EFFECT OF AUDIT PROCEDURES ON FRAUD RISK ASSESSMENT OF MDAS IN NIGERIA

ABSTRACT

This research analysed the effect of audit procedures on fraud risk assessment of MDAs in Nigeria. The study was guided by the Agency theory, Institutional theory and System theory. The results of the previous studies were empirically reviewed and were divided into international and local studies to bring out the lacuna on previous studies about internal control system. A total of 300 respondents who were accountants and auditors from 33 ministries in Ogun State were sampled for the study. The theoretical framework to the study was agency theory. Data were analysis using Regression analysis. The result revealed that there is a significant effect of effect of audit procedures on fraud risk assessment of MDAs in Nigeria. The finding of the study also reveals that there is a significant effect of information and communication technology on fraud risk assessment of MDAs in Nigeria. The findings of the study also reveal thatthe audit policies and procedures are adequate for authorizing and approving transactions.  The findings of the study also reveal that management performs periodic review of policies and procedures to determine their continued relevance, and refreshes them when necessary. The finding of the study also reveals that control activities help the accountant and the audit officers to at alert all the time against any form of financial fraud. Finally, the findings of the study reveal that management has a communication process reinforcing to all employees their roles in ensuring that internal control responsibilities are taken seriously.  It was therefore concluded that audit procedure has a significant effect on fraud risk assessment. This implies that an increase in control activities, information and communication technology and internal audit will lead to a corresponding increase in fraud risk assessment of MDAs in Ogun State, Nigeria. It was recommended that there should be proper communication channels to disseminate appropriate information to staffs and clients of the organisation.

CHAPTER ONE

INTRODUCTION

1. Background of the Study

In the past, many firms have neglected internal auditing by relying solely on external auditors to assess their internal controls on a yearly basis (Crawford & Stein 2002). Recent unanticipated developments have forced the business sector to develop stronger strategies for ensuring improved corporate performance, stability in the form of going concerns, and steady business growth.According to Boynton and Johnson (2006), audit failure has caused commercial entities to fail and led to the loss of investments.According to ACFE (2010), public and market credibility in audit is low as a result of recent corporate scandals and the accompanying audit failures over the past 20 years.The series of corporate shocks that have affected both developed and emerging countries on a worldwide scale over the past 20 years has prompted numerous nations to introduce reforms in the accounting and auditing professions.While they may have been hired to continuously assess the internal controls of the firm and recommend quick corrective action, the internal audit appears to have been pushed to the background.Concern has been raised over recent corporate failures when internal and external auditors of the firm failed to identify and correct specific flaws in the managerial structure (Holm &Laursen, 2007). Internal auditors are expected to oversee the efficiency of internal control systems as part of the audit committee's analysis of internal control systems, which has been broadened to encompass the risk assessment of businesses (Fraser & Henry, 2007). Al-Twaijry, Brierley, and Gwilliam (2003) state that creating an internal audit department within an organization has two benefits: first, it enhances organizational operations by ensuring that established policies are followed; second, it manages risk; and third, it aids in the prevention and detection of errors or fraud as well as the protection of assets.

In any organization, risk is unavoidable, and risk management functions help to build effective policies, procedures, and processes that result in successful operations and efficiency value delivery (Achua and Alabar, 2014).Every firm carries some sort of inherent risk, which needs to be recognized, quantified, and mitigated. Internal audit teams perform both internal control evaluation and business risk assessment tasks in almost all company organizations.Although Dibia, (2016) argues that changes in global business practices have affected the role of internal audit, the internal audit department could still offer management consulting services and help the board of directors manage risk. Internal auditors are expected to estimate risk, then develop ways to deal with it by enhancing structured, systematic control systems.Given that the audit profession has the potential to spur change and foster the development of more astute auditors for a complex business environment, internal auditors' expertise is essential to delivering internal audit and auditors that could help meet the evolving stakeholders' interests generally.Reevaluating internal auditors' procedures is thought to be urgently necessary in order to address emerging risks and advise management on how to meet the changing needs and expectations of the organization and stakeholders, especially since risk management is becoming more complex as a result of emerging risks (Ismajli, 2017).There have been studies in the field of internal auditing, but few have focused on the efficiency of internal auditing in risk assessment of an organization that concentrate on risk-based audit approach of the internal auditors of the listed companies in Nigeria that could guarantee consistent growth in business and stability in operation without jeopardizing the going concern of the organization.Internal auditors are expected to continuously assess the organization's internal control system and serve as business risk assessors, particularly for emerging risks. As a result, the results of earlier studies in the field of internal audit lacked unanimity, indicating a research gap that demands additional studies on this subject and served as the inspiration for this study.Taking into account the contemporary pandemic economy, which is marked by physical distance and a decline in social interaction in public spaces, as well as an increase in virtual activities and business operation automation, which automatically increased operating costs for organizations. It is against this background that this study analysed effect of audit procedures on fraud risk assessment of MDAs in Nigeria.

1.2 Statement of the Problem

In particular, the public outrage on fraud shows how the traditional accounting and auditing services have failed to address and improve difficulties with accountability and transparency in Nigeria's public governance.This is demonstrated by the alarming rate at which corrupt and fraudulent activities are growing while the state of the public services, infrastructure, and facilities is rapidly deteriorating (Olumide, 2012). It has been said that Nigeria's public sector administration lacks a strong internal control structure that would allow the organization to manage its resources with clarity. As shown by the work of various organizations, the lack of sophisticated and interconnected systems designed to check one operation against another has led to their inefficiency (Mahadeen, et al., 2016). The significance of this is that public trust in the honesty of government institutions has diminished, as seen by instances of fraud and corruption. The MDAs have been unable to execute to their full potential due to lax internal control measures such inappropriate duty segregation (when authorization and approval are carried out by the same person).Also, there is a lack of a coordinated and effective communication strategy, which affects the MDAs' information flow and, in turn, the accomplishment of specified goals and objectives.Also, the lack of proper security for computer systems against environmental deterioration and unlawful access has resulted in the loss of important data and documents in the MDAs. According to Ademola, Adedoyin, and Alade (2015), certain public sector employees, including those in the ICT department, distort financial data and even spend money on themselves in ways that are contrary to the organization's objectives.Furthermore, due to a lack of staff resources and the majority of them lacking experience in defining organizational performance, low level officials have not been appropriately monitored. According to Agbejule and Jokipii (2009), a high level of monitoring results in an extremely effective internal control system, which in turn affects the performance of the organization.The senior officers' periodic evaluations of the job given to these low-level officials are insufficient. While low level monitoring will have a detrimental impact on this public entity's ability to supply services, this may have far-reaching implications for the accomplishment of the organization's aims. Directors need to be aware of how well the entity's operational goals are being met, according to COSO in 1994.

An internal audit department that monitors and controls the organization's financial activities is necessary for an organization to function effectively. Public officials continue to commit fraud despite the internal audit department's formation because so many internal auditors choose not to do their jobs because they fear for their independence. This suggests that internal auditors won't have a full evaluation of the transactions that an organization makes that can affect performance.Also, conducting internal audits and writing audit reports take a lot of time for internal auditors. According to Ahmad, Othman, and Jusoff (2009), there are a number of reasons why the internal audit function in the government sector is less effective, including a lack of audit staff, a lack of support and collaboration from senior management, and a lack of auditor independence and expertise.The damage done to the government departments necessitates immediate attention, and despite the government's efforts to solve these issues, the bulk of these MDAs still struggle to survive and provide high-quality services.

1. Objectives of the Study

The main objectives of this study is to analyzed the effect of audit procedures on fraud risk assessment of MDAs in Nigeria. Specific objectives of the study are;

1. To determine the effect of audit procedures on fraud risk assessment of MDAs in Nigeria
2. To determine the effect of information and communication technology on fraud risk assessment of MDAs in Nigeria
3. To examine if audit procedure is significantly related to fraud risk assessment of MDAs in Nigeria
4. To examine the level at which monitoring affects fraud risk assessment of MDAs in Nigeria.

Research Questions

In addressing the problem of this study, the following research questions have been raised;

1. What is the effect of audit procedures on fraud risk assessment of MDAs in Nigeria?
2. What is the effect of information and communication technology on fraud risk assessment of MDAs in Nigeria
3. Is there a relationship between audit procedure and fraud risk assessment of MDAs in Nigeria
4. What is the level at which monitoring affects on fraud risk assessment of MDAs in Nigeria.

Research Hypotheses

The following were hypothesized in this study;

Hypothesis One

H0: There is no significant effect of audit procedures on fraud risk assessment of MDAs in Nigeria

H1: There is a significant effect of audit procedures on fraud risk assessment of MDAs in Nigeria

Hypothesis Two

H0: There is no significant effect of information and communication technology on fraud risk assessment of MDAs in Nigeria

H1: There is a significant effect of information and communication technology on fraud risk assessment of MDAs in Nigeria

Hypothesis three

H0: There is no significant relationship between audit procedure and fraud risk assessment of MDAs in Nigeria

H1: There is a significant relationship between audit procedure and fraud risk assessment of MDAs in Nigeria

Hypothesis Four

H0: There is no significant effect monitoring on fraud risk assessment of MDAs in Nigeria

H1: There is a significant effect monitoring on fraud risk assessment of MDAs in Nigeria

Significance of the Study

Findings from empirical study are essential to a country's progress. This study is anticipated to contribute to the body of knowledge on auditing practices and MDA fraud risk assessment in Nigeria.This study's overarching goal is to examine how audit procedures affect MDAs' assessments of their fraud risk using Ogun State as a case study. In order to further this goal, the study incorporated a new variable that serves as a stand-in for the internal control system: internal audit.

By offering empirical evidence on the internal control system and organizational performance of Nigeria's public sectors, the study's findings will help advance academic understanding.Future studies on the internal control system and organizational effectiveness of MDAs in Ogun State will use this study as a source of information.

This study will aid decision-makers in developing policies to strengthen an effective internal control system that will aid MDAs in achieving their goals and objectives.The results of this study will be used by the government to inform MDAs of the importance of adhering to internal control system policies and procedures in order to support the development and stability of MDAs in Ogun State.

Lastly, this study attempts to close the gap by examining how audit methods affect MDAs in Ogun State's evaluation of their fraud risk. The internal control system was measured using proxies that included monitoring, internal audit, control activities, and information and communication technologies.

Scope of the Study

This researchers focused at how auditing practices affected how MDAs in Nigeria's Ogun State assessed their risk of fraud. The ministries, departments, and agencies (MDAs) under the supervision of the Ogun State government are the subject of this study.The decision to use MDAs in Ogun State was justified by the fact that it is still the most effective mechanism for delivering social services in Ogun State, one of the states in Nigeria's north central area.Thirty-three MDAs were used as case study for this research work and was conducted in 2023.

Limitation of the Study

The results of this study are only applicable to MDAs in Ogun State, Nigeria, hence it is important to use caution when extrapolating them to federal MDAs and other public sector organizations in Nigeria. The quality of the study is unaffected by this, though, as the results are largely applicable to MDAs.

The study's conclusions might not be entirely applicable to federal MDAs in Nigeria given the way MDAs in Ogun State operate. In addition, only MDAs in Ogun State were included in this analysis. Due to the ample empirical data that supported the study's findings and the fact that the findings were trustworthy and appropriate for policy formation, these limitations had no bearing whatsoever on the study's conclusions.