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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

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 Auditors 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 MMDAs 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 MMDAs 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

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 MMDAs 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 Auditors 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 Governments strive for organizational excellence and service quality.

Internal Auditors function is moving away from the traditional check and tick approach to riskbase 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 MMDAs 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.

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 rganizations 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.

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 MMDAs 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 Pharaohs Council. From Egypt it was introduced into Persia where it was called The Kings 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.

On November 17, The IIAs Certificate of Incorporation was filed which officially established The Institute of Internal Auditors name; recognized The Institute as a membership corporation; and identified corporations 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 organizations 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 organizations 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 organizations risk program to governing bodies and executive management. A key responsibility is to provide comfort, which is essentially providing reasonable assurance that the organizations risk management and internal control processes operate effectively - thereby helping the executive team and board members sleep at night.

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 companys directors are fully apprised of the organizations 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 managements 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 organizations 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 organizations 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 organizations 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 organizations 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.
Beneficiaries of organizational Governance Stockholders Investors Lenders Suppliers Citizens Charitable contributors

Participant
Management Board of directors Audit committee Internal and External audit Regulators /association

Activity broader public Goals The


Managing of risk Achievement of organizational goals and presentation of values

Accountability
Accountable to stakeholders for effective stewardship

Assurance regarding control

Figure 1: Organizational Governance Source: Hermanson, L. & Rittenberg, E. 2003)

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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 governments 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 auditors 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 auditors 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 auditors 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).

Role of internal auditor

Risk Assessment

Providing Assurance Regarding Control

Compliance

Consulting & Operations

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
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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 governments constitution, charter, or other basic legal documents should establish the audit activitys 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 activitys 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 countrys 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 MMDAs 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 (MMDAs) the public institutions also includes Ministries, Departments and Agencies (MDAs). The targeted population from which sampling was made for study includes the following: Heads of internal Audit Departments (IADs) of MMDAs Members of the internal Audit Department of MMDAs Members of audit committee of MMDAs

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 MMDAs in the Ashanti region. Details of the sample are as follows: 3 Heads of Internal Audit Department of MMDAs 6 Audit committee members of MMDAs 18 Members of the Internal Audit Department of MMDAs 3 Deputy Heads of the internal Audit Department of MMDAs

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 1 Kumasi Metropolitan Assembly 2 Obuasi Municipal Assembly 3 Kwabre District Assembly Total Table 1 summary of respondents 30 24 80% East 10 8 80% 10 6 60% 10 Number of Questionnaires collected 10 100% Response rate

4.2 ANALYSIS OF EMPIRICAL DATA The empirical data is analyzed using spreadsheet (Appendix 1) and discussion is made in the following sections

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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 doesnt 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
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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
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Identify and monitor risk against achievements of the Assemblys 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

60% 50% 40% 30% 20%


% of Access to Audit Evidence

10%
0% Fully Allowed Patially Allowed Not Allowed

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 meanss 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
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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.

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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%)

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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 Auditors 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 authoritys 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 Auditors Role in auditing effectiveness of the governance structure. The existing governance of the internal Auditors 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.

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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 Auditors 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 auditors 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,
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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.

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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/researchreports/ 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.
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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.

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APPENDIX 1 COVER LETTER

CHRISTIAN SERVICE UNIVERSITY COLLEGE


DEPARTMENT OF BUSINESS STUDIES QUESTIONNAIRES FOR EMPLOYESS OF MMDAS 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.

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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 35

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 Assemblys 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? 36

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 Assemblys 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? 37

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
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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

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