UNIVERSITY OF GHANA COLLEGE OF HUMANITIES INTERNAL AUDIT ...
Transcript of UNIVERSITY OF GHANA COLLEGE OF HUMANITIES INTERNAL AUDIT ...
UNIVERSITY OF GHANA
COLLEGE OF HUMANITIES
INTERNAL AUDIT EFFECTIVENESS WITHIN THE PUBLIC TERTIARY
INSTITUTIONS OF GHANA: THE INFLUENCE OF AUDIT AND
ORGANIZATIONAL CHARACTERISTICS
BY
BELINDA LARTELEY QUAYE
(10398955)
THIS THESIS IS SUBMITTED TO THE UNIVERSITY OF GHANA,
LEGON IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE
AWARD OF MASTER OF PHILOSOPHY ACCOUNTING DEGREE.
JULY, 2019
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DECLARATION
I do hereby declare that this work is the result of my research and has not been presented by anyone
for any academic award in this or any other university. All references used in the work have been
fully acknowledged.
I bear sole responsibility for any shortcomings.
……………………. ….........................
BELINDA LARTELEY QUAYE DATE
(10398955)
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CERTIFICATION
I hereby certify that this thesis research undertaken is towards the award of the Master of
Philosophy in Accounting Degree in the Department of Accounting, University of Ghana and was
supervised in accordance with the laid down procedures by the university.
……………………….. ……………………….
DR. IBRAHIM BEDI DATE
(SUPERVISOR)
……………………….. ……………………….
DR. JOSEPH MENSAH ONUMAH DATE
(SUPERVISOR)
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DEDICATION
This dissertation work is dedicated my parents, Mr. Frederick Quaye and Mrs. Alberta Quaye, who
have brought me up and instilled in me a sense of responsibility, hard work and self-motivation. I
am most grateful for your numerous contributions towards my education in particular and my life
as a whole. When I was low, you inspired and gave me comfort when I needed it the most. This
study reflects the fruits of your inspiration.
I say a big thank you to you and may the Lord Almighty crown all your efforts with greater
successes. To you, I am highly indebted.
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ACKNOWLEDGEMENT
There are a number of people without whom this thesis may not have been written, and to them
am thankful.
To begin with, I thank the Almighty God for his blessings in all of my endeavours. Indeed God
has been faithful to me for which I sincerely acknowledge.
To my father, Fredrick, who is an ardent fan of success and continues to be a source of
encouragement and inspiration to me, I write to you a very special thank you for guiding me
throughout the period of this work and for the myriad ways in which you have actively supported
me in my determination to realise and maximize my potential especially in contributing my quota
to research.
To my supervisors and academic mentors, Dr. Ibrahim Bedi, Dr. Joseph Mensah Onumah and
Professor Michael Mensah, I say thank you; I am most grateful for your time, pieces of advice,
patience and the useful comments and suggestions over the period of research. Indeed your
contributions to this study and your mentorship have left imprints on my person. Thank you very
much.
Additionally, to my comrades; Esi, Manfred, Bright and Benjamin, thank you for your support and
salient review of this study. Your contributions are highly appreciated.
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TABLE OF CONTENTS DECLARATION ............................................................................................................................ ii
CERTIFICATION ......................................................................................................................... iii
DEDICATION ............................................................................................................................... iv
ACKNOWLEDGEMENT .............................................................................................................. v
LIST OF TABLES .......................................................................................................................... x
LIST OF FIGURES ....................................................................................................................... xi
LIST OF ABBREVIATIONS ....................................................................................................... xii
ABSTRACT ................................................................................................................................. xiii
CHAPTER ONE:GENERAL INTRODUCTION .......................................................................... 1
1.0 Background of the Study ....................................................................................................... 1
1.1 Problem Statement ................................................................................................................ 3
1.2 Purpose of the Study ............................................................................................................. 6
1.3 Objectives of the Study ......................................................................................................... 6
1.4 Significance of the Study ...................................................................................................... 7
1.5 Organization of the Study ..................................................................................................... 7
CHAPTER TWO:LITERATURE REVIEW AND THEORETICAL FRAMEWORK ................. 8
2.0 Introduction ........................................................................................................................... 8
2.1 Definition of Internal Audit................................................................................................... 8
2.2 Evaluating Internal Audit Effectiveness ............................................................................. 10
2.3 Internal Auditing in the Public Sector ................................................................................. 12
2.4 Public Tertiary Institutions .................................................................................................. 13
2.5 Internal Audit Agency ......................................................................................................... 15
2.6 Audit Plan ............................................................................................................................ 15
2.7 Theoretical Review ............................................................................................................. 16
2.7.1 Selection of Theoretical Framework ............................................................................ 16
2.7.2 Resource-Based Theory ................................................................................................ 16
2.7.3 Internal Audit Effectiveness ......................................................................................... 17
2.7.4 Justification of the Theory Choice ................................................................................ 19
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2.7.5 Empirical Application of Resource-Based Theory ....................................................... 20
2.8 Measurement for Internal Audit Effectiveness ................................................................... 23
2.8.1 Implementation of Internal Audit Recommendation .................................................... 23
2.8.2 Compliance to the Standards for Professional Practice for Internal Auditor ............... 24
2.8.3 Implementation of IA Findings .................................................................................... 25
2.8.4 Implementation of Audit Plan ...................................................................................... 25
2.9 Factors that Influence Internal Audit Effectiveness ............................................................ 26
2.9.1 Organization Characteristics ......................................................................................... 26
2.9.2 Internal Audit Process Characteristics .......................................................................... 29
2.10 Chapter Summary .............................................................................................................. 33
CHAPTER THREE:METHODOLOGY ...................................................................................... 34
3.0 Introduction ......................................................................................................................... 34
3.1 Research Philosophy ........................................................................................................... 34
3.2 Research Strategy ................................................................................................................ 35
3.3 Population............................................................................................................................ 35
3.4 Sample Size ......................................................................................................................... 36
3.5 Type and Source of Data ..................................................................................................... 36
3.6 Data Collection Tool ........................................................................................................... 37
3.7 Questionnaire Administration ............................................................................................. 37
3.8 Measurement of Variables .................................................................................................. 38
3.8.1 Measurement of Dependent Variable ........................................................................... 38
3.8.2 Measurement of Independent Variables ....................................................................... 40
3.9 Data Management and Analysis Process ............................................................................ 41
3.10 Data Analysis .................................................................................................................... 42
3.10.1 Structural Equation Modeling (SEM) ......................................................................... 42
3.10.2 Partial Least Square SEM ........................................................................................... 42
3.11 Reflective and Formative Constructs ................................................................................ 44
3.12 Reliability and Validity ..................................................................................................... 45
3.13 Assessing the Measurement and Structural Models .......................................................... 45
3.13.1 Assessment of Measurement Model ........................................................................... 46
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3.13.2 Assessment of Structural Model ................................................................................. 48
3.14 Ethical Considerations....................................................................................................... 50
3.15 Scope and Limitation ........................................................................................................ 50
3.16 Access to Respondents and Increasing Response Rate ..................................................... 50
3.17 Chapter Summary .............................................................................................................. 51
CHAPTER FOUR:DATA ANALYSIS AND DISCUSSION OF FINDINGS ............................ 52
4.0 Introduction ......................................................................................................................... 52
4.1 Descriptive Statistics of Institutions and Respondents ....................................................... 52
4.2 Inferential and Descriptive Statistics of Constructs ............................................................ 56
4.2.1 Effectiveness of the Internal Audit Function ................................................................ 57
4.2.2 Factors that Influence IAE ............................................................................................ 59
4.3 Evaluation of the Measurement Model ............................................................................... 67
4.3.1 Indicator Reliability ...................................................................................................... 67
4.3.2 Internal Consistency Reliability ................................................................................... 68
4.3.3 Convergent Validity ..................................................................................................... 68
4.3.4 Discriminant Validity ................................................................................................... 69
4.4 Assessment of Structural Model ......................................................................................... 70
4.4.1 Multicollinearity ........................................................................................................... 70
4.4.2 Common Method Bias .................................................................................................. 71
4.4.3 Coefficient of Determination (R2 Value) ...................................................................... 73
4.4.4 Predictive Relevance (Blindfolding) ............................................................................ 74
4.4.5 Evaluation of Path Coefficients .................................................................................... 74
4.5 Discussion of Findings ........................................................................................................ 77
4.5.2 Findings to Objective Two ............................................................................................... 78
4.5.2.1 Internal Audit Management and Internal Audit Effectiveness (H1) ......................... 78
4.5.2.2 Internal Audit Relationship and Internal Audit Effectiveness (H2) .......................... 79
4.5.2.3 Internal Audit Resources and Internal Audit Effectiveness (H3) .............................. 80
4.5.3 Findings to Objective Three ............................................................................................. 81
4.5.3.1 Corporate Governance Audit Process and Internal Audit Effectiveness (H4) .......... 81
4.5.3.2 Internal Control Audit Process and Internal Audit Effectiveness (H5) ..................... 83
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4.5.3.3 Risk Management Audit Process and Internal Audit Effectiveness (H6) ................. 84
4.6 Chapter Summary ................................................................................................................ 85
CHAPTER FIVE:SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ................... 87
1.0 Introduction ......................................................................................................................... 87
5.1 Summary of the Study ......................................................................................................... 87
5.2 Major Findings of the Study ............................................................................................... 89
5.3 Implications of the Study .................................................................................................... 91
5.4 Recommendations of the Study .......................................................................................... 92
5.5 Contributions of the Study .................................................................................................. 92
5.6 Limitations of Study ............................................................................................................ 93
5.7 Suggestions for Future Studies ............................................................................................ 94
5.8 Conclusion ........................................................................................................................... 94
REFERENCES ............................................................................................................................. 95
APPENDIX ................................................................................................................................. 103
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LIST OF TABLES
Table 4. 1: Types of Public Tertiary Institutions 53
Table 4.2: Regional Distribution of Public Tertiary Institutions 53
Table 4.3: Number of Employees in the Institutions 54
Table 4.4: Number of Internal Auditors 54
Table 4.5: Total Employees against Total Internal Auditors 55
Table 4.6: Size of Internal Audit Function 55
Table 4.7: Audit Duties Neglected due to Size 56
Table 4. 8: IAE Ratios Computed 57
Table 4. 9: Internal Audit Effectiveness 59
Table 4.10: The Mean of the Governance Process Variable 60
Table 4.11: The Mean of the Internal Control Process Variable 62
Table 4.12: Risk Management Process Variable 63
Table 4.13: The Mean of Management Support Variable 64
Table 4.14: The Mean of IA Management Variable 65
Table 4.15: The Mean of IA Resources Variable 66
Table 4.16: Indicator Reliability 67
Table 4.17: Composite Reliability (CR) and Average Variance Extracted (AVE) 68
Table 4.18: Cross Loading 69
Table 4.19: Fornell-Larcker Criterion 70
Table 4.20: Outer VIF Values 70
Table 4.21: Common Method Bias 72
Table 4.22: Coefficient of Determination (R2) 73
Table 4.23: Blindfolding 74
Table 4.24: Path Coefficients, P-Value and Results 75
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LIST OF FIGURES
Figure 2. 1: Adopted Theoretical Framework............................................................................... 21
Figure 2.2: Conceptual Framework .............................................................................................. 22
Figure 4.1:Structural Model…………………………………………………………………..….76
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LIST OF ABBREVIATIONS
IA - Internal Auditing
IAE - Internal Audit Effectiveness
IAF - Internal Audit Function
ISPPIA - International Standards for Professional Practice for Internal Auditors
IIA - Institute of Internal Auditors
IAA - Internal Audit Agency
ICAG - Institute of Chartered Accountants, Ghana
ACCA - Association of Certified Chartered Accountants
NAB - National Accreditation Board
PFM - Public Financial Management
SPSS - Statistical Package for Social Sciences
PLS - Partial Least Square
SEM - Structural Equation Modeling
CB - Covariance-Based
CAE - Chief Audit Executive
GP -Governance Audit Process
RMP -Risk Management Audit Process
ICP -Internal Control Audit Process
MA - Management of Audit Function
RE -Internal Audit Resources
MS -Management Support
COSO -Committee of Sponsoring Organizations
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ABSTRACT
The effectiveness of an internal audit function is importantly dependent on the outcome of its
objectives. However, during the achievement of the internal audit function’s objectives, the
function is mandated to contribute to the effectiveness of the organization’s risk management,
governance, and internal control processes.
This research examines the level of effectiveness of the internal audit function of public tertiary
institutions in Ghana and its influencing factors such as audit processes and organizational
characteristics. These characteristics in particular, relates to the involvement in risk management,
corporate governance and internal controls, the ability to manage the internal audit function and
its activities and internal audit relationship with senior management are examined.
This study uses survey method to gather data from the heads of 90 Ghanaian public tertiary
institution’s internal audit functions. Data was analyzed using the Partial Least Square-Structural
Equation Model tool.
The results show that the effectiveness of the public tertiary institution's internal audit function is
on the medium-low level scale adopted in the study. This level of effectiveness is characterized by
involvement in internal control audit process, top-level management support, resource availability
and the management of the internal audit department.
The study contributes to literature by showing evidence on governance audit process variable,
internal control audit process variable and managing of internal audit function variable in the
public sector of Ghana. This research also provides regulatory authorities with knowledge on
tertiary institutions’ internal audit effectiveness and helps identify audit work engagement
strategies.
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CHAPTER ONE
GENERAL INTRODUCTION
1.0 Background of the Study
Public Sector Auditing is an area where accountability and good financial management of public
funds are crucial to economic growth in a developing country. Internal Auditing is performed in
accordance with the generally accepted principles, standards and guidelines of the Law.
In Ghana, public sector auditing practice has undergone significant legal administrative reforms in
recent years. These reforms include the introduction of the new Law on Public Financial
Management Act, 2016 (Act 912); the change of Audit Report Implementation Committee to Audit
Committee; the Surcharge Regime and Internally Generated Funds allocation to public institutions.
The Public Financial Management Act 2016, Act 912 promulgates the financial management of
the public sector to guide the persons entrusted with public funds to provide accounting and audit
of public funds. Thus the Act regulates the financial management of the public sector provides
significant strengths to public sector financial discipline in order to achieve effectiveness and
efficient use of public resources. Therefore there is the need to investigate the effectiveness of the
public sector after these significant changes in the structure of the public sector. Further, these
reforms present a call on internal auditors to improve the effectiveness of the internal audit
function.
Further, the Effectiveness of the Internal Audit is greatly dependent on the ability to achieve set
objectives within the IAF, which has effect on the ability to detect fraud and error within the
organization (Badara & Saidin, 2013).
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The extant literature supports the argument that, it is the responsibility of public sector auditors to
ensure internal audit effectiveness within governmental institutions directed to value-adding and
value for money creation (Hay & Cordery, 2018).
Within public educational institutions, these public sector reforms necessitate a modification in
internal audit processes (internal control, governance and risk management) since the government
is responsible for their budget, policies, and monitoring processes (Bleiklie & Kogan, 2007).
Pursuant to the above, the Institute of Internal Auditors (IIA) confirms that “internal auditing adds
value and improves the effectiveness of governance, risk management and control processes of an
organization” (IIA, 2016). For this reason, internal audit (IA) engagement in operational controls,
risk management, and corporate governance is key. Moreover, the accurate completion of internal
audit work assignments helps organization’s to add value to performance (Eden & Moriah, 1996;
Morrill & Morrill, 2003).
Drawing on the above explanation on internal auditing, this study establishes that internal auditing
is linked to factors relating to risk management, internal controls, and corporate governance
processes. Consequently, this study investigates audit processes which comprise of involvement
in risk management, control and governance processes (Arena, 2013). It is followed with a further
discussion of examining the managing ability of the head of the Internal Audit Function (IAF)
using competencies and resources (Arena & Azzone, 2009).
Research on the factors that influence IAE cites four main factors explored in literature (Ahmad,
2015). These factors include departmental, organizational, managerial and individual
characteristics of IAE. Majority of studies have been conducted on individual factors that influence
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IAE thus this study focuses on highlighting more on the organizational and managerial
determinants of IAE.
This study adds knowledge to issues regarding Public sector Internal Audit Effectiveness (IAE)
by setting out a comprehensive agenda involving audit processes, IA relationship and managing
IA department within public tertiary institutions in Ghana.
1.1 Problem Statement
This section highlights the gaps in the literature regarding the effectiveness of the IAF and related
issues that this research will address.
The Institute of Internal Auditors (IIA) has the responsibility to support and strengthen all IAFs,
thereby ensuring that an effective function is maintained. Further, the IIA emphasizes the need for
organizations to keep an influential IAF to be able to promote good financial control and fraud
detection (IIA, 2016). Consistent with the above, the latest explanation on the concept internal
auditing by the IIA states that “internal auditing is an independent of governance, risk management
and control processes of an organization” (IIA, 2016). This clearly indicates the position of internal
auditing in the area of governance, risk management, and internal control is vital but there is little
study on the three audit processes. In the literature, Arena and Azzone (2009) examine the
involvement of internal auditor in the risk management process using control risk self-assessment
methods. They concluded that internal auditors have increased their attention on their functions on
internal control-risk management systems. Scholars have advocated a call for additional studies to
investigate the involvement of internal auditors in risk management, internal control, and
governance processes, which value added by IA to its organization (Soh & Martinov-Bennie, 2011;
Arena, 2013).
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In addition, there is a call for further studies to build on existing literature on internal auditing in
an unexplored area of interactions between internal audit governance mechanisms of an
organization and the in-depth analysis of internal audit risk management processes (Goodwin-
Stewart & Kent, 2006).
Further, there is little knowledge about internal audit function management being a determinant
of IAE. Arena & Azzone (2009) asserts that the examination of how an IAF is managed should be
designed using competencies and resources, which will bring out the management roles of IAF
managers.
Examination of previous research on IAE show that much focus has been on the factors that
influence the IAF and the individual internal auditor but little is related to the organization as a
whole (Arena & Azzone, 2009). Similarly, Mihret et al. (2010) and Lenz and Hahn (2015) called
for an empirical examination of IAE to identify the antecedents of the effectiveness of the IAF that
are identified and related to IA work and the organization characteristics. However, the work
internal auditors perform greatly contributes to the effectiveness of the internal audit unit (Alzeban
& Gwilliam, 2014).
During the execution of an internal audit service, the ultimate goal of adding value increases its
effectiveness (IIA, 2016). Nevertheless, Dittenhofer (2001) draws attention to the fact that the IAF
cannot be effective always. Mihret & Yismaw, (2007) investigates the effectiveness of an IAF and
finds that improvements are needed in certain areas which influences its effectiveness. Buttressing
this point Van Peursem (2005) emphasize that matters related to IAE are worthy of attention as
effective internal auditing is crucial in offering independent data required to assist organizations.
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The recent relevance of internal audit effectiveness has warranted a call for studies in the field of
internal auditing, in order to investigate IAE (Cohen & Sayag, 2010; Badara & Saidin, 2013).
Turning to the measurement of IA effectiveness, this study adopts the definition of effectiveness
from the IIA (2016) “as the degree to which audit objectives established are accomplished”. In
addition, Mihret et al. (2010) suggests that to measure the IAE, researchers should examine the
rate at which an IAF accomplishes its objectives in terms of annual audit plans compared to audits
executed. Therefore, this study adopts the definition of effectiveness as performing internal audit
work in terms of the ability to plan an audit work and the ability to accomplish the planned work.
This basis forms the measurement of IAE.
Although IAE studies have been conducted in the private and public sectors, Badara & Saidin,
(2013) advocates for the need to further investigate the effectiveness of the IAF of public
organizations. In addition, researchers have also called for internal auditing studies within a
specific area of like the public tertiary educational institutions due to the fact that these institutions
focus on research and teaching activities, rather than administrative issues like accountability
(Arnaboldi & Azzone, 2004; Brown & Brignall, 2007; Arena, 2013). Being mindful of the fact
that the research and teaching activities engaged in by these institutions give rise to expenditure,
an internal control system should be implemented to check corruption in this area and improve
financial accountability. Buttressing this point, Adagye (2015) attests that little is known of the
effectiveness of the internal controls systems in tertiary education institutions.
Studies on IAE indicates that there is no empirical study that utilizes the resource-based theory
though it was suggested by Ahmad (2015) for a future research direction. This study focuses on a
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theoretical framework that uses the resource-based theory as a response to the issue of limited
theories in internal audit research (Endaya & Hanefah, 2013).
Overall, this study investigates the involvement of internal audit function in areas concerning risk
management, internal control and governance processes within public tertiary institution,
investigate how the heads of these institutions manage the internal audit function and how
management support and resources influence internal audit effectiveness within the public tertiary
institutions in Ghana.
1.2 Purpose of the Study
The purpose of this study is to evaluate the measure of IAF effectiveness and to examine the extent
to which internal audit (IA) is involved in promoting Public education sector governance, controls,
risk management processes and investigate other organizational factors that influence internal
audit effectiveness (IAE) like the ability to manage the internal audit function’s activities,
resources, and internal audit relationships.
1.3 Objectives of the Study
The study aims to specifically:
1. Evaluate the effectiveness of the internal audit system in public tertiary institutions in Ghana.
2. Examine the organizational factors that influence IAE.
3. Investigate the relationship between internal audit effectiveness (IAE) and internal audit
function involvement in internal audit processes (governance, internal control and risk
management) internal audit processes factors and IAE.
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1.4 Significance of the Study
This study makes contributions in the areas of literature and practical considerations. To begin
with, this study adds to the literature by extending the application of the resource-based theory in
this study in order to show the importance of resources to achieve IAE as put across by Ahmad
(2015). This research integrates internal audit involvement in internal audit processes (corporate
governance process, internal control process and risk management process), internal audit
resources and the management of internal audit function as variables that influences IAE in Ghana.
In addition, this study contributes to practice by helping the internal audit agency to formulate
audit strategies that regards the aspects of audits to be performed by the internal audit units (ethics,
governance and control and risk management) which will assist the work of the internal audit unit
of the public tertiary education sector in ensuring IAE.
This research also contributes by helping policymakers in assessing and evaluating of public
internal auditing in areas such as audit function services performed within the public sector to
ensure IAE.
1.5 Organization of the Study
This section provides a brief overview of the continuing chapters which make up this research
work. There are six chapters in this research. The first chapter provides background information
to the research and makes a case for the relevance of the study. Subsequently to the setting out of
research aim and objectives. The continuing chapters are Chapter two: literature review; Chapter
three: Conceptual Framework; Chapter four: research methodology; Chapter five: data analysis
and findings; Chapter six: summary of findings, recommendations, and conclusions.
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CHAPTER TWO
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.0 Introduction
This chapter presents existing literature on IAE and the theoretical framework on which this
research is based on. This research contributes to existing information in this area of research by
introducing a different perspective for evaluating internal audit effectiveness and by identifying
audit process and organizational drivers that impact on audit effectiveness.
The chapter discusses in detail the following themes: the definitions of IAE; public sector internal
auditing; public tertiary institutions; internal audit agency; audit plan; the theory selected for this
research; the justification and empirical application of the study to the theory; measurement of
internal auditing; management of the IAF, IA resources and IA involvement in corporate
governance, risk management and control processes. They are, consequently, examined in turns,
in the following sections.
2.1 Definition of Internal Audit
One of the building blocks of internal auditing is the regulations and laws governing the practice.
This legal involvement in internal auditing has presented the function internal auditing with rapid
changes to expand its scope in recent years. These changes have moved internal auditing from a
detection nature to a more preventative nature due to the inclusion of assurance and consulting
services provided.
The IIA defines Internal Auditing as an “independent objective assurance and consulting service
that is established to improve the operations of an organization, effectiveness of the corporate
governance, risk management and internal controls of the organization”.
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IIA further defines “Effectiveness as the degree to which objectives established are
accomplishment” (IIA, 2016). In addition, Hamilton & Chervany (1981) defined effectiveness as
comparing performance to set objectives which is ascertaining how well target objectives are being
met. In this view, when internal auditors performs IA work set by IA managers then the internal
audit function becomes effective. Thus, IAE depends on the ability of internal auditors to
accomplish set audit objectives.
Similarly, Dittenhofer (2001) defines internal audit effectiveness as the achievement of internal
audit objectives. Every IAF must clearly state and achieve their objectives in order to be effective.
Dittenhofer (2001) However, since most of the audit objectives within the organization are
initiated by the head of the IAF, it is evident that IAE is associated with management capacity
(Azzali & Mazza, 2018). Moreover, Badara and Saidin (2013) states that IAE is greatly dependent
on the ability to achieve set objectives within the IAF, which has effect on the ability to detect
fraud and error within the organization.
However, Al-Twaijry, Brierley and Gwilliam, (2003) present a different opinion employing the
compliance with the standards for the professional practice of internal auditing as an indicator for
internal audit effectiveness. Contrary to this, Mihert et al. (2010) suggests that an IAF is effective
when it achieves its goals in terms of annual audit plans compared to audits executed.
Consequently, this study adopts the definition of effectiveness as the performance of internal audit
work in terms of the ability to plan audit work and the ability to accomplish such planned work as
an approach to the examine internal audit work effectiveness. This definition is chosen because it
is more in line with the objectives of the research in examining the issues surrounding the
involvement and execution of audit plans in the Ghanaian public tertiary educational institution
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sector. Thus, this study uses the ratio of planned audit activities as against actual audit activities
performed as a definition for IAE.
2.2 Evaluating Internal Audit Effectiveness
This section highlights the various views put across by scholars on the evaluation of internal audit
effectiveness in the literature. A growing body of empirical literature has investigated IAE in
public and private sectors. But literature also shows that there are usually few acceptable methods
employed to evaluate IAE as yet (Arena & Azzone, 2009).
In line with the above, Cohen and Sayag, (2010) argues that internal audit effectiveness is
determined by the fit between the auditing work and the goals set by managers. Thus to achieve
IAE, much emphasis must be directed to the review of expected work to be performed and the
actual execution of work done. These brief review show that there is a need for more broad study
of the issue of internal audit work effectiveness. The studies above did not highlight extensively
on the issue of effectiveness of audit work.
Further, it is widely discussed in recent studies that internal auditing has evolved across the globe.
Therefore, due to this recent attention given to Internal Auditing over time in the form of
development, it has become increasingly evident that the practice is faced with various factors.
Many researchers have investigated this issue in a whole where they examine factors that affect
the internal audit department. But yet still there is very few research that addresses the factors that
affect specific issues of the function. Consequently, Endaya and Hanefah (2013) suggest that
internal audit effectiveness is influenced by micro and macro factors that exist inside and outside
the IAF.
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Empirical studies on internal audit effectiveness and its antecedents within the public sector
include; Schyf, 2000-South Africa; Mihret & Yismaw, 2007- Ethiopia; Arena & Azzone, 2009-
Italy; Ahmad, Othman, Othman & Jusoff, 2009- Malaysia; Cohen & Sayag, 2010- Israel; Unegbu
& Kida, 2011-Nigeria; Alzeban & Gwilliam, 2014- Saudi Arabia. The research in Nigeria by,
Unegbu and Kida (2011) discovered that the presence of an effective IAF in a public sector
organization helps the checking and managing fraud. Indeed, it is reported that IA is effective
when it accomplishes its intended result for a set period of time. (Mihret & Yismaw, 2007).
Audit activities contribute to the success of the IAF. Moreover, management relies on audit work
that has been properly planned, executed and reported. Therefore, audit planning is an essential
audit activity for internal audit operations. Annual audit plans must be developed by identifying
the risk profile, control processes and governance of each unit within an organization. Pickett
(2005) asserts that the annual audit plan should be based on areas concerning risk assessments,
control, and governance to help assess the risk and the impact of the organization. Buttressing this
point, Mihret & Yismaw (2007) reveals that internal auditing in the higher educational institutions
needs improvement in the area of audit planning, thus the proper analysis of the appropriate risk
areas of the institution will help improve audit work effectiveness. This makes the inclusion of risk
management, internal control and governance areas important aspects of an audit plan.
Given the unique role of tertiary institutions in capacity building of a country, the government
provides support to state-owned tertiary institutions in the form of government subvention. Due to
this monetary support given by government, public accountability and disclosure of subvention
usage are crucial. Moreover, an internal audit department of higher educational institutions need
improvements in the area of audit planning and execution (Mihret and Yismaw, 2007).
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With the aim of understanding IAE, many scholars have provided insights into what internal
auditing covers (Arena & Azzone, 2009; Alzeban & Gwilliam, 2014; Erasmus and Coetzee, 2018).
These scholars advocate for the need to measure internal audit effectiveness, (For instance
(Dittenhofer, 2001; Van Peursem, 2005; Mihret & Yismaw, 2007; Alzeban & Gwilliam, 2014),
but there exist a lack of widely accepted operational measurement regarding this purpose (Arena
& Azzone, 2009). Similarly, Erasmus and Coetzee (2018) assert that IAE conception is a difficult
to describe as numerous scholars are trying to scrutinize the topic and adding new knowledge.
Therefore this study makes use of existing constructs from the literature that has been empirically
tested to examine IAE in the public tertiary institutions in Ghana.
2.3 Internal Auditing in the Public Sector
Public sector internal auditors play a critical role in enhancing public accountability. This implies
that internal auditors and stakeholders alike are accountable for their actions. Internal Auditors
within the public sector are faced with diverse roles depending on the governance structure of the
institutions they work in. Public sector internal audit unit could be effective if the government is
committed to pursuing the objectives of the unit. In the case of Ghana, the government has taken
significant actions to introduce the reforms presented below.
To begin with, a public sector reform on internal auditing includes the Public Financial
Management Act 2016 (Act 912) which requires every public entity internal audit unit to report
on their operating systems and applications in order to obtain efficient administration of public
funds. The Act, in section 83 subsections 6 and 7, state that the internal auditor shall submit a copy
of its annual audit work plan and a quarterly write-up regarding the annual audit work done to the
Internal Audit Agency (IAA), and the Regulator of internal auditing in Ghana. This study proposes
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to investigate the effectiveness of the public sector after the implementation of this significant
change in requirements.
As a result of public institution’s reliance on government for financial support, the government of
Ghana has advanced efforts in seeking for revenue generation in order to fund strategic programs
and grow the economy.
2.4 Public Tertiary Institutions
Public tertiary institutions in Ghana consist of universities, colleges, polytechnics, and other
specialized institutions. These institutions are accredited by the National Accreditation Board.
Most governmental reforms introduced present a change process in order to accomplish goals
particularly in the public higher educational institutions. Within these institutions, the government
is responsible for their budgets control, policies steering and monitoring achievements (Bleiklie &
Kogan, 2007). Therefore, their services rendered are highly monitored for funding purposes.
Nevertheless, due to the high national expenditure, there has been a reduction in the funding of
these institutions but at the same time, they are expected to publicly account and demonstrate value
for money in not only teaching activities but in administrative services as well. Thus, internal audit
has become a critical function to these educational institutions, due to the role internal audit plays
against fraud and corruption. Furthermore, research on internal auditing in government higher
education institutions has not been fully explored (Arena, 2013).
This study extends prior studies by investigating issues on IA work effectiveness and
characteristics that influence IA work in tertiary educational institutions. This study narrows the
search within the public sector to tertiary institutions. Furthermore, a study by Mihret & Yismaw
(2007) uses one of Ethiopia’s major public higher educational institution to examine the elements
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that influence IAE. They used variables including management support, auditee attributes, internal
audit quality and organizational settings to examine the phenomenon above. Their results show
that IAE is strongly influenced by management support and internal audit quality, whereas
organizational settings and auditee attributes do not have a strong influence on IAE. Consequently,
this research uses different set of variables to address the issue at hand.
Similarly, Arena (2013) investigates the features of an internal audit unit in higher education. The
empirical findings suggest that Italian university's internal audit characteristics present issues like
the hierarchical situation of the IAF, skills, and competencies of internal auditors and the type of
audit activities performed. For this reason, it is essential for researchers to gain an in-depth
knowledge of internal audit effectiveness of the higher educational institutions at the country level.
It is argued that researchers in Ghana have not focused on this area of research. In response to
these calls, this research examines the effectiveness of internal audit work in the Ghanaian tertiary
education institution.
A research conducted by Zakaria, Selvaraj, and Zakaria (2006) examined the establishment of the
internal audit function in higher education in Malaysia. They used a sample of 17 public
universities and 49 private universities. Their results reveal that all the universities have
established IAFs and their scope includes the areas mentioned in the auditing standards. It is
evident that their study did not consider the extent to which the higher education institutions
engage in audit processes. Consequently, they advocate for further studies relating to auditing
processes within the education sector. In addition, Arena (2013) asserts there is still limited
empirical evidence concerning internal audit in higher education.
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2.5 Internal Audit Agency
The internal audit agency is responsible for internal auditing in the Ghanaian public sector. Public
sector internal auditing is compulsory, thus the Public Financial Management Act, 2016 (Act 912)
provides guidelines for its establishment and control. The responsibility of IA agency in Ghana’s
public sector involves ensuring fair, transparent accountability and rebrand the IAF (Internal Audit
Agency Act 2003, Act 658). To support this initiative, the agency has put in place guidelines to
provide quality assurance and accountability to the public. Furthermore, in Ghana, the Internal
Audit Agency Act 2003 (Act 658) states that IAFs of public institutions should provide reports on
the internal audit activities to the Head of the agency for examination. This procedure of checking
reports should make internal audit work effective but some institutions have not been consistent
with the report submission and report writing. This issue of non-compliance to regulations which
makes monitoring of audit work performed and those not performed difficult.
2.6 Audit Plan
An audit plan is a strategic focus of the IAF. This plan includes audit programs and activities for
audit execution (Sarens, Abdolmohammadi, & Lenz, 2012). They conclude that when designing
the annual audit plan, specific issues must be taken into consideration. For instance, the appropriate
resources, expertise and the number of audit staff to enable the timely execution of the plan. Soh
and Bennie (2011) added that an audit plan is an essential audit tool which specifies audit
assignments. They add that an internal audit is effective when there is a periodic report of audit
purpose, responsibility, and performance of audit plan. Their work reveals that developing and
doing of annual IA work involves a significant amount of efforts to facilitate a smooth auditing
process. In view of this, they examine the annual audit plan of their sampled institutions for two
years and observed that the plan was comprehensive enough.
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Given the annual audit plan of the institution, the next section expands on the selection of the
theoretical framework.
2.7 Theoretical Review
2.7.1 Selection of Theoretical Framework
The appropriate selection of a theory is important because, it links the research to the stated
research aims, philosophy, and methodology. This work uses the positivist research philosophy
which requires appropriate theory for verification and deduction. Given the objectives of the study,
the deductive approach is permitted to be adopted based on the theory below.
However, the review of literature showed that there is no precise theory that fully explains internal
auditing and its effectiveness (Dittenhofer, 2001; Al-Twaijry, Brierley & Gwilliam, 2003;
Goodwin-Stewart & Kent, 2006; Sarens & Abdolmohammadi, 2011; Endaya & Hanefah, 2013;
Ahmad, 2015), this study adopts the resource-based theory to describe the research framework,
because the Resource-Based theory explains how organizations link their internal resources and
capabilities with their internal audit strategies (Grant, 1991), which is investigated in this thesis.
2.7.2 Resource-Based Theory
The Resource-Based theory focuses on how organizations link their strategies with their internal
resources and skills to create and sustain competitor benefit (Barney, 1991; Ahmad, 2015).
However, Kruger, Steyn, and Kearney (2002) link IA function to resource-based theory. Similarly,
Ahmad (2015) proposes the resource-based theoretical framework for investigating the
antecedents of IA effectiveness. This study adopts the Resource-based theory to explain the
research framework. Further, this theory is grounded on the link between organizations and their
resources. The resource-based theory explains and guides the structure and operations of an
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organization in terms of resource deployment and the management of a firm’s resource position
over time (Wernerfelt, 1984).
The theory is concerned with how organizations secure and put their resources to productive use,
thus the need to identify and categorize an organization’s resources. (Grant, 1991). Consequently,
the resource-based theory argues that the categorization of organizational resources helps in the
identification of a firm’s strength and weakness. According to Grant (1991), resources of a firm is
classified into six major categories namely; financial resources, physical resources, human
resources, technological resources, reputation resources, and organizational resources.
However, another school of thought lead by Grant (1991) explains that a firm owned resources
helps improve efficiency and effectiveness. He further adds that these resources comprise of assets,
capabilities, organizational processes, firm attributes, information, and knowledge.
2.7.3 Internal Audit Effectiveness
Currently, the practice of using the resource-based theory to explain IAE has emerged in auditing
research. Van Peursem (2005) affirms that issues concerning to IAE are essential since the
effectiveness of an IAF leads to effective internal control, risk management, and governance
processes. He concludes that factors that impede IAE should be well explored to be able to ensure
the IAF accomplishes its objectives.
Research has shown that IAE is affected by both internal and external factors. According to Ahmad
(2015), issues facing the effectiveness of an IAF emanates from the organization in which the
function is established. This factor was classified as internal factors that affects IAE. Moreover,
Ahmad (2015) explains that outside factors that impede the effectiveness of an IAF are beyond the
organization. This current study mainly focuses on internal characteristics that influence IAE thus
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those elements inside the organization in which the IAF is established. Further, internal factors are
grouped into four different major groups that is; organizational, departmental, employee and
managerial characteristics (Ahmad, 2015).
The organizational characteristics are factors inside the organization that affects the effectiveness
of the IAF. For instance, financial performance and the organization’s exposure to risk are some
of the organizational characteristics identified by Mihret et al (2010) as factors that influence IAE.
Turning to departmental characteristics, Zain, Subramaniam, & Stewart (2006) highlights on
important departmental characteristics that influence internal audit effectiveness being the size of
the IAF and staff capabilities of the funtion. These departmental characteristics impact on the
effectiveness of the IAF.
Further, the employee characteristics that influence internal audit effectiveness comprises of the
features of internal auditors that work in the IAF (Al-Twaijry et al., 2003). They conclude that
these characteristics relate internal auditors competences which could influence the effectiveness
of IA work performed.
In the same vein, Arena & Azzone (2009) states that a managerial characteristics that influences
IAE relates to top level management’s role in internal auditing. Examples of these are factors are
management support and audit committee interactions.
Researchers into IAE have long identified that organizations possess some unique resources that
are internal and can improve the effectiveness of the internal audit function when deployed well.
One major reason is that unlike any other department, internal audit department also needs
resources in order to survive, perform internal audit duties for the organization (Kruger et al.,
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2002). Therefore, the resources-based theory used in internal audit department effectiveness is
vital.
2.7.4 Justification of the Theory Choice
This study adopts the resource-based theory because it allows for the grouping of internal audit
resources in accordance with the four internal pillars of the influence of internal audit
effectiveness. These pillars are the employee (individual), departmental, organizational and
managerial characteristics. This grouping allows for the identification of the various types of
resources characteristics with statistical influence on IAE. The resource-based theory positions this
study on one of the three broad characteristics of IAE study which is the organizational
characteristics. Thus the organizational characteristics explained the organizational attributes that
IAE in the form of risk exposure and financial performance (Ahmad, 2015).
Further, this theory is plausible due to the ability to elaborate on the findings in all three objectives
stated. In addition, the resource-based theory empirically contributes to the literature through a
contextual use of this theory. This theory has been used in various contexts, but IAE in the context
of involvement in organizational processes is yet to receive attention and explanation by using the
resource-based theory. Moreover, the use of the resource-based theory in this study highlights
another research gap in the literature which has to do with a limited study on IAE based on this
theory. The underpinning theory of this study offers an opportunity to contribute to knowledge in
the area of IAE through its application.
The theory offers a framework which is adapted to suit the study in order to make
recommendations to literature and practice. This study adapts this framework because the study
can easily identify organizational characteristics of IAE and internal auditor’s involvement in these
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organizational characteristics. Therefore, the theoretical and conceptual framework is
demonstrated in Figure 2.1 and 2.2 below.
2.7.5 Empirical Application of Resource-Based Theory
This theory has gained attention as a theoretical framework used by various scholars in the strategic
management discipline to study numerous phenomena (Akio, 2005). For instance, Wernerfelt
(1984) uses the theory to explain the success of developing economic tools for examining the
resources used by firms within the strategic lens to maintain a sustainable advantage. In addition,
Clulow, Barry, and Gerstman (2007) applies the resource-based theory in investigating the
significant importance of key resources in creating competitive advantage and firm performance.
The theory has been used by Abu Bakar and Ahmad (2010) to study the product life cycle. The
key focus of their study was to identify which firm resources add value best to each stage of the
product. In the field of banking, the theory was used to study internal resources for the
internationalization of commercial banks where both tangible and intangible resources are
considered determinants (Panda & Reddy, 2016).
In the field of auditing, Ahmad (2015) employs the resource-based theory in explaining the
antecedents of IAE. She adds that adopting the resource-based theory in explaining the internal
resources of the organization is paramount when investigating the determinants of IAE. She further
concludes that internal organizational factors influence IAE.
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Figure 2. 1: Adopted Theoretical Framework
Source: Ahmad (2015)
Source: Ahmad (2015)
Internal Factors
Organizational Characteristics (level of
loan, financial performance and risk
exposure)
Departmental Characteristics
(independence of the IA function, size
of the IA department and staff
composition)
Employees Characteristics
(competence, quality of job done)
Managerial Practices (top –level
management support)
IA Effectiveness
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Figure 2.2: Conceptual Framework
Internal Factors
-
+
+
+
+
+
Source: Researcher’s Design (2019)
Involvement in
Governance Audit
Involvement in Internal
Control Audit
Involvement in Risk
Management Audit
Internal Audit
Effectiveness Management of
Internal Audit Activity
Internal Audit
Resources
Internal Audit
Relationship with Top
level Management
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2.8 Measurement for Internal Audit Effectiveness
Literature has addressed issues concerning IAE and its measurement approaches. In assessing the
measure of IAE, Erasmus and Coetzee (2018) have concluded that the answer to what internal
audit effectiveness is and its measurement is difficult to describe since there is still a number of
scholars scrutinizing and adding new knowledge to the topic every day.
In view of the measurement of IAE, existing literature mostly makes use of the implementation of
internal audit recommendation (Arena and Azzone, 2009), compliance to the Standards for the
Professional Practice of Internal Auditors (Mihret et al, 2010; Al-Twaijry et al., 2003),
implementation of IA findings (Mihret & Woldeyohannis, 2008) and implementation of audit plan
(Ernst & Young, 2007; Soh & Martinov-Bennie, 2011) as measurements of IAE. These
measurements of IAE will be discussed into details in the next sections.
2.8.1 Implementation of Internal Audit Recommendation
The first measurement approach to IAE is the implementation of internal audit recommendations
made by internal auditors. During the review of the literature, a research conducted by Arena and
Azzone (2009) in order to understand the organizational drivers of internal audit effectiveness in
relation to modifications in internal auditing, provided proof on the measure of IAE. These authors
found that IAE is measured using a proxy which relates to the ratio of recommendations made by
the internal auditors and those actually put in place by the auditees and management. Furthermore,
Arena and Azzone (2009) developed a four Likert-type point to suggest the level of
implementation of actions recommended by the internal auditors. This measure of effectiveness is
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faced with the limitation of not considering the type of audit service performed and the work
internal auditors perform (Arena & Azzone, 2009).
2.8.2 Compliance to the Standards for Professional Practice for Internal Auditor
The second measurement approach for IAE considers the use of the level of compliance with the
standards for professional practice for internal auditors (SPPIA) as a proxy to determine internal
audit effectiveness (Mihret et al, 2010; Al-Twaijry et al., 2003). The standards for professional
practice for internal auditors identifies five areas that IAF should comply with to ensure
effectiveness and efficiency of work. These areas are; independence of the internal audit
department, professional proficiency of the internal audit department, the scope of internal audit
work carried out and management of the internal audit department. Al-Twaijry et al., (2003)
provided evidence of the application of compliance with the standards for professional practice for
internal auditors as a measure for IAE in Saudi Arabia. They argue that for internal auditing
function work to add-value, one factor that needs to be considered is the degree of standards
compliance. In addition, they examined how compliance with the standards for professional
practice for internal auditors can be used as a measure of IAE.
Similarly, Mihret et al. (2010) employ the degree of compliance with the standards for professional
practice for internal auditors and goal achievement as a measure for IAE to investigate the
determinants of IAE. These authors explored the level of compliance with the standards which
internal auditors must follow, has a positive reflection on internal audit work objectives. Further,
these authors concluded by examining internal audit (IA) independence, IA professional
proficiency, IA scope of work carried out and IA management as explained in the standards, this
approach serves as a measure for internal effectiveness.
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2.8.3 Implementation of IA Findings
The third measure for IAE relates to using the IA findings implemented. Under this method, Mihret
and Woldeyohannis (2008) examined two institution’s audit reports to find out if internal audit
findings were implemented in the period the reports were issued or not implemented and were
repeated in the subsequent periods. In addition, Mihret and Woldeyohannis (2008) considered the
percentage of non-repeated findings to total findings issued in the period as an indicator for internal
audit effectiveness. Further, Mihret and Woldeyohannis (2008) concluded that this measure helps
to track the audit findings that have been implemented and those not implemented but not repeated
in the subsequent period. The authors added that bringing out audit findings from audit projects
engaged in during a period shows internal audit department effectiveness. This approach considers
all audit findings to be of equal importance and implementable. This issue results in a limitation
of IAE measurement since IAF presents far more activities.
2.8.4 Implementation of Audit Plan
The last approach used for measuring the effectiveness of an IAF concerns implementation of
annual audit plans. Soh and Bennie (2011) attests that the most frequently used measure for IAE
relates to the completion of the internal audit plan. Further, this research applies the stage of
completion of the audit plans or a ratio of planned audit to actual audit of the audit department as
a measure of IAE which is the dependent variable of this study (Ernst & Young, 2007). This
approach is chosen because it is more in line with the objectives of the research in examining the
issues surrounding the execution of audit plans in the Ghanaian public tertiary educational
institution sector. Further, this approach of implementation of audit plan considers aspects that are
limited in the literature such as the elimination of the type of audit service performed and work
done by the internal auditors (Arena & Azzone, 2009; Alzeban & Gwilliam, 2014). This approach
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makes use of the annual audit plan prepared using “trust areas”. Generally, these trust areas are
suggested audit engagements put together by the regulator of internal auditing in Ghana, for these
institutions to follow and draw their audit programs and engagements for the year to be able to
monitor the type of audit engagement activities and completion of annual audits.
Overall, this study adopts the implementation of annual audit plan as an indicator of IAE.
As the dependent variable has been explained above, the next section explains the various factors
that influence internal audit effectiveness which is the independent variables identified and
adopted from literature.
2.9 Factors that Influence Internal Audit Effectiveness
Research on IAE presents variations in the contextual characteristics based in different settings.
Nonetheless, studies have identified a number of factors that influence IAE across the public and
private sectors (Lenz & Hahn, 2015). A review of these common factors was synthesized to
capture the characteristics that impact the IAE in the Ghanaian Public tertiary institutions,
specifically in the area of achieving audit output relating to the work of the auditor and the ability
to execute the audit plans. Subjected to the objectives of this study, the organizational and internal
audit characteristics were identified in line with literature to help address the research hypotheses.
These two characteristics will be discussed in details in the following subsequent sub-sections.
2.9.1 Organization Characteristics
Organizational characteristics are factors of IAE that are mainly associated with the organization.
The organizational variables identified and hypothesized in the literature associated with the
organizational influence of internal audit effectiveness are; Management of the internal audit
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function, internal audit relationship, and internal audit resources. These determinants will be
examined into details in the next sub-sections.
2.9.1.1 Management of Internal Audit Department
The first organizational determinant of IAE is the management of the internal audit department.
Internal audit departmental management is one of the elements expanded on in the standards for
professional practice for internal auditors.
Managing an IAF is the responsibility of a Chief Audit Executive who is also the head of the
department. Following the above, Hass, Abdolmohammadi, and Burnaby (2006) attests that an
IAF needs an effective management from the chief audit executive (CAE). They further added that
management of an IAF entails the analysis of risk, managing and prioritizing audit tasks and
managing internal audit skills and resources.
Moreover, literature has identified various activities performed by CAEs in the course of managing
an IAF which affects IAE. These activities comprise; the level of access to top-level personnel,
timeliness of reporting to the council and communicating key operational issues to senior
management as explained by Leung et al. (2011). Therefore, the function of the head of the IAF is
very crucial in determining IAE. Similarly, Hass, Abdolmohammadi, and Burnaby (2006)
confirms that a chief audit executive has a strong influence on the effectiveness of the internal
audit function’s leadership. Consequently, the first hypothesis is developed as follows:
H1: There is a positive relationship between management of internal audit function and internal
audit effectiveness (IAE).
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2.9.1.2 Internal Audit Relationship (Management Support)
Internal audit relationship with management is vital for the effectiveness of the IAF. Particularly,
management support which is also characterized as managerial influence of internal audit
effectiveness within an organization. Further, many scholars have found that top-level
management support for internal audit activities affects IAE (Mihret & Yismaw, 2007; Cohen &
Sayag, 2010; Alzeban & Sawan, 2013; Alzeban & Gwilliam, 2014). Mihret and Yismaw (2007)
argues that there is a positive relationship between top management support and IAE. Quite
similarly, other research work have shown that the driving antecedent of IAE is management
support (Cohen & Sayag, 2010; Alzeban & Sawan, 2013; Endaya & Hanefah, 2013).
Subsequently, Alzeban and Gwilliam (2014) indicates a positive relationship between top-level
management support and internal audit effectiveness. This management support relates to the
allocation of adequate human resources, material resources and financial resources (Mihret, et al.
2010). The level of management support determines the rate at which internal audit completely
achieves planned audits and goals. Therefore, the second hypothesis is developed as follows:
H2: There is a positive relationship between management support and IAE.
2.13.1.3 Internal Audit Resources
The last organizational characteristics variable is the resources of the IAF. The condition necessary
for IA to successfully complete its responsibilities is dependent on the availability of resources
(Zain, Subramaniam, & Stewart, 2006). The size of the audit office space for audit teams to work
within is one of the criteria for a timely audit plan completion. Further, the number of audit staffs
(administrative and audit-related staffs) can clearly determine the amount of time that an audit plan
is going to take in order for it to be completed (Alzeban & Gwilliam, 2014). Similarly, audit
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rotation is possible for a many team members to help prevent a threat to the independence of
auditors (Arena & Azzone, 2009). The availability of software and technological tools are
resources that could help internal auditors to accomplish their audit tasks in time. (Hass, et al.,
2006).
Further, the competence of the internal audit staffs is considered an important resource that affects
internal audit effectiveness. The knowledge and skills of internal audit team members have a
positive impact on the outcome of the audit. Mihret et al. (2010) assert that skill and ongoing
professional training of the audit members are important aspects for IAE. Similarly, Arena and
Azzone (2009) affirms that the education and skills of the audit staffs are sufficient to improve
internal audit departmental effectiveness.
Previous studies outline that auditees regularly perceive internal auditors to have insufficient do
understanding of their services provided (Alzeban & Sawan, 2013). In construct, it is required of
internal auditors to possess necessary knowledge and competence for the purpose of fulfilling their
duties within the audit plan. This lack of skills and qualification affects the execution of audit plans
within a given period. Thus, the third hypothesis is expressed as follows:
H3: There is a positive relationship between internal audit resources and IAE.
2.9.2 Internal Audit Process Characteristics
The role of Internal Auditing has been extended to areas of “involvement in consulting services
such as operational control, risk management, and corporate governance than just traditional
accounting and financial control assurance services” (IIA, 2016).
Recently, as a result of the newest definition of internal auditing by the IIA, corporate governance
issues have received attention in organizations, in an effort to ensure good internal control and risk
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management systems. Therefore, the involvement of internal auditing within these auditing
processes (corporate governance, risk management, and internal control) are crucial to the
effectiveness of the organization as a whole. Given the significance of the audit processes, the
following subsections will discuss the audit processes in details.
2.13.2.1 Corporate Governance Audit Process
The first audit process relates to corporate governance audit involvement. Internal auditing has a
part to play on good corporate governance as the effectiveness of internal auditing is dependent on
the IAF to be properly structured and well resourced (Arena & Azzone, 2009). Further, Arena and
Azzone (2009) argued that IA must maintain a good relationship with management in order to
ensure good corporate governance.
In assessing corporate governance audit task accomplished by the IAF, the number of audits in
line with corporate governance activities within the organizations are considered.
Generally, there is evidence of an increasing need for good corporate governance within the higher
educational institutions due to governance issues facing these universities (Zakaria et al., 2006).
However, an increasing number of empirical literature has investigated corporate governance in
internal auditing including the involvement of internal auditors in the corporate governance
process and the various work engagements performed regarding this process. For example, Leung,
Cooper, and Perera (2011) examined accountability structures and related issues in internal
auditing in Austria. They obtained dataset on internal audit workloads through questionnaires sent
to internal auditors. Their results were used to produce the weight of work, type of task and time
spent on the various tasks by the internal auditors. Their analysis threw more light of corporate
governance audit activity performed the by internal auditors. They found that corporate
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governance audit task was not highly ranked amongst the workloads of the internal auditors. Their
findings indicated that much time is not allocated to this type of audit task as compared to the other
services. This finding is consistent with previous literature on corporate governance audit literature
(See: Barry & Asia, 2006; Goodwin-Stewart & Kent, 2006; Leung et al., 2011 and Sarens, et al.,
2012). Consequently, the fourth hypothesis is expressed as follows:
H4: There is a negative relationship between involvement in corporate governance audit process
and IAE.
2.9.2.2 Internal Controls Audit Process
The second audit process relates to internal control audit involvement. Internal audit function puts
internal control systems and procedures in place within an organization in order to assist the
organization manage risk effectiveness. In line with the above, Onza, Selim, Melville, and
Allegrini (2015) discovered that internal audit function employs systematic efforts to enhance the
effectiveness of its internal checks to be able to spot and eliminate weaknesses within the
institution through an internal controls audit process. They further explained that these internal
control processes comprises of audit engagements that are geared towards ensuring that the assets
of the institution are protected, proper authorization is sought for revenue and expenditure items,
proper financial discipline of the institution and proper expenditure monitoring. This argument is
supported by Eden and Moriah (1996), that internal control processes are the pathway through
which internal auditors walk to examine the functions of the organization.
A prominent characteristic of internal control is that risk management forms an integral part of
internal control. This is as a result of the role of risk management being a reinvention of internal
control (Spira & Page, 2003).
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Researchers have explored the role of internal auditors and internal control systems established
by the department (Fadzil et al., 2005; Aikins, 2011). Furthermore, in relation to internal control
audit task performed, prior studies affirm that internal auditors spend most of their time on internal
control matters (Leung et al., 2011; Badara & Saidin, 2013; Onza et al., 2015). This is due to the
fact that the effectiveness of this system affects IAE even within local governmental levels where
control systems are important. Therefore, IAF involvement in internal control audit process affects
IAE. The fifth hypothesis is structured based on the above.
H5: There is a positive relationship between involvement in internal control audit process and IAE.
2.9.2.3 Risk Management Audit Process
The last audit process relates to risk management audit involvement. Risk management activities
involved in by internal auditors have increased because of the newest definition of internal auditing
by IIA in 2016. A prominent characteristic of risk management comprises of its categorization into
three dimensions namely; risk identification, risk assessment and risk management (Spira & Page,
2003). Internal auditing role in risk management is to propagate the awareness of various risk
portfolios and controls for such risks.
Empirically, the study on IAF involvement in risk management shows that IA involvement in risk
management process influences IAE (Arena & Azzone, 2009; Leung et al., 2011). Leung et al.
(2011) for instance, found that considerable number of IAFs are performing audit work regarding
risk management process and have allocated time and staffs for this process. Further, Arena and
Azzone (2009), concentrated on the use of control risk self-assessment (CRSA) practices to test
the involvement of IA in risk management audit process and reported a positive and statistically
significant relationship.
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However, Spira & Page (2003) considers risk management process as an activity that internal audit
department has less capacity and knowledge of which has resulted in low consideration of all the
three aspects of risk management mentioned above. Buttressing this point, Fadzil et al. (2005)
assert that, an aspect of internal control and risk management is overlapping due to the fact that
risk assessment a component of risk management is embedded in internal controls. In addition,
Sarens (2009) argues that internal control is an aspect of risk management, thus engaging in an
internal control audit is a way of governing and assessing risky operations. Therefore, internal
audit involvement in risk management activities by internal auditors affects IAE. Therefore, the
sixth hypothesis is expressed as follows:
H6: There is a positive relationship between the involvement of internal auditors in the risk
management process and IAE.
2.10 Chapter Summary
This chapter begins with a broader consideration of the concept of internal audit effectiveness by
highlighting important definitions. This is important since the understanding of this concept helps
to establish the scope of the study. In addition, this chapter discusses in details internal auditing
within the context of the public sector, particularly public tertiary educational institutions.
Furthermore, detailed discussions of the internal audit agency and audit plan followed.
Subsequently, this chapter reviews the theoretical framework to test and examine internal audit
effectiveness based on the organizational and managerial pillars explained in the resource-based
theory. Further, a review of literature on the various ambiguities linked with the measurement and
factors that influence IAE.
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CHAPTER THREE
METHODOLOGY
3.0 Introduction
This chapter discusses the methodology used for the study. The methodology is well emphasized
by the kind of research hypotheses and philosophy adopted for the study.
3.1 Research Philosophy
Extant literature has identified three main groups of research philosophies namely, the positivist,
interpretive and the critical realism (Lee, 1991;Smyth & Morris, 2007; Bisman, 2010). The first
research philosophy is the interpretive approach which relates to the understanding individuals
give to the world they live in. These understanding are socially and historically constructed and
theories are developed to form a meaningful pattern of understanding. The second research
philosophy is the Critical realism approach. This paradigm adopts a mixed perspective to explain
the phenomena instead of the purely quantitative or qualitative approach used by positivism and
interpretive philosophes respectively. The third research philosophy is the positivist approach.
This approach is based on the premise that the world can be described and can be explained. Over
the years, positivist research philosophy has been used in accounting research due to its ability in
theory construction and verification (Bisman, 2010).
According to Bisman (2010), the positivist allows for generalization which implies quantitative
methodology. Furthermore, he adds that studies that seek to predict or explain a phenomenon from
a theory can best achieve its objective through positivist philosophy. In line with the explanation
of the positivist approach, this study aims at explaining or predicting the factors that influence the
internal audit effectiveness. In addition, a positive study involves a survey, experiment and quasi-
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experiment research design. Therefore, this study follows the positivist approach because this
study focuses on employing a questionnaire instrument for data collection.
3.2 Research Strategy
The study uses the quantitative design because the positivist research philosophy is employed. The
positivist philosophy requires the use of quantitative research methods which involves the use of
survey approach for data collection (Bisman, 2010). The quantitative approach is chosen because
it helps explain the phenomenon of internal audit effectiveness; for instance, ‘what factors impede
public sector audit effectiveness?’ This objective can be studied successfully by employing
quantitative research methods (Creswell, 2009). Furthermore, in order to predict the score or mean
of audit effectiveness of tertiary institution’s internal audit unit, a statistical technique is needed.
This study needs results that can be statistically explained and allows for statistical comparison
between and within the various institutional groups. Thus quantitative research is suitable, which
will give a generalized pattern to be observed within a wider sample of schools.
3.3 Population
A study population is the total number of bodies eligible to participate in a particular study
(Creswell, 2009). The research is centered on the internal audit function of the public tertiary
educational institutions in Ghana. These institutions are mandated to establish an internal audit
department to aid their accountability and fraud prevention, therefore the research population is
the Ghanaian public tertiary institutions. Furthermore, there are a total number of 90 public tertiary
institutions accredited by the National Accreditation Board in Ghana. These 90 Ghanaian public
tertiary institutions consist of Universities (11), Polytechnics (2), colleges (53), technical
universities (8) and professional institutions (16). The data collection for this study started in
December 2018, and then continued in January, February and March 2019. Respondents to this
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research are directors of the internal audit department of the institutions understudied. This
selection of respondent is based on the knowledge and understanding needed for the subject matter.
The study was based on public tertiary institutions because of the growing interest in fraud
prevention, responsibility within the public sector of Ghana and the need to determine IAE to
promote good financial management.
3.4 Sample Size
The study design used was the quantitative methods consisting of the survey approach. This
approach was adopted using the whole population of on public tertiary institutions in Ghana. This
approach seeks to give a generic understanding of the internal audit function and identify broad
trends of the IAF across a larger number of organizations.
The sample size used for this study is 90. Therefore, study used the population as the sample for
the study because of the limited and manageable size of the population thus to ensure eternal
validity, the sample must be representative. The sample for this study represents the list of public
tertiary institutions accredited by the National Accreditation Board. Further, a set of questionnaires
were distributed to 90 public tertiary institutions located in Ghana which constituted the sample
for the study. However, 75 valid answered questionnaires which represent 85% response rate were
used for the study.
3.5 Type and Source of Data
This study emanated from the primary data type. Primary data is data that is collected from an
original data source (Creswell, 2009). The analysis of data was based on the primary data gathered.
The source of data was from the 90 public tertiary institutions in Ghana.
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3.6 Data Collection Tool
The questionnaire used for this study was the major data collection tool. This questionnaire was
structured as a result of interactions from literature about the measurement of IAE in similar
research fields. For instance, Alzeban and Gwilliam (2014) used a set of tested and validated
questions to examine the factors influencing IAE in Saudi Arabia. Their questions were adopted
for this study due to the existence of similar constructs. In view of this Bell & Bryman (2007)
recommended the use of questions from existing literature for individual source of data for
quantitative studies. The questionnaire was close- ended in nature and the responses designed in a
seven- point Likert scale allowing respondents to state how strongly they agree or disagree with a
statement. The first section of the questions described the background characteristics of the
participants and institutions. The other sets consist of Likert scale questions relating to internal
audit effectiveness; involvement in governance processes, involvement in risk management
processes, involvement in internal control processes, management of IAF, management support
and internal audit resources. The administration of the questionnaire was through the mail and
hand-delivery by the researcher to convince the respondents to accept and respond. Every
respondent was given an introductory letter and one questionnaire to fill in.
3.7 Questionnaire Administration
The questionnaires were delivered via the mail system of the respondents and also self-
administered. The mail system was a choice for data collection due to the geographical location of
some of the sample institutions. Further, Abu Bakar & Ahmad (2010) attests that the mail system
of data administration offers a broader geographical area at a minimum expense to the researcher.
Consequently, the self-administration of questionnaire approach was used for the institutions that
were geographically favorable. Every head of each IAF received one questionnaire to answer. The
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questionnaire used for the study was the final version after a series of rigorous review by the
supervisors.
3.8 Measurement of Variables
This study employed the literature for variables to explain internal audit effectiveness. The review
of literature identified various aspects of internal audit effectiveness. These aspects relates to
factors that influence internal audit effectiveness at the individual level, departmental level and
organizational level and their respective variable measurements. This work focus particularly, on
the organizational processes that influences internal audit effectiveness in the public tertiary
institutions especially internal audit involvement in these processes, IA resources and the
management of the unit and its activities. Furthermore, this study tries to explain IAE using
independent variable measures of management of internal audit unit, involvement in governance
processes, involvement in risk management processes and lastly involvement in internal control
processes due to the reason that these identified organizational level processes best explain IAE in
relation to IA work done. Then, the dependent variable IAE is best explained using the broad
thematic areas within the audit plan for the period of 2018 to examine the level of objectives
accomplishment and the audit specific areas that influence the audit plan namely governance, risk
management and internal control processes. These variables selected are measured and hypotheses
are formulated for each of the independent variables.
3.8.1 Measurement of Dependent Variable
The dependent variable for this study is IAE. Extent literature have discussed various measurement
criteria for the measurement of IAE. Even though researchers have emphasized the need for a
general measure for internal audit effectiveness, but still there exist this literature gap with respect
to the measurement of IAE (Arena & Azzone, 2009; Erasmus & Coetzee, 2018). Based on the
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above claims from the literature, the dependent variable is examined using one item from the
literature as comparison of annual audit plan to actual audit executed within a particular period
which Dittenhofer (2001) states in different words as the accomplishment of task described by the
internal auditing process. On the basis of the factors above, IAE in this research is measured as a
percentage of planned audits against the actual audits executed given by Directors of the IAF and
verified from the Internal Audit Agency (IAA). Furthermore, the dependent variable (IAE)
comprises of the number of audit areas planned as against the number of audit areas executed
within the year. Overall, this approach gives a score or percentage for IAE in order to evaluate to
characteristics that influence IAE.
The percentage of audit executed by the internal auditors was measure using a four point Likert –
scale item (% IAE) adopted from Arena and Azzone (2009). This four point Likert-scale measure
was found to be tested, satisfied and used in literature, thus its adoption. However, the ranks created
by Arena and Azzone (2009) was the only verified and tested approach for displaying the ratios
computed in the categorized form. Further, this rank was used to avoid the problems related to
outcome measures even though the ratios computed will be displayed in the results from the data.
A range below 20% represents low level of execution, between 20%- 50% represents medium-low
level of execution, between 50%-80% represents medium high level of execution and more than
80% represents high level of execution. Table 3.1 below forms a standard from the literature to
examine IAE level.
Table 3. 1: Level of Internal Audit Effectiveness
%IAE Measure
Below 20% Low Level
20%-50% Medium- Low Level
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50%-80% Medium- High Level
Above 80% High Level
Source: Arena and Azzone (2010)
3.8.2 Measurement of Independent Variables
The measurements for the independent variables were obtained from the review of literature.
First, management of internal audit unit and activities measurement was adopted from (Alzeban
and Gwilliam, 2014; IIA, 2016). These questions include; periodic reporting to council,
appropriate deployment of audit resources, develop appropriate audit plans, establish policies and
procedures, ensure activities add value and communication and approval of audit plan.
Second, involvement in governance processes measure was adopted from (Sarens, 2009; Simon,
2009; IIA, 2016). The questions used for this variable include; effective organizational
performance management and accountability, communicating risk and control information,
suitable ethics and values, getting attention of council and management, resources accountability,
overview of departments, problems, incentive policy and monitor, follows up on recommendations
made, assisting the management in fulfilling strategic and operational objectives.
Third, involvement in risk management processes measure was adopted from (Arena and Azzone,
2009; IIA, 2016). This variable indicators include; potential occurrence of fraud, risk and control
information, the effective and effectiveness of organizational risk management, alert to the
significant risks that might affect objective, operations and resources, facilitate risk assessment
through risk self-assessment methods, evaluate risk associated with new computing developments,
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construction and procurements activities, assist management in implementing a risk model, assess
existing risk of audited area and ensure compliance with regulatory requirement.
The fourth variable is the involvement in internal control processes measure was adopted from
Cohen and Sayag (2010). This variable indicators includes; incorporate knowledge of controls
gained from engagements into control processes, evaluate the reliability and integrity of financial
and operational information, assist the organization in maintaining effective controls and promote
continuous improvement, review the means of safeguarding assets, test compliance with controls
in functional areas, assist management in preparing a report on the effectiveness of internal
controls and adopt systematic approaches to evaluate and improve internal control processes.
The fifth independent variable is internal audit resources measure was adopted from works of Hass,
et al, (2006) and Alzeban & Gwilliam, (2014). This variable consists of these questions; size of
the internal audit department/staffing, technological equipment (number of laptops and scanners
available for audit team members) and the office space available for internal auditors.
The last independent variable is management support for internal auditing measure was adopted
from (Mihret & Yismaw, 2007; Cohen and Sayag, 2010; Alzeban & Gwilliam, 2014; Endaya &
Hanefah, 2016). The measurement indicators include; supporting IAF to undertake its duties and
responsibilities, involvement in the internal audit plan, report on the work of the internal audit
team being delivered to the management, amount budgeted in relation to internal audit duties.
3.9 Data Management and Analysis Process
Data management includes entering and coding data into a database, data cleaning, data filtering
and finding any missing data. The Statistical Package for Social Sciences (SPSS) was used to
generate descriptive statistics of the 75 usable questionnaires out of 90 that was imported into the
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statistical tool. Subsequently, a SmartPLS software developed for multivariate regression
analysis will be employed to estimate simple PLS path models (Hair et al., 2014).
3.10 Data Analysis
The questionnaire used had close-ended questions which was basically ordinal (scale) and nominal
in nature. Due to this nature of questions, the use of multivariate analysis was employed to analyse
the information. Therefore, the Structural Equation Model (SEM) was used in order to assess latent
variables and evaluate relationships among the model variables. This multivariate tool will be
discussed further in the subsequent paragraphs.
3.10.1 Structural Equation Modeling (SEM)
Structural Equation Modeling (SEM) is a tool used by social science researchers for multivariate
data analysis, involving statistical approaches to analyze multiple variables (Hair, Hult, Ringle, &
Sarstedt, 2014). Further, the variables used in this statistical analysis normally represent
measurement of individuals, companies and activities.
This study employs the SEM to analyze primary data collected from the individual measurement.
Moreover, this model gives room for the analysis of small sample size data. The Structural
Equation Modeling is grouped into two namely; Partial Least Square SEM and Covariance-Based
SEM. These approaches will be discussed into details in the subsequent paragraphs.
3.10.2 Partial Least Square SEM
Partial Least Square (PLS) SEM is a method used in conducting Structural Equation modeling.
Hair, Sarstedt, Ringle, and Mena (2012) are of the view that PLS -SEM is an excellent choice for
small sample data because of its ability to test theories and concepts. According to Hair, (2012)
this ability is explored by the assessment of measurement and structural models. Further, PLS-
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SEM allows for hypotheses testing and simultaneously assessing direct, indirect and total effect
mediation.
Buttressing this point, Hair et al. (2014) pointes out to the fact that the 10 times rule concludes this
assumption. They add that the 10 times rule specifies that, the research sample should be ten times
the arrowheads directed to a particular latent variable, thus the number of samples should meet the
ten rule before using the PLS-SEM method. In relation to this study, the PLS-SEM technique was
chosen because the number of institutions studied meets the 10 times rule as there are six (6)
variables directed to the latent variable meaning the minimum size should be 60 institutions.
PLS-SEM data analysis helps resolve small sample size data research issues like this study of 90
population. Further, the PLS-SEM is the most appropriate data analysis tool because it seeks to
answer questions that are involved in a multiple factor regression analysis (Ullmman & Bentler,
2013).
3.10.3 Covariance-Based SEM
The Covariance-Based (CB) SEM is the other approach used for Structural Equation Modeling.
This approach was propounded by Jöreskog in 1971. This approach is best used to confirm or
reject theories, that is a theoretical covariance matrix for structural equations (Sarstedt, Ringle,
Smith, Reams, & Hair Jr, 2014). Hair et al (2011) states that this procedure shows how best the
theoretical model determines its covariance matrix. Further, CB-SEM technique is used when
comparing alternative theories in a research.
3.10.4 Choosing between CB-SEM and PLS-SEM
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This study chooses the PLS-SEM over the CB-SEM for data analysis. The reason for this selection
is because PLS-SEM has more statistical power and can best be used for research objectives that
emphasizes on theory development and prediction as in the case of this study of theory prediction.
However, the CB-SEM leans towards objective that test theories which was not the focus o this
study. This statistical power is used to determine specific significant relationships between
variables (Hair Jr et al., 2014). Since, this study employs a simple level analysis model to test the
relationship between a single measured variable (internal audit effectiveness) and other measured
variables (management of internal audit unit, involvement in governance processes, involvement
in risk management processes, involvement in internal control processes), the best approach that
considers a single item measure and a simple model is the PLS-SEM. Further, PLS-SEM makes
room for small sample size data which is not common with CB-SEM. This study uses a sample
population of 90 public tertiary institution which constitute small data size in SEM, thus the PLS-
SEM is employed to analyze such small sample size data.
3.11 Reflective and Formative Constructs
Literature on SEM (Hair et al (2011); Sarstedt, Ringle, Smith, Reams, & Hair Jr, 2014) presents
two main models of the constructs that can be used in research. The unobserved variables can be
modelled using either the formative or reflective indicators. The Reflective constructs are
constructs which are affected by the same underlying construct. The direction of causality of the
construct is from the constructs to the indicators and changes in the indicators. Further, in the
reflective construct the direction of the arrows point from the unobserved variables to reflective
indicators. However, with the indicators of the reflective constructs the indicators should be
internally consistent because all the measures are considered to be valid indicators of the
unobserved variables.
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Moreover, the Formative constructs refer to constructs that have formative indicators, which are
combined to give rise to the meaning of the unobserved variables. The direction of the arrows in
this instance from the formative indicators to the unobserved variables.
3.12 Reliability and Validity
The reliability and validity of a research is a critical step in research. This is because in order for
a researcher to explain the empirical outcomes of a research, the integrity of the results and findings
must be secured (Hair, Ringle, & Sarstedt, 2011). Similarly, Bisman (2010) affirms that the
validity of a quantitative research is important to be able to acknowledge the value of richness and
to draw on generalization of findings. There are two main categories of validity explained by
Bisman (2010). The research argued that, validity involves the ability to test hypotheses both
internally (address research problems) and externally (extend results of the study to a wider
setting). This study obtained data with due care to guarantee the objectivity and validity of the
findings. Finally, the use of external regulators to obtain evidences of dependent variable of the
study seeks to ensure validity and reliability. Therefore, to be able to ensure further reliability of
the study, the instrument used was subjected to rigorous review by supervisors and peers before
administering it to the respondents.
In addition to the above, the statistical tool PLS-SEM used for the data analysis allows for the
assessment of the reliability and validity of the model. This assessment considers the measurement
and structural validity and reliability.
3.13 Assessing the Measurement and Structural Models
In PLS-SEM, assessing the measurement and structural model is very crucial. Despite the fact that
the research instrument has been tested and validated, a further assessment needs to be carried out
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in order determine the quality of the dataset. The subsequent sub-sections highlight the
measurement and structural model into details.
3.13.1 Assessment of Measurement Model
The assessment of the research measurement model for the data analysis considers the constructs
and their indicators. The relationship between constructs and indicators can easily integrate a
formative or reflective measurement models( Hair et al., 2014). Furthermore they concluded that
SmartPLS can easily handle a single-item or multi-item construct measurement. This study
employs to reflective measurement model for the constructs measured using both single and multi-
item measurements.
However, the reliability and validity of the model must be assessed appropriately before
proceeding to the structural model analysis. The evaluation criteria for models measured
reflectively consider the indicator reliability, convergent validity and discriminant validity. The
results of each criterion are illustrated in the following sections.
3.13.1.1 Indicator Reliability
The first criterion in the assessment of the model is to evaluate the indicator reliability of the
constructs. The indicator reliability of the model was measured using the indicator loadings of the
variables. The accepted threshold for a good indicator loading should be greater than or exactly
0.70. However, after the reliability and validity have been assessed using the composite reliability
values and a further deletion of a load below 0.70 will not better the composite reliability values,
then that load can be maintained. Thus, an indicator loadings of 0.40 and above is acceptable (
Hair et al., 2011).
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3.13.1.2 Internal Consistency Reliability
Once the indicator reliability has been determined, the next stage is the evaluation of the internal
consistency reliability. The internal consistency measures the extent of correlation between each
set of constructs and their indictors. The conventional measure for internal consistency is the
Cronbach’s alpha, which takes into consideration the inter-correlation between indicators ( Hair et
al., 2014). They added that the Cronbach’s alpha criterion is very sensitive to the scale and the
items used to map each scale. Consequently, there is a high rate of an underestimation of the
internal consistency reliability. However, because of this drawback of the Cronbach’s alpha, the
composite reliability is much preferred measure of internal consistency reliability in PLS (Chin,
1998; Hair et al., 2014). This measure of internal consistency takes into consideration the indicator
outer loadings of the constructs (Sarstedt et al., 2014). They pointed out that composite reliability
value should exceed the minimum threshold of 0.70 in order to be classified satisfactory. Next, the
convergent validity of the reflectively measured constructs are examined.
3.13.1.3 Convergent Validity
The second criterion in the assessment of the reflective measured construct is to assess the
convergent validity of the constructs. In this case, the convergent validity of the constructs explain
the magnitude an indicator correlates positively with an alternate indicator of the same construct
in a model (Hair Jr et al., 2014; Sarstedt et al., 2014). Therefore, the indicators of a construct should
well explain the variance on that specific construct measured. In order for researchers to evaluate
the convergent validity of a reflective construct, the Average Variance Extract is used to be able
to evaluate the convergent validity of the variables (Sarstedt et al., 2014). Next the average
variance extract will be examined in details.
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3.13.1.4 Average Variance Extract (AVE)
Reflectively modeled constructs employ the average variance extract to assess the convergent
validity of the model. Generally, the average variance extract is calculated using the mean square
of the loadings for all the constructs indicators. The rule of thumb of the AVE is 0.50 or higher
since this value indicates that more than 50% of the average variance of the constructs have been
explained in the variables (Sarstedt et al., 2014).
3.13.1.3 Discriminant Validity
The last criteria used after assessing for the convergent validity is assessing the discriminant
validity. The discriminant validity shows the uniqueness of a construct from the other constructs
in the model. Researchers have proposed two dimensions for the measurement of discriminant
validity. First, a measurement in line with the cross loadings of the indicators in the model. The
general rule is that the outer loadings of an indicator should exceed the cross loading on another
construct (Chin, 1998; Hair Jr et al., 2014). Furthermore, each indicator is expected to load
better on itself.
The other discriminant validity assessment dimension follows the Fornell-Larcker criterion.
According to Hair Jr et al. (2014), this approach uses the square-root of the average variance
extract of each construct in comparison to the other constructs in the model. Once the square
root of a constructs the AVE is higher than its correlation with the other constructs within the
model, the discriminant validity of the constructs are met.
3.13.2 Assessment of Structural Model
Subsequently, after assessing the appropriateness of the measurement model for validity and
reliability, the structural model is also assessed. This assessment considers the collinearity between
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the set of constructs using the Variance Inflation Factor (VIF), coefficient of determination (R2),
predictive relevance (Q2) and the significant relationships among constructs. These procedures
will be discussed into details below.
3.13.2.1 Variance Inflation Factor (VIF)
The variance inflation factor assessment is first performed to check for collinearity amongst
constructs in the model. The general rule of thumb states that all the VIF values should be less
than 5 in order to eliminate any multicollinearity problem (Hair et al., 2011). Having checked for
multicollinearity problems, the next stage is to assess the appropriateness of the coefficients of
determination (R2). This assessment will be examined in details further.
3.13.2.2 Coefficient of Determination (R2 Value)
The second measure of structural model analysis is the assessment of coefficient of determination.
The coefficient is the predictive ability of the constructs in explaining the model (Sarstedt et al.,
2014). An R2 value above 0.67 is consider substantial, 0.5 is considered moderate and 0.19 is
considered weak (Hair et al., 2012).
The next assessment performed after the coefficient of determination is predictive relevance
(Blindfolding). This will be discussed into details next.
3.13.2.3 Predictive Relevance (Blindfolding)
According to Hair Jr et al. (2014), for the predictive relevance of the construct to be accepted, the
Q2 value (after the blindfolding procedure) should be above zero (0). On the other hand, Q2 values
of 0 and below suggests lack of predictive relevance.
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Furthermore, after the measurement and structural model is assessed, the ethical considerations of
the study will be considered next.
3.14 Ethical Considerations
This involves the following, to begin, participation in the research will be completely voluntary.
Respondents will voluntarily take part in the filling of the questionnaire. Further, each respondent
will be educated on the purpose of the study during the survey; hence no one was be coerced to
participate in the survey conducted. Another area of concern is the issue of confidentiality.
Respondents will be assured of the highest degree of confidentiality. In fact respondents were
convinced that their personal details and information given will solely be used for the purposes for
which they consented.
3.15 Scope and Limitation
The study emphasized precisely the effects of audit and organizational characteristics of IAE but
not departmental characteristics of IAE. The research is based on public tertiary institutions in
Ghana that have set-up an IAF within the institution. These institutions are spread across Ghana
and it required traveling to Greater Accra Region, Ashanti Region, Volta Region, Eastern Region,
Western Region, Brong Ahafo Region, Central Region, Northern Region, Upper East and Upper
West Region to get data for the study. This issue of traveling was a major limitation for the study,
hence the use of e-mail system to administer the question. In addition follow-up telephone calls
were made to remind respondents of questionnaires.
3.16 Access to Respondents and Increasing Response Rate
The exposure received from the association with the Internal Audit Agency (IAA) offered the
opportunity to gain access to the respondent’s information database which contains the names of
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the respective public tertiary institutions, names of their head of internal audit unit, telephone
numbers and their email addresses. The respondent’s level of trust and respect for the regulatory
body of internal auditing (IAA) compiled the respondent’s willingness to offer the needed
assistance for this study. Nevertheless, some respondents were also feeling reluctant to assist in
data collection and some of the mailed questionnaires were not received. Further, some of the
institutions also did not have an IAF established within the institution. Therefore, with all these
set-backs the response rate was 85%.
3.17 Chapter Summary
This chapter elaborates on the methodology employed of the study. First, the study is in line with
the positivist research philosophy. Second, a quantitative research approach was employed, using
precisely a survey approach to gather the data. Third, the sample of the study was the population
which consists of the 90 public tertiary institutions in Ghana. Fourth, the study further discusses
the data analysis method employed, the approach used to obtain the validity and reliability of the
findings as well as the ethical considerations for the study.
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CHAPTER FOUR
DATA ANALYSIS AND DISCUSSION OF FINDINGS
4.0 Introduction
This chapter presents the discussions results and analysis of field data of the study. This chapter
begins with descriptive statistics, then explanations of the results as per the variables. This chapter
is arranged in sections sequential to the objectives of the study.
4.1 Descriptive Statistics of Institutions and Respondents
The population and sample of the study was 90 public tertiary institutions but response for data
analysis was from 75 institutions mentioned above. This comprises universities, college of
education, training colleges, polytechnic, professional institutions and technical universities in
Ghana. These are the total number of public tertiary institutions that qualified for research
inclusion and questionnaire filling. The results establish the fact that the missing responses of 15
institutions are from the training colleges and college of education category.
Therefore, Table 4.1 shows the results of sample respondents from the various institutions below.
The results displays 11 universities that represent all the public universities in Ghana, 2
polytechnics that present the total population of public polytechnics in Ghana, 16 professional
institutions that give evidence of all public professional institutions in Ghana, 28 colleges of
education that provide for only part of the population of public colleges of education in Ghana, 10
training colleges that indicate only part of the population of training colleges and 8 technical
universities which reveal the whole population of the public technical universities in Ghana. It is
evident that colleges of education institution dominate the sample due to the large number of such
institutions in Ghana.
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Table 4. 1: Types of Public Tertiary Institutions
Type of Institution Frequency Percentage
Universities 11 15%
Polytechnics 2 3%
Training Colleges 10 13%
Technical Universities 8 11%
Professional Institutions 16 21%
Colleges of Education 28 37%
Total 75 100%
Source: Research Survey, 2019
Furthermore, on the regional distribution of the sampled institutions, Table 4.2 presents a summary
of results from all the 10 regions of Ghana, showing evidence of at least one public tertiary
institution in each region. The table illustrates that most of the tertiary institutions are in the Greater
Accra region; a total of 27 representing 36%. The results establish that public tertiary institutions
in Ghana are almost spread amongst the regions in Ghana.
Table 4.2: Regional Distribution of Public Tertiary Institutions
Region No. of Institution Percentage
Greater Accra 27 36%
Central 6 8%
Eastern 6 8%
Western 3 4%
Ashanti 9 12%
Volta 7 9%
Northern 5 7%
Upper East 2 3%
Upper West 2 3%
Brong Ahafo 8 11%
Total 75 100%
Source: Research Survey, 2019
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In addition, Table 4.3 below gives detailed presentations of the total number of employees in the
institutions which clearly show that majority of the institutions have total employees ranging from
100 to 200. This is then followed by total employees of above 500. These results indicate clearly
that majority of the institutions are not large institutions thus have not employed many people to
work in the institutions.
Table 4.3: Number of Employees in the Institutions
Total Employees
Frequency Percentage
Below 50 employees 5 7%
50 -100 employees 9 12%
100-200 employees 28 37%
200-500 employees 16 21%
Above 500 employees 17 23%
Total 75 100%
Results from Table 4.4 describe the number of internal auditors within the institutions. Evidence
shows that majority of the institutions have below 3 internal audit staffs representing a total of
56% of workers working in the audit department. This is followed by 11-20 staffs representing
16% of the workers in the audit department. This evidence means that internal audit departments
are lacking staffs that will perform audit duties.
Table 4.4: Number of Internal Auditors
Number Freq. Percentage
Below 3 staffs 42 56%
3- 5 staffs 9 12%
6-10 staffs 9 12%
11-20 staffs 12 16%
Above 20 staffs 3 4%
Total 75 100%
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Results from Table 4.5 describe the combination of total employees employed in the various
institutions and the respective number of internal auditors employed in the internal audit unit.
Evidence shows that majority of internal audit staffs below 3 are from institutions that have total
employees capacity of between 100–200 total staff employees. Further, the highest internal audit
staffs employed by the institutions that have a total employee capacity of above 500 employees
are 11 to 20 staffs. This evidence shows that internal audit departments within these institutions
lack internal audit staffs in relation to the size of work to be carried out in these institutions. Table
4.5 gives a detailed summary of the number of internal auditors and total workers in the rest of the
departments in the institutions.
Table 4.5: Total Employees against Total Internal Auditors
Employees
Internal
Auditors
Below 3
staffs
3- 5
staffs
6-10
staffs
11-20
staffs
Above
20 staffs Total
Below 50 employees 3 2 0 0 0 5
50 -100 employees 9 0 0 0 0 9
100-200 employees 27 1 0 0 0 28
200-500 employees 3 5 3 5 0 16
Above 500 employees 0 1 6 7 3 17
Total 42 9 9 12 3 75
Subsequently, further analysis was perform in relation to the size of the IAF, whether the head of
the IAF considers the size of staffs employed in this department large enough to perform the duties.
Evidence shows that majority of the heads of the various institutions attest to the fact that the
function is not larger enough to perform its duties. This evidence represents 70% of the responses
which Table 4.6 presents below.
Table 4.6: Size of Internal Audit Function
Internal Audit size
Frequency
Small 70
Large 5
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Total 75
Moreover, this is possible that since majority of the institutions are not large enough to perform
their duties; these internal audit departments might also neglect some of their duties due to the size
of the department. Therefore, a follow up question was asked considering the possibility of
neglecting audit duties due to the size of the department. Evidence indicates that majority of the
institution’s internal audit department neglect their duties due to size of the IAF. This evidence
represents 63% of responses that agree to neglecting audit duties as presented in Table 4.7.
Table 4.7: Audit Duties Neglected due to Size
Neglected for Size
Frequency
No 12
Yes 63
Total 75
Given a detailed description of the institutions, their respondents (Head of Internal Audit
Department) and their internal audit function, the next section describes the various constructs
used for the model in SmartPLS. This descriptive statistics considers explanations of the constructs
in the model in details. The statistical measurements of the variable used in the model are computed
below.
4.2 Inferential and Descriptive Statistics of Constructs
This section highlights the descriptive statistics of the constructs used for the study. The statistics
include the means, standard deviations, maximum values and minimum values. The section thus
gives a brief statistics on each of the seven constructs in the model used for the study. These which
variables are Internal Audit effectiveness, Governance Process, Risk management, Internal
Control Process, Internal Audit Management, Internal Audit Resources and Internal Audit
Relationships. These constructs will be examined in details in this order.
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4.2.1 Effectiveness of the Internal Audit Function
The first construct of the study is Internal Audit effectiveness construct which is also the dependent
variable for the model. The measurement of this construct is geared towards the discussion of the
results for the first objective stated in Chapter one above. The dependent variable (IAE) is
measured using the percentage of work done compared to work planned in a particular year. This
study choose the year 2018 because it was the year that had just ended before data collection begun
and most of the respondents will easily remember issues relating to this year under review. This
variable internal audit effectiveness has two questions and was then computed into a percentage
score (ratios) which is displayed in the table 4.8 below.
Table 4. 8: IAE Ratios Computed
Coded
Institutions Type of Institution Ratios Computed
1 Professional Institutions 50%
2 Professional Institutions 33%
3 Professional Institutions 67%
4 Technical Universities 42%
5 Universities 45%
6 College of Education 50%
7 Universities 45%
8 Universities 50%
9 Professional Institutions 50%
10 College of Education 50%
11 College of Education 50%
12 Technical Universities 42%
13 Technical Universities 45%
14 College of Education 40%
15 Universities 60%
16 College of Education 40%
17 Professional Institutions 57%
18 Universities 28%
19 Polytechnic 40%
20 Polytechnic 50%
21 Technical Universities 45%
22 Technical Universities 50%
23 Technical Universities 31%
24 Technical Universities 50%
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25 Technical Universities 50%
26 Universities 38%
27 Universities 67%
28 Universities 38%
29 Universities 45%
30 Universities 71%
31 Professional Institutions 50%
32 Professional Institutions 42%
33 Professional Institutions 38%
34 Professional Institutions 25%
35 Professional Institutions 62%
36 Professional Institutions 57%
37 Professional Institutions 43%
38 Professional Institutions 73%
39 Professional Institutions 63%
40 Universities 50%
41 College of Education 50%
42 College of Education 44%
43 College of Education 25%
44 Training College 25%
45 College of Education 25%
46 College of Education 33%
47 College of Education 33%
48 College of Education 38%
49 College of Education 43%
50 College of Education 33%
51 College of Education 38%
52 College of Education 43%
53 College of Education 50%
54 College of Education 50%
55 Training College 43%
56 Professional Institutions 43%
57 Training College 33%
58 Training College 33%
59 College of Education 67%
60 Training College 29%
61 Training College 25%
62 Training College 25%
63 Training College 25%
64 Training College 25%
65 Training College 30%
66 Professional Institutions 33%
67 College of Education 50%
68 College of Education 63%
69 College of Education 33%
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70 College of Education 40%
71 College of Education 38%
72 College of Education 22%
73 College of Education 33%
74 College of Education 44%
75 College of Education 45%
This single indicator (percentage score) was then subjected to a Likert scale of 1-4 measurement.
Since the percentage score of effectiveness is the only item measuring IAE it is termed a single-
item measure in PLS-SEM. Table 4.9 reveals the findings of the effectiveness of the sampled
institutions.
Table 4. 9: Internal Audit Effectiveness
IAE % Frequency Percentage
n<20% 0 0
20%<n<50% 64 85%
50%<n<80% 11 15%
n>80% 0 0
Total 75 100%
4.2.2 Factors that Influence IAE
This section discusses the results for the second objective stated above. As mentioned in chapter
two, the independent variables used are involvement in governance processes, involvement in risk
management processes, involvement in internal control processes, IA relationships, IA resources
and IA management. This section reports the means, standard deviations, maximum and minimum
values of the respondents’ views on the factors that influence internal audit effectiveness. The
following subsections review these factors into details.
4.2.2.1 Involvement in Governance Processes (Variable 1)
Governance audit process refers to engagement of audit activities which relate to the audit of top
level structures. Further, audit engagements that cuts across governance include organizational
asset management and acquisition, executive recruitment contract audit, legislative compliance
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audit, monitoring management and reporting (Locke, 2001). The results of this governance
variable computed from the dataset are discussed below. This variable is inclusive in the model to
estimate its relationship and significance to the dependent variable. The mean and standard
deviation of the governance process variable as indicated in Table 4.10 below show all the
questions relating to this variable.
Overall, involvement in governance process had six out of nine factors being ranked above the
average mean point (5.21), which this means respondents consider involvement in performance of
management and accountability audit, ethics and values audit, IT governance audit, audit
recommendation follow up, communication of risk and internal controls information and
involvement in strategic and operational audit as very important determinants of their governance
process involvement. However, among them all, the involvement in the institution’s strategic and
operational audit stood out with the highest mean of 5.30 and while involvement in departmental
policies was ranked lowest, with a mean of 5.08. This implies that majority of the institutions are
more involved in operational audit.
Table 4.10: The Mean of the Governance Process Variable
Governance Construct Mean Min Max Std. Deviation
Relative Mean 5.21 0.93
Performance management and
accountability 5.23 3 7 0.873
Communication of risk and internal
control information of institution 5.21 3 7 1.087
Promotes appropriate ethics and values
within the institution 5.23 1 7 1.027
Assessment of IT governance to support
institutional strategy 5.20 3 7 0.8
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Attention of council 5.16 2 7 0.98
Institutional resource accountability 5.13 3 7 0.989
Provision of departmental overview on
problems, policies to improve the
institution 5.08 1 7 1.043
Follow up on audit recommendations
made to council 5.28 3 7 0.842
Assist council fulfill strategic and
operational objectives 5.30 3 7 0.757
4.2.2.2 Involvement in Internal Control Processes (Variable 2)
Internal control audit process refers to audit engagements concerning the internal function of the
organization. Audit engagements that involve internal control processes are geared towards
safeguard of assets against loss or theft, accurate financial information and evaluation of
operational goals (Fadzil et al., 2005) to top level management. Therefore, internal audit is
effective when there are elements of the abovementioned assurance services.
The results of this internal control process variable computed from the dataset are discussed below.
This variable is inclusive in the model to estimate its relationship and significance to the dependent
variable (IAE). The mean and standard deviation of the internal control process variable as
indicated in Table 4.11 below show all the questions relating to this variable. With respect to the
determinants of involvement in internal control processes four factors were scored above the
average mean of 5.95. The results implies that the sampled institutions perceived the audit of
evaluating the integrity and reliability of financial and operational information, audits geared
towards safeguarding assets, test of control compliance audit and adopt approaches to internal
control evaluation as very important determinants of their involvement in control processes. The
indicator maintaining effective institutional controls accounted for the lowest rating mean of 5.72
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while test of control compliance audit scored highest with a mean of 6.13. This results establishes
that most IA units engage in compliance audit which is similar to the results of Leung, Cooper, &
Perera, (2011).
Table 4.11: The Mean of the Internal Control Process Variable
Internal Control Construct Mean Min Max Std. Deviation
Relative Mean 5.95
0.84
Evaluation of organization's control
processes 5.89 3 7 0.85
Integrity and reliability of Financial and
operational information evaluation 6.01 2 7 0.72
Assist to maintain effective controls by
evaluating its effectiveness 5.72 4 7 0.84
Reviewing the mean of safeguarding assets
6.05 3 7 0.82
Test compliance with controls in
institution’s functional areas 6.13 3 7 0.88
Effective internal controls report
preparation 5.92 4 7 0.69
Adoption and evaluation of effective
internal control approaches 6.03 3 7 1.06
5.2.2.3 Involvement in Risk Management Processes (Variable 3)
Results of the risk management process variable computed from the dataset are discussed below.
This variable is inclusive in the model to estimate its relationship and significance to the dependent
variable. The mean and standard deviation of the risk management process variable as indicated
in Table 5.12 below show all the 9 questions relating to this variable. Table 4.12 presents evidence
of involvement in risk management processes and seven factors scored above the average mean of
5.34 therefore were considered the determinants of risk management. These factors suggest that
the sampled institutions perceived communicating risk information, audit of evaluating risk
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management, being alert to significant risks, using risk assessment techniques, implementing risk
models, assessing risk of audited areas and audit geared towards compliance with regulatory
requirement as very critical determinants of their involvement in risk management processes.
Overall, evaluating potential fraud risk scored the lowest mean of 4.12 while being alert to
significant risk that affects the institution’s operations scored a high value of 5.56.
Table 4.12: Risk Management Process Variable
Risk Management Process
Construct Mean Min Max Std. Deviation
Relative Mean 5.34 0.97
Fraud risk evaluation and management 5.12 1 7 0.97
Risk communication and control 5.55 1 7 0.85
Improvement of institutional risk
management 5.51 1 7 1.05
Being alert to significant risk that
affects institutional operations 5.56 3 7 0.85
Facilitation of risk assessment through
self-assessment techniques 5.39 2 7 1.01
New projects risk control and
evaluation 4.79 1 7 1.27
Implementation of risk model 5.55 3 7 0.84
Assessment of existing risk audited
area and reporting to council 5.52 3 7 0.79
Compliance with regulatory
requirements 5.40 3 7 0.95
Overall, amongst the involvement in the governance, risk management and internal control
process, evidence from Tables 4.10, 4.11 and 4.12 show that internal control process had the
highest average mean of 5.95 which indicated that, this variable is perceived to be the driving
feature of IAE within the public tertiary institutions in Ghana. However, the involvement in
governance processes accounted for the lowest average mean of 5.21 meaning that the institutions
sampled are not necessarily or much involved in governance process.
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4.2.2.4 Internal Audit Relationship (Management Support) (Variable 4)
Internal audit relationship, specifically the relationship with management, reflects in the support
management gives to internal audit activities. Therefore internal audit relationship is in relation to
Management support for internal audit activities. Results of internal audit relationship variable
computed from the data set are discussed below.
This variable is inclusive in the model to estimate its relationship and significance to the dependent
variable. The mean and standard deviation of management support variable as indicated in Table
5.13 below shows all the 4 questions relating to this variable. Table 4.13 presents evidence of
management support and 3 factors scored above the average mean of 5.16 thus these 3 factors are
considered the determinants of management support. These factors suggest that the senior
management and council support IA duties, senior management and council approval and
involvement in audit plan and senior management and council call for the provision of audit
findings, recommendation to Council as very critical determinants of management support.
Overall, senior management and council provision of sufficient budget for internal audit activities
scored the lowest mean of 4.95 and the largest deviation of 1.29. This means that in terms of budget
sufficiency, management do not allocate more budget resources to the function.
Table 4.13: The Mean of Management Support Variable
Management Support Construct
Mean
Min Max
Std.
Deviation
Relative Mean 5.16 0.95
Senior management and Council supports IA duties 5.18 3 7 0.69
Senior management and Council approval and
involvement in audit plan 5.17 2 7 0.88
Senior management call for provision of Audit
findings, recommendation to Council 5.45 1 7 0.96
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Sufficient budget 4.95 1 7 1.29
4.2.2.5 Management of Internal Audit Function (Variable 5)
Management of IAF variable relates to the head of the IAF’s ability to manage the department.
Results of the management of the IAF variable computed from the data set highlighted below.
This variable is inclusive in the model to estimate its relationship and significance to the dependent
variable. The mean and standard deviation of the management of the IAF variable as indicated in
Table 4.14 below shows all the 6 questions relating to this variable. Table 4.14 presents evidence
of the management of the IAF and 4 factors scored above the average mean of 6.25 thus these 4
factors are considered the antecedents of the management of the IAF. These factors suggest that
the head of the IAF reports to council on periodic activities, the internal audit head communicates
and approves internal audit plans, the head manages the IAF to add value and the head of the IAF
develops appropriate audit plans as very critical determinants of the management of the function.
Overall, the establishment of audit policies and procedures to guide work and effective deployment
of resources by the head of the internal audit department scored the lowest mean of 6.24 and 6.12
respectively. This means that in terms of resource deployment and establishment of policies, the
head of the IAF does not perform well in these areas.
Table 4.14: The Mean of IA Management Variable
IA Management Construct Mean Min Max
Std.
Deviation
Relative Mean 6.25 1.02
Report to Council on Periodic activities 6.26 3 7 1.21
Effective deployment of IA resources 6.12 3 7 0.99
Establishment of policies and procedure to
guide audit work 6.24 2 7 1.05
IA is managed to adds value 6.32 3 7 0.95
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Communication and approval of IA plans 6.53 3 7 0.90
Development of appropriate audit plans 6.26 3 7 0.95
4.2.2.6 Resources of Internal Audit (Variable 6)
IA Resources variable regards the availability of IAF resources. The results of the resources of the
IAF variable computed from the data set highlighted below.
This variable is inclusive in the model to estimate its relationship and significance to the dependent
variable. The mean and standard deviation of the resources of the internal audit function variable
as indicated in Table 4.15 below shows all the questions relating to this variable. Table 4.15
presents evidence of the resources of the internal audit function and 2 factors scored above the
average mean of 4.54 thus these 2 factors are considered the antecedents of the resources of the
IAF. These 2 critical factors are internal audit function possesses audit software used to report its
audit duties and office equipment.
Overall, the staffing capacity which will lead to audit team member’s rotation and office space for
more audit staffs scored the lowest mean of 4.29 and 4.52 respectively. This means that because
of insufficient resources the IAF, it is not able perform audit team rotation and does not have
enough office space for new and old audit staffs.
Table 4.15: The Mean of IA Resources Variable
IA Resources Mean Min Max Std. Deviation
Relative Mean 4.54 1.44 IA Software 4.63 1 7 1.33
Audit Team rotation 4.29 1 7 1.67
Office Space 4.52 1 7 1.52
Office Equipment possession 4.65 1 6 1.25
The next section presents the results of the measurement model evaluated in Smart-PLS.
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4.3 Evaluation of the Measurement Model
This section highlights the assessment criteria for models measured reflectively. This include the
assessment of the indicator reliability, convergent validity and discriminant validity. The results
of each criterion are illustrated in the following sections.
4.3.1 Indicator Reliability
The first criterion in the evaluation of the model is to assess the indicator reliability of the
constructs. Being mindful of the above assessment, the indicator loadings of the study met the set
threshold of 0.70 and ranged from 0.619 to 1.00, therefore the constructs displayed in Table 4.16
below show that the indicator reliability of the variables is good and have passed the reliability
test. Moreover, no further deletion is required due to the fact that the indicator loadings have met
the required threshold.
Table 4.16: Indicator Reliability
Loadings GP MA MS RE IAE ICP RMP
34OG2 0.922
34OG4 0.898
37MI1 0.941
37MI2 0.913
37MI4 0.867
38MS3 0.619
38MS4 0.890
IAE 1.000
CP2 0.785 CP5 0.970 IR1 0.741
IR2 0.958
IR4 0.757
RMP4 0.947
RMP8 0.657
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Note: IAE-Internal Audit effectiveness, GP-Governance Process, RMP-Risk management
Process, ICP-Internal Control Process, MA-Internal Audit Management, RE-Internal Audit
Resources and MS-Management Support.
4.3.2 Internal Consistency Reliability
Once the indicator reliability has been determined, the next stage is to evaluate the internal
consistency reliability of the findings. The internal consistencies for the seven models are deemed
to be internally consistent meaning the composite reliability of all the indicator outer loadings are
greater than 0.70 minimum thresholds. The results of the internal consistency reliability of the
seven variables are illustrated below in Table 4.17.
Next, the convergent validity of the reflectively measured constructs is examined.
4.3.3 Convergent Validity
The second criterion in the assessment of the reflective measured construct is to assess the Average
Variance Extract is used (Sarstedt et al., 2014). In view of this, assessments of the average variance
extract are indicated in Table 4.17 below. The results show that the AVE values for all the
constructs were above 0.50 which means the constructs explain more than 50% of variances. This
implies that the convergent validity of the constructs are adequate.
Table 4.17: Composite Reliability (CR) and Average Variance Extracted (AVE)
Constructs CR AVE
GP 0.906 0.828
MA 0.933 0.824
MS 0.734 0.588
RE 0.863 0.680
IAE 1.000 1.000
ICP 0.874 0.778
RMP 0.793 0.664
Note: IAE-Internal Audit effectiveness, GP-Governance Process, RMP-Risk management
Process, ICP-Internal Control Process, MA-Internal Audit Management, RE-Internal Audit
Resources and MS-Management Support.
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4.3.4 Discriminant Validity
The last criterion used in assessing a reflective construct model after assessing the convergent
validity is to assess the discriminant validity. Based on the cross loadings results calculated, all
the indicators outer loadings are greater than its cross loadings with the constructs in the model.
Looking at the cross loading in Table 4.18 all indicators load considerably well and higher to its
respective construct than other constructs (Chin, 1998). Therefore, the discriminant validity
based on the cross loadings of this study is adequate.
Table 4.18: Cross Loading
Indicators
GP MA MS RE IAE ICP RMP
34OG2 0.922 -0.251 0.065 -0.005 -0.413 -0.110 -0.317
34OG4 0.898 -0.212 -0.031 0.235 -0.364 -0.240 -0.229
37MI1 -0.267 0.941 0.585 -0.243 0.499 0.032 -0.148
37MI2 -0.211 0.913 0.465 -0.082 0.399 -0.238 -0.234
37MI4 -0.211 0.867 0.511 -0.177 0.390 -0.150 -0.158
38MS3 0.304 0.501 0.619 0.032 0.235 -0.175 -0.297
38MS4 -0.149 0.431 0.890 -0.532 0.405 0.156 -0.049
IAE -0.428 0.478 0.433 0.113 1.000 0.332 0.318
CP2 -0.162 -0.321 -0.163 0.048 0.145 0.785 0.480
CP5 -0.176 -0.024 0.120 -0.306 0.367 0.970 0.356
IR1 0.156 -0.212 -0.417 0.741 0.042 -0.166 0.204
IR2 0.045 -0.196 -0.425 0.958 0.134 -0.178 0.252
IR4 0.207 -0.055 -0.144 0.757 0.053 -0.261 0.003
RMP4 -0.337 -0.079 -0.112 0.206 0.330 0.291 0.947
RMP8 -0.081 -0.377 -0.247 0.128 0.141 0.544 0.657
Using the Fornell-Larcker criterion the results from the data analysis in Table 4.19 shows that all
the square roots of the AVEs for each construct represented in the model are far higher than the
correlation coefficients of the interrelated constructs. The results affirm the fulfillment of the
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discriminant validity criterion by Fornell-Larcker. Overall the discriminant validity of this study
is appropriate.
Table 4.19: Fornell-Larcker Criterion
Constructs GP MA MS RE IAE ICP RMP
GP 0.910 MA -0.256 0.907 MS 0.022 0.577 0.767 RE 0.118 -0.190 -0.411 IAE -0.428 0.478 0.433 0.113 1.000 ICP -0.188 -0.118 0.044 -0.224 0.332 0.882 RMP -0.303 -0.195 -0.177 0.212 0.318 0.426 0.815
Note: IAE-Internal Audit effectiveness, GP-Governance Process, RMP-Risk management
Process, ICP-Internal Control Process, MA-Internal Audit Management, RE-Internal Audit
Resources and MS-Management Support.
4.4 Assessment of Structural Model
This section highlights the results of the structural model assessment of the study. This assessment
considers the collinearity between the set of constructs using the multicollinearity test, coefficient
of determination (R2), predictive relevance (Q2) and the significant relationships among constructs
using the path coefficients. The results for these procedures will be discussed into details below.
4.4.1 Multicollinearity
The collinearity between constructs in the model is checked by performing the multicollinearity
test. The variance inflation factor (VIF) is used to assess multicollinearity. Table 4.20 below show
results for VIF values which is less than 5, the highest VIF outer is 3.488 for the management of
IAF activities and the highest inner VIF value is 1.90 for the management support for internal audit
function activities in the model. The results displayed shows that all six models are free from
multicollinearity issues.
Table 4.20: Outer VIF Values
Factors VIF
34GP2 1.757
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34GP4 1.757
37MA1 3.488
37MA2 3.170
37MA4 2.151
38MS3 1.039
38MS4 1.039
IAE 1.000
ICP2 1.591
ICP5 1.591
RE1 1.639
RE2 2.028
RE4 1.562
RMP4 1.169
RMP8 1.169
Inner VIF values
Factors VIF
GP 1.38
MA 1.87
MS 1.90
RE 1.46
ICP 1.42
RMP 1.59
Having checked for multicollinearity problems, the next stage is to test for the appropriateness of
the measurement instrument. This test will be examined in details further.
4.4.2 Common Method Bias
The Common method bias test is performed as a result of measurement problems. The study
questionnaire was developed in a way that the independent variables were answered on a seven
point Likert scale measurement and the dependent variable was answered on an ordinal scale of
measurement in order to minimize the problem of common method bias (Podsakoff, MacKenzie,
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Lee, & Podsakoff, 2003). Since dependent and independent variables questions were answered by
the same respondent, there is a likelihood of common method bias. This test is performed in order
to prevent any measurement problem that might arise due to the respondent’s desire to answer both
the dependent and the independent questions socially desirable. The procedure used for testing
common method bias is Harman’s one-factor test. This test is performed to examine the constructs
that account for the variance. A factor analysis is performed using all the items in the constructs
of the study. The rule of thumb is that the first factor should not account for more than 50% of the
variance in the study. Table 4.21 below presents the results of the factor analysis conducted and
the first factor accounts for 29% of the variance which implies that this work does not have
common method bias problem.
Table 4.21: Common Method Bias
Total Variance Explained
Factor Initial Eigenvalues Extraction Sums of Squared Loadings
Total
% of
Variance
Cumulative
% Total
% of
Variance Cumulative %
1 11.712 29.280 29.280 11.712 29.280 29.280
2 6.148 15.371 44.651
3 4.417 11.043 55.694
4 2.878 7.194 62.888
5 1.716 4.291 67.179
6 1.548 3.869 71.048
7 1.152 2.880 73.928
8 1.058 2.645 76.572
9 .913 2.281 78.854
10 .778 1.944 80.798
11 .768 1.920 82.718
12 .717 1.792 84.509
13 .611 1.528 86.037
14 .565 1.412 87.449
15 .507 1.268 88.717
16 .471 1.176 89.893
17 .460 1.150 91.044
18 .400 1.001 92.045
19 .385 .962 93.007
20 .341 .852 93.858
21 .294 .735 94.593
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22 .264 .659 95.253
23 .242 .605 95.858
24 .225 .562 96.420
25 .211 .527 96.947
26 .172 .431 97.378
27 .160 .399 97.777
28 .145 .363 98.140
29 .127 .317 98.457
30 .101 .254 98.711
31 .094 .236 98.946
32 .091 .228 99.174
33 .079 .196 99.370
34 .071 .177 99.548
35 .064 .159 99.707
36 .037 .091 99.798
37 .030 .075 99.873
38 .021 .053 99.927
39 .019 .047 99.974
40 .010 .026 100.000
Extraction method: Principal Component Analysis
Having checked for multicollinearity problems, the next stage is to test for the appropriateness of
the coefficients of determination (R2). This test will be examined in details further.
4.4.3 Coefficient of Determination (R2 Value)
The coefficient of determination (R2) shows how well the structural model has been explained.
The results of the coefficient of determination (R2) indicate a value of 0.671 for Internal Audit
Effectiveness. This evidence indicates that Internal Audit Effectiveness model explains 67% of
variance in the governance audit process, internal control audit process, risk management audit
process, management of IAF, management support and resource availability and by extension has
a strong predictive value. The R2 value is presented in Table 4.22.
Table 4.22: Coefficient of Determination (R2)
R Square R Square Adjusted
Internal Audit Effectiveness 0.671 0.642
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The next assessment performed after the coefficient of determination is predictive relevance
(Blindfolding). This will be discussed into details next.
4.4.4 Predictive Relevance (Blindfolding)
The predictive relevance of internal audit effectiveness is 0.590, which means that the model has
large predictive relevance for this construct. Table 4.23 below accounts for the Q2 value.
Table 4.23: Blindfolding
Construct Cross validated
Redundancy
Q² (=1-
SSE/SSO)
Governance Process IA Management IA Relationship IA Resources Internal Audit Effectiveness 0.590
Internal Control Process Risk Management Process
The final assessment relates to hypothesis path assessment. This assessment checks the level of
significance of the path coefficients. These will be expanded next.
4.4.5 Evaluation of Path Coefficients
This section highlights the relationships between IAE and the factors that affects it. In order to
assess the significance of the relationships, a bootstrapping procedure was performed to test the
hypothesis of the study. This is the final procedure performed to assess the structural model of this
study is the path coefficient obtained by PLS-Algorithm. The path coefficients expresses the
relationships between each independent variable connecting to the dependent variable (Hair Jr et
al., 2014). These relationships represent the hypothesis relationships stated in chapter two of this
study. For the purpose of this study, bootstrapping at a go generated 5000 samples from 75 valid
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numbers of observations. A detailed results of the bootstrapping procedure performed is illustrated
in Table 4.24.
Table 4.24: Path Coefficients, P-Value and Results
Significant at ***1% and **5%, the Table show the path coefficient of the various relationships
and p-value.
Having employed the multicollinearity test, common method bias test, coefficient of
determination, predictive relevance and path coefficient tests for assessing the structural model of
the study, Figure 3 below gives account of the path diagram of the study. This diagram is based
on the measurement and structural model of the study.
Hypothesis
Testing Path Path Coefficients P -Values Results
H4 GP -> IAE -0.324 0.000 Accepted
H1 MA -> IAE 0.269 0.010 Accepted
H2 MS -> IAE 0.475 0.000 Accepted
H3 RE -> IAE 0.446 0.002 Accepted
H5 ICP -> IAE 0.330 0.000 Accepted
H6 RMP -> IAE 0.121 0.262 Not Accepted
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Figure 4. 1: Structural Model
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4.5 Discussion of Findings
The result of the bootstrapping procedure shown above in Table 5.24 examines each of the
hypotheses in the study. Each independent construct has a relationship with the dependent
construct as elaborated in the framework of the study. However, out of six hypothesized
relationships in the study (H1, H2, H3, H4, H5, H6), five were significant except for H6 which
was not significant.
Furthermore, findings for each of the objective hypothesized in chapter two discussed will be
examined in details.
4.5.1 Findings to Objectives One (Effectiveness of the Internal Audit System)
The study examined the effectiveness of the internal audit system within the public tertiary
institutions in Ghana. The results of IAE are illustrated in Table 4.23 above categorized using four
scales. The first scale ranges from 20% and less, the second ranges from 21% to 50%, the third
ranges from 51% to 80% and the last ranging from 81% and above. This dependent variable is
included in the model to estimate its relationship and significance with the independent variables.
The questions relating to this variable emanated from the total number of trust audit areas in the
annual audit plan and the total number of trust audit areas executed by year end. Therefore, a ratio
of the audit executed areas expressed over the number of annual audit plan areas Furthermore, this
is based on ordinal questions representing the number of audit areas within the annual plan and the
number of audits performed within the plan. Overall, it is evident that most of the public tertiary
institutions are dominated within the lower spectrum of medium which is classified as medium-
level of effectiveness that is in the bracket of 20% to 50% of IAE, whilst a few are within the 50%
to 80% bracket. This means that the institutions perform 20% to 50% of audit projects a year which
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emanates from annual plan of audits. This is as a result of too many planned annual auditable areas
presented in the annual plan and little resources and expertise resources (staff expertise, working
time and working tools) to perform the audit duties within the public tertiary institutions.
Once the finding for the first objective (dependent variable) has been clearly identified and
explained, a further analysis of the findings of the second and third objectives (independent
variables) will be discussed in the next sections.
4.5.2 Findings to Objective Two
4.5.2.1 Internal Audit Management and Internal Audit Effectiveness (H1)
The relationship and significance level between the management of internal audit unit and IAE
was tested. The findings displayed in Table 4.23 above show a positive and significant relationship
between the Head of internal audit or chief internal auditor’s internal audit management ability
and internal audit effectiveness (β=0.269,p-value=0.010).
This finding establishes that when the head of the internal audit unit is committed to managing
the operations of the unit, it leads to internal audit effectiveness. The ability of the head of the
internal audit unit to manage the unit is dependent on the performance of internal audit processes
and activities, the level of access to top level personnel, timeliness of reporting to council and
communicating key operational issues to council will result to the effectiveness of the internal
audit unit (Leung et al., 2011). Thus, the role of the Head of internal audit unit is essentially crucial
for determining internal audit effectiveness. Similarly Hass, Abdolmohammadi, and Burnaby
(2006) asserts that the chief audit executive has a strong influence on the effectiveness of the
internal audit function when there it comes to how the function is lead. They added that the
professional attitude and behaviour of the internal audit leaders affects the effectiveness of the
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function. Thus the head or chief internal auditor’s attitude concerning IA work is important in
determining effectiveness.
The findings of this study is in line with the results of (Hass et al., 2006; Zain, Subramaniam, &
Stewart, 2006; Leung et al. ,2011), that internal auidt effectivness is high when the head of the
internal audit unit can push for the timely release of internal audit reports generated, can influence
key management on audit matters, can get access to top management to approve and report audit
matters to them, performance of internal audit process and effectively coordinate the internal audit
staffs within the function. This finding of the ability to manage the internal audit function implies
that when senior management is in charge of the employment of the CAE of the IAF, the head
could feel reluctant to report issues involving top level management personnel.
The stated hypothesis (H1) has been confirmed by the findings of the study that management of
internal audit activity and funnction is a determinant of internal audit effectiveness.
4.5.2.2 Internal Audit Relationship and Internal Audit Effectiveness (H2)
Moreover, the results in Table 4.23, further displays results relating to the relationship and
statistical significance between internal audit relationship specifically management support and
internal audit effectiveness. The Table presents a positive and highly significant relationship
between management support and internal audit effectiveness (β=0.475 and p-value=0.000). The
results of this research show that when top level management support internal audit activities,
internal audit effectiveness will be high.
In addition, when the public tertiary institution’s top management and council are keen on
supporting the operations and audit process of internal audit, it leads to high IAE (Cohen & Sayag,
2010). Thus, management support is a vital factor of IAE within the public tertiary institutions
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(Mihret & Yismaw, 2007). Clearly, the decisions top management make towards a productive
internal auidting unit includes, the employment of IA staffs, training and career development of
IA staffs, IA budget approval, IA head employment and independent audit process (Cohen &
Sayag, 2010).
This findings is in line with preview studies (Mihret & Yismaw, 2007 ;Alzeban & Sawan, 2013;
Alzeban & Gwilliam, 2014; Endaya & Hanefah, 2016 and Azzali & Mazza, 2018) that IAE is
strongly determined by management support. This finding confirms the hypothesis that top
management and council must support IAF through the approval of appropriate budget and support
the implementation of audit findings and recommendations made to functional units in the
organizations to be able to make IAF effective. Therefore, when internal audit has the needed
resources from top management and council, the function is effective.
Further, the results of this research are in line with the theory of resource which emphasizes on the
relevance of top management support as a resource employed to contribute to IAE (Ahmad, 2015).
Specifically, the managerial factor pillar of this theory addresses issues of management support
and IAE. The result of this construct asserts the importance of the resource- based application to
management support and IAE in this study.
Further, the finding on management support implies that when there exist a close connection with
senior management and the IAF there could be an issue familiarity threat.
4.5.2.3 Internal Audit Resources and Internal Audit Effectiveness (H3)
The regression results displayed in Table 4.23, illustrates the relationship and significant level of
IAF resources and IAE. The Table further presents a positive and significant relationship between
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internal audit resources and internal audit effectiveness (β=0.446 and p-value=0.002). This result
is interpreted as the more resources possessed by an institution’s IA unit, the more effective that
IA unit becomes. The use of information technology as an audit tool for audit engagement
processes forms a crucial resource for IAE because of the ease of performing audit work with such
software (Hass et al., 2006). Further, Alzeban and Gwilliam (2014) noted that staff strength is also
an important resources for the effectiveness of the IAF. This argument establishes the point that
the more internal auditors, the more audit engagements are performed within their planned period
and audit team rotation influence IAE. In addition, when internal auditors are many with respect
to the size of the institution’s employees, it increases the ability of the internal auditors to work on
more audit assignments and successfully rotate audit team members to prevent familiarity over
time. Similarly, a small size internal audit function creates a situation where audit team members
cannot easily rotate over time, thus the same individuals will be involved in the same audit for a
long period of time.
Further, the finding of this research is compatible with prior studies that found a strong relationship
between IA resources and IAE (Hass et al., 2006; Zain et al., 2006; Arena & Azzone, 2009;
Alzeban & Gwilliam, 2014). These studies draw attention to the fact that when more resources
exist within an organization for the IAF, there is a chance that IAE will increase and otherwise in
a contrary case. Certainly, this finding confirms the stated hypothesis H3 of the study.
4.5.3 Findings to Objective Three
4.5.3.1 Corporate Governance Audit Process and Internal Audit Effectiveness (H4)
The findings in Table 4.23 shows a negative and highly significant relationship (p-value=0.000)
between the involvement in governance audit process and IAE. The explanation of this finding
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establishes that institutions that involve in governance audit processes usually have less effect on
IAE.
The results establish that involvement in corporate governance audit is a significant influence in
examining IAE within the Ghanaian public sector. However, when an internal audit unit is engaged
in governance process audit there is low effectiveness due to the reason that the institutions do not
allocate much time and resources to governance audit issues and this leads to a general
effectiveness in the area of executive recruitment contract audit, monitoring top level management
and compliance audit low.
Buttressing this point, according to Sarens, Abdolmohammadi, and Lenz (2012), the Common
body of knowledge (CBOK) research undertaken in 2006 by the IIA, established that many
organizations do not engage in corporate governance audit process and the ones that take part in
this audit process also allocate little working time for this audit activity. Similarly, Leung et al.
(2011), found a weak relationship between corporate governance audit engagements and IAE due
to the small number of IA staffs working the internal audit units. Thus, this study is in line with
literature on corporate governance audit engagements.
This findings is consistent with prior studies (Barry & Asia, 2006; Goodwin-Stewart & Kent,
2006 and Leung et al., 2011; Sarens et al., 2012) that have affirmed the internal auditors have
numerous workloads that they spend their time on and corporate governance issues are not ranked
high due to the time and resources involved in carrying out works of such nature.
Further, the above findings reinstates that internal audits align their programs to suit or capture at
least one or two corporate governance audit activities but such objectives are not apparently
accomplished due to time and resources involved. Thus the resource-based theory comes to play
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as the internal audit unit needs resources to function (Ahmad, 2015). Clearly, due to the inability
of internal auditors to achieve effectiveness from their corporate governance audits, the role and
function of the internal audit unit have been questioned due to the corporate collapses of
organizations, therefore attention has been drawn to audit regarding corporate governance issues.
Moreover, the low involvement in governance process audit could imply that questions about
financial scandals will still be arise because top level management personnel are not been audited.
This finding implies that the financial misconducts which is connected to governance issues of the
institutions will not be easily detected by internal auditors.
The finding of the research affirms the stated Hypothesis H4 that involvement in corporate
governance audit process is a determinant of IAE.
4.5.3.2 Internal Control Audit Process and Internal Audit Effectiveness (H5)
The findings in Table 4.23 indicates that the relationship between involvement in internal control
audit process and IAE turned out to be positive and statistically significant (β=0.330 and p-value
= 0.010).
This finding shows that when an institution is engaged in internal controls audit process, their IAE
is high. Thus, as established by the stated hypothesis and the expected outcomes of the study, the
results indicate that the more internal control audits engaged by the institutions, there is a higher
possibility of a strong relationship between internal control process and IAE. According to Onza
et al., (2015), institutions that employ systematic efforts to improve the effectiveness of their
internal controls, end up spotting and eliminating weaknesses in the institution through internal
controls audit process.
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Further, internal controls audit process includes ensuring that the assets of the institution are
protected, proper authorization is seeks for revenue and expenditure items, proper financial
discipline of the institution and proper expenditure monitoring. Therefore, when the public tertiary
institution’s internal audit unit engages in any of the aforementioned audit, it makes the
institution’s internal audit unit effectiveness in its internal control activities. This argument is
supported by Eden and Moriah (1996), that internal control processes are the pathway through
which internal auditors walk to examine the functions of the organization.
The findings of this study is in line with previous studies (Fadzil et al., 2005; Aikins, 2011; Leung
et al., 2011; Badara & Saidin, 2013; Onza et al., 2015) that internal auditors spend most of their
time on internal control matters which at the local government level is important and effective
system. This result establishes that internal control audit process is a key determinant of IAE which
supports the stated hypothesis H5.
4.5.3.3 Risk Management Audit Process and Internal Audit Effectiveness (H6)
The results from Table 4.23 further establishes that risk management audit process has a positive
but insignificant relationship with internal audit effectiveness (β=0.121, p-value= 0.262).
Therefore, this results is different to the stated hypothesis H6, and the expected results of the study,
illustrates that when an institution engages in risk management audit processes it does not lead to
internal audit effectiveness.
Extent Literature presents mixed results of the construct risk management involvement. First,
existing research as established a positive and significant relationship between risk management
and internal effectiveness (Arena & Azzone, 2009; Leung et al., 2011). Leung et al. (2011),
concluded that internal auditors focus and spend much more time on internal controls and risk
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management processes. Arena and Azzone (2009), focused on applying control risk self
assesssment (CRSA) techniques to test the involvement of the IAF in risk management audit
process and they concluded on a positive and statistically significant relationship.
Second, a positive but insignificant relationship between risk management audit process and
internal audit effectiveness ( Fadzil et al.,2005). Therefore, this finding is in line with prior
literature but not in line with the expectations of the study. The study of Fadzil et al. (2005) asserts
that the role of internal control and risk management is overlapping due to the fact that risk
assessment a component of risk management is embedded in the COSO Framework of internal
control systems (Control Environment, Risk Assessment, Control Activities, Information and
Communication and Monitoring) . Further, Sarens (2009) argues that risk assessment is an integral
aspect of risk management and internal controls, thus engaging in risk management audit is a way
of governing and assessing risky operations.
Nevertheless, the insignificant association could be as a result of the two audit processes internal
control and risk management overlapping or the issue of the Ghanaian tertiary internal audit system
not addressing the issues of risk management well, thus a call to revisit this issue. In line with the
above discussion, hypothesis (H6) is rejected.
4.6 Chapter Summary
This chapter highlights data analyzed and results found from the research. The chapter first gives
a detailed brief descriptive statistics of the data collected, and then made some inferential statistics
based on the evaluation of the measurement and structural model and finally discussed the results
with respect to the research hypothesis. In relation to the measurement of the model, the indicator
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reliability and discriminant validity were all satisfactory. Further, the blindfolding procedure and
variance inflation factor (VIF) results which are structural model criteria were all appropriate.
Further, the results from the model were discussed following the appropriateness of the model.
The findings were in line with the stated hypothesis except for one with relates to risk management
audit process and internal audit effectiveness which had a contra finding. Therefore, Hypothesis
H1, H2, H3, H4 and H5 were accepted and H6 was rejected based on the bootstrapping results.
As indicated from the results, the effectiveness of the public tertiary institution’s internal audit
function improves as the availability of audit resources increase. This is consistent with the
assertions made by Ahmad (2015), that the internal audit department like any other department
within the organization requires resources to survive.
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CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
1.0 Introduction
This chapter of the study highlights the empirical findings of the research. It gives an overall
summary of the study, and then summarizes the findings drawn after a thorough analysis of the
data collected. It further enumerates the implications of the findings and makes some
recommendations for future studies in the area of IAE among Public Tertiary Institutions in Ghana.
This is preceded by study constraints, then conclusions.
5.1 Summary of the Study
Current business risks and financial scandals within governmental institutions have increased
public expectations pertaining to internal auditing been the institution’s first line of defense. The
focus of this study is the Public Tertiary institutions in Ghana. These institutions have established
internal audit departments to check the internal controls surrounding their budgetary control and
public funds monitoring, therefore internal audit effectiveness research in these public institutions
have been advocated for.
The area of internal auditing in particular, quite a number of studies have been conducted on IAE.
However, these studies have mainly focused on IA departmental and individual characteristics that
influence IAE. Despite numerous literature on IAE, it’s still missing empirical studies that focus
on the involvement in audit engagement processes such as corporate governance audit process,
internal controls audit process and risk management audit process of the IAF which this research
has addressed within the public tertiary institutions.
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It is apparent from literature that organizational characteristics play a role in internal audit
effectiveness. Therefore, empirical studies have mostly focused on factors such as management
support and resources as influencing characteristics of IAE. As a result of the above, this study
adds the management ability of the IAF head as an organizational characteristics of IAE and has
addressed this issue. Hence, this study hypothesized that, management of IA activities influences
IAE.
Further, empirical studies have found that there is limited evidence of an acceptable measure of
IAE due a number of scholars scrutinizing and adding new knowledge to the topic on a frequent
basis. Therefore, this study employs the percentage of planned audit executed as a measure of IAE.
Nevertheless, this study adopted the resource-based theory to explain the research framework. This
theory analyses how institutions link their internal resources and capabilities with their set
strategies. The research framework used considers the audit processes engaged in by internal
auditors and their organizational influences on IAE.
This research adopted the quantitative method approach, specifically the survey design to collect
data. The research instrument used was adopted from existing literature for the development of the
questionnaire for the study. The questions on the constructs were on a seven points Likert scale
ranging from 1 to 7. The respondents being the internal audit department head was required to
score each item. Out of 90 questionnaires sent out to the 90 public tertiary institutions in Ghana,
only 75 filled questionnaires were received and used for data analysis. This study used the PLS-
SEM to analyse data collected. With PLS-SEM, the study tests the reliability and validity of the
model and it was adequate. Further, hypotheses were tested and their predictive ability and
relevance were examined.
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Based on the significance of the independent constructs on IAE, major findings, implication and
recommendations were extracted from the results.
5.2 Major Findings of the Study
This section provides the major finding of this research. These results will be discussed in turns;
internal audit effectiveness measurement, organizational influence issues and audit processes.
First, the study revealed that the public tertiary institution has an average score of 20% internal
audit effectiveness. This empirical evidence shows that the medium- low percentage score of
effectiveness of public tertiary institutions in Ghana has certain implications to internal audit
effectiveness.
Second, the finding for this investigation shows that the sampled institutions have a senior internal
auditor who is in charge of all the affairs of the IAF. Evidence shown that the heads of IAE apply
an attitude of professionalism in their daily management of the department in order to manage,
report on fraud risks and governance issues, draw up an appropriate audit plan and deploy
resources will improve IAE.
Third, evidence of this research suggests that management’s ability to support the initiative of the
IAF is very crucial to the performance of the function. Thus, this situation requires the IAF work
closely with senior management to be able to channel concerns and issues to them.
Fourth, evidence shows that IA budget, staffs and IT software are critical resources that influences
its effectiveness. Further, the finding reveal that the findings, the size of the IAF is too small to
execute duties, consequently majority of the institutions employ below three (3)auditors to be in-
charge of audit duties.
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Fifth, the results of the research indicates that corporate governance issues are crucial to the success
of an institution but little attention is given to this type of audit engagements within the
understudied institutions. It appears that within the overall audit framework, works in this area was
not ranked highly due to the fact that corporate governance audit activities planned for are not
apparently accomplished due to time and resources involved the this audit.
Sixth, the finding reveal that more time and resources are spent on internal controls audits
engagements.
Last, the finding implies that risk management audits are more focused on the risk assessment
aspect of risk management which is also an aspect of internal controls. Therefore, the institutions
do not engage extensively in risk management audits. Similarly, there is little resources to focus
on risk management audit which takes quite a lot of time and resources.
Moreover, it is evident as all the above variables in the study model showed that internal audit
resources are required in the areas of internal audit engagement process (corporate governance
audit, internal controls audit and risk management audit), management support, internal audit
resources and the ability to manage internal audit function. Clearly, the findings of the study
indicated that all audit and non- audit objectives formulated by the internal audit function is based
on the availability of resources at the disposal of the department (Coetzee & Lubbe, 2014).
Certainly, the application of the resource- based theory to this study best suits the findings of this
study.
The next section presents the consequences drawn from the results of the study.
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5.3 Implications of the Study
This research has several implications that emanated from the above-mentioned results. First, the
implication of the medium- low level effectiveness of the IAF could be attributed to high number
of auditable areas presented in the annual plan and lack of resources (staff expertise, working time
and working tools) to perform the work.
Second, the finding of the ability to manage the internal audit function implies that when senior
management is in charge of the employment of the CAE of the IAF, the head could feel reluctant
to report issues involving top level management personnel due threat of intimidation.
Third, the findings on management support implies that when there exist a close connection with
senior management and the IAF there could be an issue familiarity threat. Thus, this issue could
give rise to familiarization between IAF members and senior management, as internal audit may
be discreet in matters reported to senior management.
Fourth, the low involvement in governance process audit could imply that questions about
financial scandals will still be arise because top level management personnel are not been audited.
This finding implies that the financial misconducts which is connected to governance issues of the
institutions will not be easily detected by internal auditors.
Last, the issue of institutions spending more time and resources on internal control audit activities
could imply that less time and resources will be allocated to the rest of the audit engagements of
the institution.
Given the major findings and implications of these findings, the next section highlights the
recommendations of each implication.
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5.4 Recommendations of the Study
The recommendations of the research are highlighted below; First, in order to overcome the issue
of low level of the effectiveness of the IAF, institutions should ensure the adherence to the adoption
of the approved (9) trust audit areas developed by the IAA in the preparation of the annual audit
plan.
Second, in order to overcome this issue of threat to independence faced by the managing personnel
of the IAF due to senior members employing them, the head should report risk, governance and
internal control matters to the top level management. There should be a clear and direct reporting
responsibility of the head of IAF. Further, the heads of the internal audit units should take seriously
their social capital otherwise familiarity threats would set in.
Third, in order to overcome the issue of conflict of interest between senior managers and internal
auditors, the IAF must maintain a healthy and professional relationship with senior management
in order to be independent in audit work performance.
Last, resources availability is crucial to support the number of governance process audits in the
annual plan to enable a successful audit engagement and expand their governance audit
engagements and allocate more time for such audits in future.
Having analyzed the implication from the study’s empirical outcomes and offered some
suggestions to this implication, the next section highlights the contributions academia, practice
and policy making of internal auditing in Ghana.
5.5 Contributions of the Study
This research contributes to academia by examining internal audit involvement in corporate
governance process, internal control process and the management of an IAF as variables that
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influences internal audit effectiveness in Ghana. Moreover, applying the resource-based theory
helps emphasize the significance of resources in the achievement of IAE.
In addition, this study contributes to practice by helping the internal audit agency to formulate
audit strategies that regards the aspects of audits to be performed by the internal audit units (ethics,
governance and control and risk management) and resource allocation the internal audit function
which will assist the work of the internal audit unit of the public tertiary education sector in
ensuring IAE. Further, audit strategies of audit actions and services coordination which applies to
the issue of majority of the institutions understudied not following the “trust areas” published by
the Agency for the institutions to follow and draw their audit plans.
Nevertheless, this research also contributes by helping policymakers in assessing and evaluating
of public internal auditing in areas such as audit function services performed within the public
sector to ensure IAE. Policy makers can use the evidence presented in this study to identify some
of the actions to take to hold the public institutions accountable for their resources utilized, audit
function performed in line with the plan audit and the weakness in the internal audit function.
5.6 Limitations of Study
The scope of this work did not cover other organizational characteristics that influence of IAE
such as political and cultural factors. This research is constrained only to the public sector not
private sector. Moreover, the sample institutions covered only tertiary institutions. Further, this
study adopted the quantitative research approach to analyze data collected. Another issue of
weakness relates to the measurement instrument of the factors that influence IAE being
susceptibility to social desirability bias.
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5.7 Suggestions for Future Studies
Being mindful of the abovementioned limitations, suggestions for further studies are highlighted
below. First, future studies should consider the use of qualitative methods to identify the various
measures of IAE within the public sector. In view of this other actors will be included in the data
collection to be able to explore in totality IAE issues in the public tertiary educational institutions
and other institutions where internal audit effectiveness is significant.
Further, future research can adopt the resource-based theory for studying IAE in the private
sector since resources are crucial for the IAF’s effectiveness.
5.8 Conclusion
This chapter represents the final chapter of this research. This chapter highlights the summary of
the work, major findings, implications and recommendations, contributions, limitations of the
study and suggestions for future studies in details.
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APPENDIX
A. QUESTIONNAIRE
UNIVERSITY OF GHANA BUSINESS SCHOOL DEPARTMENT OF ACCOUNTING
ORGANIZATIONAL AND AUDIT CHARACTERISTICS OF INTERNAL AUIDT
EFFECTIVENESS WITHIN THE PUBLIC TERTIARY INSTITUTIONS.
QUESTIONNAIRE FOR HEADS OF INTERNAL AUDIT UNITS
This questionnaire is meant to solicit information regarding “The influence of Organizational
characteristics on internal audit effectiveness (IAE) in the Public Tertiary institutions in Ghana”.
This study is a for the Master of Philosophy (MPhil) award. We therefore seek your maximum
co-operation and assure you that any information provided will be treated with confidentiality.
Please respond by ticking the appropriate box with [√] or comment where necessary. Thank you
for your co-operation.
SECTION A
Background information
1. Job title:
2. Gender: Male [ ] Female [ ]
3. Educational Qualification (tick as many as applicable)
Doctorate’s degree [ ] Master’s degree [ ] Bachelor’s degree [ ] HND [ ]
4. Professional Qualification
ICAG [ ] ACCA [ ] CIA [ ] CPA [ ] CIMA [ ] other (s) please
specify………….
5. How many years have you been working as director of internal audit
Below 5 years [ ] 6-10 years [ ] 11- 15 years [ ] 16 years and above [ ]
6. Do you have any work experience in internal auditing: Yes [ ] No [ ]
7. Type of educational institution (tick the one applicable)
University [ ] Polytechnic [ ] College [ ] Technical University [ ]
Professional Institutions [ ] Training College [ ]
8. Regional Location of School
Greater Accra [ ] Central [ ] Eastern [ ] Western [ ] Ashanti [ ] Volta [ ]
Northern [ ] Upper East [ ] Upper West [ ] Brong Ahafo [ ]
SECTION B
9. How many broad audit areas were in 2018 annual audit plan? ………………………….
10. How many of these planned audit areas are involved in;
Corporate Governance Processes…………………..
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Risk Management Processes…………………….....
Internal Control Processes………………………….
11. How many audit areas are executed within 2018? ……………………….
12. How many of these executed audit areas are involved in;
Corporate Governance Processes…………………..
Risk Management Processes…………………….....
Internal Control Processes………………………….
13. How many Request audits are received which are not in the annual audit plan?
………………….
14. How many of these Request audits are executed with the year 2018?
……………………………
SECTION C
Competence of Internal Audit Department
15. What is the total number of employees in your institution? ...........................
16. What is the total number of internal auditors in your department? ...........................
How many of them are Administrative staffs? …………………………….
How many of them are involved in Direct Audit? ............................................
17. Internal audit is large enough to successfully carry out its duties and responsibilities?
Yes [ ] No [ ]
18. Do you neglect some of the internal audit duties due to the size of the internal audit
department Yes [ ] No [ ]
19. Do you neglect some of the internal audit duties due to request audits? Yes [ ] No [ ]
SECTION E
Organizational characteristics in terms of organizational governance, controls and risk
management and Management of Internal audit unit that influences internal audit
effectiveness.
20. Organizational Governance
Please indicate the extent to which you strongly disagree (1) or strongly agree (7) with the
following statement regarding the extent to which internal audit influences organizational
governance
Organizational Governance 1 2 3 4 5 6 7
OG1 1. Internal audit improves governance process through
effective organizational performance management and
accountability
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OG2 2. Internal audit communicates risk and control
information to appropriate areas of the organization
OG3 3. Internal audit promotes appropriate ethics and values
within the organization
OG4 4. Internal audit accesses the information technology
governance of the organization supports the
organization’s strategy
OG5 5. Internal audit gets attention of council and
management
OG6 6. Internal audit ensures organizational resources
accountability
OG7 7. Internal audit provides a complete overview of
departments, problems, incentive policy and monitor
improvements of the organization
OG8 8. Internal audit follows up on recommendations made
to management and council in order to measure progress
of implementation
OG9 9. The internal audit department assists the management
in fulfilling strategic and operational objectives of the
institution.
21. Organizational Risk Management
Please indicate the extent to which you strongly disagree (1) or strongly agree (7) with the
following statement regarding the extent to which internal audit influences organizational Risk
Management
Organizational Risk Management 1 2 3 4 5 6 7
ORM1 1. Internal audit evaluates the potential occurrence of
fraud and how the organization manages fraud risk
ORM2 2. Internal audit communicates risk and control
information to appropriate areas of the organization
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ORM3 3. Internal audit evaluate and improves the effective
and effectiveness of organizational risk management
ORM4 4. Internal audit is alert to the significant risks that
might affect objective, operations and resources of the
organization
ORM5 5. Internal audit facilitates risk assessment through risk
self- assessment techniques
ORM6 6. Internal audit evaluates risk associated with new
computing developments, construction and
procurements activities and stops the project if risk are
not controlled
ORM7 7. Internal audit assists management in implementing a
risk model across the organization
ORM8 8. Internal audit assess existing risk of audited area and
report that assessment to management, audit
committee
ORM9 9. Internal audit ensures that the institution complies
with regulatory requirement
22. Organizational Control
Please indicate the extent to which you strongly disagree (1) or strongly agree (7) with the
following statement regarding the extent to which internal audit influences organizational
Controls
Organizational Control 1 2 3 4 5 6 7
OC1 1. Internal audit incorporates knowledge of controls
gained from engagements into evaluation of the
organization’s control processes.
OC2 2. Internal audit evaluates the reliability and integrity of
financial and operational information
OC3 3. Internal audit activity assists the organization in
maintaining effective controls by evaluating their
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effectiveness and efficiency to promote continuous
improvement.
OC4 4. Internal audit reviews the means of safeguarding
assets
OC5 5. Internal audit test compliance with controls in
functional areas
OC6 6. Internal audit assists management in preparing a
report on the effectiveness of internal controls
OC7 7. Internal audit adopts systematic approaches to
evaluate and improve the effectiveness of the
institution’s internal control processes
23. Management of Internal Audit activity
Please indicate the extent to which you strongly disagree (1) or strongly agree (7) with the
following statement regarding the extent to which internal audit influences the management of
internal audit activity
Management of Internal Audit activity 1 2 3 4 5 6 7
MI1 1. Internal audit gives report to council on periodic
activity, purpose and performance relative to plans
MI2 2. Internal audit ensures that audit resources are
appropriately, sufficiently and effectively deployed to
achieve approved plans
MI3 3. Internal audit has established policies and procedures
to guide audit work
MI4 4. Internal audit activity is managed effectively to ensure
it adds value
MI5 5. Internal audit plans, resources and requirement are
communicated and approved by the council/
management
MI6 6. Internal audit develops appropriate audit plans
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24. Management Support for Internal Audit Activities
Please indicate the extent to which you strongly disagree (1) or strongly agree (7) with the
following statement regarding the management support for internal audit activities.
Management Support for Internal Audit Activities
1 2 3 4 5 6 7
MS1 1.Senior management supports internal audit to perform
its duties and responsibilities
MS2 2.Senior management are involved in the internal audit
plan
MS3 3.Internal audit provides senior management with
sufficient, reliable and relevant reports about work
performed and recommendations made
MS4 4.Internal audit department has sufficient budget to
successfully carry out its duties and responsibilities
25. Internal Audit Resources
Please indicate the extent to which you strongly disagree (1) or strongly agree (7) with the
following statement regarding the internal audit resources needed.
Internal Audit Resources 1 2 3 4 5 6 7
IR1 1.Internal audit work is performed with modern
technology that uses computerized data pools and
specific IA software
IR2 2. Internal audit can conveniently rotate audit team given
the present audit staff size
IR4 4. Internal audit unit has enough office space for auditors
IR5 5. Internal audit has in possession vehicles to support
audit activities
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B. LIST OF PUBLIC TERITARY INSTITUTIONS IN GHANA
Type of Institution Number
Universities 11
Polytechnics 2
Training Colleges 24
Technical Universities 8
Professional Institutions 16
Colleges of Education 29
Total 90
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