General Introduction
Internal
audit is a long-standing function and an effective tool of management in many
organizations. According to Okezie,(2004)Internal Internal auditing is an independent,
objective assurance and consulting activity designed to add value and improve an
organization's operations. It helps an organization accomplish its objectives
by bringing a systematic, disciplined approach to evaluate and improve the effectiveness
of risk management, control,
and governance processes. Internal auditing is a catalyst for improving an
organization's governance, risk management and management controls by providing
insight and recommendations based on analyses and assessments of data and
business processes. With commitment to integrity
and accountability,
internal auditing provides value to governing bodies and senior
management as an objective source of independent advice.
Professionals called internal auditors are employed by organizations to perform the internal
auditing activity. OKEZIE, 2004.
The
scope of internal auditing within an organization is broad and may involve
topics such as an organization's governance, risk management and management
controls over: efficiency/effectiveness of operations (including safeguarding
of assets), the reliability of financial and management reporting, and compliance with laws and regulations.
Internal auditing may also involve conducting proactive fraud audits to
identify potentially fraudulent acts; participating in fraud investigations
under the direction of fraud investigation professionals, and conducting post
investigation fraud audits to identify control breakdowns and establish
financial loss. Internal auditors are not responsible for the execution
of company activities; they advise management and the Board of Directors (or similar oversight
body) regarding how to better execute their responsibilities. As a result of their
broad scope of involvement, internal auditors may have a variety of higher
educational and professional backgrounds.
A
company’s accounting control practices (such as internal auditing) is widely
believed to be crucial to the success of an enterprise as it acts as a powerful
control system on the possible deviations from the predetermined objectives and
policies.
Internal
auditing is traditionally developed as an audit on behalf of management to
ensure that:
- The existing internal controls are adequate and effective.
- The financial and other records and reports show the result of actual operations accurately and promptly.
- Each unit of the organization follows the policies and procedures as laid down by the top management.
This
fact indicates the need or importance of an audit. For the limited companies,
it is compulsory to have their annual accounts to be audited by the independent
and qualified auditor. Sometimes income tax officials such as Rwanda Revenue
Authority, bank management and lenders/creditors also require audited accounts
before making any decisions.
Talking
on the public institution, In general, a public institution is governed by the
state and there is a board of trustees which is elected for controlling the
institution. An educational public institution has its council of members to
control the functioning of the educational body and the funding for the
organization occurs through the tax dollars.
According
to Raw, (1986), Business growth refers to a business that generates significant
positive cash flows or earnings, which increase at significantly faster rates
than the overall economy. A company associated with growth tends to have very
profitable reinvestment opportunities for its own retained earnings. Businesses
that grow are often seen in the technology industries.
Problem Statement
It used
to be that internal auditing in the public sector served as a simple
administrative procedure comprised mainly of checking accuracy of transactions,
pre-payment verification and control, counting assets and reporting on past
events to various types of management. But in recent times, a combination of
forces has led to a quiet revolution in the profession. Governments are now
moving toward higher levels of transparency and hence Public Institutions must
demonstrate accountability in the use of public money and efficiency in the
delivery of services. Internal audits provide a number of important
services to company management. These include detecting and preventing fraud,
testing internal control, and monitoring compliance with company policy and
government regulation, and these services or functions of Internal Audit are
intended to spearhead growth and efficiency of the Public Institutions.
Unfortunately, ONATRACOM has undergone financial crisis for the last two years,
despite the fact that this Public Institution procedures have been subjected to
Internal Audit. Ithas therefore not been able to meet its commitments
with most of its suppliers and lack of internal audit. This study is therefore
aimed at establishing the role of internal audit towards business growth.
I. General Objective
The main
aim of this study is to examine the effect of internal audit on business
growth,taking the specific case study of the former Rwanda National company of
public transportation otherwise known as ONATRACOM.
I.1. Specific Objectives
In order
to achieve the above stated main objective, specific objectives are defined and
from them will derive the main indicators that will help us to understand the
main parameters to measure. Set specific objectives are as follows:
- To find out if internal audit increases Sales and Net profit of ONATRACOM
- To assess whether internal audit has led to the expansion of ONATRACOM operations.
- To find out if internal audit related to the growth of Public Institutions.
I.2.Research Questions:
- Does internal audit increase the Sales and net profit of ONATRACOM?
- Has internal audit assisted the expansion of ONATRACOM operations?
- Does internal audit lead to the growth of Public Institutions?
II. The scope of the study
This
study provides some insights on financial strength of ONATRACOM in terms of
sales, profits and cash flow. Findings from the research show whether internal
audit leads to the business growth of ONATRACOM and if achieving internal audit
increases the net profit and sales of ONATRACOM. It will also help to
understand at what extent internal and external sources of funds for pursuing
growth opportunities in ONATRACOM are available and if this is linked with the
effect internal audit.
II.1. Content Scope
The
content of the scope contain the Conceptual framework develop two parts, one
part encompasses the different activities of internal Audit which contributes
to the business growth of Public Institutions and the other part is
enhancement of advantages of good internal audit on the business growth of many
public institutions, then a comparison between internal audit and business
growth in any public institutions.
In terms
of geographic coverage, this study targets ONATRACOM as a Company ltd in
KIGALI-City
II.2 Time Scope
As far
as time is concerned, the study covered the period from 2008 to 2013.This
period especially interests us because it is overlapping the clearly
performance and the functions suspension of ONATRACOM in Rwanda on that our
findings can be compared to the information needed in our research.
II.3 Significance of the study
The idea
of this research has its genesis from our own interest about the impact of
dependent internal audit on the business growth for the purpose verification of
the results shown by the profit and loss account and the state of affairs as
shown by the balance sheet.
Globally,
it is hoped that this research will contribute in providing updated data on
Fraud refers to intentional misrepresentation of financial information with the
intention to deceive. And know that the Frauds can take place in the form of
manipulation of accounts, misappropriation of cash and misappropriation of
goods. It is of great importance for the auditor to detect any frauds, and
prevent their recurrence. Errors refer to unintentional mistake in the
financial information arising on account of ignorance of accounting principles.
This
will be especially useful in Africa in general, Sub-Saharan Africa in
particular where mismanagement in some companies is still a chronic handicap of
countries’ development. This will benefit the Rwandan society in general,
private and public companies. This research will also continue studies from
previous researches done from this specific issue.
Therefore
the significance of this research lays in the hope that findings from this
research project will contribute to the broad of knowledge on the impact of
dependent internal audit on the business growth in different companies
Findings
from this Research Project will especially be useful for the following
stakeholders: Policy makers, planers, managers and implementers will benefit
from the outcome of this research project whereby it will help them find better
ways of internal audit and their impact on company’s performance.
III. Conclusions
The
study aimed at examining impact of internal audit on the business growth of
public institution, case study of ONATRACOM. This research was conducted as a
case study using ONATRACOMin NYARUGENGE District. The study was built at four
specific objectives which are to determine if internal audit lead to the
business growth of ONATRACOM, to find out if achieving internal audit increases
the net profit and sales of ONATRACOM, to explore if there is internal sources
of funds for pursuing growth opportunities in ONATRACOM, to assess whether ONATRACOM
is able to obtain external sources of funds for pursuing growth opportunities
as a result of internal audit impact or not.
Data was
collected by the questionnaire as the main data correction instrument. The
findings were got from 27 respondents as the sample from the total target
population of 96. It was found out that ONATRACOMwas failure in its
services because it was not achieve its targeted objectives and in this
company, the internal audit was not effective in order to make performance of
that company.
IV. Recommendations
After
analyzing the finding and the general conclusion of the study, the researcher
came up with these recommendations.
The
government should revise the regulatory system governing transport companies as
this can help increasing their capacity following the role they play in
enhancing it performance.
Governmentprofessionalize
public transport industry, exonerate it from taxes, from its operations in
rural areas,tight ling control all operation, Total privatize it and add more
funds for operations .
Reform
in public transport system-The existing public transport service providers are
currently operating in the cities and in Kigali cityand they have ignored the
village and surrounding region; the reforms in public transport is required
with the purpose of facilitating the registered companies to operate in different
remote areas and also train their staff on the management of companies.
ONATRACOM
should encourage its clients, employees and other partners to own them the
satisfied services as this can solve the challenge of lack of effectiveness of
services since when they are together one can work as a security to another.
Auditors
of ONATRACOM should be independent, and avoid nepotism in their daily
activities which led to the performance of such company.
if you
wish to read an entire article, visit this website:INTERNAL AUDIT AND GROWTH OF PUBLIC INSTITUTIONS
By Jean
Paul NTEZIRYAYO
March
2015
