An investigation of factors influencing the effectiveness of internal audit in public sector; a survey of ministries in Kenya
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Date
2014-07-22
Authors
Karanja, Moses Kibia
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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.
Description
Department of Business Administration, 55p. 2011, HF 5667.65.K3