AUDITING AS A TOOL FOR EFFECTIVE INTERNAL CONTROL SYSTEMS IN THE NIGERIAN HOSPITALITY INDUSTRY (A CASE STUDY OF BENUE HOTEL MAKURDI, BENUE STATE, NIGERIA)

ABSTRACT

For any organization to achieve its goals there must be an effective control mechanism. Internal control exists for the purpose of giving an organizational sense of direction and allowing for its growth. The study therefore sought to find out the role auditing (internal audit) functions play in controlling the activities of a corporate organization with special emphasis on Benue Hotel Makurdi, Benue State, Nigeria. To achieve the above objective, primary data was obtained as questionnaires were distributed to the members of staff of the hotel. It was discovered that the internal audit department plays a major role in controlling the activities of the organization thereby making its control system very effective. It is recommended that internal audit departments should seek to create awareness about its functions and importance to the staff of the organization. It is also recommended that internal audit departments should carryout regular review of the internal control systems in the hospitality industry.

CHAPTER ONE

INTRODUCTION

1.1          BACKGROUND OF THE STUDY

Hotel management today occupies a very crucial position in the economic activities in most countries of the world. It is regarded as the pivot of overall economic growth hence it occupies a central position in tourism activities.

The hospitality industry anywhere in the world is aimed at creating a conducive environmental capital of providing leisure services, which are captivating and satisfying at a price. It has been discovered in recent years that to create such an atmosphere, a lot of professionalism and control has to come into focus and of course ensure continuity through generations of good returns on investment. Prominent among such professionalism control activities of the internal control system which must be treated with all its antecedence.

The place or position of internal control in any Hotel or leisure services cannot be over emphasized. This is because internal control for Hotel industries or services and any other business concern is very fundamental. A weak internal control system of any hotel can hamper general acceptability, profitability or continuity just as a good internal control system of any hotel can ensure its wide acceptability, profitability that it can continue to exist and to remain in the industry or business and make profit, the internal control system have been to be set in consonance with perceived value of the offer for the system.

Auditing provides a basic tool upon which internal control system of any business concern including Hotel or leisure business is developed and implemented. The word Audit is derived from a Latin world “Audire” which means to hear! And audit has been defined as “an independent examination of a set of financial statements of an organization and the expression of opinion on the financial statements by an appointed auditor in compliance with statutory provisions and his terms of appointment”.

Due to the expansion in Hotel activities, there occurs a widening gap between management and the actual field of operations these increased responsibilities allow for the auditor to fill the gap between the management and the actual field of operations whereby he carries out the policies of the management. He is therefore responsible for the management to carryout out his multifarious duties of detecting and correcting errors and at same time providing the essential link within the entire organization.

The primary responsibility of safeguarding the assets of concerns and preventing and detecting errors and fraud rests on management, therefore the Auditor is expressing his opinion concerning the fairness of management representations, expects the company’s accounting department to produce financial statements that management can believe are proper, complete and free of internal errors. The responsibility of management does not end with the initial installation of a system of internal control. The system must be under constant surveillance to determine:

1. That prescribed policies are being interpreted properly and are being carried out.
2. That change in operating conditions has not made the procedure cumbersome, obsolete or inadequate.

• That where breakdown in the system appear effective, corrective measures are promptly taken.

There exists the human tendency to relax and depart from the original designed high standards of procedure. Because of this tendency, it is management responsibility to maintain adequate review of the system of internal control. There must be means developed for checking and appraising the effectiveness of the system in actual operation. One of the basic tool or means for effective review or implementation of the system of internal control is internal Auditing. Review may be performed by the company’s management or others the audit department or outside service agencies.

1.2          STATEMENT OF THE PROBLEM    

                The internal system of any hotel or organization is set to safeguard assets from waste, prevent fraud and avoid inefficient use of resources, promote accuracy and reliability in the accounting records, encourage and measure compliance with policies and evaluate the efficiency to operations. Internal Auditing as a tool helps in ensuring an effective implementation of a good system of internal control. The auditor may experience some problems while doing his work and some of these problems may prevent him from performing his work efficiently.

Specifically the problems perceived which prompted the researcher into this study are as follows:

1. Internal auditors often have the problems of carrying out their functions effectively due to interference from management. They are employees of the organization, hence independence may be difficult to achieve as an employee, and the auditor would find it difficult to present a free and fair view of the organization for fear of victimization.
2. Internal auditors are believed to be window dressers; they are accused of conniving with management to cheat. The problem now arising as to the role of the auditor as regard misappropriation and mismanagement.

• Sometimes management fails to exercise promptness in implementing the suggestions of the internal auditors and this tends to constitute a problem.

1. Vigilance and carefulness is often ignored by some auditors thereby leading to errors, which is a problem.

While many experts have conducted studies on the effectiveness of auditing as a tool for internal control of many organizations or establishments, there is still the need for more literature on the subject to unveil the role of internal audit in effective implementation of internal control system hence an appeal for this topic.

1.3          SCOPE OF THE STUDY

This research work is limited in scope to Benue Hotel makurdi, Benue State. More so, since the study tries to investigate the role of internal auditing as a tool for effective internal control it is limited to the concept of internal auditing only.

1.4          RESEARCH OBJECTIVES

                They objectives here are achieved in the research work

1. To investigate whether auditing (internal auditing) has effectively contributed to the internal control system of Benue Hotel Makurdi.
2. To discharge the manager from interfering into the independence of internal auditors so that they can carry out their jobs without fear or favor.

• Help to show ways in which some errors can be detected or prevented.

1. To encourage management in implementing the suggestions and recommendations of the auditors promptly.

1.5          RESEARCH QUESTIONS

In trying to survey the effectiveness of auditing as a tool for internal control the following questions will be looked at:

1. Is internal audit a tool for effective implementation of a good internal control system?
2. What are the major problems faced by audit departments in relations to the effective and efficient discharge of duties?

• There is the believe that, internal auditors connive with management to steal money. What can be said about this?

1. How independent is the internal auditor since he or she is an employee of the organization?
2. What are the qualifications necessary for one to be an internal auditor? Does he or she actually get all the information, explanation and document necessary to assist him in carrying out this function effectively?

1.6          KEY WORDS

For an effective apprehension of the objective and direction of this work, the following operational definition of terms is attached:

Audit: An independent examination of a set of financial statements of an organization and the expression of opinion on the financial statements by an appoint auditor in compliance with statutory provisions and his terms of appointment.

Auditor: A competent and impartial critic appointed to verify financial or other accounting statements and to satisfy that the statement exhibit a true and fair view of the state of affairs of the business or organization concerned.

Audit Trial: The tracing to transactions sequentially through the system from their source to their completion or vice-versa, whereby, the auditor may ascertain whether the internal control in operation is satisfactory or whether further investigations may be necessary

Audit Report: This is the statutory final product of the audit process and it contains the auditor’s opinions as to whether the accounts shows a true and fair view and comply with CAMA, 1990

Organizational Chart: A planned functional guideline in the form of a chart showing the segregation of duties and division of responsibilities.

Internal Control: It is not only defined as internal check or internal audit, but the whole system of control both financial and otherwise established by the management to safeguard its assets and secure as far as possible the accuracy and reliability of its records.

Internal Audit: It has been defined as an independent appraisal of activities within an organization for the review of operations as a service to management. It is a management control that functions by measuring and evaluating the effectiveness of other controls.

Fraud:  It is an intentional act by way of cheating with the aim of gaining undue advantage.

True and Fair View: A set of financial statement are said to be free and fair if all relevant and appropriate accounting standards have been followed, no material misstatement of facts or amounts is seen. All the relevant information has been fairly and fully disclosed.

Error: A thing done wrongly. A mistake which is unintentional

System: An assembly of components or parts that work together as whole to achieve a given aim.

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