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RESEARCH AND ANALYSIS PROJECT ON AN INVESTIGATION INTO THE OPERATIONAL COSTS AND BENEFITS OF INTERNAL AUDIT AND REVIEW IN NESTLE FOODS PLC, NIGERIA.
BY: OBISIKE FRANCIS EMEZI
ACCA NUMBER: 2181131
PROJECT OBJECTIVES & RESEARCH APPROACH 1.0 INTRODUCTION
The objective of going into this project is to explore the cost and benefits of internal audit function in Nestle Foods Plc. Apart from our research focus on Nestle Foods, the conclusion dram from this work can also be generalized to other organizations be it in the private or public sector. The approach to this RAP is mainly primary in nature. This is because using the secondary sources of data may not give a clear indication of the issues regarding the cost benefit analysis of internal audit and review function. Therefore, I have taken my time to visit the Corporate Head Office of the company here in Nigeria to gather information regarding the subject matter.
REASONS FOR CHOOSING THE TOPIC
1.1.1 I have decided to explore this topic because internal audit functions have been very controversial in many organizations. Some people feel that internal audit is a mere duplication of the accounting function; they feel that internal audit is an unnecessary bureaucracy arguing that since the accounts of companies are being audited by external auditors as a statutory requirement, then there is no need of having any other form of check on those accounts, in effect, this school of thought see internal audit as a waste of resources. 1.1.2 On the other hand, there has been this argument of the role of external auditors in identifying fraud and error in financial statements of client’s entities (ISA 240). However, the ISA 240 makes it clear that it is the responsibility of management to put in place appropriate measures to detect fraud and error in financial statements while the duty of the external auditor is to express an independent opinion on the financial statements regarding the agreement of the financial statements to subsidiary books and compliance to acceptable accounting framework. In the light of this irreconcilable difference, I decided to undertake this research to get an insight into this argument. 1.1.3 The RAP will also help my professional development in internal audit functions as I intend to go into assurance services on completion of my ACCA studies as an internal auditor. The outcome of this RAP will also help me to do better in the exams of the Institute of Internal Auditors (IIA) in future.
sport nutrition and weight management products. confectionery.3. its activities are felt by every region of the world in terms of product differentiation.3. Some nursing mothers even use ‘Cerelac’ as a substitute for breast feeding their babies. Good Life” is appealing. healthcare products.3. . health and nutrition. As a global firm.1.2. Their product range is useful to people of all races. cereals.3.3 The company have a wide product range such as. drinks.4 Nestlé Foods have a good corporate governance culture. 1.2 The organizational culture is second to none. it is possible for an analyst to get hold of facts and figures with which to make propositions and possibly reach conclusions on contentious issues in management. With this. There is nobody who does not consume their brands on earth. Nestle Foods Plc has been ranked as one of the best places employees can find themselves. human resources base and corporate social responsibility. Its headquarters in Switzerland is staffed with a high caliber of staff transverse all business units. 1.5 To try as much as possible to draw a conclusion in the argument among the schools of thought that see internal audit as an unnecessary bureaucracy and those who still stand in support of internal review activities.3 To explore the possibility of having any other form of internal control different from internal audit. 1. food condiments.2.2. pet care. bottled water. 1. 1. frozen foods. 1. The company’s motto “Good Food. 1. ice cream. In Nigeria alone. baby foods. distribution network. dairy products.3. though quite discouraged by the World Health Organization (WHO).1 To identify the relationship between the benefits Nestle Foods Plc derives from internal audit and the cost of running the internal audit department.2 REASONS FOR CHOOSING NESTLE FOODS PLC 1.2.2 To identify whether not having an internal audit function in Nestle Foods Plc will not affect the profitability and shareholder value of the company.4 To give other companies an insight into the desirability of having an internal audit department. coffee.1 I have decided to use Nestle Foods Plc as my research frame because of its multinational status and its significance in the global nutritional and child care development. finance. 1.3 AIMS & OBJECTIVES OF THE RESEARCH WORK The following are some of the objectives of the chosen project topic: 1.
Leadership and personal responsibility 6. The 1st World War caused a lot of setbacks to the company but by the end of the war. Suppliers 9. pet care. In Nigeria.1. Nestle Foods prides itself as the market leader in nutritional and baby foods products. Quality Assurance 3. the European Milk condensed company merged with Nestle to form the present day company. there had been an Anglo-Swiss European Milk Condensed Company established in 1866 by two Americans. Agriculture and rural development 8. Water. wheat flour and sugar to save the child of a neighbor in Cham Switzerland.4 BRIEF HISTORY OF NESTLES GLOBAL In 1867. Human rights in business activities 5. The company has several brands of products dealing with nutrition. and 10. Charles and George Page. This was the beginning of the journey which gave birth to the multinational organization today called Nestle Foods Plc. dairy products. In 1905. nomination committee. weight management. The company has a good corporate governance structure which can be depicted from the board committees in place such as audit committee. An organization chart of the company can be sighted in the appendix. . Consumer Communication 4. Nutrition. 2. The company has ten business principles covering how they deal with: 1. frozen foods. dairy products. the company had more than 40 factories in different parts of the world. The company is quoted on the Nigerian stock exchange and its shares are of significant value that any investor will want to buy them. compensation committee and corporate governance committee. Today. bottle water and cereals to mention but a few. The separation of the position of Chairman (Peter Brabeck) and Chief Executive Officer (Paul Brucke) is also a pointer to that. The company is managed by a team of fifteen Executive Board members headed by a Chairman. Before then. drinks. the company has its presence in every parts of the world because of its diverse customer’s base and its ever important product brands. Safety and health 7. Environmental Sustainability. a Swiss based German pharmacist called Henri Nestle used a combination of cow milk. health and wellness. baby foods.
Articles in Student Accountant magazines of ACCA. The corporate head office is situated at Nestle Avenue 55.The internal audit function in Nestle Foods is of global scale. 1800 Vevey. and has more than 328. Nestle Professional. The framework I developed is to carry out a detailed survey to find out if the resources (both implied and physical) invested in running an internal audit department is a waste or if it adds value to the achievement of corporate objectives.000 employees. Nestle Health Sciences. Nestle Petcare. Nestle Water.5 EXPLANATION OF RESEARCH FRAMEWORK The major sources of information for this project work are text books on auditing and ethics. 1. The company has presence in 83 countries. web pages of Nestle Global and questionnaire administered on the staff of Nestle Foods Plc in Nigeria. journals downloaded from the website of the Institute of Internal Auditors (IIA). In Nigeria the corporate is located at Industrial Avenue 22-24. own 461 factories. Switzerland. particularly the BPP Study Text on F8. In 2011 the company made a total turnover of $90.7 billion. Ilupeju. . Nestlé Institute of Health Sciences and Nestle Nutritional Institute. The company has other subsidiaries such as Nestle Research Centre. Nestle Nespresso. Lagos. The internal auditors travel from its headquarters in Switzerland to other business units and regions carrying out audit of business processes.
16 RESEARCH METHODOLOGY In order to appreciate the perception of staff of Nestle Foods Plc on the costs and benefit of internal audit/review on the organization.3 2. the sampling techniques data collection instrument and the limitation of the study.17. 2.18 DATA COLLECTION INSTRUMENT .17. This paragraph tries to explore the method adopted by the researcher to generate data with which analysis was made before final conclusions.1 Is there really any need to have a dedicated staff for the purpose of monitoring internal controls? Is it necessary to have an internal audit function? Does the internal audit department achieve the purpose for which it is established? Will the control environment function properly even without the presence of internal auditors? Is the opportunity cost of having an internal audit department commensurate with its benefits? Is the opportunity cost of having an internal audit department commensurate with its benefits? Is the operational and finance cost of maintaining an internal audit department justified in view of the alternative uses of scare resources? 2.17.CHAPTER TWO REVIEW OF INTERNAL AUDIT AND RESEARCH METHODOLOGY 2.7 It is hoped that at the end of the field work. the research design. these questions would have been answered. we need to know the method adopted in collecting data. the subject of our research.17.4 2. Some questions begging for answers are: 2.17 STATEMENT OF RESEARCH QUESTIONS This RAP is trying to search for answers bothering on questions frequently asked in order to get justification for the enormous cost incurred by organizations to manage internal audit department especially in Nestle Foods Plc.6 2.17.2 2. the statement of the research question.17. 2.5 2.17.
tactical and strategic management positions. 2.22 LIMITATION OF STUDY This research work have not been conducted without attendant difficulties. This is because.21 SAMPLING TECHNIQUES The sampling method adopted is a stratified random sampling in which staffs were grouped into strata according to their managerial level. Questionnaires has been administered on the staff for data collection purpose only. This sample will make up the population for my study. careful surveys have been carried out in which staff of the organization participated actively.The data used for analysis in this RAP have been gathered through primary and secondary sources. staff remained anonymous for confidentiality. 2. The method of sampling carried out covered a substantial percentage of staff of Nestle Foods Plc. journals and publications from professional associations such as Association of Chartered Certified Accountants (ACCA) and Institute of Internal Auditors (IIA). web pages. apart from the secondary sources through study texts. The problem of confidentiality was resolved by giving respondents the assurance that their responses will be kept confidential and only used for the purpose of this RAP project. Those responses will be used to analyze data collected so as to make a conclusion. These seventy personnel were drawn from various departments and encompass various stratus of the organization hierarchy ranging from operational. However.19 RESEARCH DESIGN To achieve the objective of this RAP work.20 SAMPLE SIZE To ensure that returned questionnaires are sizeable. 2. In return every stratum was sampled on a simple random sampling method. articles. 2. . the researcher have also administered questionnaires on staff of Nestle Foods Plc to get responses from them on our research questions. a total of seventy questionnaires were distributed. one of the problems encountered is the inability to collect questionnaires distributed from some of the respondents.
. the problem of finance is the least encumbrances encountered.Time constraint was also evident. However. But given the fact that “whosoever needs gold must dig very deep”. the researcher had to strike an appropriate balance between work and study to ensure that the work is finished within the time frame needed to submit this work by the Oxford Brookes University. Financial limitations were also experienced. The dearth of internet facilities in Nigeria was also glaring but the support given to me by my employer by giving me access to the company network helped me to overcome this barriers.
However. some schools of thought are of the opinion that the resources invested in running an internal audit department is not commensurate with benefits derived therein. CONCLUSIONS AND RECOMMENDATIONS 2. 2. improve efficiency and the reliability of financial reports. 2005). thus. According to the Committee for Sponsoring. This debate is the focus of this research paper. Some smaller firms internal audit function may comprise of one staff. internal audit is an independent appraisal function established by management to monitor. Internal auditing has in recent years been used by management as a risk management tool. Organization of the Tread Way Commission (COSO). Some of such reasons are: . However.2 THE NEED FOR INTERNAL AUDIT FUNCTION As stated earlier. Some organizations are of the view that the financial and operational costs may not be commensurate with its benefits. several factors may trigger off the need for management to consider running a separate internal audit function.CHAPTER THREE DATA ANALYSIS. be it as it may. The nature of internal audit activities in an organization depends on its size. hence internal review seem not to be negotiable in businesses.1 INTRODUCTION The nature of the work of internal audit depends on the need for the internal audit function as determined by management. review and evaluate internal controls put in place for proper conduct of business. have prompted firms to set up internal audit departments. the function may be fused with other functions. while in some. risk management is vital as an enterprise wide strategy. Corporate Governance Codes have greatly emphasized the need to maintain an internal audit department as a tool for Enterprise Wide Risk Management (ERM) (Tunrbull Report. In the light of the need to reduces losses. Quoted firms like Nestle Nigeria Plc are statutorily required by the stock exchange to set up an internal audit department to be staffed by competent hands for effectiveness. management is responsible for setting up an internal audit function.
4. confirmations and inquiries. 2.3 Management perceptions of the need for internal control enforcement and risk management.4.3 THE SCOPE OF INTERNAL FUNCTIONS IN NESTLE FOODS PLC Being a management service. 2.3. In the first instance. If an organization place a high degree of importance on internal controls.220.127.116.11. 2. efficiency and effectiveness. this could be attributed to a change in the risk appetite of the organization. the under listed summarises the coverage of internal audit in Nestle Foods Plc: 2. 2.4. internal audit/review scope in Nestle Foods Plc encompasses all facets of the company.4 Regulatory demand may also cause an organization to set up internal audit\review function.4 Ensuring compliance with regulatory requirements in all activities of the company.3.2 Maintaining the integrity of financial reports 2. for example the fraud or wastage of raw materials. through physical verifications.2 Financial audit dealing with ensuring that the organization’s financial resources are not fraudulently handled or misappropriated. the case of Sarbanes Oxley (SOX) in USA.1 The occurrence of an unusual event in the company. such a company will inevitably opt for internal audit function.5 Protects company’s assets.3 Ensuring compliance with corporate governance codes thereby creating a good image for the firm.2.1 Value for Money Audit (VFM) dealing with the assessment of the economy.1 Prevention and detection of fraud and error. 2. 2. 2.2. for instance. 2.2. 2.5 An organization’s control culture will also be a determinant of having internal audit department.3 Ensuring that accounting records are reliable and produced on timely basis. new staff is given induction on risk awareness and risk management on joining the organization.4.3.3. 2. 4 ADVANTAGES OF INTERNAL AUDIT The following could be attributable to the benefits which firms may derive by running an internal audit function: 2. In general.2 The need for expansion or the result of expansion into new business fields in which the company have no proper knowledge about. . (3Es) of business processes. no matter its size or financial background.4.4 Identifying emerging business risks so as enabling management redirect business strategy. 2. 2. 2.5 Helping to minimize the abuse of the company’s information technology by staff and other users.
6.2 Analytical Review: involves examining transactions to get reasonable assurance that they have been executed in line with management directives contained in operational manuals.4 above.6.5 Management’s unwillingness or inability to effect internal audit recommendations when necessary.18.104.22.168.3 Confirmations and Inquiry: involving getting contacts with internal and external parties about facts surrounding the company’s activities.4 Management over ride of controls which is the greatest shortcomings of internal audit. It has been proved on several occasions of how senior management personnel circumvent controls to achieve selfish interests in divergent from goal congruence.4 Observation: involving on the spot experience of processes to evaluate its appropriateness for example.6 Internal audits could help to reduce the cost of external audit jobs since they assist the external auditors in some of their assignments.2 Collusion by staff to conceal facts which may hinder internal audit attention to risky events. 2. 2.6 TOOLS USED FOR INTERNAL AUDIT ASSIGNMENTS Internal Auditors apply several techniques in the course of carrying out their function so as to give far reaching reports to management. 2. some executives find it difficult to implement recommendations of internal audit reports thereby undermining the effectiveness of internal audit.5. 2. This point is akin to the issue raised in 2. In this instance.1 Internal Checks: involve using arithmetical checks on transactions to verify their accuracy.5. being present at inventory counting. hence the object of this RAP work.6.3 Unintentional errors which do not constitute a motive to put the company in a precarious position which internal audit is established to mitigate. 2.7 RELATIONSHIP WITH EXTERNAL AUDITORS . 2. 2. 2.5.5 CHALLENGES OF RUNNING AN INTERNAL AUDIT DEPARTMENT Despite the several benefits accruing from setting up the internal review function. 2. 2. 2.5.5. it does not remove the challenges that are enumerated below: 2.1 The cost and benefits are strictly a matter of controversy.
pensions and gratuities are also enormous. accommodation of staff. The external auditors may liaise with the internal audit in the area of stock counting and preparation of trial balance and subsidiary books of account. Some of the criteria that may be considered are.22.214.171.124. the Company and Allied Matters Act (CAMA 1990. The costs of recruiting. the reliance on the output of the internal audit will depend on how the external auditor perceives the quality of internal audit function. revised 2004). The cost of travels of internal audit staff from one region to another for firms whose businesses are globalised or have a group structure such as Nestle Foods Plc. the existence of a documented internal control procedure and the areas of concentration of internal audit function.5 2. The cost of furniture.2 . makes it mandatory for all quoted firms to constitute an audit committee which will comprise of three shareholders and three non executive directors (NEDs).8 RELATIONSHIP WITH AUDIT COMMITTEE In Nigeria. In this case. the external auditors may decide to rely on the job of internal audit which gives cost saving benefit to the company.1.1 2. training and retraining of internal audit personnel. The significance of the audit committee is to ensure that management does not override internal controls and also serve as a contact point of the internal and external auditors in discussing issues regarding perceived break down of controls by executive directors on internal controls.1. 2. the qualification of internal audit staff.9. However.2 2. accommodation.4 The cost of other financial benefits due for internal audit staff such as medicals. Several operational and financial costs are enumerated below: 2. One of the points of reference of the audit committee members is to strengthen the position of internal auditors in the company by liaising with them on implementation of internal controls objectives and enhancing their independence.9. 2.9.1.The presence of an internal audit function enhances the job of the external auditors. OPPORTUNITY COSTS 2. 2.1.9 COSTS OF RUNNING AN INTERNAL AUDIT FUNCTION To keep an internal audit department involves a cost centre.1 2. fittings and equipments needed to run an internal audit dept.3 FINANCIAL COSTS/OPERATIONAL COSTS The salaries of internal audit staff.9.
9. the internal audit is accountable to only the ED or MD as the case may be. Therefore. the department is made to be independent. the extent of independence is arguable but highly dependent on organizational structure and culture. The opportunity cost of investing the financial resources channeled into internal audit function to other profitable ventures by the company and earning higher returns on investments. This determination will be based on management’s risk appetite and the general risk exposure of the company’s business line. . A financial institution for instance. assets safeguarded.9. will be prone to risk than a service organization. However.9. This border between other functional department and internal audit is aimed at promoting the independence and objectivity of the internal audit staff. therefore the extent of internal audit functions to be adopted by organizations will depend on the susceptibility of their business to risk. In Nestle Foods. 2011). for instance.3 2. Competitors will always seek to pull audit personnel from such blue chips to come and use the wealth of knowledge gathered from such companies to their own benefit. The cost of losing an already trained internal audit staff to other companies. compliance with regulations achieved and the integrity of financial reports maintained (BPP Study Text ACCA F8.2. particularly unquoted ones.1 The opportunity cost of using internal audit staff for other activities. the internal audit is accountable to the Audit Committee being a subcommittee of the Board of Directors comprised of equal number of EDs and NEDs. This enhances their neutrality in making judgments thereby ensuring the integrity of the internal audit function. Internal audit is a management appraisal function independent of other line functions used to implement operational policies to ensure that the organization’s activities are carried out in a most economical manner. 2. Some businesses are riskier than others.2. This is one of the glaring costs which established firms such as Nestle Foods always incur. the internal audit is a management service.2 2.2.These could be seen from the following: 2.10 THE NATURE OF INTERNAL AUDIT Generally. In some companies. the productivity that would have been achieved if an internal audit staff is drafted to production or marketing functions. The terms of reference of internal audit functions are always determined by management.
2005). However. the role of internal audit is not so pronounced that novices regard them as not being worth its costs. This is because. Therefore. listed companies are required by the Stock Exchange to keep an internal audit function and an Audit Committee. But the recognition given to the need for internal audit by various international and national frameworks goes a long way to show that despite all odds. inventory management and accounting. information technology (IT). It is not easy to measure the benefits of internal audit (Journal of Chief Finance Officers & US Presidential Council on Integrity and Efficiency.2. the issue of confidentiality may be a challenge while outsourcing or co sourcing internal audit functions. observations and other techniques adopted by internal audit in carrying out their work. the department is headed by a qualified accountant who has supervisors reporting to him from the segments in which they are given supervisory roles these supervisors oversee the audit officers who carry out the daily routine checks.11 STAFFING OF INTERNAL AUDIT IN NESTLE FOODS Internal audit functions do not necessarily have to be performed by qualified accountants only (although advisable). internal audit functions are worthwhile. Notable is the case of Arthur Andersen and Enron Corporation in the United States. procurement. the department is staffed by people from various disciplines who are trained for the specific purpose of the areas of need. In extreme cases there may be co-sourcing which involves a combined effort between an external party and company’s internal audit personnel. The strategy adopted by different organizations in carrying out review functions differ but mostly reflects the risk appetite of management. However. ethical issues arise where accountancy firms perform other functions for same client other than assurance engagement. The same goes for the UK Turnbull Report (2005) and the Sarbanes Oxley Act (2002) in USA.12 TRADE OFF BETWEEN COSTS AND BENEFITS OF INTERNAL AUDIT FUNCTION The debate among analysts and professionals regarding the relationship between the costs and benefits of internal audit is a controversial one. Risk areas are finance. secondly independence may be compromised since the external personnel may be subjected to ethical threats. This method of managing the internal audit function has its own merit and demerits. the set up cost of internal audit may be avoided. In Nigeria for instance. receivables management. internal audit acts as a deterrent to staff with dubious character from carrying out their acts. Some organizations also outsource to accountancy firms. 2. above all. However. This is because they may be detected . this is because the internal audit function is dynamic and changes according to the nature of risks facing a business. Outsourcing and co sourcing may avail the company the right caliber of staff needed to effect internal audit assignments since the staff will be coming from specialized accounting firms.
10. 2. Thus. preventive controls and detective controls.by internal audit personnel.15 DIFFERENT TYPES OF CONTROLS According to a journal posted on the Website of Vanderbilt University. An attempt is made to throw light on the effectiveness of these controls. In the case of internal audit assignment. opinions and/or recommendations. 2. three key issues are very relevant in order to make the output from their function reliable and value laden. the internal audit department is accountable to top management. This will involve getting the right caliber of staff to undertake internal audit functions. In this way. it can take any form but naturally.13 REPORTS OF INTERNAL AUDITORS As stated earlier in 3. 2. purpose of the report or assignment. complete. brief. This attribute entails that internal auditors should not be involved in line functions in which they will be made to review afterwards. the risk of fraud is eliminated or reduced to an acceptable level. internal auditors need to be competent in their functions. Objectivity is a major issue in this respect because internal auditors are expected to be independent in their approach to their work. background information.1 PREVENTIVE CONTROLS . results of findings. clear and objective. Like every other report. These reports do not have any statutory layout. internal auditors need to be abreast of their duty of confidentiality to their bosses (top management). 2. This will ensure that the internal audit function is absorbed of all forms of self review threat in order to guarantee objectivity. internal audit reports are expected to be accurate. unquoted firms are implored to assess the need for internal audit functions before making investment into the venture. Independence is key to internal audit functions. Therefore.15.14 CHARACTERISTICS OF AN IDEAL INTERNAL AUDIT FUNCTION Every human activity have minimum standard expected of it to be adjudged acceptable. timely. Independence involves being in a state of the mind to take good decisions without the undue influence of a third party. training and retraining of internal audit staff. A reaction to this could be sensed in the manner in which some small unquoted firms merge internal audit with other functions. there are two forms of control activities available to organizations namely. Secondly. The duty of confidentiality is necessary as it will help to preserve the integrity of internal audit functions. summaries. internal audit reports could cover issues like: scope of the audit assignment. This could be guaranteed through professional development. Above all. their reports are always addressed to them for implementation.
authorization and approval limits.1 THE STRUCTURE OF THE QUESTIONNAIRE The questionnaire has been divided into two sections.15. Preventive controls involve segregation of duties. thirteen of them were returned. academic and professional background.0 INTRODUCTION Out of a total of thirty five administered on respondents. the area of study and their management cadre. graphs and charts to show analysis of responses.2 DETECTIVE CONTROLS These are mechanisms put in place by management to ensure that breakdown in business processes are discovered. In the concluding paragraph attempts have been to draw conclusion from the responses. It can be seen from this that internal audit falls into the detective control thereby confirming the requirement of ISA 240 that management is responsible for designing controls which are appropriate according to the circumstances of the organization to detect fraud and errors. 3. Audit on the other hand is the generic name any activity which involves appraisal function relating to the review business processes to determine their adequacy with relation to corporate strategy. Variance analysis is used to assess an activity in relationship to a benchmark. Reconciliations are used to check the causes of differences between related but different records kept by different people. I have used simple percentages. reconciliations. . 2. for instance. 3. corrected and appropriate disciplinary actions taken against the perpetrators. The analysis sheet is in appendix 2.These are controls designed by management to discourage the breakdown in processes which might lead to non achievement of corporate objectives. to mention a few. internal checks and audits. Physical check involves the physical appearance to see for oneself the existence and authenticity of an asset or an activity. Activities which constitute detective controls are: variance analysis. The first section shows the characteristics of the respondents in terms of their functions in the company. and security of assets. An understanding of the sample respondents will help us to get an insight into their (respondents) psychology of internal audit and review function. bank reconciliation statements used to check the causes of difference between office cash book and bank statements. These activities are deliberately articulated by management to ensure that the possibility of a individual carrying out a complete cycle of a transaction is discouraged.
This is shown in this bar graph: THE EDUCATIONAL BACKGROUND OF RESPONDENTS 60 50 40 30 20 10 0 DIPLOMA 1 ST DEGREE PROF QUAL 2. The educational and professional background of respondents shows that 54% were first degree holders. However. while 8% have professional certifications. 8% in marketing and human resources respectively while another 8% did not indicate their roles in the company.The second section concentrated on questions which focused on the significance of internal audit. In this part. its benefits and the costs incurred in by the oganisation. 38% are diploma holders. 3. Investigations into the functional areas of the respondents in Nestle Foods revealed that 58% work in accounts and finance function. sixteen questions were thrown to the respondents and their answers are represented with pie charts followed by a brief explanation of the observations.2 ANALYSIS OF DATA COLLECTED SECTION A 1. A line graph can illustrate this thus: . 24% indicated that they work with the procurement department.
FUNCTIONAL AREAS OF RESPONDENTS 70 60 50 40 30 20 10 0 Accounts & Finance Marketing Dept Human Resources Procurement 3. Inquiring into the area of study of respondents. A pie chart illustrates this: DISCPLINES OF RESPONDENTS Management Engineering Sciences . 8% studied engineering while 23% were from the sciences. it was observed that 69% of them are from the management field.
I used a bar graph to illustrate this: MGT CADRE OF RESPONDENTS Strategic Level Operational Level Middle Level 0 5 10 15 20 25 30 35 40 45 50 SECTION B 1. This is shown in the following pie chart: . In order to know the caliber of staff that responded to the survey.4. It was observed that 46% of the respondents are middle level managers. The question seeking an answer on the effect of internal audit function on the line functions in the company. the observation showed that 31% of respondents do not feel the effect of internal audit functions on their jobs. 38% are operational level staff while 16% are strategic management officers. a sample of the managerial level were made. 8% are undecided about this issue while 61% feel the impact of Internal audit functions.
No respondent had a contrary opinion to the assertion made by the respondents who said the IA dept is not staffed than other depts.. 92% of respondents confirmed that the IA dept do not have more staff than other depts. This response is shown as: . while 8% are undecided about the size of the staffing.IMPACT OF INTERNAL AUDIT FUNCTIONS ON RESPONDENTS' ROLES NO IIMPACT HIGH IMPACT UNDECIDED 2. On the staffing of Internal Audit department in Nestle Foods Plc.
it was observed that 30. 85% of respondents confirmed that management implements internal audit reports while 15% were undecided about this question. Inquiring into the usefulness of internal audit functions. This indicates that the management of Nestle Foods Plc does not pay lip service to the implementation of internal audit reports and recommendations.STAFFING OF INTERNAL AUDIT DEPT DO NOT HAVE MORE STAFF THA OTHER DEPTS UNDECIDED HAVE MORE STAFF 3. Investigating into the implementation of Internal Audit reports.7% of respondents argue that internal audit functions is useful in the areas of detecting fraud and . The likely effect of this is that the control environment in Nestle is strong. This chart depicts the assertion: IMPLEMENTATION OF IA REPORTS MGT IMPLEMENTS UNDECIDED MGT DO NOT IMPLEMENT 4.
77% of respondents cannot imagine how Nestle Foods Company can operate without an internal audit function.6% see the usefulness of internal audit from the area of monitoring controls and another 30. None of the respondents were indifferent in this question. An investigation into whether Nestle Foods Plc can operate without an internal audit function. This indicates a high desire for internal audit function in the Nestle. The chart below gives a view of this: .7% portend that internal audits functions helps to ensure that the company’s activities are carried out in compliance with rules and regulations guiding the geographical locations of the company. 38. This is shown in the pie chart below: USEFULNESS OF INTERNAL AUDIT DETECTING FRAUD AND ERROR MONITORING OF CONTROLS COMPLIANCE WITH INTERNAL CONTROLS 5.error. 8% believes the company can operate without internal audit while 15% were undecided.
This option makes some firms not to have internal audit departments. Internal audit functions are not statutory for unquoted firms. This is shown in this pie chart: COMPULSORY STATUS OF INTERNAL AUDIT SHOULD BE COMPULSORY SHOULD NOT BE COMPULSORY UNDECIDED . However. an insight shows that 84.4% are undecided in this regard.6% of respondents suggest that internal audit functions should be made compulsory for all companies while 15.POSSIBILITY OF OPERATING WITHOUT INTERNAL AUDIT POSSIBLE NOT POSSIBLE UNDECIDED 6.
Regarding the role of internal audit in mitigating losses. 8% were indifferent while 23% suggest that internal audit do not necessarily help to mitigate financial losses. 7% were indifferent to this question.7. This observation can be shown diagrammatically as: MITIGATION OF LOSSES YES NO UNDECIDED 8. A closer look into the role of internal audit in ensuring the survival of Nestle Company shows that 77% of respondents agree that internal audit is valuable to the survival of the company while 16% do not agree. 69% of respondents agreed that internal audit helps to curtail the risk of financial and material losses. Here is a pictorial view of this assertion: .
This is shown as: ALTERNATIVE FORMS OF CONTROLS IA IS THE BEST IA IS NOT THE BEST UNDECIDED .ROLE OF INTERNAL AUDIT IN ORG.6% argue that there is no other controls that can alternate internal audit function. 8% were indifferent while 76.4%. SURVIVAL VALUABLE ROLE NOT VALUABLE UNDECIDED 9. I inquired if there are other forms of control which can serve as an alternative to internal audit. the proportion of respondents who says that other controls can function better than internal audit is 15.
On the issue of whether the cost of internal audit function is a drain on the company’s finances. 84.4% were undecided. On the overall relevance of internal audit functions. 7% were undecided. None of the respondents argued that internal audit is not relevant. 85% of respondents do not agree that internal audit costs are heavy on the company while 8% portend that internal audit costs are heavy burden on Nestle Foods Plc.10. This chart explains further: COST BURDEN OF IA ON NESTLE FOODS PLC COST EFFICIENCY COST INEFFICIENCY UNDECIDED 11. This result is shown in the chart below: . This is rather controversial since none of the respondents argued against the proposition but some did not take a position in the argument.6% of respondents agree that internal audit is very relevant despite the set up costs while 15.
3. the survey conducted have shown that it is good for organizations to establish internal audit functions if their resources can afford one. 3.3 RECOMMENDATIONS AND CONCLUSIONS Given the globalization of the operations of Nestle Company. this attitude helps in creating a good control environment thereby strengthening the independence of the internal audit department.OVERALL RELEVANCE OF INTERNAL AUDIT VERY RELEVANT NOT RELEVANT UNDECIDED 3. the need for internal audit should be assessed on periodic basis.1 Internal audit functions affect almost every operations of Nestle Foods Plc. The costs of internal audit notwithstanding. smaller companies.4 The internal audit function in Nestle Food Plc plays several significant roles in the operations of the company. 3. In conclusion. . is not a good reason for companies to overlook the necessity of having an internal audit function.3. the following points are necessary to be noted when carrying out a cost benefits analysis of internal audit: 3. 3.3 The management of Nestle Foods Plc does not sweep internal audit reports under the carpet.3. Some of those roles are: detecting fraud and error. monitoring of controls and ensuring compliance with laws and regulations while carrying out the activities of the company.3.2 The internal audit department in Nestle does not have more staff than other departments. Internal audit reports are acted upon. However. This could also be a strategy adopted by management to keep the overhead cost of internal audit under control.
5 The survey has also revealed that Nestle Foods Plc cannot compromise the role of internal audit function in its business strategy.3.3.3. 3. . 3.6 There is need for countries to make laws requiring all registered entities whether quoted or not.9 Finally. 3. none of them is more effective than the internal audit function in Nestle Foods Plc.3.7 The internal audit function in Nestle Foods Plc supports the survival of the firm thereby helping in protecting shareholders wealth. the operating cost of internal audit function in Nestle Foods Plc is not a heavy financial burden as to discourage its continuity.3. to mention but a few. 3.3. Parmalat and Xerox. to establish internal audit functions. Therefore. This will help in improving risk management attitudes thereby militating against the possibility of corporate failures such as the case of Enron.8 Though there are other forms of controls. internal audit is relevant and should be supported.
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