THE ROLES OF AUDIT COMMITTEE FOR PROPER ACCOUNTABILITY OF COMPANIES’ FUNDS IN THE DEPARTMENT OF PETROLEUM RESOURCES, JOS PLATEAU STATE

ABSTRACT

This study was carried out to examine the roles of audit committee for proper accountability of companies’ funds in the Department of Petroleum Resources, Jos Plateau State. Survey research design was adopted for the study. The population of the study consisted of all the workers in Department of Petroleum Resources, Jos Plateau State. The sample of the study were 46 respondents. The instrument for data analysis was the questionnaire while the mean score and chi-square were used to analyse the data. The findings of the study revealed that audit committee are needed to oversee the accounting and financial report, audit committee is needed to work with the internal auditors, audit committee is needed to work with the management to improve the strengthening of financial reporting practices. The audit committee effectively checks the powers of the executive directors, with particular reference to the accounting and financial reporting functions. Audit committee enhances the independence of the auditors by allowing them to report to a body that is independent of the executive directors. Audit committee internally audit the auditors, audit committee serve as a bridge in the communication network between internal and external auditors and the board of directors. Furthermore, audit committee is needed to check the activities of top management, audit committee have contributed in detecting fault reports from the auditors and audit committee is very important to the Department of Petroleum Resources (DPR). Too much power is vested on the audit committee, the audit committee also could be involved in fraudulent activities and interference of government policies are challenges confronting audit committee in the course of discharging their duties. Furthermore, every company needs audit committee, the work of the auditors and external auditors is not sufficient to disqualify the roles of audit committee, large companies will not require more than the stipulated number of audit committee due to large amount of cash that comes in and the size of the company, non-organisation of workshops for updating the unit’s knowledge on current trends in fraud is not a challenge. As a result of the findings, it was recommended among others that audit committee should continue to oversee the accounting and financial report, work with the internal and external auditors and the management to improve financial reporting practices, too much power should not be vested on the audit committee, this is because the audit committee also could be involved in fraudulent activities.

INTRODUCTION

• BACKGROUND TO THE STUDY

Corruption has become an integral part of every financial institution in Nigeria and elsewhere. Even the Economic and Financial Crime Commission who are charged with the responsibility of investigating corrupt practices in public and private organizations are not left out of allegations of corruption, this can be evident in the recent panel constituted by the President Mohammed Buhari to probe the Acting EFCC Boss Ibrahim Magu (Opera News, 2020). With these happenings, one can see the need for an audit committee in every organization.

The concept of audit committee was first endorsed in 1939 by the New York StockExchange (NYSE). In the 1970s, the audit committee’s role was very welcome due to the great demands for corporate accountability (Al-Baidhani, 2014). In 1972, the U.S. Securities and Exchange Commission (SEC) was the first to recommend that public companies should create audit committees comprised of directors from outside the relevant companies’ managements. In 1977, the NYSE required that all audit committee members should be independent directors. In its Statements on Auditing Standards (SAS 61), the American Institute of Certified Public Accountants (AICPA, 1988) issued “Communication with Audit Committees” regarding the relationship between the audit committee, external auditors, and management of public companies. In 1999, The Blue Ribbon Committee (BRC, 1999) recommended major rule changes, related to improving the effectiveness of the corporate audit committee. And later, after the corporate collapse of Enron, WorldCom, and others, the Sarbanes-Oxley Act was passed by the U.S. Congress in 2002 giving more power to audit committees, especially in regard to whistleblower and disclosure requirements. The Sarbanes-Oxley Act of 2002 increased audit committees’ responsibilities and authority. It raised membership requirements and committee composition to include more independent directors. Companies were required to disclose whether or not a financial expert is on the Committee. In addition, the SEC and the stock exchanges proposed new regulations and rules to further strengthen audit committees.

Audit committees are identified as effective means for corporate accountability that reduce the potential for fraudulent financial reporting. Audit committees oversee the organization’s management, internal and external auditors to protect and preserve the shareholders’ equity and interests. To ensure effective corporate accountability, the audit committee report should be included annually in the organization’s proxy statement, stating whether the audit committee has reviewed and discussed the financial statements with the management and the internal auditors (Al-Baidhani, 2014). As a corporate account monitor, the audit committee should provide the public with correct, accurate, complete, and reliable information, and it should not leave a gap for predictions or uninformed expectations (BRC, 1999). The BRC report provides recommendations and guiding principles for improving the performance of audit committees that should ultimately result in better corporate accounting. The importance of the audit function in terms of the audit committee and audit firm is further strengthened by the Sarbanes-Oxley Act of 2002.

The growth of the Audit and Accountancy Profession, both in status and in numbers has been greatly accelerated by the ever-increasing complexity of commercial and industrial. Every private and public Limited Company must, by law have an annual audit. While no legal compulsion is placed on the proprietors of partnership or on sole traders to engage the services professional Auditors, an increasing number of individuals and enterprises are realizing the benefits to be obtained from a periodic Audit (Atu, Atu, Atu&Abusomwan, 2013).

Over the years, Financial Statement has grown considerably in size and importance following the rapidly changing socio-political and economic environment. Such statement include, among others, the Balance Sheet now called Statement of Financial Position, the Profit and Loss Account now called statement of comprehensive income, Value Added Statement, Cash-Flow statement, Five-year Financial Summary,etc; and they are prepared and presented in accordance with certain generally accepted principles, rules, procedures,etc which apply globally (Atu, et al, 2013). The financial statement as prepared by company directors is a statutory report, conveying both qualitative and quantitative information to assist users of accounting information in making informed decisions. As a statement that serves multiplicity of users, the financial statement meets the general needs of users (Enofe, Aronmwan&Abadua, 2013). Prior to companies and Allied Matters Acts, 1900, there were no statutory provisions for the compulsory Audit of a company’s financial statement. As many companies, realizing the necessity for protecting the interest of the investing public, they inserted a clause in their Article of Association, for the preparation of Annual audit by an independent persons. In the light of this Auditing can be defined as; “the independent critical examination and expression of opinion on, the financial statement and underlying records of an enterprise by an appointed Auditor (Atu, et al, 2013). The auditors, after giving the financial report of the organization, the give room for the audit committee which looks at the reports of the audit units and make comments. Audit committee’s definition according to companies and allied Matters Act 2004 section 359 subsection 4 states that “Audit committee shall consist of an equal number of directors and representatives of the share-holders of the company (subject to maximum number of six members) and shall examine the Auditor report and make recommendations thereof on the Annual General Meetings it may think fit, provided, however, that such member of the audit committee shall not be entitled to remuneration and shall be subject to re-election annually.” The audit committee is relevant in all organizations that deal financially in its day to day activities and the Department of Petroleum Resource is not left out of these organizations.

Department of Petroleum Resource is a wing of Nigerian National Petroleum Corperation (NNPC) which has the statutory responsibility of ensuring compliance to petroleum laws, regulations and guidelines in the Oil and Gas Industry. The discharge of these responsibilities involves monitoring of operations at drilling sites, producing wells, production platforms and flowstations, crude oil export terminals, refineries, storage depots, pump stations, retail outlets, any other locations where petroleum is either stored or sold, and all pipelines carrying crude oil, natural gas and petroleum products, while carrying out the following functions, among others:

• Supervising all Petroleum Industry operations being carried out under licences and leases in the country.
• Monitoring the Petroleum Industry operations to ensure that are in line with national goals and aspirations including those relating to Flare down and Domestic Gas Supply Obligations.
• Ensuring that Health Safety& Environment regulations conform with national and international best oil field practice.
• Maintaining records on petroleum industry operations, particularly on matters relating to petroleum reserves, production/exports, licences and leases.
• Advising Government and relevant Government agencies on technical matters and public policies that may have impact on the administration and petroleum activities.
• Processing industry applications for leases, licences and permits.
• Ensure timely and accurate payments of Rents, Royalties and other revenues due to the government .
• Maintain and administer the National Data Repository (NDR).

It is in the light of the above discussion that this research seeks to evaluate the roles of audit committee for proper accountability of companies’ funds in the department of Petroleum Resources in Jos, Plateau State.

• STATEMENT OF THE PROBLEM

For every organization to be successful, its financial records have to be set straight. However, many organizations or companies have gone down the drain as a result of lack of auditing. Nevertheless, there have being several criticisms as to the importance of audit committee in enhancing financial reporting. For financial statement to be useful for decision making it must show the true and fair view of the company statements of financial position and performance. This can only be achieved through regular and periodic audit of the company’s financial statements as prepared by the auditors. However this audit by independent auditors has over the years due, to corporate failures, lost its full potential and as such paved way for these same auditors to be checkmated by an independent committee called the audit committee. It is a known fact that audit committees are an essential component in corporate governance.  The public has been increasingly focused on oversight and governance issues since the Enron scandal in 2001 and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world.  However these issues aren’t just for the “for-profit” industry.  It is becoming more and more of an issue for the not-for-profit world.  Since the re-vamp of the Form 990 in the United States, there has been a real focus for providing transparency and accountability.  One way a not-for-profit organization can do this is by taking proactive steps to improve their oversight process, which includes developing an audit committee. It is in the light of this that this study sorts to determine the roles of audit committee for proper accountability of companies’ funds with the Department of Petroleum Resources as a case study.

• RESEARCH QUESTIONS

The following research questions will guide the study:

1. To what extent are the Audit Committee needed to review the work of the Auditors?
2. To what extent have the Audit Committee contributed to the Audit Unit of the Department of Petroleum Resources?
3. What are the challenges if any of audit committee in the course of discharging their duties?
   • RESEARCH OBJECTIVES

The main purpose of this study is to investigate the roles of audit committee for proper accountability of companies’ funds in the Department of Petroleum Resources, Jos Plateau State.

Other specific objectives of the study are:

1. To examine the extent to which Audit Committee are needed to review the work of the Auditors.
2. To examine the extent to which the Audit Committee have contributed to the Audit Unit of the Department of Petroleum Resources.
3. To examine the challenges if any of audit committee in the course of discharging their duties.
   • RESEARCH HYPOTHESES

The following research hypotheses will be tested:

1. Audit committee does not need to review the works of the Auditors
2. Audit committee does not contribute to the auditory unit in the Department of Petroleum Resources.
3. Audit committee does not face any challenge in the course of discharging their duties.

• SCOPE OF THE STUDY

This study covers the roles of audit committee for proper accountability of companies’ funds in the Department of Petroleum Resources. The Department of Petroleum Resources (DPRS) are36 in the country which means that there is one office in each state of the Federation, However, for the sake of this work, I am only limiting it to one of the DPRS in Jos this is because of its proximity to the researcher

• SIGNIFICANCE OF THE STUDY

The benefit of the study cannot be underestimated especially now that corruption has become an integral part of our society where every individual in position wants to embezzle the funds under their trust.

1. Government will see the importance of the audit committee in the proper accountability of the Department of Audit Committee and other companies as well. This will enable them put the audit committee as top priority when it comes to accountability.
2. Company Owners: would understand the roles played by audit committee for effective and proper accountability of organizations and companies. This will enable them employ more of the services of audit committee.
3. Auditors: shall understand that the audit committee is not there to criticize their works but to help them in the accountability of a company.
4. Researchers: it will be a reference material to other researchers who want to undertake a research under the same field.
   • OPERATIONAL DEFINITION OF TERMS

The following are terms that will be used in the course of the research:

Audit Committee: Audit committees are identified as effective means for corporate accountability that reduce the potential for fraudulent financial reporting. Audit committees oversee the organization’s management, internal and external auditors to protect and preserve the shareholders’ equity and interests.

Accountability: Financial accountability results from holding an individual accountable for effectively performing a financial activity, such as a key control procedure within a financial transaction process. A well-defined financial accountability structure serves as the foundation for establishing effective financial processes.

Auditors:An auditor is a person or a firm appointed by a company to execute an audit. To act as an auditor, a person should be certified by the regulatory authority of accounting and auditing or possess certain specified qualifications. Generally, to act as an external auditor of the company, a person should have a certificate of practice from the regulatory authority.

Department of Petroleum Resources:Department of Petroleum Resource is a department under the Nigerian Federal Ministry of Petroleum Resources, DPR has the statutory responsibility of ensuring compliance to petroleum laws, regulations and guidelines in the Oil and Gas Industry.

Contribution: The role played by an entity for the success of an event.

Accountancy: Accounting or accountancy is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations.

Enterprises:Enterprise is another word for a for-profit business or company, but it is most often associated with entrepreneurial ventures. People who have entrepreneurial success are often referred to as “enterprising.”

REFERENCES

Al-Baidhani, M. A. (2014). The role of audit committee in corporate governance: Descriptive study. Article in SSRN Electronic Journal · October 2014

American Institute of Certified Public Accountants (AICPA) (1988).Communication with Audit Committees. AICPA, USA. Stock Exchange, New York.

Atu, O., Atu, O., Atu, O. &Abusomwan, V. (2013).The role of audit committee in enhancing financial reporting in Nigeria. Journal of Business Management, Vol. 13, Issue 1, pp. 27-34.

Blue Ribbon Committee (BRC) (1999).Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees. New York

Enofe A.O; Aronmwan E.J &Abadua H.S. (2013) Audit Committee Report in Corporate Financial Statements: Users’ Perception in Nigeria European Journal of Accounting Auditing and Finance Research. (1) 1, March 2013 Published by European Centre for Research Training and Development UK (www.ea-journals.org)