ROLE OF INTERNAL AUDITORS IN RISK MANAGEMENT Essay Example for Free

ROLE OF INTERNAL AUDITORS IN jeopardize MANAGEMENT EssayEffectiveness of inborn scrutiniseing of institutions and bodies formed under Acts of Parliament has been less canvas and report in the literature. The pack is focuse in examining the relationship between the employees attitude and perception and the essential scrutinizes exitiveness in delivering on their roles in a rapidly evolving environment and semi globes aw arness of their roles. The main aim of this interrogation field of ingest is to better understandand treasure the effect of employees attitude and perception on the military strength of intrinsic canvassed account in public institutions, with National accessible Security Fund as a causal agent take aim. A survey of taked 425 employees willing be undertaken and the results of the three-figure and qualitative survey findings will be reported.The interrogation is designed to be conducted using both three-figure and qualitative go aboutes by use of literature re heap, survey, and case study. information will be collected from the chosen sample through structured questionnaires and semi-structured interviews as well as review of available documents and records targeting members of the midland Audit. Data will be analyzed using the Statistical Package for Social Scientists (SPSS) version 11.0 tool, which is a figurer based automated statistical tool and conclusions drawn from the findings of the study, recommendations will be made which will help institutions to determine ikon shift in attitude and perceptions by employees necessary to keep the interior scrutinise as an rough-and-ready captious mold relevant in the future for robust public welkin fiscal counselling and arrangement to assist brasss achieve their goals.CHAPTER ONEINTRODUCTION1.0 Background to the psychoanalyze.Tradition alone(a)y, inside analyzeing in the public celestial sphere served as a candid administrative procedure to ensure c ompliance and it comprised chiefly of checking for accuracy of transactions, pre-payment verification and control, counting assets and reporting on past events to various levels of management. However, combinations of reckons in the social-political and economic preaching globally draw led to greater citizen awareness and participation in the public sphere of influence governance. As a result, public institutions are moving towards higher levels of transparency, efficiency, account qualification and integrity in the use of public resources.Consequently, the Institute of Internal Auditors (IIA, 1999a) redefined midland scrutiniseing as . an independent, objective assurance and consulting activity designed to add observe and advance an nerves operations. It helps an organization accomplish its objectives bybringing a remainsatic, discip verged approach to evaluate and modify the intensity level of risk management, control, and governance processes. This definition signifi es that versed examine has undergone a effigy shift from an emphasis on accountability about the past to improving future outcomes to help auditees go much effectively and efficiently (Nagy and Cenker, 2002 Stern, 1994 Goodwin, 2004). Since, the definition equally serves both the occult and the public sectors (Goodwin, 2004), it is used in this study as a basis to analyze public sector internal audit long suit. Internal audit is effective if it meets the intended outcome it is supposed to bring about. Sawyer (1995) states, internal auditors job is not done until defects are corrected and remain corrected. Van Gansberghe (2005) explains that internal audit effectiveness in the public sector should be evaluated by the extent to which it contributes to the demonstration of effective and efficient service delivery, as this drives the occupy for improved internal audit services.Traditionally, ineffectiveness of internal audit has been as a result of understaffing, incapable and nonprofessional staff and underfunding. Despite invigorated internal audit function with sufficient well trained, competent and professional staff topped up with equal to(predicate) funding in the public sector institutions such as National Social Security Fund (NSSF), and being charged with responsibilities of advising management on issues of policy and compliance, accountability, financial reporting, safeguarding of assets, risk management, prevention of antic and on economic and efficient use of resources (PFA, 2003) there are continued incidences of budget deficits, unpaid utilities, unremitted pensions, unproductive investments, irregular payments, unaccounted for monetary resource, loss of pension cash, non compliance with policies and procedures and general distraction of funds. A report by the Auditor General tabled in Parliament in June, 2013 indicated savers could have mazed billions of shillings in dubious transactions and shady land deals (SNP, June 6, 2013).Ther e is urgent need to identify critical success factors to enable the internal audit to perform effectively the roles for which it is intended in the public sector financial management and governance.1.1Statement of the ProblemPublic sector institutions have functional well funded internal audit departments with well qualified and professional staff whose role is to picture the management with re-assurance that internal controls systems are adequate and that they are complied with, that risk exposures are identified and addressed, and that fraud is quickly identified and inherently deterred. However, internal auditors have continued to be ineffective as envisaged by continued incidences of fraud and corruption, abuse of authority and immediately financial mismanagement of massive scale due to perception and attitude issues towards their work. This precipitates the extendd risk of financial failure of the institutions, poor and compromised service delivery, public agitation and poli tical disaffection towards the government of the day. Little has been enquiryed on the effect of employees perception and attitude on the effectiveness of internal auditors. This study therefore is meant to straddle that gap by finding out to what extent the employees perception and attitude is attributed to ineffectiveness of the internal auditors thus affecting the delivery of assurance services central to organization achieving its objectives.1.2Purpose of the ResearchTo determine paradigm shift in employees perception and attitude necessary to keep the internal audit as an effective and critical function relevant in the future for robust public sector financial management and governance.1.3Objectives of the ResearchThe inquiry will be guided by the following objectives1. To determine the effect of perception and attitudes on the effectiveness of internal audit in the public sector financial management and governance.2. To identify value addition services required to enhance re levance and effectiveness of the internal audit function in the public sector. 3. To identify the measures that would enhance or maintain better perception and more positive attitude by employees towards internal auditors.1.4Research QuestionsThe research questions of this study shall be1. How does employees perception and attitudes towards internal auditors affect internal audit effectiveness in the public sector financial management and governance? 2. Which value addition services are required to enhance relevance and effectiveness of the internal auditors and in effect ensuring they are perceived well? 3. What steps can be taken to ensure the employees continually maintain a positive perception towards the internal auditors so as to achieve organizational goals?1.5Significance of the StudyThis study seeks to generate useful insights on how managing employees attitude and perception affects internal auditors effectiveness which then can be used by the government and public instit utions. This promotes effectiveness in the role of internal audit functions in the public sector financial management and governance by addressing the employees attitude and perception. It can also be used by researchers for further research as this is a new area to be studied.1.6 Basic assumptions of the studyIt is assumed that the respondents would be co-operative and provide perfect information when responding to the research questions. It is also assumed that the sample size to be chosen will be adequate to enable the researcher draw valid conclusions about the population.1.7Limitations of the studyTime constraint is a limiting factor because the study has to be concluded within a short time. Availability of funds is also a limiting factor to the study since the researcher is self sponsored. There is also no assurance that the respondents would return all the questionnaires duly completed, neither is there a guarantee that the subjects would respond to all the questions put for ward to them comprehensively. The answers of some(prenominal) respondents whitethorn not be existative of the whole population. The condition of the subjects may affect their responses as emotions may be involved thusaffecting their accuracy in responding.1.8Delimitation of the studyThe study shall be restricted to three Branches of National Social Security Fund, within Rift valley region. The study shall focus on how effectiveness of internal audit functions in public sector financial management and governance are affected by employees perceptions and attitudes. Public sector may be defined to take the Central Government, the courts, the National Assembly, the Senate, Constitutional Commissions, County Governments and institutions and bodies formed under an Act of Parliament. For precision and focus, the direct of this study shall be restricted to public sector institutions formed under an Act of Parliament and case study is NSSF. Literatures on other independent variables are not to be studied as this research is to be narrowed down to employees perceptions and attitudes solitary(prenominal). Due to time constraints and the budget, population to be studied is only narrowed down to NSSF staff which is convenient to the researcher within the province. On the methodology to be used, telephone interviews wouldnt be applied as it is unreliable, the employees may not cooperate, and is expensive than a candid subject to face interview where all staff may be met in the same place as per their convenience.1.9Organization of the studyChapter one provides a background on internal audit effectiveness, statement of the problem, purpose and objectives of the research, research questions that the study looks forward to answering, significance of the study, basic assumptions of the study, limitations to the study and delimitations of the study. Chapter Two outlines the various schools of thought on what constitutes internal audit effectiveness and factors affecting it, as expounded in various literatures available. Chapter three outlines the research design and methodology used for purposes of completing the study. It also describes in details research design, target population, sample, sampling procedure and entropy collection instruments. Chapter four will contain data digest, presentation and interpretation while chapter five shall provide a summary of findings, discussion, conclusions and recommendations. This is followed by references and appendices sections.CHAPTER TWOLITERATURE REVIEW2.0 IntroductionThis chapter is will cover critical review of literature by other scholars and writers in relation to and the implication of employee perception and attitude on internal audit function and its effectiveness in the public sector financial management and governance.2.1 Internal Audit FunctionInternal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organizations operations (IIA, 20 02). It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes (Collier, etal, 1991). With this description forming a foundation, the essential characteristics of an effective internal audit function can be framed.According to Institute of Internal Auditors (IIA, (1999), internal audit is an important part of the incarnate governance structure within an organization. Corporate governance includes those oversight activities undertaken by the board of directors and audit commissioning to ensure the integrity of the financial reporting process. Three monitoring mechanisms have been identified in the embodied governance literature. They are external auditing, internal auditing and directorships (Anderson et al, 1997 William, 2000) as well as the audit Committee (IIA, 2003).2.2Internal Audit EvaluationEvaluating the internal audit function is to examin e how well it can detect errors within an organization as well as fraud that have received greater emphasis (Rittenberg Anderson, 2006). The internal audit function is an important function that has been shown to add value and reduce detected errors by external auditors (Godwin, 2003 Carcello, 2005). Farber (2005), discover that the objective of internal audit function is to improve on the effectiveness of risk management, control and governance. genus Nestor (2004) sight that internal audit function is taken to be an important governance tool to nurture corporations from internal criminal behavior. Further, the professional literature suggests that internal audit is a vital tool in fraud detection when assets are misappropriated by employees or outsiders (Carcello et al, 2005b Rittenberg and Anderson, 2006). As a result of the increase in accounting scandals in recent years, the internal audit function has received impressive attendance as an important contributor to effective p ublic sector financial management and governance.Furthermore, the issue of effectiveness of internal audit is indispensable because it will create improvement in the government ministries (Unegbu Kida, 2011). In line with this, devotion over the criterion of the effectiveness of internal audit function keep receiving significant challenges, consisting the finding of the best and relevant method for measuring the efficiency and effectiveness of internal audit (Bota Palfi, 2009 IIA, 2010 Spertus et al, 2010). In this vein, measurement of internal audit effectiveness should be assumeed because it has a role to play in achieving public sector objectives. Therefore, Arena and Azzone (2010), Chaveerug (2011) and Mihret et al, (2010) emphasize the need for future studies to examine the factors that influence internal audit effectiveness and the realizable interactions among them. Equally, it is interesting to focus on the model that will lead to the strength of internal audit effecti veness (Aguolu, 2009). Consequently, many studies that have been conducted on internal audit effectiveness give more concern to private sector and the central government and its various ministries and departments. Internal Auditing of institutions and bodies formed under Acts of Parliament has been less studied and reported in the literature.2.3Internal audit effectivenessThe word effectiveness have been defined by divers(prenominal) researchers, for instance Arena and Azzone (2009) defined effectiveness as the capacity to obtain results that are consistent with targets objective, while, Dittenhofer (2001) view effectiveness as the ability toward the achievement of the objectives and goals. In the same context, a program can be seen as effective if its outcome goes along with its objectives (Ahmad et al, 2009 Mihret et al, 2010). In this situation, internal audit effectiveness meansthe ability of the internal auditor to achieve the set uped objective within the public sector insti tution.This goes along that the objectives of an internal audit for every organization depend on the goals set out by the management of the organization (Pungas, 2003) as such, the objective of internal audit in public sector institutions should also go a long with the set up goals by the management of the particular institutions and Acts of Parliament that established them. With regard to that, the internal audit should be able to achieve the established objective in order improve the executing of the organization. Consequently, to determine whether the internal auditing function is operating effectively or not, some things have to be considered which include identification of the basic objective of internal auditing define the goals to be accomplished by the internal auditing and establish measures that will assist toward the achievement of those goals (Aguolu, 2009 Dittenhofer, 2001) while Cassandra et at (2008) argued that in order to achieve internal audit objective, three bas ic conditions must be satisfied i.e. independence organizational status and objectivity, also (Feizizadeh, 2012) consideration was that, for an internal audit function to achieve high levels of effectiveness these four items must be consider goes along with stakeholder needs achieves best to his abilities complies with relevant professional standards and operation measures.Thus, Beckmerhagen et al (2004) also argued that the audit effectiveness should not be measured based on achievement of the audit objectives or on the telephone number of findings of the internal auditor alone, but also more important is to determine the quality and suitability of the audit plan, execution and follow-up. Similarly, Shareholders have the power to remove any internal auditor that is ineffective (Dhamankar Khandewale, 2003). This should also be the case in public sector, where internal auditors that are not effective despite the provision of all necessary measures that might have improved their ef fectiveness, should be removed by the stakeholders.Generally, researchers have also indicated some of the reasons behind the ineffectiveness of internal audit to include ineffective management controls, non clear definition of objectives by some organizations and inadequate support from top management (Ahmad et al, 2009 Dittenhofer 2001Unegbu Kida, 2011). Therefore, in line with their findings, the implications of an ineffective internal audit in a public sector management can lead to the possibility of the emergence of fraud low or non compliance with internal policies and procedures ineffective financial decision for successful operation (Unegbu Kida, 2011). Hence, the effective internal audits carry out an independent evaluation of the financial and operating information and systems and procedures with a view to provide good recommendations for improvements (Mihret Yismaw, 2007 New Delhi, 2006). That is why proper internal organization is also essential factor that lead to the achievement of internal audit effectiveness. Similarly, internal audit effectiveness can also be enhanced by ensuring consistency in the documentation of audit work, quality of reporting and proper capital punishment of their recommendation (Mihret Yismaw, 2007).Therefore, having such effective internal audit within organization, will automatically helps to achieve performance and profitability and prevent in loss of revenues particularly in public sectors (Vijayakumar Nagaraja, 2012), even though Pilcher Gilchrist and Singh (2011) observed that efficiency and effectiveness of audit in a public sectors context is more complex than in the private sectors.Several studies have been conducted on the internal audit effectiveness. For example the study carried out by Ahmad et al (2009) on the effectiveness of internal audit in Malaysian public sector, using simple percentage for data analysis found the lack of audit staff is ranked as the major problem faced by internal auditors in c onducting an effective internal auditing. The study concluded by suggesting that future studies should adopt other methods such as field survey of wider groups of internal auditors both in public and the private sectors. Likewise, Theofanis, et al (2011) examine the relationship between element of internal control system and internal audit effectiveness and the result of the study reveal positive relationship between the both relationships.Even though the studies used only 52 Hotels in Greek as a sample and mail survey for data collection, but at conclusion they suggest that if future studies should carried out research on internal audit effectiveness with large sample, the result will be better than their own. in any case Feizizadeh (2012) carried out study on strengthening internal auditeffectiveness and found that most of the companies measure and quantify the performance effectiveness of their business activities. Therefore, looking at the above studies, they consider the eff ectiveness of internal audit at companys level, hotels and banks ignoring such effectiveness at local level. In this vein, this study extends the previous study through examining such effectiveness at public sector institutions and mainly on the employee perception and attitude which many did not cover.3.4 Conceptual fabricFigure 1 Conceptual Framework of factors influencing Internal AuditCHAPTER THREERESEARCH METHODOLOGY3.0IntroductionThis chapter will focus on the methodologies used for the study which will include research design, study area, identification of the target population, sample selection method and size, data collection techniques, data analysis methods and the anticipated constraints.3.1 Research designThe study will adopt a cross sectional survey design where both qualitative and quantitative methods of data collection and analysis will be used. The respondents will be selected from different departments within the branch this includes managers, Internal Audit, Hum an Resource, education technology staff, Finance and Accounts staff of NSSF.3.2Scope of the studyThe study will be carried out at NSSF Branches at Nandi Hills, Kericho and Sotik in Rift Valley Region. All information and respondents targeted to participate in the study are expect to be easily accessible in the offices situated in these places. Other variables will not be considered in this study. It is limited to the attitude and employees perception3.3PopulationThe public sector in Kenya constitutes the central government and the affiliate ministries and departments, the county governments and the related departments, the courts, constitutional commissions and institutions and bodies formed through Acts of Parliament. It is the single largest employer of internal auditors, but the target population for this study within the NSSF will include and be stratified as Branch Managers, Accountants, and other staff, totaling 425 possible respondents.3.4Sample alternative and SizeA purpo sive sample is used. Accordingly a survey type of research will be adopted in which a sample from the target population will be used for the study. The total staff population in NSSF is 1455. To arrive at the sample size for the purpose of this research study, a sample size calculator is used. By putting the confidence level at 95% and a confidence interval of 4, the sample size needed to be selected is from the 1455 employees will be 425 which represent 29.2% of the sample target population. This represents an average of a third of the total number of members of staff and will be representative enough for this research. It is distributed as shown in the table belowComposition of staff with NSSF Kenya for the purpose of the research working. CategoryTarget PopulationTarget SamplePercentage of target populationManagers