UNIVERSITY OF GHANA COLLEGE OF HUMANITIES INTERNAL AUDIT ...

UNIVERSITY OF GHANA

COLLEGE OF HUMANITIES

INTERNAL AUDIT EFFECTIVENESS WITHIN THE PUBLIC TERTIARY

INSTITUTIONS OF GHANA: THE INFLUENCE OF AUDIT AND

ORGANIZATIONAL CHARACTERISTICS

BY

BELINDA LARTELEY QUAYE

(10398955)

THIS THESIS IS SUBMITTED TO THE UNIVERSITY OF GHANA,

LEGON IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE

AWARD OF MASTER OF PHILOSOPHY ACCOUNTING DEGREE.

JULY, 2019

University of Ghana http://ugspace.ug.edu.gh

ii

DECLARATION

I do hereby declare that this work is the result of my research and has not been presented by anyone

for any academic award in this or any other university. All references used in the work have been

fully acknowledged.

I bear sole responsibility for any shortcomings.

……………………. ….........................

BELINDA LARTELEY QUAYE DATE

(10398955)


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CERTIFICATION

I hereby certify that this thesis research undertaken is towards the award of the Master of

Philosophy in Accounting Degree in the Department of Accounting, University of Ghana and was

supervised in accordance with the laid down procedures by the university.

……………………….. ……………………….

DR. IBRAHIM BEDI DATE

(SUPERVISOR)

……………………….. ……………………….

DR. JOSEPH MENSAH ONUMAH DATE

(SUPERVISOR)


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DEDICATION

This dissertation work is dedicated my parents, Mr. Frederick Quaye and Mrs. Alberta Quaye, who

have brought me up and instilled in me a sense of responsibility, hard work and self-motivation. I

am most grateful for your numerous contributions towards my education in particular and my life

as a whole. When I was low, you inspired and gave me comfort when I needed it the most. This

study reflects the fruits of your inspiration.

I say a big thank you to you and may the Lord Almighty crown all your efforts with greater

successes. To you, I am highly indebted.


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ACKNOWLEDGEMENT

There are a number of people without whom this thesis may not have been written, and to them

am thankful.

To begin with, I thank the Almighty God for his blessings in all of my endeavours. Indeed God

has been faithful to me for which I sincerely acknowledge.

To my father, Fredrick, who is an ardent fan of success and continues to be a source of

encouragement and inspiration to me, I write to you a very special thank you for guiding me

throughout the period of this work and for the myriad ways in which you have actively supported

me in my determination to realise and maximize my potential especially in contributing my quota

to research.

To my supervisors and academic mentors, Dr. Ibrahim Bedi, Dr. Joseph Mensah Onumah and

Professor Michael Mensah, I say thank you; I am most grateful for your time, pieces of advice,

patience and the useful comments and suggestions over the period of research. Indeed your

contributions to this study and your mentorship have left imprints on my person. Thank you very

much.

Additionally, to my comrades; Esi, Manfred, Bright and Benjamin, thank you for your support and

salient review of this study. Your contributions are highly appreciated.


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TABLE OF CONTENTS DECLARATION ............................................................................................................................ ii

CERTIFICATION ......................................................................................................................... iii

DEDICATION ............................................................................................................................... iv

ACKNOWLEDGEMENT .............................................................................................................. v

LIST OF TABLES .......................................................................................................................... x

LIST OF FIGURES ....................................................................................................................... xi

LIST OF ABBREVIATIONS ....................................................................................................... xii

ABSTRACT ................................................................................................................................. xiii

CHAPTER ONE:GENERAL INTRODUCTION .......................................................................... 1

1.0 Background of the Study ....................................................................................................... 1

1.1 Problem Statement ................................................................................................................ 3

1.2 Purpose of the Study ............................................................................................................. 6

1.3 Objectives of the Study ......................................................................................................... 6

1.4 Significance of the Study ...................................................................................................... 7

1.5 Organization of the Study ..................................................................................................... 7

CHAPTER TWO:LITERATURE REVIEW AND THEORETICAL FRAMEWORK ................. 8

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

2.1 Definition of Internal Audit................................................................................................... 8

2.2 Evaluating Internal Audit Effectiveness ............................................................................. 10

2.3 Internal Auditing in the Public Sector ................................................................................. 12

2.4 Public Tertiary Institutions .................................................................................................. 13

2.5 Internal Audit Agency ......................................................................................................... 15

2.6 Audit Plan ............................................................................................................................ 15

2.7 Theoretical Review ............................................................................................................. 16

2.7.1 Selection of Theoretical Framework ............................................................................ 16

2.7.2 Resource-Based Theory ................................................................................................ 16

2.7.3 Internal Audit Effectiveness ......................................................................................... 17

2.7.4 Justification of the Theory Choice ................................................................................ 19


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2.7.5 Empirical Application of Resource-Based Theory ....................................................... 20

2.8 Measurement for Internal Audit Effectiveness ................................................................... 23

2.8.1 Implementation of Internal Audit Recommendation .................................................... 23

2.8.2 Compliance to the Standards for Professional Practice for Internal Auditor ............... 24

2.8.3 Implementation of IA Findings .................................................................................... 25

2.8.4 Implementation of Audit Plan ...................................................................................... 25

2.9 Factors that Influence Internal Audit Effectiveness ............................................................ 26

2.9.1 Organization Characteristics ......................................................................................... 26

2.9.2 Internal Audit Process Characteristics .......................................................................... 29

2.10 Chapter Summary .............................................................................................................. 33

CHAPTER THREE:METHODOLOGY ...................................................................................... 34

3.0 Introduction ......................................................................................................................... 34

3.1 Research Philosophy ........................................................................................................... 34

3.2 Research Strategy ................................................................................................................ 35

3.3 Population............................................................................................................................ 35

3.4 Sample Size ......................................................................................................................... 36

3.5 Type and Source of Data ..................................................................................................... 36

3.6 Data Collection Tool ........................................................................................................... 37

3.7 Questionnaire Administration ............................................................................................. 37

3.8 Measurement of Variables .................................................................................................. 38

3.8.1 Measurement of Dependent Variable ........................................................................... 38

3.8.2 Measurement of Independent Variables ....................................................................... 40

3.9 Data Management and Analysis Process ............................................................................ 41

3.10 Data Analysis .................................................................................................................... 42

3.10.1 Structural Equation Modeling (SEM) ......................................................................... 42

3.10.2 Partial Least Square SEM ........................................................................................... 42

3.11 Reflective and Formative Constructs ................................................................................ 44

3.12 Reliability and Validity ..................................................................................................... 45

3.13 Assessing the Measurement and Structural Models .......................................................... 45

3.13.1 Assessment of Measurement Model ........................................................................... 46


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3.13.2 Assessment of Structural Model ................................................................................. 48

3.14 Ethical Considerations....................................................................................................... 50

3.15 Scope and Limitation ........................................................................................................ 50

3.16 Access to Respondents and Increasing Response Rate ..................................................... 50

3.17 Chapter Summary .............................................................................................................. 51

CHAPTER FOUR:DATA ANALYSIS AND DISCUSSION OF FINDINGS ............................ 52

4.0 Introduction ......................................................................................................................... 52

4.1 Descriptive Statistics of Institutions and Respondents ....................................................... 52

4.2 Inferential and Descriptive Statistics of Constructs ............................................................ 56

4.2.1 Effectiveness of the Internal Audit Function ................................................................ 57

4.2.2 Factors that Influence IAE ............................................................................................ 59

4.3 Evaluation of the Measurement Model ............................................................................... 67

4.3.1 Indicator Reliability ...................................................................................................... 67

4.3.2 Internal Consistency Reliability ................................................................................... 68

4.3.3 Convergent Validity ..................................................................................................... 68

4.3.4 Discriminant Validity ................................................................................................... 69

4.4 Assessment of Structural Model ......................................................................................... 70

4.4.1 Multicollinearity ........................................................................................................... 70

4.4.2 Common Method Bias .................................................................................................. 71

4.4.3 Coefficient of Determination (R2 Value) ...................................................................... 73

4.4.4 Predictive Relevance (Blindfolding) ............................................................................ 74

4.4.5 Evaluation of Path Coefficients .................................................................................... 74

4.5 Discussion of Findings ........................................................................................................ 77

4.5.2 Findings to Objective Two ............................................................................................... 78

4.5.2.1 Internal Audit Management and Internal Audit Effectiveness (H1) ......................... 78

4.5.2.2 Internal Audit Relationship and Internal Audit Effectiveness (H2) .......................... 79

4.5.2.3 Internal Audit Resources and Internal Audit Effectiveness (H3) .............................. 80

4.5.3 Findings to Objective Three ............................................................................................. 81

4.5.3.1 Corporate Governance Audit Process and Internal Audit Effectiveness (H4) .......... 81

4.5.3.2 Internal Control Audit Process and Internal Audit Effectiveness (H5) ..................... 83


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4.5.3.3 Risk Management Audit Process and Internal Audit Effectiveness (H6) ................. 84

4.6 Chapter Summary ................................................................................................................ 85

CHAPTER FIVE:SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ................... 87

1.0 Introduction ......................................................................................................................... 87

5.1 Summary of the Study ......................................................................................................... 87

5.2 Major Findings of the Study ............................................................................................... 89

5.3 Implications of the Study .................................................................................................... 91

5.4 Recommendations of the Study .......................................................................................... 92

5.5 Contributions of the Study .................................................................................................. 92

5.6 Limitations of Study ............................................................................................................ 93

5.7 Suggestions for Future Studies ............................................................................................ 94

5.8 Conclusion ........................................................................................................................... 94

REFERENCES ............................................................................................................................. 95

APPENDIX ................................................................................................................................. 103


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LIST OF TABLES

Table 4. 1: Types of Public Tertiary Institutions 53

Table 4.2: Regional Distribution of Public Tertiary Institutions 53

Table 4.3: Number of Employees in the Institutions 54

Table 4.4: Number of Internal Auditors 54

Table 4.5: Total Employees against Total Internal Auditors 55

Table 4.6: Size of Internal Audit Function 55

Table 4.7: Audit Duties Neglected due to Size 56

Table 4. 8: IAE Ratios Computed 57

Table 4. 9: Internal Audit Effectiveness 59

Table 4.10: The Mean of the Governance Process Variable 60

Table 4.11: The Mean of the Internal Control Process Variable 62

Table 4.12: Risk Management Process Variable 63

Table 4.13: The Mean of Management Support Variable 64

Table 4.14: The Mean of IA Management Variable 65

Table 4.15: The Mean of IA Resources Variable 66

Table 4.16: Indicator Reliability 67

Table 4.17: Composite Reliability (CR) and Average Variance Extracted (AVE) 68

Table 4.18: Cross Loading 69

Table 4.19: Fornell-Larcker Criterion 70

Table 4.20: Outer VIF Values 70

Table 4.21: Common Method Bias 72

Table 4.22: Coefficient of Determination (R2) 73

Table 4.23: Blindfolding 74

Table 4.24: Path Coefficients, P-Value and Results 75


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LIST OF FIGURES

Figure 2. 1: Adopted Theoretical Framework............................................................................... 21

Figure 2.2: Conceptual Framework .............................................................................................. 22

Figure 4.1:Structural Model…………………………………………………………………..….76


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LIST OF ABBREVIATIONS

IA - Internal Auditing

IAE - Internal Audit Effectiveness

IAF - Internal Audit Function

ISPPIA - International Standards for Professional Practice for Internal Auditors

IIA - Institute of Internal Auditors

IAA - Internal Audit Agency

ICAG - Institute of Chartered Accountants, Ghana

ACCA - Association of Certified Chartered Accountants

NAB - National Accreditation Board

PFM - Public Financial Management

SPSS - Statistical Package for Social Sciences

PLS - Partial Least Square

SEM - Structural Equation Modeling

CB - Covariance-Based

CAE - Chief Audit Executive

GP -Governance Audit Process

RMP -Risk Management Audit Process

ICP -Internal Control Audit Process

MA - Management of Audit Function

RE -Internal Audit Resources

MS -Management Support

COSO -Committee of Sponsoring Organizations


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ABSTRACT

The effectiveness of an internal audit function is importantly dependent on the outcome of its

objectives. However, during the achievement of the internal audit function’s objectives, the

function is mandated to contribute to the effectiveness of the organization’s risk management,

governance, and internal control processes.

This research examines the level of effectiveness of the internal audit function of public tertiary

institutions in Ghana and its influencing factors such as audit processes and organizational

characteristics. These characteristics in particular, relates to the involvement in risk management,

corporate governance and internal controls, the ability to manage the internal audit function and

its activities and internal audit relationship with senior management are examined.

This study uses survey method to gather data from the heads of 90 Ghanaian public tertiary

institution’s internal audit functions. Data was analyzed using the Partial Least Square-Structural

Equation Model tool.

The results show that the effectiveness of the public tertiary institution's internal audit function is

on the medium-low level scale adopted in the study. This level of effectiveness is characterized by

involvement in internal control audit process, top-level management support, resource availability

and the management of the internal audit department.

The study contributes to literature by showing evidence on governance audit process variable,

internal control audit process variable and managing of internal audit function variable in the

public sector of Ghana. This research also provides regulatory authorities with knowledge on

tertiary institutions’ internal audit effectiveness and helps identify audit work engagement

strategies.


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CHAPTER ONE

GENERAL INTRODUCTION

1.0 Background of the Study

Public Sector Auditing is an area where accountability and good financial management of public

funds are crucial to economic growth in a developing country. Internal Auditing is performed in

accordance with the generally accepted principles, standards and guidelines of the Law.

In Ghana, public sector auditing practice has undergone significant legal administrative reforms in

recent years. These reforms include the introduction of the new Law on Public Financial

Management Act, 2016 (Act 912); the change of Audit Report Implementation Committee to Audit

Committee; the Surcharge Regime and Internally Generated Funds allocation to public institutions.

The Public Financial Management Act 2016, Act 912 promulgates the financial management of

the public sector to guide the persons entrusted with public funds to provide accounting and audit

of public funds. Thus the Act regulates the financial management of the public sector provides

significant strengths to public sector financial discipline in order to achieve effectiveness and

efficient use of public resources. Therefore there is the need to investigate the effectiveness of the

public sector after these significant changes in the structure of the public sector. Further, these

reforms present a call on internal auditors to improve the effectiveness of the internal audit

function.

Further, the Effectiveness of the Internal Audit is greatly dependent on the ability to achieve set

objectives within the IAF, which has effect on the ability to detect fraud and error within the

organization (Badara & Saidin, 2013).


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The extant literature supports the argument that, it is the responsibility of public sector auditors to

ensure internal audit effectiveness within governmental institutions directed to value-adding and

value for money creation (Hay & Cordery, 2018).

Within public educational institutions, these public sector reforms necessitate a modification in

internal audit processes (internal control, governance and risk management) since the government

is responsible for their budget, policies, and monitoring processes (Bleiklie & Kogan, 2007).

Pursuant to the above, the Institute of Internal Auditors (IIA) confirms that “internal auditing adds

value and improves the effectiveness of governance, risk management and control processes of an

organization” (IIA, 2016). For this reason, internal audit (IA) engagement in operational controls,

risk management, and corporate governance is key. Moreover, the accurate completion of internal

audit work assignments helps organization’s to add value to performance (Eden & Moriah, 1996;

Morrill & Morrill, 2003).

Drawing on the above explanation on internal auditing, this study establishes that internal auditing

is linked to factors relating to risk management, internal controls, and corporate governance

processes. Consequently, this study investigates audit processes which comprise of involvement

in risk management, control and governance processes (Arena, 2013). It is followed with a further

discussion of examining the managing ability of the head of the Internal Audit Function (IAF)

using competencies and resources (Arena & Azzone, 2009).

Research on the factors that influence IAE cites four main factors explored in literature (Ahmad,

2015). These factors include departmental, organizational, managerial and individual

characteristics of IAE. Majority of studies have been conducted on individual factors that influence


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IAE thus this study focuses on highlighting more on the organizational and managerial

determinants of IAE.

This study adds knowledge to issues regarding Public sector Internal Audit Effectiveness (IAE)

by setting out a comprehensive agenda involving audit processes, IA relationship and managing

IA department within public tertiary institutions in Ghana.

1.1 Problem Statement

This section highlights the gaps in the literature regarding the effectiveness of the IAF and related

issues that this research will address.

The Institute of Internal Auditors (IIA) has the responsibility to support and strengthen all IAFs,

thereby ensuring that an effective function is maintained. Further, the IIA emphasizes the need for

organizations to keep an influential IAF to be able to promote good financial control and fraud

detection (IIA, 2016). Consistent with the above, the latest explanation on the concept internal

auditing by the IIA states that “internal auditing is an independent of governance, risk management

and control processes of an organization” (IIA, 2016). This clearly indicates the position of internal

auditing in the area of governance, risk management, and internal control is vital but there is little

study on the three audit processes. In the literature, Arena and Azzone (2009) examine the

involvement of internal auditor in the risk management process using control risk self-assessment

methods. They concluded that internal auditors have increased their attention on their functions on

internal control-risk management systems. Scholars have advocated a call for additional studies to

investigate the involvement of internal auditors in risk management, internal control, and

governance processes, which value added by IA to its organization (Soh & Martinov-Bennie, 2011;

Arena, 2013).


4

In addition, there is a call for further studies to build on existing literature on internal auditing in

an unexplored area of interactions between internal audit governance mechanisms of an

organization and the in-depth analysis of internal audit risk management processes (Goodwin-

Stewart & Kent, 2006).

Further, there is little knowledge about internal audit function management being a determinant

of IAE. Arena & Azzone (2009) asserts that the examination of how an IAF is managed should be

designed using competencies and resources, which will bring out the management roles of IAF

managers.

Examination of previous research on IAE show that much focus has been on the factors that

influence the IAF and the individual internal auditor but little is related to the organization as a

whole (Arena & Azzone, 2009). Similarly, Mihret et al. (2010) and Lenz and Hahn (2015) called

for an empirical examination of IAE to identify the antecedents of the effectiveness of the IAF that

are identified and related to IA work and the organization characteristics. However, the work

internal auditors perform greatly contributes to the effectiveness of the internal audit unit (Alzeban

& Gwilliam, 2014).

During the execution of an internal audit service, the ultimate goal of adding value increases its

effectiveness (IIA, 2016). Nevertheless, Dittenhofer (2001) draws attention to the fact that the IAF

cannot be effective always. Mihret & Yismaw, (2007) investigates the effectiveness of an IAF and

finds that improvements are needed in certain areas which influences its effectiveness. Buttressing

this point Van Peursem (2005) emphasize that matters related to IAE are worthy of attention as

effective internal auditing is crucial in offering independent data required to assist organizations.


5

The recent relevance of internal audit effectiveness has warranted a call for studies in the field of

internal auditing, in order to investigate IAE (Cohen & Sayag, 2010; Badara & Saidin, 2013).

Turning to the measurement of IA effectiveness, this study adopts the definition of effectiveness

from the IIA (2016) “as the degree to which audit objectives established are accomplished”. In

addition, Mihret et al. (2010) suggests that to measure the IAE, researchers should examine the

rate at which an IAF accomplishes its objectives in terms of annual audit plans compared to audits

executed. Therefore, this study adopts the definition of effectiveness as performing internal audit

work in terms of the ability to plan an audit work and the ability to accomplish the planned work.

This basis forms the measurement of IAE.

Although IAE studies have been conducted in the private and public sectors, Badara & Saidin,

(2013) advocates for the need to further investigate the effectiveness of the IAF of public

organizations. In addition, researchers have also called for internal auditing studies within a

specific area of like the public tertiary educational institutions due to the fact that these institutions

focus on research and teaching activities, rather than administrative issues like accountability

(Arnaboldi & Azzone, 2004; Brown & Brignall, 2007; Arena, 2013). Being mindful of the fact

that the research and teaching activities engaged in by these institutions give rise to expenditure,

an internal control system should be implemented to check corruption in this area and improve

financial accountability. Buttressing this point, Adagye (2015) attests that little is known of the

effectiveness of the internal controls systems in tertiary education institutions.

Studies on IAE indicates that there is no empirical study that utilizes the resource-based theory

though it was suggested by Ahmad (2015) for a future research direction. This study focuses on a


6

theoretical framework that uses the resource-based theory as a response to the issue of limited

theories in internal audit research (Endaya & Hanefah, 2013).

Overall, this study investigates the involvement of internal audit function in areas concerning risk

management, internal control and governance processes within public tertiary institution,

investigate how the heads of these institutions manage the internal audit function and how

management support and resources influence internal audit effectiveness within the public tertiary

institutions in Ghana.

1.2 Purpose of the Study

The purpose of this study is to evaluate the measure of IAF effectiveness and to examine the extent

to which internal audit (IA) is involved in promoting Public education sector governance, controls,

risk management processes and investigate other organizational factors that influence internal

audit effectiveness (IAE) like the ability to manage the internal audit function’s activities,

resources, and internal audit relationships.

1.3 Objectives of the Study

The study aims to specifically:

1. Evaluate the effectiveness of the internal audit system in public tertiary institutions in Ghana.

2. Examine the organizational factors that influence IAE.

3. Investigate the relationship between internal audit effectiveness (IAE) and internal audit

function involvement in internal audit processes (governance, internal control and risk

management) internal audit processes factors and IAE.


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1.4 Significance of the Study

This study makes contributions in the areas of literature and practical considerations. To begin

with, this study adds to the literature by extending the application of the resource-based theory in

this study in order to show the importance of resources to achieve IAE as put across by Ahmad

(2015). This research integrates internal audit involvement in internal audit processes (corporate

governance process, internal control process and risk management process), internal audit

resources and the management of internal audit function as variables that influences IAE in Ghana.

In addition, this study contributes to practice by helping the internal audit agency to formulate

audit strategies that regards the aspects of audits to be performed by the internal audit units (ethics,

governance and control and risk management) which will assist the work of the internal audit unit

of the public tertiary education sector in ensuring IAE.

This research also contributes by helping policymakers in assessing and evaluating of public

internal auditing in areas such as audit function services performed within the public sector to

ensure IAE.

1.5 Organization of the Study

This section provides a brief overview of the continuing chapters which make up this research

work. There are six chapters in this research. The first chapter provides background information

to the research and makes a case for the relevance of the study. Subsequently to the setting out of

research aim and objectives. The continuing chapters are Chapter two: literature review; Chapter

three: Conceptual Framework; Chapter four: research methodology; Chapter five: data analysis

and findings; Chapter six: summary of findings, recommendations, and conclusions.


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CHAPTER TWO

LITERATURE REVIEW AND THEORETICAL FRAMEWORK

2.0 Introduction

This chapter presents existing literature on IAE and the theoretical framework on which this

research is based on. This research contributes to existing information in this area of research by

introducing a different perspective for evaluating internal audit effectiveness and by identifying

audit process and organizational drivers that impact on audit effectiveness.

The chapter discusses in detail the following themes: the definitions of IAE; public sector internal

auditing; public tertiary institutions; internal audit agency; audit plan; the theory selected for this

research; the justification and empirical application of the study to the theory; measurement of

internal auditing; management of the IAF, IA resources and IA involvement in corporate

governance, risk management and control processes. They are, consequently, examined in turns,

in the following sections.

2.1 Definition of Internal Audit

One of the building blocks of internal auditing is the regulations and laws governing the practice.

This legal involvement in internal auditing has presented the function internal auditing with rapid

changes to expand its scope in recent years. These changes have moved internal auditing from a

detection nature to a more preventative nature due to the inclusion of assurance and consulting

services provided.

The IIA defines Internal Auditing as an “independent objective assurance and consulting service

that is established to improve the operations of an organization, effectiveness of the corporate

governance, risk management and internal controls of the organization”.


9

IIA further defines “Effectiveness as the degree to which objectives established are

accomplishment” (IIA, 2016). In addition, Hamilton & Chervany (1981) defined effectiveness as

comparing performance to set objectives which is ascertaining how well target objectives are being

met. In this view, when internal auditors performs IA work set by IA managers then the internal

audit function becomes effective. Thus, IAE depends on the ability of internal auditors to

accomplish set audit objectives.

Similarly, Dittenhofer (2001) defines internal audit effectiveness as the achievement of internal

audit objectives. Every IAF must clearly state and achieve their objectives in order to be effective.

Dittenhofer (2001) However, since most of the audit objectives within the organization are

initiated by the head of the IAF, it is evident that IAE is associated with management capacity

(Azzali & Mazza, 2018). Moreover, Badara and Saidin (2013) states that IAE is greatly dependent

on the ability to achieve set objectives within the IAF, which has effect on the ability to detect

fraud and error within the organization.

However, Al-Twaijry, Brierley and Gwilliam, (2003) present a different opinion employing the

compliance with the standards for the professional practice of internal auditing as an indicator for

internal audit effectiveness. Contrary to this, Mihert et al. (2010) suggests that an IAF is effective

when it achieves its goals in terms of annual audit plans compared to audits executed.

Consequently, this study adopts the definition of effectiveness as the performance of internal audit

work in terms of the ability to plan audit work and the ability to accomplish such planned work as

an approach to the examine internal audit work effectiveness. This definition is chosen because it

is more in line with the objectives of the research in examining the issues surrounding the

involvement and execution of audit plans in the Ghanaian public tertiary educational institution


10

sector. Thus, this study uses the ratio of planned audit activities as against actual audit activities

performed as a definition for IAE.

2.2 Evaluating Internal Audit Effectiveness

This section highlights the various views put across by scholars on the evaluation of internal audit

effectiveness in the literature. A growing body of empirical literature has investigated IAE in

public and private sectors. But literature also shows that there are usually few acceptable methods

employed to evaluate IAE as yet (Arena & Azzone, 2009).

In line with the above, Cohen and Sayag, (2010) argues that internal audit effectiveness is

determined by the fit between the auditing work and the goals set by managers. Thus to achieve

IAE, much emphasis must be directed to the review of expected work to be performed and the

actual execution of work done. These brief review show that there is a need for more broad study

of the issue of internal audit work effectiveness. The studies above did not highlight extensively

on the issue of effectiveness of audit work.

Further, it is widely discussed in recent studies that internal auditing has evolved across the globe.

Therefore, due to this recent attention given to Internal Auditing over time in the form of

development, it has become increasingly evident that the practice is faced with various factors.

Many researchers have investigated this issue in a whole where they examine factors that affect

the internal audit department. But yet still there is very few research that addresses the factors that

affect specific issues of the function. Consequently, Endaya and Hanefah (2013) suggest that

internal audit effectiveness is influenced by micro and macro factors that exist inside and outside

the IAF.


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Empirical studies on internal audit effectiveness and its antecedents within the public sector

include; Schyf, 2000-South Africa; Mihret & Yismaw, 2007- Ethiopia; Arena & Azzone, 2009-

Italy; Ahmad, Othman, Othman & Jusoff, 2009- Malaysia; Cohen & Sayag, 2010- Israel; Unegbu

& Kida, 2011-Nigeria; Alzeban & Gwilliam, 2014- Saudi Arabia. The research in Nigeria by,

Unegbu and Kida (2011) discovered that the presence of an effective IAF in a public sector

organization helps the checking and managing fraud. Indeed, it is reported that IA is effective

when it accomplishes its intended result for a set period of time. (Mihret & Yismaw, 2007).

Audit activities contribute to the success of the IAF. Moreover, management relies on audit work

that has been properly planned, executed and reported. Therefore, audit planning is an essential

audit activity for internal audit operations. Annual audit plans must be developed by identifying

the risk profile, control processes and governance of each unit within an organization. Pickett

(2005) asserts that the annual audit plan should be based on areas concerning risk assessments,

control, and governance to help assess the risk and the impact of the organization. Buttressing this

point, Mihret & Yismaw (2007) reveals that internal auditing in the higher educational institutions

needs improvement in the area of audit planning, thus the proper analysis of the appropriate risk

areas of the institution will help improve audit work effectiveness. This makes the inclusion of risk

management, internal control and governance areas important aspects of an audit plan.

Given the unique role of tertiary institutions in capacity building of a country, the government

provides support to state-owned tertiary institutions in the form of government subvention. Due to

this monetary support given by government, public accountability and disclosure of subvention

usage are crucial. Moreover, an internal audit department of higher educational institutions need

improvements in the area of audit planning and execution (Mihret and Yismaw, 2007).


12

With the aim of understanding IAE, many scholars have provided insights into what internal

auditing covers (Arena & Azzone, 2009; Alzeban & Gwilliam, 2014; Erasmus and Coetzee, 2018).

These scholars advocate for the need to measure internal audit effectiveness, (For instance

(Dittenhofer, 2001; Van Peursem, 2005; Mihret & Yismaw, 2007; Alzeban & Gwilliam, 2014),

but there exist a lack of widely accepted operational measurement regarding this purpose (Arena

& Azzone, 2009). Similarly, Erasmus and Coetzee (2018) assert that IAE conception is a difficult

to describe as numerous scholars are trying to scrutinize the topic and adding new knowledge.

Therefore this study makes use of existing constructs from the literature that has been empirically

tested to examine IAE in the public tertiary institutions in Ghana.

2.3 Internal Auditing in the Public Sector

Public sector internal auditors play a critical role in enhancing public accountability. This implies

that internal auditors and stakeholders alike are accountable for their actions. Internal Auditors

within the public sector are faced with diverse roles depending on the governance structure of the

institutions they work in. Public sector internal audit unit could be effective if the government is

committed to pursuing the objectives of the unit. In the case of Ghana, the government has taken

significant actions to introduce the reforms presented below.

To begin with, a public sector reform on internal auditing includes the Public Financial

Management Act 2016 (Act 912) which requires every public entity internal audit unit to report

on their operating systems and applications in order to obtain efficient administration of public

funds. The Act, in section 83 subsections 6 and 7, state that the internal auditor shall submit a copy

of its annual audit work plan and a quarterly write-up regarding the annual audit work done to the

Internal Audit Agency (IAA), and the Regulator of internal auditing in Ghana. This study proposes


13

to investigate the effectiveness of the public sector after the implementation of this significant

change in requirements.

As a result of public institution’s reliance on government for financial support, the government of

Ghana has advanced efforts in seeking for revenue generation in order to fund strategic programs

and grow the economy.

2.4 Public Tertiary Institutions

Public tertiary institutions in Ghana consist of universities, colleges, polytechnics, and other

specialized institutions. These institutions are accredited by the National Accreditation Board.

Most governmental reforms introduced present a change process in order to accomplish goals

particularly in the public higher educational institutions. Within these institutions, the government

is responsible for their budgets control, policies steering and monitoring achievements (Bleiklie &

Kogan, 2007). Therefore, their services rendered are highly monitored for funding purposes.

Nevertheless, due to the high national expenditure, there has been a reduction in the funding of

these institutions but at the same time, they are expected to publicly account and demonstrate value

for money in not only teaching activities but in administrative services as well. Thus, internal audit

has become a critical function to these educational institutions, due to the role internal audit plays

against fraud and corruption. Furthermore, research on internal auditing in government higher

education institutions has not been fully explored (Arena, 2013).

This study extends prior studies by investigating issues on IA work effectiveness and

characteristics that influence IA work in tertiary educational institutions. This study narrows the

search within the public sector to tertiary institutions. Furthermore, a study by Mihret & Yismaw

(2007) uses one of Ethiopia’s major public higher educational institution to examine the elements


14

that influence IAE. They used variables including management support, auditee attributes, internal

audit quality and organizational settings to examine the phenomenon above. Their results show

that IAE is strongly influenced by management support and internal audit quality, whereas

organizational settings and auditee attributes do not have a strong influence on IAE. Consequently,

this research uses different set of variables to address the issue at hand.

Similarly, Arena (2013) investigates the features of an internal audit unit in higher education. The

empirical findings suggest that Italian university's internal audit characteristics present issues like

the hierarchical situation of the IAF, skills, and competencies of internal auditors and the type of

audit activities performed. For this reason, it is essential for researchers to gain an in-depth

knowledge of internal audit effectiveness of the higher educational institutions at the country level.

It is argued that researchers in Ghana have not focused on this area of research. In response to

these calls, this research examines the effectiveness of internal audit work in the Ghanaian tertiary

education institution.

A research conducted by Zakaria, Selvaraj, and Zakaria (2006) examined the establishment of the

internal audit function in higher education in Malaysia. They used a sample of 17 public

universities and 49 private universities. Their results reveal that all the universities have

established IAFs and their scope includes the areas mentioned in the auditing standards. It is

evident that their study did not consider the extent to which the higher education institutions

engage in audit processes. Consequently, they advocate for further studies relating to auditing

processes within the education sector. In addition, Arena (2013) asserts there is still limited

empirical evidence concerning internal audit in higher education.


15

2.5 Internal Audit Agency

The internal audit agency is responsible for internal auditing in the Ghanaian public sector. Public

sector internal auditing is compulsory, thus the Public Financial Management Act, 2016 (Act 912)

provides guidelines for its establishment and control. The responsibility of IA agency in Ghana’s

public sector involves ensuring fair, transparent accountability and rebrand the IAF (Internal Audit

Agency Act 2003, Act 658). To support this initiative, the agency has put in place guidelines to

provide quality assurance and accountability to the public. Furthermore, in Ghana, the Internal

Audit Agency Act 2003 (Act 658) states that IAFs of public institutions should provide reports on

the internal audit activities to the Head of the agency for examination. This procedure of checking

reports should make internal audit work effective but some institutions have not been consistent

with the report submission and report writing. This issue of non-compliance to regulations which

makes monitoring of audit work performed and those not performed difficult.

2.6 Audit Plan

An audit plan is a strategic focus of the IAF. This plan includes audit programs and activities for

audit execution (Sarens, Abdolmohammadi, & Lenz, 2012). They conclude that when designing

the annual audit plan, specific issues must be taken into consideration. For instance, the appropriate

resources, expertise and the number of audit staff to enable the timely execution of the plan. Soh

and Bennie (2011) added that an audit plan is an essential audit tool which specifies audit

assignments. They add that an internal audit is effective when there is a periodic report of audit

purpose, responsibility, and performance of audit plan. Their work reveals that developing and

doing of annual IA work involves a significant amount of efforts to facilitate a smooth auditing

process. In view of this, they examine the annual audit plan of their sampled institutions for two

years and observed that the plan was comprehensive enough.


16

Given the annual audit plan of the institution, the next section expands on the selection of the

theoretical framework.

2.7 Theoretical Review

2.7.1 Selection of Theoretical Framework

The appropriate selection of a theory is important because, it links the research to the stated

research aims, philosophy, and methodology. This work uses the positivist research philosophy

which requires appropriate theory for verification and deduction. Given the objectives of the study,

the deductive approach is permitted to be adopted based on the theory below.

However, the review of literature showed that there is no precise theory that fully explains internal

auditing and its effectiveness (Dittenhofer, 2001; Al-Twaijry, Brierley & Gwilliam, 2003;

Goodwin-Stewart & Kent, 2006; Sarens & Abdolmohammadi, 2011; Endaya & Hanefah, 2013;

Ahmad, 2015), this study adopts the resource-based theory to describe the research framework,

because the Resource-Based theory explains how organizations link their internal resources and

capabilities with their internal audit strategies (Grant, 1991), which is investigated in this thesis.

2.7.2 Resource-Based Theory

The Resource-Based theory focuses on how organizations link their strategies with their internal

resources and skills to create and sustain competitor benefit (Barney, 1991; Ahmad, 2015).

However, Kruger, Steyn, and Kearney (2002) link IA function to resource-based theory. Similarly,

Ahmad (2015) proposes the resource-based theoretical framework for investigating the

antecedents of IA effectiveness. This study adopts the Resource-based theory to explain the

research framework. Further, this theory is grounded on the link between organizations and their

resources. The resource-based theory explains and guides the structure and operations of an


17

organization in terms of resource deployment and the management of a firm’s resource position

over time (Wernerfelt, 1984).

The theory is concerned with how organizations secure and put their resources to productive use,

thus the need to identify and categorize an organization’s resources. (Grant, 1991). Consequently,

the resource-based theory argues that the categorization of organizational resources helps in the

identification of a firm’s strength and weakness. According to Grant (1991), resources of a firm is

classified into six major categories namely; financial resources, physical resources, human

resources, technological resources, reputation resources, and organizational resources.

However, another school of thought lead by Grant (1991) explains that a firm owned resources

helps improve efficiency and effectiveness. He further adds that these resources comprise of assets,

capabilities, organizational processes, firm attributes, information, and knowledge.

2.7.3 Internal Audit Effectiveness

Currently, the practice of using the resource-based theory to explain IAE has emerged in auditing

research. Van Peursem (2005) affirms that issues concerning to IAE are essential since the

effectiveness of an IAF leads to effective internal control, risk management, and governance

processes. He concludes that factors that impede IAE should be well explored to be able to ensure

the IAF accomplishes its objectives.

Research has shown that IAE is affected by both internal and external factors. According to Ahmad

(2015), issues facing the effectiveness of an IAF emanates from the organization in which the

function is established. This factor was classified as internal factors that affects IAE. Moreover,

Ahmad (2015) explains that outside factors that impede the effectiveness of an IAF are beyond the

organization. This current study mainly focuses on internal characteristics that influence IAE thus


18

those elements inside the organization in which the IAF is established. Further, internal factors are

grouped into four different major groups that is; organizational, departmental, employee and

managerial characteristics (Ahmad, 2015).

The organizational characteristics are factors inside the organization that affects the effectiveness

of the IAF. For instance, financial performance and the organization’s exposure to risk are some

of the organizational characteristics identified by Mihret et al (2010) as factors that influence IAE.

Turning to departmental characteristics, Zain, Subramaniam, & Stewart (2006) highlights on

important departmental characteristics that influence internal audit effectiveness being the size of

the IAF and staff capabilities of the funtion. These departmental characteristics impact on the

effectiveness of the IAF.

Further, the employee characteristics that influence internal audit effectiveness comprises of the

features of internal auditors that work in the IAF (Al-Twaijry et al., 2003). They conclude that

these characteristics relate internal auditors competences which could influence the effectiveness

of IA work performed.

In the same vein, Arena & Azzone (2009) states that a managerial characteristics that influences

IAE relates to top level management’s role in internal auditing. Examples of these are factors are

management support and audit committee interactions.

Researchers into IAE have long identified that organizations possess some unique resources that

are internal and can improve the effectiveness of the internal audit function when deployed well.

One major reason is that unlike any other department, internal audit department also needs

resources in order to survive, perform internal audit duties for the organization (Kruger et al.,


19

2002). Therefore, the resources-based theory used in internal audit department effectiveness is

vital.

2.7.4 Justification of the Theory Choice

This study adopts the resource-based theory because it allows for the grouping of internal audit

resources in accordance with the four internal pillars of the influence of internal audit

effectiveness. These pillars are the employee (individual), departmental, organizational and

managerial characteristics. This grouping allows for the identification of the various types of

resources characteristics with statistical influence on IAE. The resource-based theory positions this

study on one of the three broad characteristics of IAE study which is the organizational

characteristics. Thus the organizational characteristics explained the organizational attributes that

IAE in the form of risk exposure and financial performance (Ahmad, 2015).

Further, this theory is plausible due to the ability to elaborate on the findings in all three objectives

stated. In addition, the resource-based theory empirically contributes to the literature through a

contextual use of this theory. This theory has been used in various contexts, but IAE in the context

of involvement in organizational processes is yet to receive attention and explanation by using the

resource-based theory. Moreover, the use of the resource-based theory in this study highlights

another research gap in the literature which has to do with a limited study on IAE based on this

theory. The underpinning theory of this study offers an opportunity to contribute to knowledge in

the area of IAE through its application.

The theory offers a framework which is adapted to suit the study in order to make

recommendations to literature and practice. This study adapts this framework because the study

can easily identify organizational characteristics of IAE and internal auditor’s involvement in these


20

organizational characteristics. Therefore, the theoretical and conceptual framework is

demonstrated in Figure 2.1 and 2.2 below.

2.7.5 Empirical Application of Resource-Based Theory

This theory has gained attention as a theoretical framework used by various scholars in the strategic

management discipline to study numerous phenomena (Akio, 2005). For instance, Wernerfelt

(1984) uses the theory to explain the success of developing economic tools for examining the

resources used by firms within the strategic lens to maintain a sustainable advantage. In addition,

Clulow, Barry, and Gerstman (2007) applies the resource-based theory in investigating the

significant importance of key resources in creating competitive advantage and firm performance.

The theory has been used by Abu Bakar and Ahmad (2010) to study the product life cycle. The

key focus of their study was to identify which firm resources add value best to each stage of the

product. In the field of banking, the theory was used to study internal resources for the

internationalization of commercial banks where both tangible and intangible resources are

considered determinants (Panda & Reddy, 2016).

In the field of auditing, Ahmad (2015) employs the resource-based theory in explaining the

antecedents of IAE. She adds that adopting the resource-based theory in explaining the internal

resources of the organization is paramount when investigating the determinants of IAE. She further

concludes that internal organizational factors influence IAE.


21

Figure 2. 1: Adopted Theoretical Framework

Source: Ahmad (2015)

Source: Ahmad (2015)

Internal Factors

Organizational Characteristics (level of

loan, financial performance and risk

exposure)

Departmental Characteristics

(independence of the IA function, size

of the IA department and staff

composition)

Employees Characteristics

(competence, quality of job done)

Managerial Practices (top –level

management support)

IA Effectiveness


22

Figure 2.2: Conceptual Framework

Internal Factors

-

+

+

+

+

+

Source: Researcher’s Design (2019)

Involvement in

Governance Audit

Involvement in Internal

Control Audit

Involvement in Risk

Management Audit

Internal Audit

Effectiveness Management of

Internal Audit Activity

Internal Audit

Resources

Internal Audit

Relationship with Top

level Management


23

2.8 Measurement for Internal Audit Effectiveness

Literature has addressed issues concerning IAE and its measurement approaches. In assessing the

measure of IAE, Erasmus and Coetzee (2018) have concluded that the answer to what internal

audit effectiveness is and its measurement is difficult to describe since there is still a number of

scholars scrutinizing and adding new knowledge to the topic every day.

In view of the measurement of IAE, existing literature mostly makes use of the implementation of

internal audit recommendation (Arena and Azzone, 2009), compliance to the Standards for the

Professional Practice of Internal Auditors (Mihret et al, 2010; Al-Twaijry et al., 2003),

implementation of IA findings (Mihret & Woldeyohannis, 2008) and implementation of audit plan

(Ernst & Young, 2007; Soh & Martinov-Bennie, 2011) as measurements of IAE. These

measurements of IAE will be discussed into details in the next sections.

2.8.1 Implementation of Internal Audit Recommendation

The first measurement approach to IAE is the implementation of internal audit recommendations

made by internal auditors. During the review of the literature, a research conducted by Arena and

Azzone (2009) in order to understand the organizational drivers of internal audit effectiveness in

relation to modifications in internal auditing, provided proof on the measure of IAE. These authors

found that IAE is measured using a proxy which relates to the ratio of recommendations made by

the internal auditors and those actually put in place by the auditees and management. Furthermore,

Arena and Azzone (2009) developed a four Likert-type point to suggest the level of

implementation of actions recommended by the internal auditors. This measure of effectiveness is


24

faced with the limitation of not considering the type of audit service performed and the work

internal auditors perform (Arena & Azzone, 2009).

2.8.2 Compliance to the Standards for Professional Practice for Internal Auditor

The second measurement approach for IAE considers the use of the level of compliance with the

standards for professional practice for internal auditors (SPPIA) as a proxy to determine internal

audit effectiveness (Mihret et al, 2010; Al-Twaijry et al., 2003). The standards for professional

practice for internal auditors identifies five areas that IAF should comply with to ensure

effectiveness and efficiency of work. These areas are; independence of the internal audit

department, professional proficiency of the internal audit department, the scope of internal audit

work carried out and management of the internal audit department. Al-Twaijry et al., (2003)

provided evidence of the application of compliance with the standards for professional practice for

internal auditors as a measure for IAE in Saudi Arabia. They argue that for internal auditing

function work to add-value, one factor that needs to be considered is the degree of standards

compliance. In addition, they examined how compliance with the standards for professional

practice for internal auditors can be used as a measure of IAE.

Similarly, Mihret et al. (2010) employ the degree of compliance with the standards for professional

practice for internal auditors and goal achievement as a measure for IAE to investigate the

determinants of IAE. These authors explored the level of compliance with the standards which

internal auditors must follow, has a positive reflection on internal audit work objectives. Further,

these authors concluded by examining internal audit (IA) independence, IA professional

proficiency, IA scope of work carried out and IA management as explained in the standards, this

approach serves as a measure for internal effectiveness.


25

2.8.3 Implementation of IA Findings

The third measure for IAE relates to using the IA findings implemented. Under this method, Mihret

and Woldeyohannis (2008) examined two institution’s audit reports to find out if internal audit

findings were implemented in the period the reports were issued or not implemented and were

repeated in the subsequent periods. In addition, Mihret and Woldeyohannis (2008) considered the

percentage of non-repeated findings to total findings issued in the period as an indicator for internal

audit effectiveness. Further, Mihret and Woldeyohannis (2008) concluded that this measure helps

to track the audit findings that have been implemented and those not implemented but not repeated

in the subsequent period. The authors added that bringing out audit findings from audit projects

engaged in during a period shows internal audit department effectiveness. This approach considers

all audit findings to be of equal importance and implementable. This issue results in a limitation

of IAE measurement since IAF presents far more activities.

2.8.4 Implementation of Audit Plan

The last approach used for measuring the effectiveness of an IAF concerns implementation of

annual audit plans. Soh and Bennie (2011) attests that the most frequently used measure for IAE

relates to the completion of the internal audit plan. Further, this research applies the stage of

completion of the audit plans or a ratio of planned audit to actual audit of the audit department as

a measure of IAE which is the dependent variable of this study (Ernst & Young, 2007). This

approach is chosen because it is more in line with the objectives of the research in examining the

issues surrounding the execution of audit plans in the Ghanaian public tertiary educational

institution sector. Further, this approach of implementation of audit plan considers aspects that are

limited in the literature such as the elimination of the type of audit service performed and work

done by the internal auditors (Arena & Azzone, 2009; Alzeban & Gwilliam, 2014). This approach


26

makes use of the annual audit plan prepared using “trust areas”. Generally, these trust areas are

suggested audit engagements put together by the regulator of internal auditing in Ghana, for these

institutions to follow and draw their audit programs and engagements for the year to be able to

monitor the type of audit engagement activities and completion of annual audits.

Overall, this study adopts the implementation of annual audit plan as an indicator of IAE.

As the dependent variable has been explained above, the next section explains the various factors

that influence internal audit effectiveness which is the independent variables identified and

adopted from literature.

2.9 Factors that Influence Internal Audit Effectiveness

Research on IAE presents variations in the contextual characteristics based in different settings.

Nonetheless, studies have identified a number of factors that influence IAE across the public and

private sectors (Lenz & Hahn, 2015). A review of these common factors was synthesized to

capture the characteristics that impact the IAE in the Ghanaian Public tertiary institutions,

specifically in the area of achieving audit output relating to the work of the auditor and the ability

to execute the audit plans. Subjected to the objectives of this study, the organizational and internal

audit characteristics were identified in line with literature to help address the research hypotheses.

These two characteristics will be discussed in details in the following subsequent sub-sections.

2.9.1 Organization Characteristics

Organizational characteristics are factors of IAE that are mainly associated with the organization.

The organizational variables identified and hypothesized in the literature associated with the

organizational influence of internal audit effectiveness are; Management of the internal audit


27

function, internal audit relationship, and internal audit resources. These determinants will be

examined into details in the next sub-sections.

2.9.1.1 Management of Internal Audit Department

The first organizational determinant of IAE is the management of the internal audit department.

Internal audit departmental management is one of the elements expanded on in the standards for

professional practice for internal auditors.

Managing an IAF is the responsibility of a Chief Audit Executive who is also the head of the

department. Following the above, Hass, Abdolmohammadi, and Burnaby (2006) attests that an

IAF needs an effective management from the chief audit executive (CAE). They further added that

management of an IAF entails the analysis of risk, managing and prioritizing audit tasks and

managing internal audit skills and resources.

Moreover, literature has identified various activities performed by CAEs in the course of managing

an IAF which affects IAE. These activities comprise; the level of access to top-level personnel,

timeliness of reporting to the council and communicating key operational issues to senior

management as explained by Leung et al. (2011). Therefore, the function of the head of the IAF is

very crucial in determining IAE. Similarly, Hass, Abdolmohammadi, and Burnaby (2006)

confirms that a chief audit executive has a strong influence on the effectiveness of the internal

audit function’s leadership. Consequently, the first hypothesis is developed as follows:

H1: There is a positive relationship between management of internal audit function and internal

audit effectiveness (IAE).


28

2.9.1.2 Internal Audit Relationship (Management Support)

Internal audit relationship with management is vital for the effectiveness of the IAF. Particularly,

management support which is also characterized as managerial influence of internal audit

effectiveness within an organization. Further, many scholars have found that top-level

management support for internal audit activities affects IAE (Mihret & Yismaw, 2007; Cohen &

Sayag, 2010; Alzeban & Sawan, 2013; Alzeban & Gwilliam, 2014). Mihret and Yismaw (2007)

argues that there is a positive relationship between top management support and IAE. Quite

similarly, other research work have shown that the driving antecedent of IAE is management

support (Cohen & Sayag, 2010; Alzeban & Sawan, 2013; Endaya & Hanefah, 2013).

Subsequently, Alzeban and Gwilliam (2014) indicates a positive relationship between top-level

management support and internal audit effectiveness. This management support relates to the

allocation of adequate human resources, material resources and financial resources (Mihret, et al.

2010). The level of management support determines the rate at which internal audit completely

achieves planned audits and goals. Therefore, the second hypothesis is developed as follows:

H2: There is a positive relationship between management support and IAE.

2.13.1.3 Internal Audit Resources

The last organizational characteristics variable is the resources of the IAF. The condition necessary

for IA to successfully complete its responsibilities is dependent on the availability of resources

(Zain, Subramaniam, & Stewart, 2006). The size of the audit office space for audit teams to work

within is one of the criteria for a timely audit plan completion. Further, the number of audit staffs

(administrative and audit-related staffs) can clearly determine the amount of time that an audit plan

is going to take in order for it to be completed (Alzeban & Gwilliam, 2014). Similarly, audit


29

rotation is possible for a many team members to help prevent a threat to the independence of

auditors (Arena & Azzone, 2009). The availability of software and technological tools are

resources that could help internal auditors to accomplish their audit tasks in time. (Hass, et al.,

2006).

Further, the competence of the internal audit staffs is considered an important resource that affects

internal audit effectiveness. The knowledge and skills of internal audit team members have a

positive impact on the outcome of the audit. Mihret et al. (2010) assert that skill and ongoing

professional training of the audit members are important aspects for IAE. Similarly, Arena and

Azzone (2009) affirms that the education and skills of the audit staffs are sufficient to improve

internal audit departmental effectiveness.

Previous studies outline that auditees regularly perceive internal auditors to have insufficient do

understanding of their services provided (Alzeban & Sawan, 2013). In construct, it is required of

internal auditors to possess necessary knowledge and competence for the purpose of fulfilling their

duties within the audit plan. This lack of skills and qualification affects the execution of audit plans

within a given period. Thus, the third hypothesis is expressed as follows:

H3: There is a positive relationship between internal audit resources and IAE.

2.9.2 Internal Audit Process Characteristics

The role of Internal Auditing has been extended to areas of “involvement in consulting services

such as operational control, risk management, and corporate governance than just traditional

accounting and financial control assurance services” (IIA, 2016).

Recently, as a result of the newest definition of internal auditing by the IIA, corporate governance

issues have received attention in organizations, in an effort to ensure good internal control and risk


30

management systems. Therefore, the involvement of internal auditing within these auditing

processes (corporate governance, risk management, and internal control) are crucial to the

effectiveness of the organization as a whole. Given the significance of the audit processes, the

following subsections will discuss the audit processes in details.

2.13.2.1 Corporate Governance Audit Process

The first audit process relates to corporate governance audit involvement. Internal auditing has a

part to play on good corporate governance as the effectiveness of internal auditing is dependent on

the IAF to be properly structured and well resourced (Arena & Azzone, 2009). Further, Arena and

Azzone (2009) argued that IA must maintain a good relationship with management in order to

ensure good corporate governance.

In assessing corporate governance audit task accomplished by the IAF, the number of audits in

line with corporate governance activities within the organizations are considered.

Generally, there is evidence of an increasing need for good corporate governance within the higher

educational institutions due to governance issues facing these universities (Zakaria et al., 2006).

However, an increasing number of empirical literature has investigated corporate governance in

internal auditing including the involvement of internal auditors in the corporate governance

process and the various work engagements performed regarding this process. For example, Leung,

Cooper, and Perera (2011) examined accountability structures and related issues in internal

auditing in Austria. They obtained dataset on internal audit workloads through questionnaires sent

to internal auditors. Their results were used to produce the weight of work, type of task and time

spent on the various tasks by the internal auditors. Their analysis threw more light of corporate

governance audit activity performed the by internal auditors. They found that corporate


31

governance audit task was not highly ranked amongst the workloads of the internal auditors. Their

findings indicated that much time is not allocated to this type of audit task as compared to the other

services. This finding is consistent with previous literature on corporate governance audit literature

(See: Barry & Asia, 2006; Goodwin-Stewart & Kent, 2006; Leung et al., 2011 and Sarens, et al.,

2012). Consequently, the fourth hypothesis is expressed as follows:

H4: There is a negative relationship between involvement in corporate governance audit process

and IAE.

2.9.2.2 Internal Controls Audit Process

The second audit process relates to internal control audit involvement. Internal audit function puts

internal control systems and procedures in place within an organization in order to assist the

organization manage risk effectiveness. In line with the above, Onza, Selim, Melville, and

Allegrini (2015) discovered that internal audit function employs systematic efforts to enhance the

effectiveness of its internal checks to be able to spot and eliminate weaknesses within the

institution through an internal controls audit process. They further explained that these internal

control processes comprises of audit engagements that are geared towards ensuring that the assets

of the institution are protected, proper authorization is sought for revenue and expenditure items,

proper financial discipline of the institution and proper expenditure monitoring. This argument is

supported by Eden and Moriah (1996), that internal control processes are the pathway through

which internal auditors walk to examine the functions of the organization.

A prominent characteristic of internal control is that risk management forms an integral part of

internal control. This is as a result of the role of risk management being a reinvention of internal

control (Spira & Page, 2003).


32

Researchers have explored the role of internal auditors and internal control systems established

by the department (Fadzil et al., 2005; Aikins, 2011). Furthermore, in relation to internal control

audit task performed, prior studies affirm that internal auditors spend most of their time on internal

control matters (Leung et al., 2011; Badara & Saidin, 2013; Onza et al., 2015). This is due to the

fact that the effectiveness of this system affects IAE even within local governmental levels where

control systems are important. Therefore, IAF involvement in internal control audit process affects

IAE. The fifth hypothesis is structured based on the above.

H5: There is a positive relationship between involvement in internal control audit process and IAE.

2.9.2.3 Risk Management Audit Process

The last audit process relates to risk management audit involvement. Risk management activities

involved in by internal auditors have increased because of the newest definition of internal auditing

by IIA in 2016. A prominent characteristic of risk management comprises of its categorization into

three dimensions namely; risk identification, risk assessment and risk management (Spira & Page,

2003). Internal auditing role in risk management is to propagate the awareness of various risk

portfolios and controls for such risks.

Empirically, the study on IAF involvement in risk management shows that IA involvement in risk

management process influences IAE (Arena & Azzone, 2009; Leung et al., 2011). Leung et al.

(2011) for instance, found that considerable number of IAFs are performing audit work regarding

risk management process and have allocated time and staffs for this process. Further, Arena and

Azzone (2009), concentrated on the use of control risk self-assessment (CRSA) practices to test

the involvement of IA in risk management audit process and reported a positive and statistically

significant relationship.


33

However, Spira & Page (2003) considers risk management process as an activity that internal audit

department has less capacity and knowledge of which has resulted in low consideration of all the

three aspects of risk management mentioned above. Buttressing this point, Fadzil et al. (2005)

assert that, an aspect of internal control and risk management is overlapping due to the fact that

risk assessment a component of risk management is embedded in internal controls. In addition,

Sarens (2009) argues that internal control is an aspect of risk management, thus engaging in an

internal control audit is a way of governing and assessing risky operations. Therefore, internal

audit involvement in risk management activities by internal auditors affects IAE. Therefore, the

sixth hypothesis is expressed as follows:

H6: There is a positive relationship between the involvement of internal auditors in the risk

management process and IAE.

2.10 Chapter Summary

This chapter begins with a broader consideration of the concept of internal audit effectiveness by

highlighting important definitions. This is important since the understanding of this concept helps

to establish the scope of the study. In addition, this chapter discusses in details internal auditing

within the context of the public sector, particularly public tertiary educational institutions.

Furthermore, detailed discussions of the internal audit agency and audit plan followed.

Subsequently, this chapter reviews the theoretical framework to test and examine internal audit

effectiveness based on the organizational and managerial pillars explained in the resource-based

theory. Further, a review of literature on the various ambiguities linked with the measurement and

factors that influence IAE.


34

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter discusses the methodology used for the study. The methodology is well emphasized

by the kind of research hypotheses and philosophy adopted for the study.

3.1 Research Philosophy

Extant literature has identified three main groups of research philosophies namely, the positivist,

interpretive and the critical realism (Lee, 1991;Smyth & Morris, 2007; Bisman, 2010). The first

research philosophy is the interpretive approach which relates to the understanding individuals

give to the world they live in. These understanding are socially and historically constructed and

theories are developed to form a meaningful pattern of understanding. The second research

philosophy is the Critical realism approach. This paradigm adopts a mixed perspective to explain

the phenomena instead of the purely quantitative or qualitative approach used by positivism and

interpretive philosophes respectively. The third research philosophy is the positivist approach.

This approach is based on the premise that the world can be described and can be explained. Over

the years, positivist research philosophy has been used in accounting research due to its ability in

theory construction and verification (Bisman, 2010).

According to Bisman (2010), the positivist allows for generalization which implies quantitative

methodology. Furthermore, he adds that studies that seek to predict or explain a phenomenon from

a theory can best achieve its objective through positivist philosophy. In line with the explanation

of the positivist approach, this study aims at explaining or predicting the factors that influence the

internal audit effectiveness. In addition, a positive study involves a survey, experiment and quasi-


35

experiment research design. Therefore, this study follows the positivist approach because this

study focuses on employing a questionnaire instrument for data collection.

3.2 Research Strategy

The study uses the quantitative design because the positivist research philosophy is employed. The

positivist philosophy requires the use of quantitative research methods which involves the use of

survey approach for data collection (Bisman, 2010). The quantitative approach is chosen because

it helps explain the phenomenon of internal audit effectiveness; for instance, ‘what factors impede

public sector audit effectiveness?’ This objective can be studied successfully by employing

quantitative research methods (Creswell, 2009). Furthermore, in order to predict the score or mean

of audit effectiveness of tertiary institution’s internal audit unit, a statistical technique is needed.

This study needs results that can be statistically explained and allows for statistical comparison

between and within the various institutional groups. Thus quantitative research is suitable, which

will give a generalized pattern to be observed within a wider sample of schools.

3.3 Population

A study population is the total number of bodies eligible to participate in a particular study

(Creswell, 2009). The research is centered on the internal audit function of the public tertiary

educational institutions in Ghana. These institutions are mandated to establish an internal audit

department to aid their accountability and fraud prevention, therefore the research population is

the Ghanaian public tertiary institutions. Furthermore, there are a total number of 90 public tertiary

institutions accredited by the National Accreditation Board in Ghana. These 90 Ghanaian public

tertiary institutions consist of Universities (11), Polytechnics (2), colleges (53), technical

universities (8) and professional institutions (16). The data collection for this study started in

December 2018, and then continued in January, February and March 2019. Respondents to this


36

research are directors of the internal audit department of the institutions understudied. This

selection of respondent is based on the knowledge and understanding needed for the subject matter.

The study was based on public tertiary institutions because of the growing interest in fraud

prevention, responsibility within the public sector of Ghana and the need to determine IAE to

promote good financial management.

3.4 Sample Size

The study design used was the quantitative methods consisting of the survey approach. This

approach was adopted using the whole population of on public tertiary institutions in Ghana. This

approach seeks to give a generic understanding of the internal audit function and identify broad

trends of the IAF across a larger number of organizations.

The sample size used for this study is 90. Therefore, study used the population as the sample for

the study because of the limited and manageable size of the population thus to ensure eternal

validity, the sample must be representative. The sample for this study represents the list of public

tertiary institutions accredited by the National Accreditation Board. Further, a set of questionnaires

were distributed to 90 public tertiary institutions located in Ghana which constituted the sample

for the study. However, 75 valid answered questionnaires which represent 85% response rate were

used for the study.

3.5 Type and Source of Data

This study emanated from the primary data type. Primary data is data that is collected from an

original data source (Creswell, 2009). The analysis of data was based on the primary data gathered.

The source of data was from the 90 public tertiary institutions in Ghana.


37

3.6 Data Collection Tool

The questionnaire used for this study was the major data collection tool. This questionnaire was

structured as a result of interactions from literature about the measurement of IAE in similar

research fields. For instance, Alzeban and Gwilliam (2014) used a set of tested and validated

questions to examine the factors influencing IAE in Saudi Arabia. Their questions were adopted

for this study due to the existence of similar constructs. In view of this Bell & Bryman (2007)

recommended the use of questions from existing literature for individual source of data for

quantitative studies. The questionnaire was close- ended in nature and the responses designed in a

seven- point Likert scale allowing respondents to state how strongly they agree or disagree with a

statement. The first section of the questions described the background characteristics of the

participants and institutions. The other sets consist of Likert scale questions relating to internal

audit effectiveness; involvement in governance processes, involvement in risk management

processes, involvement in internal control processes, management of IAF, management support

and internal audit resources. The administration of the questionnaire was through the mail and

hand-delivery by the researcher to convince the respondents to accept and respond. Every

respondent was given an introductory letter and one questionnaire to fill in.

3.7 Questionnaire Administration

The questionnaires were delivered via the mail system of the respondents and also self-

administered. The mail system was a choice for data collection due to the geographical location of

some of the sample institutions. Further, Abu Bakar & Ahmad (2010) attests that the mail system

of data administration offers a broader geographical area at a minimum expense to the researcher.

Consequently, the self-administration of questionnaire approach was used for the institutions that

were geographically favorable. Every head of each IAF received one questionnaire to answer. The


38

questionnaire used for the study was the final version after a series of rigorous review by the

supervisors.

3.8 Measurement of Variables

This study employed the literature for variables to explain internal audit effectiveness. The review

of literature identified various aspects of internal audit effectiveness. These aspects relates to

factors that influence internal audit effectiveness at the individual level, departmental level and

organizational level and their respective variable measurements. This work focus particularly, on

the organizational processes that influences internal audit effectiveness in the public tertiary

institutions especially internal audit involvement in these processes, IA resources and the

management of the unit and its activities. Furthermore, this study tries to explain IAE using

independent variable measures of management of internal audit unit, involvement in governance

processes, involvement in risk management processes and lastly involvement in internal control

processes due to the reason that these identified organizational level processes best explain IAE in

relation to IA work done. Then, the dependent variable IAE is best explained using the broad

thematic areas within the audit plan for the period of 2018 to examine the level of objectives

accomplishment and the audit specific areas that influence the audit plan namely governance, risk

management and internal control processes. These variables selected are measured and hypotheses

are formulated for each of the independent variables.

3.8.1 Measurement of Dependent Variable

The dependent variable for this study is IAE. Extent literature have discussed various measurement

criteria for the measurement of IAE. Even though researchers have emphasized the need for a

general measure for internal audit effectiveness, but still there exist this literature gap with respect

to the measurement of IAE (Arena & Azzone, 2009; Erasmus & Coetzee, 2018). Based on the


39

above claims from the literature, the dependent variable is examined using one item from the

literature as comparison of annual audit plan to actual audit executed within a particular period

which Dittenhofer (2001) states in different words as the accomplishment of task described by the

internal auditing process. On the basis of the factors above, IAE in this research is measured as a

percentage of planned audits against the actual audits executed given by Directors of the IAF and

verified from the Internal Audit Agency (IAA). Furthermore, the dependent variable (IAE)

comprises of the number of audit areas planned as against the number of audit areas executed

within the year. Overall, this approach gives a score or percentage for IAE in order to evaluate to

characteristics that influence IAE.

The percentage of audit executed by the internal auditors was measure using a four point Likert –

scale item (% IAE) adopted from Arena and Azzone (2009). This four point Likert-scale measure

was found to be tested, satisfied and used in literature, thus its adoption. However, the ranks created

by Arena and Azzone (2009) was the only verified and tested approach for displaying the ratios

computed in the categorized form. Further, this rank was used to avoid the problems related to

outcome measures even though the ratios computed will be displayed in the results from the data.

A range below 20% represents low level of execution, between 20%- 50% represents medium-low

level of execution, between 50%-80% represents medium high level of execution and more than

80% represents high level of execution. Table 3.1 below forms a standard from the literature to

examine IAE level.

Table 3. 1: Level of Internal Audit Effectiveness

%IAE Measure

Below 20% Low Level

20%-50% Medium- Low Level


40

50%-80% Medium- High Level

Above 80% High Level

Source: Arena and Azzone (2010)

3.8.2 Measurement of Independent Variables

The measurements for the independent variables were obtained from the review of literature.

First, management of internal audit unit and activities measurement was adopted from (Alzeban

and Gwilliam, 2014; IIA, 2016). These questions include; periodic reporting to council,

appropriate deployment of audit resources, develop appropriate audit plans, establish policies and

procedures, ensure activities add value and communication and approval of audit plan.

Second, involvement in governance processes measure was adopted from (Sarens, 2009; Simon,

2009; IIA, 2016). The questions used for this variable include; effective organizational

performance management and accountability, communicating risk and control information,

suitable ethics and values, getting attention of council and management, resources accountability,

overview of departments, problems, incentive policy and monitor, follows up on recommendations

made, assisting the management in fulfilling strategic and operational objectives.

Third, involvement in risk management processes measure was adopted from (Arena and Azzone,

2009; IIA, 2016). This variable indicators include; potential occurrence of fraud, risk and control

information, the effective and effectiveness of organizational risk management, alert to the

significant risks that might affect objective, operations and resources, facilitate risk assessment

through risk self-assessment methods, evaluate risk associated with new computing developments,


41

construction and procurements activities, assist management in implementing a risk model, assess

existing risk of audited area and ensure compliance with regulatory requirement.

The fourth variable is the involvement in internal control processes measure was adopted from

Cohen and Sayag (2010). This variable indicators includes; incorporate knowledge of controls

gained from engagements into control processes, evaluate the reliability and integrity of financial

and operational information, assist the organization in maintaining effective controls and promote

continuous improvement, review the means of safeguarding assets, test compliance with controls

in functional areas, assist management in preparing a report on the effectiveness of internal

controls and adopt systematic approaches to evaluate and improve internal control processes.

The fifth independent variable is internal audit resources measure was adopted from works of Hass,

et al, (2006) and Alzeban & Gwilliam, (2014). This variable consists of these questions; size of

the internal audit department/staffing, technological equipment (number of laptops and scanners

available for audit team members) and the office space available for internal auditors.

The last independent variable is management support for internal auditing measure was adopted

from (Mihret & Yismaw, 2007; Cohen and Sayag, 2010; Alzeban & Gwilliam, 2014; Endaya &

Hanefah, 2016). The measurement indicators include; supporting IAF to undertake its duties and

responsibilities, involvement in the internal audit plan, report on the work of the internal audit

team being delivered to the management, amount budgeted in relation to internal audit duties.

3.9 Data Management and Analysis Process

Data management includes entering and coding data into a database, data cleaning, data filtering

and finding any missing data. The Statistical Package for Social Sciences (SPSS) was used to

generate descriptive statistics of the 75 usable questionnaires out of 90 that was imported into the


42

statistical tool. Subsequently, a SmartPLS software developed for multivariate regression

analysis will be employed to estimate simple PLS path models (Hair et al., 2014).

3.10 Data Analysis

The questionnaire used had close-ended questions which was basically ordinal (scale) and nominal

in nature. Due to this nature of questions, the use of multivariate analysis was employed to analyse

the information. Therefore, the Structural Equation Model (SEM) was used in order to assess latent

variables and evaluate relationships among the model variables. This multivariate tool will be

discussed further in the subsequent paragraphs.

3.10.1 Structural Equation Modeling (SEM)

Structural Equation Modeling (SEM) is a tool used by social science researchers for multivariate

data analysis, involving statistical approaches to analyze multiple variables (Hair, Hult, Ringle, &

Sarstedt, 2014). Further, the variables used in this statistical analysis normally represent

measurement of individuals, companies and activities.

This study employs the SEM to analyze primary data collected from the individual measurement.

Moreover, this model gives room for the analysis of small sample size data. The Structural

Equation Modeling is grouped into two namely; Partial Least Square SEM and Covariance-Based

SEM. These approaches will be discussed into details in the subsequent paragraphs.

3.10.2 Partial Least Square SEM

Partial Least Square (PLS) SEM is a method used in conducting Structural Equation modeling.

Hair, Sarstedt, Ringle, and Mena (2012) are of the view that PLS -SEM is an excellent choice for

small sample data because of its ability to test theories and concepts. According to Hair, (2012)

this ability is explored by the assessment of measurement and structural models. Further, PLS-


43

SEM allows for hypotheses testing and simultaneously assessing direct, indirect and total effect

mediation.

Buttressing this point, Hair et al. (2014) pointes out to the fact that the 10 times rule concludes this

assumption. They add that the 10 times rule specifies that, the research sample should be ten times

the arrowheads directed to a particular latent variable, thus the number of samples should meet the

ten rule before using the PLS-SEM method. In relation to this study, the PLS-SEM technique was

chosen because the number of institutions studied meets the 10 times rule as there are six (6)

variables directed to the latent variable meaning the minimum size should be 60 institutions.

PLS-SEM data analysis helps resolve small sample size data research issues like this study of 90

population. Further, the PLS-SEM is the most appropriate data analysis tool because it seeks to

answer questions that are involved in a multiple factor regression analysis (Ullmman & Bentler,

2013).

3.10.3 Covariance-Based SEM

The Covariance-Based (CB) SEM is the other approach used for Structural Equation Modeling.

This approach was propounded by Jöreskog in 1971. This approach is best used to confirm or

reject theories, that is a theoretical covariance matrix for structural equations (Sarstedt, Ringle,

Smith, Reams, & Hair Jr, 2014). Hair et al (2011) states that this procedure shows how best the

theoretical model determines its covariance matrix. Further, CB-SEM technique is used when

comparing alternative theories in a research.

3.10.4 Choosing between CB-SEM and PLS-SEM


44

This study chooses the PLS-SEM over the CB-SEM for data analysis. The reason for this selection

is because PLS-SEM has more statistical power and can best be used for research objectives that

emphasizes on theory development and prediction as in the case of this study of theory prediction.

However, the CB-SEM leans towards objective that test theories which was not the focus o this

study. This statistical power is used to determine specific significant relationships between

variables (Hair Jr et al., 2014). Since, this study employs a simple level analysis model to test the

relationship between a single measured variable (internal audit effectiveness) and other measured

variables (management of internal audit unit, involvement in governance processes, involvement

in risk management processes, involvement in internal control processes), the best approach that

considers a single item measure and a simple model is the PLS-SEM. Further, PLS-SEM makes

room for small sample size data which is not common with CB-SEM. This study uses a sample

population of 90 public tertiary institution which constitute small data size in SEM, thus the PLS-

SEM is employed to analyze such small sample size data.

3.11 Reflective and Formative Constructs

Literature on SEM (Hair et al (2011); Sarstedt, Ringle, Smith, Reams, & Hair Jr, 2014) presents

two main models of the constructs that can be used in research. The unobserved variables can be

modelled using either the formative or reflective indicators. The Reflective constructs are

constructs which are affected by the same underlying construct. The direction of causality of the

construct is from the constructs to the indicators and changes in the indicators. Further, in the

reflective construct the direction of the arrows point from the unobserved variables to reflective

indicators. However, with the indicators of the reflective constructs the indicators should be

internally consistent because all the measures are considered to be valid indicators of the

unobserved variables.


45

Moreover, the Formative constructs refer to constructs that have formative indicators, which are

combined to give rise to the meaning of the unobserved variables. The direction of the arrows in

this instance from the formative indicators to the unobserved variables.

3.12 Reliability and Validity

The reliability and validity of a research is a critical step in research. This is because in order for

a researcher to explain the empirical outcomes of a research, the integrity of the results and findings

must be secured (Hair, Ringle, & Sarstedt, 2011). Similarly, Bisman (2010) affirms that the

validity of a quantitative research is important to be able to acknowledge the value of richness and

to draw on generalization of findings. There are two main categories of validity explained by

Bisman (2010). The research argued that, validity involves the ability to test hypotheses both

internally (address research problems) and externally (extend results of the study to a wider

setting). This study obtained data with due care to guarantee the objectivity and validity of the

findings. Finally, the use of external regulators to obtain evidences of dependent variable of the

study seeks to ensure validity and reliability. Therefore, to be able to ensure further reliability of

the study, the instrument used was subjected to rigorous review by supervisors and peers before

administering it to the respondents.

In addition to the above, the statistical tool PLS-SEM used for the data analysis allows for the

assessment of the reliability and validity of the model. This assessment considers the measurement

and structural validity and reliability.

3.13 Assessing the Measurement and Structural Models

In PLS-SEM, assessing the measurement and structural model is very crucial. Despite the fact that

the research instrument has been tested and validated, a further assessment needs to be carried out


46

in order determine the quality of the dataset. The subsequent sub-sections highlight the

measurement and structural model into details.

3.13.1 Assessment of Measurement Model

The assessment of the research measurement model for the data analysis considers the constructs

and their indicators. The relationship between constructs and indicators can easily integrate a

formative or reflective measurement models( Hair et al., 2014). Furthermore they concluded that

SmartPLS can easily handle a single-item or multi-item construct measurement. This study

employs to reflective measurement model for the constructs measured using both single and multi-

item measurements.

However, the reliability and validity of the model must be assessed appropriately before

proceeding to the structural model analysis. The evaluation criteria for models measured

reflectively consider the indicator reliability, convergent validity and discriminant validity. The

results of each criterion are illustrated in the following sections.

3.13.1.1 Indicator Reliability

The first criterion in the assessment of the model is to evaluate the indicator reliability of the

constructs. The indicator reliability of the model was measured using the indicator loadings of the

variables. The accepted threshold for a good indicator loading should be greater than or exactly

0.70. However, after the reliability and validity have been assessed using the composite reliability

values and a further deletion of a load below 0.70 will not better the composite reliability values,

then that load can be maintained. Thus, an indicator loadings of 0.40 and above is acceptable (

Hair et al., 2011).


47

3.13.1.2 Internal Consistency Reliability

Once the indicator reliability has been determined, the next stage is the evaluation of the internal

consistency reliability. The internal consistency measures the extent of correlation between each

set of constructs and their indictors. The conventional measure for internal consistency is the

Cronbach’s alpha, which takes into consideration the inter-correlation between indicators ( Hair et

al., 2014). They added that the Cronbach’s alpha criterion is very sensitive to the scale and the

items used to map each scale. Consequently, there is a high rate of an underestimation of the

internal consistency reliability. However, because of this drawback of the Cronbach’s alpha, the

composite reliability is much preferred measure of internal consistency reliability in PLS (Chin,

1998; Hair et al., 2014). This measure of internal consistency takes into consideration the indicator

outer loadings of the constructs (Sarstedt et al., 2014). They pointed out that composite reliability

value should exceed the minimum threshold of 0.70 in order to be classified satisfactory. Next, the

convergent validity of the reflectively measured constructs are examined.

3.13.1.3 Convergent Validity

The second criterion in the assessment of the reflective measured construct is to assess the

convergent validity of the constructs. In this case, the convergent validity of the constructs explain

the magnitude an indicator correlates positively with an alternate indicator of the same construct

in a model (Hair Jr et al., 2014; Sarstedt et al., 2014). Therefore, the indicators of a construct should

well explain the variance on that specific construct measured. In order for researchers to evaluate

the convergent validity of a reflective construct, the Average Variance Extract is used to be able

to evaluate the convergent validity of the variables (Sarstedt et al., 2014). Next the average

variance extract will be examined in details.


48

3.13.1.4 Average Variance Extract (AVE)

Reflectively modeled constructs employ the average variance extract to assess the convergent

validity of the model. Generally, the average variance extract is calculated using the mean square

of the loadings for all the constructs indicators. The rule of thumb of the AVE is 0.50 or higher

since this value indicates that more than 50% of the average variance of the constructs have been

explained in the variables (Sarstedt et al., 2014).

3.13.1.3 Discriminant Validity

The last criteria used after assessing for the convergent validity is assessing the discriminant

validity. The discriminant validity shows the uniqueness of a construct from the other constructs

in the model. Researchers have proposed two dimensions for the measurement of discriminant

validity. First, a measurement in line with the cross loadings of the indicators in the model. The

general rule is that the outer loadings of an indicator should exceed the cross loading on another

construct (Chin, 1998; Hair Jr et al., 2014). Furthermore, each indicator is expected to load

better on itself.

The other discriminant validity assessment dimension follows the Fornell-Larcker criterion.

According to Hair Jr et al. (2014), this approach uses the square-root of the average variance

extract of each construct in comparison to the other constructs in the model. Once the square

root of a constructs the AVE is higher than its correlation with the other constructs within the

model, the discriminant validity of the constructs are met.

3.13.2 Assessment of Structural Model

Subsequently, after assessing the appropriateness of the measurement model for validity and

reliability, the structural model is also assessed. This assessment considers the collinearity between


49

the set of constructs using the Variance Inflation Factor (VIF), coefficient of determination (R2),

predictive relevance (Q2) and the significant relationships among constructs. These procedures

will be discussed into details below.

3.13.2.1 Variance Inflation Factor (VIF)

The variance inflation factor assessment is first performed to check for collinearity amongst

constructs in the model. The general rule of thumb states that all the VIF values should be less

than 5 in order to eliminate any multicollinearity problem (Hair et al., 2011). Having checked for

multicollinearity problems, the next stage is to assess the appropriateness of the coefficients of

determination (R2). This assessment will be examined in details further.

3.13.2.2 Coefficient of Determination (R2 Value)

The second measure of structural model analysis is the assessment of coefficient of determination.

The coefficient is the predictive ability of the constructs in explaining the model (Sarstedt et al.,

2014). An R2 value above 0.67 is consider substantial, 0.5 is considered moderate and 0.19 is

considered weak (Hair et al., 2012).

The next assessment performed after the coefficient of determination is predictive relevance

(Blindfolding). This will be discussed into details next.

3.13.2.3 Predictive Relevance (Blindfolding)

According to Hair Jr et al. (2014), for the predictive relevance of the construct to be accepted, the

Q2 value (after the blindfolding procedure) should be above zero (0). On the other hand, Q2 values

of 0 and below suggests lack of predictive relevance.


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Furthermore, after the measurement and structural model is assessed, the ethical considerations of

the study will be considered next.

3.14 Ethical Considerations

This involves the following, to begin, participation in the research will be completely voluntary.

Respondents will voluntarily take part in the filling of the questionnaire. Further, each respondent

will be educated on the purpose of the study during the survey; hence no one was be coerced to

participate in the survey conducted. Another area of concern is the issue of confidentiality.

Respondents will be assured of the highest degree of confidentiality. In fact respondents were

convinced that their personal details and information given will solely be used for the purposes for

which they consented.

3.15 Scope and Limitation

The study emphasized precisely the effects of audit and organizational characteristics of IAE but

not departmental characteristics of IAE. The research is based on public tertiary institutions in

Ghana that have set-up an IAF within the institution. These institutions are spread across Ghana

and it required traveling to Greater Accra Region, Ashanti Region, Volta Region, Eastern Region,

Western Region, Brong Ahafo Region, Central Region, Northern Region, Upper East and Upper

West Region to get data for the study. This issue of traveling was a major limitation for the study,

hence the use of e-mail system to administer the question. In addition follow-up telephone calls

were made to remind respondents of questionnaires.

3.16 Access to Respondents and Increasing Response Rate

The exposure received from the association with the Internal Audit Agency (IAA) offered the

opportunity to gain access to the respondent’s information database which contains the names of


51

the respective public tertiary institutions, names of their head of internal audit unit, telephone

numbers and their email addresses. The respondent’s level of trust and respect for the regulatory

body of internal auditing (IAA) compiled the respondent’s willingness to offer the needed

assistance for this study. Nevertheless, some respondents were also feeling reluctant to assist in

data collection and some of the mailed questionnaires were not received. Further, some of the

institutions also did not have an IAF established within the institution. Therefore, with all these

set-backs the response rate was 85%.

3.17 Chapter Summary

This chapter elaborates on the methodology employed of the study. First, the study is in line with

the positivist research philosophy. Second, a quantitative research approach was employed, using

precisely a survey approach to gather the data. Third, the sample of the study was the population

which consists of the 90 public tertiary institutions in Ghana. Fourth, the study further discusses

the data analysis method employed, the approach used to obtain the validity and reliability of the

findings as well as the ethical considerations for the study.


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CHAPTER FOUR

DATA ANALYSIS AND DISCUSSION OF FINDINGS

4.0 Introduction

This chapter presents the discussions results and analysis of field data of the study. This chapter

begins with descriptive statistics, then explanations of the results as per the variables. This chapter

is arranged in sections sequential to the objectives of the study.

4.1 Descriptive Statistics of Institutions and Respondents

The population and sample of the study was 90 public tertiary institutions but response for data

analysis was from 75 institutions mentioned above. This comprises universities, college of

education, training colleges, polytechnic, professional institutions and technical universities in

Ghana. These are the total number of public tertiary institutions that qualified for research

inclusion and questionnaire filling. The results establish the fact that the missing responses of 15

institutions are from the training colleges and college of education category.

Therefore, Table 4.1 shows the results of sample respondents from the various institutions below.

The results displays 11 universities that represent all the public universities in Ghana, 2

polytechnics that present the total population of public polytechnics in Ghana, 16 professional

institutions that give evidence of all public professional institutions in Ghana, 28 colleges of

education that provide for only part of the population of public colleges of education in Ghana, 10

training colleges that indicate only part of the population of training colleges and 8 technical

universities which reveal the whole population of the public technical universities in Ghana. It is

evident that colleges of education institution dominate the sample due to the large number of such

institutions in Ghana.


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Table 4. 1: Types of Public Tertiary Institutions

Type of Institution Frequency Percentage

Universities 11 15%

Polytechnics 2 3%

Training Colleges 10 13%

Technical Universities 8 11%

Professional Institutions 16 21%

Colleges of Education 28 37%

Total 75 100%

Source: Research Survey, 2019

Furthermore, on the regional distribution of the sampled institutions, Table 4.2 presents a summary

of results from all the 10 regions of Ghana, showing evidence of at least one public tertiary

institution in each region. The table illustrates that most of the tertiary institutions are in the Greater

Accra region; a total of 27 representing 36%. The results establish that public tertiary institutions

in Ghana are almost spread amongst the regions in Ghana.

Table 4.2: Regional Distribution of Public Tertiary Institutions

Region No. of Institution Percentage

Greater Accra 27 36%

Central 6 8%

Eastern 6 8%

Western 3 4%

Ashanti 9 12%

Volta 7 9%

Northern 5 7%

Upper East 2 3%

Upper West 2 3%

Brong Ahafo 8 11%

Total 75 100%

Source: Research Survey, 2019


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In addition, Table 4.3 below gives detailed presentations of the total number of employees in the

institutions which clearly show that majority of the institutions have total employees ranging from

100 to 200. This is then followed by total employees of above 500. These results indicate clearly

that majority of the institutions are not large institutions thus have not employed many people to

work in the institutions.

Table 4.3: Number of Employees in the Institutions

Total Employees

Frequency Percentage

Below 50 employees 5 7%

50 -100 employees 9 12%

100-200 employees 28 37%

200-500 employees 16 21%

Above 500 employees 17 23%

Total 75 100%

Results from Table 4.4 describe the number of internal auditors within the institutions. Evidence

shows that majority of the institutions have below 3 internal audit staffs representing a total of

56% of workers working in the audit department. This is followed by 11-20 staffs representing

16% of the workers in the audit department. This evidence means that internal audit departments

are lacking staffs that will perform audit duties.

Table 4.4: Number of Internal Auditors

Number Freq. Percentage

Below 3 staffs 42 56%

3- 5 staffs 9 12%

6-10 staffs 9 12%

11-20 staffs 12 16%

Above 20 staffs 3 4%

Total 75 100%


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Results from Table 4.5 describe the combination of total employees employed in the various

institutions and the respective number of internal auditors employed in the internal audit unit.

Evidence shows that majority of internal audit staffs below 3 are from institutions that have total

employees capacity of between 100–200 total staff employees. Further, the highest internal audit

staffs employed by the institutions that have a total employee capacity of above 500 employees

are 11 to 20 staffs. This evidence shows that internal audit departments within these institutions

lack internal audit staffs in relation to the size of work to be carried out in these institutions. Table

4.5 gives a detailed summary of the number of internal auditors and total workers in the rest of the

departments in the institutions.

Table 4.5: Total Employees against Total Internal Auditors

Employees

Internal

Auditors

Below 3

staffs

3- 5

staffs

6-10

staffs

11-20

staffs

Above

20 staffs Total

Below 50 employees 3 2 0 0 0 5

50 -100 employees 9 0 0 0 0 9

100-200 employees 27 1 0 0 0 28

200-500 employees 3 5 3 5 0 16

Above 500 employees 0 1 6 7 3 17

Total 42 9 9 12 3 75

Subsequently, further analysis was perform in relation to the size of the IAF, whether the head of

the IAF considers the size of staffs employed in this department large enough to perform the duties.

Evidence shows that majority of the heads of the various institutions attest to the fact that the

function is not larger enough to perform its duties. This evidence represents 70% of the responses

which Table 4.6 presents below.

Table 4.6: Size of Internal Audit Function

Internal Audit size

Frequency

Small 70

Large 5


56

Total 75

Moreover, this is possible that since majority of the institutions are not large enough to perform

their duties; these internal audit departments might also neglect some of their duties due to the size

of the department. Therefore, a follow up question was asked considering the possibility of

neglecting audit duties due to the size of the department. Evidence indicates that majority of the

institution’s internal audit department neglect their duties due to size of the IAF. This evidence

represents 63% of responses that agree to neglecting audit duties as presented in Table 4.7.

Table 4.7: Audit Duties Neglected due to Size

Neglected for Size

Frequency

No 12

Yes 63

Total 75

Given a detailed description of the institutions, their respondents (Head of Internal Audit

Department) and their internal audit function, the next section describes the various constructs

used for the model in SmartPLS. This descriptive statistics considers explanations of the constructs

in the model in details. The statistical measurements of the variable used in the model are computed

below.

4.2 Inferential and Descriptive Statistics of Constructs

This section highlights the descriptive statistics of the constructs used for the study. The statistics

include the means, standard deviations, maximum values and minimum values. The section thus

gives a brief statistics on each of the seven constructs in the model used for the study. These which

variables are Internal Audit effectiveness, Governance Process, Risk management, Internal

Control Process, Internal Audit Management, Internal Audit Resources and Internal Audit

Relationships. These constructs will be examined in details in this order.


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4.2.1 Effectiveness of the Internal Audit Function

The first construct of the study is Internal Audit effectiveness construct which is also the dependent

variable for the model. The measurement of this construct is geared towards the discussion of the

results for the first objective stated in Chapter one above. The dependent variable (IAE) is

measured using the percentage of work done compared to work planned in a particular year. This

study choose the year 2018 because it was the year that had just ended before data collection begun

and most of the respondents will easily remember issues relating to this year under review. This

variable internal audit effectiveness has two questions and was then computed into a percentage

score (ratios) which is displayed in the table 4.8 below.

Table 4. 8: IAE Ratios Computed

Coded

Institutions Type of Institution Ratios Computed

1 Professional Institutions 50%



4 Technical Universities 42%

5 Universities 45%

6 College of Education 50%

7 Universities 45%

8 Universities 50%







15 Universities 60%



18 Universities 28%

19 Polytechnic 40%

20 Polytechnic 50%






58


26 Universities 38%

27 Universities 67%

28 Universities 38%

29 Universities 45%

30 Universities 71%










40 Universities 50%




44 Training College 25%



























59







This single indicator (percentage score) was then subjected to a Likert scale of 1-4 measurement.

Since the percentage score of effectiveness is the only item measuring IAE it is termed a single-

item measure in PLS-SEM. Table 4.9 reveals the findings of the effectiveness of the sampled

institutions.

Table 4. 9: Internal Audit Effectiveness

IAE % Frequency Percentage

n<20% 0 0

20%<n<50% 64 85%

50%<n<80% 11 15%

n>80% 0 0

Total 75 100%

4.2.2 Factors that Influence IAE

This section discusses the results for the second objective stated above. As mentioned in chapter

two, the independent variables used are involvement in governance processes, involvement in risk

management processes, involvement in internal control processes, IA relationships, IA resources

and IA management. This section reports the means, standard deviations, maximum and minimum

values of the respondents’ views on the factors that influence internal audit effectiveness. The

following subsections review these factors into details.

4.2.2.1 Involvement in Governance Processes (Variable 1)

Governance audit process refers to engagement of audit activities which relate to the audit of top

level structures. Further, audit engagements that cuts across governance include organizational

asset management and acquisition, executive recruitment contract audit, legislative compliance


60

audit, monitoring management and reporting (Locke, 2001). The results of this governance

variable computed from the dataset are discussed below. This variable is inclusive in the model to

estimate its relationship and significance to the dependent variable. The mean and standard

deviation of the governance process variable as indicated in Table 4.10 below show all the

questions relating to this variable.

Overall, involvement in governance process had six out of nine factors being ranked above the

average mean point (5.21), which this means respondents consider involvement in performance of

management and accountability audit, ethics and values audit, IT governance audit, audit

recommendation follow up, communication of risk and internal controls information and

involvement in strategic and operational audit as very important determinants of their governance

process involvement. However, among them all, the involvement in the institution’s strategic and

operational audit stood out with the highest mean of 5.30 and while involvement in departmental

policies was ranked lowest, with a mean of 5.08. This implies that majority of the institutions are

more involved in operational audit.

Table 4.10: The Mean of the Governance Process Variable

Governance Construct Mean Min Max Std. Deviation

Relative Mean 5.21 0.93

Performance management and

accountability 5.23 3 7 0.873

Communication of risk and internal

control information of institution 5.21 3 7 1.087

Promotes appropriate ethics and values

within the institution 5.23 1 7 1.027

Assessment of IT governance to support

institutional strategy 5.20 3 7 0.8


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Attention of council 5.16 2 7 0.98

Institutional resource accountability 5.13 3 7 0.989

Provision of departmental overview on

problems, policies to improve the

institution 5.08 1 7 1.043

Follow up on audit recommendations

made to council 5.28 3 7 0.842

Assist council fulfill strategic and

operational objectives 5.30 3 7 0.757

4.2.2.2 Involvement in Internal Control Processes (Variable 2)

Internal control audit process refers to audit engagements concerning the internal function of the

organization. Audit engagements that involve internal control processes are geared towards

safeguard of assets against loss or theft, accurate financial information and evaluation of

operational goals (Fadzil et al., 2005) to top level management. Therefore, internal audit is

effective when there are elements of the abovementioned assurance services.

The results of this internal control process variable computed from the dataset are discussed below.

This variable is inclusive in the model to estimate its relationship and significance to the dependent

variable (IAE). The mean and standard deviation of the internal control process variable as

indicated in Table 4.11 below show all the questions relating to this variable. With respect to the

determinants of involvement in internal control processes four factors were scored above the

average mean of 5.95. The results implies that the sampled institutions perceived the audit of

evaluating the integrity and reliability of financial and operational information, audits geared

towards safeguarding assets, test of control compliance audit and adopt approaches to internal

control evaluation as very important determinants of their involvement in control processes. The

indicator maintaining effective institutional controls accounted for the lowest rating mean of 5.72


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while test of control compliance audit scored highest with a mean of 6.13. This results establishes

that most IA units engage in compliance audit which is similar to the results of Leung, Cooper, &

Perera, (2011).

Table 4.11: The Mean of the Internal Control Process Variable

Internal Control Construct Mean Min Max Std. Deviation

Relative Mean 5.95

0.84

Evaluation of organization's control

processes 5.89 3 7 0.85

Integrity and reliability of Financial and

operational information evaluation 6.01 2 7 0.72

Assist to maintain effective controls by

evaluating its effectiveness 5.72 4 7 0.84

Reviewing the mean of safeguarding assets

6.05 3 7 0.82

Test compliance with controls in

institution’s functional areas 6.13 3 7 0.88

Effective internal controls report

preparation 5.92 4 7 0.69

Adoption and evaluation of effective

internal control approaches 6.03 3 7 1.06

5.2.2.3 Involvement in Risk Management Processes (Variable 3)

Results of the risk management process variable computed from the dataset are discussed below.


variable. The mean and standard deviation of the risk management process variable as indicated

in Table 5.12 below show all the 9 questions relating to this variable. Table 4.12 presents evidence

of involvement in risk management processes and seven factors scored above the average mean of

5.34 therefore were considered the determinants of risk management. These factors suggest that

the sampled institutions perceived communicating risk information, audit of evaluating risk


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management, being alert to significant risks, using risk assessment techniques, implementing risk

models, assessing risk of audited areas and audit geared towards compliance with regulatory

requirement as very critical determinants of their involvement in risk management processes.

Overall, evaluating potential fraud risk scored the lowest mean of 4.12 while being alert to

significant risk that affects the institution’s operations scored a high value of 5.56.

Table 4.12: Risk Management Process Variable

Risk Management Process

Construct Mean Min Max Std. Deviation


Fraud risk evaluation and management 5.12 1 7 0.97

Risk communication and control 5.55 1 7 0.85

Improvement of institutional risk

management 5.51 1 7 1.05

Being alert to significant risk that

affects institutional operations 5.56 3 7 0.85

Facilitation of risk assessment through

self-assessment techniques 5.39 2 7 1.01

New projects risk control and

evaluation 4.79 1 7 1.27

Implementation of risk model 5.55 3 7 0.84

Assessment of existing risk audited

area and reporting to council 5.52 3 7 0.79

Compliance with regulatory

requirements 5.40 3 7 0.95

Overall, amongst the involvement in the governance, risk management and internal control

process, evidence from Tables 4.10, 4.11 and 4.12 show that internal control process had the

highest average mean of 5.95 which indicated that, this variable is perceived to be the driving

feature of IAE within the public tertiary institutions in Ghana. However, the involvement in

governance processes accounted for the lowest average mean of 5.21 meaning that the institutions

sampled are not necessarily or much involved in governance process.


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4.2.2.4 Internal Audit Relationship (Management Support) (Variable 4)

Internal audit relationship, specifically the relationship with management, reflects in the support

management gives to internal audit activities. Therefore internal audit relationship is in relation to

Management support for internal audit activities. Results of internal audit relationship variable

computed from the data set are discussed below.


variable. The mean and standard deviation of management support variable as indicated in Table

5.13 below shows all the 4 questions relating to this variable. Table 4.13 presents evidence of

management support and 3 factors scored above the average mean of 5.16 thus these 3 factors are

considered the determinants of management support. These factors suggest that the senior

management and council support IA duties, senior management and council approval and

involvement in audit plan and senior management and council call for the provision of audit

findings, recommendation to Council as very critical determinants of management support.

Overall, senior management and council provision of sufficient budget for internal audit activities

scored the lowest mean of 4.95 and the largest deviation of 1.29. This means that in terms of budget

sufficiency, management do not allocate more budget resources to the function.

Table 4.13: The Mean of Management Support Variable

Management Support Construct

Mean

Min Max

Std.

Deviation


Senior management and Council supports IA duties 5.18 3 7 0.69

Senior management and Council approval and

involvement in audit plan 5.17 2 7 0.88

Senior management call for provision of Audit

findings, recommendation to Council 5.45 1 7 0.96


65

Sufficient budget 4.95 1 7 1.29

4.2.2.5 Management of Internal Audit Function (Variable 5)

Management of IAF variable relates to the head of the IAF’s ability to manage the department.

Results of the management of the IAF variable computed from the data set highlighted below.


variable. The mean and standard deviation of the management of the IAF variable as indicated in

Table 4.14 below shows all the 6 questions relating to this variable. Table 4.14 presents evidence

of the management of the IAF and 4 factors scored above the average mean of 6.25 thus these 4

factors are considered the antecedents of the management of the IAF. These factors suggest that

the head of the IAF reports to council on periodic activities, the internal audit head communicates

and approves internal audit plans, the head manages the IAF to add value and the head of the IAF

develops appropriate audit plans as very critical determinants of the management of the function.

Overall, the establishment of audit policies and procedures to guide work and effective deployment

of resources by the head of the internal audit department scored the lowest mean of 6.24 and 6.12

respectively. This means that in terms of resource deployment and establishment of policies, the

head of the IAF does not perform well in these areas.

Table 4.14: The Mean of IA Management Variable

IA Management Construct Mean Min Max

Std.

Deviation


Report to Council on Periodic activities 6.26 3 7 1.21

Effective deployment of IA resources 6.12 3 7 0.99

Establishment of policies and procedure to

guide audit work 6.24 2 7 1.05

IA is managed to adds value 6.32 3 7 0.95


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Communication and approval of IA plans 6.53 3 7 0.90

Development of appropriate audit plans 6.26 3 7 0.95

4.2.2.6 Resources of Internal Audit (Variable 6)

IA Resources variable regards the availability of IAF resources. The results of the resources of the

IAF variable computed from the data set highlighted below.


variable. The mean and standard deviation of the resources of the internal audit function variable

as indicated in Table 4.15 below shows all the questions relating to this variable. Table 4.15

presents evidence of the resources of the internal audit function and 2 factors scored above the

average mean of 4.54 thus these 2 factors are considered the antecedents of the resources of the

IAF. These 2 critical factors are internal audit function possesses audit software used to report its

audit duties and office equipment.

Overall, the staffing capacity which will lead to audit team member’s rotation and office space for

more audit staffs scored the lowest mean of 4.29 and 4.52 respectively. This means that because

of insufficient resources the IAF, it is not able perform audit team rotation and does not have

enough office space for new and old audit staffs.

Table 4.15: The Mean of IA Resources Variable

IA Resources Mean Min Max Std. Deviation

Relative Mean 4.54 1.44 IA Software 4.63 1 7 1.33

Audit Team rotation 4.29 1 7 1.67

Office Space 4.52 1 7 1.52

Office Equipment possession 4.65 1 6 1.25

The next section presents the results of the measurement model evaluated in Smart-PLS.


67

4.3 Evaluation of the Measurement Model

This section highlights the assessment criteria for models measured reflectively. This include the

assessment of the indicator reliability, convergent validity and discriminant validity. The results

of each criterion are illustrated in the following sections.

4.3.1 Indicator Reliability

The first criterion in the evaluation of the model is to assess the indicator reliability of the

constructs. Being mindful of the above assessment, the indicator loadings of the study met the set

threshold of 0.70 and ranged from 0.619 to 1.00, therefore the constructs displayed in Table 4.16

below show that the indicator reliability of the variables is good and have passed the reliability

test. Moreover, no further deletion is required due to the fact that the indicator loadings have met

the required threshold.

Table 4.16: Indicator Reliability

Loadings GP MA MS RE IAE ICP RMP

34OG2 0.922

34OG4 0.898

37MI1 0.941

37MI2 0.913

37MI4 0.867

38MS3 0.619

38MS4 0.890

IAE 1.000

CP2 0.785 CP5 0.970 IR1 0.741

IR2 0.958

IR4 0.757

RMP4 0.947

RMP8 0.657


68

Note: IAE-Internal Audit effectiveness, GP-Governance Process, RMP-Risk management

Process, ICP-Internal Control Process, MA-Internal Audit Management, RE-Internal Audit

Resources and MS-Management Support.

4.3.2 Internal Consistency Reliability

Once the indicator reliability has been determined, the next stage is to evaluate the internal

consistency reliability of the findings. The internal consistencies for the seven models are deemed

to be internally consistent meaning the composite reliability of all the indicator outer loadings are

greater than 0.70 minimum thresholds. The results of the internal consistency reliability of the

seven variables are illustrated below in Table 4.17.

Next, the convergent validity of the reflectively measured constructs is examined.

4.3.3 Convergent Validity

The second criterion in the assessment of the reflective measured construct is to assess the Average

Variance Extract is used (Sarstedt et al., 2014). In view of this, assessments of the average variance

extract are indicated in Table 4.17 below. The results show that the AVE values for all the

constructs were above 0.50 which means the constructs explain more than 50% of variances. This

implies that the convergent validity of the constructs are adequate.

Table 4.17: Composite Reliability (CR) and Average Variance Extracted (AVE)

Constructs CR AVE

GP 0.906 0.828

MA 0.933 0.824

MS 0.734 0.588

RE 0.863 0.680

IAE 1.000 1.000

ICP 0.874 0.778

RMP 0.793 0.664





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4.3.4 Discriminant Validity

The last criterion used in assessing a reflective construct model after assessing the convergent

validity is to assess the discriminant validity. Based on the cross loadings results calculated, all

the indicators outer loadings are greater than its cross loadings with the constructs in the model.

Looking at the cross loading in Table 4.18 all indicators load considerably well and higher to its

respective construct than other constructs (Chin, 1998). Therefore, the discriminant validity

based on the cross loadings of this study is adequate.

Table 4.18: Cross Loading

Indicators

GP MA MS RE IAE ICP RMP

34OG2 0.922 -0.251 0.065 -0.005 -0.413 -0.110 -0.317

34OG4 0.898 -0.212 -0.031 0.235 -0.364 -0.240 -0.229

37MI1 -0.267 0.941 0.585 -0.243 0.499 0.032 -0.148

37MI2 -0.211 0.913 0.465 -0.082 0.399 -0.238 -0.234

37MI4 -0.211 0.867 0.511 -0.177 0.390 -0.150 -0.158

38MS3 0.304 0.501 0.619 0.032 0.235 -0.175 -0.297

38MS4 -0.149 0.431 0.890 -0.532 0.405 0.156 -0.049

IAE -0.428 0.478 0.433 0.113 1.000 0.332 0.318

CP2 -0.162 -0.321 -0.163 0.048 0.145 0.785 0.480

CP5 -0.176 -0.024 0.120 -0.306 0.367 0.970 0.356

IR1 0.156 -0.212 -0.417 0.741 0.042 -0.166 0.204

IR2 0.045 -0.196 -0.425 0.958 0.134 -0.178 0.252

IR4 0.207 -0.055 -0.144 0.757 0.053 -0.261 0.003

RMP4 -0.337 -0.079 -0.112 0.206 0.330 0.291 0.947

RMP8 -0.081 -0.377 -0.247 0.128 0.141 0.544 0.657

Using the Fornell-Larcker criterion the results from the data analysis in Table 4.19 shows that all

the square roots of the AVEs for each construct represented in the model are far higher than the

correlation coefficients of the interrelated constructs. The results affirm the fulfillment of the


70

discriminant validity criterion by Fornell-Larcker. Overall the discriminant validity of this study

is appropriate.

Table 4.19: Fornell-Larcker Criterion

Constructs GP MA MS RE IAE ICP RMP

GP 0.910 MA -0.256 0.907 MS 0.022 0.577 0.767 RE 0.118 -0.190 -0.411 IAE -0.428 0.478 0.433 0.113 1.000 ICP -0.188 -0.118 0.044 -0.224 0.332 0.882 RMP -0.303 -0.195 -0.177 0.212 0.318 0.426 0.815




4.4 Assessment of Structural Model

This section highlights the results of the structural model assessment of the study. This assessment

considers the collinearity between the set of constructs using the multicollinearity test, coefficient

of determination (R2), predictive relevance (Q2) and the significant relationships among constructs

using the path coefficients. The results for these procedures will be discussed into details below.

4.4.1 Multicollinearity

The collinearity between constructs in the model is checked by performing the multicollinearity

test. The variance inflation factor (VIF) is used to assess multicollinearity. Table 4.20 below show

results for VIF values which is less than 5, the highest VIF outer is 3.488 for the management of

IAF activities and the highest inner VIF value is 1.90 for the management support for internal audit

function activities in the model. The results displayed shows that all six models are free from

multicollinearity issues.

Table 4.20: Outer VIF Values

Factors VIF

34GP2 1.757


71

34GP4 1.757

37MA1 3.488

37MA2 3.170

37MA4 2.151

38MS3 1.039

38MS4 1.039

IAE 1.000

ICP2 1.591

ICP5 1.591

RE1 1.639

RE2 2.028

RE4 1.562

RMP4 1.169

RMP8 1.169

Inner VIF values

Factors VIF

GP 1.38

MA 1.87

MS 1.90

RE 1.46

ICP 1.42

RMP 1.59

Having checked for multicollinearity problems, the next stage is to test for the appropriateness of

the measurement instrument. This test will be examined in details further.

4.4.2 Common Method Bias

The Common method bias test is performed as a result of measurement problems. The study

questionnaire was developed in a way that the independent variables were answered on a seven

point Likert scale measurement and the dependent variable was answered on an ordinal scale of

measurement in order to minimize the problem of common method bias (Podsakoff, MacKenzie,


72

Lee, & Podsakoff, 2003). Since dependent and independent variables questions were answered by

the same respondent, there is a likelihood of common method bias. This test is performed in order

to prevent any measurement problem that might arise due to the respondent’s desire to answer both

the dependent and the independent questions socially desirable. The procedure used for testing

common method bias is Harman’s one-factor test. This test is performed to examine the constructs

that account for the variance. A factor analysis is performed using all the items in the constructs

of the study. The rule of thumb is that the first factor should not account for more than 50% of the

variance in the study. Table 4.21 below presents the results of the factor analysis conducted and

the first factor accounts for 29% of the variance which implies that this work does not have

common method bias problem.

Table 4.21: Common Method Bias

Total Variance Explained

Factor Initial Eigenvalues Extraction Sums of Squared Loadings

Total

% of

Variance

Cumulative

% Total

% of

Variance Cumulative %

1 11.712 29.280 29.280 11.712 29.280 29.280

2 6.148 15.371 44.651

3 4.417 11.043 55.694

4 2.878 7.194 62.888

5 1.716 4.291 67.179

6 1.548 3.869 71.048

7 1.152 2.880 73.928

8 1.058 2.645 76.572

9 .913 2.281 78.854

10 .778 1.944 80.798

11 .768 1.920 82.718

12 .717 1.792 84.509

13 .611 1.528 86.037

14 .565 1.412 87.449

15 .507 1.268 88.717

16 .471 1.176 89.893

17 .460 1.150 91.044

18 .400 1.001 92.045

19 .385 .962 93.007

20 .341 .852 93.858

21 .294 .735 94.593


73

22 .264 .659 95.253

23 .242 .605 95.858

24 .225 .562 96.420

25 .211 .527 96.947

26 .172 .431 97.378

27 .160 .399 97.777

28 .145 .363 98.140

29 .127 .317 98.457

30 .101 .254 98.711

31 .094 .236 98.946

32 .091 .228 99.174

33 .079 .196 99.370

34 .071 .177 99.548

35 .064 .159 99.707

36 .037 .091 99.798

37 .030 .075 99.873

38 .021 .053 99.927

39 .019 .047 99.974

40 .010 .026 100.000

Extraction method: Principal Component Analysis

Having checked for multicollinearity problems, the next stage is to test for the appropriateness of

the coefficients of determination (R2). This test will be examined in details further.

4.4.3 Coefficient of Determination (R2 Value)

The coefficient of determination (R2) shows how well the structural model has been explained.

The results of the coefficient of determination (R2) indicate a value of 0.671 for Internal Audit

Effectiveness. This evidence indicates that Internal Audit Effectiveness model explains 67% of

variance in the governance audit process, internal control audit process, risk management audit

process, management of IAF, management support and resource availability and by extension has

a strong predictive value. The R2 value is presented in Table 4.22.

Table 4.22: Coefficient of Determination (R2)

R Square R Square Adjusted

Internal Audit Effectiveness 0.671 0.642


74

The next assessment performed after the coefficient of determination is predictive relevance

(Blindfolding). This will be discussed into details next.

4.4.4 Predictive Relevance (Blindfolding)

The predictive relevance of internal audit effectiveness is 0.590, which means that the model has

large predictive relevance for this construct. Table 4.23 below accounts for the Q2 value.

Table 4.23: Blindfolding

Construct Cross validated

Redundancy

Q² (=1-

SSE/SSO)

Governance Process IA Management IA Relationship IA Resources Internal Audit Effectiveness 0.590

Internal Control Process Risk Management Process

The final assessment relates to hypothesis path assessment. This assessment checks the level of

significance of the path coefficients. These will be expanded next.

4.4.5 Evaluation of Path Coefficients

This section highlights the relationships between IAE and the factors that affects it. In order to

assess the significance of the relationships, a bootstrapping procedure was performed to test the

hypothesis of the study. This is the final procedure performed to assess the structural model of this

study is the path coefficient obtained by PLS-Algorithm. The path coefficients expresses the

relationships between each independent variable connecting to the dependent variable (Hair Jr et

al., 2014). These relationships represent the hypothesis relationships stated in chapter two of this

study. For the purpose of this study, bootstrapping at a go generated 5000 samples from 75 valid


75

numbers of observations. A detailed results of the bootstrapping procedure performed is illustrated

in Table 4.24.

Table 4.24: Path Coefficients, P-Value and Results

Significant at ***1% and **5%, the Table show the path coefficient of the various relationships

and p-value.

Having employed the multicollinearity test, common method bias test, coefficient of

determination, predictive relevance and path coefficient tests for assessing the structural model of

the study, Figure 3 below gives account of the path diagram of the study. This diagram is based

on the measurement and structural model of the study.

Hypothesis

Testing Path Path Coefficients P -Values Results

H4 GP -> IAE -0.324 0.000 Accepted

H1 MA -> IAE 0.269 0.010 Accepted

H2 MS -> IAE 0.475 0.000 Accepted

H3 RE -> IAE 0.446 0.002 Accepted

H5 ICP -> IAE 0.330 0.000 Accepted

H6 RMP -> IAE 0.121 0.262 Not Accepted


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Figure 4. 1: Structural Model


77

4.5 Discussion of Findings

The result of the bootstrapping procedure shown above in Table 5.24 examines each of the

hypotheses in the study. Each independent construct has a relationship with the dependent

construct as elaborated in the framework of the study. However, out of six hypothesized

relationships in the study (H1, H2, H3, H4, H5, H6), five were significant except for H6 which

was not significant.

Furthermore, findings for each of the objective hypothesized in chapter two discussed will be

examined in details.

4.5.1 Findings to Objectives One (Effectiveness of the Internal Audit System)

The study examined the effectiveness of the internal audit system within the public tertiary

institutions in Ghana. The results of IAE are illustrated in Table 4.23 above categorized using four

scales. The first scale ranges from 20% and less, the second ranges from 21% to 50%, the third

ranges from 51% to 80% and the last ranging from 81% and above. This dependent variable is

included in the model to estimate its relationship and significance with the independent variables.

The questions relating to this variable emanated from the total number of trust audit areas in the

annual audit plan and the total number of trust audit areas executed by year end. Therefore, a ratio

of the audit executed areas expressed over the number of annual audit plan areas Furthermore, this

is based on ordinal questions representing the number of audit areas within the annual plan and the

number of audits performed within the plan. Overall, it is evident that most of the public tertiary

institutions are dominated within the lower spectrum of medium which is classified as medium-

level of effectiveness that is in the bracket of 20% to 50% of IAE, whilst a few are within the 50%

to 80% bracket. This means that the institutions perform 20% to 50% of audit projects a year which


78

emanates from annual plan of audits. This is as a result of too many planned annual auditable areas

presented in the annual plan and little resources and expertise resources (staff expertise, working

time and working tools) to perform the audit duties within the public tertiary institutions.

Once the finding for the first objective (dependent variable) has been clearly identified and

explained, a further analysis of the findings of the second and third objectives (independent

variables) will be discussed in the next sections.

4.5.2 Findings to Objective Two

4.5.2.1 Internal Audit Management and Internal Audit Effectiveness (H1)

The relationship and significance level between the management of internal audit unit and IAE

was tested. The findings displayed in Table 4.23 above show a positive and significant relationship

between the Head of internal audit or chief internal auditor’s internal audit management ability

and internal audit effectiveness (β=0.269,p-value=0.010).

This finding establishes that when the head of the internal audit unit is committed to managing

the operations of the unit, it leads to internal audit effectiveness. The ability of the head of the

internal audit unit to manage the unit is dependent on the performance of internal audit processes

and activities, the level of access to top level personnel, timeliness of reporting to council and

communicating key operational issues to council will result to the effectiveness of the internal

audit unit (Leung et al., 2011). Thus, the role of the Head of internal audit unit is essentially crucial

for determining internal audit effectiveness. Similarly Hass, Abdolmohammadi, and Burnaby

(2006) asserts that the chief audit executive has a strong influence on the effectiveness of the

internal audit function when there it comes to how the function is lead. They added that the

professional attitude and behaviour of the internal audit leaders affects the effectiveness of the


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function. Thus the head or chief internal auditor’s attitude concerning IA work is important in

determining effectiveness.

The findings of this study is in line with the results of (Hass et al., 2006; Zain, Subramaniam, &

Stewart, 2006; Leung et al. ,2011), that internal auidt effectivness is high when the head of the

internal audit unit can push for the timely release of internal audit reports generated, can influence

key management on audit matters, can get access to top management to approve and report audit

matters to them, performance of internal audit process and effectively coordinate the internal audit

staffs within the function. This finding of the ability to manage the internal audit function implies

that when senior management is in charge of the employment of the CAE of the IAF, the head

could feel reluctant to report issues involving top level management personnel.

The stated hypothesis (H1) has been confirmed by the findings of the study that management of

internal audit activity and funnction is a determinant of internal audit effectiveness.

4.5.2.2 Internal Audit Relationship and Internal Audit Effectiveness (H2)

Moreover, the results in Table 4.23, further displays results relating to the relationship and

statistical significance between internal audit relationship specifically management support and

internal audit effectiveness. The Table presents a positive and highly significant relationship

between management support and internal audit effectiveness (β=0.475 and p-value=0.000). The

results of this research show that when top level management support internal audit activities,

internal audit effectiveness will be high.

In addition, when the public tertiary institution’s top management and council are keen on

supporting the operations and audit process of internal audit, it leads to high IAE (Cohen & Sayag,

2010). Thus, management support is a vital factor of IAE within the public tertiary institutions


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(Mihret & Yismaw, 2007). Clearly, the decisions top management make towards a productive

internal auidting unit includes, the employment of IA staffs, training and career development of

IA staffs, IA budget approval, IA head employment and independent audit process (Cohen &

Sayag, 2010).

This findings is in line with preview studies (Mihret & Yismaw, 2007 ;Alzeban & Sawan, 2013;

Alzeban & Gwilliam, 2014; Endaya & Hanefah, 2016 and Azzali & Mazza, 2018) that IAE is

strongly determined by management support. This finding confirms the hypothesis that top

management and council must support IAF through the approval of appropriate budget and support

the implementation of audit findings and recommendations made to functional units in the

organizations to be able to make IAF effective. Therefore, when internal audit has the needed

resources from top management and council, the function is effective.

Further, the results of this research are in line with the theory of resource which emphasizes on the

relevance of top management support as a resource employed to contribute to IAE (Ahmad, 2015).

Specifically, the managerial factor pillar of this theory addresses issues of management support

and IAE. The result of this construct asserts the importance of the resource- based application to

management support and IAE in this study.

Further, the finding on management support implies that when there exist a close connection with

senior management and the IAF there could be an issue familiarity threat.

4.5.2.3 Internal Audit Resources and Internal Audit Effectiveness (H3)

The regression results displayed in Table 4.23, illustrates the relationship and significant level of

IAF resources and IAE. The Table further presents a positive and significant relationship between


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internal audit resources and internal audit effectiveness (β=0.446 and p-value=0.002). This result

is interpreted as the more resources possessed by an institution’s IA unit, the more effective that

IA unit becomes. The use of information technology as an audit tool for audit engagement

processes forms a crucial resource for IAE because of the ease of performing audit work with such

software (Hass et al., 2006). Further, Alzeban and Gwilliam (2014) noted that staff strength is also

an important resources for the effectiveness of the IAF. This argument establishes the point that

the more internal auditors, the more audit engagements are performed within their planned period

and audit team rotation influence IAE. In addition, when internal auditors are many with respect

to the size of the institution’s employees, it increases the ability of the internal auditors to work on

more audit assignments and successfully rotate audit team members to prevent familiarity over

time. Similarly, a small size internal audit function creates a situation where audit team members

cannot easily rotate over time, thus the same individuals will be involved in the same audit for a

long period of time.

Further, the finding of this research is compatible with prior studies that found a strong relationship

between IA resources and IAE (Hass et al., 2006; Zain et al., 2006; Arena & Azzone, 2009;

Alzeban & Gwilliam, 2014). These studies draw attention to the fact that when more resources

exist within an organization for the IAF, there is a chance that IAE will increase and otherwise in

a contrary case. Certainly, this finding confirms the stated hypothesis H3 of the study.

4.5.3 Findings to Objective Three

4.5.3.1 Corporate Governance Audit Process and Internal Audit Effectiveness (H4)

The findings in Table 4.23 shows a negative and highly significant relationship (p-value=0.000)

between the involvement in governance audit process and IAE. The explanation of this finding


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establishes that institutions that involve in governance audit processes usually have less effect on

IAE.

The results establish that involvement in corporate governance audit is a significant influence in

examining IAE within the Ghanaian public sector. However, when an internal audit unit is engaged

in governance process audit there is low effectiveness due to the reason that the institutions do not

allocate much time and resources to governance audit issues and this leads to a general

effectiveness in the area of executive recruitment contract audit, monitoring top level management

and compliance audit low.

Buttressing this point, according to Sarens, Abdolmohammadi, and Lenz (2012), the Common

body of knowledge (CBOK) research undertaken in 2006 by the IIA, established that many

organizations do not engage in corporate governance audit process and the ones that take part in

this audit process also allocate little working time for this audit activity. Similarly, Leung et al.

(2011), found a weak relationship between corporate governance audit engagements and IAE due

to the small number of IA staffs working the internal audit units. Thus, this study is in line with

literature on corporate governance audit engagements.

This findings is consistent with prior studies (Barry & Asia, 2006; Goodwin-Stewart & Kent,

2006 and Leung et al., 2011; Sarens et al., 2012) that have affirmed the internal auditors have

numerous workloads that they spend their time on and corporate governance issues are not ranked

high due to the time and resources involved in carrying out works of such nature.

Further, the above findings reinstates that internal audits align their programs to suit or capture at

least one or two corporate governance audit activities but such objectives are not apparently

accomplished due to time and resources involved. Thus the resource-based theory comes to play


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as the internal audit unit needs resources to function (Ahmad, 2015). Clearly, due to the inability

of internal auditors to achieve effectiveness from their corporate governance audits, the role and

function of the internal audit unit have been questioned due to the corporate collapses of

organizations, therefore attention has been drawn to audit regarding corporate governance issues.

Moreover, the low involvement in governance process audit could imply that questions about

financial scandals will still be arise because top level management personnel are not been audited.

This finding implies that the financial misconducts which is connected to governance issues of the

institutions will not be easily detected by internal auditors.

The finding of the research affirms the stated Hypothesis H4 that involvement in corporate

governance audit process is a determinant of IAE.

4.5.3.2 Internal Control Audit Process and Internal Audit Effectiveness (H5)

The findings in Table 4.23 indicates that the relationship between involvement in internal control

audit process and IAE turned out to be positive and statistically significant (β=0.330 and p-value

= 0.010).

This finding shows that when an institution is engaged in internal controls audit process, their IAE

is high. Thus, as established by the stated hypothesis and the expected outcomes of the study, the

results indicate that the more internal control audits engaged by the institutions, there is a higher

possibility of a strong relationship between internal control process and IAE. According to Onza

et al., (2015), institutions that employ systematic efforts to improve the effectiveness of their

internal controls, end up spotting and eliminating weaknesses in the institution through internal

controls audit process.


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Further, internal controls audit process includes ensuring that the assets of the institution are

protected, proper authorization is seeks for revenue and expenditure items, proper financial

discipline of the institution and proper expenditure monitoring. Therefore, when the public tertiary

institution’s internal audit unit engages in any of the aforementioned audit, it makes the

institution’s internal audit unit effectiveness in its internal control activities. This argument is

supported by Eden and Moriah (1996), that internal control processes are the pathway through

which internal auditors walk to examine the functions of the organization.

The findings of this study is in line with previous studies (Fadzil et al., 2005; Aikins, 2011; Leung

et al., 2011; Badara & Saidin, 2013; Onza et al., 2015) that internal auditors spend most of their

time on internal control matters which at the local government level is important and effective

system. This result establishes that internal control audit process is a key determinant of IAE which

supports the stated hypothesis H5.

4.5.3.3 Risk Management Audit Process and Internal Audit Effectiveness (H6)

The results from Table 4.23 further establishes that risk management audit process has a positive

but insignificant relationship with internal audit effectiveness (β=0.121, p-value= 0.262).

Therefore, this results is different to the stated hypothesis H6, and the expected results of the study,

illustrates that when an institution engages in risk management audit processes it does not lead to

internal audit effectiveness.

Extent Literature presents mixed results of the construct risk management involvement. First,

existing research as established a positive and significant relationship between risk management

and internal effectiveness (Arena & Azzone, 2009; Leung et al., 2011). Leung et al. (2011),

concluded that internal auditors focus and spend much more time on internal controls and risk


85

management processes. Arena and Azzone (2009), focused on applying control risk self

assesssment (CRSA) techniques to test the involvement of the IAF in risk management audit

process and they concluded on a positive and statistically significant relationship.

Second, a positive but insignificant relationship between risk management audit process and

internal audit effectiveness ( Fadzil et al.,2005). Therefore, this finding is in line with prior

literature but not in line with the expectations of the study. The study of Fadzil et al. (2005) asserts

that the role of internal control and risk management is overlapping due to the fact that risk

assessment a component of risk management is embedded in the COSO Framework of internal

control systems (Control Environment, Risk Assessment, Control Activities, Information and

Communication and Monitoring) . Further, Sarens (2009) argues that risk assessment is an integral

aspect of risk management and internal controls, thus engaging in risk management audit is a way

of governing and assessing risky operations.

Nevertheless, the insignificant association could be as a result of the two audit processes internal

control and risk management overlapping or the issue of the Ghanaian tertiary internal audit system

not addressing the issues of risk management well, thus a call to revisit this issue. In line with the

above discussion, hypothesis (H6) is rejected.

4.6 Chapter Summary

This chapter highlights data analyzed and results found from the research. The chapter first gives

a detailed brief descriptive statistics of the data collected, and then made some inferential statistics

based on the evaluation of the measurement and structural model and finally discussed the results

with respect to the research hypothesis. In relation to the measurement of the model, the indicator


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reliability and discriminant validity were all satisfactory. Further, the blindfolding procedure and

variance inflation factor (VIF) results which are structural model criteria were all appropriate.

Further, the results from the model were discussed following the appropriateness of the model.

The findings were in line with the stated hypothesis except for one with relates to risk management

audit process and internal audit effectiveness which had a contra finding. Therefore, Hypothesis

H1, H2, H3, H4 and H5 were accepted and H6 was rejected based on the bootstrapping results.

As indicated from the results, the effectiveness of the public tertiary institution’s internal audit

function improves as the availability of audit resources increase. This is consistent with the

assertions made by Ahmad (2015), that the internal audit department like any other department

within the organization requires resources to survive.


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CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

1.0 Introduction

This chapter of the study highlights the empirical findings of the research. It gives an overall

summary of the study, and then summarizes the findings drawn after a thorough analysis of the

data collected. It further enumerates the implications of the findings and makes some

recommendations for future studies in the area of IAE among Public Tertiary Institutions in Ghana.

This is preceded by study constraints, then conclusions.

5.1 Summary of the Study

Current business risks and financial scandals within governmental institutions have increased

public expectations pertaining to internal auditing been the institution’s first line of defense. The

focus of this study is the Public Tertiary institutions in Ghana. These institutions have established

internal audit departments to check the internal controls surrounding their budgetary control and

public funds monitoring, therefore internal audit effectiveness research in these public institutions

have been advocated for.

The area of internal auditing in particular, quite a number of studies have been conducted on IAE.

However, these studies have mainly focused on IA departmental and individual characteristics that

influence IAE. Despite numerous literature on IAE, it’s still missing empirical studies that focus

on the involvement in audit engagement processes such as corporate governance audit process,

internal controls audit process and risk management audit process of the IAF which this research

has addressed within the public tertiary institutions.


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It is apparent from literature that organizational characteristics play a role in internal audit

effectiveness. Therefore, empirical studies have mostly focused on factors such as management

support and resources as influencing characteristics of IAE. As a result of the above, this study

adds the management ability of the IAF head as an organizational characteristics of IAE and has

addressed this issue. Hence, this study hypothesized that, management of IA activities influences

IAE.

Further, empirical studies have found that there is limited evidence of an acceptable measure of

IAE due a number of scholars scrutinizing and adding new knowledge to the topic on a frequent

basis. Therefore, this study employs the percentage of planned audit executed as a measure of IAE.

Nevertheless, this study adopted the resource-based theory to explain the research framework. This

theory analyses how institutions link their internal resources and capabilities with their set

strategies. The research framework used considers the audit processes engaged in by internal

auditors and their organizational influences on IAE.

This research adopted the quantitative method approach, specifically the survey design to collect

data. The research instrument used was adopted from existing literature for the development of the

questionnaire for the study. The questions on the constructs were on a seven points Likert scale

ranging from 1 to 7. The respondents being the internal audit department head was required to

score each item. Out of 90 questionnaires sent out to the 90 public tertiary institutions in Ghana,

only 75 filled questionnaires were received and used for data analysis. This study used the PLS-

SEM to analyse data collected. With PLS-SEM, the study tests the reliability and validity of the

model and it was adequate. Further, hypotheses were tested and their predictive ability and

relevance were examined.


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Based on the significance of the independent constructs on IAE, major findings, implication and

recommendations were extracted from the results.

5.2 Major Findings of the Study

This section provides the major finding of this research. These results will be discussed in turns;

internal audit effectiveness measurement, organizational influence issues and audit processes.

First, the study revealed that the public tertiary institution has an average score of 20% internal

audit effectiveness. This empirical evidence shows that the medium- low percentage score of

effectiveness of public tertiary institutions in Ghana has certain implications to internal audit

effectiveness.

Second, the finding for this investigation shows that the sampled institutions have a senior internal

auditor who is in charge of all the affairs of the IAF. Evidence shown that the heads of IAE apply

an attitude of professionalism in their daily management of the department in order to manage,

report on fraud risks and governance issues, draw up an appropriate audit plan and deploy

resources will improve IAE.

Third, evidence of this research suggests that management’s ability to support the initiative of the

IAF is very crucial to the performance of the function. Thus, this situation requires the IAF work

closely with senior management to be able to channel concerns and issues to them.

Fourth, evidence shows that IA budget, staffs and IT software are critical resources that influences

its effectiveness. Further, the finding reveal that the findings, the size of the IAF is too small to

execute duties, consequently majority of the institutions employ below three (3)auditors to be in-

charge of audit duties.


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Fifth, the results of the research indicates that corporate governance issues are crucial to the success

of an institution but little attention is given to this type of audit engagements within the

understudied institutions. It appears that within the overall audit framework, works in this area was

not ranked highly due to the fact that corporate governance audit activities planned for are not

apparently accomplished due to time and resources involved the this audit.

Sixth, the finding reveal that more time and resources are spent on internal controls audits

engagements.

Last, the finding implies that risk management audits are more focused on the risk assessment

aspect of risk management which is also an aspect of internal controls. Therefore, the institutions

do not engage extensively in risk management audits. Similarly, there is little resources to focus

on risk management audit which takes quite a lot of time and resources.

Moreover, it is evident as all the above variables in the study model showed that internal audit

resources are required in the areas of internal audit engagement process (corporate governance

audit, internal controls audit and risk management audit), management support, internal audit

resources and the ability to manage internal audit function. Clearly, the findings of the study

indicated that all audit and non- audit objectives formulated by the internal audit function is based

on the availability of resources at the disposal of the department (Coetzee & Lubbe, 2014).

Certainly, the application of the resource- based theory to this study best suits the findings of this

study.

The next section presents the consequences drawn from the results of the study.


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5.3 Implications of the Study

This research has several implications that emanated from the above-mentioned results. First, the

implication of the medium- low level effectiveness of the IAF could be attributed to high number

of auditable areas presented in the annual plan and lack of resources (staff expertise, working time

and working tools) to perform the work.

Second, the finding of the ability to manage the internal audit function implies that when senior

management is in charge of the employment of the CAE of the IAF, the head could feel reluctant

to report issues involving top level management personnel due threat of intimidation.

Third, the findings on management support implies that when there exist a close connection with

senior management and the IAF there could be an issue familiarity threat. Thus, this issue could

give rise to familiarization between IAF members and senior management, as internal audit may

be discreet in matters reported to senior management.

Fourth, the low involvement in governance process audit could imply that questions about

financial scandals will still be arise because top level management personnel are not been audited.

This finding implies that the financial misconducts which is connected to governance issues of the

institutions will not be easily detected by internal auditors.

Last, the issue of institutions spending more time and resources on internal control audit activities

could imply that less time and resources will be allocated to the rest of the audit engagements of

the institution.

Given the major findings and implications of these findings, the next section highlights the

recommendations of each implication.


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5.4 Recommendations of the Study

The recommendations of the research are highlighted below; First, in order to overcome the issue

of low level of the effectiveness of the IAF, institutions should ensure the adherence to the adoption

of the approved (9) trust audit areas developed by the IAA in the preparation of the annual audit

plan.

Second, in order to overcome this issue of threat to independence faced by the managing personnel

of the IAF due to senior members employing them, the head should report risk, governance and

internal control matters to the top level management. There should be a clear and direct reporting

responsibility of the head of IAF. Further, the heads of the internal audit units should take seriously

their social capital otherwise familiarity threats would set in.

Third, in order to overcome the issue of conflict of interest between senior managers and internal

auditors, the IAF must maintain a healthy and professional relationship with senior management

in order to be independent in audit work performance.

Last, resources availability is crucial to support the number of governance process audits in the

annual plan to enable a successful audit engagement and expand their governance audit

engagements and allocate more time for such audits in future.

Having analyzed the implication from the study’s empirical outcomes and offered some

suggestions to this implication, the next section highlights the contributions academia, practice

and policy making of internal auditing in Ghana.

5.5 Contributions of the Study

This research contributes to academia by examining internal audit involvement in corporate

governance process, internal control process and the management of an IAF as variables that


93

influences internal audit effectiveness in Ghana. Moreover, applying the resource-based theory

helps emphasize the significance of resources in the achievement of IAE.

In addition, this study contributes to practice by helping the internal audit agency to formulate

audit strategies that regards the aspects of audits to be performed by the internal audit units (ethics,

governance and control and risk management) and resource allocation the internal audit function

which will assist the work of the internal audit unit of the public tertiary education sector in

ensuring IAE. Further, audit strategies of audit actions and services coordination which applies to

the issue of majority of the institutions understudied not following the “trust areas” published by

the Agency for the institutions to follow and draw their audit plans.

Nevertheless, this research also contributes by helping policymakers in assessing and evaluating

of public internal auditing in areas such as audit function services performed within the public

sector to ensure IAE. Policy makers can use the evidence presented in this study to identify some

of the actions to take to hold the public institutions accountable for their resources utilized, audit

function performed in line with the plan audit and the weakness in the internal audit function.

5.6 Limitations of Study

The scope of this work did not cover other organizational characteristics that influence of IAE

such as political and cultural factors. This research is constrained only to the public sector not

private sector. Moreover, the sample institutions covered only tertiary institutions. Further, this

study adopted the quantitative research approach to analyze data collected. Another issue of

weakness relates to the measurement instrument of the factors that influence IAE being

susceptibility to social desirability bias.


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5.7 Suggestions for Future Studies

Being mindful of the abovementioned limitations, suggestions for further studies are highlighted

below. First, future studies should consider the use of qualitative methods to identify the various

measures of IAE within the public sector. In view of this other actors will be included in the data

collection to be able to explore in totality IAE issues in the public tertiary educational institutions

and other institutions where internal audit effectiveness is significant.

Further, future research can adopt the resource-based theory for studying IAE in the private

sector since resources are crucial for the IAF’s effectiveness.

5.8 Conclusion

This chapter represents the final chapter of this research. This chapter highlights the summary of

the work, major findings, implications and recommendations, contributions, limitations of the

study and suggestions for future studies in details.


95

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APPENDIX

A. QUESTIONNAIRE

UNIVERSITY OF GHANA BUSINESS SCHOOL DEPARTMENT OF ACCOUNTING

ORGANIZATIONAL AND AUDIT CHARACTERISTICS OF INTERNAL AUIDT

EFFECTIVENESS WITHIN THE PUBLIC TERTIARY INSTITUTIONS.

QUESTIONNAIRE FOR HEADS OF INTERNAL AUDIT UNITS

This questionnaire is meant to solicit information regarding “The influence of Organizational

characteristics on internal audit effectiveness (IAE) in the Public Tertiary institutions in Ghana”.

This study is a for the Master of Philosophy (MPhil) award. We therefore seek your maximum

co-operation and assure you that any information provided will be treated with confidentiality.

Please respond by ticking the appropriate box with [√] or comment where necessary. Thank you

for your co-operation.

SECTION A

Background information

1. Job title:

2. Gender: Male [ ] Female [ ]

3. Educational Qualification (tick as many as applicable)

Doctorate’s degree [ ] Master’s degree [ ] Bachelor’s degree [ ] HND [ ]

4. Professional Qualification

ICAG [ ] ACCA [ ] CIA [ ] CPA [ ] CIMA [ ] other (s) please

specify………….

5. How many years have you been working as director of internal audit

Below 5 years [ ] 6-10 years [ ] 11- 15 years [ ] 16 years and above [ ]

6. Do you have any work experience in internal auditing: Yes [ ] No [ ]

7. Type of educational institution (tick the one applicable)

University [ ] Polytechnic [ ] College [ ] Technical University [ ]

Professional Institutions [ ] Training College [ ]

8. Regional Location of School

Greater Accra [ ] Central [ ] Eastern [ ] Western [ ] Ashanti [ ] Volta [ ]

Northern [ ] Upper East [ ] Upper West [ ] Brong Ahafo [ ]

SECTION B

9. How many broad audit areas were in 2018 annual audit plan? ………………………….

10. How many of these planned audit areas are involved in;

Corporate Governance Processes…………………..


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Risk Management Processes…………………….....

Internal Control Processes………………………….

11. How many audit areas are executed within 2018? ……………………….

12. How many of these executed audit areas are involved in;

Corporate Governance Processes…………………..

Risk Management Processes…………………….....

Internal Control Processes………………………….

13. How many Request audits are received which are not in the annual audit plan?

………………….

14. How many of these Request audits are executed with the year 2018?

……………………………

SECTION C

Competence of Internal Audit Department

15. What is the total number of employees in your institution? ...........................

16. What is the total number of internal auditors in your department? ...........................

How many of them are Administrative staffs? …………………………….

How many of them are involved in Direct Audit? ............................................

17. Internal audit is large enough to successfully carry out its duties and responsibilities?

Yes [ ] No [ ]

18. Do you neglect some of the internal audit duties due to the size of the internal audit

department Yes [ ] No [ ]

19. Do you neglect some of the internal audit duties due to request audits? Yes [ ] No [ ]

SECTION E

Organizational characteristics in terms of organizational governance, controls and risk

management and Management of Internal audit unit that influences internal audit

effectiveness.

20. Organizational Governance

Please indicate the extent to which you strongly disagree (1) or strongly agree (7) with the

following statement regarding the extent to which internal audit influences organizational

governance

Organizational Governance 1 2 3 4 5 6 7

OG1 1. Internal audit improves governance process through

effective organizational performance management and

accountability


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OG2 2. Internal audit communicates risk and control

information to appropriate areas of the organization

OG3 3. Internal audit promotes appropriate ethics and values

within the organization

OG4 4. Internal audit accesses the information technology

governance of the organization supports the

organization’s strategy

OG5 5. Internal audit gets attention of council and

management

OG6 6. Internal audit ensures organizational resources

accountability

OG7 7. Internal audit provides a complete overview of

departments, problems, incentive policy and monitor

improvements of the organization

OG8 8. Internal audit follows up on recommendations made

to management and council in order to measure progress

of implementation

OG9 9. The internal audit department assists the management

in fulfilling strategic and operational objectives of the

institution.

21. Organizational Risk Management


following statement regarding the extent to which internal audit influences organizational Risk

Management

Organizational Risk Management 1 2 3 4 5 6 7

ORM1 1. Internal audit evaluates the potential occurrence of

fraud and how the organization manages fraud risk

ORM2 2. Internal audit communicates risk and control

information to appropriate areas of the organization


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ORM3 3. Internal audit evaluate and improves the effective

and effectiveness of organizational risk management

ORM4 4. Internal audit is alert to the significant risks that

might affect objective, operations and resources of the

organization

ORM5 5. Internal audit facilitates risk assessment through risk

self- assessment techniques

ORM6 6. Internal audit evaluates risk associated with new

computing developments, construction and

procurements activities and stops the project if risk are

not controlled

ORM7 7. Internal audit assists management in implementing a

risk model across the organization

ORM8 8. Internal audit assess existing risk of audited area and

report that assessment to management, audit

committee

ORM9 9. Internal audit ensures that the institution complies

with regulatory requirement

22. Organizational Control


following statement regarding the extent to which internal audit influences organizational

Controls

Organizational Control 1 2 3 4 5 6 7

OC1 1. Internal audit incorporates knowledge of controls

gained from engagements into evaluation of the

organization’s control processes.

OC2 2. Internal audit evaluates the reliability and integrity of

financial and operational information

OC3 3. Internal audit activity assists the organization in

maintaining effective controls by evaluating their


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effectiveness and efficiency to promote continuous

improvement.

OC4 4. Internal audit reviews the means of safeguarding

assets

OC5 5. Internal audit test compliance with controls in

functional areas

OC6 6. Internal audit assists management in preparing a

report on the effectiveness of internal controls

OC7 7. Internal audit adopts systematic approaches to

evaluate and improve the effectiveness of the

institution’s internal control processes

23. Management of Internal Audit activity


following statement regarding the extent to which internal audit influences the management of

internal audit activity

Management of Internal Audit activity 1 2 3 4 5 6 7

MI1 1. Internal audit gives report to council on periodic

activity, purpose and performance relative to plans

MI2 2. Internal audit ensures that audit resources are

appropriately, sufficiently and effectively deployed to

achieve approved plans

MI3 3. Internal audit has established policies and procedures

to guide audit work

MI4 4. Internal audit activity is managed effectively to ensure

it adds value

MI5 5. Internal audit plans, resources and requirement are

communicated and approved by the council/

management

MI6 6. Internal audit develops appropriate audit plans


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24. Management Support for Internal Audit Activities


following statement regarding the management support for internal audit activities.

Management Support for Internal Audit Activities

1 2 3 4 5 6 7

MS1 1.Senior management supports internal audit to perform

its duties and responsibilities

MS2 2.Senior management are involved in the internal audit

plan

MS3 3.Internal audit provides senior management with

sufficient, reliable and relevant reports about work

performed and recommendations made

MS4 4.Internal audit department has sufficient budget to

successfully carry out its duties and responsibilities

25. Internal Audit Resources


following statement regarding the internal audit resources needed.

Internal Audit Resources 1 2 3 4 5 6 7

IR1 1.Internal audit work is performed with modern

technology that uses computerized data pools and

specific IA software

IR2 2. Internal audit can conveniently rotate audit team given

the present audit staff size

IR4 4. Internal audit unit has enough office space for auditors

IR5 5. Internal audit has in possession vehicles to support

audit activities


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B. LIST OF PUBLIC TERITARY INSTITUTIONS IN GHANA

Type of Institution Number

Universities 11

Polytechnics 2

Training Colleges 24

Technical Universities 8

Professional Institutions 16

Colleges of Education 29

Total 90


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