Internal Audit Function and Fraud Detection in Government Agencies. Acase Study of Naads Kumi

Topics: Internal audit, Auditing, Audit Pages: 24 (7542 words) Published: July 10, 2011
This chapter will cover the background of the study, the statement of the problem, the purpose of the study, the objectives, the research questions, and the scope, the significance of the study and the structure of the report. 1.1Background of the Study

According to Hector Perela, (2009), Internal auditing function with other intervention mechanisms like financial reporting and external audit to helps maintain cost-efficient contracting between owners and managers. It is designed by government agencies to add value and improve organizational performance. It helps organizations accomplish their objectives by bringing a systematic, disciplined approaches to evaluate and improve the effectiveness of risk management, control and governance processes.” Internal audit helps organizations to ensure that financial and other records are reliable and complete. As well as ensuring that management adheres to policies and procedures for orderly and efficient conduct of the business, proper recording and safeguarding of assets and resources. The purpose of internal audit as far as the organization is concerned is to get accounting errors corrected and control weaknesses eliminated. The most testing time for the internal auditor is the report he/she writes to achieve this end. No precise legal definition of fraud exists; many of the offences referred to as fraud are covered by the Theft Acts of 1968 and 1978. Generally, the term is used to describe such acts as deception, bribery, forgery, extortion, corruption, theft, conspiracy, embezzlement, misappropriation, false representation, concealment of material facts and collusion. For practical purposes fraud may be defined as the use of deception with the intention of obtaining an advantage, avoiding an obligation or causing loss to another part. (Internal Audit, University of Birmingham, Edgbaston, Birmingham, B15 2TT, UK)

On one hand, fraud detection in government agencies involves employees or managers of the victim organization (commercial angles news letters 2001), the most effective tools for fraud detection are internal audit review, specific investigation by management, employee notification, and accidental discovery. Fraud detection helps Management to address its responsibility through development of an appropriate design of the system of internal control and the effective operation of that system. Numerous fraud prevention and detection techniques are now utilized to reduce the direct and indirect costs associated with all forms of fraud. These various techniques include but are not limited to: fraud policies, telephone hot lines, employee reference checks, fraud vulnerability reviews, vendor contract reviews and sanctions, analytical reviews , password protection, firewalls, digital analysis and other forms of software technology, and discovery sampling (Thomas and Gibson, 2003). Government departments implements the ideas and decisions of executive government in a particular area of governance. Each department is led by a minister in charge or commissioner, and the main work of the department is determined by legislation. Despite the internal audit function, many government agencies fail to detect fraud for example loss of huge monies in NAADS. The National Agricultural Advisory Services (NAADS) is a Ugandan government agency created in 2001 to improve rural livelihoods by increasing agricultural productivity and profitability. With an annual budget of UShs 97bn ($51m), NAADS is funded by international donors (80%), such as the European Union and the UK's Department for International Development, the Ugandan government, local governments and farmer groups. It is one of the seven pillars of the Plan for Modernization of Agriculture, which aims at replacing Uganda's predominantly subsistence farming with market-oriented agriculture. Charles Aben, the NAADS coordinator for Soroti district, in which Katine is located, says that a key feature of...
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