ii

CERTIFICATION

The undersigned certifies that he has read and hereby recommends for acceptance by the

Open University of Tanzania a dissertation entitled “Challenges Facing Internal

Auditing in Financial Control in Local Government Authorities in Tanzania: The

Case of Dodoma Municipality”, in fulfilment of the requirements for the degree of

Master of Business Administration of the Open University of Tanzania.

Prof. Ahmed Mohamed Ame

(Supervisor)

Date…………………………

iii

DECLARATION

I, Abdulwahab Yussuf Khamis, declare that this dissertation is my own original work and

that it has not been presented and will not be presented to any other University for a

similar or other degree award.

Signature…………………………..

iv

COPYRIGHT

No part of this dissertation may be reproduced, stored in any retrieval system or

transmitted in any form by any means, electronic, mechanical, photocopying, recording or

otherwise without prior written permission of the author or the Open University in that

behalf.

v

ACKNOWLEDGEMENTS

I am here by acknowledging that the successful accomplishment of this study has been

contributed by various people in terms of views, ideas and assistance by one way or

another, starting from the origin to the destination point of this dissertation. Therefore, I

would like to recognize the followings as part of my successes.

Firstly, my spiritual grateful is extended to Allah who gave me supremacy of conducting

this course despite the existed challenges in cultivating this work. He was the only God

who gave me grace, blessings and confidence in undertaking this mammoth task and

completing successfully with a strong health.

With a great honour, I would also like to extend my special thanks to my Supervisor Dr.

Ahmed M. Ame from the University of Dodoma, for his precious guidance, consultancy,

tolerance and constructive criticisms which put me into right shadow incompletion of this

work successfully. Indeed, he has given me much goodwill in terms of confidence as well

as sacrifices strong enough for undertaking the similar tasks in days to come. On the same

line, I would like to provide my amiable thanks to Mr. Michael Josephat Mwacha, for

equipping me with necessary knowledge which was eventually needed to conduct my

MBA course, together with giving me materials and moral support for the course.

More important still, I sincerely appreciate Dodoma Municipal Council management for

allowing me to conduct this study in their organization, especially the Municipal Director

Mr. Robert Kitimbo. In the spirit of unity, I would like also to thank my study’s

respondents from Planning Department, Finance Section and Internal Audit Unit for their

acceptance of joining with me in this study as well as their much tolerance during the data

collection. It is my faith that, my study report could be meaningless if their contribution

were missed.

vi

Finally, I nominate my special gratitude to the Directors and Staffs’ members from two

centers of the Open University of Tanzania, namely; Zanzibar Center and Dodoma Center

for their encouragements of giving me a good corporation in needed materials as well as

academic support.

Furthermore, I am so delighted in expressing my special thanks to my family members for

their encouragement, support and tolerance while I was doing this study. Namely; my

bearing parents, sisters and brothers. I unconnectedly take this opportunity to thank

heartedly my beloved sister Mw. Tatu Yussuf Khamis for her help in conducting this

study. On the same line, I recognize my lovely parents’ in-law Mr. Mohammed Ali Khelef

and Mwatima Ali due to their spiritual care for me as well as encouragement which

enabled me to terminate my study fruitfully. Much love for you all.

Last, but not least, my special and sincere appreciations are extended to my sweet and

lovely wife Dr. Asya M. Ali, who showed much attentiveness to me during the hunt of my

course. In fact, she put on view a deepest tolerance and patience during my absence,

together with using her medical knowledge for encouraging me politely to terminate my

studies in excellence level. At the same point of gratitude, I could not neglect my

appreciation to my charming children, my handsome son Yaasir AbdulwahabYussuf and

my beautiful daughter Azyda Abdulwahab Yussuf as part of my success in this study.

Even though, I do apologize to them for missing me most of the time due to the study.

vii

DEDICATION

This dissertation is dedicated to my dearly loved parents Hon. Yussuf Khamis Mahmoud

and Asia Ali Shoka who played their position well for upbringing me in harmony with

great cornerstones of loving education, working hard objectively and being tolerant and

contented one to what I earn, whereby their knowledge fitted out me in starting and

vanishing this dissertation effectively. May Allah bless to them. It is also dedicated to my

beloved late son Mansoor AbdulwahabYussuf who for infinity gives me effortlessness

inputting into operation my works due to the recall of his esteemed smile.

viii

ABSTRACT

There has been a contention from the general public and the press on the misuse and

mismanagement of public funds notwithstanding the work done by the internal auditing in

LGAs coupled with the government efforts to ensure proper utilization of public funds.

This study was conducted in order to meet three specific objectives, namely; to understand

the mechanism used by LGAs in auditing activities, to examine the performance of current

internal auditing in LGAs, and to investigate on the challenges which face internal audit

unit in LGAs.

The study was adopted a case study methodology by taking Dodoma Municipal

Council(DMC) as a case. Data was collected using a questionnaire and interview from

employees and the top management, as well as documentary review. Further, data was

analysed using both quantitative and qualitative techniques. It has been found out that the

mechanism used by LGAs in auditing activities is somehow effective. Moreover, it was

uncovered that performance of internal Audit in LGAs is good as shown by using various

indicators from the study. Additionally, it has been discovered that DMC is strong in its

internal environment due to the existence of amongst the friendly collaboration between

auditors and those audited. Finally, the study discovered that LGAs face mainly four

challenges in discharging its duties regarding internal auditing. From the study, the

government was advised to restrain politicians from interfering with the internal auditors’

decisions together with considering contingency fund allocation to development projects.

Finally, LGAs were advised to introduce programmed trainings to internal auditors for

making value for money audit effective.

ix

TABLE OF CONTENT

CERTIFICATION.............................................................................................................ii

DECLARATION..............................................................................................................iii

COPYRIGHT....................................................................................................................iv

ACKNOWLEDGEMENTS..............................................................................................v

DEDICATION.................................................................................................................vii

ABSTRACT....................................................................................................................viii

TABLE OF CONTENT....................................................................................................ix

LIST OF TABLES..........................................................................................................xiii

LIST OF FIGURES........................................................................................................xiv

LIST OF ACRONYMS...................................................................................................xv

CHAPTER ONE................................................................................................................1

GENERAL INTRODUCTION.........................................................................................1

1.0 Introduction...................................................................................................................1

1.1 Background Information...............................................................................................1

1.2 Statement of the Research Problem.............................................................................4

1.3 Research Objectives.....................................................................................................5

1.4 Research Questions......................................................................................................6

1.5 Significance of the Study.............................................................................................6

1.6 Scope of the Study.......................................................................................................7

CHAPTER TWO...............................................................................................................8

LITERATURE REVIEW.................................................................................................8

2.0 Introduction..................................................................................................................8

x

2.1 Conceptualization of Key Terms................................................................................8

2.1.1 Internal Audit............................................................................................................8

2.1.2 Internal Auditor.......................................................................................................10

2.1.3 Internal Control.......................................................................................................10

2.1.4 Financial Control....................................................................................................11

2.2 Theoretical Framework............................................................................................13

2.2.1 The Policeman Theory............................................................................................14

2.3 Empirical Review.....................................................................................................14

2.4 Conceptual Framework.............................................................................................18

2.5 Research Gap...........................................................................................................19

CHAPTER THREE.........................................................................................................20

RESEARCH METHODOLOGY...................................................................................20

3.0 Introduction...............................................................................................................20

3.1 Study Setting and its Selection................................................................................20

3.2 Description of the Study Setting.............................................................................20

3.2.1 Geographical Location............................................................................................21

3.2.2 Infrastructure..........................................................................................................21

3.2.3 Area and Physical Characteristics..........................................................................22

3.2.4 Climate...................................................................................................................22

3.2.5 Administrative Setup.............................................................................................22

3.2.6 Demographic Characteristics.................................................................................23

3.2.7 Economy...............................................................................................................23

3.2.8 Education...............................................................................................................23

3.2.9 Structure of the Municipal Council........................................................................24

xi

3.3 Research Design.......................................................................................................26

3.4 Research Approach..................................................................................................26

3.5 Sampling Units, Size and their Selection.................................................................27

3.6 Data Collection Method...........................................................................................28

3.6.1 Questionnaire...........................................................................................................29

3.6.2 Interview.................................................................................................................29

3.6.3 Documentary Review..............................................................................................30

3.7 Data Collection Procedure.......................................................................................31

3.8 Data AnalysisTechniques.........................................................................................32

3.9 Validity and Reliability.............................................................................................33

3.10 Ethical Consideration...............................................................................................34

CHAPTER FOUR............................................................................................................35

FINDINGS AND DISCUSSION.....................................................................................35

4.0 Introduction...............................................................................................................35

4.1 Profile of Respondents.............................................................................................35

4.1.1 Working Departments of Respondents....................................................................35

4.1.2 Sex Distribution of the Respondents.......................................................................36

4.2 Findings and Discussion.........................................................................................37

4.2.1 Mechanism Used By LGAs in Auditing Activities................................................37

4.2.2 Performance of Internal Auditing in LGAs...........................................................48

4.2.3 Challenges which face internal audit unit in LGAs...............................................60

CHAPTER FIVE.............................................................................................................71

CONCLUSION AND RECOMMENDATIONS...........................................................71

xii

5.0 Introduction...............................................................................................................71

5.1 Summary of the findings...........................................................................................71

5.1.1 Mechanism Used By LGAs in Auditing Activities.................................................71

5.1.2 Performance of Current Internal Auditing in LGAs...............................................72

5.1.3 Challenges Facing Internal Auditing Units in LGAs..............................................73

5.2 Conclusion...............................................................................................................74

5.2.1 Contribution to Policies...........................................................................................74

5.2.2 Contribution to Knowledge.....................................................................................74

5.2.3 Contribution to Best Practices................................................................................74

5.3 Recommendations...................................................................................................75

5.3.1 Recommendations to the Central Government......................................................75

5.3.2 Recommendations to the Management of Local Governments..............................76

5.3.3 Recommendations to the other Stakeholders..........................................................76

REFERENCES..................................................................................................................78

APPENDICES...................................................................................................................88

Appendix 1 : Questionnaire for Employees.....................................................................88

Appendix 2: Protocol for Management.........................................................................100

xiii

LIST OF TABLES

Table 4.1: Distribution of Respondents by Departments............................................36

Table 4.2: Sex Distribution of the Respondents.........................................................36

Table 4.3: Auditing Procedure Compared to the International Auditing Standards...44

Table 4.4: Selection of Audit Categories....................................................................49

Table 4.5: Rating of Fulfilment of the Requirements by Internal Auditing Mechanisms

....................................................................................................................50

Table 4.6: Rating of Effectiveness of Internal Financial Control...............................51

Table 4.7: Evaluation of Efficiency of the internal financial control.........................52

Table 4.8: Stakeholders’ Satisfaction Level on the Internal Auditing Performance. .53

Table 4.9: Performance of Internal Financial Control................................................53

Table 4.10: Appraisal of the Level of Collaboration between Auditors and Auditees54

Table 4. 11: Challenges which face Internal Auditing in LGAs................................61

xiv

LIST OF FIGURES

Figure 2.1: Conceptual framework..............................................................................18

Figure 3.1: Astronaut View of Dodoma......................................................................25

Figure 3.2: Dodoma Position in the Map of Tanzania................................................25

Figure 4.1: Relationships between Economy, Efficiency and Effectiveness..............58

xv

LIST OF ACRONYMS

CAG Control and Auditor General

CMT Council Management Team

DMC Dodoma Municipal Council

EAC East Africa Community

IIA International Institute of Auditors

ILO International Labour Organization

IPSAS International Public Sector Account Standard

IRDP Institute of Rural Development Planning

KPMG Klynveld Peat Marwick Goerdeler

LAAC Committee for Local Authorities Accounts

LGAs Local Government Authorities

REPOA Research for Poverty Alleviation

TCAA Tanzania Civil Aviation Authority

URT United Republic of Tanzania

1

CHAPTER ONE

GENERAL INTRODUCTION

1.0 Introduction

This chapter presents the general introduction in regard to the subject. The section begins

with background information of research problem as well as statement of the problem

portraying the gap of literature for study. It presents also objectives of the study, research

questions and ending with the significance of the study to justify the undertaking of this

study.

1.1 Background Information

Ojo (2009) posits that the funds of local government councils are managed by the key

officers of respective councils. Financial management has to do with the efficient use of

funds. It is a method of showing and ascertaining the financial position of government or

business over a period of time. Sound financial management systems are powerful

instruments for preventing, discovering or facilitating the punishment of fraud and

corruption. Important elements to that effect are the organization and staffing of revenue

administration, the effectiveness of auditing systems and the realism of budgets

(Langloiset al.,1998).

Auditing is essential because it gives concern on the evaluation of various controls,

examining deviation from applicable standards and acts of irregularity, inefficiency and

ineffectiveness with the motive of taking corrective action (Aikins, 2011). Recently,

consideration in the topic of internal audit has been receiving more attention especially

when considering its contributions to the management of public sector in the aspect of

organizational resources (Theofanis, et al., 2011; Ussahawanitchakit and Intakhan, 2011).

This is because internal audit has become an unavoidable control mechanism in both

public sector (Cohen & Sayag, 2010) and private organizations.

2

The regular audit method complements the good efforts of financial control mechanisms.

Audit is more or less a practice which may be called a technique for ensuring a more

effective internal check on financial management. There should be a regular and

independent examination of the books of accounts by appointed qualified auditors to

ensure that the statement of account as recorded represents a true and fair-view of all the

transactions during the period under investigation. Indeed, regular auditing of Local

Government Councils accounts would ensure sanity, prudence and probity in the use and

management of finances (Coker and Adams, 2012).

Internal auditing helps an organization to accomplish its objectives by bringing a

systematic, disciplined approach to evaluate and improve the effectiveness of risk

management, control and governance processes (Pickeur, 2012). Actually, in certain

countries, auditing has evolved to cover all aspects of governance. In some countries, the

internal audit embarks on a man-date of evaluating programmes in the light of pre-set

performance criteria and organizational objectives. In other words, the internal audit

system in these countries adds value to the effectiveness of public sector operations by

enabling objective scrutiny.

The internal audit function plays a crucial role in the ongoing maintenance and assessment

of an organization’s internal control, risk management and governance systems and

processes areas in which supervisory authorities have a keen interest. Furthermore, both

internal auditors and supervisors use risk based approaches to determine their respective

work plans and actions. While internal auditors and supervisors each have a different

mandate and are responsible for their own judgments and assessments, they may identify

the same or similar/related risks (Pickeur, 2012). The internal audit function should

develop an independent and informed view of the risks faced by the organization based on

their access to all records and data, their enquiries, and their professional competence. The

3

internal audit function should be able to discuss views, findings and conclusions directly

with the audit committee and the board of directors, thereby helping the board to oversee

senior management (Pickeur, 2012).

Finance and its prudent management are the bedrock of effective functioning of local

government. It is against this backdrop that Tonwe (1995) cited in Ojo (2009) argues that

local governments require finance to perform their statutory functions. The ability of the

local government to do this is largely dependent on availability of fund, coupled with

efficient management which constitutes the required catalyst necessary for timely

execution and completion of their development projects.

Internal audit unit functions as independent structure within local government and much

of its work performed is based on local government's system of internal control. Even

though the nature and position of the internal audit unit in local government differs from

one country to another, but the internal auditors report to local governments has much

significance (Mizrahi & Ness-Weisman, 2007).

The primary functions of internal auditing extends to oversight funds’ use, avoidance of

unnecessary costs, confirmation of accuracy of information, local government’s

management use for decision-making, oversight of accuracy of economic operations,

analysis of fiscal performance efficiency and proposals for its enhancement and data

quality assessment for management system (Mirzeyev, 2009). Therefore, internal audit

can be seen as independent appraisal established within the organization with the aim of

reviewing the effectiveness and efficiency of the activities of an organization, ensuring

compliance with established regulations, evaluation of risk management and internal

controls system of the organization (Ussahawanitchakit and Intakhan, 2011).

4

1.2 Statement of the Research Problem

Audit in Tanzania is emphasized under Section 26 of the Public Finance Act No.6 of 2001

(revised in 2004) as amended by the Public Audit Act No 11 of 2008 and Section 44 (2) of

Public Procurement Act No.21 of 2004 (URT, 2009). According to the local government

Act of 1982 as amended in 1999 of the United Republic of Tanzania (URT), Local

Government Authority is a village, district town, municipal or city council. In Tanzania,

Local government authorities are categorized into District Authorities and Urban

Authorities which were established by the Local Government Acts Number 7and 8 of

1982, respectively. Rural authorities include Village Councils, Township Authorities and

District Councils that cover a wide area and a population divided and grouped into

hamlets, villages and wards. Wards are very important because they are the constituencies

for elected councillors (Warioba, 1999). Urban Authorities include Town Councils,

Municipal Councils, and City Councils, and have a structure which includes streets

(Warioba, 1999). Furthermore, Fjeldstad (2004) declared that LGAs are responsible in

delivering services to the citizens, as they operate in the citizens’ environment. So to be

able to meet the demand for these services, government have put some mechanisms to

control fund for efficient provision of those services to avoid misuses (Davies,

1998).Among of these mechanisms are expressed within Controller and Auditor General

(CAG) report as internal audit units in LGAs which control fund received from central

government and from own source collections (CAG REPORT, 2010/2011).

Looking into the developed countries literature, we find that the internal audit is supposed

to be the custodian of internal control by providing assurance to the management that the

organisation has put in place adequate and effective internal control system. Beside that,

according to Hayes et al. (2005), under Policeman theory of audit services, the auditor is

responsible for searching, discovering and preventing fraud. Nevertheless, Okwoli (2004)

5

shares the view that, the requirement of internal audit is not only the detection and

prevention of fraud and errors, but also reviewing the system of internal control.

Despite the importance of internal auditing in financial management in LGAs and the

efforts made by the government to ensure proper use of public fund, still there is an outcry

of misuse and mismanagement of public fund. For example, The Parliament Committee

for Local Authorities Accounts (LAAC) has discovered that 50 per cent of the funds

allocated for implementation of various projects in Sumbawanga Municipal Council in

Rukwa Region were misused (CAG Report, 2010). In the next stage of the chain, the Dar

es Salaam Municipal Council ordered fresh auditing of its accounts after discovering

several discrepancies in the CAG report of 2008/2009 and 2009/2010 financial years. This

implies that internal auditing in Tanzania is impaired by some impingements that it cannot

deliver the expected outputs effectively. In addition to that, despite the existence of the

audit units in the LGAs and elsewhere, there are still reports on several occasions of

frauds, mishandling and misappropriation of public funds (CAG Report, 2010/2011). This

situation motivated the study at hand to seek to investigate on the challenges facing

internal auditing in financial control in local government authorities. In so doing, the study

intended to take Dodoma Municipality to be the platform for the study.

1.3 Research Objectives

Generally, the study investigated on the challenges facing internal auditing in financial

control in local government authorities in Tanzania by taking Dodoma Municipality as a

case. In meeting this general objective, the study focused on the following specific

objectives:-

a) To understand the mechanism used by LGAs in auditing activities;

b) To examine the performance of current internal auditing in LGAs, and;

c) To investigate on the challenges which face internal audit unit in LGAs.

6

1.4 Research Questions

In order to meet the objectives of this study, answers to the following research questions

were sought.

a) What is the mechanism used by LGAs in auditing activities?

b) How is the performance of internal auditing in LGAs?

c) What are the challenges which face internal audit unit in LGAs?

1.5 Significance of the Study

The significance of the study lies on knowledge contribution, policy contribution,

managerial contribution as well as personal benefits. On the side of knowledge

contribution, the study basically could improve awareness of the challenges facing audit

units in their activities in LGAs. Thus, auditing discipline could get more exposed in its

weaknesses and challenges and how to tackle them for effective auditing activities in

LGAs. This could further act as a cornerstone of future research.

With respect to policy implication, the findings of this study are significant to policy

makers since the study has revealed the real and actual condition of auditing in LGAs. In

fact, the proposed measures to rectify or review the current policy may be put into use. If

this takes place, there would be improvement of the mechanism that might eventually

provide solutions to the challenges.

With regard to managerial contribution, the study findings would be important to

managers of auditing units as it portrays the major challenges facing their units. Also,

internal audit departments could improve their effectiveness and efficiency by

implementing best practices and improving relationships with management. The

management of audited departments could also use the study findings to help detect

weaknesses of their internal controls within the units. Based on that, other firms whether

government or private based might emulate the best practice.

7

Finally, the study has significance to the researcher by having exposed him to undertaking

investigation in this fertile area of research. The experience obtained has acted as capacity

building platform that could provide future impact in terms of carrier development.

1.6 Scope of the Study

This study was confined to the investigations on the mechanism used by LGAs in auditing

activities, performance of internal auditing and the challenges which face internal audit

unit in LGAs. Further, the study was only done by taking Dodoma Municipal Council as

the platform. This setting was taken as a proxy of other LGAs and was in fact a typical

case when LGAs are considered.

8

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter presents literature related to this study as reviewed from appropriate sources.

It starts by providing conceptual understanding of the key terms for the study. This is

followed by theoretical underpinnings which are then followed by empirical support. The

section winds up by presenting the conceptual framework that is followed by conclusive

remarks which show among others, knowledge gap and the need for actualizing the study

at hand.

2.1 Conceptualization of Key Terms

This section provides the conceptual understanding of the key terms of the study which

are internal audit, internal auditor, internal control and financial control. These terms are

clearly presented alternatively as shown below.

2.1.1 Internal Audit

Looking into literature somehow two different views of internal audit with regards to the

scope of its functions are found. For instance, we can identify one school of thought that

looks at the internal audit as an independent unit that evaluates for the aim of improving

the effectiveness of risk management, control and governance processes. Going with this

view, we find definition like that of the Institute of Internal Audit (2009) that describes

internal audit as an independent, objective assurance and consulting activities designed

with the intention to add value and improve an organization’s operations. This clarifies

that internal audit should be designed in such a way to be independent and objective in

order to evaluate and improve the effectiveness of risk management, control and

governance processes.

9

At the same time, the internal audit is expected to provide assurance and consulting

service to the client. This approach of looking at the concept of internal audit is supported

by Jurchescu, (2010) who defines internal audit as an independent and objective functional

activity which provides security and management advice with the aim of ensuring

effective management of public income and expenditure, ensuring proper activities within

public organization, helps the public organization to achieve their objective through

systematic and methodical approaches, evaluate and improves the efficiency and

effectiveness of internal control system, risk management and management processes. The

definition is again concerned with the activities of internal auditors in public organization,

especially on the protection of the public property, the proper utilization of revenue and

expenditure as well as the evaluation of the efficiency and effectiveness of risk

management, internal control system and organizational process. Further, this way of

looking at internal audit seems to be advocated by many authors, for instance, Millichamp

(2000:35) who puts that internal auditing is “an independent appraisal function within an

organization for the review of system of control and the quality of performance as a

service to the organization. It objectively examines, evaluates and reports on the adequacy

of internal control system to the proper economic, efficient and effective use of

resources”. Other scholars having this view are for example, Unegbu and Kida (2011);

Whittington &Pany (2001); etc.

On the other hand, there is another school of thought which considers activities of internal

audit to be confined by the boundaries kept by the management. For instance, Gupta

(2005) emphasizes that internal audit is an independent appraisal function established

within an organization to examine and evaluate its activities as a service to the

organization. The objective of internal audit is to assist members of the organization in the

effective discharge of their responsibilities. According to Gupta the scope of internal audit

10

is determined by management. Looking at this conceptualization, we find the possibility

of impairing the internal auditor’s objectivity and hampering his/her independence. In fact,

it is quite hard to report negatively on someone who determines the scope of your work.

One thing in common in these definitions is that of taking consideration on the main

objective of internal auditing as to provide assurance to the management that the internal

control system in the organization is sound in design and effective in operation. Apart

from that, it should help to achieve value for money (Momoh, 2005). This is also

advocated by URT (2005) through its Internal Audit Manual to Local Government

Authorities that provides description on internal auditing as being an independent

appraisal activity established within the unit involved, and which controls its activity

functions by examining and evaluating the adequacy and effectiveness of internal controls

in the council or unit and for conducting operational or value for money audit throughout

the council or unit.

2.1.2 Internal Auditor

Following from the above definitions, we can describe an internal auditor as an employee

within an organization's internal audit department who is assigned with the responsibility

of performing internal auditing functions. An Internal Auditor is normally interested in

determining whether a department has a clear understanding of its assignment, is

adequately staffed, maintains good records, properly safeguarding cash, inventory and

other assets and cooperates harmoniously with other departments (Jurchescu, 2010;

Whittington &Pany, 2001). In fact, the internal auditor normally reports to the top

management.

2.1.3 Internal Control

URT (2005) defines internal control as a set of systems operated by council or unit to

ensure that financial and other records are reliable and complete and that they adhere to

11

management policies, and insures proper recording and safeguarding of assets and

resources. In fact, internal control is not confined to issues of finances alone, but it ensures

reliability of all other records and systems.Oshisami (1993:50) somehow deviates from the

definition of the United Republic of Tanzania, URT (2005) by defining internal control as

“the managerial functions of defining and allocating responsibilities and identifying line of

reporting that encompass all aspects of operations for the attainment of corporate

objectives of an organisation.” The Operational Auditing Guideline on internal control as

cited in Shehu (2004) and Jenfa (2002) identifies some classification of internal control

system which include among others; organisational control, segregation of duties, physical

control, authorisation and approval control. Others are arithmetical and accounting

controls, personnel controls and supervision control. This shows that in order for internal

control system to be complete, it must contain the above prescribed components so as to

ensure its comprehensiveness and effectiveness.

2.1.4 Financial Control

When it comes to financial control per se, Buhari (2001:174) looks at the concept as “the

process of ensuring that cash and other financial resources of government are in

accordance with the legislation, regulation and accounting manual which constitute legal

and administrative framework of a particular entity.” Other authors who support this

conceptualization are Anfayo (1994) who defines financial control as a process of

assuring that cash is used properly and for authorised programmes (involves observation

and measurement by comparing actual performance against the planned and correcting

variances), as well as Adams (2004) and Mainoma (2007) who both conceptualize

financial control as the steps taken to ensure maximum safe custody of financial resources

in order to avoid waste, misuse, embezzlement, misappropriation or illegal disposal of

public finance.

12

According to Anthony and Govindarajan (2007), typical process for financial control

includes the steps like: (1) actual performance which is compared with planned

performance, (2) measuring the difference between the two, (3) indentifying causes

contributing to the differences and (4) taking corrective actions to eliminate or minimize

the difference.

Sound financial control systems are powerful instruments for preventing, discovering or

facilitating the punishment of fraud and corruption. The important elements include the

organization and staffing of local revenue administration, the effectiveness of auditing

system and the realism of budget (Langlois et al, 1998). Infact, financial control is an

important element for public sector reform, which in turn incorporates elements of skills

building and institutional strengthening.

Moreover, the most recent applicable definition for internal auditing, which designed to

accommodate the profession’s expanding of role and responsibilities, provides a clear

understanding of these key terms namely; internal auditing, internal control and financial

control. The new definition states that:

“Internal auditing is an independent, objective assurance and consulting

activity designed to add value and improve an organization’s operations.

It helps an organization to accomplish its objectives by bringing a

systematic, disciplined approach to evaluate and improve the

effectiveness of risk management, control, and governance processes”

(IIA, 2009).

According to Chapman & Anderson (2002), this new definition of internal auditing

presents a new image of the profession in six significant ways in which all these key terms

operate.

13

1. As an objective activity, not necessarily established within the organization, the

revised definition permits internal auditing services to be provided by “outsiders,” in

effect acknowledging that quality internal audit services can now be obtained

through outsourcing.

2. By emphasizing that the scope of internal auditing encompasses assurance and

consulting activities, the new definition projects internal auditing as proactive and

customer-focused, and concerned with key issues in control, risk management, and

governance.

3. By explicitly stating that internal auditing is designed to add value and improve an

organization’s operations, the new definition underscores the significant

contribution that internal auditing makes for any organization.

4. By considering the whole organization, the new definition perceives internal

auditing mandate much more broadly, charging it with helping the organization to

accomplish overall objectives.

5. The new definition assumes that controls only exist to help the organization manage

its risk and promote effective governance. Such a perspective considerably broadens

the horizons of internal auditing and expands its working domain to include risk

management, control, and governance processes.

6. The new definition accepts that the internal auditing profession’s legacy, consisting

of its unique franchise in being a standards-based profession.

2.2 Theoretical Framework

There are several different theories that may explain the demand for audit services. Hayes

et al., (2005) illustrate four audit theories. These include theory of lending credibility,

theory of rational expectations, agency theory and the policeman theory. However, this

study adopted only one of the theories which suits the study. This is the policeman theory

14

which has been found modest due to its inclusion of fraud as among the cornerstone

demands to internal audit departments.

2.2.1 The Policeman Theory

The policeman theory states that the auditor is responsible for searching, discovering and

preventing fraud. Fraud was defined in the Klynveld Peat Marwick Goerdeler (KPMG)

Survey (KPMG, 2004) as: Any dishonest activity involving the extraction of value

from a business or whatever, directly or indirectly, regardless of whether the

perpetrator benefits personally from his or her actions.

In the early 20th century, this was certainly the case. However, more recently the main

focus of auditors has been to provide reasonable assurance and verify the truth and

fairness of the financial statements. The detection of fraud is a hot topic in the debate on

the auditor’s responsibilities, and typically after events where financial statement frauds

have been revealed, the pressure increases on increasing the responsibilities of auditors in

detecting fraud (Ittonen, 2010). This has been the most widely held theory on auditing

(Hayes et al., 1999). Under this theory, an auditor acts as a policeman focusing on

arithmetical accuracy and on prevention and detection of fraud. In fact, it is due to this

theory where practically, in many organizations, workers consider auditors as policemen,

while it is not the case. On the other side, the weakness of this theory, however, is in its

inability to explain the shift of auditing to verification of truth and fairness of the financial

statements which led the theory to lose much of its explanatory power. Nevertheless, since

detection of fraud is still topical in the debate about auditor’s responsibilities, the theory

becomes relevant for the study at hand.

2.3 Empirical Review

In this section, there is presentation of some available empirical findings with respect to

the study. The section provides success stories in internal auditing as well as situations

15

which face some challenges. Most of the challenges mentioned refer to situation of lack of

legal provisions to support internal audit functions in local governments. Other

impingements are caused by lack of sufficient capital that results into various departments

not being audited effectively.

It is reported that, internal auditing in the Ontario province of Canada, for example, has

experienced a cultural and functional transformation in late 1990s. In 1998, as a first step

toward improving its internal audit service, the provincial government combined small

units that provided auditing service to the province’s ministries and created an integrated

internal audit division under the direction of a chief internal auditor. Over the course of a

year, the division undertook a strategic planning exercise to develop its vision, mission,

values, and strategic goals. The strategic plan that emerged from this exercise established

a client-focused vision for the division and provided a framework for serving the needs of

the province. The transformation process gained support from senior management and the

cabinet approved an internal audit directive to serve as the division’s most important tool

for ensuring sound corporate governance. After the transformation was complete, the

client satisfaction rating rose steadily, from 75% in 1999 to 88 percent in 2003(Lapointe,

2004). The staff and clients thereafter considered the auditors as business partners and

valuable contributors to effective, efficient programme delivery rather than as adversaries.

This is a scenario where internal audit provided positive transformation.

However, (Mirzeyev, 2009) reports that the state of internal audit in municipal companies

is also the same. In fact, there is no institutional and policy framework in guiding the

activity of local self-government for the case of Azerbaijan internal audit system in

municipalities. For instance, it is reported that, the functions vested to municipal councils,

which perform major functions of local self-government structures, executive power of

municipalities and standing commissions exclude well-established norms for internal audit

16

of municipalities (Mirzeyev, 2009). According to the author, there are few legal provisions

which support internal audit mandate. For example, it is reported that only article 13.1 of

the Law on financial bases for municipalities stipulates in a rough manner that municipal

bodies control over local budget execution. It is also much more speculative legal norm -

it is not obvious which municipal structures should scrutinize it, and what are the forms of

scrutiny to be implemented. Another example is provided under article 12.1 of the Law on

local (municipal) taxes, that the financial activity of municipalities shall be scrutinized by

Review Commissions comprised of community members who are subject to approval in

municipality meetings. Accordingly, it can be seen that there is no professional audit in

municipal bodies, in fact, what is implemented is purely community audit.

Further findings display that, a number of countries, particularly members of the

Commonwealth, have even revised their audit laws in recent years to give statutory

support to performance audit (Fiji Audit Report, 1997). Beside that, lack of sufficient

funding appeared to have led to circumstances where the Audit Office was not in a

position to meet staff travelling costs outside of the central regions. Consequently,

departments and local government authorities situated in various locations in Fiji were not

audited in a timely manner (Fiji Audit Report, 1997).

Further studies held in the past years display the role of internal audit units in the control

of funds. Carlsberg et al, (1985) provide some empirical support for the financial control

effectiveness in LGAs. In their sample of fifty (50) district councils in the United

Kingdom, seventy percent of the respondents acknowledged the importance of internal

audit mechanisms in monitoring the effectiveness of the performance in LGAs.

Furthermore, a report given by Research for Poverty Reduction, REPOA in 2006 on

measuring performance of service delivery to the six LGAs in Tanzania indicated that

84.2% of the respondents observed that there is embezzlement of public resources in local

17

government authorities. Then the report cited poor adoption of financial control

mechanisms (including internal audit units) as the main reason for the embezzlement and

resulting poor service delivery.

Apart from that, it has been narrated that, the challenges that Tanzania has been facing

since independence are not only how to set up an appropriate political administrative

framework for participation and national development of citizens, but also to set up proper

internal audit mechanisms and other financial management systems in LGAs (Carlsberg et

al, 1985). Therefore, it seems that the reason for seeking common challenges facing

internal audit units in LGAs in Tanzania is so vital because since independence it has

become an issue of discussion.

Generally speaking, internal auditing departments in many organizations help the

management of such organizations towards solving some of their problems (Jerome,

2009). In fact, an organization that has internal audit units enjoys two main benefits,

namely; 1) prevention and detection of irregularities and 2) economy, efficiency and

effectiveness of various sections of the organization (Aguolu, 2009; ATwaijr et al., 2003).

However, it is not uncommon to find studies reporting several challenges facing internal

auditing in LGAs (Fiji Audit Report; Mirzeyev, 2009; Ojo, 2009).

Hence, it seems that in both African and developed countries, there are still various

challenges facing internal audit units in LGAs despite the effort made to accomplish the

issue at hand. Akpan, (1984) shows that financial control mechanisms (amongst internal

audit units) are faced by many challenges, in which poor application of financial control

and less consideration of these challenges in LGAs lead to poor provision of social

services to the citizens in most African countries.

Functions of Internal Audit Provision of securityProvision of management advice Ensuring effective management of public income and expenditureEnsuring proper activities in organization Helping achievement of objective Evaluate and improve efficiency and effectiveness of internal control systemUndertake risk management and management processes.

Intervening VariableChallenges facing the internal Audit

Performance of the Internal AuditPerformance of internal financial controlInvolvement Monitoring and evaluation

18

2.4 Conceptual Framework

The conceptual framework that guided the study is hereby presented pictorially as shown

in figure 2.1.

Figure 2.1: Conceptual framework

Source: Researcher’s Reflection from the Reviewed Literature, 2013.

Discussion of the Model

As depicted from the conceptual framework shown above, internal audit has several

functions to accomplish (for example, Millichamp, 2000; Unegbu and Kida, 2011;

Whittington &Pany, 2001; Jurchescu, 2010; Momoh, 2005). Some of these functions are

well illustrated in the figure under the box that represents functions of internal audit.

However, these functions are not adequately and effectively implemented (Fiji Audit

Report, 1997) as shown in the figure under performance of internal audit. This inadequacy

19

of performance of internal audit which results into frauds, misappropriation of public

funds and the like is caused by the various challenges which the internal audits units face

in public organizations, among others. These challenges are the centre of investigation in

this study.

2.5 Research Gap

There have been documented incidences of fraud, mismanagement as well as mishandling

of public funds. There are also circumstances shown in the literature where reports

produced by CAG possessed significant deviations from reality something that called

upon new investigations. Further, literature shows inadequacy in implementing internal

audit functions across the globe. Furthermore, literature is somehow scant on the various

challenges that internal audit units might be facing to breed to all these anomalies. This

showed the gap of knowledge that this study intended to fill. It is on that basis where this

study was actualized within Tanzanian Municipal Council to investigate the challenges

facing internal auditing in financial control.

20

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter describes how this research was conducted. It presents discussion on the

study setting, research design and approach. It also presents issues of sampling units and

their selection, data collection methods as well as procedure. Thereafter, the chapter lays

down data analysis techniques that were employed. Finally, the chapter winds up by

discussing validity, reliability and ethical issues for the study.

3.1 Study Setting and its Selection

This study was carried out in Dodoma Municipality. One of the criteria used to select the

study area was that Dodoma is the capital of the country, thus it should be expected to be

the model of other Local Government Authorities in terms of internal controls and other

best practices. Apart from that, the area provided convenience to the researcher due to its

closeness to the workplace. According to Kothari (2004), convenience is enough

justification for a researcher to decide on the research setting. Further, this research setting

has been found modest because the researcher was promised accessibility of data and

information. That is, there was possibility to learn from the study setting. Stake (1998),

argues that, when selecting area for study as well as respondents, balance and variety are

important but opportunity to learn is of primary importance.

3.2 Description of the Study Setting

As mentioned above, the study was conducted at Dodoma Municipal Council within the

Dodoma Region in Tanzania. Dodoma was founded in 1907 by German colonists during

construction of the Tanzanian central railway. When the government announced in 1973

that the capital would be moved to a more central location, to better serve the needs of the

21

people, Dodoma was selected. It was an already established town at a major crossroad,

with an agreeable climate, impressive landscape, and room for development. One year

later, then the Dodoma district was split into two new administrative districts as Dodoma

urban and Dodoma rural, with the former having a township council.

In July 1980, after a series of landmark decisions, Dodoma town was granted a municipal

status. Therefore then the Dodoma township council became Dodoma Municipal Council.

In 1986, the United States architect James Rossant developed a master plan for the new

capital, sponsored by the United Nations and various plans were drawn up. Officially, the

Tanzania's National Assembly moved the capital to Dodoma in February 1996, but many

government offices remain in the previous national capital (Dar es Salaam) which remains

as the commercial capital.

3.2.1 Geographical Location

Dodoma municipality is the capital of the united republic of Tanzania and substantive

place of the Tanzania parliament. It is one of the seven administrative districts that make

up Dodoma region. Dodoma municipality is located in the centre of the region, lying at

latitude 6.000 and 6.300South and longitude 35.300 and 36.020 East. It is 486 kilometres

East of Dar es salaam, the Tanzania commercial and industrial city, and 441 kilometres

South of Arusha, the headquarters of the East African Community (EAC) and the leading

Tanzania tourist centre.

3.2.2 Infrastructure

The city is also served by the Central railway line which connects it over a distance of 465

kilometres with Dar es Salaam in the east. The city's airport, Dodoma Airport is managed

by the Tanzania Civil Aviation Authority (TCAA); the size of planes is limited to small

private aircraft. There are plans to build a new airport outside the city with increased

22

runway length and weight-bearing capacity. Dodoma municipal authority is also

responsible for the upkeep of the nearby Hombolo Dam.

3.2.3 Area and Physical Characteristics

Dodoma municipality covers an area of 2,769 square kilometres, of which 625 are

urbanized. Dodoma municipality stands on a broad upland plateau with an altitude ranging

between 900-1000 meters above the sea level, with beautiful stony hills such as Imagi,

Isanga and Mlimwa. Due to unreliable rainfall, it has scanty vegetation, which consists

mainly of bush thickets mixed with annual herbs, grasses and baobab trees.

3.2.4 Climate

Dodoma municipality features a semi-arid climate with relatively warm temperatures

throughout the year. While average highs are somewhat consistent throughout the year,

average lows dip to 13 °C (55.4 °F) in July. Even though, this situation may change

accordingly. Dodoma averages 570 mm of precipitation per year, the bulk of which occurs

during its wet season between November and April. The remainder of the year comprises

the city’s dry season.

3.2.5 Administrative Setup

Dodoma municipality is one of the seven districts that make up Dodoma region, these are;

Dodoma Municipal Council, Chamwino, Kondoa, Mpwapwa,Kongwa, Bahi and Chemba.

Administratively, Dodoma municipal council is divided into four divisions, thirty wards

and forty villages.

23

3.2.6 Demographic Characteristics

Based on the population and housing census of 2012, the population of Dodoma

municipality is 2,083,588 people of which 1,014,974 are male and female are 1,068,614.

The population growth rate in Dodoma Municipality is 2.3.Dodoma is populated by

different ethnic groups because it is a government administrative centre, although the

indigenous ethnic groups are the Gogo, Rangi, and Sandawe(IRDP, 2010). There are also

small Arab and Indian minorities.

3.2.7 Economy

About 75% of the municipal income is derived from farming and livestock keeping. Apart

from that, retail shops business, civil servants, consultancy and construction work make

25% of the municipality income (IRDP, 2010). The contribution of the industrial sector is

low due to little industrial investment and nature of the water available around the

municipality. It is reported that, water around Dodoma municipality is salty that does not

support several types of industries without special treatment.

3.2.8 Education

There are two universities in Dodoma: St Johns University of Tanzania, owned by the

Anglican Church of Tanzania, and the University of Dodoma, currently with about 20,000

students. The latter is projected to have a total of 40,000 students in days to come. Both

universities officially opened in 2007. Apart from that, there are also number of colleges

and institutes which deliver quality education. It is the only Municipality in Tanzania

where there is the presence of the Institute of Rural and Development Planning (IRDP).

Other colleges/Institutes available are the College of Business Education (CBE) –

Dodoma branch, Aseki Business School, Hombolo Institute of Local Government, etc.

24

3.2.9 Structure of the Municipal Council

Currently, in (2012-2013)when this study was undertaken, it has been seen that Dodoma

Municipal Council has a total number of 2,114 employees, where 11% were working at

the head office. Administratively it had three common units which are: Planning and

Statistics, Internal Auditing, and Legal and Security. Furthermore, it had seven

departments namely:

a) Human Resources and Administration;

b) Finance and Policy;

c) Education and Culture;

d) Community Development;

e) Health cleanness and Social welfare;

f) Agriculture;

g) Livestock and Cooperative;

h) Construction;

i) Water, and;

j) Fire and Environment.

Actually, Dodoma Municipality is within Tanzania at the Dodoma Region in the centre of

the country, whereby the mayor of the municipality is meanwhile Emmanuel Mniko and

the Director of Dodoma Municipal Council is Mr Robert Kitimbo.

According to the Medium Term Plan and Budget for 2010/2013 of the Dodoma Municipal

Council, the vision of the Municipality states that;

“Based on the current status, the Dodoma Municipal Council in the next ten years

(2003-2012) intends to improve economic and social services, good governance,

protects the environment for sustainable social - economic development”

25

The following pictures below represent the astronaut view of Dodoma together with the

map of Tanzania which displays the position of the Dodoma.

Figure 3.1: Astronaut View of Dodoma

Figure 3.2: Dodoma Position in the Map of Tanzania

26

3.3 Research Design

Cohen et al.,(2000) define research design as the design which is concerned with how social

reality or phenomenon can be studied. Research design is the conceptual structure within

which research is conducted; it constitutes the blue print for the collection measurement and

analysis of data (Kothari, 2004). Furthermore, Bryman and Bell (2007) advocate that,

research design is the element which provides the framework for the collection and analysis

of data. Mainly, research design deals with a logical problem and not a logistical problem

(Yin, 1994). Therefore, actually, this research adopted a descriptive case study design.

According to Yin (1994), descriptive case studies attempt to describe a situation regarding

what happens. It is the case study which is intended to gain more information about the

nature of particular area of the study and providing picture of the situation so as to identify

the problems (Burns and Grove, 2001). Furthermore, the case study research design

involves making a detailed analysis of a single or small number of selected cases, in case

the researcher wants a rich understanding of the context and to answer how and why

question are effective. In addition to being a descriptive case study, this study adopted a

holistic case methodology as opposed to multiple embedded methodology. It is

acknowledged that, multiple embedded case design is stronger compared to holistic case.

This is due to its ability to allow comparisons (Glaser and Strauss, 1967), however,

undertaking the study at hand using multiple embedded case design could have required

considerable amount of time.

3.4 Research Approach

Bryman, (2004) winded up with three distinct approaches to research: quantitative;

qualitative; and what is variously called multi-methods (Brannen, 1992), multi-strategy

(Bryman, 2004), mixed methods (Creswell, 2003; Tashakkori and Teddlie, 2003), or

27

mixed methodology (Tashakkori and Teddlie, 1998) research. More still, Creswell (2003)

argues that, there are three different research approaches: qualitative, quantitative, and

mixed methods approach. Thus, this study employed mixed approach which was

considered appropriate to meet the demands of research questions which guided the study.

That is, the study employed qualitative as well as quantitative approaches. According to

Johnson and Onwuegbuzie (2004), Mixed methods approach is formally defined as the

class of research where the researcher combines quantitative and qualitative research

approach into a single study. This approach was applied in order to make use of the

compatibility of the quantitative and qualitative methods, rather than polarising them, for

complementary and triangulation purposes (Bamberger, 2000).

Due to that, it was possible to also triangulate both methods of data collection and their

sources. It is hoped that, the approach helped in improving credibility of the research

findings as contended by Janesick (1998) as well as Creswell (2003). In addition to that,

Easterby-Smith et al (2004) states that the combination of both methods of research

enhances and maximises the quality of the research.

3.5 Sampling Units, Size and their Selection

Krishnaswami (2002:143) defines sampling as “the process of drawing a sample from a

larger population”. Therefore, it is a process of obtaining the number of elements whereby

one would wish to make inferences. In addition to that, population is the target group to be

studied in a particular place while a sample is a part of it (Krishnaswami, 2002). Samples

are used in conducting research rather than the whole population because of costs in terms

of funds, time and materials that can be involved in surveying the whole population.

This study made use of two categories of sampling units. These were employees and

management. Employees included those dealing with issues related to auditing, planning

and finance. Management comprised of heads of departments and the Director of the

28

Municipality. One advantage of using a case study design is that of triangulating methods,

data as well as sources of data (Janesick, 1998). This advantage was utilized in this study.

Accordingly, the total number of sampling units in conducting this study was thirty (30)

employees from three preferred units of the Dodoma Municipality, namely; planning,

finance and internal auditing units. Hoggs and Tanis (1972) commented that, 25 to 30

respondents are adequate for analysis and reporting purposes. Therefore, 30 participants in

this study from the three units in Dodoma Municipality were considered to be adequate

because the study itself was more qualitative than quantitative. Apart from that, this

number of respondents was considered to be sufficient for improving accuracy of the

findings as proposed by Aczel (1999). Absolutely, this sample provided a sufficient

number for meaningful statistical analysis and presentation which enhanced accuracy

(Bailey, 1994).

For the case of employees, selection was done based on opportunity to learn as proposed

by Stake (1998). That is, all the mentioned types of employees were requested to take part

in the study after explaining the objective of the research. However, those who declined

for some reasons were not compelled. As far as management respondents are concerned,

their selection was governed by purposive sampling. That is, they were selected on virtue

of their positions they were holding. This selection was found to be proper because

respondents selected based on virtue of their positions are normally information rich

which is the philosophy of qualitative studies.

3.6 Data Collection Method

According to Krishnaswami (2002:197) “data are facts, figures and other relevant

materials, past and present that serve as basis for the study and analysis”. He further states

that, data may be classified into primary and secondary depending on the sources and

nature of information. Primary data sources are first-hand information collected through

29

methods such as observation, interviewing, mailing and questionnaires. On the other hand,

secondary data sources are information which have been collected and compiled for

another purpose. Generally, secondary data are the data which consist of published and

unpublished records and reports. Examples include census reports and annual reports

(Krishnaswami, 2002).This study employed various techniques of data collection methods

as described in detail hereunder.

3.6.1 Questionnaire

A questionnaire is a set of carefully prepared questions designed with the aim of collecting

reliable data from selected participants (Remenyi et al., 2005). Oppenheim (1992) defines

a questionnaire as a tool for collecting and recording information about a particular issue

of interest. It is made up of a list of questions and it should always have a definite purpose

which is related to the objectives of the research. Questionnaires are commonly used to

gather straightforward information relating to people’s behaviour or to look at basic

attitudes and opinions of people relating to a particular issue.

This study employed a semi-structured questionnaire which comprised of both closed and

open ended questions to obtain information from respondents. This particular vehicle of

data collection was used to collect data and information from employees of the

Municipality. A sample of this instrument is shown as Appendix 1.

3.6.2 Interview

Cooper and Schindler (2008) define interview as a primary data collection technique for

gathering data in qualitative methodologies. The interview method of collecting data

involves presentation of oral verbal stimulus and reply in terms of oral verbal response

(Kothari, 2004).Saunders et al (2007) classified interviews into three types as; structured

interview, semi-structured interview and unstructured interview. In this study,

30

management respondents were interviewed by using interview guide. Interview is

normally guided by structured or semi structured questions which are used to obtain

information from respondents about particular situations, problems or topics. According to

Yin (1994), interview must be guided by an interview protocol which is necessary in

improving reliability as well as validity of the study findings. This technique was

employed in this study. The sample of the protocol that was used to collect data and

information from the management is shown as Appendix 2.

3.6.3 Documentary Review

Best and Kahn (2006) define documentary review as data collection method, which

involves deriving information by studying written documents. Documents are any written

or recorded materials which are not prepared at the request of the inquirer or for the

purpose of evaluation (Guba and Lincolin, 1985). Documents range from public through

private to personal documents. The list of public document sources include government

publications such as Acts of Parliament, policy statements, census reports, statistical

bulletins, reports of commissions of inquiry, ministerial or departmental annual reports,

consultancy reports, etc. Private documents often emanate from civil society organizations

such as private sector businesses, trade unions and non-governmental organizations, as

well as data from private individuals.

They include minutes of meetings, board resolutions, advertisements, invoices, personnel

records, training manuals, interdepartmental memos and other annual reports, etc. The list

of personal documents include household account books, photo albums, address books,

medical records, suicides notes, diaries, personal letters, etc. This is highly justified by Raj

(2005) who puts that documentary review refers to a source of information which

31

contained in the published and unpublished documents, reports, statistics, manuscripts,

letters or diaries possessed by individuals, institutions or organizations.

Apart from using primary data as indicated above, this study also made use of secondary

data which were obtained from various secondary sources of information. These included

sources like reports, books, internet, various publications, theses, journal articles, reports,

etc. The need of using secondary data in this study was contributed by many factors

including saving of money and time. Even though, the advantage of using secondary data

was not only saving in terms of money as well as time involved in data collection, but also

in order to provide comparison in which one could easily interpret and understand data

(Pervez et al., 1995).Consequently, it is further known that, the main reason for using

documentary review was that, documents are stable in that they can be reviewed

repeatedly to provide the required information.

3.7 Data Collection Procedure

Before data collection took place, instruments (questionnaire for employees and study

protocol for management) were first prepared. After that, the instruments were pilot tested

in order to improve both validity and reliability. According to Appiah-Adu at al., (2000), it

becomes more vital for qualitative study to undertake pilot testing of instruments because

both validity and reliability measures are more qualitative than they are quantitative.

Moreover, Janesick (1998) justifies that pilot testing of a questionnaire has several

advantages which include but not limited to allowing the researcher to focus on particular

areas that may have been unclear previously, testing certain questions in the instruments,

and allowing the researcher to begin developing and solidify rapport with participants as

well as establishing effective communication patterns. Therefore, it is very important to

take measures to improve validity and reliability at the beginning of the study, one of the

32

measures being to undertake pilot testing. After pilot testing of the study instruments, they

were amended as per the findings obtained. Thereafter, the instruments were printed for

data collection exercise that was followed by analysis and report writing.

3.8 Data Analysis Techniques

Data Analysis is the process of systematically applying statistical and or logical techniques

to describe, illustrate, condense and recap, and evaluate data. According to Shamoo and

Resnik (2003), various analytic procedures provide a way of drawing inductive inferences

from data and distinguishing the signal (the phenomenon of interest) from the noise

(statistical fluctuations) present in the data. Kothari (2004) highlights that, data analysis is a

systematic process involving working with data, organizing them and dividing them into

small manageable parts. According to Yin (1994), analysis of case study data is difficult

because the strategies and techniques have not been well defined in the past. In addition,

Yin (1994) as well as Miles and Huberman, (1994) opine that few attempts have been done

to put down strategies and techniques for analysing case studies. For this reason, much of

the work in analysing case studies depends on the investigator’s own style of rigorous

thinking, along with the sufficient presentation of evidence and careful consideration of

alternative interpretations of data (Yin, 1994).

Since the study applied mixed method approach, then the data collected by the researcher

were both quantitative and qualitative data. Carter and Little (2007) described quantitative

data as numerical data which is based on facts and figures. In this study, the quantitative

data analysis involved tabulation, use of frequencies and percentages. In so doing Excel

software was of great support.

More still, Carter and Litter (2007) hold the view that, qualitative research enables the

researcher to rely on words rather than using numerical data when carrying out the

33

investigation. With that in mind, this study adopted three basic qualitative techniques in

analysing qualitative data. These were comparison of data and information between the

sampling units, pattern matching of data and by the use of explanation building as

proposed by Yin (1994). In conducting the analysis, the guiding principle used was the

analytic strategy (research objectives) as recommended by Yin (1994).

3.9 Validity and Reliability

Patton (2002), states that, validity and reliability are two factors which any qualitative

researcher should be concerned about while designing a study, analysing results and

judging the quality of the study. Also, validity and reliability are two important aspects in

order to approve and validate the quantitative research.

Moskal & Leydens (2002) define validity as the degree to which the evidence supports the

interpretations of the data are correct and the manner in which interpretations used are

appropriate. Validity means that correct procedures have been applied to find answers to a

question (Dawson, 2002). Reliability on the other hand, refers to the quality of a

measurement procedure that provides repeatability and accuracy (Dawson, 2002).

According to Joppe (2000), reliability is the extent to which results are consistent over

time and an accurate representation of the total population under study.

Reliability in this study was improved by pilot testing the data collection instruments as

suggested by Yin (1994) as well as Janesick (1998). This ensured that respondents

understood the questions in the same way. On the other hand, as regard to the qualitative

research, three methods are suggested for validation, these are; triangulation of data, pilot

testing and respondent validation (Silverman, 1993). Due to the nature of this study, two

methods were used for improving validity of the findings. These were pilot testing the

study instruments and triangulation of data. As regards to pilot testing, data were collected

after making some revisions on the study instruments which ensured that data collected

34

were the ones intended. For the case of triangulation of data, information was collected

from the management, employees and from documentary sources. This helped in looking

at the same thing from various angles.

3.10 Ethical Consideration

Dörnyie (2007) highlighted that ethical issues are more colossal in research. Cohen et al.,

(2007) introduced a cardinal point of view regarding ethics in research by stating that: the

difficulty and yet the strength with ethical codes is that, they cannot and do not provide

specific advice for what to do in specific situations.

Therefore, the administration of the instruments was preceded by securing the required

research permit from the Directorate of Research, Publications and Postgraduate Studies

of the Open University of Tanzania. The authorization helped the researcher to obtain

another permit from the Dodoma Municipal Council authority, to conduct research work

in the selected area. Despite of official permission to conduct the research, confidentiality

was maintained as it obviously touched the freedom of the respondents. This enabled the

respondents to participate freely in data collection exercise. The instruments were

administered carefully without snooping the progress of the other daily routine activities

in the departments included.

CHAPTER FOUR

FINDINGS AND DISCUSSION

35

4.0 Introduction

This chapter presents the major results and discussions arising from the data analysis

related to the challenges which face internal auditing in financial control in LGAs by

taking the case of Dodoma Municipality. It has been divided into four sections: profile of

respondents, mechanism used by LGAs in auditing activities, performance of internal

auditing in LGAs and the challenges facing internal auditing in LGAs.

4.1 Profile of Respondents

The study respondents during the field data finding were the employees of the Dodoma

Municipal Council from the three aimed sections, namely; internal auditing unit, planning

and financial section of the Council. Another respondent was the Director of the

Municipality who was also included in the study. This section provides profile of

employees from the three departments only. The profile covered working

departments/sections of the respondents as well as their gender distribution. This analysis

has been done specifically to show the representation of the respondents with regards to

their sex and where they belong within the Municipal Council.

4.1.1 Working Departments of Respondents

As depicted in Table 4.1, 20 respondents of this study (66.7%) come from finance section,

while six respondents (20%) were from the department of planning and the remaining four

(13.3%) respondents of the study represented the internal audit unit. In fact, these

respondents covered almost all employees in their responsible sections.

Table 4.1: Distribution of Respondents by Departments

Department/Section Frequency Percentage (%)

36

Finance 20 66.7

Planning 6 20

Internal Audit 4 13.3

Total 30 100

Source: Field data (2013).

4.1.2 Sex Distribution of the Respondents

It was also found modest to have profile of customers especially with regard to their sex.

A total of thirty (30) respondents were involved in this study, whereby twelve respondents

were male (40%) while eighteen respondents (60%) were female. This shows that, in this

study female respondents were well represented. In addition, since the study covered

almost all the employees in the three departments, it seems that Dodoma Municipality has

excelled in considering female representation in its employment process which is also an

indication that there is increasing numbers of women in the work force in some

government institutions. According to International Labour Organization ILO (2004), the

number of women in the work force has been increasing over the years with the

corresponding increase of the number of highly educated women.

The table 4.2 summarizes the distribution of the respondents according to their sex.

Table 4.2: Sex Distribution of the Respondents.

Gender of the Respondents Frequency Percentage (%)Male 12 40Female 18 60Total 30 100

Source: Field Data(2013).

4.2 Findings and Discussion

This section is devoted to the findings of the study. In presenting the findings, analytic

strategy was employed as recommended by Yin (1994) as well as Miles and Huberman

37

(1994). The presentation of findings is followed by some discussion which further

elaborates about the findings documented.

4.2.1 Mechanism Used By LGAs in Auditing Activities

The first objective of this research was to understand the mechanism used by LGAs in

auditing activities. The major aim of this section was to answer the question: “What is the

mechanism used by Local Government Authorities in auditing activities?” To address the

objective, two issues were looked at, namely; procedure used in conducting auditing and

the techniques which are used in auditing activities. The issues are presented in the

following section.

4.2.1.1 Procedure Used in Conducting Auditing

The study findings displayed the standard operating procedures which are used in

conducting the auditing activities in Dodoma Municipal Council. The respondents in

majority declared the common procedures which are effectively used, namely; audit plan

preparation, field visit audit, and result’s report including evaluation and follow up. Clear

illustrations of the above procedures are described here under:-

i) Audit Plan Preparation

The first procedure in which respondents from the study reported was the preparation of

the audit plan. Internal audit should prepare an audit plan that identifies internal audit’s

objectives and strategies, and how the audit work will be undertaken. The findings show

that according to the respondents, the audit plan includes four major steps, namely:

a) To make communication with audited departments prior the auditing

exercise.

38

The auditors prepare engagement letters to the heads of the departments or offices

which need to be audited or to the Director. According to the respondents, seniors

are informed at least one month prior the auditing takes place. Furthermore, it was

reported that this depends upon the auditing system which is required to be used in

auditing exercise. For example, if surprise audit needs to be done at the cash office,

there is no large time interval of communication, in which case the audited are just

given information of the audit exercise at most three hours before auditing takes

place.

b) Preliminary survey.

Findings showed that, after the communication step is done, the auditors meet with

departments’ management which need to be audited at least two weeks in advance

for discussion about the scheduled audit work. The respondents said further that,

the major aim is to look on the risk considerations of the organization according to

the audit date planned, and also to look on the current management concerns due to

the annual plan.

c) Audit programme preparation.

The study findings portrayed that, after both auditors and audited management

come into compromise of the effective date to start the audit exercise, then, the

auditors prepare the auditing programme. One respondent explained the audit

programme as shown below:

“Audit programme is a series of audit steps to complete an audit

objective. It outlines the following main areas; the effective

auditing date, which department will be firstly audited and also the

audit completion date must be nominated”.

39

d) Documentation.

After finishing the formulation of auditing programme, the auditors start to collect the

appropriate documents needed in the auditing activity and maintain them in good place

waiting for auditing date to start. These key documents provide the information that the

auditors can use to gain a good understanding concerning with the auditing work. The

study findings displayed the information needed as, Acts and related regulations, policy

and procedures with standards manuals and directives, results of previous audits, etc.

ii) Field visit

The respondents from the study said that the second auditing procedure is to conduct the

fieldwork. One respondent reported that:

“The auditors in this stage carry out the fieldwork as indicated in the audit

programme”.

Furthermore, the respondents commented that, in this procedure, the auditors obtain

cooperation from staff members and line management for obtaining the required

documentation and even possibility of interviewing them. According to the findings, the

field visit depends upon the nature of the auditing held. For example, if the auditing is

value for money, the auditors will need to go to the site for verification. In highlighting

this, one respondent reported as follows:

“The international auditors say that, whenever possible, obtain information

from central sources rather than from department staff members’’.

iii) Reporting

40

In continuing to explain the auditing procedure in the organization, reporting was another

point which was taken into account. With this regards, one of the respondents had this to

report.

“Actually, the auditors write the reports of what they have seen from the

field findings”.

Findings showed that, even though there are various criteria which are used in reporting,

but mainly the auditors use five attribution sheets for reporting. The main area considered

by the sheet is the systematic procedure of financial transaction. For instance, in case of

materials purchasing, the report will show if the purchase has been done according to Acts

and regulations, and if the procedures have been followed. Also, the report will display the

audit findings from the purchase issue, its effects, causes and auditors’ recommendation

about the issue. In explaining this report, the findings showed that, there are draft and

final report of auditing.

The draft report was reported as the first report that the auditors often write once after

terminating their auditing exercise. It includes the auditors’ findings about what they have

seen from the development projects comparing to the financial and non- financial

documents at the office. This report is then sent to the top management team headed by

the Director. When it is observed that there is a need of change, both auditors and

management team headed by Director make discussion about the report until they agree

with each other on what amendment should be done in the report. The accepted report is

then re-drafted as the final report by considering the proposed amendments. After that, the

report is distributed to all departments for day to day review in order not to repeat the

mistakes reported in it. The final report criteria have been asserted here under as reported

by one respondent.

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“The Final Report has its criteria which make it being in standard

form. It must include executive summary which summarizes the

primary observation, management responses and auditors’ conclusion

and recommendations about the findings”.

iv) Evaluation and follow up

Finally, findings showed that, after the final report is accepted by both parties (auditors

and top management), then auditors make periodical follow up to the audited departments

for ensuring that the amendments which have been accepted by both sides (auditors

&audited) are implemented as recommended.

Apart from that, the respondents provided their views about the whole procedure used in

conducting internal auditing in Dodoma Municipal Council, if it is in line with

International Standards of Auditing and International Public Sector Account Standard

(IPSAS) or not. From the study findings, the respondents highlighted their views which

were in three levels, namely; procedure being in line to some extent, to large extent and if

the procedure is not in line with IPSAS. These findings are widely asserted here under:

Majority of the respondents reported that the auditing procedure in the organization is in

line with International Standard of Auditing and IPSAS to some extent only. Those who

reported that, accounted for 53.3% of the total respondents. One of the respondents among

those who reported so was quoted saying that:

“If the procedure of internal auditing in this organization is in line with

IPSAS, will be to some extent only, because sometimes there are

payments which are made on weekly basis, whereby financial

regulations are not adhered to”.

42

Nine respondents of the study who represented 30% of the total respondents delivered

their opinions on the issue by saying that the procedure is in line with the required

standards to a large extent. For further justification one respondent in this group had this

to say:

“The internal auditing procedure is in line with International

Standards of Auditing and IPSAS to a large extent, because more than

ninety per cent of the internal auditing and accounting activities in

this organization follow the International Standard of Auditing and

IPSAS respectively.”

Beyond that, there were some of the respondents who reported that the internal auditing

procedure is not in line with International Standard of Auditing and IPSAS. These

respondents said that there are major indicators for any organization which are realized if

the organization’s auditing procedure is in line with International Standard of Auditing

and IPSAS. According to the respondents, in many LGAs including DMC, these

indicators are not available. For example, in supporting this, one respondent had this to

say:

“In fact, the auditing procedure in our organization and many LGAs

in Tanzania is not in line with the International Standard of Auditing.

This is ostensibly because, internal auditors in this organization do

not use Auditing Software which is the main indicator to any

organization being known if it follows international standards of

auditing or not. So, how can we say that our procedure of auditing is

in line with international requirements while we still use Manual

System in auditing activities?”

Another respondent having similar view asserted that:

43

“Our auditing procedure is not in line with international auditing

standards because auditors in this organization have no independence

in their professional work due to the political or self-interests of the

top management. In addition to that, there is acute shortage of

adequate facilities to the organization which leads to much time being

wasted in running the auditing activities. This situation goes contrary

to the international standard of auditing”.

The study findings also showed that the procedure is not in line with the International

Public Sector Account Standard (IPSAS) as illustrated by this respondent who had this to

report:

“In this organization and many LGAs in our country, accountants are

urged by top management of the councils to perform transactions that

were to be done through the chief treasurer. This situation interferes

the chief’s treasurer’s authority to enforce the adherence of financial

control mechanism on accountants and hence is not in line with the

IPSAS principles”.

From the total of thirty respondents, only five (16.7%) of the respondents shared their

ideas by saying that the auditing procedure in Dodoma Municipal Council is not in line

with the International Standards of Auditing as reported above. These findings are further

summarized in the Table 4.3:

Table 4.3: Auditing Procedure Compared to the International Auditing Standards

Standard of the Procedure Frequency Percentage (%)

44

Is in line to some extent 16 53.3

Is in line to large extent 9 30.0

Is not in line 5 16.7

TOTAL 30 100

Source: Field Data(2013).

4.2.1.2 Techniques Used in Auditing Activities

An effective approach to gathering audit evidence will normally incorporate a variety of

auditing tools and techniques. Different tools and techniques have various strengths and

weaknesses. For example, one may require a high degree of technical skill while the other

a high degree of interpersonal skill; one may be expensive but reliable, another

inexpensive but less reliable.

The study respondents tried to express various techniques /methods which are used in

internal auditing activities in Dodoma Municipal Council and which are common for

gathering audit evidence. The majority of the respondents reported the following four

techniques as the major techniques/mechanisms for conducting internal auditing in the

organization. These are; interviewing technique, documents review, verification and audit

test. They are further described below as follows

i) Interviewing Technique

Findings showed that, interviewing is a frequently used technique to gather evidence and

opinions. Interviews can help to define the issues, furnish evidence to support audit

45

findings, and clarify positions between the auditor and the audited on audit observations

and recommendations. On the reporting, one of the respondents said that:

“Interview is important technique which is used by internal auditors in

our organization to solicit the opinions and experiences of stakeholders

or recipients of the auditees’ services. These auditors use good skills

to interview effectively in building or confirming audit evidence and

hence getting draft aspect of what to do”.

Through interviewing technique, auditors may also detect policies, past operations and

similar operations of other departments in the organization. It was reported further by

respondents that, interview is used to identify problem, provide evidences for confirmation

of the audit findings and the positions of the auditor and audit object which may be

compared to the breaches identified via audit and recommendations.

ii) Documents Review

The study findings portrayed that, auditors use the technique of reviewing both financial

and non-financial documents for getting real picture on how transactions have been

implemented. By doing so, they scrutinize vouchers of payments and all important

supporting documents to look if regulations have been obeyed. One respondent from

planning section said that, the documentary review is helpful to internal auditors because:

“It entails personally attesting to a process or procedure, for example,

the application of controls by members of the auditee's staff or the

manner in which stakeholders of the organization are treated. Many

service transactions and internal control routines can only be evaluated

by seeing the audited performing them”.

iii) Verification

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The respondents further mentioned the other auditing technique used as verification

method. They asserted that internal auditors in this technique verify what they have

observed from the documents. One of the internal auditing officers of Dodoma Municipal

Council who was the study respondent reported the following with this respect:

“It takes us much time to review the documents for appraising clearly

if all procedures used in various transactions have direct

correspondence with the organization’s policy and regulations. But

after finishing it, we go to the sites where development projects are

based in order to verify value for money audit”.

Another respondent added the following:

“Verification technique confirms the status of records from observed

documents even for the case of organizational assets. For example, if

there was purchasing of the asset from the documents’ records, then

the auditors verify on its existence as well as condition”.

iv) Audit Test

Finally, the study findings indicated that, some of the respondents mentioned the audit test

as among the internal auditing techniques. This includes compliance testing and detailed

inspection which are used for controlling adequacy and effectiveness in auditing. In

addition to that, the specific testing may be selected on the basis of judgment (for instance,

taking into consideration the scopes, risks or other properties) in auditing exercise. Further

findings showed that, the auditors use sampling method in executing audit test. This

reduces audit risk to an acceptable and standard level in auditing exercise.

47

4.2.1.3 Discussion of the Findings on the Mechanism Used By LGAs in Auditing

Activities

Generally, the Dodoma Municipal Council seems to have standard operating procedures

of exercising internal auditing, this is because majority of the respondents illustrated the

procedure according to the Tanzania Local Government Authority Internal Manual (2005).

On the other hand, this is accredited by existence of the largest proportion of the

respondents (83.33%) who accepted that, the present procedure in the organization is in

line with the International Standards of Auditing and International Public Sector Account

Standards (IPSAS). Furthermore, the Director of DMC outlined the mechanism used by

the organization in the process of auditing that augurs well with the explanation of other

respondents. This implies that the procedure is in line not only with National standards but

also with International standards. Nonetheless, since there are few respondents (16.67%)

who perceive the procedure to have some discrepancies in some of its operating areas,

there is a need of reviewing the modus operandi used in order to deliver satisfaction to

those who felt that the procedure is flawed.

Looking at the other side of the auditing techniques being utilized in the organization,

findings demonstrated that the techniques employed at Dodoma Municipal Council arguer

well with the basic principles of auditing. This is because, even though features of internal

audit are unique from one institution to another depending on the environment of the

institution, culture, working system and principles, Dodoma Municipal Council seems to

apply auditing methodology/techniques which are standard and acceptable.

Apart from that, the techniques used, give detailed explanation on how internal audit

function should be performed in accordance with the International Professional Practices

48

Framework which was developed by the International Institute of Auditors (IIA). Based

on that, it can be concluded that Dodoma Municipal Council use effective auditing

techniques which enable the internal auditors to study the systems and operational

principles of the organization for giving assistance to management in achieving its goals.

All in all, because Tannenbaum et al (1998) define mechanism as the process, rules and

procedure that govern the establishment, maintenance and monitoring of the organization

resources. Therefore, by referring to the procedures and techniques used at DMC, it is

obviously correct to conclude that, the mechanism used by LGAs in Tanzania by taking

Dodoma Municipal Council as an example is for some how effective.

4.2.2 Performance of Internal Auditing in LGAs

The second objective of this study was to examine the performance of current internal

auditing in LGAs. To meet this objective, seven issues were investigated. These are;

categories of auditing being used, fulfilment of the requirements or rules by internal

auditing mechanisms, effectiveness of the internal financial control, efficiency of the

internal financial control, level of satisfaction of stakeholders on the performance of the

internal auditing, performance of the internal financial control and level of collaboration

between auditors and those being audited. These indicators of performance on Internal

Auditing in LGAs are further discussed below as follows.

4.2.2.1 Categories of Auditing Being Used

This section presents the results of the findings on the respondents’ general awareness

about the kinds of auditing which are used as well as for getting the real picture of the

auditing categories which are commonly applied in LGAs, particularly in Dodoma

Municipal Council. The major categories which were used for obtaining the findings

were, namely; preventive audit, investigative audit, checking of the operational procedures

49

audit, risk management based audit, value for money audit and others in which the

respondents specified accordingly.

Findings as presented in Table 4.4 below indicate that, majority of the respondents ticked

value for money audit as the main audit which is practiced within the Dodoma Municipal

Council. This is justified by the high proportion of respondents (76.7%) who selected the

category. This type is followed by risk management based audit which was accepted by

60% of the respondents. The third one in terms of priority in its usage is checking of

procedures audit which was supported by 56.7% of respondents. Other audit categories

according to their order of priority in usage practice are preventive audit – selected by

40% of respondents, surprise audit – agreed by 33.3% of the study participants and the last

is investigative audit – accepted by only 26.7% of the respondents. The findings may be

depicted in Table 4.4 presented.

Table 4.4: Selection of Audit Categories

Audit Category Frequency Percentage (%)

Value for money audit 23 76.7

Risk management based audit 18 60.0

Checking of procedures audit 17 56.7

Preventive audit 12 40.0

Surprise audit 10 33.3

Investigative audit 8 26.7

Source: Field Data(2013).

50

4.2.2.2 Fulfilment of the Requirements or Rules by Internal Auditing Mechanisms

From the study findings, it seemed that, Internal Auditing mechanisms fulfilled the

requirements or rules of the organization. Majority of the respondents showed that the

internal auditing mechanisms fulfilled the requirements or rules of the organization to the

high extent. From the total of thirty (30) respondents, five (16.7%) of the respondents

circled highly fulfil the requirement. In case of satisfactorily fulfilment of the

organizational requirement, 18 (60%) of the respondents of the study reported so.

Furthermore, four of the respondents (13.3%) indicated indifference in fulfilment of the

organization requirements. About 10% of the respondents opined that the internal auditing

mechanism do not fulfil requirements to some extent, while there was no respondent who

said that the mechanisms of the internal auditing in the organization does not fulfil the

requirements. If one considers highly fulfil the requirements and satisfactorily fulfil the

requirements as simply fulfil the requirements, then we find out that, 23 (76.7%) of the

respondents have feelings that the internal auditing in the organization fulfil the

requirements. The above information is presented in Table 4.5 below

Table 4.5: Rating of Fulfilment of the Requirements by Internal Auditing

Mechanisms

Extent of Fulfilment Frequency Percentage (%)

Highly 5 16.7

Satisfactorily 18 60

Indifferent 4 13.3

Does not fulfil to some extent 3 10

Does not fulfil at all 0 0

Total 30 100

Source: Field data(2013).

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4.2.2.3 Effectiveness of the Internal Financial Control

Considering the rate of effectiveness of the internal financial control in the organization,

the following findings were obtained. Out of the 30 respondents of the study, 17 (56.67%)

of the respondents reported high level of effectiveness of the internal financial control

practiced, while six (20%) of the respondents indicated indifference in effectiveness of the

internal financial control, meaning that the financial control of the organization is neither

high nor low. Very high effectiveness was reported by four respondents (13.3%) and only

three respondents which are equivalent to 10% of the respondents reported low level of

effectiveness of the internal financial control exercised at the Municipality. However,

there was no respondent who reported a case of very low effectiveness rate of the internal

financial control in the organization. These findings are summarized here under in Table

4.6.

Table 4.6: Rating of Effectiveness of Internal Financial Control

Rate of Effectiveness Frequency Percentage (%)Very high 4 13.33High 17 56.67Indifferent 6 20Low 3 10Very low 0 0Total 30 100

Source: Field data(2013).

4.2.2.4 Efficiency of the Internal Financial Control

The study also used rate of efficiency of the internal financial control to measure

performance level of the internal auditing in the organization. From the findings, there

were 18 (60%) of the respondents who reported high efficiency of the internal financial

control. The second choice fell under the category of indifference in rating efficiency,

whereby five respondents (16.7%) reported so. Four respondents which is equivalent to

52

13.3% reported that the efficiency rate is low, whereas three (10%) of the respondents

said that rate of efficiency of the internal financial control in the organization with regards

to unwanted practices is very high. There was no respondent who reported very low

efficiency of the internal financial control in the organization. Table 4.7 below

summarizes the above findings:

Table 4.7: Evaluation of Efficiency of the internal financial control

Rate of Efficiency Frequency Percentage (%)

Very high 3 10

High 18 60

Indifferent 5 16.7

Low 4 13.3

Very low 0 0

Total 30 100

Source: Field data(2013).

4.2.2.5 Stakeholders’ satisfaction level on the Performance of the Internal Auditing

The study findings show that majority of the respondents (66.7%) have opinion that

stakeholders are satisfied with the performance of internal auditing at Dodoma Municipal

Council. This was followed by views of respondents that stakeholders are highly satisfied.

The response was supported by 16.7% of the respondents. The third choice of the

respondents in the study fell under the category of indifference in the level of satisfaction

where 13.3% of the respondents indicated to be the perceptions of the stakeholders.

Only 3.33% of the study respondents viewed that stakeholders are not satisfied with the

internal auditing performance. The good thing is that, there was no respondent who

reported a case of stakeholders who are highly not satisfied with performance level of the

internal auditing. Table 4.8 below recapitulates the above information:

Table 4.8: Stakeholders’ Satisfaction Level on the Internal Auditing Performance

53

Satisfaction level Frequency Percentage (%)

Highly satisfied 5 16.7

Satisfied 20 66.7

Indifferent 4 13.3

Not satisfied 1 3.3

Highly not satisfied 0 0

Total 30 100

Source: Field data(2013).

4.2.2.6 Performance of the Internal Financial Control

Based on the study findings, 20 respondents which are equivalent to 66.7% of the total

respondents agreed that internal financial control of the organization has good

performance. A part from that, four sampled members of the study responded that the

performance is indifferent. This accounts for 13.3% of the respondents. The excellent

performance of the internal financial control was reported by only three (10%) of the

respondents, whereas the same proportion of 10% of the respondents indicated poor

performance of the internal financial control. There was no any respondent who indicated

very poor performance of the financial control according to views of past external

auditing. The information presented above is summarized in the Table 4.9 below:

Table 4.9: Performance of Internal Financial Control

Rate of Performance Frequency Percentage (%)Excellent 3 10Good 20 66.7Indifferent 4 13.3Poor 3 10Very poor 0 0Total 30 100

Source: Field data(2013).

54

4.2.2.7 Level of Collaboration between Auditors and Those Audited

The study findings show that half of the respondents – 15 (50%) viewed the level of

collaboration between auditors and audited as being in a friendly state. Furthermore, the

findings displayed six respondents (20%) who reported that the collaboration is not

friendly. In addition to that, five (16.67%) of the respondents indicated indifference in

rating the existence of collaboration, while four respondents (13.3%) reported existence of

very friendly collaboration between auditors and those being audited. Lastly, there were

no respondents who said that the level of collaboration is very not friendly. For

summarization of the information, please see Table 4.10 below:

Table 4.10: Appraisal of the Level of Collaboration between Auditors and Audited

Level of Collaboration Frequency Percentage (%)

Very friendly 4 13.3

Friendly 15 50

Indifferent 5 16.7

Not friendly 6 20

Very not friendly 0 0

Total 30 100

Source: Field data(2013).

4.2.2.8 Discussion on the Performance of Internal Auditing in LGAs

Generally, the study findings revealed that, the commonly used auditing category in the

Dodoma Municipal Council is value for money audit. This means that, the management of

the organization puts more emphasis on the three E’s of the organization, which are

Economy, Efficiency and Effectiveness. The explanation above has been given priority

due to the Tanzania LGAs manual of 2005 which defines value for money audit as the

pursuit of economy, efficiency and effectiveness but under varying degrees of emphasis.

55

Therefore, the value for money audit being the leading used category in the Municipality,

auditors seek to view on economy about how resources are acquired in appropriate quality

and optimum cost. Also, they look at the efficiency to ensure that only optimum level of

resources is devoted to outcome and hence they guarantee that output from any activity is

achieving the desired goal in order to result into effectiveness of outcome. In addition to

that, since the three E’s contain assumptions about the values and the desired state of

affairs, and because many LGAs in Tanzania deal with various development projects, it is

right decision for DMC to engage on value for money audit something that has led the

organization to have good performance.

Secondly, the organization also seems to keep more importance on identifying the risks

that face the organization, identifying mitigation measures and policy improvements

required for achievement of organizational goals. This was evidenced by the existence of

the risk management audit as the leading category behind value for money audit. In this

regard, the internal audit unit at DMC seems to play its responsibilities well because the

objective of internal auditing is both supporting and strengthening an organization’s

governance mechanisms and evaluating as well as improving the effectiveness of risk

management and control (IIA, 1999). In fact, the organization seems to achieve good

performance in using risk management based audit. This is because, the auditors may rank

the risk by likelihood of occurrence as high or low and then developing audit programs

that concentrate audit resources in high risk areas.

The organization seems to be strong in its internal environment to assure that staff

members obey the operational procedures in running day to day activities. This is

evidenced by the existence of 19.3% of the respondents from the study findings who

reported that checking of operational procedure audit is practiced at DMC. This implies

that, the organization needs to make control over its expenditures in order to ensure if its

56

expenditures are in line with the Laws, Regulations and Instructions of the LGAs. By

using this audit category, the organization seems to be effective in controlling stock

expenditures whereby waste, pilferage, and abuse is normally common. A part from that,

control over bank and cash balances can also be scrutinized through checking of

operational procedure audit in order to ensure that the procedures are in place and

operating effectively for assuring bank and cash balances are properly safeguarded and

recorded in the books of accounts. Hence, this audit category increases performance in the

organization and enables the organization to meet its goals.

The findings further show that, the organization makes great effort on financial control.

This is mainly geared up by the exercising of the surprise audit in the organization. Even

if, this is only used at cash office at DMC as stipulated, it leads to good financial control

because cash office is the only place that deals with all payments and receipts done at the

Municipal Council on daily basis. Additionally, this situation also exhibits the

effectiveness of internal audit unit at DMC as one among the financial control

mechanisms together with budgetary system, etc. This is for the reason that, financial

control mechanisms act as ship’s captain who is given absolute responsibility for the

vessel whilst it is in the sea, so they can take appropriate and timely actions to remedy any

problem that may arise during the course of voyage (KPMG, 2001). This is vindicated by

the existence of surprise’s audit practise at the cash office.

Furthermore, it seems that at Dodoma Municipal Council, there are symptoms of frauds.

The respondents’ opinions showed that about 9.1% of the respondents have views that

investigative audit is also done in the organization. This incident indicates the occurrence

of unwanted practices within the organization. Frankly speaking, the existing auditing

categories in the organization expose that, DMC is in good position of acquiring high

performance in its objectives. Nevertheless, the organization is advised to make more

57

emphasis not only in internal financial control but also in operational system within the

organization. This is because, the notion of fraud is a wide subject which is defined as any

dishonest activity involving the extraction of value from a business or whatever,

directly or indirectly, regardless of whether the perpetrator benefits personally from

his or her actions (KPMG, 2004).

Obviously, a larger proportion of the respondents which is about 76.7%, responded that

the current internal auditing mechanisms fulfil the organizational rules/requirements at

DMC. On the other hand, 10% of the respondents said that the mechanisms do not fulfil

and 13.33% opined neither of the two. This is identical to saying that, the current internal

auditing mechanisms at Dodoma Municipal Council fulfil the requirements of the

organization, and so obey the Tanzania Local Authority Finance Acts 1982 (Revised

Edition June 2004).

Taking into consideration the rate of effectiveness of the internal financial control at the

organization, it seems that, financial control is effective at high level. This implies that,

financial control mechanism at DMC has high degree of success in attaining or realizing

the organizational objectives. This is evidenced by 56.7% of the respondents who reported

that, the rate is high. On the contrary, there are some discrepancies which have been found

to affect the organization. Based on that, therefore, the government needs to increase

effort of plugging loop holes of frauds as budgetary control, legitimacy of income and

expenditures, security of assets and accounting control. This is ostensibly because; about

10% of the respondents shared the views that the rate of effectiveness at the DMC is low.

The study findings also show that efficiency of the financial control in the organization

with regard to unwanted practices is high. Evidence is that, 60% of the respondents

accepted high rate in the efficiency but only 13.3% of the respondents claimed about low

rate of efficiency. The figures seem to be correct because effectiveness and efficiency are

ECONOMY

INPUT OUTPUT

EFFICIENCY

EFFECTIVENESS

58

dependent on each other, the higher the efficiency the higher the effectiveness in

delivering good economy. This can be clearly justified graphically by the Local

Government Authority Internal Audit Manual of 2005 as depicted in Figure 4.1:

Figure 4.1: Relationships between Economy, Efficiency and Effectiveness

So, since the three E’s are processes and not events, which embody relation between costs,

resources, inputs, outputs and outcomes (Internal Audit Manual, 2005), then the

management should put more effort in activating high level of efficiency in order to get

even better performance of achieving its goals.

Stakeholders’ satisfaction on the performance of internal auditing at DMC was another

item in which respondents were required to provide their clear views on it. By referring to

the findings, it seems that 66.7% of the respondents viewed that stakeholders’ satisfaction

is good (moderate level of satisfaction) and only 16.7% of the stakeholders are highly

satisfied, while 3.3% of the respondents reported that the stakeholders are not satisfied

with the performance of internal auditing. This means that there are some of the

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discrepancies in auditing exercise which should be looked at with two eyes in order to

upgrade the satisfaction level of the stakeholders.

In discussion about the performance of internal financial control to the views of the past

external auditing, it is shown that, meanwhile, financial control is better compared to

indication from previous auditing reports. Evidence is given by finding out that 66.7% of

the respondents rated the performance as good. While only 10% of the respondents came

up with the views that performance is poor compared to views of past auditing.

Nevertheless, there is a need of pulling up socks in order for DMC to be at very high

performance rate because there are also about 13.3% of respondents who showed

“indifferent position” in evaluating performance of internal financial control. All in all,

performance is better compared to views of past auditing due to the existence of 10% of

the respondents who opined that the performance is excellent which creates the total of

76.7% of the respondents who viewed performance as better now than in the past.

Likewise, from the assessment of collaboration between auditors and those audited, the

collaboration in general seems to be in friendly manner. Since the study showed the half

of the respondents (about 50%) who reported friendly collaboration, it means that the

organization consolidates good interpersonal relationship which leads to high performance

of achieving the goals. It is only 13.3% of the respondents who declared that the

collaboration is very friendly, which means that the organization may be in a danger zone

on the possibility of occurrence of unwanted practices. This is because; very high

friendship may distort even auditing exercise in the organization between audited and

auditors by colluding to engage in corruptive practices.

Apart from that, 20% of the respondents reported existence of non friendly collaboration,

which creates implication that, there is seriousness in areas of work between the two

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parties. Generally speaking, the organization seems to be in line with the Tanzania Internal

Audit Financial Manual (2005) which explains that:

“It is vital that management and staff members at all levels having

confidence in the integrity and independence of internal audit and that

this should be reflected and maintained in good working relationships

between auditors and clients’ departments”.

Finally, it can be contended through the findings that, according to all seven criteria which

were used to measure performance in the study, the general performance of the internal

auditing at Dodoma Municipal Council is good. This is because performance is the level

of results obtained from right quality inputs and it depends upon the effectiveness and

efficiency of the items. So, since the findings displayed high rate of effectiveness and

efficiency in financial control, it is an indication that performance is good.

4.2.3 Challenges which face internal audit unit in LGAs

The third and last objective of this study was to explore the challenges which face internal

audit unit in LGAs. Precisely, this study has found out seven main challenges which

hinder internal audit unit in LGAs. These are; lack of adequate facilities, bad perceptions

of stakeholders about internal auditing, shortage of the project skills to the internal

auditors, political influence, inflation rate, organizational structure and long term of work

between auditors and audited. The challenges are summarized in Table 4.11 and are

further discussed below it.

Table 4.11: Challenges which face Internal Auditing in LGAs

Challenges Frequency Percentage (%)

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Lack of adequate facilities 22 73.3

Stakeholders’ perception 19 63.3

Organizational structure 16 53.3

Shortage of project skills to auditors 15 50.0

Long term familiarization between auditors and audited

15 50.0

Political influence 13 43.3

Inflation rate 10 33.3

Source: Field Data(2013).

i) Lack of Adequate Facilities

From the study findings, it seems that majority of the respondents showed that lack of

adequate facilities play a great role in threatening the internal auditing to perform well.

Main facilities which were claimed for by the respondents are; shortage of motor vehicles

which could be used to make several follow ups and thereby simplifying the auditing

activities, especially at the field during the value for money audit. Some respondents

argued that, there is lack of facilities like sufficient computers which may lead to the

auditing works not to be done effectively. With this regard, 22 (73.3%) of the respondents

accepted that lack of adequate facilities to internal auditors in the organization affect

internal auditing. Many respondents explained this challenge at high level of concern, for

instance, one of the respondents said the following in stressing about the issue:

“Our organization has not kept priority to the existence of sufficient

facilities for internal audit unit, and hence the works become less

effective or consume a lot of time. For instance, in some occasions, the

internal auditors could not visit the site they intended to do verification

of the development projects due to the breakdown of their car”.

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Apart from that, some respondents indicated with concern that another challenge

regarding inadequate facilities in the Dodoma Municipal Council is the absence of

Auditing Software. The respondents reported that, up to this moment, there is no auditing

software at DMC for running the auditing activities professionally and as par standards. In

fact, auditors do still use manual system to process their daily works, which retards the

auditing works and thereby making the output not creditable. In addition to that, the

process leads to spending of more precious time on running auditing activities. One of

the respondents had this to say in justifying the above scenario.

“We are using outdated technology for auditing, because our internal

auditors in the organization till now use manual system for running

their auditing assignments. So, this is costly to the auditors and even to

the organization”.

In supporting these arguments, the Director of DMC had this to report.

“It is true that our auditors lack modern tools which are important in

discharging their duties. These include auditing software and vehicles

dedicated specifically for them. However, these problems are

temporary because they are caused by lack of funds. Plans are

underway to improve the working environment by availing the

necessary equipment.”

Following from the above observation, it can be concluded that, absence of auditing

software is a great challenge at Dodoma Municipal Council to make the auditing work run

smoothly. Due to that, there is urgent need to have the Auditing Software in place so as to

accelerate the auditing works as per norms and standards.

ii) Stakeholders’ Perceptions on Auditing

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The findings display that, existence of bad perceptions of stakeholders to the auditors

create large affect on the internal auditing activities. The respondents from the study gave

this challenge a second priority in terms of its negative effect on internal auditing. Out of

30 respondents, 19 (63.3%) highlighted bad perceptions of stakeholders to the auditors in

affecting internal auditing in the organization as a big challenge. In defending their views

about the challenge, one of the auditors said that:

“Some stakeholders perceive internal auditors as policemen. Since the

policemen theory of auditing states that, the auditor is responsible for

searching, discovering and preventing fraud, so they do think that the

major aim of the auditing is only to scrutinize the area where the fraud

has taken place”.

In so doing, there is ideological difference between the auditors and those who are audited

and hence the auditing becomes affected. Some respondents showed their views about the

challenge by saying that this issue leads to acquiring of no proper data during the field

findings. One respondent was quoted saying that:

“Due to the fear which staff members have about the internal auditing

exercise, they do sometimes deliver wrong data aiming at defending

themselves. In so doing, they affect the auditing exercise and its

output”.

iii) Organizational Structure

The factor that was ranked at third position by respondents asa major challenge facing

internal auditing was the functional structure of the organization. From the study findings,

many respondents out-cried about the existing organizational structure which normally

puts the internal audit office as a section or a unit within the administration department.

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This is not proper because, internal audit deserves to be an independent unit given the

nature of its activities. Majority of respondents (53.3%) reported this as one of the

challenges which hinders proper functioning of the audit unit ostensibly because it denies

fully fledged autonomy to the unit. In supporting this, one of the respondents was quoted

reporting as follows:

“The existing structure of this organization erodes independence of the

internal auditors in their auditing decisions”.

The respondents suggested that, there should be separate internal audit department which

will be independent from the council administration functionally. Furthermore, some

respondents viewed that, internal audit unit can remain as it is administratively; however,

it needs to report differently in terms of functioning. That is, the reporting system for

auditors should change, instead of reporting to the Council Management Team (CMT)

which is headed by the Municipal Director, the auditors should report directly to the

finance committee which will give them adequate independence in expressing their views

about what they have observed from the auditing exercise. Accordingly, one of the

respondents had this to say with this respect:

“It is amazing to view that, we audit various departments in the

organization but the draft report is then sent to the Municipal Director

who is the accounting officer of the audited departments in the

Council. At the same time, the auditors function under the Director

administratively. This means that, there will be instructions using the

top-down approach on how the auditing report should be. Thus, for

proper functioning and transparency auditors should report to the

auditing committee about their observations instead of reporting to the

CMT”.

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Moreover, another respondent declared her response by justifying the following:

“A good system of giving independence to the councils’ auditors for

running their work effectively is that the internal audit units in LGAs

should be transferred from Municipal’s Authority to the District

Authority administratively. In this way, auditors will be obligating

under the District Commissioner Office and they will report their

internal auditing findings to the District Commissioner and not to the

Municipals’ Directors as it is implemented now”.

iv) Shortage of Auditors’ Skills about the Projects Technicalities

Findings displayed that, about half of the respondents mentioned lack of technical

knowledge on the side of auditors regarding development projects as one of the challenges

facing the internal auditing. They argued that, most of the time, auditors stay at the office

for undertaking auditing functions, and hence their profession does not match with the

technical activities at the site. So, it becomes difficult for them to conduct value for money

audit for issues they are not conversant with. The respondents proposed that, there should

be several trainings to the internal auditors about technical skills for running projects. This

will equip them technically and will eventually make internal auditing more effective. In

this connection, one respondent from finance section said that:

“Some audited cheat the auditors about the implementation of the

projects; this is because, auditors in the organization have little

knowledge in projects’ technical skills, like roads construction, bridges

construction or construction of buildings. In a way, the situation

impinges the auditors to function well in many LGAs in Tanzania”.

In commenting about this, the Director of DMC also had this to say.

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“It is important for auditors to have training on matters pertaining to

knowledge in projects’ technical skills. Nonetheless, this requires

spending money in the form of undertaking seminars and workshops.

It often happens that disbursements from the central government are

not as expected. That is, budgets do not allow implementing most of

the activities as per the action plans.”

The respondents further advised the importance of having periodical training to the

auditors regarding various fieldworks for shaping well their internal auditing function.

v) Long term Familiarization between Auditors and the Audited

Internal auditing in LGAs is also affected by the long term familiarization of work

between auditors and those being audited in the same organization. As far as the issue of

long term familiarization between workers is concerned, about half of the respondents

mentioned it as a serious predicament. In fact, respondents have a view that long term

familiarization play a big role on affecting internal auditing in the organization. On

explaining about this, one respondent claimed about this challenge by saying that:

“There are some staff members from auditing unit who have served

this organization for quite long time. This is a setback because there

must be close relationship with other staff or top management. Due to

that, the auditing exercise is likely to be affected”.

From the study findings, it was widely narrated by the respondents that there should be

rotation of the auditors from time to time within the different LGAs. If this is done, the

dilemma of long term familiarization of the auditors and other staff members in the

organization can be reduced if not eradicated. The advantage would be avoidance of

illegal and unwanted practices about auditing exercise.

vi) Political Interference

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From the study findings, it was found out that the political interference is another

challenge facing internal auditing in Dodoma Municipal Council. The findings displayed

that 13 respondents which accounted for 43.3% of all the respondents nominated political

interference as one of the internal auditing challenge. The study respondents indicated that

sometimes politicians contravene the professional judgment made by internal auditors due

to their political interests. They continued saying that, internal auditors are restricted by

politicians through top management of the council to report the issues which may affect

political stability of some politicians. One of the respondents commented this with high

level of concern on the issue.

“We sometimes receive orders from the top management that we

should not report widely the circumstances which will show dark spot

to the Government. This gives us hard time to apply internal auditing

effectively as par the required standards”.

Another respondent added the following on the same regard:

“In Tanzania, internal auditing in LGAs cannot function efficiently because

politicians are not ready to make financial affairs transparent. For instance, there is

a dirty game in case of revenues and expenditures of the organizations which is

caused by politicians, but whenever auditors try to report this, they are smutted by

top management and must obey it”.

vii) Inflation Rate

Precisely, the study findings show that internal auditors become challenged mainly during

the value for money audit due to the inflation rate. From the findings, 10 (33.3%) of the

respondents mentioned this as a challenge. In impressing upon this, one respondent said

the following:

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“A fluctuation of Tanzania shilling affects internal auditing in this

organization. This is because each project has its own budget and

expected termination period, but when the inflation rate occurs, it

causes stoppage of the project implementation and the project cannot

phase out efficiently and effectively as planned due to the currency

fluctuation”.

Another respondent said the following on the same account:

“Inflation rate may lead to the value for money audit become

ineffectively done. This is due to the fact that, project completion time

may reach its end but the project itself may have not been completed.

This dilemma is simply caused by the need for additional money that

was not budgeted for due to sunk cost resulted from hiking of material

prices.”

In fact, the Director of DMC supported this issue by reporting the following.

“Inflation has been one of the challenges facing the value for money

audit. This problem causes fluctuation of material prices, escalation of

projects’ costs and elongation of projects’ completion time.”

4.2.3.1 Discussion on the Challenges which Face Internal Audit Unit in LGAs

Generally, the study findings depict that, there is a need of having adequate facilities in

LGAs especially in DMC. Majority of the respondents out-cried about the working tools

in which internal auditors use at DMC. The government should find possible ways of

increasing budget of the internal auditors in LGAs sufficient for improving their working

condition. For instance, there should be distribution of sufficient motor vehicles for

internal auditors in order for them to discharge their duties efficiently. The same challenge

seems to affect not only LGAs in Tanzania but in many common wealth countries like that

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reported at Fiji islands where by departments and local government authorities situated in

various locations in Fiji were not audited in a timely manner due to the shortage of motor

vehicles and management funds (Fiji Audit Report, 1997).

In addition to that, there must be existence of auditing software in LGAs in Tanzania in

order to reduce the time consumed in implementing the exercise. Without that, the

government may likely waste auditing experts in LGAs something that may further lead to

inefficiency in auditing work.

In addition to that, knowledge is needed to be delivered to the stakeholders of the internal

auditing on how the internal auditing is. This is due to the fact that, the findings have

highlighted existence of bad perceptions from stakeholders about the internal auditing.

The perceptions lead to the cheating of the data on several occasions. The challenge may

be eradicated by educating stakeholders that the role of internal auditors is not only to

discover fraud, but also to provide assurance to the management that the internal control

system in the organization is sound in design and effective in operation which help to

achieve value for money (Momoh, 2005).

The existing organization structure in the Dodoma Municipal Council seems to affect the

auditing activities, because internal auditing is an independent appraisal function within

the LGAs for the review of activities as a service to all level of management (Internal

Audit Manual, 2005). But, the current organization structure removes independence of the

internal auditors and the government is advised to move internal auditing units to the

District Commissioners’ office in order to give them independence in discharging their

duties. This is not a horrific issue because, local government authorities in the United

Republic of Tanzania was established by the Local Government Acts No.7 and 8of 1982,

but since that point in time, there have been various reforms which were made according

to the needs. Mogella, (1987:82) declares that “the on-going local government reforms in

70

Tanzania are geared towards providing more power and autonomy to local authorities to

manage their own affairs and discharge their functions more effectively”. Sticking on the

case of independence, politicians like councillors who are elected for representing their

wards (Warioba, 1999), should not interfere the internal auditors’ decisions in case of

financial control and the like.

Apart from that, auditors should be given training on technical skills about projects

implementation in order to empower them fulfil their obligations effectively. Furthermore,

there should be on time job rotation for internal auditors, because long term service of

work at the same organization seems to affect the internal auditing in LGAs.

Finally, the Government should put priority on increasing contingency fund to offset the

inflation rate. This is because some of the development projects in LGAs seem to be

affected by the inflation rate as reported, and hence makes it difficult for internal auditors

to exercise their work adequately.

CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

5.0 Introduction

This study was put in place in order to investigate on the challenges facing internal

auditing in financial control in local government authorities in Tanzania. The study

specifically intended to meet the following objectives; understanding the mechanism used

by local government authorities in auditing activities, examining performance of current

internal auditing in local government authorities, and exploring the challenges facing

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internal auditing units in LGAs. Having presented the findings of the study in the previous

chapter, a summary of the findings, conclusion, recommendations, limitation for the study,

and the area for further study are presented in this last chapter.

5.1 Summary of the findings

This section summarizes the major findings of the study. In so doing, it was guided by the

analytic strategy (chronology of research objectives) as recommended by Miles and

Huberman (1994).

5.1.1 Mechanism Used By LGAs in Auditing Activities

In an attempt to explore the mechanism used by LGAs in auditing activities two issues

were studied, namely; procedure used in conducting auditing and the techniques employed

in auditing activities.

For the case of the procedure used, it was found out that, LGAs follow the required and

standard approach of implementing auditing work. This involves, audit plan preparation,

field visit, reporting as well as evaluation and follow up. This modus operandi is in

accordance with the internal audit manual of the United Republic of Tanzania to Local

Government Authorities.

With regards to the techniques employed in auditing activities, four methods were

reported to be commonly used. These are; interviewing technique, documents review,

verification and audit test. Even though these techniques have been presented according to

their priority of usage, it normally requires implementation of all the methods in order to

complete auditing of a specific item. For instance, auditing of an expenditure of a given

project (say construction of a bridge) may start by interviewing the management on

implementation of the project. This may be followed by looking at the documents to verify

on the amount spent for the project against budgets as well as the procedure used to

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approve payments. The work may require the auditors to visit the bridge under discussion

in order to verify its existence, condition, quality as well as value for money.

5.1.2 Performance of Current Internal Auditing in LGAs

Generally, the study findings revealed that performance of internal Audit in LGAs is good.

The various indicators have shown adequate performance. These include the normal

auditing category used which is value for money audit that stresses on the three E’s

(Economy, Efficiency and Effectiveness)of the organization. Another indicator is that

DMC puts more importance on identifying the risks that face the organization, identifying

mitigation measures and policy improvements required for achievement of organizational

goals. This enables it to achieve good performance in using risk management based audit.

Apart from that, DMC seems to be strong in its internal environment something that

assures that staff members obey the operational procedures in running day to day

activities. This increases performance in the organization and enables it to meet its goals.

Furthermore, it has been observed that, internal financial control in the organization is

effective which means DMC has high degree of success in attaining or realizing the

organizational objectives. On the same line, the study findings showed that efficiency of

the financial control in the organization with regard to unwanted practices is high. This is

strengthened by the performance of internal financial control where it has been observed

that meanwhile; financial control is better compared to indication from previous auditing

reports. Furthermore, Stakeholders’ satisfaction on the performance of internal auditing at

DMC was reported to be good.

The only areas of contentions are two, the first one being, collaboration between auditors

and those audited. This has been noted to be so friendly. While this may seem to be good

for interpersonal relationship, it may put the organization around the danger zone on the

possibility of occurrence of unwanted practices. That is, very high friendship between

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actors may distort the auditing exercise by colluding to engage in corruptive practices. The

second issue is that, there is indication of symptoms of frauds at Dodoma Municipal

Council. This is because respondents showed that investigative audit is also done in the

organization. Due to this, the organization is advised to make more emphasis on internal

financial control due to the existence of investigative audit exercise in the organization

which indicates possibility of the occurrence of unwanted practices in the organization.

5.1.3 Challenges Facing Internal Auditing Units in LGAs

This study documented seven main challenges which hamper proper functioning of

internal audit unit in LGAs. The challenges are; lack of adequate facilities, bad

perceptions of stakeholders about internal auditing, shortage of the project skills to the

internal auditors, political interference, inflation rate, organizational structure and long

term of work between auditors and those being audited. The challenges in isolation or put

together create unfavorable and cloudy environment for auditors to operate effectively. If

immediate measures are not taken, there is danger of losing the auditors or diluting the

output of the auditing exercise done in LGAs in the country.

5.2 Conclusion

Based on the findings documented in this study, there are three areas which the study

makes contribution. These are contribution to policies, knowledge and best practices as

shown below:

5.2.1 Contribution to Policies

Given the various challenges which impede smooth functioning of internal audit unit in

LGAs documented in this study and especially the political interference, organizational

structure of the LGAs and absence of auditing software, the central government needs to

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take a lead to come up with strategies which will provide amicable solutions to these

predicaments.

5.2.2 Contribution to Knowledge

This study has found out that, LGAs use standard operating procedure and techniques in

conducting auditing activities. Furthermore, the various indicators show that performance

of internal Audit in LGAs is good. The new knowledge that this study propounds is that,

there exist so friendly collaboration between auditors and those audited. In addition, there

is indication of symptoms of frauds at LGAs due to application of investigative audit.

With this regards therefore, the study shows fertile areas where future researchers may opt

to investigate in detail.

5.2.3 Contribution to Best Practices

Given the good performance of the auditing exercise shown by DMC in almost all the

audit indicators, it implies that, this is possible and practical. It is therefore important for

other LGAs to emulate best practices from DMC in the implementation of auditing

function in their work places.

5.3 Recommendations

This section expresses recommendations from the findings of the study. The study

recommendations are based on three main areas namely; recommendations to the central

government, recommendations to the management of local governments and

recommendations to the employees. They are presented below as follows:

5.3.1 Recommendations to the Central Government

In an attempt to eradicate or at least decrease the adverse impact of the challenges

uncovered in this study, the following recommendations are focussed to the central

government.

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1) Given the existing shortage of adequate auditing facilities like vehicles and the

absence of auditing software, the government needs to see the importance of

acquiring the facilities to enable auditors implement their duties as required.

Actually, implementing auditing activities using appropriate software isa part of the

international auditing standards.

2) The central Government is advised to put in place legal framework or enforce the

existing laws and regulations so as to bar politicians like councillors and members of

parliament from interfering with the internal auditors’ decisions based on their

investigations and observations. In so doing, the fruit of internal audit will be

realized.

3) Given the fact that inflation rate cannot completely be eradicated due to poor status

of our economy as well as the existence of the wave of globalization, the

government is cordially advised to consider contingency fund allocation to

development projects in order to help absorb shocks of inflation. Likewise, there is

need to enforce timely implementation of the projects as per the action plan and

milestones.

4) The current organizational structure of LGAs does not provide autonomy of the

internal audit units. In fact, the units audit the Management and then report to the

same. It is right time for the government to consider reviewing the proper placement

of these important units. For instance, they may be placed under the District

Commissioner’s office administratively.

5) Long term of work between auditors and those being audited has been found to be a

dilemma in the proper functioning of the audit units. This calls for the need to have

regular transfers of auditors so that they do not create amalgamations with other

employees which may be detrimental to the performance of the auditing function.

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5.3.2 Recommendations to the Management of Local Governments

1) Management of Local Governments need to put in place training programmes which

will impart project knowledge and skills to the internal auditors. This is vital

because different projects require varied expertise in understanding what value for

money entails.

2) There is need for the management to create work organizational culture which will

make employees have normal work relationship. As much as possible, LGAs should

discourage so friendly collaboration between auditors and the audited.

3) Given the fact that LGAs apply investigative audit as part of its techniques in

auditing, it signifies existence of frauds. There is urgent need for LGAs to tighten

financial controls and operational systems within the organization.

5.3.3 Recommendations to the other Stakeholders

Other stakeholders are highly advised to do away with the bad perceptions they have

regarding the function of internal audit. They should consider the unit as their friend in

guarding and guiding proper usage of resources and operational procedures of the

organizations. It is therefore vital for the stakeholders to honestly extend their cooperation

and provide accurate information to internal auditors when required. In fact, other

stakeholders need to understand that auditors provide more of consultancy services than

otherwise.

5.4 Limitation of the study

This study was based on a case approach. It was conducted in one organization which is

Dodoma Municipal Council. It was done so due to convenience and opportunity to learn

as recommended by Kothari (2004) as well as Stake (1998) respectively. Despite the fact

that the sample size taken was adequate methodologically, it is acknowledged that a larger

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sample than the one used in this study would have produced richer and perhaps more

interesting findings.

5.5 Area for Further Study

The following areas are well directed for further research:

1) Conducting research on challenges facing internal auditing in financial control in

local government authorities in Tanzania by considering survey methodologies.

2) Conducting research on the relationship between friendly collaboration between

auditors and the audited with performance of auditing function.

3) Conducting research on the impact of investigative audit on fraud eradication.

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APPENDICES

Appendix 1: Questionnaire for Employees

QUESTIONNAIRE FOR EMPLOYEES

This study is based at the Open University of Tanzania. Its major objective is to

investigate on the Challenges facing internal auditing in financial control in local

government authorities by taking the case of Dodoma Municipality. Therefore; you are

kindly requested to participate in this study by filling in this short questionnaire. In case

the final account of this work may contain confidential information and its report could be

harmful to organization or individual, confidentiality is assured by the University. Such

report will be seen only by the Supervisor and Examiner for examination purposes.

PART A: PERSONAL PARTICULARS

1. Please provide information on the following:

a) Name of department ....................................................................................

b) Name of section................................................................................................

c) Sex of respondent:

Male........................................................................................................................................................

................................................................................................................................................................

87

................................................................................................................................................................

.................................................................................................................................................... Female

PART B: MECHANISM USED IN AUDITING ACTIVITIES

2. Please outline and explain the procedure you use in conducting auditing in this

organization.

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

3. Is the procedure used in this organization in line with the international standards of

auditing? Please explain.

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

…………………………………………………………………………….................

4. If the procedure applied in auditing in this organization is not in line with

international standards of auditing, please give reasons.

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………

88

5. Please give some explanations on the mechanisms/techniques which are used by

your organization in auditing activities. Please mention at least four.

a) …………………………………………………………………………………

…………………………………………………………………………………...

...............................................................................................................................

...............................................................................................................................

....................................................................................

b) …………………………………………………………………………………

…………………………………………………………………………………...

...............................................................................................................................

...............................................................................................................................

....................................................................................

c) …………………………………………………………………………………

…………………………………………………………………………………...

...............................................................................................................................

...............................................................................................................................

...............................................................................................................................

............................................................................

d) …………………………………………………………………………………

…………………………………………………………………………………...

...............................................................................................................................

89

...............................................................................................................................

....................................................................................

e) …………………………………………………………………………………

…………………………………………………………………………………...

...............................................................................................................................

...............................................................................................................................

....................................................................................

f) …………………………………………………………………………………

…………………………………………………………………………………...

...............................................................................................................................

...............................................................................................................................

....................................................................................

PART C:PERFORMANCE OF INTERNAL AUDITING

6. Auditing in this organization can be categorized as follows. Please respond by

ticking () appropriately.

a) Preventive audit

b) Investigative audit

c) Checking of operational procedures

d) Risk management based audit

e) Value for money audit

f) Other (Please specify with short explanations

…………………………………………………………….).

90

7. To what extent do the internal auditing mechanisms fulfil the requirements or rules

of this organization? Please respond by circling the number that best describes

your feelings.

Fulfil

requirements

Highly

Fulfil

requirements

satisfactorily

Indifferent

Does not

fulfil to some

extent

Does not

fulfil at all

5 4 3 2 1

8. How would you rate the effectiveness of the internal financial control in this

organization? Please respond by circling the number that best describes your

feelings.

Very high High Indifferent Low Very low

5 4 3 2 1

9. How would you rate the efficiency of the internal financial control in this

organization with regard to unhide unwanted practices? Please respond by circling

the number that best describes your feelings.

Very high High Indifferent Low Very low

5 4 3 2 1

91

10. How would you rate satisfaction of stakeholders on the performance of the internal

auditing of this organization? Please respond by circling the number that best

describes your feelings.

Highly

satisfiedSatisfied Indifferent Not satisfied

Highly not

satisfied

5 4 3 2 1

11. How would you rate performance of the internal financial control of this

organization according to the views of the past external auditing? Please respond

by circling the number that best describes your feelings.

Performance is

excellent

Performance is

goodIndifferent

Performance is

poor

Performance is

very poor

5 4 3 2 1

12. How would you assess the level of collaboration between auditors and those being

audited in this organization? Please respond by circling the number that best

describes your feelings.

Very friendly Friendly Indifferent Not friendlyVery not

friendly

5 4 3 2 1

92

PART D: CHALLENGES FACING INTERNAL AUDIT

13. What are the challenges which face internal audit unit in this organization? Please

explain as many as you can.

a) ………………………………………………………………………………

………………………………………………………………………….........

.........................................................................................................................

.........................................................................................................................

.........................................................................................................................

........................................................................

b) ………………………………………………………………………………

………………………………………………………………………….........

.........................................................................................................................

.........................................................................................................................

................................................................................

c) ………………………………………………………………………………

………………………………………………………………………….........

.........................................................................................................................

93

.........................................................................................................................

.........................................................................................................................

........................................................................

d) ………………………………………………………………………………

………………………………………………………………………….........

.........................................................................................................................

.........................................................................................................................

................................................................................

e) ………………………………………………………………………………

………………………………………………………………………….........

.........................................................................................................................

.........................................................................................................................

.........................................................................................................................

........................................................................

f) ………………………………………………………………………………

………………………………………………………………………….........

.........................................................................................................................

.........................................................................................................................

.........................................................................................................................

........................................................................

g) ………………………………………………………………………………

………………………………………………………………………….........

94

.........................................................................................................................

.........................................................................................................................

.........................................................................................................................

........................................................................

h) .........................................................................................................................

.........................................................................................................................

.........................................................................................................................

.........................................................................................................................

.........................................................................................................................

.........................................................................

14. In your opinion, what measures need to be taken in order to encounter the

challenges put forward in question 13 above? Please provide at least one

suggestion for each challenge.

a) ………………………………………………………………………………………

………………………………………………………………………………….........

.....................................................................................................................................

.....................................................................................................................................

.....................................................................................................................................

....................................................................................

b) ………………………………………………………………………………………

………………………………………………………………………………….........

.....................................................................................................................................

.....................................................................................................................................

95

.....................................................................................................................................

....................................................................................

c) ………………………………………………………………………………………

………………………………………………………………………………….........

.....................................................................................................................................

.....................................................................................................................................

.....................................................................................................................................

....................................................................................

d) ………………………………………………………………………………………

………………………………………………………………………………….........

............................................................................................................

e) ………………………………………………………………………………………

………………………………………………………………………………….........

.....................................................................................................................................

.....................................................................................................................................

.....................................................................................................................................

..................................................................................................................

f) ………………………………………………………………………………………

………………………………………………………………………………….........

.....................................................................................................................................

.....................................................................................................................................

96

.....................................................................................................................................

..................................................................................................................

g) ………………………………………………………………………………………

………………………………………………………………………………….........

.....................................................................................................................................

.....................................................................................................................................

.....................................................................................................................Thank

you very much for participating in this study.

97

Appendix 2: Protocol for Management

This study is based at the Open University of Tanzania. Its major objective is to

investigate on the Challenges facing internal auditing in financial control in local

government authorities by taking the case of Dodoma Municipality. Therefore; you are

kindly requested to participate in this study by filling in this short questionnaire. In case

the final account of this work may contain confidential information and its report could be

harmful to organization or individual, confidentiality is assured by the University. Such

report will be seen only by the Supervisor and Examiner for examination purposes.

PART A: PERSONAL PARTICULARS

1) Please provide information on the following:

a) Name of department ....................................................................................

b) Name of section................................................................................................

c) Sex of respondent:

Male........................................................................................................................................................

................................................................................................................................................................

................................................................................................................................................................

.................................................................................................................................................... Female

PART B: MECHANISM USED IN AUDITING ACTIVITIES

2) Please outline the procedure you use in conducting auditing in this organization.

98

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

…………………………………………………………………

3) Please give some explanations on the mechanisms/techniques which are used by

your organization in auditing activities. Please mention at least four.

a) …………………………………………………………………………………

………………………………………………………………………

b) …………………………………………………………………………………

………………………………………………………………………

c) …………………………………………………………………………………

………………………………………………………………………

d) …………………………………………………………………………………

………………………………………………………………………

e) …………………………………………………………………………………

………………………………………………………………………

f) …………………………………………………………………………………

………………………………………………………………………

PART C: CHALLENGES FACING INTERNAL AUDIT

4) What are the challenges which face internal audit unit in this organization? Please

mention as many as you can.

a) ………………………………………………………………………………

……………………………………………………………………

99

b) ………………………………………………………………………………

……………………………………………………………………

c) ………………………………………………………………………………

……………………………………………………………………

d) ………………………………………………………………………………

……………………………………………………………………

e) ………………………………………………………………………………

……………………………………………………………………

f) ………………………………………………………………………………

……………………………………………………………………

g) ………………………………………………………………………………

……………………………………………………………………

5) In your opinion, what measures need to be taken in order to encounter the

challenges put forward in question 4 above? Please provide at least one suggestion

for each challenge.

a) ………………………………………………………………………………………

……………………………………………………………………………

b) ………………………………………………………………………………………

……………………………………………………………………………

c) ………………………………………………………………………………………

……………………………………………………………………………

d) ………………………………………………………………………………………

……………………………………………………………………………

e) ………………………………………………………………………………………

……………………………………………………………………………

100

f) ………………………………………………………………………………………

……………………………………………………………………………

g) ………………………………………………………………………………………

……………………………………………………………………………

h) ………………………………………………………………………………………

……………………………………………………………………………

Thank you very much for participating in this study.