AN ASSESSMENT OF INTERNAL AUDIT OPERATION IN A GOVERNMENT PRASTATAL: A CASESTUDY OF PIPELINES AND PRODUCT MARKETING COMPANY (PPMC)

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TABLE OF CONTENTS                                                                                                               PAGE

Title Page…………………………………………………………………………………………………………………… i

Certification……………………………………………………………………………………………………………….. ii

Dedication………………………………………………………………………………………………………………… iii

Acknowledgement………………………………………………………………………………………………………. iv

List of Figures……………………………………………………………………………………………………………. v

Table of Contents……………………………………………………………………………………………………….. vi

List of Tables…………………………………………………………………………………………………………….. vii

List of Abbreviation……………………………………………………………………………………………………. ix

Abstract…………………………………………………………………………………………………………………….. xi

 

 

 

 

CHAPTER ONE : INTRODUCTIION

 

1.5. Research Hypotheses…………………………………………………………………………………………………. 4

CHAPTER TWO:LITERATURE REVIEW

2.1.1.3 Objectives of Audit……………………………………………………………………………………………….. 9

2.6 Summary of Empirical Review of Literature…………………………………………………………………. 38

CHAPTER THREE:METHODOLOGY

3.0 Introduction………………………………………………………………………………………………………………. 45

CHAPTER FOUR:PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA

4.0 Introduction…………………………………………………………………………………………………………….. 48

CHAPTER FIVE:SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

REFERENCES…………………………………………………………………………………………………………………… 72

APPENDIX……………………………………………………………………………………………………………………….. 74

 

LIST OF TABLE

 

 

Table 1: Age distribution of respondent……………………………………….. .

Table 2:Gender distribution of respondents…………………………………..

Table 3: Marital Status……………………………………………………………….. .

Table 4 : Educational Qualification………………………………………………

Table 5: Professional Qualification……………………………………………….

Table 6:Work experience…………………………………………………………….

Table 7:Management Cadre…………………………………………………………

Table 8:There exist Internal Audit Department in the company………. .

Table 10: There is strict adherence to internal control procedures in the organisation………………

Table 11:The Internal Audit Department prepare audit report that is adequate in evaluating the internal control policies………………………………………………………………. .

Table 12: Internal Audit has helped to improve the company’s performance level

Table 13: There exist internal control policies that must be adhered to by responsible officers..

Table14: All staff member are aware of the internal control policies of the company………………

Table 15: The internal Control policies are used as a safeguard for performance measurement .

Table 16:The Internal Audit Department reviews the internal control mechanism regularly……..

Table 17: The Internal Audit Department reviews the company’s internal control procedure periodically……………………………………………………………………………….

Table18: The queries and recommendations of the Internal Audit Department are often implemented

………………………………………………………………………………………………..

Table 19:There has been incidence of  fraud and funds misappropriation in the company……….

Table 20:  Incidence of fraud have been detected by the Internal Audit Department……………..

Table 21: The Internal Audit Department has a functional Audit timetable for effective performance of its duties……………………………………………………………………………….

Table 22: The Internal Audit Department is independent of Finance and Accounts Department

 

Table 23:Internal Auditor performs  an  independent examination of the company’s  financial records

………………………………………………………………………………………………...

Table 24: The Audit  manager reports directly to the top management

Table 25:The Company’s Auditor have adequate skills and experience to provide internal check for the company’sasset………………………………

 

 

LIST OF ABBREVIATIONS

 

NNPC: Nigerian National Petroleum Corporation PPMC: Pipelines and Products marketing company IIA: Institute if Internal Auditors

IA: Internal Audit

 

ICAEW: Institute of Chartered Accountant of England and Wales CIMA: Chartered Institute of Management Accounting

COSO: Committee of Sponsoring Organisations APB: Auditing Practices Board

ISA: International Standards on Auditing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABSTRACT

 

 

The main objective of the study was to assess the Internal Audit mechanisms put in place by the management of Pipelines and Product Marketing Company, determine its efficiency and effectiveness of also to ascertain degree of autonomy of the corporation’s Internal Audit Department. Data were gathered through questionnaires administered to the staff in Finance & Account Department and Internal Audit Department PPMC. Chi- square and Statistical tool were used to analyse the data. Findings from the study indicated that PPMC has effective internal control system, which have enhanced the company’s level of performance. The study also showed internal audit can effectively detect fraud and financial irregularities in PPMC. The study recommends that PPMC should recruit more competent personnel as auditors, institute audit committee and resource their internal audit departments. The study reveals that no organisation can operate effectively and efficiently without an Internal Audit Department alongside with a good internal control system. The study thus concludes that internal audit department must exhibit a high degree of autonomy in order to achieve operational efficiency.

 

 

 

 

 

 

 

 

 

      Background Information

CHAPTER ONE INTRODUCTION

 

 

Risk is inherent in every business decisions and in the business process established to assist in the achievement of organisation objectives. Changes in the way organisations carry out their normal activities resulting from expansion of the business, can place extra-ordinary quality on the organisation’s control mechanism and become major source of risk. That is why establishing and implementing effective risk and control elements of the overall corporate governance framework is essential to all organisations. ICAEW, (2004).

Internal audit is established by management as an independent appraisal function to review the internal control system as a service to the organisation. The primary role of internal audit is to help the Board and Executive Management to protect the assets, reputation and sustainability of the organisation. It does this by assessing whether all significant risks are identified and appropriately reported by management and the risk function to the Board of Directors: assessing whether they are adequately controlled; and by challenging Executive Management to improve the effectiveness of governance, risk management and internal control. Internal audit department is responsible for evaluating the adequacy and effectiveness of system of risk management and internal controls operated within the company. Its responsibilities are defined and monitored by the Audit committee, on behalf of the Board. Internal auditors are employees of the organisation; they are guided by principles such as independence, objectivity, integrity, confidentially and competency  to their functions. The role of internal auditors is receiving recognition rapidly. This is evident in the establishment of Institute of Internal Auditors (IIA) in countries like U.S and U.K. as noted by Nagy and Cenker. (2002).

 

Internal auditors are seen as part of top management team involved in the creation of organisational wealth and values through effectiveness of risk management, control and governance processes.

This study therefore seeks to carry out an assessment of internal audit operation in Pipelines and Product Marketing Company (PPMC), a subsidiary of NNPC. Government parastatals like NNPC (Nigerian National petroleum Corporation) would use operational audit to carry out an inquiry into the business processes of the corporation. Operational audit is a systematic review of effectiveness, efficiency and economy of operation.

  • Background of the case study – Pipelines and Product Marketing Company (PPMC) Pipelines and Product Marketing Company (PPMC) is responsible for transporting crude oil to local refineries established by Nigerian National Petroleum Corporation (NNPC). The company also markets other petroleum products to industries, automobiles, and domestic cooking; refined petroleum products in domestic markets, as well as exports primarily in the ECOWAS sub-region; and products, such as fuel oils, base oil solvents, waxes bitumen, and sulphur. It operates a network of pipelines and depots. The company was founded in 1988 and is based in Abuja, Nigeria. -PPMC is a subsidiary of NNPC. PPMC was set up with the objective of providing excellent customer services by transporting crude oil to functioning refineries and moving white petroleum products to the existing and future markets efficiently and at low cost through a safe and well maintained network of pipelines and depots. It is also part of the objectives of the company to profitably and efficiently market refined petroleum products in the domestic as well as export markets especially in the ECOWAS sub-region while providing marine services and maintaining uninterrupted movement of refined petroleum products from the local refineries. The Vision of PPMC is to be the dominant supplier of all refined petroleum products to the existing domestic and growing export markets within the West African sub-region. Its mission is thus to ensure security of supply of petroleum products to the domestic market at low operating costs,

 

marketing special products competitively in the domestic and international markets, providing excellent customer service by effectively, and efficiently transporting crude oil to the refineries.

      Statement of Research Problem

 

PPMC was established to transport crude oil to NNPC local refineries and to markets other petroleum products to industries, automobiles and domestic cooking, as well as exports primarily in ECOWAS sub-region. It is often adjudged that officers of government parastatals entrusted  with the management of both material and human resources of their establishment are not brought under thorough control. The ultimate consequence of this is that much of the resources allocated  to the parastatals are indiscriminately mismanaged. In most parastatals, there is little or no resistance to the temptation of colliding with other workers to embezzle allocated fund to the detriment of the government and society as a whole.

Again, there is the problem of non-utilization or in some cases under-utilization of allocated resources, which pose great risk associated with the misuse of organisation funds and resources. Do internal audit department exist in the company? What is the degree of autonomy of internal audit operations? Do the management really understand the guidelines and standards of internal audit in PPMC? These are some of the questions that prompted the researcher to evaluate the internal audit mechanism in PPMC.

            Objective of the Study

 

The primary objective of the study is to assess the internal audit operations of Pipeline Product and Marketing Company (PPMC) – a subsidiary of Nigerian National Petroleum Corporation (NNPC).

The specific objectives of the study are to:

 

  1. Assess the Internal Audit mechanisms put in place by the management of PPMC

 

  1. Determine the efficiency and effectiveness of Internal Audit mechanism in PPMC

 

  • Ascertain degree of autonomy of the corporation’s Internal Audit

 

      Research Questions

 

The following research questions are put forth in the study in order to achieve the above                                                                                                                                                   stated research objectives;

  1. What are the Internal Audit Procedures in PPMC?

 

  1. How efficient and effective are the Internal Audit in PPMC?

 

  • To what degree is the autonomy of Internal Audit Department in PPMC?

 

1.5. Research Hypotheses Hypothesis One

H0: PPMC does not have a good Internal Audit Procedure H1: PPMC have a good Internal Audit Procedure Hypothesis Two

H0: The Internal Audit in PPMC is not effective and efficient H1: The Internal Audit in PPMC is effective and efficient Hypothesis Three

H0: Internal Audit in PPMC does not have a satisfactory degree of autonomy H1: Internal Audit in PPMC has a satisfactory degree of autonomy

      Significance of the Study

 

The study adds to the existing knowledge of internal audit system and the role that internal auditors’ plays in ensuring effectiveness of system of risk management and internal control operated within an organisation. It will serve as good source of reference to organisations for instituting and ensuring effective internal audit. Also, this would enable the corporation to derive optimum result from its employees by improving upon its internal control system. Similar

 

corporations will equally benefit to discover that internal auditors do not exist only to detect fraud but also to advice management on effective governance, risk and controls.

      Scope and Limitations of the Study

 

This research seeks to perform an assessment of internal audit in government parastatals, with specific focus on PPMC a subsidiary of NNPC. The period of the study is 2015. Structured questionnaires were administered to staff members of PPMC at the branch operational office in Delta State, Nigeria. Time was a major constraint of the study. Availability of respondents to respond quickly to the questionnaire also posed constraint to the study.

      Organisation of the Study

 

This study is divided into five chapters.

 

Chapter One: This chapter gives an overview of the study. It highlights the statement of the problem, objectives of the study, significance of the study, research questions, research hypotheses and scope and limitations of the study.

Chapter two focuses on the literature reviewed related to internal audit, its components and importance. Theoretical framework and empirical review of related studies are also addressed in this chapter.

Chapter three discusses the methodology used in the study. This includes research designs, population and sample size, research instrument, and data collection on internal audit evaluation of PPMC.

Chapter four analysed the data collected from administered questionnaires.

 

Chapter five presents the summary of findings, conclusions and recommendations for adoption by PPMC in order to achieve its business goals.

 

  • Definition of Terms

 

  1. Auditing: Auditing is defined as an independent examination of the books and account of an organisation by a duly appointed person to enable that person give an opinion as to whether the account show a true and fair view and comply with relevant statutory guidelines or lay down rules and
  2. Auditor: An auditor is an accountant who conducts an audit to verify the accuracy of the financial records and accounting practices of a business or government. An auditor is also an officer whose duty is to examine the accounts of officer who received and disbursed public moneys by lawful
  • Internal Audit: This refers to independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance
  1. Internal Auditor: This is an employee of a company charged with providing independent and objective evaluations of the company’s financial and operational business activities, including its corporate governance.
  2. Internal Control: Internal control is the whole system of control, financial and otherwise, established by management in order to carry on with the business in an orderly manner, ensure adherence to management policies, safeguard its asset and secure as far as possible the completeness, accuracy and reliability of books and other
  3. Internal Check: Internal check is the aggregate of the check and balance imposed on the day to day transactions in an organisation where by the work of one person is verified independently by or is complementary to the work of one

 

  • Fraud: This is defined as a criminal deception in an act of acquiring other people’s money kept in one’s possession
  • Government Parastatals: They are companies owned and controlled by government for business purpose in order to make