An investigation of factors influencing the effectiveness of internal audit in public sector; a survey of ministries in Kenya

Abstract

The Public sector needs adequate internal controls to properly administer public service programs. Inadequate, poorly designed, or improperly applied internal controls could lead to the misappropriation of public resources or the failure to ensure that the public service objectives, procedures and compliance requirements have been met. These failures could prevent or deny eligible citizens from receiving needed services. Internal Audit is charged with responsibilities to assist the Government achieve sound public financial management and poverty reduction through effective public spending, financial accountability and transparency. The purpose of this study was to identify the factors affecting effectiveness of internal auditing in Kenya. Four objectives were identified to guide the study: to examine the extent to which internal audit risk, training, political intluences affect effectiveness of Internal Audit and to establish the effects of funding on effectiveness of Internal Audit in public sector. The conceptual framework was based on auditors' training, internal audit risk, political influence and audit funding as predictor variables and effective internal audit as dependent variable. Measures of effective internal audit were: resource utilization, auditors' retention, auditors' independence and operational risk. 65 Internal Audit Staff were interviewed through questionnaires. Using Pearson's Product Moment Correlation and Discriminant Analysis, the study found that internal audit risk, auditors' training and audit funding have significant positive relationship with effective internal auditing. On the other hand political influence had a negative relationship with effective internal auditing but with small correlation coefficient. The main contribution of this document was therefore two-thronged. First, it ratifies the long held position that political influence negatively affects effective internal auditing. Secondly, it identifies internal audit risk, auditors' training and audit funding as the factors which are good for effective internal auditing. The richness and depth of this research can be enhanced by use of periodic financial audit reports, interviews and observations. In addition, a pragmatic review of internal audit legislations, policies and procedures for each of the ministries which could have provided more insight into operational risk and strategic internal audit. An important extension of this study is to replicate this research to other audit departments outside Nairobi and more important conduct comparative non-governmental organization studies involving venture capital. This will help in identifying challenges Government is facing in terms of internal auditors' retention capacity, adequate funding implications and internal auditors' independence from political influence and manipulation. In additions, given the changes that are taking place globally and enactment of rules and legislations on internal auditing in public sector, it would be necessary to carry out research on the role of internal audit committee members in promoting effective internal audit as part of public reform agenda. As it has been the tradition, the audit committee is the key internal governance mechanism for risk aversion, and it would be of interest to understand the committee dynamics in making decisions to ensure that accountability for usage of public resources is enhanced across all ministries in Kenya.