The study examines internal auditing as an instrument for effective management. The study was primarily undertaken to determine the effect of financial audit, operational audit and compliance audit on public governance effectiveness. The study employed survey research design. Eighty (80) questionnaires were administered to the respondents of Ikosi Ejinrin Local Council Development Area, Agbowa, Lagos using simple random sampling techniques and used SPSS for analysis. The data are presented in table as frequency distribution and descriptive statistics. Three hypotheses formulated were tested by using Linear Regression and Pearson Correlation. The result showed that the relationship between financial audit and public governance effectiveness is negative and linear (r = -0.194, p-value = 0.161), relationship between operational audit and public governance effectiveness is positive and linear (r = 0.140, p-value = 0.281), and relationship between compliance audit and public governance effectiveness is negative and linear (r = -0.170, p-value = 0.281). it was concluded that internal audit system positively but insignificantly drives public governance effectiveness and recommended that professional audit standard like the international professional practices framework (IPPF) should be enforced in the public sector; big four audit firms should be engaged to compliment the internal audit process and training and retraining programmes should be organized for the internal audits frequently.
Keywords: Internal Audit, Public Governance Effectiveness, Compliance Audit, Financial Audit, Operational Audit.
TABLE OF CONTENTS
INTEGRITY ATTESTATION.. ii
CERTIFICATION.. iii
DEDICATION.. iv
ACKNOWLEDGEMENTS. v
ABSTRACT.. x
CHAPTER ONE.. 1
INTRODUCTION.. 1
1.1 Background to the study. 1
1.2 Statement of the problem.. 3
1.3 Objectives of the study. 5
1.4 Research Questions. 5
1.5 Research Hypotheses. 5
1.6 Significance of the study. 5
1.7 Scope of the study and
limitations of the study. 6
1.9 Definition of terms. 7
CHAPTER TWO.. 9
LITERATURE REVIEW... 9
2.1 Preamble. 9
2.2 Conceptual Review.. 9
2.2.1 Internal Auditing. 9
2.2.1.1 Internal Audit
Assignments. 11
2.2.1.2 Composition of the
Audit Committee. 11
2.2.1.3 Internal Audit function. 12
2.2.1.4 Audit Quality Standard. 13
2.2.2 Public Sector Governance. 14
2.2.2.1 Key Elements of an Effective Public
Sector Audit Activity. 14
2.2.2.2 Organizational Performance. 16
2.2.3 Audit Quality Factors. 21
2.2.4 Auditor’s Specifications. 21
2.2.4.1 Independence. 21
2.3 Theoretical Review.. 22
2.3.1 Theory of the Firm.. 22
2.3.2 Transaction Cost Theory. 23
2.3.3 Agency Theory. 24
2.3.4 Stakeholders’ Theory. 25
2.3.5 Stewardship Theory. 26
2.4 Empirical Review.. 26
2.5 Conceptual Framework showing the relationship between
Internal Audit and Public Governance Effectiveness. 30
CHAPTER THREE.. 31
RESEARCH METHODS. 31
3.1 Preamble. 31
3.2 Research Design. 31
3.3 Study Area. 31
3.4 Population of the Study. 31
3.5 Sample Size
Determination and Sampling Procedure. 32
3.6 Methods of Data Collection and
Analyses. 33
3.7 Instrument. 33
3.8 Model Specifications. 33
3.9 Data validity and
Reliability Analyses. 34
3.9.1 Validity. 34
3.9.2 Reliability. 35
3.10 Limitations of research
methods. 35
CHAPTER FOUR.. 36
DATA PRESENTATION, ANALYSIS, AND INTERPRETATION.. 36
4.1 Preamble. 36
4.2 Descriptive
Statistics. 36
4.3 Test of Hypotheses. 42
4.4 Table 4.10
Correlation Matrix. 44
4.5 Discussion of
Results. 45
CHAPTER FIVE.. 46
SUMMARY, CONCLUSION AND RECOMMENDATIONS. 46
5.1 Preamble. 46
5.2 Summary of Findings. 46
5.3 Conclusion. 47
5.4 Recommendations. 47
5.5 Policy Implications. 48
5.6 Suggestions for
Further Studies. 48
5.7 Contributions to
knowledge. 49
REFERENCES. 50
APPENDIX.. 54
Internal
auditing (IA) is an aged function and considered as an effective instrument of
management in almost all organization. It is considered as an important element
of organization in both public and private sector. Unegbu and Kida (2011)
defined internal audit as part of the Internal control system put in place by
management of an Organization to ensure adherence to stipulated work procedure
and as aid to management. Internal auditing is seen as an overall monitoring
and evaluation function with responsibilities to the entire management for the
assignment of effective and efficient control mechanism (Kiabel,2012). Internal
auditing is an independent, objectives assurance and consulting activity
designed to add value and improve an organization operation. Internal auditing
helps organizations accomplish their objectives by having a systematic,
disciplined approach to evaluate and improve the effectiveness of risk
management, control and governance process. Internal Auditors are employees of
an organization and are not responsible for the execution of company amenities,
they advise the board of directors through audit committee regarding how to
better execute the irresponsibilities. As a result of their higher scope of
involvement, internal auditors may have a variety of higher educational and
professional background (Adams,1994)
Internal
audit is an important element of the range of resources and mechanisms
available to public sector managers to assist them to meet their
responsibilities within this environment Anao(2012).Internal audit provides an
independent and objective review and advisory service to provide assurance to
the Chief Executive and /or Board that the entity's financial and operational
controls designed to manage the organization's risks and achieve the entity's
objectives are operating in an efficient, effective, economical and ethical manner;
and assist management in improving the entity's business performance. According
to Izedonmi(2000), Auditing involves an independent examination of the
financial statement of an enterprise prepared by the management of that
enterprise by an appointed person called auditor in order to express a
professional opinion on whether or not those financial statements shows a true
and fair position of the organization at the end of the financial period in
accordance with the auditor’s terms of engagement as well as other relevant
statutory and professional regulations.
Internal
Audit ensures effectiveness and the extent to which an internal audit staff
meet its obligation, is arguably a result of the interplay among some factors:
internal audit quality, management support, and organization setting. Therefore,
internal audit should be viewed as a dynamic process that is continuously
shaped by the interactions among the factors mentioned above. Internal audit is
for both public and private institutions for their corporate governance. The
goal of internal auditing is to contribute to organizations for the execution
of their responsibilities (Okezie,2004).A quality internal audit is recognized
as a means will be normally accountable to assist board and other management in
an organization to focus on its obligation to ensure proper and efficient
internal controls is put in place.
These
roles were highlighted by the Institute of Internal Auditors (IIA) practice
Advisory,2130-1 on the role of internal audit in shaping the values and ethical
culture of an organization which emphasized that internal audit should part
take an active role in supporting organizational objectives (IIa,2004). According
to Zeleke(2007) the internal audit activities help to prevent corruption,
misappropriation of funds and other financial an organization’s and ensure
effective and efficient utilization of resources to achieve the objectives of
the organization. Internal Auditors role is generally seen to involve oversight
and monitoring. The internal auditor may be instrumental in building and
evaluating the economy, efficiency and effectiveness of operations and systems,
and will be normally accountable to a governing body. It is important
therefore, that the internal auditor be reasonable independent of management as
well able to work alongside them (Mc call,2002).This study seeks to examine
internal auditing as an instrument for effective management from the lens of
financial, operational and compliance audit procedures in Ikosi Ejinrin Local
Council Development Area, Agbowa, Lagos.
Performance in the public sector has always been a
challenge because monetary values are not the only measures of results
especially in public enterprise settings and it is difficult to secure
agreement on how best to determine the effectiveness of government
organization. Yet it is important that continuous efforts to improve measures
of the effectiveness of government organization be put in place or make a
continual process targeted towards the achievements government budgetary
allocations (Taiwo, 2020).
Internal
audit is an integral part of the finance structure of any public
organization.The research titled “internal auditing as an instrument of
effective management attempt to determine the methods by which public sector
like Local government has utilized internal audit as an instrument for
effective management. The problems identified are: Internal audit department is
too understaffed and generally under resourced to make it fully effective.
There exist arrears of work due to inadequate staffing of the internal audit
department. Also, there is a claim that internal audit is challenged by the
inadequate knowledge of Electronic Data Processing (EDP) hence complicate the
efficiency in auditing the computerized systems. Most of the public sector
management working papers are not well documented because of this problem.
The unsatisfactory performance of government
organizations in Nigeria had been blamed for diverse reasons. Makoju (1991), stated
that it is as a result of bureaucratic poor audition system, red-tapism, and
lethargy of the civil service which is still intact in the management and
operations of the government. The Federal Ministry of Finance Incorporated
(2006), disclosed that high incidence of fraud, government's employment of
staff based on political connections rather than on the ability to perform,
parliamentary control and financial indiscipline account for the causes of poor
performance. The accounting systems of government enterprises in Nigeria do not
seem to guarantee proper and up-to-date financial records thus making auditing
difficult, if not impossible (Dogo, 1990 as cited in Taiwo, 2020). Studies have
shown an inconsistency relationship, Bariyima(2012) revealed that an
insignificant relationship exists between internal audit function and
performance of Government-owned companies which was supported by the study of
Enofe, Mgbame, Osa-Erhabor, Ehiorobo, (2013) and Ejoh&Ejom(2014).Salawu and
Agbeja, (2007) attributed ineffective internal control systems, audit
procedures and accountability were due to political interference. .Onatuyeh&Aniefor
(2013) revealed that effective internal auditing ensures proper stewardship
reporting and inadequately qualified manpower does hinder proper auditing of
government accounts.
The
meeting point of most of these studies has always been expressed in treating
internal audit as an aggregate construct, however, a key hypothesis in this
study is to relax this assumption and disaggregate internal audit into
operational, financial and compliance categories while also shifting focus on
the financial measure of performance in the public sector. It is noteworthy to
state that these granulated approach to evaluating the effectiveness of
internal audit has been given limited attention in the extant literature,
whereas, an holistic approach to assessing an audit process is key to promoting
effective public governance, hence the need for this study.
The
objectives of this study are further broken into two segments, which are
general and specific objectives. The general objective of the study is to
assess the impact of internal audit on the effective management of a public
sector. While the specific objectives are as follows;
1. To
determine the effect of financial audit on public governance effectiveness
2. To
determine the effect of operational audit on public governance effectiveness
3. To
determine the effect of compliance audit on public governance effectiveness
The
following are the questions this study would answer:
1. Does
financial audit have an effect on public governance effectiveness?
2. To
what extent does operational audit have effect on public governance
effectiveness?
3. How
does compliance audit affect public governance effectiveness?
This section explains the
hypotheses put forward in the study. This is as follow;
H01: Financial
audit has no significant impact on public governance effectiveness.
H02: Operational
audit has no significant impact on public governance effectiveness.
H03: compliance
audit has no significant impact on public governance effectiveness.
The
findings of this research provide the insights on how internal audit
effectiveness can improve the management of local government authorities. This
research work is expected to be of immense benefits to the management of local
government authorities that has internal audit department so that internal
auditing can make effective use of the department in their administration and
in particular for Ikosi Ejinrin Local Council Development Area Agbowa, Lagos. The
results of the study are significant in the way that they are large extent
relevant for influencing the management activities in the internal audit of
Ikosi Ejinrin Local Council Development Area Agbowa, Lagos.
The
management will discover the importance of the role of internal auditing
function in their local government. The management will be able to re-assess
its position in giving prominence to the function of internal audit. Future
researchers can use the findings of this study as a base in researching on the
internal auditing. Internal Auditor may understand their role and challenges
they are likely to face as they carry out their roles.
The
study will provide the assurance about the contribution of auditing function to
the public sector so that trust and assurance of quality of service delivery.
This
research study focused on assessing the effectiveness of internal audit as an
instrument for improving the management of public sector in Lagos, Nigeria. In
order to realize this focus of the study Ikosi Ejinrin Council Development Area
Agbowa ,Lagos was selected as a case study. However, the limitations of the
study are as follow;
i.
Lack of instrument to carry out the
research work successfully.
ii.
Lack of adequate information from the
local council.
iii.
Time constraints.
FINANCIAL AUDIT
Referred
to as a financial statement audit, is an objective evaluation of your company’s
financial statements.
OPERATIONAL AUDIT
Process
of evaluating a company's operating activities – both on a day-to-day level and
a broader scale.
COMPLIANCE AUDIT
A
comprehensive review of an organization's adherence to regulatory guidelines.
INTERNAL
AUDIT
Internal
Audit(Institute of Internal Audit) is defined as an independent, objective
assurance and consulting activity designed to add value and improve an organization's
operation.It helps an organization accomplish the effectiveness of risk
management, control and governance processes.
PUBLIC
SECTOR
Public
sector (English dictionary) is defined as that part of a country's economy
which is controlled or supported financially by the government. In Tanzania,
the public service is a national institution of excellence that has an
important role in the abolition of poverty and acquiring a sustainable economic
growth
EFFECTIVE
MANAGEMENT
Effective
management is the ability to do the right thing through others
MANAGEMENT
Management
is a process of planning, decision making, organizing, leading, motivation and
controlling the human resources, financial, physical, and information resources
of an organization to reach its goals in an efficient and effective manner.
AUDIT
Audit is the examination or inspection of
various books of accounts by an auditor followed by physical checking of
inventory to make sure that all departments are following documented system of
recording transactions. It is done to ascertain the accuracy of financial
statements provided by the organization.
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