A framework for enhancing internal-audit-independence and objectivity within a provincial governance system of South Africa

Abstract

The lack of internal audit activity independence (IAAI) and internal auditors’ (InAs) objectivity has depreciated the internal audit (IA)’s role in adding value to the operations of provincial governments (PGs). This malfunction has resulted in gaps within their IA process that limit the degree of reliance and trust that can be put on the IAs’ role within the PG. The PG is tasked with a huge responsibility to work with the national government and assist local governments to effectively enhance provincial and local government service delivery objectives. Therefore, to ensure that service delivery expectations are satisfied, it is critical for every internal audit function (IAF) within the organs of state to regularly examine their operational strategies and best practice business processes. Against this background, this paper reports on IA independence and internal auditors’ objectivity within the Western Cape Provincial Government (WCPG). This paper sought to establish factors that lead to the lack of IA independence and internal auditors’ objectivity. The main objective of this research study was to develop a framework to enhance IA independence and internal auditors’ objectivity within the provincial governance systems. The study employed a mixed research method to investigate the IAAI and internal auditors’ objectivity using a sample of 260 participants who responded to valid interviewer-administered questionnaires. To validate the results of this questionnaires, telephone interviews with a CAE and three deputy directors, as well as two focus group discussions of four and six participants respectively were held with employees of the WCPG. Data was collected from the 260 participating IAF employees of the WCPG. This study employed several statistical techniques such as the descriptive statistic, correlation, and structural equation modelling to analyse the data from the survey. The survey results reflected that the IAF is faced with numerous operational challenges that affect its independence and objectivity. It was established from the study results that the IAF is not large enough to successfully carry out its duties, there are also budgetary constraints that prevents regularly equipping auditors through training programmes and the successful completion of audits. The results further showed that the IAF is given a low status in the management structure, hence its importance is not stressed sufficiently. The study respondents also indicated that management has a negative perception of IA as being a fault-finding exercise as opposed to adding value to the organisation. It was also established that there is a lack of management commitment to timely take corrective action based on audit findings and recommendations. Based on the conclusions drawn, appropriate recommendations were suggested to assist the WCPG departments to overcome the issues of a lack of IA independence and internal auditors’ objectivity. Although the study provided some useful insights, it is also acknowledged that further research could employ larger sample sizes and PG departments in other provinces.