Impact of internal audit and corporate governance practices on the performance of state-owned enterprises in Namibia

Abstract

Contemporary literature suggests that despite the theoretical justifications and some empirical evidence supporting the government's reasoning for state-owned enterprises participation in the economic development in Namibia, their performance is a matter of concern. They are generally noted to be struggling and underperforming, and their sustainability has been in question since the beginning. This situation has placed a burden on the Namibian government to intercede with subsidies to sustain them with the hope that they will improve and contribute to the national economic development. Notwithstanding the existence of good legislation, regulations and codes of governance to guide and direct the operations of the state-owned enterprises, the absence of enforcement machinery to induce compliance, has continuously contributed to the violation of existing laws and regulations by the state-owned enterprises in the country. Also, the lack of an effective system of internal audit or its total absence, and effective corporate governance practices among the state-owned enterprises seemed to be the cause of economic and productive stateowned enterprises failure in Namibia. The examination of the effect of internal audit function on corporate governance practices of the economic and productive state-owned enterprises is therefore the purpose of this study. Internal audit is a vital part of the corporate governance structure. It plays an active role in implementing effective governance systems and adds value to the organisation by providing stakeholders with objective and adequate assurance and consultancy services; thereby contributing to the effectiveness and efficiency of governance and control processes. The association of internal audit effectiveness with state-owned enterprises performance, however, appears not as yet explored. This research, based on the philosophical underpinning of agency and stewardship theories, used the mixed-method approach to evaluate the effects of internal audit on corporate governance practices of the state-owned enterprise performance and sustainability in Namibia. The statistical software, SPSS and Atlas.ti were used to analyse the data, which provided a systematic approach to the participants' responses enabling interpretations and conclusions. The results of the study confirmed that internal audit effectiveness is measured by variables such as independence and objectivity, internal audit and risk management, scope of internal audit work, organisational type and size, organisational policies authorising internal audit, cooperation with auditee, internal-external audit linkages, quality of planning, reporting and follow-ups – measures, which are in line with the guidelines provided by the International Standards for Professional Practice of Internal Audit in support of internal audit function. Further, the method allowed triangulation of sources and validation of the findings, which indeed increased the depth and provided a more inclusive image of the outcomes. These were consolidated and formed the critical themes of the study that eventually emerged, namely improved corporate governance practices, internal audit effectiveness, state-owned enterprises performance and sustainability and, public, private partnership. This study shows that internal audit function plays a unique role in governance practices and has a direct impact on state-owned enterprise performance and sustainability. The study confirmed that internal audit stands for competence, quality, transparency, integrity and argues against unethical business activities. Both the board and management rely on internal audit for assurance, consulting and value creation; and provides fresh ideas for ensuring that risks are lessened. The study further, strikes a compromise between advocates of privatisation and state-ownership and advanced support for public-private partnership as a better alternative to privatisation or outright sale of the state-owned enterprises. The practical implications that this study brings to bear is enormous as it contributes to knowledge, policy and future research. Also, it contributes to enhancing practitioners', professionals' and investors' understanding of how the intricacies of internal audit function impact on corporate governance practices and improve the sustainability of the state-owned enterprises in the country. As an essential source document, contemporary and aspiring researchers will benefit by helping to address the problem of scarcity of research in this field in Namibia and beyond. Finally, the study has made recommendations to augment the thinking of policymakers to re-enforce the existing laws and regulations and insist on their implementation.