PwC’s 2023 global internal audit study has highlighted the need for companies to rethink their strategy to make them commercially viable in 10 years. This is due to increasing trends in abuse. The United Kingdom’s Chartered Institute of Internal Auditors has warned companies to be more vigilant about the risk of fraud. This has led to rapid changes in business models and processes. At the local level, the Lagos State Government is taking steps to change and evolve internal audit functions, leveraging technology to respond to business challenges. DANIEL ESSIET reports.
The global problems facing public sector organisations are many. They include government failure, inefficiency, fraud and corruption. When they occur, the consequences on reputation are colossal.
To this end, the PwC’s 2023 Global Internal Audit Study highlighted the need for companies to rethink their strategy if they want to be financially viable in the next 10 years. Also, the Caseware’s 2024 State of Internal Audit Trends Report stated that the top opportunities and obstacles facing internal audit departments include recruiting and retaining qualified internal auditors, transitioning from manual to digital auditing and environmental and social growth and governance (ESG) reporting.
As the scope and complexity of fraud and embezzlement changes, experts noted that it had become critical for internal audit professionals to acquire skills to manage complex financial interactions in a way that ensures internal security, including internal audit, risk management and compliance.
One approach to preventing corrupt practices is to strengthen the role of internal audit institutions. The objective is to control activities, protect assets, provide good financial reporting, increase efficiency and effectiveness and improve early detection of irregularities using audit technology.
Globally, internal auditors are empowered to carry out monitoring through audits, reviews and evaluation in the management of government tasks and functions. In 2020, internal auditors confirmed that the Commonwealth Secretariat as implementing the six recommendations raised in the recent audit into historical waivers and declarations.
KPMG also confirmed that the Commonwealth Secretariat’s procurement policies and procedures meet established industry practice. Its Secretary-General Patricia Scotland said: “The Secretariat complies fully with all our independent, internal and external audits. We have worked diligently to implement the recommendations of our internal auditors at the earliest opportunity.
“We trust that Commonwealth Fund for Technical Co-operation (CFTC) funding will be released as soon as possible so that we can continue delivering vital work on behalf of our member states.’’
In Lagos State, auditors have been challenged to improve their productivity. This was at the just-concluded 16th Annual Internal Auditors’ Retreat in Lagos on “Internal Audit: Control for Good Governance”.
True, a storm of technological advances, increased financial management expectations and cultural behavioural changes are accelerating the pace at which accounting firms are being forced to assume greater responsibility for combating fraud in the companies they audit.
To survive and thrive in the new landscape where opportunities and threats are emerging at a fast pace, the Lagos Head of Service (HOS), Mr. Bode Agoro, charged the heads of internal audits in the state Public Service to adopt the principles of good governance, accountability and transparency to improve their institutions.
He noted: “As civil servants, you will agree with me that we are the face of government and as implementers of government policies programmes and projects effective control for good governance should begin with us. Against this background, it’s very important to portray ourselves widely as ambassadors in dealing with the public having provision of effective Service delivery, which is key.’’
Stressing that the state government has invested in improving audit quality, the HoS also emphasised the role of internal auditors in safeguarding the business climate and implementing best practices to reduce fraud risks.
He informed that a total of 405 internal auditors were engaged by the Lagos State government, to ensure that ministries, departments and agencies (MDAs) comply with the highest ethical standards, probity and accountability in their dealings.
As part of its focus to promote innovation within the internal audit role, he said the government had been preparing the next generation of auditors to help the state achieve its economic goals.
Commissioner 11 (Education), Abiodun Bamgboye, noted that the role of auditors makes them watchdogs essential to the growth and development of their MDAs.
However, he added that the business of internal audit was in the midst of transiting and increasingly relying on cutting-edge technologies.
Although the auditing industry is not the first where people think about digitalisation, the sector needed to transform and that people realised that the moment is now. For him, technology has been an accelerator as practitioners partner software providers to automate the auditing processes.
He reminded the practitioners of their responsibility to ensure the integrity of the financial statements emerging from the various ministries. This is because there had been tension about whether practitioners were compromising or not. It seems a bit of both.
According to him, there is as much concern about public perception as technology and that internal auditors could go much further than they are.
While the technological transformation of internal audit practice is accelerating, he noted that contemporary assessments of auditors, based on accounting principles, is particularly critical, reminding them that integrity is a virtue for a professional.
Noting that internal audit has come a long way, he added that there would be restraints to that progress, based on the limitations of the profession.
For him, the strategy is the intersection between public need and value and integrity.
He explained the expectations of duties require that auditors detect and report not only wrongdoing that affects the accuracy of financial statements, but also behaviours that could put the government at risk.
Following efforts to reform audit and corporate governance, he explained that the Lagos State government had been prioritising internal auditors’ training, driven by heightened expectations on revisions of auditing standards.
Irrespective of the technology, he said auditors need to be fully aware of how fraud could be perpetrated and to really understand the systems and processes.This is in addition to tightening risk assessments and processes, governance, professional education and audit methodologies.
He noted that internal audit is important to sound governance and accountability where public sector institutions could rely on internal audits to provide oversight and assurance over operations, service delivery, and efficient use of public funds.
A former Lagos State Auditor-General, Mrs Modupe Akinwolemiwa, stated that good governance and auditing have a close relationship, as any system without checks and balances could not stand. With the growing importance of corporate governance, she indicated that internal auditors are expected to provide assurance on the effectiveness of the organisation’s governance processes and to make recommendations for improvement.
According to her, the business of internal audit has changed. She indicated that the skill sets an auditor needs to be successful in future are elevated compared to what they used to be. She described internal auditors as the fault finders/watchdog in the organisation, adding that they play a critical role in helping the public measure government performance.
One element of good governance that has become a concern, according to her, is accountability. An indicator of increased accountability, she noted, was the number of findings by the internal audits to assess the balance of government financial statements in terms of internal control and compliance with laws and regulations.
Also,the Permanent Secretary(PS), Lagos State Office of Internal Audit, Mrs Kikelomo Arinonla Dawodu, said the government had been supporting good governance and capacity development.
In line with this, efforts were ongoing to strengthen capacity development of internal auditors to ensure that funds were used effectively, with economy, and for the intended purposes.
Mrs Dawodu said the professionals have a responsibility to establish a culture of integrity and ensure consistency and transparency that is vital for the state economy to grow.
Her words: “As auditors within the employ of the state government, we bear a profound responsibility. Our role transcends mere compliance; it embodies a commitment to ensuring transparency, accountability, and, ultimately, good governance. In a world where public trust is paramount, our work serves as a cornerstone in upholding the integrity of our institutions.
‘‘Today, we converge to explore and deliberate on the integral role that internal audit plays as a control mechanism for fostering good governance.The theme of the retreat underscores the pivotal role internal audit plays in fostering good governance. It emphasises the symbiotic relationship between effective controls and the realisation of public trust. Indeed, control is not merely a mechanism for enforcement, but a catalyst for ethical conduct and organisational excellence.
“In our pursuit of good governance, we must recognise that control extends far beyond financial matters. While fiscal oversight remains essential, our mandate encompasses broader domains, including operational efficiency, risk management, and compliance with regulatory frameworks.’’
She stressed that internal audit could provide significant value to an organisation by helping to identify and mitigate risks, improving efficiency and effectiveness of operations, and ensuring compliance with laws and regulations.
The PS said the Lagos State Government has developed a very strong and robust accountability framework for its programmes. She also said the Office undertakes timely verification of its financial system and provides insights into the quality of financial management so that corrective action could be taken.
In Nigeria, the internal audit function has come a long way and has undergone significant development in recent years. In the past, internal audit was mostly confined to compliance-based activities and was often viewed as a cost-centre. With the increasing complexity of business operations and the emergence of new risks, however, the role of internal audit in Nigeria has evolved to become more strategic. Internal auditors are expected to provide valuable insights and recommendations to management on how to improve the organisation’s performance and achieve its goals.
According to KPMG’s Technology internal audit: 2022 and beyond, internal auditors are facing what is akin to a storm— unprecedented technological advances are unfolding at an ever-increasing pace; board and audit committee members who have become more knowledgeable about technology and are demanding more insights and expertise from their internal audit teams and a shortage of professionals with the skills needed to tackle emerging and evolving risks.
To be effective, the report indicated that technology-based internal auditors must establish credibility with business leaders by being able to demonstrate their skills, knowledge, and ability to meet these heightened expectations.
Without that credibility and stakeholder trust, it would be difficult—if not impossible—for the technology internal audit to rise to these new challenges required by the business.
