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THE ROLE OF INTERNAL AUDITOR IN PROMOTING GOOD GOVERNANCE AND

SERVICE QUALITY IN THE PUBLIC INSTITUTIONS OF GHANA

Author

ANKOMAH-DARKO CHARLES

(10235934)

Christian Service University College

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The Government of the Republic of Ghana by the Internal Audit Agency Act, 2003 (Act 658)

established the Internal Audit Agency “as an apex oversight body to co-ordinate, facilitate and

provide quality assurance for Internal Audit activities within the public institutions” (Section 16

of Act 658). It is also to add value and improve the operations of public institutions.

The Internal Auditor’s value lies in how well it has been able to contribute to the achievement of

the overall organizational objectives. The Internal Auditor should constantly seek to make

himself relevant to his organization by providing information that will make management take

decisions that impact positively on their ability to achieve the organizational goals.

The Act requires that all MMDA’s employ competent internal Auditors to ensure efficient and

effective internal auditing in these public institutions. The role of the internal auditors as defined

by the Financial Administration Memoranda issued in 2004 requires that they exercise control

over expenditure. The Internal Audit Agency facilitated the recruitment of internal auditors to

132 out of the 169 MMDA’s in 2009.

All over the world, there is a realization that the Internal Audit activity has the potential to

provide hitherto unparalleled services to management in the conduct of their duties. This

potential has been turned into a challenge and embodied in the new definition of Internal

Auditing from the Institute of Internal Auditors (IIA).

Internal Auditing has gained so much importance that conducting it has been made mandatory by

regulators for listed and other specified companies. Internal Audit began in modest manner

during the Second World War when organisations found it difficult to maintain operational

efficiency and control. Companies appointed special staff (i.e. present day internal auditors) to

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review operations and report to them .The task assigned to internal auditors varied from routine

check on finance and operations to appraisal of financial and operational activities.

Earlier, internal audit was largely voluntary, management appointed internal auditors when they

felt the need. With increased complexities in business, frauds and scams, internal audit has

become essential for most organisations. Be it Security and Exchange Commission (SEC) in

United States or Security and Exchange Board of India (SEBI) in India, regulators are

prescribing mandatory internal audits. The range of activities undertaken by internal audit teams

has increased. They cover a whole gamut of operations ranging from review of finance and

operations to providing assurance and consulting services.

A research and surveys conducted by Deloitte & Touche (2004) and the Internal Audit Agency

of Ghana (2006), much of the work of Internal Auditor has been very restrictive in terms of

scope. This needs to be addressed if the required return on investment and public institutions

financial management in the Internal Audit activity is to be attained, good governance and

service quality will also be promoted.

1.2 PROBLEM STATEMENT

Public institutions managers do not support Internal Audit. Failure of management of most

MMDA’s to put Internal Auditors in proper managerial position and give them the recognitions

which they deserve by the nature of their work, in most cases there is a big question mark on the

Internal Auditor’s independence.

Internal Auditors are seen as more of fault finders rather than solution providers, this

unfortunate background continues to play down the importance of Internal Audit as a key

function that can strengthen the oversight responsibility of the governing body and partners in

the Government’s strive for organizational excellence and service quality.

Internal Auditors function is moving away from the traditional check and tick approach to risk-

base and consultation approach which bring lot of challenges to current breed of internal

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Auditors. Most times, the absence of inadequate training has resulted in unsatisfactory

performance and poor documentation of tasks that are carried out by internal auditors in the

MMDA’s making internal control mechanism suffer.

Most often than not, the budget of the Internal Audit Unit, if any exist at all, is woefully

inadequate to enable them meet the resource requirements of their annual audit plans.

Justice Isaac Duose, Chairman of the Presidential Enquiry Commission probing the Ghana @ 50

activities, made a statement on the national television which was reported in the Daily Graphic

on the 4th

of August 2009 concerning the documentation of financial records in the public

institutions. According to him, the regions that had presented their reports on the Ghana @ 50

celebrations were disappointing and there was the need to give them ample time to put their

house in order before appearing before the commission. This gives an obvious picture of the kind

of control measures and state of internal control systems that exist in the public institutions.

Therefore in order to have an effective implementation of the internal audit function to promote

good governance and service quality to attain corporate objectives, the preparation of this report

is very crucial.

1.3 RESEARCH OBJECTIVES

The objectives of the study are as follows:

1. To identify the impeding factors that hinder the internal audit function in the public

institutions not to perform its role in enhancing good governance (if any)?

2. Identify specific actions required to secure support of management for the Internal

Audit Activity.

3. Investigate to what extent internal auditors are involved in auditing the effectiveness

of the governance structure of the organization

4 To establish the relationship between the role of the Internal Auditor and the District

Chief Executives in promoting good governance and service quality in the public

institutions.

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1.4 RESEARCH QUESTIONS

1. What account for the low support for Internal Audit by public sector managers?

2. What actions are necessary to get the support of management to internal auditing in

the public sector?

3. What are the major lapses in financial management within the public institutions?

4. Is there a relationship between the role of the Internal Auditors and the Chief

Executives in promoting good governance and quality management in the public

sector?

1.5 SIGNIFICANCE OF THE STUDY

The significance of the study is to:

1. Improve public understanding of the role of the Internal Auditor in promoting good

governance and service quality in an organisation.

2. Improve literature on public institutions Internal Auditing in Ghana.

3. Fulfill the Bachelor of Business Administration (BBA) requirement.

1.6 SCOPE AND LIMITATION OF THE STUDY

We encountered some problems in the process of collecting information and data for this

research work particularly the inability of the selected Assemblies in releasing some information

to us , however with this slight impediment, we were able to work with the little information that

was furnished to our email and handled to us.

Another noticeable limitation is the factor of time and financial constraints; much of secondary

data has been used in this present study. If there had been enough time available, more MMDAs

would have been surveyed to gather more primary data.

In conclusion, we dealt equally with all our items in the survey. Some may have weighed more

than others which may have provide us with some misleading results.

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1.7 DEFINITION OF TERMS

Auditing: An official examination and verification of accounts and records especially of

financial account.

Internal Auditing: It is defined ad an independent, objective assurance and consulting

activity designed to add value and improve an rganization’s operation.

Governance: It describes the process of decision – making and the process by which

decisions are implemented

Service Quality: It is the different between customer expectations of service and

perceived service.

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CHAPTER TWO

LITERATURE REVIEW

2.1 THE LOCAL GOVERNMENT SYSTEM IN GHANA

According to the Ministry of Local Government, Rural Development and Environment, the local

government system consists of a Regional Co-ordinating Council, a four-tier Metropolitan and a

three-tier Municipal/District Assemblies Structure. The District Assemblies are either

Metropolitan (population over 250,000), Municipal (population over 95,000) or District

(population 75,000 and over). And there are 3 Metropolitan Assemblies, 4 Municipal Assemblies

and 103 District Assemblies.

The Ministry exists primarily to ensure good governance and balanced development of

Metropolitan/Municipal/District Assemblies through the formulation and implementation of

policies on Governance, Rural Development and the Environment.

www.localgovernment.gov.gh/?page=Aboutus

According to the ministry of local government, rural development and environment, the role of

MMDA’s are as follows:

Created as the pivot of administrative and developmental decision-making in the district

and the basic unit of government administration.

Assigned with deliberative, legislative as well as executive functions

Established as a monolithic structure to which is assigned the responsibility of the totality

of government to bring about integration of political, administrative and development

support needed to achieve a more equitable allocation of power, wealth, and

geographically dispersed development in Ghana.

Constituted as the Planning Authority for the District.

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2.2. INTERNAL AUDITING

2.2.1 History and background of Internal Auditing

Auditing has its origin in Africa, Egypt where it was practice in the Pharaoh’s Council. From

Egypt it was introduced into Persia where it was called “The King’s Eyes and Ears” from Persia

it spread to Rome. The English people also adopted the practice when they defeated the Romans

in the 15th

Centaury. From English auditing was introduced by British Accounting firms into the

USA, precisely in the 1879 at the request of investors who wanted to protect their invested

capital. The practice was further introduced in Canada in 1879 and incorporated in 1902 in the

country as a legal requirement in business transaction (Adu-Gyemfi, 2006)

In 1930s, growth and expansion made it increasingly difficult for organizations to maintain

control and operational efficiency. The World War further expanded organizations’

responsibilities for scheduling, managing with limited materials and labourers, complying with

government regulations, and an increased emphasis on cost finding. It was difficult for

management to observe all the operating areas or be in touch with everybody. Then, special staff

was appointed to report on happenings in the company who later came to be known as ‘Internal

Auditors’. (radukia@vsnl.com/).

The internal auditing function varied greatly between organisations and a number of internal

auditors pushed vigorously for greater understanding and recognition of the internal auditing

function. One such person was John B. Thurston, head of the internal auditing function at the

North American utility company. He is credited with being the person most responsible for the

creation of The Institute. He was joined by Robert B. Milne, general auditor of the Columbia

Engineering Corporation, and Victor Z. Brink, a former auditor and Columbia University

educator who authored the first major book on internal auditing. They gathered friends and

associates from the utilities industries, public accounting firms, and other industries, 25 of whom

agreed to participate in forming a new organization for internal auditors.

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On November 17, The IIA’s Certificate of Incorporation was filed which officially established

The Institute of Internal Auditors’ name; recognized The Institute as a membership corporation;

and identified corporation’s specific purposes.

Although accounting and auditing has not been practiced in Ghana, it was the passing of the

Companies Code Act 179, (1963) which gave it legal recognition in the country.

2.2.2 Definition and Nature of Internal Auditing

“Internal Auditing is an independent, objective assurance and consulting activity designed to add

value and improve an organization’s operations. It helps an organization accomplish its

objectives by bringing a systematic, disciplined approach to evaluate and improve the

effectiveness of risk management, control, and governance processes” IIA, (2007).

This definition was crafted in an atmosphere of controversy over several of its terms (such as the

removal of the prior statement that internal audit was ‘within the organization’ in recognition of

the possibility for outsourcing) in 1999. We are now ten years on and it has aged well. While

there are still a number of voluble individuals who disagree that auditors should perform

consulting activities, they are in the minority.

Fundamentally, internal auditing exists to provide “assurance” to senior management and the

audit committee that certain things are working effectively as intended: the organization’s

governance, risk management, and related internal control systems and processes.

Deloitte & Touche (2009) states “certain functions (e.g., internal audit, risk management,

compliance, etc.) provide objective assurance as well as monitor and report on the effectiveness

of an organization’s risk program to governing bodies and executive management”. A key

responsibility is to provide “comfort”, which is essentially providing reasonable assurance that

the organization’s risk management and internal control processes operate effectively - thereby

helping the executive team and board members sleep at night.

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Building on this expectation, Tim Leech, a respected internal auditor and blogger for the IIA,

wrote in April 2009 that internal auditors have one primary reason for being, ensuring that

“senior management and the company’s directors are fully apprised of the organization’s current

residual risk status”. In other words, audits should not focus solely on assessing the quality of

the controls, but instead address the quality of risk management and the health of the internal

controls relied upon to manage risk. It is the job of senior management and the board to be aware

of and continually monitor the acceptability of, local or operating management’s residual risk

acceptance decisions. (Leech T.2009). Too often, internal auditors determine what is

“acceptable”; this is not their role. It is the responsibility of the board to set organizational risk

tolerance, management to operate within that level, and internal audit to provide assurance that

the key risks are being managed (through the operation of internal controls) within the tolerances

established by the board.

The IIA definition was advanced thinking for its time and internal auditors are still wrestling

with how they can provide assurance over not only the system of internal controls for the

organization, but also its risk management and governance processes. The IIA has been

producing guidance and related training on the topics of auditing, governance and risk

management, but even ten years after the definition was approved few are performing audits of

those areas and providing overall assurance to the board and executive management. We support

the continued development of practice advisories, practice guides, training and other information

to help the profession ‘catch up’ with the ten-year old requirement to audit governance and risk

management. Perhaps additional motivation to address risk management and governance

objectives will be driven by external quality assurance reviewers who understand and apply the

definition of internal auditing.

According to a research jointly conducted by Deloitte & Touche and the Institute of Internal

Auditors, U.K., (2004) “improved attitudes toward internal audit are built on a belief that internal

audit functions are creating greater value for their organizations”. The value of the modern day

internal auditor lies in his ability to help management to achieve its’ objectives.

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The Auditing Practices Board and Auditing Guidelines offer the following:

‘An independent appraisal function established by the management of an organization for the

review of the internal control system as a service to the organization. It objectively examines,

evaluates and reports on the adequacy of internal control as a contribution to the proper,

economic, efficient, and effective use of resources.’

2.2.3 Role of the Internal Auditor

According to Deloitte & Touche and the IIAs, U.K., the major roles of the internal auditor are

stated below

Evaluates and provides reasonable assurance that risk management, control, and

governance systems are functioning as intended and will enable the organization’s

objectives and goals to be met

Reports risk management issues and internal controls deficiencies identified directly to

the audit committee and provides recommendations for improving the organization’s

operations, in terms of both efficient and effective performance

Evaluates information security and associated risk exposures

Evaluates regulatory compliance program with consultation from legal counsel

Evaluates the organization’s readiness in case of business interruption

Maintains open communication with management and the audit committee

Teams with other internal and external resources as appropriate

To continuous review of financial statement and related documents.

Engages in continuous education and staff development

Provides support to the company's anti-fraud programs.

To check whether the internal control system of the enterprise is effective and it is in

place. Whether the internal control system has any loopholes and steps to improve

internal controls.

To report to the Board of Directors whether the policies and procedures with inherent

controls and relevant rules and regulations are being adhered to. In addition to this

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internal auditor is also expected to add value to the processes and procedures of the

organization which shall maximize profit and safeguard assets.

2.3 GOOD GOVERNANCE

According to the professional guidance of the Institute of Internal Auditors (IIA), public

institutions governance encompasses the policies and procedures used to direct an organization’s

activities to provide reasonable assurance that objectives are met and that operations are carried

out in an ethical and accountable manner. As indicated under Figure 1, governance in the public

institutions relates to the means by which goals are established and accomplished to address the

needs and expectations of several stakeholders.

Participant Activity Goals Accountability

Figure 1: Organizational Governance

Source: Hermanson, L. & Rittenberg, E. 2003)

Beneficiaries of organizational

Governance

Stockholders

Investors

Lenders

Suppliers

Citizens

Charitable contributors

The broader public

Management

Board of directors

Audit committee

Internal and External

audit

Regulators /association

Managing of risk

Assurance

regarding control

Achievement of

organizational

goals and

presentation of

values

Accountable

to

stakeholders

for effective

stewardship

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A landmark study by the World Bank, (1998), demonstrated the crucial role that good

governance plays in enhancing the effectiveness of aid. The study found that, where there is

sound country management, an additional one per cent of GDP in aid translates into a one per

cent decline in poverty and a similar decline in infant mortality – whereas in a weak policy and

management environment aid has much less impact. Findings like this clearly indicate that, the

‘returns’ from development assistance are generally greater in developing countries characterized

by good governance.

Good public governance also underpins good corporate governance. Good public governance is

the bedrock for stable and successful economies. The same underlying principles that are found

in public governance also apply in their standards for good corporate governance.

It also includes activities that ensure a government’s credibility, establish equitable provision of

services, and assure appropriate behavior of government officials to reduce the risk of public

corruption IIA, (2006).

Over the past years, there has been a loud call for “good governance” of organizations. This call

began with a focus on major public companies and has expanded to cover a broad range of

organizations. As indicated in Figure 2, at least three key factors underlie the call for improved

governance— organizational disasters (that can be caused by corruption, fraud, bankruptcy, etc),

changes in ownership patterns, and the legal environment.

Key factors underlying call for improved governance

Continuing organizational

disaster

(Fraud, bankruptcy etc,)

Changes in share

ownership patterns

(Institutional investors)

Legal environment

(Class action suits)

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Figure 2: Demand for Governance

Source: Hermanson, L. & Rittenberg, E. (2003)

Good governance is also an essential precondition for sustainable development. Various

countries that are quite similar in terms of their natural resources and social structure have shown

strikingly different performance in improving the welfare of their people. Much of this is

attributable to standards of governance. Poor governance stifles and impedes development. In

countries where there is corruption, poor control of public funds, lack of accountability, abuses

of human rights and excessive military influence, development inevitably suffers.(Downer 2000)

2.4 THE ROLE OF INTERNAL AUDITOR IN PROMOTING GOOD GOVERNANCE IN

THE PUBLIC INSTITUTIONS

Many researchers and organisations have identified the role at which internal auditors play in

promoting good governance in the public institutions. The United Nations has identified the

basic characteristics for good governance in the public institutions. Among these core elements

of good governance in the public institutions, the internal auditor’s role can emphatically focuses

on the functioning and performance of the public institutions. The four related characteristics of

good governance are transparency, public accountability, effectiveness/efficiency and

responsiveness. As a result, the internal auditor’s role has always been viewed as an integral part

of the government financial management and increasingly as an instrument for improving the

performance of the government sector. Government auditing is a cornerstone of good public

institutions governance. By providing unbiased, objective assessments of whether public

resources are responsibly and effectively managed to achieve intended results, auditors help

government organizations achieve accountability and integrity, improve operations, and instill

confidence among citizens and stakeholders.

The government auditor’s role supports the governance responsibilities of oversight, insight, and

foresight. Oversight addresses whether government entities are doing what they are supposed to

do and serves to detect and deter public corruption. Insight assists decision-makers by providing

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an independent assessment of government programs, policies, operations, and results. Foresight

identifies trends and emerging challenges. (IIA 2006)

To fulfill each of these roles, auditors use tools such as financial audits, performance audits, and

investigation and advisory services as presented under Figure 3 (Hermanson, R. & Rittenberg,

E.2003; IIA, 2006).

Figure 3: Nature of Internal Audit Activity

Source: Hermanson, L. & Rittenberg, E. (2003)

2.5 FACTORS FOR THE EFFECTIVENESS OF PUBLIC INSTITUTIONS AUDIT

ACTIVITIES

The professional guidance of the Institute of Internal Auditors (IIA), states that an effective

public institutions audit activity strengthens governance by materially increasing citizens’ ability

to hold their government accountable. Internal Auditors perform an especially important function

in those aspects of governance that are crucial in the public institutions for promoting credibility,

equity, and appropriate behavior of government officials, while reducing the risk of public

corruption. Therefore, it is crucial that government audit activities are configured appropriately

and have a broad mandate to achieve these objectives. The audit activity must be empowered to

act with integrity and produce reliable services, although the specific means by which auditors

achieve these goals vary. At a minimum, government audit activities need organizational

independence, audit charter, unrestricted access to any forms of audit evidences, sufficient

Role of internal auditor

Risk Assessment

Providing

Assurance

Regarding Control

Compliance

Consulting &

Operations

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funding, competent leadership and staff, existence of audit committee, stakeholders’ support,

audit standards and unlimited scope.IIA (2006)

2.6.1 Organizational independence

Organizational independence allows the audit activity to conduct work without interference by

the entity under audit. The audit activity should have sufficient independence from those it is

required to audit so that, it can both conduct its work without interference and be seen to be able

to do so. The historical reporting relationship between Internal Auditing and the finance unit

began to change during the latter 20th century (Chair, M. 2003). The chief Finance Officers as

well as other heads of business units continues to need to know what is right and wrong with

their finances and operations within their scope of company responsibility. The increasing

frequency of financial reporting and external auditing failures, however, motivated the Internal

Auditing profession to seek greater independence for its actions and judgments. As a result, in

countries where the role of internal audit is highly valued functional reporting preference has

shifted from current senior officers to the Board or Audit Committee and administrative

reporting preference is extend to the Board or Audit Committee and retain the present report

links with senior management (Chair, M. 2003). But the question to be raised from our countries

perspective is that is the administrative and functional reporting of the internal audit function

clearly defined in the Audit Charter of public institutions of Ghana?

2.5.2 A formal mandate (Existence of approved audit charter)

As per the IIA pronouncements, in every type of entity, the Audit Committee should develop

appropriate Internal Audit Charter that specifies on how the Internal Audit function could be

administered and approved by senior management. The government’s constitution, charter, or

other basic legal documents should establish the audit activity’s powers and duties. The existence

of proper audit charter helps the audit function to perform its role independently of management

influence and objectively. It is not clear which Ghanaian law requires public bodies to define the

administrative and functional reporting, the right that auditors have in executing their duty, their

remuneration, performance appraisal, etc in the form of audit charter.

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2.5.3 Unrestricted access

Audits should be conducted with complete and unrestricted access to all forms of audit evidences

like employees, property and records.

2.5.4 Sufficient funding

The audit activity must have sufficient funding relative to the size of its audit responsibilities.

This important element should not be left under the control of the organization under audit

because the budget impacts the audit activity’s capacity to carry out its duties.

2.5.5 Competent leadership

The management of the internal audit function is critical to its effectiveness. In many countries,

management of the internal audit function is often poor work practice, lack of planning and weak

personnel management system. Moreover, management is constrained by the institutional

management for internal audit function, which often compromises the role of the internal audit as

an aid to internal management (Diamond J, 2002).

2.5.6 Competent staff

Competency of auditors determines the quality of the audit work performed in an organization.

Competency is measured in terms of academic level, experience, skill and the effort of staffs for

continues professional development. Competency determines the efficiency of the auditor in

setting a systematic and disciplined approach to evaluate and improve the effectiveness of risk

management, control, and governance processes. Given this situation, how competent are the

internal auditors working in public institutions of Ghana to assess the governance system

adopted in the public institutions?

2.5.7 Existence of Audit Committee

Independency and objectivity of internal audit function depends on to whom it reports to. In an

organization where there is audit committee, the internal audit function should report to the audit

committee. Is it legally mandatory to have Audit Committee in public institutions of Ghana so

that independency and objectivity of internal auditors could be maintained?

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2.5.8 Stakeholder support

The legitimacy of the audit activity and its mission should be understood and supported by a

broad range of elected and appointed government officials, as well as the media and involved

citizens. But from the perspective of Ghana, do concerned stakeholders value the various internal

audit activities and give the required support?

2.5.9 Professional audit standards

The IIA audit standards support the implementation of elements mentioned above in audit

function of public bodies and provide a framework to promote quality audit work that is

systematic, objective, and based on evidence. International Organization of Supreme Audit

Institutions has also issued its own auditing standards to guide the auditing and accounting

practices in the public institutions (Diamond, J 2002).

2.5.10 Unlimited Scope

The IIA standard described the scope of the internal audit function as a tool of management

where the internal audit function closes the loop in the public institutions management cycle to

ensuring the efficient and effective use of resources. For many parts of the world, the internal

audit has often been, and continues to be defined rather narrowly-focusing on financial

compliance and regularity, rather than broader management issues. Moreover, governance

problems and lack of professional competence also constraints the internal audit function to this

role and hinders its ability to generate timely and relevant reports (Diamond, J 2002).

Given these considerations, it is perhaps not surprising that one of the significant problems often

identified in countries’ public institutions governance system is that the internal audit function is

weak and ineffective (Diamond, J 2002). As a result, it is felt that this weakness prevails to such

extent that it impacts more generally on fiscal transparency and governance issues in the public

institutions.

To sum up, the internal audit function could be a major asset for improving public confidence in

financial reporting and corporate governance if the above-mentioned elements are maintained.

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However, the question from our country’s perspective is that, does internal audit function in the

public institutions do satisfy this requirements and grasp this opportunity? If not what efforts are

made so far to organize such function in the profession and by the government?

2.6 SERVICE QUALITY

Both public and private organizations exist to serve their customers. The service quality

particularly in the public institutions has become ever more important in improving customer

satisfaction. Organizations, especially in the public sector agree that customer service is one of

the most vital factors that contribute establishment of reputation and credibility among the

public. Service quality has been documented as one of the key driving forces for business

sustainability and is crucial for firms’ accomplishment (Rust and Oliver, 1994).

Service quality is a concept that has aroused considerable interest and debate in the research

literature because of the difficulties in both defining it and measuring it with no overall

consensus emerging on either. Wisniewski, (2001).

According to Lewis and Mitchell, (1990). They define service quality as the difference between

customer expectations of service and perceived service. If expectations are greater than

performance, then perceived quality is less than satisfactory and hence customer dissatisfaction

occurs.

Parasuraman et al 1994 identified some Service quality variables; they are reliability,

responsiveness, competence, accessibility, courtesy, communication, credibility, security,

understanding and stability

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CHAPTER THREE

METHODOLOGY

3.1 RESEARCH DESIGN

Describing the study on the basis of classification under purpose, the researchers were much

convinces that it was an analytical or explanatory research because the study suggested or

explained why there are short comings from the part of internal auditing functions in the public

institutions of Ghana and why such things are happening. The research sought to gather both

quantitative and qualitative data relating to internal auditing function in selected MMDA’s in the

Ashanti Region.

3.2 POPULATION OF THE STUDY

The public institutions of Ghana is the biggest employer of Internal Auditors and involves

several organizations including Metropolitan, Municipal and District Assemblies (MMDA’s) the

public institutions also includes Ministries, Departments and Agencies (MDA’s). The targeted

population from which sampling was made for study includes the following:

Heads of internal Audit Departments (IADs) of MMDA’s

Members of the internal Audit Department of MMDA’s

Members of audit committee of MMDA’s

As a matter fact, heads of internal audit departments were given much priority over other

members within the population since they were the main target group and imperative as far

as this research work is concerned. Certainly data collected from them and their contributions

were vital to the successful completion of this document. Members of the audit department or

unit were also in the population because they contribute to the performance of internal audit

work in the Assembly and as a matter of fact their data collected were necessary. The audit

committee members were among the population because, ideally internal auditors are

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suppose to report to them and are accountable for issues regarding internal auditing within

the Assembly.

3.3 SAMPLE SIZE AND SAMPLE TECHNIQUE

The researchers adopted the stratified sampling method to select elements. First, the population

was grouped into Metropolitan, Municipal and Districts. This will ensure a fair representation of

each group of institutions since their operations are significantly different. A total sample size of

thirty (30) was carefully chosen from our selected MMDA’s in the Ashanti region. Details of the

sample are as follows:

3 Heads of Internal Audit Department of MMDAs

6 Audit committee members of MMDA’s

18 Members of the Internal Audit Department of MMDAs

3 Deputy Heads of the internal Audit Department of MMDA’s

3.4 DATA COLLECTION METHOD

The focus of the study is on attitudes and perception and the importance of primary data cannot

be over-emphasised. However, secondary data was also collected to augment the studies. Before

the actual data was collected, the researchers collected an introductory letter from the

Department of Business Studies, Christian Service University College to the sampled public

institutions. The initial visit to the selected institutions was therefore to introduce and familiarize

ourselves with those institutions as well as seek their consent for the study. The type of

questionnaire approach used was the delivery and collection (printed) method.

Combined sets of procedures and research tools were used in the collection and analysis of data.

This was to prevent the tendency to develop a singular technique of data collection that would

perhaps result in narrowness and limited understanding. They include questionnaires and

documentary review.

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3.4.1 Questionnaires

Appropriate questionnaires were the primary instruments used. The questionnaire was structured

so as to enable the collection of relevant data for analysis. The questionnaires which featured

both open-ended and close-ended type of questions were designed, more open-ended questions

were included than closed-ended questions because the researchers wanted to give the

respondents the possibility to express their answers according to their indulgent. These also

served as in-built controls in the questionnaire to check for validity of answers. These controls

served to provide us with an unbiased and credible data for an accurate analysis.

3.4.2 Documentary Review

Data were also collected from existing documents and materials on the topic. In addition to these

documents include Journals and articles published on the internet and the Daily Graphic and

training materials on internal audit and good governance.

3.5 METHOD OF DATA ANALYSIS

The data collected using the questionnaire is analyzed by using spreadsheet for descriptive

statistics and analysis methods, percentages, ratios, tables, bar charts and other illustrative

instruments necessary to extensively analyses the data. Qualitative method of analysis is

employed for feedbacks obtained using open-ended questions.

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CHAPTER FOUR

DATA ANALYSIS AND RESULT

Ten (10) questionnaires were sent each public institution. The response rate is 80 % as

summarized below. This can be considered as acceptable level of reliability.

4.1 SUMMARY OF RESPONDENT

Number Name of

Assembly

Number of

Questionnaires

sent

Number of

Questionnaires

collected

Response rate

1 Kumasi

Metropolitan

Assembly

10 10 100%

2 Obuasi

Municipal

Assembly

10 6 60%

3 Kwabre East

District

Assembly

10 8 80%

Total 30 24 80%

Table 1 summary of respondents

4.2 ANALYSIS OF EMPIRICAL DATA

The empirical data is analyzed using spreadsheet (Appendix 1) and discussion is made in the

following sections

24

4.2.1 Organizational Structure

From the vital statistics of the response, it is notify that the internal auditors and those who work

under the unit are cognizant with the role of the internal auditor (100%) in the various

Assemblies and they strongly believe that the head of the internal audit unit is placed

appropriately on the organizational chart (89%) as a functional manager.

4.2.2 Organizational Independence

From the basic statistics of the response, it is found that the current structure of internal audit

function seems sound to promote objectivity, consistency & business understanding (60%)

across the three public institutions. However respondents feel that the Chief Executive Officer

does not interfere with the audit works of the Assembly (55%). the current organizational

structure doesn’t allow them to report when officials in the organization abused their power

against public interest (equity is in danger,69 %) and lose their integrity & honesty (probity of

management is in danger, 78%). As some auditors pointed out, this is basically because, in the

current situation there is no law that protects internal auditors from job displacement due to

his/her reports of audit finding against management. Moreover it is found that, internal auditors

in all the Assemblies are free to choose any transaction or area of interest for audit (86%).

However, all Assemblies do not have any rule to ensure that auditors cannot audit an area for

which they previously had responsibility which in turn will expose them to lose their

independence and obscure their wrong doing committed as an administrative staff. The internal

auditors made it clear that their independence will not be lost when the Chief Executive Officers

assist them in achieving audit objectives (63%)

4.2.3 Human Resource Management (IA)

As per the survey result in all Assemblies, there is a problem of human recourse management,

existence of quality assurance program (37%), sufficiency of salary scale to attract and retain

competent staffs (46%), existence of sufficient staff (44%) are the major problems identified to

be major setbacks for the effort of strengthening the internal audit function in these Assemblies.

The existence of few certified internal auditors and staffs who are pursuing their study towards

professional level are noted in all study units. But compared to the required number of staff it is

25

impossible to say that it is satisfactory due to the kind of work load at the department.

Respondents (54%) do also believe that, the existing salary scale is not sufficient enough to

attract new talent, retain the most talented, skilled and experienced staffs and difficult to

motivate performance. One respondent explained that, as auditors get experienced and reach to

senior level they usually transfer to another department like finance or other related managerial

areas of the same Assembly since the career path and remuneration system is less attractive in

internal audit unit. However it was found that, there is an existence of in-service trainings (51%),

for the internal auditors that will contributes to the audit process of each Assembly to remain

compliance oriented.

4.2.4 Scope of Internal Audit Function

In accordance with the response result, it is noted that the internal auditor performs in all study

units the: efficiency of resource utilization (83%), examine productivity (79%),

Most highly performed internal audit activities (the response rate ranges from 68% to 100%)

include;

Examining of data reliability

Financial and regulatory audit

Fraud detection

Protection of assets

Review the quality management process

The most imperative areas of audit activity to enhance good governance but most least

considered in sample Assembly includes none existence of the systematic review of the risk

management process

Internal Auditor play vital role in advising management regarding on how to reduce cost and

improving efficiency and effectiveness. However, the internal auditor has fewer roles to advice

management regarding:

Risk management and control

26

Identify and monitor risk against achievements of the Assembly’s strategy

The above scenarios clearly indicate that, the activities of internal auditor in each of the study

units are more of traditional type that emphasizes on financial, compliance and regularity, rather

than addressing broader management and governance issues and evaluation of the risk

management process to organizational objective.

4.2.5 Access to Audit Evidence

0%

10%

20%

30%

40%

50%

60%

Fully Allowed

Patially Allowed

Not Allowed

% of Access to Audit Evidence

It seems that auditors are fully allowed (60%) to access audit evidences in any forms. However,

some auditors mentioned that, in some situation it is difficult to find board minutes for review

and procurement contracts.

4.2.6 Availability of Resources to Internal Audit Function

Modern auditing demands the use of appropriate technology and auditing the technology itself as

audit area, developing staffs’ skills through several cost effective means’s like trainings and

other continuous professional development forms. However, in enterprises under this survey, it is

noted that technology as a tool for auditing is almost not used (59%), technology for the

provision of internal audit service (57%), resource for continuous professional development is

27

also not allocated (66%), and the availability of other facilities as required (66%), but

respondents believe that the is the possibility to seek expertise assistance when in house staff

lacks knowledge in the audit area (51%)

4.2.7 Existence of Audit Committee

Respondents from all the Assembly stated clearly, the existence of the audit committee and they

strongly believe that the audit committee has the right mix of knowledge, experience and

representation of major stakeholders. In summary, majority (94%) was able to give a clear

picture of what the responsibilities of the committee is, some responsibilities given were

They ensure that audit recommendations are strictly flowered.

They serve as coordinators during external audits

They promote transparency in all financial activities

They exist to resolve any existing misunderstanding between the internal audit unit and

managements staff.

4.2.8 Existence of clearly identified and recommended professional auditing standards.

Respondents are acquainted with the following internal audit standards and the organization

manuals (94%)

An Internal Audit Manual aimed at enhancing financial management in Metropolitan,

Municipal and District Assemblies issued by the Ministry of Local Government.

Financial Administration Regulation (FAR) Act 2003,(Act 654)

Internal Audit Agency Act,2003 (Act 658)

The Public Procurement Act 2003 ,Act 663

Accepted/Gazzetted Management policies and regulations

4.2.9 Implementation of recommendations

Respondents believe that corrective action is taken based on audit findings identified by the

Internal audit unit (62%).Some respondents added that, auditing is done and findings are

reported just for the purpose of formality.

28

4.2.10 Internal performance

From the study it is believe that procedures for setting priorities concerning the use of budgetary

resources subject to specific review exist. (75%)

29

CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

This chapter presents the summary, conclusions derived from the data analysis stage and

recommendations are made as per the findings.

5.1 Conclusions

There is no relationship between the Internal Auditor’s role and the Chief Executive Officer of

the public institution in promoting good governance and service quality. Though the Internal

Auditor is an employee of the organization, he is free from the authority’s control and

domination, hence he is independent in executing his functions.

As per our secondary data gathered indicates the existence of less satisfactory development

towards enhancing good Governance system in the public institutions of Ghana. One reason for

this macro problem is due to poor management control system that sustained in public

institutions since years. The empirical data discussed above supports this argument as

summarized below.

5.1.1 Involvement of the Internal Auditor’s Role in auditing effectiveness of the governance

structure.

The existing governance of the internal Auditor’s role in the public institutions is not pleasing

and basically compliance oriented existence of inappropriate risk management control system,

problem of recruiting and maintaining well trained and experience finance and auditing

personnel are well stated. Furthermore the situation presented in the empirical data clearly

indicates that the activities of the internal auditor of each of the study units are more of

traditional type that highlights on auditing financial compliance and regularity, rather than

addressing broader management and governance issues that basis risk for selection of audit area.

30

Hence the role of the Internal Auditor in the public institution is less satisfactory involvement to

assess the effectiveness of governance structure.

5.1.2 Impending factors that hinder the Internal Auditor’s role in enhancing good

governance in the public institutions.

Less utilization of technology as a tool for auditing, giving less attention to in service

training with modern auditing technology and absence of budget for continuous

professional development(CPD) so as to keep Auditors up to date with current changes.

No effort by management to implement quality assurance program in the internal auditing

unit and the salary scale to attract and retain competent staffs are not satisfactory.

There is also the absence of appropriate framework to measure internal audit performance

against governance structure.

5.2 RECOMMENDATION

The scope of this research is broad and attempts to assess the effectiveness of the internal

auditor’s role in the public institution of Ghana to promote good governance system and

performance improvement. For this, the survey is limited to the public institutions, namely

Kumasi Metropolitan Assembly, Obuasi Municipal Assembly and Kwabre East District

Assembly all in the Ashant Region as study unit. As a result, we cannot say that the findings of

this research can be equally applicable to the private sector, not for profit type of entities and

other government organizations.

To limit corruption and insufficiency in the public institutions of Ghana by promoting

accountability and greater transparency about government programs and service, it is mandatory

to have internal auditing functions as part of modern management control system and in addition

the internal auditing sector itself need to have appropriate governance structure, mobilizing

sufficient and appropriate resource and competent personnel.

In connection to these shortcomings, it is possible to carryout further research how the issues

look like in other types of government, not for profit and the private sector. So that,

31

comprehensive conclusion can be drawn about the role of the profession it can play in enhancing

good governance in any form of organization across different organizational ownership types.

32

BIBLOGRAPHY

1. Adu-Gyemfi (2006) introduction to Auditing, 2nd

edition, Accra.

2. Auditors of the Universities of Ghana at their annual congress in 2006. Accra: Ransford

Agyei, Deputy Director-General.

3. Auditing in Public Sector Governance, the Role of Auditing In Public Sector Governance,

Professional Guidance, Setting Standards, 2006. Retrieved on June 17, 2007 from

http://stage.theiia.org/research/research-reports/

4. Blumberg, B., Cooper, D.R., and Schindler, P.S. (2005) Business Research Methods,

Maidenhead, McGraw-Hill.

5. Chair, M. 2003, Internal audit Independence and Corporate Governance, The Institute of

Internal Auditors, Retrieved on February 27 2010 from http://stage.theiia.org/research/research-

reports/

6, Deloitte & Touche Enterprise Risk Services & Institute of Internal Auditors – UK and Ireland

(2004), the Value Agenda. Available at www.iia.org.uk, (Accessed on 14 November 2009).

7. Diamond, J. 2002, the Role of Internal Audit in Government Financial Management: An

International Perspective, Working Paper Retrieved on February 27, 2010 from

http://www.imf.org/external/pubs/ft/wp/2002/wp0294.pdf

8. Hermanson, L. & Rittenberg, E. (2003) nature of internal audit, New York: McGraw-Hill.

9. Internal Audit Agency, Republic of Ghana. (2007), Annual Report to the Office of the

President. Accra: the IAA.

10. Institute of Internal Auditors (the IIA). (2007), the Professional Practices Framework.

33

Florida, U.S.: The IIA Research Foundation.

11. Internal Audit Agency, Republic of Ghana. (2006), Championing Excellence in Universities

of Ghana: The Role of the Internal Auditor. A paper presented to the Association of the

Internal Auditors.

12. Internal Audit Agency Act.2003, Act 658.

13. Local government system in Ghana/Roles and Sub-bodies, Retrieve on February 27th

2010 from http://www.ghanadistricts.com

14. Leech T.(2009) The Role of Internal Audit in Government Financial Management: An

International Perspective, Working Paper in Auditing No WPG 03-01; Oxford University,

England.

15. Nsiah H, (2008) Research Methods, a guide book for students (2nd

ed), Kumasi, Servant

Grafix.

16. Parasuraman, A., Zeithaml, V., and Berry, L. 1994. Reassessment of expectations as a

comparison standard in measuring service quality: implications for further research. Journal of

Marketing.

17. Rust, R.T. and Oliver, R.L. 1994. Service Quality; New Directions in Theory and Practice.

Thousand Oaks, California, SAGE Publication.

18. Spencer, P. K. H. (2003), The Internal Auditing Handbook. U.K. City University Press.

19.Wisniewski, M. (2001), "Using SERVQUAL to assess customer satisfaction with public

sector services", Managing Service Quality, Vol.11, No.6, pp. 380-388.

34

APPENDIX 1

COVER LETTER

CHRISTIAN SERVICE UNIVERSITY COLLEGE

DEPARTMENT OF BUSINESS STUDIES

QUESTIONNAIRES FOR EMPLOYESS OF MMDA’S ON THE ROLE OF INTERNAL AUDITOR IN

PROMOTING GOOD GOVERNANCE AND s

SERVICE QUALITY IN THE PUBLIC INSTITUTIONS OF GHANA

This is a questionnaire designed to solicit data about the role of the internal auditor in

promoting good governance and quality management in the public institution of Ghana

This study is purely academic and every data provided will be treated highly confidential. Please

answer the following questions

Tick as appropriate to your Assembly and comment when necessary.

We are very grateful for devoting your time and completing this questionnaire.

35

QUESTIONNAIRE

1. Please provide the following information about your Assembly by writing in the space provided.

I. Name of your Assembly…………………………………………………………………………………………………………

II. Your position in the Assembly……………………………………………………………………………………………….

III. Your duration of service in the Assembly………………………………………………………………………………

2. Are you aware of the role of the Internal Auditor in your Assembly?

Yes No

3. How important do you think is the role of the Internal Auditor to your Assembly?

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

4. In your opinion is the heard of Internal Audit placed appropriately on the organizational chart?

Yes No

5. Please explain your answer to question 4

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

36

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

6. Do you believe that the current structure of Internal Audit promotes objectivity and

consistency?

Yes No

7. Please explain your answer to question 6

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

8. do you think that the Assembly’s audit department or division have the appropriately qualified

staffs that have relevant skills and experience and to risk identification and planning

methodology to deliver a high quality audit service

Yes No

9. Does your Assembly have audit committee?

Yes No

10. If yes, what are the responsibilities of the committee?

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

11. Are Internal Auditors allowed access to all necessary information, records, employees etc. to

come to an informed judgment in audit work?

Fully Allowed

Partially Allowed

Not Allowed

12. How does the Internal Auditor help management in providing advice in terns of reducing cos

and improving efficiency and effectiveness?

37

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

13. Do you conduct audit activities in accordance with recognized standards?

Yes No

If yes, which standard?

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

If no, what is your reference to conduct audit activities?

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

14. Do you feel that corrective measures are usually taken as a result of weakness noted by the

Internal Audit department

Yes No

15. Do you think that the audit function in your Assembly has the ability to report to the relevant

government authority if it is fund that; please tick Yes or No.

Officials in the Assembly abused their power against public interest

Officials lose their integrity and honesty (probity of management in danger)

16. Are procedures for setting priorities concerning the use of budgetary resources subject to

specific review?

Yes No

17. Does the Assembly’s Chief Executive Officer interfere with the audit process?

Yes No

18. Will attitude towards Internal Audit be different if he (CEO) helps you achieve your objectives?

38

Yes No

19. Please explain your answer to question 18

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

20. Do quality assurance programs exist in your Assembly?

Yes No

21. While the Auditor performs its duty, do you believe that, it is free to choose any transaction or

area of interest for audit?

Yes No

22. Resources

Do you believe that there exists: please tick each as much as it is applicable to your Assembly

Utilization and availability of appropriate technology to enhance the audit work

Provision of Internal audit service

Adequate resources to meet continuous professional development

Other required facilities

The ability to seek the assistance of expects during the audit process if required

(contracting for functional expertise in audit)

23. Which of the following audits performed by your Assembly? Audit function (please mark each

box as much as it is applicable )

Assessing and promoting the adequacy of corporate governance

System/model control environment (Risk Management Systems & Controls)

Evaluates projects/programs accomplishments (effectiveness)

Examine productivity (Efficiency)

Examine use of organizational resources (Economy)

Tests the organization's conformity with objective requirements, standards or criteria (compliance) Examine data reliability

Examine and asses' organizational policies, procedures and manuals and recommend best practices.

Identify and monitor risks against achievement of organizations

39

Test proper recording of assets and expenditures, reliability of financial information (Financial and regulatory audit)

Strategy (Risk Management systems and controls

24. Do auditors systematically review the quality management process?

Yes No