University of Ghana http://ugspace.ug.edu.gh UNIVERSITY OF GHANA AUDITEE’S PERSPECTIVE ON INTERNAL AUDIT; TENSIONS AND CHALLENGES BY PEACE ENYONAM ADJETEY (10700336) THIS LONG ESSAY SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, UNIVERSITY OF GHANA BUSINESS SCHOOL, UNIVERSITY OF GHANA-LEGON, IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF MASTER OF SCIENCE DEGREE IN ACCOUNTNG AND FINANCE AUGUST, 2019 University of Ghana http://ugspace.ug.edu.gh DECLARATION I do hereby declare that this work is the result of my own 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. ................................................ .................................... PEACE ENYONAM ADJETEY DATE (10700336) i University of Ghana http://ugspace.ug.edu.gh CERTIFICATION I hereby certify that this long essay was supervised in accordance with procedures laid down by the University of Ghana. ...................................................... ................................ DR. AGYENIM-BOATENG DATE (Supervisor) ii University of Ghana http://ugspace.ug.edu.gh DEDICATION This work is dedicated to the Almighty God for guiding me through the entire research work. iii University of Ghana http://ugspace.ug.edu.gh ACKNOWLEDGEMENT My foremost appreciation goes to God Almighty by whose grace I am alive. I wish to express my gratitude to my family and friends for their continuous understanding and patience to aid me to pursue this programme successfully. I also want to say a big thank you to all the lecturers and friends at the University of Ghana Business School. I finally wish to express my profound gratitude to my supervisor Dr. Agyenim-Boateng for all his time and guidance in supporting this long essay. iv University of Ghana http://ugspace.ug.edu.gh TABLE OF CONTENTS DECLARATION ............................................................................................................................. i CERTIFICATION .......................................................................................................................... ii DEDICATION ............................................................................................................................... iii ACKNOWLEDGEMENT ............................................................................................................. iv TABLE OF CONTENTS ................................................................................................................ v ABSTRACT ................................................................................................................................. viii CHAPTER ONE ............................................................................................................................. 1 INTRODUCTION .......................................................................................................................... 1 1.1 Background of the study ....................................................................................................... 1 1.1 Problem statement ................................................................................................................. 3 1.2 Objectives of the study .......................................................................................................... 4 1.3 Research questions ................................................................................................................ 4 1.5 Significance of the Study ...................................................................................................... 5 1.6 Organization of the Study ..................................................................................................... 6 CHAPTER TWO ............................................................................................................................ 7 LITERATURE REVIEW ............................................................................................................... 7 2.0 Introduction ........................................................................................................................... 7 2.1 Definition and Historical Background on Internal Auditing ................................................. 7 2.2 Development of Internal Audit Ghana’s Public Sector ......................................................... 8 2.2.1 Organizational Structure of The Local Government Service in Ghana ........................ 10 2.3 Role/Functions of Internal Auditors in MMDAs ................................................................ 11 2.4 Empirical Literature Review ............................................................................................... 15 2.5 Theories/ Conceptual Framework of Internal Audit ........................................................... 19 2.5.1 Institutional Theory ...................................................................................................... 19 v University of Ghana http://ugspace.ug.edu.gh 2.5.2 Auditing Theory ........................................................................................................... 20 2.5.3 The Contingency Theory .............................................................................................. 22 2.6 Chapter Summary ................................................................................................................ 23 CHAPTER THREE ...................................................................................................................... 25 METHODOLOGY ....................................................................................................................... 25 3.0 Introduction .................................................................................................................... 25 3.1 Research Design ............................................................................................................. 25 3.1.1 Research Approach ....................................................................................................... 25 3.1.2 Research Method and Philosophical Assumptions ....................................................... 27 3.2 Data Collection Techniques ................................................................................................ 28 3.2.1 Interviews ......................................................................................................................... 29 3.2.2 Publicly Available Documents ..................................................................................... 31 3.3 Ethical Considerations......................................................................................................... 31 3.4 Data Analysis ...................................................................................................................... 32 3.5 Limitations of the Study ...................................................................................................... 33 3.6 Chapter Summary ................................................................................................................ 34 CHAPTER FOUR ......................................................................................................................... 35 DATA ANALYSIS AND DICUSSION ....................................................................................... 35 4.0 Introduction ......................................................................................................................... 35 4.1 Auditee’s Perspective on Internal Audit ............................................................................. 35 4.1.1 Complementary Role in the High-Areas ...................................................................... 35 4.1.2 Management Watch Dogs ............................................................................................ 36 4.1.3 Assurance of Quality .................................................................................................... 37 4.1.4 Auditors System Appraisal ........................................................................................... 38 4.1.5 Annual Planning ........................................................................................................... 39 vi University of Ghana http://ugspace.ug.edu.gh 4.2 Stigmatization of Auditors Functions ................................................................................. 40 4.3 Reporting Structure ............................................................................................................. 42 4.4 Challenges and Management Tensions ............................................................................... 43 CHAPTER FIVE .......................................................................................................................... 46 SUMMARY, CONCLUSION AND RECOMMENDATION ..................................................... 46 5.0 Introduction ......................................................................................................................... 46 5.1 Summary of Findings .......................................................................................................... 46 5.2 Conclusion ........................................................................................................................... 47 5.3 Recommendations ............................................................................................................... 48 REFERENCES ............................................................................................................................. 49 vii University of Ghana http://ugspace.ug.edu.gh ABSTRACT This study examines the auditee’s perspective on internal audit; tension and challenges of Adentan Municipal Assembly in delivering institutional efficiency and effectiveness. The study adopts the qualitative research approach and a case study design was used to collect data. The respondents are purposefully sampled. Interviews was used for data collection and data gathering. The data collected was examined using thematic and content analysis method. The findings of the study shown that there are challenging issues confronting internal audit due to auditee’s misconception about the role of internal audit. Also, Auditee’s see internal audit activities as complementary role that is only needed in high risk areas, internal auditors are also seen as management watch dogs. The findings again suggest that internal audit activities will yield quality assurance if provided with the right tools and reporting structure. In addition, auditee’s have stigmatized the internal auditors which sometimes create some management tensions and challenges. The concentration of authority on the Spending officer (thus the Coordinating Director) and the fact that internal auditor’s promotion depends on the Coordinating Director and the Political Head known as Municipal Chief Executive (MCE) is a real challenge. The study recommends that the internal audit should be independent from management of public institutions especially at the Metropolitans, Municipal and District Assembly level to enhance quality internal audit work as well as healthy relationship Key words: Auditee’s, internal audit, challenges, tensions viii University of Ghana http://ugspace.ug.edu.gh CHAPTER ONE INTRODUCTION 1.1 Background of the study The impact of internal audit cannot be underestimated. The standardization of socio-economic development into objectives and goals as a measure in modern business development strategy, as well as the growing quests of delivering enhance services with limited resources without necessarily compromising quality, Internal auditing is seen as the most effective partner in minimizing the challenge of organizational wastage (Aduam, 2015). Marah (2007) defines internal auditing as well-planned measures that are instituted by an organization to ensure the achievement of objectives. There are control systems put in place by every organization to assist in achieving its goals and aspirations as well as improve service delivery and ensure friendly working environment. Kumuthinidevi (2016) explain further that internal auditing covers the auditing of the entire management control system in order to ensure smooth running of the business in a efficient manner. According to Kumuthinidevi (2016), the auditing may cover financial and or non-financial systems, whatever form it take, internal audit has become a basic and an essential tool for efficient and effective management. According to Lakis and Giriūnas (2012), the market is constantly changing in the industry sector and this requires changing the attitude to internal auditing. This buttress the point that internal auditing has long moved from only concentrating on financial auditing to evaluating and reviewing the organization in its entirety in order to help management achieve its objectives. Lakis & Giriūnas (2012) further stated that the internal auditing has become an instrument and means of risk auditing. Internal auditing can be seen as instrument in the sense that constant review 1 University of Ghana http://ugspace.ug.edu.gh of internal control systems which are mitigating factors put in place by management to either reduce, avoid or eliminate enterprise risk can be easily use to determine the effectiveness or otherwise of such control system. Timely and frequent internal auditing helps in identifying weaknesses in the control systems, brings out the potential threats to achieving organizational goals, and makes valuable and timely implementable recommendations to management in order to address the looming risk for the achievement of goals and objectives. Internal auditing includes compliance checking of laws and standards especially with public sector institution, adhering to law is a mandatory requirement and internal auditors are expected to constantly monitor the activities of the covers entity to ensure that laws and regulations are being complied with. In the MMDAs, internal audit unit is responsible for all auditing the activities of all the departments and unit of the Assembly. A typical Municipal Assembly in Ghana has thirteen departments and nine units before other affiliated agencies of the Assembly. The actions and inactions of all the departments, units and the agencies affects the operations of the assembly in one way or the other. If one department of unit fails in delivering it mandate, the entire assembly face the consequences of such occurrence thereby bringing the reputation of the assembly into disrepute. All the departments/ units are subject to the audit of the internal audit unit of the assembly except the district health and education directorates which are current autonomous and therefore are not fully integrated into the assembly system. Internal audit is also expected to ensure the safeguard of the Assembly’s assets and resources from theft and misuse at all level. This is done by ensuring that government policies regarding the usage of such assets are adhered to and any identify deviation from such policies are reported to management and other appropriate authorities for the appropriate actions to be taken. Again, quarterly internal audit helps the elected assembly member to disseminate accurate and reliable information to their electorates on the 2 University of Ghana http://ugspace.ug.edu.gh activities of the assembly regarding policy implementation which are expected to enhance stakeholder engagement at the district level. As internal audit reviews the decisions taken at the general assembly meetings, it put management of the assembly on their toes to implement those decisions on time to the benefit of the people. It is therefore, appropriate to say that constant reviews of programs and projects of the assembly by internal auditors helps management as an auditee’s and the elected assembly members as the board, to monitor and evaluate their actions and put in measures in place to address inadequacies for effective services. (Kumuthinidevi, 2016) In view the numerous benefits that internal auditing brings to the Assembly’s management and its stakeholders such as the elected assembly members and citizenry in general, this study seeks to assess the auditee’s perspective on internal audit; tensions and challenges the case of Adentan Municipal Assembly. 1.1 Problem statement There have been several studies touching on the internal auditing pertaining to public and private sector respectively. Brobbey (2011) studied effectiveness of internal auditing and internal control in public sector institutions. Aduam (2015 studied effectiveness of internal auditing mechanisms, the case of Techiman Municipal Assembly. On the other hand, Ndamenenu (2011) and Kumuthinidevi (2016) limited their studies to the banking sector. Previous studies seems to have focused mostly on the internal audit departments and units examining either the effectiveness of internal control, risk based internal auditing and or the independence of internal auditors. Minimal studies have been conducted on the auditee’s perspective on internal audit; tension and challenges and the impact that such tensions might have on internal audit activities. This study therefore 3 University of Ghana http://ugspace.ug.edu.gh examines auditee’s perspective on internal audit; tension and challenges of Adentan Municipal Assembly in delivering institutional efficiency and effectiveness. 1.2 Objectives of the study The main objectives of this study are as follows: 1. Investigate internal audit activities from the auditee’s perspective in Adentan Municipal Assembly. 2. To identify from the auditee’s point of view, tensions and challenges associated with the internal auditing environment of Adentan Municipal Assembly and the root course (if any). 3. To analyse the impact of these tensions and challenges on the internal audit activities in the Adentan Municipal Assembly. 1.3 Research questions This study would be guided by the following questions: 1. How do you understand the work of internal auditors as auditee? 2. What are your views or perceptions about internal auditors? Why? 3. How do you react to audit queries when the internal auditor is trying to stretch more on a particular issue? Why? 4. What challenges and tensions pertain to internal audit environment in Adentan Municipal Assembly? 5. How do these challenges and tensions impact the internal audit activities of Adentan Municipal Assembly? 4 University of Ghana http://ugspace.ug.edu.gh 1.5 Significance of this Study This study has several potential of contributing to the understanding of the work of internal audit from the perspective of an auditee’s in the District Assemblies level, in the Adentan Municipal Assembly in particular. Internal audit is a very important value addition tool if well understood and embraced by all stakeholders (including auditees). This is because it help in enhancing the service delivery mandate of the Assembly through the frequent internal control checks and verifications. Internal audit therefore needs greater collaboration and positive attitude towards their work at all level of the assembly in order to give the auditor the confident to do more. Auditee should view the Auditor as a business partner whose role is to bring systematic discipline approach into evaluation of operational issues. Again, majority of the available literature on internal audit tends to focus on the corporate or state institutions and are centered on other countries and continents other than Ghana and Africa and not much on District Assemblies and for that matter Adentan Municipal Assembly. This will guide future research in this area and add to existing literature on this topic. Additionally, this study stands to unearth from the auditee’s perspective the tensions and challenges associated with internal auditing activities in the Adentan Municipal Assembly. This means that, the management of Assembly stand the chance of adopting the outcomes of this study enhance its working environment to encourage the internal audit unit to go all out for the betterment of the assembly’s mandates. Furthermore, other assemblies can also take inspiration 5 University of Ghana http://ugspace.ug.edu.gh from this study to achieve their objectives and better still improve on auditor – auditee relationship in assemblies to enable them get the best out of their internal auditors. 1.6 Organization of the Study The study is divided into five chapters. The first chapter is the introductory chapter which includes the background which centers on internal auditing. It also includes the research objectives and questions that guided the study as well as the scope of the study, significance of the study and organization of the study. The second chapter covers the review of available literature and theoretical frameworks. The third chapter embodies the methods and procedures used for the collection of data and analysis, outlining the Qualitative Content Analysis as the research design. The fourth chapter presents the findings and analysis of data gathered. It discusses issues that came up with the theories and concepts outlined in the third chapter. The last chapter draws conclusion from the findings and makes recommendations for further studies. 6 University of Ghana http://ugspace.ug.edu.gh CHAPTER TWO LITERATURE REVIEW 2.0 Introduction This chapter concentrate basically on review of available literatures that generally corresponds with the area of study and reviews existing fields of knowledge in this area. This is expected to help the researcher to draw on ideas that would assist in the analysis of findings. The subsections discussed in this chapter are the background on internal audit, role and functions of internal auditors, the development of internal audit in Ghana’s public sector and for that matter, Metropolitan, Municipal and District Assemblies; responsibilities of internal auditors and empirical studies on internal auditing. 2.1 Definition and Historical Background on Internal Auditing Internal audit is defined by Institute of Internal Auditors as “an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes”. (Institute of Internal Auditors, 2013). According to Soltani (2007) internal auditing is “an appraisal activity established within a company as a service. Its functions include examining, evaluating and monitoring the adequacy and effectiveness of the accounting and internal control systems” (p. 621). Internal audit, unlike external audit was not well regulated until the establishment of Institute of Internal Auditors (IIA) in 1941. IIA is internationally acclaimed oversight body regulating the internal audit profession. It formulate standards and guidelines the body responsible for the certification of internal auditors. The Institute ensures constant and comprehensive continues professional development of its members worldwide through annual conferences and seminars. 7 University of Ghana http://ugspace.ug.edu.gh Since IIA establishment, internal auditing has had different emphasis and roles. The IIA after its establishment took seven years to issue its first statement of responsibilities in 1947 and in 1978, The IIA formally approved its Standards for the Professional Practice of Internal Auditing ( known as the Standards). History has it that internal auditors were initially employed by traders to keep check on their shop attendants and cashiers for proper accountability. Internal auditing undoubtedly has contributed and is still contributing tremendously to the success story of many well-respected companies and organizations all over the world since its inception. For instance, in 1913, the Sixteenth Amendment of Income Tax Law which was passed by the US Congress had a direct bearing on internal audit (IIA, 2015). In addition, the requirement by the law for all companies, including small ones, to maintain the appropriate accounting records for income tax purposes also stemmed up the recognition of internal audit. The demand for internal auditors and accountants went high because they were to review independently expenses to ensure compliance with the tax laws. Internal audit is said to have originated from the demand for verification of financial documents and reports, stock – taking activities for the accurate purposes, whiles ensuring reduction in record-keeping errors, misapplication and misappropriation of assets, and fraud in business and non-business resources of the entity (Ramamoorti, 2003; Whittington and Pany, 2008). 2.2 Development of Internal Audit in Ghana’s Public Sector Government of Ghana as part of its quest and determination to improve on budgetary and public expenditure management system decided to take a study on how to establish internal audit unit in Ministries, Departments and Agencies (MDAs) and Metropolitan, Municipal and District Assemblies (MMDAs) which are typical public sector institutions in Ghana. 8 University of Ghana http://ugspace.ug.edu.gh As part of the government’s efforts under the Public Financial Management Reform Programme (PUFMARP) which was being implemented in the late 1990s and the early 2000s to control its expenditure and also ensure value for money for the use of public funds, government initiated the discussion of establishment of internal audit in the public sector. To make it mandatory and legally binding on all public institution, the Internal Audit Agency Act 2003, ( Act 658) was enacted giving birth to the establishment of the Internal Audit Agency ( IAA) as an oversight body. The objective of the Agency is to coordinate, facilitate and provide quality assurance for internal audit activities within the Ministries, Departments and Agencies (MDAs) and the Metropolitan, Municipal and District Assemblies (MMDAs) in Ghana. The Agency is to ensure the strict implementation of the Act by ensuring establishment of internal audit units in all public sector institutions in Ghana including autonomous bodies such as the parliament of Ghana, the judicial service, the public universities and colleges in a harmonized and standardized manner. To be able to achieve this, the Agency was mandated to develop a comprehensive criteria and standard in accordance with the international standard on internal auditing to be used in regulating public sector internal auditing in Ghana. Again, the Agency was to facilitate the prevention and detection of fraud; and provide a means for keeping the MDAs and MMDAs fully and currently informed about problems and deficiencies related to the administration of their programmes and operations and the necessity for appropriate corrective action. Facilitating the training and capacity building of the internal audit staff in the typical public sector institutions were also part of the mandate of the Agency. In addition, the Internal Audit Agency was also tasked by that same law to monitor, undertake inspections and evaluate the internal auditing activities in the MDAs and MMDAs in Ghana. It was in compliance of the law that massive recruitment of internal auditors was done in 2007 and 2008 that saw the 9 University of Ghana http://ugspace.ug.edu.gh establishment of internal audit unit in almost all the public sector institutions in Ghana. The Ministries, Departments and Agencies (MDAs) as well as the Metropolitan, Municipal and District Assemblies (MMDAs) were not an exception. The main objective internal audit was to provide an independent, objective assurance and consulting services that are to add value and improve the service delivery mandates of the respective covered entity. Internal auditors together with the Internal Audit Agency are to follow up on audit recommendations for smooth implementation of the recommendations respective institutions and report to the appropriate ministry. 2.2.1 Structure of Local Government Service of Ghana The Local Government Service as any other public sector organization in Ghana, was established by, Act 2003 (Act, 656) in conformity with article 190 of the Constitution of Ghana. The Service comprises of; (a) sixteen (16)Regional Co-coordinating Councils ( RCCs), (b) two hundred sixty (260) Metropolitan, Municipal and District Assemblies (MMDAs), (c) little over thousand Sub- structures made up of sub-metropolitans, Zonal and town councils. The main objective of the Service is to effectively execution of the decentralization agenda by bring governance to the people at the grass root. The Regional Coordinating Councils are monitor the activities of the MMDAs in their respective regions ensuring that government policies are being implemented at the district assembly level quarterly and report to the Service for onward actions. The Regional Coordinating Councils are being headed politically by Regional Ministers with technical support from technocrats. All correspondence from the MMDAs to the Service must go through the respective Regional Coordinating Council for onward transmittal. The Service as part of their mandates is responsible for the recruitment of the professional and high technical level staff for the Regional Coordinating Councils (RCCs) and the Metropolitan, Municipal and District Assemblies (MMDAs) for the smooth running of their activities. 10 University of Ghana http://ugspace.ug.edu.gh In March, 2010, the L.I. 1961 caused the transfer of over Thirty Thousand (30,000) staff who hitherto, were known as Civil servant and were under the sole control of Civil Service Commission to the Local Government Service as their staff. Adentan Municipal Assembly is an automatically part of the Local Government Service. It was created out of Tema Metropolitan Assembly (TMA) by Legislative Instrument (LI 1888) on the 29th February 2008 with the mandate of facilitating and improving quality of life of the people within its jurisdiction through service delivery. It has four zonal councils namely Koose, Gbentaana, Sutruna and Nii Ashaley with twelve elected Assembly Members and six government appointee member summing up to eighteen. The Assembly since its establishment in 2008 has delivered a lot of notable services and infrastructure to its citizenry including school buildings Christ Faith School located at Adentan Fafraha, market stalls at Ogbojo, street lights in the communities and so on. The Adentan Municipal Assembly was chosen for this study due to proximity and the willingness of its management and staff to assist researchers and student as a way of marketing the Assembly. Adentan, Municipal Assembly, unlike, other public sectors institutions in Ghana that finds it difficult to give basic information to researchers to aid their study, is ever ready to provide any information in order to enhance academic work in Ghana. The Assembly complied with the relevant laws of Ghana by establishing its Internal Audit Unit in 2008 the same year the Adentan Municipal Assembly was created. The Unit is headed by Principal Internal Auditor and five staff with various grades working under him. 2.3 Roles /Functions of Internal Audit in MMDAs Internal auditing as stated earlier, is designed to add value to the operations and or activities of the MMDAs in Ghana. This is to help in the achievement of the service delivery mandates effectively and efficiently by systematic review of their operational activities. Every organization 11 University of Ghana http://ugspace.ug.edu.gh is judged successful or otherwise based on the achievement of its set objectives and goals. An organization’s mission communicates were an organization is today, that is its current status, what it yearns to achieve whereas, vision tells the aspirations of an organization to what it intends to achieve in the future. (Reding et.al, 2013). The roles and functions of the internal auditor in Ghana’s public sector is enshrine in section 83(2-10) of the Public Financial Management Act, 2016, Act 921. Heads of an Internal Audit Unit of MDAs/ MMDAs are expected to constantly monitor, evaluate and review the control systems put in place by the management of the respective MDAs and MMDAs to ensure compliance with relevant financial laws, regulations, standards and publically accepted norms. Internal auditors are also mandated to carry out value for money audit on all projects and program of their respective institutions to ascertain whether public funds are being utilized judiciously to the betterment of the citizenry or not. Every public sector institution in Ghana is require to have enterprise risk management policy and the internal auditor is to conduct quarterly risk- based audit to evaluate and report on the risk status of his or her organization and made the appropriate recommendations for effective implementation. The internal auditor in order to get the consent of management ( auditee’s) for the smooth delivery of his or her mandates, is required to solicit the input from key management staff ( thus the auditee’s) any time is doing the strategic and annual plan of the internal audit unit. This is done through an internal memo to the key management staff such as Chief Executive, the Coordinating Director, Budget Officer, Finance Office as well as oversight Committee members such as Audit Committee. The inputs from all the above mentioned staff and committee member is then put through risk assessment processes to determine their risk level. Resources are limited in every organization and MDAs and MMDAs in Ghana are not exception. In order not to waste the already scares resources on low risk areas, internal auditors are to conduct comprehensive risk assessment on all auditable areas identify either 12 University of Ghana http://ugspace.ug.edu.gh by the unit itself or from the auditee’s. This is to help the internal audit unit to select the most highly rated risk prone into it annual audit plan. The annual audit plan together with the step by step risk assessment processes followed in analyzing the risk profile of the Assembly, the status of the existing internal controls and the risk scores of the identified risk are presented to Audit Committee for deliberation and onward approval. Another major role of the internal auditor is to evaluate the effectiveness of the risk management processes of the respective MMDA as well as the governance process of the Assembly and come out with valuable contributions that will help management (Auditee’s) to improve on the risk status and enhance their corporate governance process. The internal auditor appraises the soundness of the financial systems, budgeting processes and implementation to ensure that national guidelines and procedures are being adhered to. In the course if routine internal audit checks, if the internal audit comes across any fraudulent activities being perpetrated by any management staff or even the Municipal Chief Executive who happens to be the highest political head of the MMDA, the internal auditor is obliged by law to follow the lay down procedure in reporting such findings without any fear or favour. The above functions and roles are mandatory and every internal audit unit in the MMDAs are expected to comply with it. Heads of internal audit unit when preparing their annual audit plan are to ensure that the above roles features prominently. This is a way of harmonizing the internal audit function in order to ensure uniformity in the execution of internal audit activities in the public sector of Ghana. It serves as criteria or benchmarks against which internal auditor’s works are assessed since it serves as a framework within which internal auditors are to operate. However, this is not exhaustive, internal audit is to provide additional role in the area of consulting and assurance services to the management and any other relevant stakeholders of their respective assembly. Institute of Internal Auditors described consulting services as “advisory in nature, which 13 University of Ghana http://ugspace.ug.edu.gh are generally performed at the specific request of an engagement client. The nature and scope of the consulting engagement are subject to agreement with the engagement client. Consulting services involve two parties: (1) the consultant who is offering the services i.e the internal auditor, and (2) the person seeking and or receiving the service i,e management of the assembly’. The Institute of Internal Auditors (IIA) went on to advise that “when performing consulting services, the internal auditor should remain objective and not assume management (Auditee’s) responsibility or role’. In the same vain, assurance service is said to “involve the internal auditor’s objective assessment of evidence to provide an independent opinion or conclusions regarding an entity, operation, function, process, system, or other subject matter. The nature and scope of the assurance engagement are determined by the internal auditor. There are generally three parties involved in assurance services: (1) the person or group directly involved with the entity, operation, function, process, system, or other subject matter — the process owner, (2) the person or group making the assessment — the internal auditor, and (3) the person or group using the assessment — the user” (IIA, 2008 &2012). Also, research findings have shown that internal audit as a profession, has undergone number of drastic changes over the years. One of such areas is the consulting role play by internal audit in the area of enterprise risk management and corporate governance assessment which are need for every strategic decision making processes. Corporate governance and enterprise risk management has become a tropical issue in many organization today and since internal audit find itself in these areas, is then necessary for any management conscious of risk management should take internal audit functions serious. (Burnaby and Hass, 2009; Cooper et al., 2006; Hass et al., 2006; Nagy and Cenker, 2002). With the above explanations in mind, one can undoubtedly say that, the roles that internal audit plays in Ghana’s public sector as stipulated by law placed more emphasis on assurance services than consulting services. The 14 University of Ghana http://ugspace.ug.edu.gh three parties’ scenario is clearly present in the current internal audit practice in the MMDAs, where the management of the Assembly are responsible for the daily processes, operations and the general functions are normally the subject matter (the process owner and the auditees) of the audit- the assessment team is the internal auditors and the end user is the audit committee who are the final recipients of the internal audit report. This role can best achieve results if the competencies of the one performing the assurance service (internal auditor) is without doubt and the process owner is assured of unbiased report with objective, timely, relevant and implementable recommendations to enhance the processes. Also the audit committee in playing their oversight role, should also be in position to ensure the implementation of the audit recommendations. Internal auditors in general must be critical thinkers, with skeptical competencies to be able to analyse program and the projects of the assembly for the benefit of the masses. According to Mihret et al. (2010,) “crucial skill of being able ‘to make the “tough” recommendations without fear or favor” (p. 240) 2.4 Empirical Literature Review This section assesses the existing empirical studies on internal auditing. Internal audit certainly plays a vital role in assisting management and audit committee members through the quarterly reports and provision of experts advise regulatory issues such as timely tax filing to avoid penalty payments. It is the internal audit reports that gives reasonable assurance to the elected assembly members that management of the assembly are complying with relevant laws and standards. Humphrey and Moizer (1990) mentioned that internal audit functions are “socially-constructed, contextually dependent phenomena, capable of serving a variety of roles and functions” (p. 219). This was further supported by Flint who declares: 15 University of Ghana http://ugspace.ug.edu.gh “Audit is a social phenomenon. It has no purpose or value except in its practical usefulness. It is wholly utilitarian. The function has evolved in response to a perceived need of individuals or groups in society who seek information or reassurance” (1988, p.14). (Cited by Helianti Utami, 2016). Indeed, internal audit plays variety of roles which end up benefiting society at large. For instance, it is mandatory for all MMDAs to use not less than 20% of their Internally Generated Funds (IGF) for physical projects such as schools, hospitals/ community clinics to encourage the citizens to pay their property tax with ease. Public sector internal auditors, in appraising the performance of their respective MMDAs are to check for such projects, verify their physical existence and reported on them. If all internal auditors in the MMDAs are able to conduct this audit annually and report accurately to the appropriate authorities, many of the basic amenities would have been provided by these assemblies. Any internal auditor who had the courage to report his or her management’s non-adherence to such rules and regulation and make implementable recommendations against management (auditee), then the internal auditor can be seen to be objective but this will not come easily without tension between management as an auditee and the internal auditor. Halimah et al (2009) in their study concluded that “lack of audit staff has been ranked as the most crucial problem faced by internal auditors in conducting an effective internal auditing”. Internal auditing even though by definition and function have evolved over time, historically, the internal audit function has been seen as a so called “policeman and watchdog of the organization”, fulfilling the role of a monitoring function and accepted as a necessary organizational control tool (Spira and Page, 2003). Chambers (1992) put it this way; ‘internal audit is a service to the business and it is essential that the business as a whole determines the sort of value addition service it shall have’ (p. 24). Again, Chambers (1992) described effectiveness as “doing the right thing”, efficiency as “doing things well” and economy as “doing things cheaply” 16 University of Ghana http://ugspace.ug.edu.gh (p.22). It therefore, means that doing thing right is paramount in the performance of the value addition roles of internal auditors. This is because internal audit units would be a journey of futility if internal audit renders services efficiently and or economically but are ineffective. For instance, if internal audit activities can be carried out in the MMDAs neatly and at the barest minimum cost but without and significant recommendations to Audit Committee (AC) for onward implementation that can improve on the service delivery goals of the Assembly, then such activity is in futility. Internal auditors can be able to provide assurance services well if they are able to harness and improve upon their IT potential knowing very well that businesses are being driven by advance information technology. A survey conducted by PricewaterhouseCoopers (2007) indicated that “emerging IT will impact the activities performed by the internal auditors in few years to come”. This point to the fact that internal audit is evolving and cannot be expected to remain static. According to Chartered Institute of Internal Auditors (CIIA, 2015) definition, “Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes”. If the above definition is to be adhered to strictly in the performance of internal auditing sectors including the MMDAs in Ghana, then internal auditors in Ghana’s public sector has an onus task to perform in a very highly tense political system. Consulting services are said to be “advisory in nature”, and involve two parties: thus, the one offering the advice (in this case internal auditor) and the seeking and receiving the advice (Management) (IIA, 2008 and revised in 2012). IIA was however, quick to advise internal auditors to guard against possible threat to objectivity. It says that “when performing consulting services, 17 University of Ghana http://ugspace.ug.edu.gh the internal auditor should maintain objectivity and not assume management responsibility” (IIA, 2008 and revised in 2012). However, a research conducted by Asosiasi Auditor Intern Pemerintah Indonesia, in 2014 hinted of possible threat to internal audit independence when relationships are built through provision of consulting services “Audit oversight and consulting are the two roles of local government internal auditors which have conflicting or inconsistent expectations. The relationship between local government internal auditors and local government agencies for audit oversight is a relationship between auditor and auditee that requires independence”. They continue that, “the relationship between local government internal auditors and the management (auditees) of local government agencies in order to conduct a consultation exercise is the relationship between the consultant and the recipient of services that require cooperation”. In addition, they mentioned that; “close social relationships with the management (auditees) of local government agencies may interfere with the independence of local government internal auditors when they carry out their audit oversight role with local government agencies”. They concluded that “emotional closeness between local government internal auditors and the management (auditees) of local government agencies that is created through consulting activities will make the auditors more reluctant to do a rigorous audit because they will tend to be more tolerant of the management(auditees) during the audit inspection”. (Asosiasi Auditor Intern Pemerintah Indonesia, 2014). Analyzing this in typical Municipal Assembly level in Ghana means that, when emotional closeness is built between the internal audit unit of MMDAs and their auditees through provision of consulting services, then auditees expect the internal auditor to be more flexible in his/ her subsequent audit engagements. However, if it turns out that the expectation of the auditee is not met, then tensions begin to rise between the internal auditor and his/ her auditee. Critically analyzing the definition, one will note 18 University of Ghana http://ugspace.ug.edu.gh that internal auditors are expected to provide an independent opinion regarding the functioning of the control systems and the overall wellbeing of the organization they work in. The academic literature presents little empirical evidence on auditee’s perspective on internal audit, tensions and challenges associated with Internal Audit (Lenz and Sarens, 2011a). 2.5 Theories/ Conceptual Framework of Internal Audit 2.5.1 Institutional Theory Institutions theory defines the authority behind rules, values, norms, regulations and beliefs; and those are derived from forces outside of the organization. According to Ball (1989) in Seal (1993) “accounting and auditing are institutional phenomena. So, it is reasonable to assume that they derive many of their properties from the nature of firms as economic institutions. Progress in understanding accounting and auditing, at all levels of abstraction from board conception of their economic function through to understanding of the reasons for specific accounting and auditing techniques, seems likely to require a theory of the firm that views institutional phenomena as its domain”. (p.27). Internal audit is an integral function of every well-meaning organization whose operations are guided by rules, regulations and social norms that need to be complied with. These rules and regulations may be externally powered and deviation from such rules may threaten the very existence of that organization. Barley and Tolbert (1997) described institutional theory as “acknowledges the significant value of cultural and social determinants as a significant impact upon the decision making”. These values definitely have impact on the context within which internal audit operates in an assembly. This is to say that, organizational setting up can influence internal audit in achieving its mandates. For instance, in the MMDAs, the Spending Officers are the administrative heads of the Assembly who have the mandate by law to either approve any 19 University of Ghana http://ugspace.ug.edu.gh unit’s request for funds or reject it. This same spending officer is an auditee of the internal audit unit. The spending officer can decide not to provide the internal auditor with the necessary logistics in order to prevent the unit from carrying out their mandate, or better still cut down the budget line of internal audit to frustrate them. The auditee’s attributes relate to the capability of the auditee to meet its intended objectives and this has the tendency of impacting positively on otherwise on internal audit work. (Van Gansberghe, 2006). Effectiveness of internal audit can be influence by the organizational set up of the entire assembly system (Mihret et al., 2010, p. 241). According to Sawyer (1995), internal auditors familiarized themselves with the cultural and political environment of the assembly to be able to bringing out the best values and qualities. Internal auditor just like any other staff of the assembly needs to know the political hierarchy of the assembly as well as the cultural norms to be able to fit. Since internal audit plays value addition role, is best for the internal auditor to familiarize his or her with the terrain and the general working environment of the assembly in order to be able to plan and executed his mandate in more informal manner. Also, as internal auditors are posted from one institution to another in the public sector, there is a transfer of institutional memory and best practices from previous institution to the current one and vice versa. 2.5.2 Auditing Theory According to Mautz and Sharaf (1961): “One reason, then, for a serious and substantial investigation into the possibility and nature of auditing theory is the hope that it will provide us with solutions or, at least, clues to solutions, of problems which we now find difficult” (cited Kim Ittonen, 2010). For example, auditing theory assist in explaining the reasons behind auditing and why it is needed in the first place. It communicates the wrong doings in the organization to the 20 University of Ghana http://ugspace.ug.edu.gh relevant stakeholders such as the board and make implementable recommendations to address the wrong. Hayes et al. (2005) illustrated four audit theories namely: The policeman theory, the lending credibility theory, the theory of inspired confidence and Agency theory. This study has however cited the policeman theory and agency theory (cited Kim Ittonen ,2010) Policeman Theory claims that “the auditor is responsible for searching, discovering and preventing fraud. In the early 20th century this was certainly the case”. However, the focus of internal audit have changed with time, “value addition” to the organization and its stakeholders is the hallmark now. Even though “the detection of fraud” is still a hot topic in the debate on the auditor’s responsibilities. For example, an internal auditor in the cause of auditing the financial statement can be able to identify fraudulent acts even though fraud detection might not have been the main objective of that audit. Fraud prevention is not the sole mandate of the internal auditor, is a whole management role and frantic efforts should be made to curtail such occurrences. However, regular vigorous review of the control systems of the organization by internal auditors helps in the prevention of fraud and or possible early detection. Agency theory (Watts and Zimmerman 1978, 1986a, 1986b) suggests that “the auditor is appointed in the interests of both the third parties as well as the auditee (management)”. Jensen and Meckling (1976) define the agency relationship “as a contract under which one party (the principal) engages another party (the agent) to render some peculiar task on their behalf”. Business owners (known as principals) put in place mechanisms including very attractive reward schemes for managers which reward them financially for maximizing shareholder interests in order to reduce agency loss (Eisenhardt 1989). However, these incentives have not necessarily solved the principal - agent problem, it is in light of this that internal auditors are engaged to keep an eye on the agent and 21 University of Ghana http://ugspace.ug.edu.gh report to the principal through the appropriate agencies such as audit committees. In so doing, the assets and interest of the principal are safeguarded against misuse to a large extent. Management turned to be conscious knowing that there is an internal eye representing the owners watching all their actions and inactions. 2.5.3 The Contingency Theory According to Chenhall (2003) the word “contingency” means something that is only true under specified conditions” (cite by Mu’azu Saidu Badara, 2017). Contingency was described as a situation that the effects of one elements or factors depend on another or more variables (Donaldson, 2001). it is more like knots of chain connected to each other, a break in one knot, renders the entire chain useless. This theory is a behavioral in nature, on grounds that there is no prescribed way to manage and it was developed by Woodward (1958). In line with this, one can confidently say that there is no perfect system and internal auditing cannot provide absolute assurance but a reasonable assurance. However, depending on the understanding and the behavior of management of an organization, internal audit can be of great assistance in lifting the image of the entity. If the management sees the internal auditor as someone who helps to strengthen controls and guide them by providing unbiased recommendations, and the internal audit also understands that he/she provides value addition role, then there will the smooth running of internal audit activities. A study conducted by Endaya and Hanefah (2013) revealed that, “this relationship between characteristics of internal audit department performance on internal audit effectiveness is contingent upon organization members’ support. In addition, Badara (2015) has displayed the effect of contingency theory on the empirical evidence of performance measurement of internal audit function on its effectiveness” (cited by Mu’azu Saidu Badara, 2017). Generally speaking, contingency theory concentrate more on existence of relationships. So, on the premise of this 22 University of Ghana http://ugspace.ug.edu.gh theory, one can conclude that, depending on the kind of relationship that exists between the internal auditor and the management staff of the Assembly there will always be issues either to the benefit of the entire assembly or to some management staff. Sudsomboon and Ussahawanitchakit (2009) used contingency theory in the area of audit success and concluded that, “such success is contingent upon these variables; stakeholder force, professional regulation, audit reputation, audit quality and professional competitiveness”. This shows the relevant role that contingency theory can play in the auditee’s perspective regarding internal audit, tensions and challenges. In the MMDAs, whether internal auditor can operate smoothly without tensions and challenges depend greatly on the contingent relationship that exist between the internal auditor and the auditees (stakeholders), the internal auditing professional regulatory body in Ghana’s public sector, the Internal Audit Agency (IAA), the quality of work and fact that there may be other colleague internal auditors readily available to take that position he/she currently occupies. If the internal auditor is not in the good books of the auditee (management), then there will always be the issue of limiting resources to the auditor as well as constant tension between the internal auditor management. The internal auditor can also decide to close his/ her eyes on the bad deeds just for peace to prevail, and to avoid any workplace conflict. however, this situation could be devastating to the organization, because of unprofessionalism on the part of the auditor that can go against the professional regulations, affect his/her work quality, or result in possible reputational damage, to the auditor making him /her less competitive. he/she may even be sanctioned. Considering the above discussions, we can very much use contingency theory in explaining the auditees perspective of internal audit and its tensions and challenges in this study. 2.6 Chapter Summary 23 University of Ghana http://ugspace.ug.edu.gh This chapter presents two main parts, the empirical evidence and the theoretical structure. This consist of definition and historical background on internal auditing, development of internal audit Ghana’s public sector, role/functions of internal auditors in MMDAs, empirical literature review and theories/ conceptual framework of internal audit. Literature and empirical evidence shown that internal auditing has social elements constructed by the institutional norms, such as government and professional standards and regulations. Though countless number of research works has been done in the field of internal auditing by great and renounce researchers, little has been done on auditee’s perspective on internal audit, tensions and challenges in the MMDAs in Ghana. The previous studies are yet addressed to what extent the evidence of auditee’s perspective on internal audit and its associated tensions and challenges in the MMDAs has affected the work of internal audit. This study therefore, hope to contribute to the existing literature on internal auditing by bridging the gap. 24 University of Ghana http://ugspace.ug.edu.gh CHAPTER THREE METHODOLOGY 3.0 Introduction The chapter presents the methodology adopted for this research. In detail, the chapter is sectioned into the research design, data collection and data analysis. The research approach, research method, philosophical assumptions, data collection methods, ethical considerations and data analysis are discussed within the relevant sections to arrive at answers to the research questions. 3.1 Research Design In achieving the purpose of this study, which is to assess auditee’s perspective on internal audit, tensions and challenges in MMDAs, the research is designed to present the underlying assumptions that facilitate the study as well as the specific research method and approach that are adopted. As such the research design is categorized into Research approach, Research method and Philosophical assumptions. 3.1.1 Research Approach Qualitative approach is adopted for this study since the study attempt to examine and understand auditee’s perspective on internal auditing procedures specially; the tensions and challenges. Adopting the qualitative approach in this study is suitable for a number of reasons. First of all, the qualitative research approach is adopted because of the nature of the findings that are needed to understand the auditee’s view on internal audit, the tensions and challenges of the respondents. Qualitative research is mostly used when seeking deeper understanding into behaviors, work life experience, norms and attitudes of people or other subjects. In an attempt to 25 University of Ghana http://ugspace.ug.edu.gh understand auditee’s perspective on internal audit, ‘what’ and ‘how’ questions are asked, which are qualitative in nature whereas quantitative research focuses on answering ‘what’ questions in trying to derive facts (Barnham, 2015). In this study, what constitutes tensions and challenges for auditees of internal audit in MMDAs, how these tension and challenges interact during audit procedure. The quantitative approach will, thus, be inadequate in providing the in-depth understanding of how auditees feel about internal audit, how tense they become when internal auditors are around as well as their challenges; the qualitative approach is more desirable even though it may be time consuming and make use of fewer respondents as compared to the quantitative approach (Jack, 2008). The qualitative approach will, thus, produce a more in-depth analysis and complete understanding of varied responses. Also, the auditee’s perspective on internal audit, tensions and challenges which form the subject of the study cannot be quantified. That is, since the quantitative research approach uses numerical data and deductive approach to analyse phenomenon, it is not practical to quantify the perceptions of individual to understand how and what the respondents hold their perceptions (Knupfer & McLellan, 2001). This makes the use of the qualitative approach preferable. Since the purpose of this study is to delve for more in-depth understanding on how the auditee’s view are on internal audit in MMDAs, it is appropriate to use an approach that does not only find perspective of auditees on internal audit and associated tensions and challenges but to go deeper to find implication of such tensions and challenges on internal audit and also attempts to understand how auditee’s (stakeholders) interpret these meanings (Ochieng, 2009). There is no doubt therefore that, qualitative approach is the most appropriate for this study since it provides the opportunity to delve into the auditee’s experience on internal audit in the MMDA through asking questions of ‘what’ and ‘how’ nature (Barnham, 2015). Kothari (2004) also claims that in the case of the “qualitative 26 University of Ghana http://ugspace.ug.edu.gh approach, research is a function of the researcher’s insights and impressions”. This is in the sense that, given the results obtained are either non-quantitative or of a form that is not subjected to rigorous quantitative analysis but are based on the subjective views of the various respondents sampled, the qualitative approach is preferred (Myers M. , 2008). 3.1.2 Research Method and Philosophical Assumptions There are a number of methods which could be explored for this qualitative study for the most suitable which include phenomenology, ethnography, grounded theory, historical, case study and action research (Creswell J. , 2009). However, in understanding auditee’s perspective on internal audit in MMDAs and its associated tensions and challenges; case study method was adopted as it allow the researcher to seek answers to her questions without much influence on the respondents from the researcher (Rowley, 2002; Creswell J. , 2009). This research, thus, adopts single case study as the qualitative research design. First of all, the case study method was selected because the study seeks to investigate a contemporary phenomenon within real-life context (Yin K. , 1984). Therefore, there is the need for case study to be able to understand complex social phenomena and differences that are found within and across cases to compare them until the researcher can predict the results of similar case (Yin K. , 2003). Moreover, a case study is also suitable when “what” or “why” questions are being asked about a series of events that the researcher has insignificant or no control over (Barnham, 2015). This is appropriate, as this research seek to find out “how” the respondents perceive internal audit and “why” the tensions and challenges. The evidence created from a single case study are considered 27 University of Ghana http://ugspace.ug.edu.gh strong and inevitably good but it can also be exceedingly time consuming and expensive to conduct (Jack, 2008; Cassell & Symon, 1994). Case study is also appropriate for this research as they are good for analysing the construction that the internal audit auditees will give on assessment of internal audit (Rowley, 2002). This is emphasized where the researcher can obtain data from a variety of sources and converge the ideas to make something clear and easier to understand (Yin K. , 2003). This builds a good foundation for developing more structured methods to further explore the area of research (Yin, 2003; Rowley, 2002). In essence, adopting case study provides a simpler avenue to understand how the auditees of internal audit in MMDAs understand audit assessment, the tensions that it put them through and challenges that they have with internal audit. In a nutshell, In a nutshell, as is said of other types of qualitative studies, the researcher needs to be interested in the subject matter and the experience that comes with it, rather than in generalizing results to other groups of people (Myers, 2013; Creswell, 2014). (Myers, 2013; Creswell, 2014). 3.2 Data Collection Techniques This section discusses elements in relation to techniques used in data collection, the process and period of the data collection, ethical considerations and challenges faced in the collection of data. The detailed discussion of the mentioned sections are as follows: 28 University of Ghana http://ugspace.ug.edu.gh 3.2.1 Interviews Interviews were chosen as a data collection tool for this study to aid in receiving feedback from auditees of internal audit in order to make it possible to measure what they know (knowledge or information), what they like or dislike (values and preferences) and what they think (attitudes and beliefs) (Tuckman, 1972). The interviews served as night goggles which permitted seeing that which would not have been ordinarily view and or examine that which is looked at but rarely seen (Rubin & Rubin, 2005). The sampling technique for the interviews conducted was purposive sampling because a deliberate attempt was made to select auditees of internal auditors from an MMDA which was considered most relevant for this topic of study (Yin R. K., 1994). Not only was the sampling method purposive. This research also adopted the expert sampling method because it involved the assembling of a sample of senior management staff and head of departments/ units who are mostly the auditees of internal audit who have had several encounter with internal audit in their field of work therefore, have enough practical experience to share in that area. (Salant, Dillman, & Don, 1994). It was the best way to obtain the views of persons who have specifically experienced internal audit in MMDAs since this study centers on it (Salant et al, 1994). In this research, the questions posed to the auditees were semi-structured. This is because the semi- structured interviews allow for the use of some pre-formulated questions having no strict adherence to them therefore encouraging new questions to emerge during the conversation (Myers, 2013). This implies that as the respondents gave answers to questions asked, further questions were asked based on earlier answers given. This was important because it enhanced the understanding of the research topic. However, in order for consistency to exist across the 29 University of Ghana http://ugspace.ug.edu.gh interviews which were semi-structured, similar set of questions had to be used to start each interview each time (Myers, 2013). Data was collected and analyzed concurrently which gave room for impromptu and follow-up questions implying that listening was an important factor in this research. It was important to listen to the meaning underneath the words of the auditees in order to reflect back at what was heard and confirm, deny or elaborate on what the respondents mentioned to deepen the conversation and ensure that the meaning had been understood (Chrzanowska, 2002). Aside the adoption of the semi-structured interviews, the questions were unrestricted to allow the respondents to give a better explanation for their perspective on internal audit work. This gave room to the respondents to give examples and scenarios which possibly could not have been done should questionnaires have been administered. This is because questionnaires provide the respondents with limited space for greater amount of information to be disclosed and the opportunity to express their feelings which is an important aspect of qualitative research (Myers, 2013). To assist in generating true results, questions were explained to the respondents who did not have a clear understanding of it when first asked to reduce the extent of providing answers not related to the questions. Furthermore, the interviews were face-to-face. Although this process was expensive and slow, it gave the highest response rate. It gave room to observe the reactions and expressions on the face of the respondents. This was necessary to give meaning to some expressions which gave some understanding to the responses given by the respondents. 30 University of Ghana http://ugspace.ug.edu.gh 3.2.2 Publicly Available Documents Another data collection technique adopted for this research was the use of publicly available documents. The documents, such as web pages, internal audit act and online newspapers, gave a great deal of information about internal audit (Myers, 2013). This facilitated the confirmation and supplementation of the information received from the respondents by comparing it with the publicly available documents (Myers, 2013). However, the publicly available documents were verified to ascertain their authenticity regarding the true and fair representation of the assembly by using four criteria which included authenticity, credibility, representation and meaning (Scott, 1990). In terms of authenticity, it was ensured that the information retrieved was what it claimed to be by verifying its validity from the internal audit unit in order to be relied upon to make informed decisions (Payne & Payne, 2004). In terms of credibility, it was important to know the source of the information and how far the author could be believed (Payne & Payne, 2004).. 3.3 Ethical Considerations There were some ethical guidelines followed in conducting the research which are outlined below: i. The research was conducted in adherence with all the necessary regulations of the University’s ethical requirements concerning research work. ii. Also, the data was obtained from the respondents(auditees) willingly; that is, respondents were given the opportunity to agree to participate or not participate. iii. The respondents were also informed that they could withdraw anytime during the interview or even before the interview. They were also informed that they could refuse to answer certain questions if they did not want to. 31 University of Ghana http://ugspace.ug.edu.gh iv. Respondents were duly informed about the purpose of the study and that the study is purely academic exercise. v. The interviews were conducted with a non-disclosure agreement signed and agreed to be binding on the researchers which stipulated that any information considered confidential (i.e. the names and identities and any other sensitive information of the respondents) not be disclosed. Also, on account of this agreement, it is not everything observed about the respondents that can be indicated and admitted in the study as evidence. As such, their identity and information were only privy to the researcher, her supervisor and the research assistant. vi. In an attempt to limit the occurrence of researcher bias, there was a conscious effort made to ensure that the personal views and opinions of the researcher did not cloud judgment and interpretation of the findings. 3.4 Data Analysis The analysis of the data collected were carried out at different stages of the research. Data was analysed using the framework analysis (thematic) because thematic analysis is considered flexible enough to capture the views of the various auditees (respondent) (Braun & Clarke, 2006). Another reason for adopting the thematic approach was because it produced an insightful analysis that answered the research questions posed by the study (Braun & Clarke, 2006). The question for this study also suggests a pre-designed sample as the main objective is to examine and understand the perspective of auditees on internal audit, tension and challenges in MMDAs and why they see it in a certain light, making the thematic analysis appropriate. 32 University of Ghana http://ugspace.ug.edu.gh With the express permission of the interviewees, the interviews were recorded to capture their perspective about internal audit, tensions and challenges that they face, while the non-verbal cues were noted in writing as the respondents spoke. The recorded speeches were then transcribed verbatim so as not change the context that the respondents intended to portray and also to familiarize with the data. As the data became more familiar, through playing back the recordings and rereading the transcriptions, the responses were coded in order to categorize the data into patterns and themes. Themes and patterns, which were then identified, aided in finding the relationships between the data. In these relationships, themes were critically analysed to know the extent to which they were interrelated. The analysis of these themes followed the Setup, Quote and Comment (SQC) method of analysis, in breaking down the themes to better understand the data collected. In this analytical method, existing literature on the various themes and issues raised by the respondents were examined. The empirical data was also examined in light of the stance of literature on the same issues. This was done with the goal of finding a correlation between the position of literature on the views about internal audit and the findings based on the empirical data. 3.5 Limitations of the Study The main limitation to this study is that the findings cannot be generalized. However, the main aim of this finding is not to generalize the finding but to obtain an in-depth understanding of the phenomenon of auditee’s perspective on internal audit, tension and challenges in MMDAs 33 University of Ghana http://ugspace.ug.edu.gh 3.6 Chapter Summary In conclusion, the qualitative method was adopted for this research in the study of auditee’s perspective on internal audit, tensions and challenges. This methodology made use of the case study approach specifically the single case study approach. Data was collected by way of interviews which were semi-structured and open-ended and thereafter analyzed thematically under five major themes. Ethical issues were also taken into consideration and the limitations of this study were clearly laid out. 34 University of Ghana http://ugspace.ug.edu.gh CHAPTER FOUR DATA ANALYSIS AND DICUSSION 4.0 Introduction The chapter presents discussions and findings of this study in the following outline. Starting with the background of the cases, the chapter proceeds to present the following findings: a major theme called Auditee’s Perspective on Internal Audit with the following sub-themes: complementary role in the high-risk areas, management watch dogs, assurance of quality, auditors system appraisal and annual planning as a guide. Others emerging themes included the following: perceptions and challenges of the internal audit. The chapter will end with summary of the discussions. 4.1 Auditee’s Perspective on Internal Audit This section deals with the major theme, the auditee’s perspective on internal functions in the Metropolitan Municipal and District Assemblies; tension and challenges, Adentan Municipal Assembly. The following are the subthemes under the role of auditor’s internal auditors: Complementary Role in the High-Risk Areas, Management Watch Dogs, Assurance of Quality, Auditors System Appraisal, Annual planning. 4.1.1 Complementary Role in the High-Areas The Institute of Internal Auditors (IIA) Ghana explained the role of internal auditors in the public sectors as “complementary in nature”. Laudon and Laudon (2016) also, stated that “internal auditors are responsible for reviewing the internal control system of every organization so as to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve 35 University of Ghana http://ugspace.ug.edu.gh the effectiveness of risk management, control and governance processes”. “Auditors in this regard report on both management and internal control system to chance overall performance” (De Beelde, 2006). Evidence from a respondent suggested the following: “the main objective of internal audit is to evaluate the work of the various departments and units of the assembly and ensure compliance with laws and regulations and laid down rules to ascertain effectiveness of the internal control put in place by the management of assembly and perform advisory role as well” An assertion by some scholars in the literature suggest that the audit function can only explain or contribute partially to the wellbeing of an organization since it is only an element of the whole governance system (Paape & Snoep, 2003) while also noted that the internal audit functions will only contribute to the performance of an organization as expected if the governance structure of the institution is well place in it right context. This pre-suppose that the complementary role of internal auditors in an assembly can only be felt when other relevant structures like governance system is placed well and adhered to hence its complementary role is not automatic to the wellbeing of the organization. 4.1.2 Management Watch Dogs Auditors play an important role as the key advisors to the audit committees which in turn provide oversight role over the auditing process and quality of financial reporting (Bruynseels & Cardinaels, 2013). They Also ensures that there is compliance with the financial administrative system/ law (act). Internal audit provides consortium and advisory role to the management. It helps the whole team on track in operation. As disclosed by one auditee (respondent); 36 University of Ghana http://ugspace.ug.edu.gh “the main objective of internal audit is to evaluate the work of the various departments and units of the assembly and ensure compliance with laws and regulations and laid down rules to ascertain effectiveness of the internal control put in place by the management of assembly and perform advisory role as well” A study conducted by (Roussy, 2013) using semi-structured interviews with a very experienced and seasoned internal auditors in public administration in Quebec found that “ internal auditors perform two key roles: a protector role, further subdivided into two roles, protective shield and keeper of secrets, and a helper role, also subdivided into two roles, support of organizational performance and guide”. The analysis further shows that “internal auditors have developed a nuanced conception of independence defined as ‘grey independence’ in order to perform their roles”. However, the work of (Cohen et al., 2010), suggested that internal auditing is not a governance watchdog as expected by the regulatory bodies since the role of role performed by internal auditors goes beyond just watching over the shoulders of management. The assertion by Cohen et al., is contrary to the findings by the current study. 4.1.3 Assurance of Quality Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations (Abdolmohammadi & Burnaby, 2006; Nagy & Cenker, 2002). The Quality Assurance Review (QAR) process allows an internal audit unit of an assembly to measure itself against its peers in other selected assemblies as well as measure the policies and programs of the covered assembly as an entity with stakeholder expectations, and industry best practices. This is to ensure that there are no serious deviation from industry standards and where gaps are identified, remedial actions are taken improve performance of the assembly. Evidence from a respondent (auditee) when asked about whether internal audit performs any 37 University of Ghana http://ugspace.ug.edu.gh special role in the Adentan Municipal Assembly that contributes to performance made the following assertions: “I think Internal Auditors have done a very good work in this Assembly. They have done a lot of audit which has helped to shape the system” Argyris (2017) in her study entitle “Integrating the Individual and the Organization” noted that auditors themselves are managers of their department and the rest of the department in the institutions they work as designed by the nature of their work. In an attempt to ensure quality of their service in an institution they end up ensuring compliance that delivers more quality to the whole organization experience according to a study by Harvey (2002) Harvey`s assertions are in consistent with the current study findings about the subject matter. 4.1.4 Auditors System Appraisal Auditor’s appraisal is far different from normal employee appraisal systems that help managers evaluate the performance of their subordinates based on key performance indicators (KPIs) in order to reward deserving employees through pay increments and or promotions (Mani (2002). Internal auditor’s system appraisal is far more than evaluating the performance of an individual. It is comprehensive look at all the processes and activities of the assembly from initiation to completion. Sisson & Storey (2000) in their study found that auditors’ appraisal systems are directed to the whole internal controls system which aim at helping management to improve performance, and assist companies in devising or reorganizing business modules to better fit the current work demand. Below is what a respondent had to say when asked if he think internal audit is relevant; 38 University of Ghana http://ugspace.ug.edu.gh “of cause, they are relevant because management(auditees) might be thinking that they are doing the right thing but it takes internal auditors to help management back on track any time they deviate through vigorous system appraisals that they normally carry” Noted system appraisal is encouraged by many organizations because of the impact it will make on performance and the efficiency it will bring to the entire system (Bartol & Srivastava, 2002). Polit & Beck (2004) employing quantitative research method in their study relied on descriptive statistics analysis explained that system appraisal has a high correlation with training requirement which is targeted to improving system efficiency. 4.1.5 Annual Planning Internal auditors’ functions are not routinely has it been perceived by non-auditing professionals Sikka et al. (2009). Preparing an annual program of work, often described as the internal audit plan, has always been executed according the need of internal assurance service request and resources availability. This means choices have to be made that will determine the impact internal audit has upon the assembly and the way auditees perceive the value of internal audit. For example, the work of internal auditor goes beyond the office boundaries to include the audit of the director’s salary, staffs claim, constructions work including classroom blocks, government interventions such as Ghana school feeding programme and many more. The list of audit engagements that make up the annual internal audit plan also needs to be consistent with national policies in order to help to deliver the aims and objectives set out within the internal audit and the Assembly’s long-term strategic plan. Gerring,( 2006) penned “annual planning would be easier if the scope of internal audit had identifiable and definitive boundaries but that is 39 University of Ghana http://ugspace.ug.edu.gh rarely the case”. Evidence from a respondent indicated the following when interview on discussion boarded on auditors’ routine activities. A respondent said: “Depending on the annual action plan, they write to the me as a head of department whose activities is to be audited. they spell out the areas of concern and the areas they want to review so we prepare for them. Definitely, they approach me first, and ask about my actual activities for the year under review. It is what we (meaning the departments or the units) do that are subject to test. So if it is find out that whatever we told the auditors earlier is what is pertaining, then they now subject that activity to the frameworks – the laws which have been enacted by parliament which is always the criteria” Auditors must always plan for both short-term and long-term purposes (Myers 2003). In the study by Lindsay (1980), it was concluded that auditors cannot perform if their short-term plan is not congruent with their long-term plans as well as the vision of their organization this is in line with the finding which clearly shown that the auditees are aware of the annual audit plan. 4.2 Stigmatization of Auditors Functions Internal auditors are employees of the assembly yet many of the auditees’ do not understand the work of the auditors even though all are expected to contribute their quota towards the achievement of the assembly’s goal (Hargie & Tourish, 2009). Internal audit function has evolved over the period due to dynamics of work demand and stakeholders’ expectation (Reuter et al., 2010). Most often organizations organized training program outside the organization with the aim of acquiring some skills to impact on performance. Intradepartmental training programs too have mainly become partially focused on achieving goals other than that of deepening intradepartmental knowledge about departments or unit activities and functions in an organization in an effort to 40 University of Ghana http://ugspace.ug.edu.gh achieving collective goals of the whole administration. As a result, several employees find it difficult to cooperate with their counterparts in the organization and this turn to make the work of some department very difficult or challenging. A case in point was when respondent asserted in the interview discussion concerning their perception about the work of the internal auditors in Adentan Municipal Assembly. “They are to guide us to strengthen the system not to worsen the system. They are to try and put up corrective measures not faulting finding measures” Also; “At times am tempted to see them as faults finding unit than correction unit. This is because most often instead of cautioning and ensuring that the wrong is not repeated they will insist on putting everything on paper” Also; “Sometimes, I think they don’t help because instead of being proactive they turn to be more reactive in their auditing work. They have to educate us more on their work and the law in order to help the system. E.g if audit were to be organizing training for officers on processes and procedures of the law, am sure they will be impacting better” Auditee’s perceptions about internal auditors’ roles and what they actually do has always been with organization whether big or small according to (Francis, 2004). Also, Chye Koh & Woo (1998) examine expectation gap by reviewing literature on the audit expectation gap along the following lines. The study findings concluded that education about the auditor’s activities influences the size of the expectation gap and it also create an atmosphere of cooperation among 41 University of Ghana http://ugspace.ug.edu.gh individuals and departments. Hence, Ramsden (2003) asserted that some researchers advocate educating other staffs about internal audit activities to enhance performance through cooperation. 4.3 Reporting Structure Internal audit administratively report general issues on their day-today activities in the assembly to the spending officer who is the administrative head of the assembly. Such concerns do not necessarily revolve around accounting and or financial matters but can be more of control issues in nature. Traditionally because internal auditors are seen as part of the organization’s management, they are treated as general staff of the organization who are expected to obey instructs without questioning. This turn to compromise on their independency as well as losing their auditees (management) support in the bid to strengthen the internal control system and ensure proper compliance with rules and regulations. Evidence from data gathered from the field reveal the following when respondents were asked who the internal auditor reports to in the Adentan Municipal Assembly and whether the reporting channels affect their operations. As stated by one respondent; “…the reporting line is a bit problematic. Administratively, they report to the spending officer who is the Coordinating Director who is also supposed to appraise them for any promotion. So, if the internal decided not to dance to her tune, you can image what happens. Technically they are not independent at all…” Also, Internal Auditors are supposed to be independent but here lays the case where resources needed to work with has to be provided by the very person they are auditing 42 University of Ghana http://ugspace.ug.edu.gh Using qualitative research design and adopting case study approach couple with the use of both primary and secondary data (Abbott et al., 2004) noted one of the factors that negatively affect the work of internal auditors is management interference with audit work. This is because management (who are the auditees) will always wish to have a review and possible removal of some findings in the report even if they have been extensively consulted for clarification before the report is prepared. It is in this light that (Simunic, 1984) argued that for the internal audit to be objectives for realization of organization’s goal, then there is the need for the internal audit function to be sufficiently independent of the activities they are to audit to ensure undue influence of management over their work to secure thy are independence and objectivity. Simunic’s, assertion is consistent with the current study findings about the subject matter. 4.4 Challenges and Management Tensions The internal auditing as part of the legal activities of MMDAs are not without challenges and tensions, these challenges encountered by internal audit unit of Adentan Municipal Assembly have made the municipality unable to achieve its revenue targets. The independence of the internal auditor is need much to be desire as they rely solely on auditees (management) for resources to function; thus, they lack sufficient authority to undertake audit tasks even though the Internal Audit Charter endorsed by the Chief Executive Office spelt out their authority. Internal auditors discovered malfeasance among the revenue collectors resulting in loss of huge sums of the Assembly’s internally generated funds (I.G.F) and management finds it difficult to implement the recommendations to recover the monies. Also, the non-compliance of internal controls coupled 43 University of Ghana http://ugspace.ug.edu.gh with non-existence of corporate risk management plan by the assembly could not be overemphasized. As emphasized by some respondents; “Noooo! In fact, we never had full cooperation in auditing. No matter which department you will always have someone resisting. Sometimes, when the entrance memo goes, they drag feet in meeting the audit team. When you get that one done, and request for documents, again, they drag their feet. Even when you are done with the audit, to get them response to the draft internal audit observations is another issue. Concealment basically. With failure to respond, they always want to rubbish the work done by the internal audit” Also; “they have logistic challenges; they have staffing challenges. Even the regulations are not in favour of internal auditors to enable them do independent work to deliver on their mandates effectively. Basically, is the willingness of the public workers to do the right thing for instance, if I have to make you effective and you will come back to audit me, certainly I will not provide you with the necessary logistics for you to use if against me.” Also; “I was in charge of a donor funded project called ‘EU Project’ which had their own rules and condition different from that of the rules of the Assembly. Even there was a clause in the EU terms of condition that, where there are contradictions between the Local laws and rules and that of the European Union’s (EU) rules, then European Union rules apply” These issues raised conform to decry of Ahmad and Taylor (2009) who stressed that internal auditors should not subordinate their decision during an audit to management but cooperate with them and accept boards of director’s judgment about management. 44 University of Ghana http://ugspace.ug.edu.gh 45 University of Ghana http://ugspace.ug.edu.gh CHAPTER FIVE SUMMARY, CONCLUSION AND RECOMMENDATION 5.0 Introduction This chapter discusses the summary, conclusion and recommendation of the study which seeks the perspectives of auditees on internal audit; tensions and challenges. The chapter presents the summary of all the findings discussed in chapter four above, Conclusion from the study and also make some recommendations. 5.1 Summary of Findings The objective of the study is to investigate the auditees perspective on internal audit activities in MMDAs; a case Adentan Municipal Assembly; identify tensions and challenges confronting the internal auditing environment of Adentan Municipal Assembly; analyze the impact of these challenges and tensions on the internal audit activities in the Adentan Municipal Assembly. In the case of Adentan municipal Assembly, Auditors play an important role, the Head of internal audit unit is a non-voting member of the audit committees that provide oversight over the auditing process, quality of financial reporting and implementation of audit findings (Bruynseels & Cardinaels, 2013). Also, the findings show that internal auditors ensure that there is compliance with the Public Financial Management Act. Internal audit provides consortium and advisory role to the management of the assembly (who happened to be the main auditees of internal audit unit). It helps the whole team on track in operation. The study also finds that employees are aware of internal control systems in the Assembly. However, there is no effective monitoring of control activities due to inadequate resource constrains in Adentan Municipal Assembly. Most often the 46 University of Ghana http://ugspace.ug.edu.gh central government organized training program outside the assembly for the senior management staff with the aim of enhancing their skills to impact on performance. Intradepartmental training programs too have mainly become partially focused on deliverables other than that of deepening intradepartmental knowledge about departments or unit activities and functions in the assembly in an effort to achieving collective goals of the whole municipal Assembly. As a result, several employees find it difficult to cooperate with the internal audit and this turn to make the work of the internal audit units mostly difficult or challenging. Perceptions about internal auditors’ roles and what they actually do has always being with organization whether big or small according to (Francis, 2004). Also, Chye Koh & Woo (1998) examine expectation gap by reviewing literature on the audit expectation gap along the following lines. The study findings included that education about the auditor’s activities influences the size of the expectation gap and it also creates an atmosphere of cooperation among individuals and departments. Hence, Ramsden (2003) asserted that some researchers advocate educating other staffs about internal audit activities to enhance performance through cooperation 5.2 Conclusion Following the findings of the study, several conclusions could be made. Njanike and Mutengezanwa (2011) sees internal audit as a step by step programme and processes instituted by management of an organization which helps the organization to achieve its goals and objectives as well as comply with laws and regulations. However, there are issues concerning resource constrain, lack of independence, management perception about the role of internal audit, reporting line and so on that affect the work of internal audit in the Adentan Municpal Assembly. The concentration of authority in the Spending officer (thus the Coordinating Director) and the fact 47 University of Ghana http://ugspace.ug.edu.gh that internal auditor’s promotion is greatly dependent on the appraisal of the Coordinating Director (who happened to be one of the main auditee of the internal audit) is a real challenge. 5.3 Recommendations Future research can be conducted to strengthen the credibility and reliability of the study by replicating it in other districts across the country to see whether the same challenges and tensions also exist in those branches. The sample size could be increased and either the mix method or quantitative research method could also be adopted. 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