Avoiding losses through proper internal audit

2010-03-11
THE PUNCH Newspaper-Ifeanyi Onuba


In 2003, Uchenna decided to relocate to Nigeria after spending 13 years in Germany.

His relocation was sequel to a call made by former President Olusegun Obasanjo, asking Nigerians in the diaspora to return home and help move the nation forward.



Obasanjo had during his foreign trips to Europe wooed Nigerians who had businesses as well as those who had good business ideas to come and boost the country‘s gross domestic product through their investment in productive sectors of the economy.



Responding to the former President‘s call, Uche relocated to the country and established a private business with about fifteen employees working for him.



With the hope that he had recruited the best hands, he decided to explore other business options while his employees ran the business.



At the onset, the business thrived as he was able to set up more branches within the first few months.



However, owing to weak supervision as well as the fact that he only relied on returns remitted to him by his account clerk without proper scrutiny of the items being sold or purchased by them, his fortunes began to dwindle.



By the end of the third year of operation, his business was on the verge of collapse as the profit suffered a massive decline.



Unknown to Uche; his employees had taken advantage of his weak internal control system as well as inadequate supervision of the companies‘ activities to run the business for their selfish purpose.



This led to a depletion of the company‘s capital as a result of accumulated losses.



The company‘s misfortunes were compounded by significant decrease in income, high operating cost, poor record keeping and weak internal control mechanisms.



The business, however, wound up last year, when he could not meet up with maturing obligations as at when due from customers and suppliers of his products.



This put paid to his vision as frustration and fear of the unknown made him to travel back to Frankfurt with the help of the little fund he could raise from the disposal of the company‘s fixed asset.



Like Uche, a lot of entrepreneurs have suffered the same fate, due to weak operational structures for their businesses.



But experts say that entrepreneurs can avoid unnecessary losses if they pay adequate attention to internal control and business audit.



They contend that since an audit procedure is the core of every successful business, it is sometimes difficult to know how to take the required steps in creating an audit plan that is workable, achievable and can deliver the required results.



According to them, while some people recognise the importance of having a business; they most times overlook the benefits of a business audit.



According to the Institute of Chartered Accountant of Nigeria, an audit is the evaluation of a person, organisation, system, process, project or product.



It involves procedures performed to ascertain the validity and reliability of information, and also provide an assessment of a system‘s internal control.



In order to perform an effective audit, there must be a strong internal control mechanism.



While the objective of an audit is to express an opinion on the organisation, system and an evaluation based on work done during a period; internal control is a means by which an organisation‘s resources are directed, monitored and measured.



It also plays an important role in preventing and detecting fraud and protecting the organisation‘s resources, both physical (machinery and property) and intangible (goodwill or intellectual property such as trademarks, patents and copy rights).



The Manager, Planning and Strategy, Sparklight Group, Mr. Onatoye Oluwaseun, notes that internal audit and controls can be carried out either at the organisational or specific levels.



At the organisational level, he contends that this objective relates to the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations.



He adds that at the specific transaction level, internal control refers to the actions taken to achieve a specific objective.



Oluwaseun, who is also a Chartered Accountant, says many businesses crumble because they fail to take stock of their performance in different aspects.



According to him, every entrepreneur must audit his business either personally or with the help of a trusted business professional.



While recalling how the special audit carried out by the Central Bank of Nigeria last August revealed the rot in the banking system, he observes that any business that fails to do this will likely experience bankruptcy.





 

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