THE IMPACT OF AUDITING AND INTERNAL CONTROLS ON THE MANAGEMENT OF A BUSINESS ORGANIZATION. A CASE STUDY OF PRUDENTIAL BANK LIMITED (WEIJA BRANCH)

For system-based auditing to work effectively the auditor will like to rely on internal controls to reduce the volume of substantive testing. It is therefore important for the auditor to examine the internal control practice and procedures that are in place in the client’s business. Where weaknesses are revealed, the auditor recommends ways of improving the systems. This research examines the relationship between some components (risk assessment, control environment and control activate) of internal control systems and the effectiveness of audit program in prudential bank Weija branch. The study exploited information by the help of both primary and secondary data from questionnaires and interview schedules. However, the purposive method of sampling was used in this research work. In all 10 respondents were sampled from the fifty (50) respondents under review. The data captured in this study, was analyzed and interpreted through descriptive method by the help of frequency tables, graphical presentation and tables. Based on the investigations carried, the internal control system was seen to be significant in detection of fraud in banks in Ghana; there is therefore the need for an effective and acceptable internal control structure in banking organizations. It was therefore recommended that Prudential Bank Limited set up internal audit units at their various branches all over the country, so that there shall always be internal audit personnel to ensure adherence to the internal controls that exist in the organization. In view of this, the internal audit personnel should also be revolved at regular intermissions to prevent any form of professional misconducts. SJIF Impact Factor: 6.260| ISI I.F. Value:1.241 Volume: 4 | Issue: 12 | December | 2019 ISSN: 2455-7838(Online) EPRA International Journal of Research and Development (IJRD) Peer Reviewed Journal ______|EPRA International Journal of Research and Development (IJRD) |ISSN:2455-7838 (Online) | SJIF Impact Factor: 6.260| ISI I.F. Value:1.241|_________ | Volume: 4 | Issue: 12 | December| 2019 Journal DOI: https://doi.org/10.36713/epra2016 | www.eprajournals. com |52 | 1.0 INTRODUCTION How extensive should a company‟s internal control structure be? In today‟s state of affairs, this is a challenging question to answer. The reason being that some current business, legal, and social trends suggest that companies precondition to intensify their emphasis on internal control, while other trends designate just the reverse. Bank failures and widespread losses in this globalized world have elevated the importance of effective internal control within the formal financial sector worldwide. In the United States for instance, Bank catastrophes rose over 200 percent in the 1980s as a result of fraud and mismanagement. Internationally, the collapse of Barings Bank and Yamaichi Securities further highlighted the financial sector‟s attention on internal control systems in banking organizations. The Basel Committee carried out investigations on the causes of these losses and concluded that they probably might have been avoided if the Bank had put effective and efficient internal control systems in place (Banking regulatory and auditing guide). As part of its on-going effort to control fraudulent activities at banks and enhance better supervision through guidance that emboldens effective risk management practices, the Basel Committee on Banking Supervisory issued a basic conceptual structure to strengthen internal control systems. A system of effective internal controls is a major component of bank management and the bases for the safe and sound operation of banking organizations. A strong internal control system will result in the achievement of goals and objectives of a banking organization, that the bank will achieve longterm profitability targets, and maintain realistic financial and managerial reporting. It will also help to ensure that the bank adhere to laws and regulations as well internal rules and procedures, and decrease the policies, plans, and activities that brings about unexpected losses or impairment of the bank‟s reputation. Internal control and internal auditing are closely related and it is difficult to separate the two. This is because for system-based auditing to work effectively, the auditor will like to rely on internal controls to reduce the volume of substantive testing. It is therefore important for the auditor to examine the internal control practice and procedures that are in place in the client‟s business. Where weaknesses are revealed, the auditor recommends ways of improving the systems. The internal control systems also seek to ensure that pre-audit function which is considered the most critical element in financial control concept are put in place by management through the internal audit unit to ensure that operations are carried out according to plan in order to achieve the overall objectives of the business enterprise. The pre-audit function in the past used to be concerned only with the vetting and passing of payment vouchers. Today the pre-audit function has moved on to includes the operational review of all transactions and offer appropriate technical advice. Auditing and internal controls can be explained from different point of view and perspectives (Cristina, Mariana & Cristina,2010). Internal control can be defined as a process, effected by the actions of board of directors and other organizational structure levels in the firm, designed to provide reasonable assurance towards the achievement of a firm‟s objectives, plans and strategies under the related laws, rules, polices and regulations (Domnişoru & Vînătoru, 2008; Li & Wei, 2008). It can also be defined as policies and procedures adopted by the management of an entity to assist in their objective of achieving as far as practicable, the orderly and efficient conduct of business, including adherence to internal policies, the safeguarding of assets, the prevention and detection of fraud and error, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. Whereas Auditing is defined by ISA as a process, carried out by an appointed qualified person or body, whereby the records and financial statements of an entity are subjected to independent examination in such detail as will enable the auditor form an opinion as to their truth and fairness. Currently, most companies increasingly started to include detailed management reports on the effectiveness and efficiency of internal control systems in their annual corporate reports as an indicator to a good corporate governance practice (Leng& Li, 2011; Saha & Arifuzzaman, 2011). However, the evaluation of internal control system is based mainly on assessing the strength of internal quality control of the intended company on three important areas, including appropriate internal control, insufficient internal control and deficient internal control (Calotă & Iana, 2009). The effectiveness of an organization‟s internal control system is generally seen as a prerequisite to the auditing process as it is considered the major indicator of the collection, timing, and the degree to which auditing measures should be applied or restricted (Terrell, 1974). The financial and corporate policy of a company is supported by means of operative internal control systems in which the internal audit has a significant role in raising a reliable internal control system, improving the practice of risk management and above all, satisfying the needs of internal users. And the unnecessary legal tussles that characterizes repayments of bank facilities. Prudential Bank Limited (PBL) was incorporated in (1993). It opened its doors on August 15, 1996 with the first branch in Accra. Prudential bank is a medium-sized bank specializing in meeting ______|EPRA International Journal of Research and Development (IJRD) |ISSN:2455-7838 (Online) | SJIF Impact Factor: 6.260| ISI I.F. Value:1.241|_________ | Volume: 4 | Issue: 12 | December| 2019 Journal DOI: https://doi.org/10.36713/epra2016 | www.eprajournals. com |53 | the banking needs of small and medium-sized businesses as well as those of individuals. The bank has three subsidiary companies-PBL properties Limited, Prudential securities Limited and Prudential Stockbrokers Limited. PBL Properties Limited is engaged in the acquisition and development of banking premises for bank and also management of ancillary staff and facilities. Prudential Securities Limited (PSL) is engaged in fund management, corporate finance and business advisory services. Prudential Stockbrokers Limited is engaged in stockbrokerage, equity and economic research and advisory services. 1.2 Statement of the Problem The banking system in Ghana was established purposely to bring the business of banking to the door steps and make banking easier and comfortable for users all over the country and the international world as well. The banking industry is faced with some crucial challenges due to regularity of fraud and embezzlement of funds thereby creating fear, anxiety, and loss of confidence of bank customers. Also, weakened internal control structure leads to high amount of bank losses. Management is required to set up an internal control system but this system varies from one organization to the next reliant on such features as their size, environment of operation, and objectives. Subsequently internal controls function in an environment which impacts its operation, proper care must be taken in its implementation of these systems in other to achieve the final aim of the bank. This crucial interest in internal control is, in part, a result of significant losses incurred by several banking organization. An analysis of the problems related to these losses proved that they could probably have been evaded had the banks adopted proper internal control measures. Such systems could have been disallowed or enabled earlier