THE EFFECT OF AUDITING ON THE PERFORMANCE OF BUSINESS ORGANIZATION (A CASE STUDY OF HAMDALA HOTEL, KADUNA)

CHAPTER ONE

INTRODUCTION

1.1       Background of the
Study

The dynamic nature of business environment growth and
increasing complexity of business has made it imperative for management to seek
for more avenues of control, which has resulted internal audit which serves as
a control measure in both public and private sector.

It is now rare indeed to find an enterprise of any size
which does not have an internal auditing function. In many cases internal has
eclipse other management services to become efficiency, effectiveness and
economy.  The need for internal auditing in business organization cannot
be ruled out.

As business expands and the level of transaction increases
there had been cases of frauds, misappropriation of cash and other
irregularities, which if not checked will obviously not be interested of the
organization, that is why internal auditing must be introduced in every form of
business organization be it large or small to check such irregularities.

Internal audit functions are performed by employees of
organizations functioning in a staff capacity and reporting to a high level
officer in the organization.

Internal audit is essentially an appraisal activity within
organization for the review of accounting, financial and other operation as a
basis for services to management.

Auditing is the examination of certain statement covering
the company’s business transactions over a period of time and the financial
position of an organization on a certain date in order that true auditor may
issue a report on them. They also make sure that the final statement is true
and fairly viewed. There are more involved definition, such as that issued by
the consultative council of the accountancy bodies (CCAB). This body defined
auditing as “The independent examination of an expression of opinion on the
financial statement of an enterprise by an appointed auditor in pursuance of
that appointment and in compliance with any relevant statutory obligation”.

The statement adds that the responsibility for the
preparation of the financial statement and the presentation of the information
included in rests with the management of the enterprise (in the case of a
company the director).

The auditor responsibility is to report on the financial
statement as presented by the management. The auditor’s duties do not require
him specifically to search for fraud unless require by the statute or on the
specific terms of his engagement. However, the auditor should recognize the
possibility of material irregularities or fraud which could unless adequately
be disclosed or state of affairs shown by the financial statement.

Auditor therefore examines the financial transaction to test
they are in compliance with the generally acceptable accounting principles and
that of the financial statement are true and fair.

Setting up an internal audit department to a large extent
help in ensuring that operational activities comply with management policies
and other related standards. These will give no room for any form of
irregularities.                                                                                                                                                               

Setting up an internal audit department to a large extent
help in ensuring that operational activities comply with management policies
and other related standards. These will give no room for any form of
irregularities.  The basis of this study is to inform organizations on the
necessity of internal auditing and how it can be properly implemented.

1.2       Statement of the
Problems

Inspite of the existence of internal audit department/section
in business organization, it is often argued that the rate of fraud in the
organization of the economy is still on the increase.

By delaying payment vouchers, some people argue that the
internal auditors are creating more problems than they are solving. Others even
see internal auditors as mere tools to witch-hunt and therefore see them as
unnecessary evils. An attempt would be made in this study to properly educate
other operational managers (who see internal auditors as constituting a
nuisance to them) on the proper functioning of internal audit department. The
wrong impression held by non audit staff will be eliminate, that internal
auditors are merely to detect fraud and therefore must not be concerned with
their normal operations.

The research questions therefore are in the problem of this
research work which is restricted to the following: does internal auditing play
a role in accomplishing true and fair presentation of statement of profit and
loss account and balance sheet? Does internal auditing enhance internal control
leading to efficient running of enterprise?

1.3       Objectives of the
Study

The objective of the study is to determine the benefit that
could accrue to business organization through auditing with specific reference
to Hamdala Hotel Kaduna.

The study will further bring into highlight the importance
attached to the auditing system adopted by business organization whether it
satisfied their present and future needs.

It will also show whether the limited liability companies
are among the beneficiaries of auditing system.

1.4       Research Hypothesis

This sub-chapter has an important attribute in any research
work. In order to come out with a meaningful conclusion at the end of the
research works, the researcher postulates the following hypothesis:

1.  H1:
    That auditing is effective and efficient in business
organization.

H0:     That auditing is not effective
and efficient in business organization.

1.  H1:  
That auditing eradicate total fraudulent act in the business organization i.e.
auditing represents tool for controlling frauds on resources in an
organization.

           
H0:      That auditing does not eradicate total fraudulent
act in the business organization i.e. auditing does not represent a tool for
controlling frauds in resources in an organization.

Infact, the researcher is concerned with the examination of
empirical evidence to test the efficiency of this hypothesis to examine the
evaluation and also use of auditing in business organization. It is hope that
by the end of the exercise the writer should be able to outline the importance
of auditing in business organization.

1.5       Significance of the
Study

The major significance of the study is to enlighten the
public on the need to adopt the usefulness of auditing in business
organization. Business organization are facing serious problem due to lack on
internal auditing. If more attention is given to it, it will contribute greatly
towards the development of the organization as a whole. It is significant to
study the importance of auditing in business organization in Nigeria and by so
doing it gives management a better insight as to know how to operate with the
auditors in order to make the objective of the organization or company.

To the management/directors, the benefit from this system
will help in terms of internal control and the prevention of fraud that may
occur in the organization. It would also show the importance attached to
audited account made by auditors to the management and external users is
financially sound and having met up with the requirements of the information.

As the organization /company continues to exist and make
profit, management will now know that auditing is good in term of financial
statement given by the auditor that the account is true and fair.

In addition, it widen the knowledge of the researcher, in
the course of study and other researchers can go through it for further
knowledge of gathering relevant facts.

1.6       Scope of the Study

Judging from the fact that auditing has contribute in measurable
to organization in enhancing their efficiency, productivity as well as
profitability. The study is focused on the following as an acid test of
auditing relevance to organization and company: examining the existing auditing
in the organization; method of appointing removal and remuneration of auditors
as well as the operation of internal control in Hamdala Hotel, Kaduna.

1.7       Historical
Background of the Case Study (Hamdala Hotel, Kaduna)

Hamdala Hotel Kaduna is one of the international Hotels,
which is solely owned by the New Nigeria Development Company Limited (NNDC). It
is managed by Arewa Hotel Limited, which also manages a number of other hotels.

As the oldest hotels in Northern Nigeria, it was officially
opened in January, 4th 1961, by the late Sir. Ahmadu Bellow then Sardauna of
Sokoto, Premier of Northern Nigeria. It was commissioned to promote tourism and
provide up to date services in Kaduna and the neighboring states.

The decision to construct such on ultra modern international
hotel in Kaduna was to provide standard accommodation and catering service for
other government functionaries on official visit to Kaduna.

Being the first international hotel in Kaduna the one
hundred and ninety four bedroom hotel has been playing an important role in
solving accommodation problems for both government and the private companies
who may like to accommodate their visitors by giving them accommodation for
brief period. The hotel is widely recognized.

Handala hotel is located along Mohammed Buhari way and it is
opposite Murtala Muhammed square polo field and the Kaduna club among others.

The Hotel is made up of six (6) departments and cursory look
into the several organization and chart shorts that it consists of the
following departments:

• Food
  and beverages department
• Accounts
  department
• Personnel
  department
• Front
  office department
• Maintenance
  department

At the top of the organizational chart is the chief
executive with the rank of managing director, who is responsible for the smooth
running of the affairs of the hotel. Next to him is the general manager then
the departmental managers, like housekeeping. The house keeping department is
in charge of keeping the surrounding clean and keeping the rooms tidy ready for
a quest check in.

The food and beverages, the chief is in charge of kitchens
affairs and these are other mangers assisting the food and beverages because of
the sub-section under 17, example, banqueting handed by the banquet managers
and other important department as mentioned above.

Hamdala hotel has contributed in one small measures to the
development of business more especially in the times of seminars, launching,
rather, symposium, training, end of the year parties, wedding reception and
many more people comes from far and near to share common views for the purpose
of business transaction and individual needs. Many organization also use the
hotel for holding meetings and even launching of new products and for with
worthwhile activities that have impact on the society.

1.8       Definition of Terms

• Fictitious
  Account: They are account that does not exist. There are the
  types that stolen money is usually lodged.
• Irregularities:
  This can be defined as the act of doing something in such a way that gives
  against the usual way.
• Forgery:
  According to the website dictionary forgery is the falsification or
  counterfeiting which involve the making of false document writing knowing
  it to be false and with the interest that is acted upon as genuine.
• Audit:
  Accounting to Webster business dictionary is an examination of accounting
  document and of supporting evidence for the purpose of reaching propriety
  fairness, consistency and conformity with accepted principles.
• Internal
  audit: This refers to the institutionalized examination of
  accounting procedures with an organization.
• Financial
  regulation: these are rules, regulations and guideline governing
  financial transition.