such as verification of company’s assets and liabilities, stock, cash receipt and cash payment, surprise check on such item as petty cash, bills and vouchers, Douglas, (2003).
On 6th of July 2007, Ecobank Group officially took over ownership of BCDI to create Ecobank Nigeria. By the time of sale, BCDI was burdened by losses amounting 2.5 billion francs arising from 46% non-performing portfolio, inadequate operation controls and poor corporate governance (Steven 2004).
Ecobank Nigeria brings new prospects to the country’s banking sector starting with the contribution of $11.6 million that party covered negative equity and recapitalized the new acquisition. Ecobank Nigeria today is considered as leading independent regional bank in Africa with total assets valued at $ 4 billion (Nigeria Financial Sector Assessment, 2005).
1.2 Statement of the Problem
Internal audit is an integral part of the internal control system of banking institutions. This is evidenced by the fact that all other departments are linked with internal audit department, Thanvegelu (2004). The importance of internal audit system cannot be overemphasized, since organizations have recognized internal audit function as a tool for ensuring effective workings of the internal control system. Okolo, (2001) describes internal audit function as an aspect of control mechanism within a business, manned by specially assigned staff. However, in Nigeria, the audit function in commercial banks has not been fully taped. This could be seen in the numerous cases of errors, intent to defraud and other fraudulent acts that exist in the banking industry (Habumuremyi, 2002). It is therefore, no wonder that the distress in banking sector reflect lack of effective control mechanism of the audit function. The experience of failed commercial banks in Nigeria and other nations have called for reinforcement of audit and the strengthening on the internal control system in Nigerian banks. It is against this background that, this study seeks to evaluate the role of internal audit in enhancing efficient financial performance of banking industry in Nigeria considering the fact that, the banking institutions is critical to the survival of any economy.
1.3 Objectives of Study
This research presented general and specific objectives.
1.3.1 General Objective
To investigate whether internal audit contributes to the financial performance of banking institutions in Nigeria.
1.3.2 Specific Objectives
Specific objectives have been drawn from the overall objective of the study and they include the following:
i. To investigate the impact of internal audit on return of assets of Ecobank Nigeria;
ii. To examine the effectiveness of internal audit as appropriate means of detecting fraud in Ecobank Nigeria;
iii. To establish the relationship between internal audit and the financial performance of Ecobank Nigeria.
1.4 Research Questions
The following questions guided this research:
i. What is the impact of internal audit on return of assets of Ecobank Nigeria?
ii. What is the effectiveness of internal audit as an appropriate means of detecting fraud in Ecobank Nigeria?
iii. How is the relationship between internal audit and the financial performance of Ecobank Nigeria?
1.5 Significance of the Study
This study will help in increasing the role and image of internal audit in banking institutions to make more effective and professional. It will help the shareholders appreciate the role of the internal audit as one of the most important managerial control systems in an organization required to safeguard their interests.
The management of banks will be able to look for ways of making internal audit a completely independent function from the management thus making it more effective. In addition, by implementing recommendation given on the internal audit reports, management will be able to enhance performance of banks. The results of this research will help in particular Ecobank Nigeria since recommendations and suggestions that will be provided by the researcher will help the bank to achieve its goals and objectives.
This research will be finally significant to scholars since it will help them to appreciate and enhance their knowledge of internal audit so as to adhere to the professional ethics.
1.6 Limitations of the Study\
The study is limited to the contribution of internal audit on the financial performance of banking institutions in Nigeria. The research was conducted at Ecobank Nigeria selected as unit of analysis. This research was subjected to some limitations:
Due to confidential reasons, the researcher didn’t receive internal audit reports on time. To delimit that issue, I informed the management of the bank and other concerned staff that I was going to conduct academic research by giving them official letter from the University and they gave me the reception letter to be presented anytime if required.
Cultural and other type of bias: we all have biases, whether we are conscience of them or not. Bias is when a person, place, or thing is viewed or shown in a consistently inaccurate way. It is usually negative, though one can have a positive bias as well. When proof-reading project reports, be especially critical in reviewing how they have stated a problem before project implementation, how they collected data, what may have been omitted, people, or places and how I have chosen to represent a person, place, or thing, to name a phenomenon, or to use possible words with a positive or negative connotation. To delimit that I had such bias in mind and make sure that my personality didn’t influence my research. Self-reported data: Whether I am relying on preexisting self-reported data or I am conducting a qualitative research study and gathering the data myself, self-reported data is limited by the fact that it rarely can be independently verified. To delimit that, I had to consult my supervisor to have different views on the collected data.
1.7 Scope of the Study
The scope of the study was considered under dimension of geographical, content and time aspects. This was intended to give boundaries to the study in the respective aspects.
1.7.1 Time Scope
The time frame is from 2011-2021 due to the project period. The rationale for choosing Ecobank Nigeria is that, it is a pan African bank covering the almost part of Africa than any other bank in the world. The research took ten years from November, 2015 to August, 2021.
1.7.2 Geographic Scope
The study covered different departments of Ecobank Nigeria such as: risk, commercial banking, treasury, human resource, internal audit, operations and finance.
1.8 Organization of the Study
This study is divided into five chapters as follows: Chapter One; provided a general introduction. Chapter Two; provided a literature review. In Chapter Three; the research methodology and research design were discussed in detail. Chapter Four, the data were presented and analyzed and a discussion of the findings that emerged from the study was highlighted. Chapter Five, drew a conclusion and made recommendations based on these findings.
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