ST.

PAUL UNIVERSITY DUMAGUETE | SPUD Graduate School | Doctor of Business Administration

ACTION RESEARCH

EFFECTS OF INTERNAL AUDIT ON

THE PREFORMANCE PRIVATE
SCHOOL IN KABANKALAN CITY

MARIA CORAZON E. MRECADO, DBA

Professor

AVERY JAN M. SILOS, MBA-HTM

DBA Student

AVERY JAN M. SILOS, MBA-HTM | DBA 305 Strategic Human Resource Management | St. Paul University Dumaguete 1
ST. PAUL UNIVERSITY DUMAGUETE | SPUD Graduate School | Doctor of Business Administration

Rationale and Background of the Study

Internal audit is a management tool used to make sure the business is being conducted in a
transparent manner. Because before this time, transactions increased, leading to the development of
large corporations, limited liability companies, and the creation of a separate ownership from control,
auditing took over the stage. Shareholders and managers became separate partners as a result.
Eventually, it became clear to business managers that they must turn over accounting records of their
managerial work to those who pooled their money together for the business. It should be noted that
the interests of shareholders must be represented by someone who is not affiliated with the
organization in reviewing the report of managers to ensure that it is correct and open. Auditing began
this way. Two distinct industry sectors. the public and private sectors. The government is the main
source of economic activity with the objective of delivering a profit or service at break-even.
The private sector is made up of private businesses institutions, with the main focus on
profiting or accumulating wealth for their owners. The usage and definition of internal audit 2, also
known as an independent assessment function, is stated in the recent edition of Mill Champion (2016).
To learn more about the internal audit in the Nigerian economy, the papers use an empirical and
statistical approach. They look at private sector companies in the country.

Statement of the Problem

Anyanwu (2017) describes the private sector as that part of the economy not controlled directly
by the government. The process involves the production and distribution of content that is owned by
private companies. This assists in helping the public sector be more efficient, since it is through
improvements and positioning the government to focus on the objectives, conduct, and performance
of enterprises that remain in the public sector that increases efficiency in the public sector (Hamming
and Mansoor 1987). There have been problems such as:
1. Financial impropriety
2. Lack of auditing control
3. Lack of independence of the internal control
4. Incomplete recording of business transactions
5. Over blow expenses to reckless spending
6. Non compliance and adherence to accounting standard and guide lines.
7. Mismanagement of scarce funds

Statement of Objectives
The broad objective of the study is:
1. To determine if internal audit ascertain the correctness of financial records.
2. To determine the extent to which internal audit helps in enforcing compliance to rules and
regulations regulating private sector accounting and auditing.
3. To find out if internal audit inspect and verifies organizational assets and liabilities.
4. To know the factors hammering pa ring audit procedures in the private sector

Significance of the Study

The study will be of immense benefit to the shareholders who have contributed the funds for
the business and needs a reward in form of dividends. This can be achieved if ineffectiveness and
corrupt practices such as fraud, loss of revenue, sharp practices, and lack of transparency etc.
associated with the private sector are minimized or even eradicated. Since a virile private sector is
noted for the economy will be of great benefit from the findings of the study; and equally, future
researches on auditing will find the study interesting in their research.

Scope of the Study

AVERY JAN M. SILOS, MBA-HTM | DBA 305 Strategic Human Resource Management | St. Paul University Dumaguete 2
ST. PAUL UNIVERSITY DUMAGUETE | SPUD Graduate School | Doctor of Business Administration

As the study is centered on the effect of the internal audit in private schools in Kabankalan City, the
research covers all department under the firm in other to ascertain whether auditing has an effect in
the private firm and if not what is the cause.

Limitation of the Study

The researcher in the course of carrying out the research was faced with the following problems and
constraints.
(a) Time factor: Time shortage posed serious challenges, since it was indeed very short considering the
enormity of the research work.
(b) Lack of information and data due to unavailability of materials and other vital information. Libraries
are either out of stock or scanty in their content of relevant materials.
(c) Financial problem was also a deterrent in carrying out the research since the available fund was not
enough to sustain the vast research proposals, it was also a challenge in that regard.

Definition of Term:
Audit: Audit can be define as the independent examination of a financial statement and
expression of opinion on the financial statement of enterprise by an appointed auditor in pursuance of
that appointed and in compliance with any relevant statutory obligation.
Auditor: Auditor is a qualified accountant who also passed a professional examination. Such a
person must be of good conduct and have a vast knowledge and able to understand a practical
business, endeavor always to grasp the technicalities and business, methods of any concern whose
account he undertakes to audit.
Internal Auditing. According to Bright (1964) "Internal auditing has to do with the independent
examination of the books of account so as to ascertain whether the books of accounts are in
agreement with the organization transaction.
Private sector. Private sector includes the part of the economy that is fully controlled and
managed and financed by private individuals.

Methods
Research Design
The research design for this study provides for the collection, measurement and analysis of
data related to the projected questions. The research design used for the collection of data was the
survey design which entails the construction, distribution and collection of questionnaires data forms
as well as the examination and analysis.

Sources of Data
For the purpose of this study, the researcher used two basic sources of data, primary data and
secondary sources of data. The Primary data are the Questionnaires and personal interviews were
adopted in the collection of data. The questionnaires were administered personally to the concerned
staff that falls within the survey range. Some key personnel such as internal auditor. Head of Accounts
Department where interviewed and further information was gathered. Observation was made on the
actual principles, practice of auditing. Audited books and procedures were personally scrutinized for
the information purposes of the research. Telephone call were made whenever it was expedient.
While the Secondary data are data obtained from magazines, nations dailies, Journal, Published
and unpublished work and statistical records from the private institutions within Kabankalan city.

Participants
The participants of this study includes 40 staff of the internal audit department of combined
private schools in Kabankalan City, Negros Occidental. Staff belongs to various cadres, management,
middle and other cadres.

AVERY JAN M. SILOS, MBA-HTM | DBA 305 Strategic Human Resource Management | St. Paul University Dumaguete 3
ST. PAUL UNIVERSITY DUMAGUETE | SPUD Graduate School | Doctor of Business Administration

Sample Size
This research project will be sampled to Kabankalan City Private Schools and the internal audit
selected. The sample size was determined by choosing the staff of the internal Audit, Accounts whose
position falls within the management, middle and other cadres. A total of 40 staff were in determining
the sample size of a given population above (40).

Numbers and Percentage of questionnaire distributed Shown in Table 1.

Area/Division Number Distributed Number Returned %
Internal Auditor (Executive) 15 12 37.5
Internal Auditor (Account cadre) 15 15 37.5
Audit Department Headquarters 10 9 25
TOTAL 40 36 100

Reliability & Validity of Test

This is a test or measure of the extent to which a research instrument will yield the same result
under the same conditions that is the consistency of the work. For reliability of the instrument a pilot
survey was carried out to test the questionnaire that was distributed on a similar sample from the
criteria for the selection of subject met by the subject. According to Anyanwu (2000), validity refers to
the degree to which a measuring instrument measures what is designed to measure.
The face validity was carried out by giving questionnaires to supervisor who went through the
questions drafted and made appropriate suggestions and corrections that helped meet the validity and
this brought the items on the questionnaire to 36 of the initial 40 that was drafted.
The content validity was also carried out by my supervisor, lectures and experts in the field to
ensure that the research work was in line with what is actually taking about and this was done by going
through the written work before completion and was valid.

General Description of Data Analysis Techniques

In analysis data for this research, chi-square method will be used and the decision rule comes
immediately after it.

SUMMARY OF FINDINGS, CONCLUSION & RECOMMENDATIONS

This is the conclusion chapter of this study. The finding and the result of the findings will be
presented in this chapter and a general conclusion in respect of the outcomes of the study and
recommendation for further research will be outlined.

Summary of Findings
In every company, an audit is critical. As explained previously, the internal audit was deemed to
be a success, but has shown weaknesses that led to underperformance as expected of a standard
internal audit.

The problem range form:

Inadequate staff, Lack of independence of internal auditors, Lack of properly qualified staff with
cognate experience, Management neglect of the internal auditors, Lack of mobility. The Researcher
have got an idea of who an auditor is, it becomes necessary for us then to know who the non-auditing
officers and their hindrances to internal audit efficiency are. The way i understood „an officer” is
anybody who has been entrusted with the authority to command, direct or to possess certain vital
information. The non-auditing officer was those within the establishment other than the auditor
(internal and external who possess the authority to command, direct influenced the auditor’s opinion
through the information they possess.
To put it another way, the non-auditing officers are those persons in the system whose
information holds or possesses the potential to influence the audit opinion, as well as those who
perform within the scope of an audit examination.

AVERY JAN M. SILOS, MBA-HTM | DBA 305 Strategic Human Resource Management | St. Paul University Dumaguete 4
ST. PAUL UNIVERSITY DUMAGUETE | SPUD Graduate School | Doctor of Business Administration

Because of this, non-auditing activities can also affect audit results. Accountability for the
auditors' duties of examining financial records falls on them, and they must bear the consequences. No
work can be completed efficiently. Even if the non-auditing officers refuse to discharge their moral and
legal obligations, the company cannot express a reliable opinion of them. Non-auditing officers can
play critical roles in auditing, even if they are not their primary roles.
Some of roles are making available books, accounts and other records as may be required.
Auditors have the right to have access at all ties to the company’s books accounts and vouchers. It is
from these books that auditors may obtain reasonable evidence that financial statement were
prepared as reflections of what transpired during the period under reporting. It is therefore the duties
of non-auditing officers to ensure the existence of these books of account and vouchers, ensure that
they are well kept and made available to the auditors without procrastinations. Provision of any other
information as ay be required.
To assist auditors in obtaining information as explanation from third parties where necessary.
At times the auditor may need certain and vital information within the establishment. It becomes
necessary to make contacts with third parties outside the establishment to obtain or confirm such
information. It becomes necessary that non auditing officers concerned be ready and co-operating in
enabling the auditors to obtain the information.
Deliberate refusal to supply vital information on the pretense of unavailability or confidentially.
These non-auditing officers are often found of withholding information that know would be useful for
the audit and even where the auditors made requests, they would still deny having such information.
By this, the auditor or may be forced to device further methods or techniques to obtain the required
information which may be more expensive and time consuming.
Non-Recognition of internal audit department. A way to frustrate a unit is to give little or no
recognition to the importance of that unit; this will lead to poor funding and staffing of that unit. This
has been the case for many internal audit departments that are given due recognition and so they are
poorly funded and staffed by the non-auditing officer who are in position of authority and creating
opportunities to influence auditor’s opinion through threats and gifts.
Many non-auditing officers and usually those whose performances are under examination often
resort to threats and the giving gifts as the case maybe in order to dissuade the auditors from giving
opinions expected of persons independent in mind and attitude .Threat come in the area of
employments and promotion and mostly associated to internal audits while gifts often used to
dissuade the external auditors ,though the external auditors can be threaded with non-auditors fees
and remuneration and that of non-reappointment ,their interest are legacy secured.

Conclusions
In this study, it can be seen that the auditor's position is so important that he cannot be
understated. He does this by assuring his organization has an effective internal control system. The
internal auditor functions as a link between various management segments. To make sure accounting
and management controls are implemented, he makes sure accounting and management controls are
implemented. In this part of the world, internal auditors are commonly undervalued. This appears to
be the case for most of our limited liability companies and some government organization.
A large amount of money has therefore been misappropriated or mismanaged in the media on
a daily basis. These companies also ignore the advice of internal auditors when they create a new audit
department within the office. It is implied by their refusal to follow the internal audit department's
advice in their offices that they will fail to use the auditors' insights.
The effect of refusing to accept advice is that you will not be able to keep track of financial
records while auditing the company, and so that's why they don't do it.
Most presidents know that they are not able to go through the internal auditor's report due to
their demanding jobs. As such, they are unaware of when internal auditor corrective measures can be
introduced to control or check for mismanagement. These are the reasons why the term "toothless
bull-day" is commonly used when talking about internal auditors.
Also, internal auditing has a different goal from what some people think. An internal audit that
is properly conducted may discover inconsistencies, mistakes, and loopholes as a result of the work.
On the basis of this study, it is concluded that the importance of internal audit cannot be
discounted in any business. In other words, the risk of being detected, harassed, and penalized by the
auditors deters most managers and top personnel offices from fraud. As such, additional offenses such

AVERY JAN M. SILOS, MBA-HTM | DBA 305 Strategic Human Resource Management | St. Paul University Dumaguete 5
ST. PAUL UNIVERSITY DUMAGUETE | SPUD Graduate School | Doctor of Business Administration

as theft of cash, theft of materials, and theft of suppliers are possible. The foregoing findings thus
demonstrate how internal audit can be a management control tool.

Recommendations
Based on the issues previously identified, and having reviewed the effect of non-auditing
officers, it is essential that we propose measures to maximize the utility of auditors from those non-
auditing officers. Therefore, the researcher wishes to offer suggestions and recommendations for
increasing internal auditing. If implemented, these changes will serve to benefit the establishment, and
improve internal auditing in general. Even though the internal audit department may be understaffed
when compared to the volume of work they carry out, more personnel should be hired. This will make
it easier for the establishment to undergo an audit. If there are enough staff in the unit, then they
could be used to inspect activities and report findings to management.
To perform a control review of the internal control system, use the non-auditing officers as a
tool. Borrowing internal management policies and making them available to management for review
and decision making can be accomplished. Properly trained non-auditing staff will understand how
collaborating with auditors benefits them and, as a result, they will devote more attention to audit
reports both inside and outside the company. It is important to make the auditor an important
member of the organization. There were definite emotions and feelings in almost all of the locations I
visited. It appeared as though the head of internal audit departments was nearly ready to retire to the
H.E.O. When conducting research, I noticed that some of the leaky wooden structures around the
industry provided accommodations for those who were relocated away from the main building. It is
strongly recommended that internal be considered when using the term "consider for." This will allow
them to participate in meetings that are of vital importance and foster growth in the businesses.
Internal audit staff should be provided with vehicles because it is critical that they be accessible
when needed. To meet the nature of their work, the department's funding should be allocated to
support their field work, such as conducting audits at branches or zones or completing other
assignments such as market surveys. Sometimes, Port Harcourt, Aba, Onitsha, etc. were all needed to
find the information. In these types of situations, it is inevitable to use the vehicle. At the places where
I went on research, almost everyone I spoke to expressed agreement that vehicle access enhances
their productivity.
Audit committee established. It was mandatory for all public companies to implement audit
committees beginning in 1990. There is an immense amount of good that could be done to internal
audit. Preventing unnecessary management involvement in the internal audit is accomplished by
designating the internal auditors and assigning them the responsibility of reporting to the audit
committee.
Internal auditors are hired and designated according to their qualifications. Because the level of
people to hold the position of internal auditor is similar to that of other management staff, they should
be of equivalent status and authority. this would allow the management to give the internal audit a lot
of leeway.
Audit reports should be acted upon as soon as they are issued to guard against potential
financial losses. Adherence to lay down policies by the staff, as well as correcting anomalies
immediately, should be monitored where possible; in addition, incorrigible staff should be strongly
recommended for reassignment. In order for the chief executive to receive the internal auditor's
report, it is recommended that the auditor reports directly to the chief executive of the establishment.

AVERY JAN M. SILOS, MBA-HTM | DBA 305 Strategic Human Resource Management | St. Paul University Dumaguete 6