Significance of Internal Auditing on the Performance of Insurance Organization in Nigeria

Significance of Internal Auditing on the Performance of Insurance Organization in Nigeria

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Abstract on Significance of Internal Auditing on the Performance of Insurance Organization in Nigeria

The study examined the significance of internal auditing on the performance of insurance organization in Nigeria; shows that internal audit is useful in sustain achievement of organizational goals. Thus, internal audit assist management in decision making.

The study employed the descriptive survey design to determine internal audit as it correlates with peformance in Nigerian Insurance companies. The survey design was adopted in order to generate diverse attitudes, opinions, responses, reactions and beliefs from the respondents on the nature of correlation among internal audit and performance.

From the empirical result, the significance value (p-value) of 0.046 <0.05; The second hypothesis shows the significance value (p-value) of 0.066 <0.05, the both models are significant; Finally since the significance value (p-value) of 0.118 > 0.05, the model is not significant.

The study concluded that internal auditing has a significance effect on the performance of insurance organization in Nigeria.

The study has contribute to body of literature by providing empirical evidence on the significance of internal auditing on the performance of insurance organization in Nigeria using the following variables performance of insurance organizations, quality and accuracy of reports , independence of internal audit and expertise of the auditor.

Based on the findings from the study, the study recommended that; Services of professional accounting personnel should be employed; Knowledgeable administrators should occupy administrative positions; Administrators should ensure that duties are discharged in   accordance with set standards; There should be regular internal and external audit to check compliance or deviation.

Chapter One of Significance of Internal Auditing on the Performance of Insurance Organization in Nigeria

INTRODUCTION

Background of the Study

The demands on the internal audit departments of insurance organizations have increased significantly in recent years as technology advances, regulation becomes more rigorous, new risks emerge, and companies seek more business insights. Internal audit plays a crucial role in providing assurance on an organization’s governance, risk management, and control processes to help achieve strategic, operational, and financial objectives while balancing compliance objectives and expectations from regulators. Internal audit departments need to leverage an understanding of insurance industry trends, feedback from leadership, regulatory compliance requirements, and available public information to add value to the organization – to optimize internal audit value.

Insurance organizations’ internal audit departments have more demands than many other organizations, namely because they are providing assurance insight and consultation on risk management to an industry that executes risk management as its business. However, because insurance organizations are operating in an environment of ever-increasing change and regulation, internal audit has vast opportunities to improve and provide value optimization.

The qualitative growth and increasing complexity of service, business and industrial activities, and the pressure from the lack of resources and increased competition to absorb the resources needed by the units in the modern world in recent decades have led the capital owners to be unable to direct the companies and the management of commercial units to be transferred to people other than their owners. The separation of ownership from management, in turn, has increased the need for specialized people who are able to audit financial statements of units with extensive and complex activities (Auditing instructions, No. 95, March 2014).  Executive and non-executive directors have the responsibility of pressures, threats and dangers to fulfill their duty of stewardship to the owners of the capital. In this regard, managers of large institutions, unlike the owners and managers of small institutions cannot be aware of all the details of the affairs. The main reason that managers of large institutions cannot be aware of the details of the issue is the large number of employees, different departments, variety of operations, and the existence of different stages of production and products in such institutions. Therefore, these general policies are necessary to be communicated in regulations, methods and instructions to the Chief Executive Officers of differe nt departments. Hence, this delegation of responsibilities, creates is a significant gap between executives and the operations led by them. In this situation, management will require the fulltime service of people who constantly review and report all stag es of the institution’s operations as an observer and administrative analyst. These people should be aware about the details of the policy of mangers, organization, methods, and regulations of the human resources and, finally, the actual facilities of the institution. Therefore, the presence of internal controls for identifying, modifying, evaluating and controlling the steps, on the one hand, the legal requirements of the economic units on the other, which must be also properly observed, is essential. Therefore, an internal control system must be established to identify and control the extent to which such legal requirements are observed. Internal auditing is an independent assessment of the economic unit that is created by its management to examine the internal control system and reports the adequacy of the internal control system in terms of appropriateness, economics, effectiveness and the necessary effectiveness in using resources, tests, assessments, etc. Getting sure that the consumption of public fund s has been spent properly and economically efficient, effective, and in the interests of society, has an essential role. In summary, internal auditing is considered as an important part of an effective management in all economic units and it is necessary according to auditing instructions and considering the widespread necessities of accountability in the use of resources, especially public resources, it is not possible to provide rational justification for the lack of internal auditing, even in small institutions. The existence of internal auditing is one of the conditions for the efficient operation of economic institutions. There are many managers who try to rely on the performance of internal auditors to improve their performance and achieve organization al goals. Commercial failures and economic scandals, in recent years, have drawn the attention of managers to issues of protecting, controlling, maintaining, and managing effective economic institutions. Since the main responsibility for protecting assets, preventing mistakes and exploits and discovering them is exclusively on management, so this responsibility requires the establishment of appropriate internal controls, including internal auditing. The quality which determines the auditing function depends on two factors associated with the auditor’s performance, including the ability of the auditor (including knowledge, experience, compliance and technical performance), and professional performance (including independence, objectivity, professional careers , to measure conflict, interests and judgments). The audit quality structure is multi dimensional but intangible, therefore it is very difficult (Factors affecting independent audit quality, Mojtahed et al. ; Winter, 2004).

 Finally, it can be stated that a system or set of controls, whether financial or non-financial is intended to provide reasonable assurance of the proper functioning or fulfillment of the following.

1 The effectiveness or efficiency of the operations

2 . Reliability of the financial infor ; mation and reporting ;

3. Observance of laws and regulations (domestic and national). Therefore, the administrative department or organization that controls and evaluates the function of the above definition can be defined as internal auditing.

Statement of the Problem

Many insurance companies fail to recognize the importance of internal audit and take its implementation for granted, which in return, manifests mostly in the reports of fraud and embezzlement in the insurance sub-sector. Baba (2010) observes that, in the Nigerian banking industry, internal audit has significant effect on management and that the occurrence of fraud can drastically reduce the efficiency of an organization. As one of the recommendations, the researcher recommended the need for an effective internal audit in the banking industry. A look into the existing body of literature shows that very few researchers have investigated the role of internal audit in fraud prevention specifically in the insurance sub-sector in Nigeria. This study will fill in this gap in the literature by studying the effectiveness of internal audit and its role in fraud prevention in insurance companies.

Research Objectives

i. To know how the quality and accuracy of reports influence the performance of insurance organizations in Nigeria.

ii. To know the extent whose independence of internal audit improves the performance of insurance organization.

iii. To know the extent expertise of the auditor affects performance of insurance organization.

Research Question

i. Does the quality and accuracy of reports influence the performance of insurance organizations in Nigeria?

ii. What is the extent whose independence of internal audit improves the performance of insurance organization?

iii. To what extent does expertise of the auditor affects performance of insurance organization?

Research Hypothesis

Ho1:     There is no significant relationship between the qypouality and accuracy of reports influence       the performance of insurance organizations in Nigeria.

Ho2:     There is no significant relationship between independence of internal audit and      the                   performance of insurance organization.

Ho3:     There is no significant relationship between expertise of the auditor and the performance of insurance organization.

Significance of the Study

The study will contribute to body of literature by providing empirical evidence on the significance of internal auditing on the performance of insurance organization in Nigeria using the following variables performance of insurance organizations, quality and accuracy of reports , independence of internal audit and expertise of the auditor.

In line with this, it has achieve the following objectives: the quality and accuracy of reports influence the performance of insurance organizations in Nigeria, independence of internal audit will improves the performance of insurance organization and analyze how the expertise of the auditor affect performance of insurance organization.

Scope of the Study

The study examined the significance of internal auditing on the performance of insurance organization in Nigeria.

Definition of Terms

i. Internal Audit: Its an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.

ii. Performance: comprises the actual output or results of an organization as measured against its intended outputs.

iii. Insurance Organization: It organizations that provides coverage, in the form of compensation resulting from loss, damages, injury, treatment or hardship in exchange for premium payments.

iv. Insurance: Its a means of protection from financial loss.

v. Organization: Its a person or a group of people working together in pursuit of the same commercial interest.

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