Evaluating the Effectiveness of Internal Auditing in Public Finance

This report addresses the increasing fraudulent activities within public financial management systems and evaluates the effectiveness of internal auditing in mitigating these issues. The problem statement highlights the neglect of internal auditing and the rise of financial dishonesty, referencing the Global Fraud Survey of 2016. It emphasizes the need to ensure public funds are used effectively and to prevent time wastage due to audit discrepancies. The report discusses the financial and social impacts of accounting fraud, including financial losses and loss of public trust, citing the case of Imo State Ministry of Finance in Nigeria. It advocates for internal audits in policies and procedures to minimize fraud exposure, referencing studies that support the role of effective internal audits in fighting corruption. This research encourages public financial systems to strengthen their internal audit functions to safeguard against fraud and financial losses.

An Evaluation of the Effectiveness of Internal Auditing in Public Financial Management
Systems
1.2 Statement of the Problem
Fraudulent activities are increasing at an alarming rate in the public financial
management systems. Internal auditing is one of the most neglected and underestimated area of
the financial management cycle in the public sector. With the widespread increase in financial
dishonesty and corruption, there is a need for proper accounting records and system. According
to the Global Fraud Survey of 2016 conducted by the Association of Certified Fraud Examiners
found that the public sector ranks the second in fraud (World Bank Organization 2017). Different
fraud risks were determined such as check tampering, cash theft, payroll schemes and skimming.
There is a need to ascertain that the public funds are being used effectively and reaching even the
lowest strata of the society.
It is necessary to evaluate the effectiveness of internal auditing systems in public
financial systems to ensure that the effort of auditors is not going in vain. As public
organizations already consume a lot of time in decision making and paperwork, it shall cause
wastage of time if the discrepancy in audit system is not found. Fraud and discrepancy in
accounting can have financial impact in the public financial management system as the penalties
involved for misleading stakeholders can cause severe financial loss. Further, it also has a social
impact as the people shall lose faith and even organizations would not consider the firm for a
strategic alliance. As seen in the case of Imo State Ministry of Finance, financial frauds became a
part of Nigerian public sector (Adebisi and Gbegi 2015). There was increasing incidence in
Nigeria and there was a need for forensic accounting in the financial sector. It was found that the

increasing issue of corruption such as money laundering, security fraud and cash embezzlement
in the Nigerian public sector brought about the need for thorough auditing. Therefore, this
research study shall encourage the public financial systems to conduct internal audit in policies
and procedures to minimize exposure to fraud and other losses (Asiedu and Deffor 2017).

References
Adebisi, J.F. and Gbegi, D.O., 2015. Fraud and the Nigerian public sector performance: The
need for forensic accounting. International Journal of Business, Humanities and
Technology, 5(5), pp.67-78.
Asiedu, K.F. and Deffor, E.W., 2017. Fighting corruption by means of effective internal audit
function: Evidence from the Ghanaian public sector. International Journal of Auditing, 21(1),
pp.82-99.
World Bank Organization, 2017. Public Sector Internal Audit: Focus on Fraud. [online]
Washington DC. Available at:
http://siteresources.worldbank.org/EXTCENFINREPREF/Resources/4152117-1498417623599/
public_sector_internal_audit_fraud_pages.pdf [Accessed 26 Mar. 2019].