Auditor plays a greater roles in the state and the entire nation as a whole, for the development of public sectors in the states, it constitute nearly 80% in terms of financial management for fraud prevention and control in the public sector.
Auditing in its modern form, has attended a primitive existence since the 16th century when the division first started to grow between those who provide capital and those who managed the business. The introduction of the joint stock companies, has greatly widened the possibility of raising capital for industry as a result of the limited liability of share holders it became possible to offer shares to the public and thus the availability of capital to industry and commerce.
Under the company form of organization, the government put more emphasis on financial management in the public sector to ensure proper record keeping that the accounting book has always show the true and fair view of the financial statement and operation are being carried out successfully as such problem of financial misconduct and misappropriation through fraudulent by all means should be identified and taken care of. This has necessitated for the insight of this project in which the auditor detect how fraud is detected and looking for prevention method and controlling it in the public sector. The primary responsibility for detection, control and prevention of fraud rest with the management, this responsibility arises at contractual duty of care directors and mangers of an organization becomes directors and managers, act in stewardship capacity with regard to the property entrusted to them by the government and stock holders and others owners. How they exercise this duty of care is a matter for them in most cases their duty may be discharged by institutions and maintaining a strong system of internal control.
Therefore, internal control can be seen as the whole system of control; financial and other wise, established by the management in order to carry on the business in an organization in an orderly and efficient manner to ensure adherence to management policies control and safeguards the assets and secure as far as possible the competence and accuracy of the records, in an organization for internal control to be effective the following should be specified.
In all cases. The delegation of authority and responsibility should be clearly specified. An employee should always know the practice powers delegated to him or she the extend of his authority and to whom they should report, for example.
1. Responsibility for approving the purchase of items of plant may be retained by the Board of Directors and within the competence of the works managers for the budgeted amount agreed by the board.
2. Responsibility for the correct operation of internal control may be delegated by the board to specified management personnel and the internal audit department.
3. The involvement of several people reduces the risk of international manipulation or accidental error and increase the checking element of work.
4. Function for which a given transaction should be separated include initiation (e.g. the work for foreman decides the organization need more lubrication oil) authorization (the works manager approve the purchases) execution (buying department order for the oil) custody on arrival of the oil is taken by the store department with appropriate documentation.
This indicate how important internal control is and its effect on asset and liabilities, revenue and expenditure as well as every aspect of the operation of the organization in the public sector as most business decision are based on accounting data which explains how important internal controls system provide double assurance of the responsibility of the accounting data which form bases for business decision such a decision should be communicated to all section of the organization and must follow up to enhance compliance for effective performance upon the other hand fraud can be seen as a way which involves the use of deception, to obtain an unjust or illegal financial advantage by international mis-statements in or omission of amount from an entries accounting record of financial statements.
The primary responsibility for fraud detection and irregularities rest with the management. This responsibility arises from a contractual duty of care by directors and managers and also because directors and other managers act in a worship capacity with regards to the property entrusted to them by the organization or other owner. How to exercise this duty is a matter for them, but in must cases their duty may be discharged by instituting and maintaining a strong system of internal control. The possible indications of fraud and irregularities includes:
a) Missing vouchers or documents: An employee destroyed an invoice copy and pocket the cash paid in connection with the invoice.
b) Evidence of disputes, lack of partial payments by debtors may indicate disputed invoices.
c) Evidence of falsified document that is an invoice, dates were altered to place the documents in a different year bolster profit.
d) Unexpected items of reconciliation or suspense accounts differences on bought and sales ledger control accounts may indicate trivial non material errors but may indicate real fraud.
e) Evidence that internal control is not operating as it is intended to explanation that short cuts have been made to achieve greater efficiency may infact have been made to facilitate fraudulent conversion
On discovery of fraud the following sequence of actions may be appropriate to prevent such occurrence.
1. If it appears that fraud error have occurred, and may be material then consider the effect on the financial statements and ensure that they are prepared with such adjustments and amendments as may be required.
2. If further investigations are required and account cannot be delayed, then the auditor report may have to be qualified for uncertainty.
3. In events were frauds have occurred ensure top management are aware of such events.