Internal Auditing: Panacea for addressing revenue leakages and promoting accountability
Lately, there have been widespread reports of revenue leakages and misdemeanours cutting across different segments of the global economy.
Lately, there have been widespread reports of revenue leakages and misdemeanours cutting across different segments of the global economy. Ironically, these developments have taken on a more troubling dimension, often manifesting in various forms of unethical and unlawful practices such as looting, embezzlement, theft of public property, payment of ghost workers, over-invoicing, under-invoicing, mismanagement of public funds, conflicts of interest, misappropriation of assets, fraud, and, above all, bribery and corruption.
Often, one begins to wonder about the motive behind these recurring acts, which are evident across several government agencies, public institutions, and state-owned organisations. Religious organisations and not-for-profit entities are also not exempt from these challenges. Similarly, private companies, public corporations, government parastatals, and charitable organisations are all, in varying degrees, affected by these concerns. What is revenue leakage?
Revenue leakage refers to money that an organisation or government agency has actually earned but, ironically, has not been collected or properly accounted for due to bottlenecks in the revenue collection process or weaknesses in control mechanisms.
These leakages may occur through fraudulent practices; theft of cash; non-issuance of receipts; improper reconciliation; information technology (IT) risks within revenue systems; abuse of discounting mechanisms; poor record-keeping; contract inflation; billing errors; and over-invoicing or under-invoicing, as the case may be. Impact on the system
Available records indicate that revenue leakages within the public domain often result in serious negative consequences, including significant financial losses and, in extreme cases, dwindling liquidity. More importantly, these leakages undermine the integrity of financial reporting systems, erode public trust, and weaken institutional credibility.
In some instances, they may compromise adherence to the rule of law and, if not urgently addressed, contribute to broader governance failures within public institutions. The way out of the menace
Addressing the issue of revenue leakages requires a well-articulated and comprehensive set of strategies. These include, but are not limited to, public enlightenment campaigns, the establishment of effective internal control systems, the promotion of accountability and transparency across all levels, strict adherence to budgetary provisions, strengthening anti-corruption institutions, continuous training and retraining of public officials in financial management and revenue processes, encouragement of whistleblowing mechanisms, adoption of the NOCLAR principle, and the enactment of robust public financial management laws.
Above all, however, periodic internal audit exercises remain central to any sustainable response to this challenge. Understanding internal auditing
Internal auditing refers to an audit exercise conducted by an employee of an organisation on behalf of that organisation. It can be defined as an independent appraisal function established by management to review, examine, evaluate, and report on the overall activities of an entity. Reasons for internal auditing
The objectives of internal auditing include ensuring compliance with best practices, safeguarding organisational assets, guaranteeing effective and efficient financial reporting systems, and promoting value-for-money audits in organisational transactions.
Internal auditing, which often takes the form of continuous auditing, involves the year-round review of an organisation’s transactions and activities.
Furthermore, internal audit exercises may take different forms, including compliance audits, financial statement audits, operational audits, and information technology (IT) audits.
Compliance Audit: This examines whether internal controls and applicable regulations governing an entity’s operations have been properly followed.
Financial Statement Audit: This assesses whether financial statements present a fair view in accordance with applicable standards and criteria.
Operational Audit: This involves a holistic review of organisational activities to assess efficiency and effectiveness in the use of resources.
IT Audit: This focuses on the evaluation of controls within an organisation’s information systems, practices, and technological infrastructure.
Depending on its design and execution, internal auditing offers several benefits. These include the detection and prevention of fraud and fraudulent activities within the system.
It also reinforces compliance with established rules and regulations, ensuring that transactions are properly recorded, complete, accurate, and valid.
Furthermore, internal auditing enhances transparency and accountability among organisational handlers, strengthens public trust, improves institutional credibility, and acts as a deterrent against fraudulent practices.
Ultimately, when properly conducted, internal audit exercises enhance the credibility of public financial statements, particularly in the eyes of various stakeholders and users of financial information.
Dr Kingsley Ndubueze Ayozie, FCTI, FCA; Public Affairs Analyst and Chartered Accountant, Lagos, Nigeria.
