THE ROLE OF AUDITORS IN FRAUD PREVENTION AND CONTROL IN PUBLIC SECTOR

CHAPTER
ONE

1.0      INTRODUCTION

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.

1.1    HISTORICAL BACKGROUND OF KADUNASTATE
WATER BOARD (KSWB)

Water
is one of the most fundamental necessities for life and human survival this
does not only imply to its availability but also the chances for everyone to
have assess to it. Water supply systems include the world’s water resources,
all of its water requirement it includes works for collection purification
storage, and distribution of water to homes.

The
water treatment systems were first brought by the colonial masters since before
the end of the colonial period there were towns which had water supply which
among others include Kaduna and Zaria which were established in the year 1929
and 1939 respectively which were primarily established to meet the demand at that
time by the colonial masters and some restricted area (G.R.A).

The
supply of water in KadunaState was the sole
responsibility of the state ministry of works and housing prior to 1971. The department
of water supply was remove from the ministry and become an autonomous body for
the purpose of efficiency and effectiveness, as well as to serve as an avenue
for providing portable water supply to all part of the state.

Kaduna
state water board was established as North Central water Board came into being
in May 1971 by edict NO.2 of 1971 signed by the then military Governor (late
Brigadier Abba Kyari Retd). The Board then became a body corporate with
perpetual succession and a common seal and shall have power to sue and be sued
in its Corporate name.

POWERS
AND FUNCTIONS OF THE BOARD

The
Board has the power vested or to be vested as follows:­

a)          
To control and manage all
water works plants.

b)         
To establish, control,
manager, extend and develop such water works (old and new).

c)          
To ensure that water is
supplied to the public consumers at reasonable charges, in portable quality and
also adequate quality.

d)         
To organize the conduct of
comprehensive research from time to time for utilization in the formulation of
policy relating to the supply and usage of water in the state. To enable the
board to perform all or some of the above function both Federal and state
government  give it capital grants but
that of the federal government was later 
stopped to defray re-current costs however, the edict empowered the
board to charge, with the approval of the governor, the consumers determine
reasonable rate that shall as sufficiently as possible pay for the salaries,
fees and allowances of the members, the salaries remuneration, fees, allowance
pensions, gratuities and other retirement benefits of the officers, servants,
other services at a consultants to the board all expenses of working staff and  management of the board and its water works
and other properties including proper provision for depreciation for renewal of
assets. Such as minor works of capital nature, such payments as compensation,
taxes, rates and other levies payable le under any law and interest on any loan
raised by the board etc. The board is an autonomies body with the board
governing council consisting of a chairman and the general manager of the board
is included for the day to day running of the affairs of the board, it has a
management committee headed by the general manager and the following and the
following members who assisted him/her in one way or the order other.

Assistant
General Manager (secretary)

Assistant
General Manager (operation)

Assistant
General Manager (finance)

Assistant
General Manager (project)

Assistant
General Manager (commercial)

project
manager (Rural water supply)

Chief
internal auditor.

The
Board appreciate and terminates its own staff being guided by the civil service
rules (CSR), financial regulation (FR) its own edict, staff regulations and
domestic/house report of the external auditors. The Board offers services in
terms of water supply to the entire state including drilling of boreholes in
the rural areas through the rural water supply department.

        ACCOUNTING AND COMMERCIAL DEPARTMENT

The
issue of revenue administration cannot be discussed in Kaduna State water Board
without making full reference to those two departments the (Accounting and
commercial) because they are the revenue generating units officials (meter
readers, bill distributions, billing clerks, accountants, commercial staff) are
realized when money is paid to the cashiers. The accounting department is
headed by assistant general manager (finance).

The
department has three sections (finance, revenue and final accounts) each headed
by chief accountant while (store is headed by a chief store officer). At the
district level, the section is headed by district accountants, it is the
responsibility of this department to keep proper accounts in respect of the
functions of the board, preparing the financial year statement of accounts in a
form that may be approved by the board. It also prepares an estimated revenue
and expenditure. The revenue estimate will serve as a guideline for the
collection of revenue, it will be a yardstick for measuring the efforts of
revenue officials. It is also the accounts department that collect and keeps
proper account of revenue generated and control the expenditure of the board.