THE ROLE OF AUDITORS IN FRAUD PREVENTION AND CONTROL IN PUBLIC SECTOR

ABSTRACT

This research topic is the role of auditors in fraud prevention and control in the public sector. Kaduna state water board is chosen as a case study.  The research topics have been chosen in order to investigate the causes and possible ways of preventing and controlling fraud in the Kaduna state water board.  Among the objectives of this study is to identify the problems and solutions in an effort to minimize the occurrence of fraud and financial mismanagement in the 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 Waterboard (KSWB) was accepted and recommendations were made.

CHAPTER ONE

1.0      INTRODUCTION

The auditor plays a greater role in the state and the entire nation as a whole, for the development of public sectors in the states, it constitutes 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 the industry as a result of the limited liability of shareholders 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 shown 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 the contractual duty of care directors and managers of an organization becomes directors and managers, act in stewardship capacity with regard to the property entrusted to them by the government and stockholders 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 otherwise, 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 her the extent of his authority and to whom they should report, for example.

1.           Responsibility for approving the purchase of items of the 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.

2.           Responsibility for the correct operation of internal control may be delegated by the board to specified management personnel and the internal audit department.

3.           The involvement of several people reduces the risk of international manipulation or accidental error and increase the checking element of work.

4.           Function for which a given transaction should be separated includes 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 indicates 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 rests 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 another owner. How to exercise this duty is a matter for them, but in most cases their duty may be discharged by instituting and maintaining a strong system of internal control. The possible indications of fraud and irregularities include:

a)           Missing vouchers or documents: An employee destroyed an invoice copy and pocket the cash paid in connection with the invoice.

b)          Evidence of disputes, lack of partial payments by debtors may indicate disputed invoices.

c)           Evidence of falsified document that is an invoice, dates were altered to place the documents in a different year bolster profit.

d)          Unexpected items of reconciliation or suspense account differences on bought and sales ledger control accounts may indicate trivial nonmaterial errors but may indicate real fraud.

e)           Evidence that internal control is not operating as it is intended to explain that short cuts have been made to achieve greater efficiency may, in fact, have been made to facilitate the fraudulent conversion

On discovery of fraud the following sequence of actions may be appropriate to prevent such occurrence.

1.           If it appears that fraud error has occurred, and maybe material then consider the effect on the financial statements and ensure that they are prepared with such adjustments and amendments as may be required.

2.           If further investigations are required and the account cannot be delayed, then the auditor report may have to be qualified for uncertainty.

3.           In events where frauds have occurred ensure top management is 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 its availability but also the chances for everyone to have assessed 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 removed 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 parts 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 the 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:­

a)           To control and manage all waterworks plants.

b)          To establish, control, manager, extend and develop such waterworks (old and new).

c)           To ensure that water is supplied to the public consumers at reasonable charges, in portable quality and also adequate quality.

d)          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 waterworks 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 appreciates 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 unit’s 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 the assistant general manager (finance).

The department has three sections (finance, revenue, and final accounts) each headed by chief accountant while (the 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 collects and keeps proper account of revenue generated and controls the expenditure of the board.

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