The role of the internal auditor in enhancing corporate governance in state-owned Enterprises in South Africa

Abstract

In South Africa (SA), State-Owned Enterprises (SOEs) play various roles, which include the provision of utility services such as water, electricity, health services and sanitation. SOEs also contribute towards SA’s economic growth and creating job opportunities, and are significant in both developed and developing countries, around the world. The fundamental elements of Corporate Governance (CG), prescribed by the King 4 Report on Corporate Governance and the PFMA, promotes adequate and effective Financial Management, Risk and CG practices that should be actioned by SOEs in SA. The King 4 Report on Corporate Governance, also highlights the need for a risk-based Internal Audit Function (IAF), as the role of the IAF contributes towards effective CG in an entity. However, the sustainability of SOEs remain threatened by challenges like financial mismanagement and non-compliance stemming from CG mal-practices, and despite the existence of the IAF in SOEs, CG mal-practices persists. This study aimed to explore the role of the IAF in SOEs towards the entity’s CG, which is significant to stakeholders like Internal Auditors, SOEs and the public in SA. A quantitative approach anchored in Institutional and Stakeholder Theories, were adopted for this study, and an online questionnaire were created and distributed via a link inserted in monthly newsletters of the Institute of Internal Auditors South Africa (IIASA), that was circulated to all the members of the IIASA. The questionnaire contained a strict criterion, requesting only IA professionals with current/previous Internal Audit (IA) experience in SOEs in SA, to complete. Data collected that delivered significant results, were divided into eight (8) themes, created for the purpose of answering the main research questions, and were stated as Descriptive Statistics. Relationships between dependent and independent variables were tested using ANOVA, which included Kruskal-Wallis H Tests and Mann- Whitney Tests. Reliability and Validity of the data collection tool and its questions posed to respondents, were conducted using tests like Cronbach’s Alpha and Spearman’s Correlation Coefficient. Findings to this study include the absence of ethical standards in practices and inadequate and ineffective leadership provided by the Boards of Directors within SOEs, as well as inadequate internal control testing performed and weak risk management practices prescribed and performed by the IAF, all contributing to the CG mal-practices. Each chapter of this study elaborates on one Another, towards and inclusive of the final chapter, starting with the Introduction to this research study, followed by the Literature Review which address the affiliative information that is significant to this research study. This study also includes a Research Methodology chapter, which explains the methods used to address this research study’s fundamental questions and objectives. Other existing Chapters include the analysis to data collected from respondents, recommendations to improve the current SOE and IAF practices, and further avenues where research can be conducted.