This research topic is the role of auditors in fraud prevention and control in public sector. Kaduna state water board is chosen as a case study. The research topics has been chosen in order to investigate the causes, and possible ways of preventing and controlling of fraud in Kaduna state water board. Among the objectives of this study is to identify the problems and solution in an effort to minimize the occurrence of fraud and financial mismanagement in Kaduna state water board. Both primary and secondary sources of data are were used in gathering the data, hypothesis were formulated and Hi which says That the presence of effective and efficient auditors will greatly help in preventing fraud in Kaduna State Water board (KSWB) was accepted and recommendations were made.
TABLE OF CONTENTS
Title Page - - - - - - - - - - i
Declaration Page - - - - - - - - - ii
Approval Page - - - - - - - - - iii
Dedication - - - - - - - - - - iv
Acknowledgement - - - - - - - - v
Abstract - - - - - - - - - - vii
Table of content - - - - - - - - - viii
- Introduction - - - - - - - 1
- Historical Background of Kaduna State Water Board - - 6
- Statement of Problem - - - - - - - 15
- Research Question - - - - - - - 15
- Statement of hypothesis -- - - - - - - 16
- Purpose of the study - - - - - - - 16
- Significant of the study - - - - - - - 17
- Limitation of the study - - - - - - - 18
- Scope of the study - - - - - - - - 18
- Definition of terms - -- - - - - - - 18
- Literature Review - - - - - - - 20
- Nature and purpose of Account - - - - - - 20
- Communication of account information flow Chart - - 23
- Internal Control - - - - - - - - 24
- Independence of he Internal audit Department - - - 29
- Independent of the external auditor - - - - - 31
- Fundamental differences - - - - - - - 34
- The role of accountant and auditors in the society - - 37
- Impact of public Accountant and Auditing - - - - 41
- Fraud and its cost public sectors - - - - - - 44
- Detection Techniques - - - - - - - 46
CHAPTER THREE: Research Methodology
- Introduction - - - - - - - - 50
- Population of the study - - - - - - 51
- Sampling method - - - - - - 51
- Instrument of Data Collection - - - - - 31
- Procedure for collection, and analysis and treatment - - 52
- Validity -- - - - - - - - - - 54
CHAPTER FOUR - Data Presentation and Analysis
- Introduction - - - - - - - - 56
- Presentation of Data - - - - - - - - 56
- Findings - - - - - - - - - - 75
CHAPTER FIVE - Summary, Conclusion & Recommendations
- Summary- - - - - - - - - - 80
- Conclusion - - - - - - - - - 81
- Recommendations - - - - - - - - 82
Bibliography - - - - - - - - 84
Auditor plays a greater roles in the state and the entire nation as a whole, for the development of public sectors in the states, it constitute nearly 80% in terms of financial management for fraud prevention and control in the public sector.
Auditing in its modern form, has attended a primitive existence since the 16th century when the division first started to grow between those who provide capital and those who managed the business. The introduction of the joint stock companies, has greatly widened the possibility of raising capital for industry as a result of the limited liability of share holders it became possible to offer shares to the public and thus the availability of capital to industry and commerce.
Under the company form of organization, the government put more emphasis on financial management in the public sector to ensure proper record keeping that the accounting book has always show the true and fair view of the financial statement and operation are being carried out successfully as such problem of financial misconduct and misappropriation through fraudulent by all means should be identified and taken care of. This has necessitated for the insight of this project in which the auditor detect how fraud is detected and looking for prevention method and controlling it in the public sector. The primary responsibility for detection, control and prevention of fraud rest with the management, this responsibility arises at contractual duty of care directors and mangers of an organization becomes directors and managers, act in stewardship capacity with regard to the property entrusted to them by the government and stock holders and others owners. How they exercise this duty of care is a matter for them in most cases their duty may be discharged by institutions and maintaining a strong system of internal control.
Therefore, internal control can be seen as the whole system of control; financial and other wise, established by the management in order to carry on the business in an organization in an orderly and efficient manner to ensure adherence to management policies control and safeguards the assets and secure as far as possible the competence and accuracy of the records, in an organization for internal control to be effective the following should be specified.
In all cases. The delegation of authority and responsibility should be clearly specified. An employee should always know the practice powers delegated to him or she the extend of his authority and to whom they should report, for example.
- Responsibility for approving the purchase of items of plant may be retained by the Board of Directors and within the competence of the works managers for the budgeted amount agreed by the board.
- Responsibility for the correct operation of internal control may be delegated by the board to specified management personnel and the internal audit department.
- The involvement of several people reduces the risk of international manipulation or accidental error and increase the checking element of work.
- Function for which a given transaction should be separated include initiation (e.g. the work for foreman decides the organization need more lubrication oil) authorization (the works manager approve the purchases) execution (buying department order for the oil) custody on arrival of the oil is taken by the store department with appropriate documentation.
This indicate how important internal control is and its effect on asset and liabilities, revenue and expenditure as well as every aspect of the operation of the organization in the public sector as most business decision are based on accounting data which explains how important internal controls system provide double assurance of the responsibility of the accounting data which form bases for business decision such a decision should be communicated to all section of the organization and must follow up to enhance compliance for effective performance upon the other hand fraud can be seen as a way which involves the use of deception, to obtain an unjust or illegal financial advantage by international mis-statements in or omission of amount from an entries accounting record of financial statements.
The primary responsibility for fraud detection and irregularities rest with the management. This responsibility arises from a contractual duty of care by directors and managers and also because directors and other managers act in a worship capacity with regards to the property entrusted to them by the organization or other owner. How to exercise this duty is a matter for them, but in must cases their duty may be discharged by instituting and maintaining a strong system of internal control. The possible indications of fraud and irregularities includes:
- Missing vouchers or documents: An employee destroyed an invoice copy and pocket the cash paid in connection with the invoice.
- Evidence of disputes, lack of partial payments by debtors may indicate disputed invoices.
- Evidence of falsified document that is an invoice, dates were altered to place the documents in a different year bolster profit.
- Unexpected items of reconciliation or suspense accounts differences on bought and sales ledger control accounts may indicate trivial non material errors but may indicate real fraud.
- Evidence that internal control is not operating as it is intended to explanation that short cuts have been made to achieve greater efficiency may infact have been made to facilitate fraudulent conversion
On discovery of fraud the following sequence of actions may be appropriate to prevent such occurrence.
- If it appears that fraud error have occurred, and may be material then consider the effect on the financial statements and ensure that they are prepared with such adjustments and amendments as may be required.
- If further investigations are required and account cannot be delayed, then the auditor report may have to be qualified for uncertainty.
- In events were frauds have occurred ensure top management are aware of such events.
1.1 HISTORICAL BACKGROUND OF KADUNA STATE WATER BOARD (KSWB)
Water is one of the most fundamental necessities for life and human survival this does not only imply to its availability but also the chances for everyone to have assess to it. Water supply systems include the world's water resources, all of its water requirement it includes works for collection purification storage, and distribution of water to homes.
The water treatment systems were first brought by the colonial masters since before the end of the colonial period there were towns which had water supply which among others include Kaduna and Zaria which were established in the year 1929 and 1939 respectively which were primarily established to meet the demand at that time by the colonial masters and some restricted area (G.R.A).
The supply of water in Kaduna State was the sole responsibility of the state ministry of works and housing prior to 1971. The department of water supply was remove from the ministry and become an autonomous body for the purpose of efficiency and effectiveness, as well as to serve as an avenue for providing portable water supply to all part of the state.
Kaduna state water board was established as North Central water Board came into being in May 1971 by edict NO.2 of 1971 signed by the then military Governor (late Brigadier Abba Kyari Retd). The Board then became a body corporate with perpetual succession and a common seal and shall have power to sue and be sued in its Corporate name.
POWERS AND FUNCTIONS OF THE BOARD
The Board has the power vested or to be vested as follows:
- To control and manage all water works plants.
- To establish, control, manager, extend and develop such water works (old and new).
- To ensure that water is supplied to the public consumers at reasonable charges, in portable quality and also adequate quality.
- To organize the conduct of comprehensive research from time to time for utilization in the formulation of policy relating to the supply and usage of water in the state. To enable the board to perform all or some of the above function both Federal and state government give it capital grants but that of the federal government was later stopped to defray re-current costs however, the edict empowered the board to charge, with the approval of the governor, the consumers determine reasonable rate that shall as sufficiently as possible pay for the salaries, fees and allowances of the members, the salaries remuneration, fees, allowance pensions, gratuities and other retirement benefits of the officers, servants, other services at a consultants to the board all expenses of working staff and management of the board and its water works and other properties including proper provision for depreciation for renewal of assets. Such as minor works of capital nature, such payments as compensation, taxes, rates and other levies payable le under any law and interest on any loan raised by the board etc. The board is an autonomies body with the board governing council consisting of a chairman and the general manager of the board is included for the day to day running of the affairs of the board, it has a management committee headed by the general manager and the following and the following members who assisted him/her in one way or the order other.
Assistant General Manager (secretary)
Assistant General Manager (operation)
Assistant General Manager (finance)
Assistant General Manager (project)
Assistant General Manager (commercial)
project manager (Rural water supply)
Chief internal auditor.
The Board appreciate and terminates its own staff being guided by the civil service rules (CSR), financial regulation (FR) its own edict, staff regulations and domestic/house report of the external auditors. The Board offers services in terms of water supply to the entire state including drilling of boreholes in the rural areas through the rural water supply department.
ACCOUNTING AND COMMERCIAL DEPARTMENT
The issue of revenue administration cannot be discussed in Kaduna State water Board without making full reference to those two departments the (Accounting and commercial) because they are the revenue generating units officials (meter readers, bill distributions, billing clerks, accountants, commercial staff) are realized when money is paid to the cashiers. The accounting department is headed by assistant general manager (finance).
The department has three sections (finance, revenue and final accounts) each headed by chief accountant while (store is headed by a chief store officer). At the district level, the section is headed by district accountants, it is the responsibility of this department to keep proper accounts in respect of the functions of the board, preparing the financial year statement of accounts in a form that may be approved by the board. It also prepares an estimated revenue and expenditure. The revenue estimate will serve as a guideline for the collection of revenue, it will be a yardstick for measuring the efforts of revenue officials. It is also the accounts department that collect and keeps proper account of revenue generated and control the expenditure of the board.
Like the accounts department, the commercial department is headed by the assistant general manager (commercial) it involves two separate sections (commercial and detection) headed by a chief. All the district levels.
The department is headed by assistant chief commercial or detection officer. The direct contact between the board and consumers is made possible through this department it is this department that sales and supply water to the consumers.
All connections are made by this department, it fixes meters where necessary, takes the reading of the meters makes assessment of the amount to be paid, prepare and distribute bills and follow up to encourage consumers to settle their bills, it is the work of this department to disconnect defaulters or illegal connections. They reconnect for those who settle their outstanding if they are formalized.
SOURCE OF REVENUE TO THE BOARD
Kaduna State Water Board like any other organization need, fund to enable it operate effectively, the main source of revenue comes from the sales of water to all categories of consumers. The board is one of the many parastatals, established out of government ministries and department with the aim to booster the efficiency and effectiveness in providing public services to the generality of the people. These public service corporations are not established principally to make profit but to serve people and to be able to break even i.e. (situation where there is no profit and no losses B. E. P).
For the board to maintain itself, it charges reasonable subsidized rates for the water supply for both treated and raw water (which is consumed by big industries). The treated water metered connection is charged at the rate of 1000 litres per Naira as per the following
- The first category is the metered connection which is that of domestic consumption, which consist of houses they are charged N100 per 1000 litres.
- The second category is that of public institutions including that of Federal, state and local government whatever amount they consumed are charge at the rate of N 140 per 1000 litres.
- The third is the most important source of revenue to the board it is more reliable because settlement of tariffs is most often up to dates the third category include industrial and commercial consumption below 5 million, while 5 to 10 million litres are charged N300 per 1000 litres and additional consumption above 10 million litres are charge at the rate of N500 per 1000 litres per month.
- The last is the tanker supply which is charged N500 per 1000 litres apart from the metred domestic. There is also the flat rate charged that have multiple caps heads are charged N200 monthly.
Raw water is another source of revenue the charge here is on the untreated water supply to industries like refinery and textiles. The charge is at the rate of 500 per 1000 lites.
The above mentioned charges have been approved by the state government and came into effect from the 1st January 2000. The increased in the water rate has become necessary for obvious reasons. There has been increased in the operational cost, the prices of chemicals have gone up N. E. P. A. tariffs, spare parts for maintenance of treatment plants and distribution system have all gone up.
Apart from water rates as source of revenue to the board, there are others source which include private water connection (PWC) charge, this are money charged on consumers who want fresh water connection and the charges depend on the size of the pipe to be used.
WATER CONNECTION CHARGES
SIZE OF PIPE
N 450 |
N 455 |
Source: Kaduna State Board (commercial Department) other sources are the profit on bank interest on money deposit, AWS school fees paid by those sister Board of other states for training of their staff and other miscellaneous like fee for reconnection and alteration.
1.2 STATEMENT OF PROBLEMS
It is a know face fact that auditors are not created to only to face or identified fraud, but to set standards and make sure the standards are followed by the accounts,. They control the activities of accountant so as to deviate from the set standard. But it have been noted that some accountant want a head and engaged themselves in some fraudulent act. The question one should ask is what role auditors play in preventing the possible fraud by either accountant or any other person that involved in the management of the organization funds?
1.3 RESEARCH QUESTION
- What are the reaction to mass incidence of frauds and financial mismanagement.
- Why do these problem continue to surface unabated despite the presence of auditors.
- Could it be due to particular operation system n case or it is professional incapability on the part of the auditor.
- Has the society at large got its part of blame
- How can these problems be overcome all this will try to provide an answer at the end of conclusion.
- STATEMENT OF HYPOTHESIS
The research intend to test the following hypothesis.
H0: That the presence of auditor in Kaduna State Water board (KSWB) does not prevent fraud.
Hi: That the presence of effective and efficient auditors will greatly help in preventing fraud in Kaduna State Water board (KSWB).
- OBJECTIVES OF THE STUDY
In the contemporary business sector it is of paramount importance for managers, and executive both in private and public sectors to understand the language concepts and principles of financial management as well as the role played by the accountant and a and auditors in discharging their responsibility (ties).
This is so because of the financial implications and responsibilities attached to their various offices. Therefore the study could be itemized as follows:
- To thoroughly investigate the causes of fraud and fraud detection prevention and control in Kaduna State water.
- To identify various problems and prospects in the efforts to minimize he occurrence of fraud and financial mis-management in the public Sector.
- To suggest possible ways of curbing the adverse effects on the organization.
- SIGNIFICANCE OF THE STUDY
Within the entire public sector there is the need to take up the study nature which has the sole aim of diagnosing the causes of rampant cases of fraud in the public sector and the impact of such fraud to the management of Kaduna State Water Board and other public sector alike. The management of Kaduna State Water Board and other public sector will find the outcome of this research useful especially as it will serve as a pointer to the factor which leads to fraud in public sectors. There is no doubt that this research work will serve as a future reference
- LIMITATION OF THE STUDY
There is no doubt that time was one of the major constraint which is insufficient but significant to undertaken the entire works. Hence issue of transportation and inadequate funds also constituted a major obstacles and unwillingness of some of the staff to responds positively to the interview/question.
1.8 SCOPE OF THE STUDY
The research work is only limited to Kaduna State Water Board. The researcher cannot be able to carryout or cover all other public sectors such it was limited to Kaduna State Water Board alone.
1.9 DEFINITION OF TERMS
Fraud: is deliberate act of falsification of record in order to conceal either theft or some other form of misconduct.
Error: The word "error" is used to refer to unintended mistake in financial statement and accounting whether of a mathematical or misinterpretation of relevant fact.
Audit: The word "Audit" refer to official checking and investigation of the books of accounts to see if it shows a true and fair view.
Auditor: The word refer to a person who audits the books of account.
Irregularities: Refers to intentional distribution of financial statement and accounting records. Continuously on the accounting whole year or attend to at frequent regular intervals during the financial year.
Internal Audit: This refers to as independent appraisal activity within an organization for the review of operation as a service to manpower it is a management control which function by measuring and evaluating the effectiveness of other controls.