INSTITUTE OF PUBLIC ADMINISTRATION AND MANAGEMENT

UNIVERSITY OF SIERRA LEONE

TITLE: THE IMPACT OF INTERNAL AUDITING IN CONTROLLING FRAUD AND

OTHER

FINANCIAL IRREGULARITIES

BY

Yours Names and ID Number

OCTOBER, 2017. (change the month and year)

i
 INSTITUTE OF PUBLIC ADMINISTRATION AND MANAGEMENT

UNIVERSITY OF SIERRA LEONE

TITLE: THE IMPACT OF INTERNAL AUDITING IN CONTROLLING FRAUD

AND OTHER

FINANCIAL IRREGULARITIES

CASE STUDY: USING ROKEL COMMERCIAL BANK (RCB) SIERRA LEONE

Change the case study

BY

Yours Names and ID Number

SUBMITTED TO:

THE DEPARTMENT OF ACCOUNTING AND FINANCE

IN PARTIAL FULFILMENT OF THE REQUIREMENTS

FOR THE DEGREE

OF

BACHELOR OF SCIENCE (BSc) WITH HONOURS IN APPLIED ACCOUNTING

OCTOBER, 2017. (change the month and year)

ii
TABLEOF CONTENTS

COVER PAGE.................................................................................................................. i

TITLE PAGE.................................................................................................................... ii

TABLE OF CONTENT.................................................................................................... iii

DEDICATION.................................................................................................................. iv

ACKNOWLEDGEMENT................................................................................................ v

CERTIFICATION............................................................................................................ vi

ABBREVIATIONS/ACRONYMS ………………………………………..................... vii

LIST OF TABLES........................................................................................................... viii

LIST OF FIGURES........................................................................................................... ix

ABSTRACT....................................................................................................................... x

CHAPTER ONE (Introduction)

1.1 BACKGROUND TO THE STUDY

1.2 STATEMENT OF THE PROBLEM

1.3 HISTORICAL BACKGROUND OF ROKEL COMMERCIAL BANK

1.4 OBJECTIVE OF THE STUDY

1.5 RESEARCH HYPOTHESIS

1.6 RESEARCH QUESTIONS

1.7 SIGNIFICANCE OF THE STUDY

1.8 SCOPE OF THE STUDY

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CHAPTER TWO (Literature Review)

2.0 INTRODUCTION

2.1 FINANCIAL AUDITS

2.2 COMPLIANT AUDITS

2.3 OPERATIONAL AUDIT

2.4 FRAUD

2.5 AUDITORS DUTIES REGARDING FRAUD

2.6 AUDITORS CONTROLL IN FRAUDLENT ACTIVITIES

2.7 AUDITORS RESPOSIBILITIES IN FRAUD DETECTION

2.8 INTERNAL CONTROL

CHAPTER THREE (Research Methodology)

3.1 INTRODUCTION

3.2 RESEARCH DESIGN

3.3 POPULATION OF THE STUDY

3.4 SAMPLE AND SAMPLING TECHNIQUES

3.5 RESEARCH INSTRUMENTS

3.6 SOURCES OF DATA

3.7 DATA ANALYSIS

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CHAPTER FOUR (Data Analysis)

4.1 INTRODUCTION

4.2 INTERPRETATION AND ANALYSIS OF DATA

4.3 TEST OF HYPOTHESES

4.4 DISCUSSION OF FINDINGS

CHAPTER FIVE (Conclusion)

5.1 SUMMARY FINDINGS

5.2 CONCLUSION

5.3 RECOMMENDATIONS

REFERNCES

APPENDICES

DEDICATION (optional if you want to change or add)

We are dedicating this work to our parents, supervisor, lecturers, loved ones and all those

who contributed in diverse ways to make this work successful.

v
 ACKNOWLEDGEMENT (Do the necessary changes or change the wordings completely)

We extend our sincere thanks and deepest appreciation to the Almighty God for His wisdom,

knowledge and understanding for taking us through our academic work over the years of

study, as well as His guidance and protection. We also thank our parents for their continuous

financial and moral supports in our pursuit for knowledge. We also owe a debt of gratitude to

the entire staff, more especially our head of department; Mr Ahmad Tejan Bah of the nation’s

finest and most prestigious institution of higher learning (IPAM-USL) without whose

intellectual competence, patience, and considerable contribution, we would not have

succeeded in our academic prospect.

We owe it to ourselves as well as to our soft spoken supervisor Mr. Manfred Pearce, whose

constructive criticisms, suggestions and recommendations facilitated the successful

completion of this time consuming challenging and painstaking academic undertaking.

Finally, remain highly grateful to the staff of Rokel Commercial Bank (RCB) for helping us

getting through this dissertation. We personally extended our hearty gratitude to Mr. Nicole

Head of Internal Audit Department (RCB) for tirelessly helping us with relevant information

used to make this work a success.

vi
 INSTITUTE OF PUBLIC ADMINISTRATION AND MANAGEMENT

UNIVERSITY OF SIERRA LEONE

CERTIFICATION (optional if you guys want to change the wording)

We hereby certify that this Dissertation is the original work of the candidates; no part of it

has been presented for another degree in this University or elsewhere and that is accepted in

partial fulfilment of the requirements for the award of the degree of Bachelor of Science in

Applied Accounting. Therefore any errors contained in this dissertation, we bear sole

responsibility.

SUPERVISOR ............................................................... ............................... .......................

Name Signature Date

HEAD OF DEPARTMENT.................................................. ........................... ......................

Name Signature Date

HEAD OF RESEARCH....................................................... ........................... ......................

Name Signature Date

EXTERNAL EXAMINER (S)............................................. ............................ ........................

Name Signature Date

vii
 LIST OF TABLES

Table 4.1: Sex Distribution of Respondents 48

Table 4.2: Age Distribution of Respondents 48

Table 4.3: Staff category of Respondents 49

Table 4.4: Level of Qualification of Respondents 50

Table 4.5: Existence of Internal Audit Department 51

Table 4.6: Strength of the Internal Audit Team 52

Table 4.7: How Structured is the Internal Audit Team? 52

Table 4.8: Clear Objectives of the Company 54

Table 4.9: Management Appropriately Evaluates Risk When Planning for New Activity 54

Table 4.10: How the Bank Deals With Risk 55

Table 4.11: Control Activities 56

Table 4.12: Who do the Internal Audit Team Report to? 57

Table 4.13: What is the Area of Deficiency in the Internal Control System? 58

Table 4.14: What is the Benefit Derived in Implementing an Internal Control System? 59

Table 4.15: Internal Audit Function in Rokel Commercial Bank 60

Table 4.16: Auditing Has Not Help to Correct Irregularities in Rokel Commercial Bank 61

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 LIST OF FIGURES

Figure 4.1 Existence of Internal Audit Department 51

Figure 4.2 Strength of Internal Audit Team 52

Figure 4.3 Structure of Internal Audit Team 53

Figure 4.4 How the Bank Deals With Risk 55

Figure 4.5 Control Activity 56

Figure 4.6 Area of Deficiency in the Internal Control System 59

Figure 4.7 Benefit Derived in Implementing an Internal Control System 60

Figure 4.8 Hypothesis One 61

Figure 4.9 Hypothesis Two 62

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ABSTRACT (Do the necessary changes)

Fraud in the Sierra Leone Banking Industry before the recent merger, acquisition and recapitalization

efforts was at an alarming rate. It has caused many banks to collapse, and many investors and

depositors’ funds were trapped in. In fact is has become a cankerworm that has eaten deep into the

financial sector of the Sierra Leonean economy. That calls for the need for this study, and the purpose

of this study therefore is to identify the causes of fraud, measure its impact and identify the means of

controlling it. The study is a survey research and questionnaire was used for the collection of primary

data. Questionnaires were administered to staff of Rokel Commercial Bank Limited (RCB).

Percentages were used in analysing data. The findings show that lack of adequate training,

communication gap, and poor leadership skills were the greatest causes of fraud in Sierra Leonean

Banking industry. It was concluded that adequate internal control system should be put in place and

that workers’ satisfaction and comfort should be taken care of. Also, it came to light that, the internal

audit unit was responsible for monitoring internal control policy compliance whilst management

assesses risk but the internal audit unit is not part of branch operations, they only visit the branches on

monthly bases. The recommendations drawn from the study was that the Rokel Commercial Bank

Limited should set internal audit units at various branches across the country, so that there shall

always be internal audit personnel to ensure compliance to the internal controls that exist in the

organization. In view of this, the internal audit’s personnel should be rotated at regular intervals to

avoid any form of malpractices.

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ABBREVIATIONS/ACRONYMS AS USED IN THIS DISSERTATION

RCB Rokel Commercial Bank

GAAP Generally Accepted Accounting Principle

AFE Association of fraud examiners

AICPA America Institute for Certified Public Accountant

CPAs Certified Public Accountant

ISA International Standards in Auditing

COSA Committee of Sponsoring Organisation

CAAT Computer Assisted Audit Technology

SAS Statements on Auditing Standards

IQ Intelligent Quotient

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 CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY (Read carefully and do the necessary changes)

(KPMG is not in existence in S/L anymore but you can find other audit firm to

replace anywhere you see KPMG in this chapter)

The effect of internal auditing cannot be overemphasised in managing fraud and other

financial irregularities. It is because auditing is one of the most critical Financial Planning

Techniques.

Throughout the 17th century, auditing started in the United Kingdom as a way to provide

transparency to wealth-owners. The term "audit" comes from the Latin word "Audire" which

means "hear" or "hear." The statutory obligation for the management of different public

corporations is to provide a financial statement to the shareholders and all interested parties

(creditors, tax authorities, prospective investors, etc.) demonstrating whether and how the

resources of the business at the discretion of the manager were used or handled. That acts as

the management's stewardship functions.

Until this financial statement can be approved and is released, however, an auditor must have

certified it to be the true statement of the business 'affairs. Accordingly, auditing is an

impartial analysis of an organisation's financial statement in order to express an opinion as to

whether this document provides a real or false interpretation and complies with the legal law.

The primary purpose of the audit is to find out;

• If the financial statements presented are accurate and legitimate and are in accordance with

the applicable status

xii
• Whether the financial statements are in line with the documents Over the years, auditing has

evolved and is widely recognized as a way of tracking organizations 'operations to ensure that

their practices and policies are in accordance with them with the best practices and also to

ensure accountability in reporting the result of their activities of the shareholders.

In Sierra Leone, the 2014 Audit Service Act and the 2016 Public Financial Reporting Act

illustrated the need for auditing publicly owned businesses. Auditing's key goal is clarity and

accountability in reporting that audit companies such as KPMG aim to provide.

KPMG is Sierra Leone's biggest chartered accountant and business consulting company.

Designed by Edward Casselton Elliot in the 1930's. It is one of Sierra Leone's leading

practicing firms providing professional services in the following areas: accounting, auditing,

taxes and financial advisory services. KPMG has represented businesses with foreign

interests for decades.

Accountants calculate the sales, expenditures and resource shifts of a corporate organization.

In Sierra Leone fraud has spread rapidly due to a lack of proper accounting control.

Controlling fraud and other financial violations has had a huge effect on auditing.

Fraud is an occurrence that takes place within a social setting and has serious cultural,

corporate and individual implications. This is an opportunistic virus that bursts out when the

likelihood of deceit meets greed.

A true fraud history will have to begin in 300 B.C., when a Greek merchant named

Hegestratos took out a big insurance policy called 'Bottomry.' Basically, when the cargo, in

this case grain, is shipped, the merchant borrows money and decides to pay it back with

interest. If the loan is not paid back, the lender can purchase the boat and the cargo thereof.

Hegestratos had intended to sink his empty yacht, retain the loan and sell the grain. This

xiii
didn't work out and when they caught him in the act he drowned trying to escape his crew

passengers. It is the first event reported yet, but assuming fraud has been around since the

dawn of trade is reasonable.

Fraud is a deceptive or criminal deception designed to result in financial or personal benefit,

as a consequence of which the banking industry is of a high risk nature and has incorporated

the use of auditing in fraud detection. Conclusively, auditing companies perform their audit

using computerized programs to give an opinion on an organization's financial statements.

The Bank of Sierra Leone and the Commercial Banks in Sierra Leone have a 'Zero Tolerance

on Fraud Matter' strategy and extend the strictest degree of internal compliance to fraud

incidences across the board. Mr Deigh, speaking as the newly elected president of the Sierra

Leone Association of Commercial Banks said: 'Sadly, financial services fraud, both locally

and globally, is a fact of life, as has been demonstrated in recent events at various levels in

the global banking and financial sector, given the deployment of appropriate internal controls

to mitigate them.' In his reaction to the concern of the police, Mr Deigh, who heads the

biggest commercial bank in Sierra Leone, revealed that the country's commercial banks are

leading the way in fraud detection and prosecution of any act of fraud through the courts,

irrespective of the amount involved.

"This demonstrates that Sierra Leone's banks have stepped away from the days of hushing up

financial crimes not just to prosecute them, but also to advertise them," he stressed, while

challenging journalists.

Former bank employees fired or requested to resign for professional misconduct or fraud, an

innovation called the "Black Book" has been set up by Sierra Leone government. The "Black

Book" is now fully operational and this confirms that like several other checks and layers,

commercial banks now run a detailed, reliable, multi-facetted database. According to Mr

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Deigh, the Bank of Sierra Leone has placed in place a new protection against fraud and

control of credit across the region, working with commercial banks.

Nonetheless, if one took a superficial look at Sierra Leone's financial services environment,

you might be tempted to ask what the hell is going on? As the most recent event, Rokel

Commercial Bank bled over Le100b in unsecured loans; Sierra Leone commercial bank was

reported to have helped a borrower extract billion from a business with a total asset base of

no more than $50 m.

Is this a prudently regulated market, or one on free fall? The solution to this question lies in

taking a closer and deeper look at what is actually happening in the industry.

But are we in a position to do so? Okay, recent studies have shown that decisions have been

taken and that the reasons have been identified along with the motives that have underpinned

the strands of decisiveness or lack thereof over the past 10 years. We can draw assumptions

and inferences that will help clarify what's going on.

You have to consider the past for a deeper view of the present. Just over 10 years ago, only

three banks, Sierra Leone Commercial Bank, Rokel Commercial Bank and The Union Trust

Bank dominated the financial environment of Sierra Leone, all of which were indigenous

enterprises. Of the three, one is a wholly private sector concern, while the other two are

wholly government-owned and 49 per cent owned by government. The biggest customer base

countrywide was Sierra Leone Commercial and the Rokel Commercial Banks. Union trust

bank only coped with few friends and customers. Loans were a luxury at this time for the top

Lebanese dominated business class, fat cap politicians and high-management cronies. Most

of those banks 'investment capital was stockpiled in government securities. Repayment of the

loans has not been a priority. There was no provisioning for bad loans and banks could not

lose anyway, that was guaranteed by returns on government protection. Moreover, the

xv
audited financial statements were not good enough and were based on what the auditors

needed to see and write. Publication of the audited financial statements was unnecessary; as

long as dividends were paid nobody cared. On selection the board of directors of commercial

banks has been made fat cats. Gifts given as unfair entitlements have been projected onto

them, meaning they can't talk while feeding. While the bank returned beautiful bonuses to its

shareholders and members of the board, they could not finance any major project in the

world, their minimum capital; the funding intermediation base was below $2 m. The private

sector was desperate for much-needed funding and it was difficult to fund indigenous

enterprises that created a waste of talent. Commercial banks did little to no intermediation,

simply placed. The question which then arose was why things happened that way, where was

the Central Bank?

During this time, a multitude of governors led the central bank, who were themselves

politicians or major players in the industry. By naming at least one of the governors of the

bank was itself the owner of a commercial bank while it controlled the industry. There were

those in a political party who held senior positions and regularly canvassed support for their

political platform. Is this something wrong?

Well the industry's dynamics at that time speak to the issue, zero proof of banks 'loan

portfolio results, utter silence on fraud and corruption, deflation of commercial banks'

minimum paid-up capital, sky-rocketing bond market interest rates, and political fat cats

running banks as boards of directors. At the time, it was clear the banks were oriented in the

wrong direction, enjoyed broad political entitlements, and had dysfunctional political

relationships.

Fast forward to the present day, these same banks still work in the same country but in a new

market environment; one that was not forced on them without notice, but was a reversal of

xvi
sound political judgment's wise advice and the unintended result of democracy and

globalization. Today the banking world is profoundly transparent and de-concentrated. Now

these three banks had to deal with a market environment with distinct ownership /

shareholders, highly technical regulators helped by software focused on hi-Tec IT and

improved auditing practices backed up by regular electronic audit systems. The world

demands unknown wit and patience in the industry now.

Most notably, one major factor influencing the transition from the industry's previous

mediocre framework to a better organized framework was recent auditing, which started to

incorporate non-financial topics such as health, protection, efficiency of information systems

and environmental issues. Commercial banks may be compounded by fraud and financial

irregularities that could trigger financial losses, reputational harm, and erode the morale of

employees. While the demand for accountability and the government's war on fraud

intensifies, internal audit functions were crucial and this was thought to have played a greater

role in promoting the fight against fraud and other financial irregularities.

1.2 STATEMENT OF THE PROBLEM (Change RCB to your case study)

The key issue of this study is to look at the fraudulent act that may occur in Rokel

Commercial Bank (Sierra Leone) Limited's accounting system. Many academics are also

interested in the effect of Internal Auditing in preventing fraud and other financial

irregularities, despite the system's inherent fraudulent act, therefore requiring a study of this

would critically assuage this fraudulent act and highlight its implications of the argument.

Many companies implement auditing as a way of checkmating or preventing fraud. Since of

its high rate of fraudulent act, the banking sector has embraced the use of auditing to take

advantage of the advantages of a true financial statement view. Present-day auditing has

xvii
progressed to include Computer Assisted Audit Technology (CAAT) to meet the

computerized accounting systems auditing skills needed.

Therefore, there is an immediate need for employees and stakeholders to be aware of the

fraudulent act in an organisation and also to gain information in advance. Money can be lost

due to fraudulent act, a company needs to develop, build, an audit group to test the fraud rate.

According to Gay, Schelluh and Reid 1997, one of the most contentious issues in auditing is

the duty of an auditor for the prevention, identification and reporting of fraud, other criminal

actions and errors, which was one of the most frequently discussed areas among auditors,

lawmakers, media, regulators and the public. The decline of both small and large businesses

across the globe has especially exacerbated this debate.

Bank organizations in Sierra Leone not only carry out a number of tasks and responsibilities

for the transformation agenda but also to allow it to work effectively. These roles and

responsibilities are spread among teams allocated to a particular organization to fulfill their

duties. In Sierra Leone Banks, all assigned roles are equally important, thus making all

employees and personnel crucial to the bank's operations. One of the key roles of these

organisations, of particular in cases of fraud and other financial irregularities, is the auditing

process.

In line with fraud and financial irregularities on the performance of banks in Sierra Leone,

auditing and financial evaluation are crucial as it reflects how their respective administrators

manage the flow of their income, assets, and transactions. For this reason, Sierra Leone banks

should employ many experts to do the auditing and financial assessments. Besides recruiting

accountants and auditors who will work independently with them, they will need to seek

advice from other professionals to prevent prejudice and also to expose the company being

audited's true stability (Jones and Pendlebury, 2000).

xviii
1.3 HISTORICAL BACKGROUND OF ROKEL COMMERCIAL BANK (SIERRA

LEONE) LIMITED (Completely change this historical background i.e. use your case

study history)

Rokel Commercial Bank (formerly Barclays Bank) was established in 1917 as Barclays Bank

with 100% shares owned by the parent company. In 1971 it was incorporated locally and

renamed Barclays Bank of Sierra Leone limited with 25% shares owned by Sierra Leoneans

and 75% Barclays Bank International. The rationale behind this move was to encourage

Sierra Leoneans to participate as owners and develop confidence in the bank. Basic banking

services (i.e. savings and current accounts, foreign exchange, bills for collection, safe custody

etc.) were provided and branches were established across the country. The Bank had a

network of 16 branches in various areas of the country at the outbreak of the war in 1992.

As a result of the intensification of the civil war, the network was reduced in quick

succession leading to one bank/branch in April, 1998. On 17th September 1999, Barclays

Bank PLC which was the majority shareholder at the time (60% shares) withdrew from its

operations in Sierra Leone after extensive discussions with the Government of Sierra Leone.

The bank after consultations with the Government was renamed Rokel Commercial Bank

(Sierra Leone) Limited. The Government of Sierra Leone now holds 51% shares, 49% shares

owned by private institutions, organisations and individuals.

“Rokel” is the name to the longest river in Sierra Leone and empties into the Atlantic Ocean.

This depicts the greatness of the bank as a gateway to the banking in Sierra Leone. It thus

follows that Rokel River by virtue of its prominence in the country and the bank because of

its geographical spread has been referred to as the gateway to banking in Sierra Leone.

The bank currently has 372 members of staff and is being headed by the 2nd Sierra Leonean

Managing Director and CEO, Mr. Victor Keith Cole. It has a management team of 36 senior

xix
members of staff. The board is headed by a chairman, supported by 6 non-executive Directors

who meet regularly to advice on policy matters and approve limits/expenditure outside

management’s discretion. Company law requires the bank to prepare financial statements for

each financial year which give a true and fair view of the state of affairs of the company and

of the profit and loss of the company for that period.

In preparing the financial statements, the directors are required to:

• Select suitable accounting policies and then apply them consistently;

• Make judgments and estimates that are reasonable and prudent;

• State whether applicable accounting standards have been followed, subject to any

material departures disclosed and explained in the financial statements;

• Prepare the financial statements on a going-concern basis unless it is inappropriate to

presume that the company will continue in business.

The directors are responsible for keeping proper accounting records which disclose with

reasonable accuracy at any time the financial position of the company and to enable them to

ensure that the financial statements comply with International Accounting Standards and the

requirements of the Companies Act 2009. They are also responsible for safeguarding the

assets of the company and hence for taking reasonable steps for the prevention and detection

of fraud and other irregularities.

The main products and services provided by the Bank include; Savings Account, Current

Account, Call Account, Deposit Account, E – Banking Solutions, VISA Debit Card, Treasury

and Fund Management, Trade Finance, Cash Management, Indicative Offer Rates, Retail

Banking Products, Loans and overdrafts to meet business needs, Foreign Currency Accounts

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Denominated in the major international currencies, SWIFT Transfers, Visa Encashment,

Travel Services, Safe Custody Deposits and Mobile Banking Services.

Mountainous background with the letters ‘RCB’ superimposed to demonstrate Financial

Stability, Permanence, Strength and Resilience. The mission of Rokel Commercial Bank is,

“To provide Banking and related Financial services in a manner that builds strong, lasting

and satisfying relationships with customers, employees, shareholders and the communities in

which the bank operates”.

The vision statement of Rokel Commercial Bank is, “Creating Opportunities.”

Mr. Victor Keith Cole took over the reins of the bank as managing director in August 2009

following a period of about seven months as Acting Managing Director. His ascension to this

office was the climax of twenty-nine years of experience as a banker. He was chairman of the

Transition Committee responsible for the change from Barclays Bank of Sierra Leone

Limited to Rokel Commercial Bank (Sierra Leone) Limited. To date, he has been in the

business for thirty-one years. He joined the bank in January 1980 and has worked in several

branches and departments ranging from IT, Business Development, General Administration,

Treasury, Foreign Exchange and Training. He also benefited from a number of external

training programs. He was appointed as IT Director and Project IT Manger was honed when

he initiated and accomplished the introduction of VISA Debit Cards in Sierra Leone, with

Rokel Commercial Bank being the first bank to issue VISA cards locally. He holds a

Bachelor of Arts (honours) Degree and a Master in Business Administration (MBA) from the

University of Sierra Leone (USL).

1.4 OBJECTIVE OF THE STUDY

The main objectives of this research work are as follows:

xxi
1.To examine the impact of auditing in ensuring fraud reduction and accountability in an

organisation.

2. To show how auditing has helped in preventing fraudulent activities in Rokel Commercial

Bank (Sierra Leone) Limited.

3. To assess the relevance and functions of auditors regarding risk assessment in

organisations.

4. To explain how auditors and auditing has helped in Rokel Commercial Bank (Sierra

Leone) Limited, also how it has helped the investors and the Government in decision making.

5. To explain how the auditor, through the process of auditing controls fraud and other

financial irregularities in a firm.

1.5 RESEARCH HYPOTHESIS

Based on the foregoing, the following research hypothesis formulated will be empirically

tested and result gotten will serve as a basis for recommendations. The hypotheses are as

follows:

Hi: auditing helps to control fraud and other financial irregularities in Rokel Commercial

Bank (Sierra Leone) Limited.

Ho: auditors have not helped to correct irregularities in finance in Rokel Commercial Bank

(Sierra Leone) Limited.

1.6 RESEARCH QUESTIONS

1. Auditing does Rokel Commercial Bank (Sierra Leone) Limited really help track fraud and

other financial irregularities?

xxii
2. Has auditing helped in resolving financial irregularities in Rokel Commercial Bank (Sierra

Leone) Limited?

3. Were Rokel Commercial Bank (Sierra Leone) Limited's accounts finished in an organized

way?

4. Is there reasonable assurance that transactions are recorded in full and proper manner to

prevent fraud?

5. Has fraudulent activities reduced through the audit process in Rokel Commercial Bank

(Sierra Leone) Limited?

1.7 SIGNIFICANCE OF THE STUDY

The purpose of this research is to expose the role of internal auditing in preventing fraud and

other financial irregularities.

The project demonstrates that auditors also analyze the underlying transactions and

documents supporting balances and filing of financial statements on a test basis. The auditor

assesses the accounting theory used and extensive management assessments and reviews the

overall performance of the financial statements.

At the end of this analysis, some companies that do not know how the impact of auditing in

controlling fraud should be aware of the roles and impact of auditing in controlling fraudulent

activities, classify the perceptions of financial report users of the scale of fraud and other

financial irregularities in Rokel Commercial Bank (Sierra Leone) Limited and assess their

perceptions of the auditor's perceptions.

xxiii
This thesis would also be useful for students in accountancy departments and departments of

business administration as well as organizational management as the study typically shows

how fraudulent activities are audited by auditors through the process.

1.8 SCOPE OF THE STUDY

Auditing is a large and nuanced topic, but throughout the course of the report, we will

concentrate our attention on an auditor's legal role in the verification and assessment of assets

and liabilities. We are also debating an auditor's characteristics and behavior.

In addition, this project includes areas such as the complexity of auditing in detecting fraud,

and other financial irregularities.

Finally, to get an indication that there could have been some fraud or mistake that might lead

to material misstatement.

1.9 LIMITATION OF THE STUDY

A number of limitations were encountered in the course of study, and most of these relate to

finance, time and data collection.

FINANCE: financial constraint at this point in time when we Sierra Leoneans continue to

witness devaluation of the Leones and the means of affording the relevant material became

very expensive.

TIME LIMIT: The time limit made it impossible to cover as much ground been a project

work for the partial fulfilment of the bachelors’ degree honours in applied accounting.

DEFINITION OF TERMS

xxiv
1. Auditing- an official review of the financial and business records to see that they are true

and correct.

2. Auditor- qualified account book checking or record checking specialist.

3. Audit- is an individual, organization, system process, business, project or product

assessment.

4. Fraud- unlawfully collecting or collecting money from an individual (it's a criminal

offence).

5. Error- an error is something that is made in the process of doing something in the wrong

way or in mistake.

6. Management- the act of running a company or seminar organization and managing it;

7. Dishonesty- lack of confidence and the intent to deceive people.

8. Financial irregularity-intentional errors or omissions of sums or reports in financial

statements made to deceive consumers of financial statements.

9. Audire- to listen

10. Codex tabulae- wooded tablets, often with wax-filled compartments, used for more or less

ephemeral jottings and figuration in ancient Rome.

11. Exchequer- the former government office that raises taxes and makes payments on behalf

of the Monarch, audits official accounts, and tries tax-related legal cases 12. The theory of the

organization- a supposition that describes the relationship between company directors and

agents.

xxv
13. Policeman theory- 'inspired confidence theory' whereby stakeholders demand

accountability from management as an exchange for their contribution to the 14th group.

Internal control-a mechanism to ensure organizational effectiveness and productivity

achievement of an organization's goals, accurate financial statements, and compliance with

laws, regulations, and policies.

15. Computer Aided Audit Techniques (CAAT)-this is the method of using computers to

automate processes of IT auditing.

16. Director- this is an individual belonging to a group of managers who lead or oversee a

particular area of a company.

17. Shareholder- a person or entity (including a company) that legally owns one or more

stock shares in a public or private company.

18. Accountability- the accountable act or circumstance.

19. Verification- the process of determining something's reality, accuracy, or validity.

20. Valuation- an estimation of the worth of something, in particular a professional's

estimate.

21. Bottomry-a merchant insurance scheme in which a ship is used as collateral against a loan

to fund a voyage, where the lender loses their money if the ship sinks.

SUMMARY

This chapter offers an outline of this dissertation, study priorities, concerns about the role of

auditing in decision-making, as well as the correction of financial irregularities in the banking

sector. This chapter also provides a guide to an organization's significant aspect of auditing in

terms of checking and valuing assets and liabilities as well as monitoring fraud and other

xxvi
financial irregularities. Throughout this chapter we will also see the scale, limitation and

interpretation of key words that will be essential for easy understanding of this project.

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 INTRODUCTION

Since 1900 onwards, the financial statements became the main method by which the business

managers 'actions were tracked, and this is still valid to some degree today. When the

directors had been required by law to file annual financial statements, shareholders would

then have access to financial details for the company they own. This access, however, is

limited, and shareholders can come to feel that they don't get all the information or the right

information to make investment decisions. Thus, the position of auditors as a shareholder

agent becomes vital, and the cost of the audit is as nothing to the shareholders 'comfort and

reassurance that the audit affords. The independent audit is a critical part of this process to

ensure that managers 'actions during the accounting cycle are properly reflected in the

financial statements.

There is a disparity, known as the 'perception gap' between the public and the auditing

profession, in relation to the fraud and irregularity duties of an auditor. The auditors see their

role as: an impartial review of an expression of opinion on, an appointed auditor's financial

statement of an entity pursuant to that appointment and in accordance with applicable

statutory requirement. The accent is on the financial statements. The public, however,

including much of the business community, continues to see the duties of an auditor mainly

xxvii
in the identification, and probably prevention, of fraud and irregularities. There is an ISA

240, "the auditor's obligation in auditing financial statements to find fraud." ISA 315,

"Comprehending the organization and its environment and evaluating the possibility of

material misstatement" is also important.

During the 1970s, competition from new organizations and expenditures prompted a change

in many corporations 'accounts payable feature. Combined with congestion, overwork,

decreased staffing, high volume and a need to generate low charges, these changes led to

more transaction processing errors. During the late 1970s, the recovery audit industry

accounts payable was created to audit accounts payable transactions and to recover funds

paid out in error. The work was done on contingency, and audit recovery companies received

percentage of recovery volume agreed upon. Senior managers are often reluctant to accept

recovery audits; they think the results will make them look as though they are performing to

the mark. Most CEOs, however, understand the importance of increased bottom-line income,

particularly when there is no cost to it. There are two types of audits in today's corporate

environment;

pre-audit: Is possible as a result of developments in technology that were not possible a few

years ago. Pre-audit removes mistakes related to the preparation of accounts payable

transactions prior to writing the cheques. It prevents the risk of cash due to mistakes.

Post-Audit: Reviews expenditure payable records after the cheque has been collected. When

software reveals errors via data mining feature, the auditor checks the transaction. Such errors

and associated records are checked and confirmed. When a representation is made to the

company, it is the duty of the auditors to follow up on and answer all of the questions. After

the argument is settled the auditor receives his contingency fee. Most companies provide one-

or two-person post-audit services to large businesses. Technology that has the ability to detect

xxviii
and find errors is the key to a successful audit; and when the errors are detected, the

collection process can be monitored until the client accepts collection. Until the report is

made an audit company does not get charged. Post-audit software may also be bought by

companies to use the accounts payable workers directly and reduce the expense of external

audits. Every big post-audit firm developed its own audit tools to identify and mine errors.

Every company thinks its software is the best. Many businesses permit a second audit (post-

audit) to check the completeness of the first one (pre-audit). Audits are also seen to fall into

three major categories:

i. Financial audits

ii. Compliance audits

iii. Operational audits

In addition, the Sarbanes-Oxley Act requires an integrated audit for public companies.

2.2 FINANCIAL AUDITS

A financial audit is an audit of one entity's financial statements. An analysis of financial

statements usually includes the balance sheet and related income statements, retained

earnings and cash flows. The goal is to assess if such statements were prepared in compliance

with the GAAP (Generally Accepted Accounting Principle). Financial statements audits are

usually carried out by certified public accounting firms; however, internal auditors also

conduct departmental or business unit financial audits. Reports from auditor’s consumers

include managers, investors, banks, creditors, financial analysts, and agencies in government.

2.3 COMPLIANCE AUDITS

Compliance audit success depends on the existence of verifiable data and accepted

requirements or principles, such as existing laws and regulations, or the policies and

procedures of an entity. Compliance auditing includes monitoring and reporting on the

compliance of an agency with the provisions of various rules, legislation and agreements.
xxix
These audits assess compliance with the banking laws and regulations and with sound

banking practice traditional norms. Internal auditors conduct internal control compliance

audits, all business policies and practices and relevant laws and regulations. Internal audit

departments are also involved in recording and reviewing internal control of the reports

needed by the Sarbanes-Oxley Act for the management. Finally, in accordance with the

Single Audit Act or OMB Circular A-133, several state and local government agencies and

non-profit organizations which receive financial assistance from the federal government must

arrange enforcement audits. The aim of such audits is to assess if financial assistance is being

spent in compliance with relevant laws and regulations.

2.3 OPERATIONAL AUDIT

An organizational audit typically involves an effort to assess the performance of a particular

agency, role or activity group. An organizational audit appears to take a more informed

assessment than financial statements audits or consistency audits. The auditor must gain

detailed knowledge of the unit's objectives, organizational structure, and operational

characteristics before beginning an operational audit.

2.4 FRAUD

Fraud according to Webster’s new world dictionary is the “intentional deception to cause a

person to give up property or some lawful right.”

The Association of Fraud Examiners (1999) report to the nation on occupational fraud and

abuse as “the use of one’s occupation for personal enrichment through the deliberate misuse

or misapplication of employing an organisation’s resources or assets.”

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Fraud, according to Adeniji (2004) and ICAN (2006), is an intentional act by one or more

individuals among management, employees or third parties, which results in a

misrepresentation of financial statements.

Fraud can also be seen as the intentional misrepresentation, concealment, or omission of the

truth for the purpose of deception or manipulation to the financial detriment of an individual

or an organisation which also includes embezzlement, theft or any attempt to steal or

unlawfully obtain, misuse or harm the asset of the organisation, (Adeduro, 1998 and, Bostley

and Drover 1972).

Fraud has increased considerably over the recent years and professionals believe this is likely

to continue. According to Brink and Witt (1982), fraud is an ever present threat to the

effective utilisation of resources and it will always be an important concern of management.

ISA 240 ‘The Auditor’s Responsibilities to Consider Fraud in an Audit of Financial

Statement (Revised)’ refers to fraud as “an intentional act by one or more individuals among

managements, those charged with governance, employees or third parties, involving the use

of deception to obtain an unjust or illegal advantage”.

Aderibigbe and Dada (2007) define fraud as a deliberate deceit planned and executed with the

intent to deprive another person of his property or rights directly, regardless of whether the

perpetrator benefits from his/her actions.

 Irregularity: is an intention mistake or distortion of financial statement such as

misrepresentation or misappropriation of assets.

 Misappropriation: is any dishonest or fraudulent act which includes such thing as:

unauthorised use, taking, or destruction of banks’ property for personal gain, or to

purposely deprive the organisation of its use, forgery or alteration of cheques, drafts,

promissory notes, and securities, any taking or unauthorised use of bank’s funds,

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 securities, or any other assets, forgery or alteration of policy-related items, such as

loans, assignments, changes in beneficiaries, etc.

• The Cost of Fraud to Banking Organisations

It is difficult to quantify the cost of bank fraud because not all fraud or corruption is found as

a result of lack of auditing in the banking industry, not all detected fraud is reported, and civil

or criminal charges are not always taken. Data indicate that the overall fraud costs are more

than twice the amount of money or properties that are missing. When computerization

systems become more complex, fraud costs are also expected.

• Factors Involved in Preventing Fraud

The general responsibility for fraud prevention lies with the directors and the management.

Prevention they say is better than cure and although it may be impossible to eliminate fraud

completely due to the effect of conflict between the workers and the willingness of the

management to circumvent controls. The frequency of fraud can however be reduced to the

barest minimum. When attempting to prevent the occurrence of fraud, consider the following

factors:

1. Fraud policy- the company should have a policy of fraud which should spread well. Posters

describing the evil consequences of fraud should be pasted inside the company's premises at

strategic points. Employees should be well informed of the policy and punitive measures to

be taken on anyone who violates the policy, and management at all levels should also be

prepared to follow the policy and lead through examples.

2. Continuing education and training- management and staff will keep updating their

awareness of fraud and the current risks. This can be done by attending fraud detection

workshops that accountancy firms, police and other consulting organisations have.

xxxii
3. Employee recruitment and selection- Employee recruitment and selection is a crucial

intervention in the prevention of fraud. The firm should uphold a strategy of hiring people

who are honest, professional and reliable. It is also important to carefully evaluate the

background and work history of the people to be hired before making job offers. There

should be guidelines on screening, advancement, performance review and termination of pre-

employment jobs. It should be noted to applicants that offers will only be made after correct

responses have been obtained from referees and required follow-ups have been made.

4. Develop Efficient Accounting and Control Systems- a key to both detecting and preventing

fraud is the implementation of an effective accounting system with adequate controls.

Adequate, appropriate, and up-to-date accounting system and related controls are required.

Management fraud is possible when one person or a small group of people dominates the

management of an organisation, and no external supervisory authority or committee exists. If

given sufficient authority, the audit committee (or other supervisory body) would be in a

position to test the management's ability to circumvent otherwise successful control in order

to commit fraud.

This is not the auditor's responsibility to discover fraud. The auditor's task is generally and

erroneously assumed to be to find fraud, misconduct or irregularities. Unless the auditor is

directly engaged in investigating the occurrence of fraud or other irregularities, this view may

be right. Therefore, the auditor is not obligated to identify fraud or mistake when performing

his duties in compliance with his position as auditor under the operating company or other

statute.

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2.5 AUDITOR’S DUTY REGARDING FRAUD

The following are the reasons why the general public, including the client of the auditor,

cannot hold the auditor liable in the ordinary course of performing an audit for failing to

detect fraud and other financial irregularities.

I. Audits are usually performed on a check basis: checking the transactions one hundred per

cent is not realistic. The auditor selects a limited number of products or transactions for

review in most situations, and uses his best judgment to assess the areas to be examined. As a

consequence, there is a possibility that any factual misstatements in the financial statement

arising from fraud may not be checked.

II. Fraud is usually performed with great ingenuity: Fraudsters feel they are smarter than

anyone else because they generally take great care to conceal their acts. Fraud also always

includes activities like conspiracy, forgery, intentional failure to report transactions or

deliberate misrepresentation. The auditor normally gets his evidence from the accounting

records. Reports (such as invoices), and management representation.

Nevertheless, it should be remembered that the auditor has a responsibility to form an opinion

and report on the accuracy and fairness of the financial statement as well. The auditor usually

carries out processes and assessments when forming his judgment, which are intended to

obtain evidence that will provide reasonable assurance that the financial statements are

correctly reported and free from fraud and mistake that can have a material effect on it.

Therefore, the auditor will schedule his audit so that he can have a fair expectation of

identifying material misstatement arising from a financial statement fraud or mistake.

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2.6 CONTROLS AUDITORS HAVE IN CONTROLLING FRAUDULENT

ACTIVITIES

Because of the catastrophic losses in the banking industry, the dispute that existed over the

position of the external auditor and the public's understanding of the role of SAS No 53, "the

duty of the auditor to identify and disclose errors and irregularities," provided by the

Accounting Standards Board (1988), was originally intended to resolve this problem.

However, in 1993 the AICPA SEC Practice Section's Public Oversight Board reported that

management claimed that auditor's had a greater responsibility for fraud detection than was

actually met. Those views are often shared by business owners, politicians, judges, juries and

the general public. Many people do not realize what the auditor's duty is according to SAS

No1, Codification of Auditing Standards and Procedures: "The auditor is responsible for

planning and conducting the audit to provide reasonable assurance as to whether the financial

statements are free of material mistake, whether due to error or fraud. Regardless of the

quality of the audit proof and the characteristics of the crime, the auditor may obtain fair

assurance that material misstatements are found, but not absolute. The auditor is not

responsible for planning and performing the audit to gain reasonable assurance that material

mistake, whether due to error or fraud, is not applicable to the financial statement. The

American Institute for Certified Accountant has released SAS No 82 in an effort to stifle

criticism and respond adequately to the public's demand for better auditor results. The new

auditing framework outlines the duty of the auditor to identify and disclose material

misstatement due to fraud in the financial statements. The AICPA used the word 'fraud' for

the first time, rather than the more discreet word 'irregularity.' The two forms of

misstatements related to the auditor's assessment of fraud during a financial statements audit

are those arising from false financial reporting and asset misappropriation. The SAS is

effective for audit periods of the financial statements ending on or after 15 December 1997.

xxxv
Similarly, the 1995 Private Securities Litigation Reform Act imposes some of the same

obligation on auditors of public corporations. The criteria are as follows: • Audit must include

procedures designed to provide fair assurance of detecting fraudulent actions which would

have a direct and significant impact on the sum of the financial statements.

• Each audit must include procedures for identifying relevant – party transactions.

• Each audit must provide an evaluation of the financial statements issuer's ability to continue

as a concern.

2.7 AUDITORS’ RESPONSIBILITIES IN FRAUD DETECTION

From its inception, the role of auditors was not well defined (Alleyne and Howard, 2005).

Porter (1997) reviews the historical evolution of the auditor's obligation over the centuries to

detect and report frauds. Her study demonstrates that auditing procedures are measured and

the auditing model changes over a variety of phases.

Porter study shows that, in the pre-1920s period, the primary objective of an audit was to

expose fraud. Nevertheless, by the 1930s an audit's primary purpose had changed to account

verification. That is most likely due to the rise in size and amount of transactions by

companies, which in effect made it unlikely that all transactions could be reviewed by the

auditors. During this period, the auditing profession started to claim that the fraud detection

responsibilities rested with the management. Additionally, management should have put in

place appropriate internal control systems to prevent fraud in their businesses.

ISA 315 allows auditors to determine the efficacy of an entity's risk management process in

avoiding misrepresentations, whether by fraud or otherwise, during an audit. Boynton,

Johnson, and Kell, (2005) stress that this requirement had not been necessary before. We

further clarify that such an assessment was only necessary in advance when we decided to

xxxvi
rely on that framework and to that the reach of the audit investigation. Furthermore, all staff

members engaged in an audit are now required to communicate their findings with each

other, in order to avoid situations where staff members, working independently on their own

sections of the audit, have failed to appreciate the significance of apparently minor

irregularities which, when combined, assume a more sinister meaning.

2.8 INTERNAL CONTROL

The primary responsibility for fraud prevention and identification falls with the management

and the directors. This is because fraud usually leads to financial and other damages to the

company, and it is the duty of the directors and managers not only to protect the

organization's properties, but also to increase the wealth of their shareholders. Management

and directors also function in a stewardship capacity regarding the properties of the company

that the shareholders entrusted to them. Managers and directors will be required to report

their stewardship to the shareholders. Through the establishment and maintenance of an

effective structure of internal control, the tools with which directors and management

discharge this duty are. In most cases, the internal controls are designed to prevent or detect

fraud. As such management has a responsibility to see through frequent evaluations and

changes to the continued operation and effectiveness of controls. Internal control is a step a

business takes to prevent fraud-both asset misappropriation and false financial reporting.

Others, while recognizing the value of internal control for the prevention of fraud, claimed

that internal control plays an equal role in maintaining control over output and other

processes. The Committee of Sponsoring Organization (COSO) commissioned a study

entitled 'Internal Control-Integrated System' which defines internal control as a mechanism

carried out by the board of directors, managers and other staff to provide fair assurance of the

achievement of objectives in the following categories:

xxxvii
a. Fiscal reporting reliability

b. Effectiveness and operational performance

c. Respect for relevant laws and regulations

SUMMARY

In summary, taking into account the aforementioned literature, it is clear that the financial

statement was clarified about its necessity as to the reason for which it is being prepared (that

is, tracking managers 'activities in a company).

The definition of audit, being that it is an activity carried out by auditors, has been thoroughly

expatiated, demonstrating clearly the nature of having an audit done before and after the

collection of checks relevant to the account payables transaction. What further discussed

were audits performed to evaluate the consistency of the financial statements with commonly

agreed accounting principles (GAAP), checking and reporting on the compliance of an entity

with the provisions of specific rules, regulations and agreements, and performance evaluation

of a particular organization.

Various definitions of fraud, outlining the terms surrounding these concepts, its implications

to banking organisations, its perpetrators and also the considerations that should be taken into

consideration in order to deter fraud from occurring, have also been listed.

The auditors 'task with regard to fraud defines the position of auditors, which is the impartial

review of financial statements, which provides an expression of an opinion on the truth which

fairness thereof, and decides if there are any material mistakes that lead to fraud or error, and

not the discovery or identification of fraud. It also clarified the 'perception divide' between

xxxviii
the public and the auditing profession surrounding the role of an auditor in relation to fraud.

Auditors are expected to express an opinion based on facts obtained, and then offer fair

assurance, but not an absolute guarantee.

The responsibilities of management in controlling fraud within the organization are also

discussed, including the introduction of certain relevant measures which, if implemented, will

help to reduce or prevent fraud.

Finally, it has also looked at the corporate chain between directors and shareholders.

Directors and managers 'stewardship duty for shareholders provides a clear picture of how the

stability and efficiency of the operations and properties of a company lies in their hands.

Therefore, management establishes and implements an internal control structure to ensure

that the activities of the company are conducted in an appropriate and productive manner.

Monitoring these controls not only helps to ensure secure and successful operations but can

also help prevent fraud and other financial irregularities.

xxxix
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION (Replace RCB with your case study)

This chapter specifically describes the techniques used for performing the research. This

research describes how it collected, presented and evaluated the data and knowledge required

to answer the research goals and query. Reasons and justifications for the research design,

tools, data sources, techniques for collecting data, techniques for presenting data and

analytical techniques used. It also presents the gathered data for the analysis. It constitutes the

basis of the analysis to be followed in chapter four (4). In order to assess the impact of

Internal Auditing in controlling fraud and other financial irregularities with respect to Rokel

Commercial Bank, the theoretical analysis provided in chapter two (2) will be contrasted with

what is obtained in terms of corporate and company procedures.

3.2 Research Design

According to Nworgu (1991), research design is a strategy or blueprint that describes how to

collect and analyze data pertaining to a given problem. This research describes how the

necessary data and knowledge were gathered, presented, and evaluated to answer the research

objectives and questions. Reasons and justifications are provided for the use of research

design, research instruments, data sources, data collection techniques, presentation techniques

and analytical techniques. This also includes the legal framework for any specific inquiry to

be performed. The goal of this study is to confirm the fairness of the financial statements and

compliance with the rules, regulations and the effectiveness of controls, to avoid errors and

fraud caused by the deterrent and moral impact of the audit, to gather sufficient evidence to

form an opinion on the accuracy and correctness of the financial statement and to offer

xl
financial information credibility For this analysis, descriptive survey research design was

adopted, in which a population sample is selected and used as respondents.

• Descriptive research design:

Saunders et al (2003) defines the descriptive survey method one which looks with intense

accuracy at the phenomena of the moment and when describes precisely what the researcher

see. Descriptive research design is concerned with describing characteristics of a problem.

Questionnaires and interviews are the two methods used to elicit information in a descriptive

research.

Justification

Descriptive research design helps portray an accurate profile of persons, events and

situations. A descriptive research design also allows for in-depth analysis of variables and

elements of the population to be studied and as well as collection of large amounts of data in

highly economical way. It enables generation of factual information about the study. This is

so because the descriptive design relies much on secondary data which helps in developing

the case basing on the facts, sustained by statistics and descriptive interpretations from

archival materials and data.

3.3 Population of the study (change population of the study)

In statistics the target population is the actual population in which knowledge is sought.

Varden Bergh and Katz (1999) identified population as the group of individuals from which a

sample can be drawn for research purposes. Population is the complete set of elements that

we want to draw such inferences about.

The study's population was limited to one organisation (Rokel Commercial Bank). The

analysis entered on the department of finance and the department of internal audit, and thus

xli
included Rokel Commercial Bank respondents from the departments listed above. This

research's sample population is twenty-seven (27) men, consisting of auditors, executives,

and accountants.

•Sample size: (change sample size also)

Deciding on a sample size for a qualitative enquiry can be more difficult than for a

quantitative one because there are no rules to follow. It all depend on what will be useful,

what will have credibility and what can be done within available time and resources. A

sample refers to a representative sub-group of the population. Our sample size is basically

restricted to the department and or personnel responsible for the finances (Account

Controller) and internal auditor and any other person concerned with the research area. Since

the company is relatively small in size, there will be a very small number of respondents from

both departments. Chandran, (2003) defines a sample as a small proportion of an entire

population; a selection from the population. In this study, sample size of twenty-seven (27)

respondents from Rokel commercial Bank (RCB) to save both time and money during the

process of data collection. The size consisted of twenty-seven (27) respondents from the area

and these were selected as in the table 1 below.

Table 3.1 showing category of Respondents as well as sample size

CATEGORY OF SAMPLE SIZE PERCENTAGE (%)

RESPONDENTS
Finance department 22 81.5

Internal Audit department 5 18.5

TOTAL 27 100

Source: Researchers Survey, 2017

3.4 Sample and sampling technique

xlii
For a research analysis a sample is a group in which knowledge is gathered. Or a chosen

population to be studied and analysed. This is a representation of a population taken further

explains that it can be satisfactorily protected by sampling, if the population is very large.

The set questionnaires will be administered personally by the researcher; twenty-seven (27)

questionnaires will be administered for the purpose of this analysis which is intended to

produce a result that would represent the population adequately. This study will use the

sampling technique for judgmental analysis of the results. With reference to this study, the

population obtained from this sample is the basis for which inference and assumption will be

made.

3.5 Research instrument

In order to attain adequate, appropriate and reliable information, the following instruments

have been applied: questionnaires, interviews and observations.

i. Questionnaires: this is a direct consultation to the concerned staff, concerning

variables of interest to an investigation. This is an easiest way of collecting data

that can help to get response from unreachable persons and give respondent

enough time to think and give well thought out answers. The questionnaires are

made of closed-ended questions, which respondents can answer by choosing one

of the alternative we provided, that is 1. Strongly Disagree, 2. Disagree, 3.

Uncertain, 4. Agree, 5. Strongly Agree.

However, due to the nature of some questions, especially those involving critical assessment

that cannot be expressed based on the alternatives provided above, we made alternative

xliii
statements. Questionnaires were distributed to appropriate staff, and these questionnaires

were contained with closed questions and an open ended question so as to facilitate coding

and data analysis. The questionnaires were provided to selected staff from the head office to

both the Finance department and the Internal Audit department. The research team has

distributed questionnaires to selected staff by hand due to the samples being easily reachable

by the research team and collected in the same way. Twenty-seven (27) questionnaires were

distributed to respondents of the case study under consideration (Rokel Commercial Bank).

An Internal control questionnaire was given to the Internal Audit and the Finance department

in the institution. The questionnaires were divided into five sections, namely, questions on

organization and management, and general questions on fixed assets, cash and bank balance,

creditors and accrued charges, debtors and prepayment etc. the questionnaire was self-

administered to the head office which is situated in Freetown.

Besides the questionnaires, we had to really see the respondents 'self-expression and so this

approach was used to do this. The specialist such as internal audit department senior staff has

been researched for interview. The interview was orally administered and it was discovered

during the process that some junior accounting clerks were concerned with documenting the

original report, as well as with charges.

ii. Interviews: Besides the questionnaires, we had to really see the respondents 'self-

expression and so this approach was used to do this. The specialist such as internal

audit department senior staff has been researched for interview. The interview was

orally administered and it was discovered during the process that some junior

accounting clerks were concerned with documenting the original report, as well as

with charges.

xliv
 iii. Observation: A little bit of non-participatory experimentation was put into action

to avoid important data from being left behind or overlooked. Since one of our

classmates was lucky to be working within the organization's climate, he was able

to grant on or study team member (Morris) access to spend a day at the office and

observe the actions and attitudes of those in charge of governance towards

controls being placed in place.

3.6 Sources of Data

The aim of data collection procedure is to get worthwhile data which would enable the

researcher to get the roots of the problem under investigation. There were two main sources

of data collection which are the primary and secondary sources. Primary data was gathered

from reliable sources in the organization i.e. the Rokel Commercial Bank (RCB), such as the

employees and senior team management. Due to the time constraint of this research study, we

made use of only Primary data collection method to collect relevant information to assess

whether there is a significant association between organizations with an internal and external

audit function, the number and value of their self-reported level of fraud and also

organizations that does not in-source part of their internal audit function.

i. The Primary Source of Data:

Primary data refers to data collected for the first time in the field. Jewel (2001), defines it as

data that has been collected for the purpose for which it is originally used. This includes self-

administered questionnaires, personal interviews, telephone interviews and observation.

Primary data for this particular research was collected using questionnaires. In this study, we

administered both open ended and closed ended questionnaires. The open ended question was

used in a case when new fact is to be found; in this type of questions the respondents were

free to give out their own views while the closed ended questions used, contained questions

xlv
as well as answers. Various alternatives to the real answers were given. The respondents were

only to select an answer and put it down. The questionnaire was broadly preferred because it

was relatively cheap and it covers a large area as well as free from external influence. The

questionnaire was distributed to personnel of both the Finance Department and the Internal

Audit Department.

ii. The Secondary Source of Data:

According to Jewel (2002), secondary data is that which is collected for purpose other than

the original use. It is an analysis of data that have been collected for some other purpose.

These may be contemporary of historical and the data entry may be qualitative or quantitative

and usually needs adjustments and validation before being put to use. This data can include

survey data and documentary data. This is obtained through annual reports and their websites,

review from earlier studies on the topic, from the books, journals, reports, and some other

relevant documents.

3.7 Data Analysis

This is the method of systematically applying and/or logical techniques for data definition

and illustration, condensation and recapture, and assessment. According to Shamoo and

Resnik (2003), different analytical procedures "provide a way of drawing inductive

inferences from data and separating the signal (the significance phenomenon) from the noise

(statistical fluctuations) present in data."

Although data analysis may involve statistical procedures in qualitative research, analysis

many times is an ongoing iterative process where data is collected and analyzed almost

simultaneously on an ongoing basis. In addition, researchers typically examine patterns for

observations during the entire process of data collection (Savenye, Robinson, 2004). Relevant

xlvi
qualitative approach (field study, ethnography content analysis, oral history, biography,

unobtrusive research) and data type (field notes, papers, audiotape, and videotape) decide the

nature of the examination.

Accurate and accurate review of the study results is an integral component of maintaining

data integrity. Improper statistical analysis distorts experimental results, misleads casual

readers (Sheppard, 2002) and can have a negative effect on the understanding of academic

science.

Due to the feasibility and accuracy of this study, however, descriptive statistics were used to

interpret data collected via questionnaires from respondents. Those include percentages,

frequencies and charts, and respondents 'data was entered using Microsoft Excel Software.

The data obtained from primary sources were compiled, marked, summarized and analyzed,

and then data was tabulated based on the answers provided from questionnaires.

 Limitations

Some projects, especially such as this, face difficulties / restrictions that may appear to

minimize the outcome of such a venture in certain cases. The study group faced other

limitations or challenges along the way, in a similar vein.

The key drawback of the proposed study is that within Sierra Leone it contains one bank, so

the analysis cannot be generalized. Saunders et al (2007) points out that elements like

representative sampling need to be built by the 'generalizability' for results to be generalized.

As this analysis will not be collecting data from other countries and banks, the findings could

not be taken as reflecting the entire Sierra Leone Banks population. Moreover, the number of

events that occur over a span of five (5) years is likely to be very low to support the study's

xlvii
validity argument, as a number of disruptive processes have occurred to the financial services

sector over the same time period. This will potentially impact the study's final outcome.

 Limited Timeframe: The researchers found out that the time stated within which this

research should be completed is limited. They discovered that, for such a herculean

task, more time should have been given for a more comprehensive worth to be

accomplished. As a result, other important issues were left out, and this is as a result

of other challenges.

SUMMARY

This chapter explicitly analyzes the study methodology used as descriptive, which is

concerned with gathering and analyzing empirical information, which is, to be precise, the

basis for analyzing the effect of auditing in commercial organisations, Rokel Commercial

Bank.

Also of importance, as has been clarified, is the population of the report, which constitutes

main departments at Rokel Commercial Bank, since this (RCB) is one of those banks

entrusted with the duty of safeguarding money belonging to people and non-citizens of this

country as well as government monies. The information given by these main departments is

therefore considered very important and has a higher degree of credibility. The main

departments chosen are; the department of finance and the department for internal audit.

Also, according to the context of our study, the questionnaire used is divided into five parts,

and these are: control climate, risk assessment, control operation, information and

communication systems and monitoring. Each section is designed to gather the information

you need to address our research questions.

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We use a questionnaire form on a five (5) point scale, i.e. we give the respondents the

opportunity to choose one of five alternatives when answering the questions in the

questionnaire. These alternatives are; strongly disagree, discrepancy, uncertainty, agreement

and strong agreement. But there are other alternatives to some questions like; 'true or false'

and 'yes or no.' On questions that require definite answers, these alternatives were given.

Finally, it is based on the information gathered that we will assess our review findings and

come to realize that management is well organized and that the right people's caliber has been

chosen to ensure efficiency and effectiveness to show that auditing has a major impact in

preventing fraud and other financial irregularities. As a better logical solution we used

mathematical equations and tables of frequencies. All the analysis is based on our research

background and is performed using Microsoft Excel 2013.

Note: I will draft or paraphrase the questionnaire later for chapter four (Data Analysis)

After chapter four then we can conclude with chapter five, including findings

recommendation for further or future research.

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