Independence and performance of internal audit functions within Zimbabwean state universities

Abstract

The importance of an independent internal audit function (IAF) cannot be ignored as it adds value and improves the operations of an organisation. Particularly, there is a need for practical solutions to the corporate governance problems faced by higher education institutions (HEIs), yet research in this domain is still scarce. This study, therefore, assesses the performance of the internal audit functions in the Zimbabwe state universities (ZSUs) in terms of independence and its influence on the performance of ZSUs, which is understudied in current literature. The relationships between key factors, namely audit committee, top management, legal mandate, internal audit quality and the independence of the IAF, are empirically tested. The relationship between independence and performance of the ZSUs is also examined through the Indirect variables that affect the independence of the IAF through the audit committee, top management, legal mandate, and internal audit quality. This study established that the independence and performance of the IAF cannot be explained by one theory; rather, it requires a combination of economic, behavioural, and systemic theories to be integrated to robustly test the proposed conceptual model of the study. Therefore, the agency theory (economic) was used to explore the principal-agent relationship, while the stakeholder theory (behavioural) addressed the social relationships. The institutional theory (systemic) covered the rules and regulations and their enforcement, and the protection motivation theory was used to explain the incentive behind the behaviour of the internal auditors. This research triangulated the aforementioned theories to address the internal audit phenomenon through a collective lens and gain understanding from different perspectives. Data was gathered using a mixed methodological approach consisting of in-depth interviews and an online self-administered questionnaire. A total of eleven (11) in-depth interviews were conducted with the chief internal auditors (CIA) of the ZSUs to gain in-depth knowledge about the status and independence of the internal audit functions. Further, two hundred and seventy-nine (279) responses were obtained from auditees within the state universities in Zimbabwe. The qualitative empirical data was analysed through content analysis derived from the in-depth interviews. The findings showed that the internal audit functions in Zimbabwean state universities were not independent. The empirical results revealed that the departments lacked resource independence as they were under the Vice-Chancellor’s programme for budgeting purposes. Chief among the factors that contributed to the lack of independence of the IAF was top management’s substantial involvement in resource allocation, leading to paralysis of the IAF as a result of resources being deliberately withheld, putatively, because of a shortage of resources. The audit committee's lack of participation in IAF matters involving resource allocation and CIA hiring and firing decisions contributed to this issue's problematic nature.

The quantitative data results indicated that the auditees professed ignorance of issues concerning the IAF. Further, the results showed that from the perspective of the auditees, the IAF appears not to be independent. The Comptroller and Auditor General reports confirmed that the IAF has not significantly added value or improved the performance of ZSUs according to the Institute of Internal Auditors (IIA) definition of internal auditing. The study’s contributions are as follows: First, by linking internal audit independence to the performance of state universities, an area which has been under-explored yielded novel academic literature. Secondly, this study adds value to theory by examining the relationships between the indirect factors that influence internal audit independence in higher education institutions in the public sector, an area that also has not been extensively researched. This study assesses the independence of the IAFs in state universities in Zimbabwe, thus advancing the understanding of the current state of the IAF in ZSUs. The study highlighted that the IIA framework for independence and objectivity of the internal auditors is appropriate where the IAF is independent, or rather, IAF independence can be assumed. However, the IIA framework is inappropriate where independence is absent or questionable. This study closed various identified gaps by proposing a conceptual framework which can be used to create appropriate settings where IAF independence is lacking in a public sector context. This leads to the conclusion that independent IAF could significantly contribute towards the improved performance of state universities in Zimbabwe and hence contribute towards the attainment of the country's Vision 2030. Several recommendations are also made, starting with the suggestion to minimise the agency problem; the Zimbabwean government should capitalise on an independent internal audit as a valuable resource to add value and improve the performance of ZSUs and public sector entities in general. To avoid IAF decoupling, in line with the institutional theory, IAF independence should be deliberately promoted through legislation and policy reforms. The CIA should be protected in support of the protection motivation theory through the active involvement of university councils in the IAF using their audit committees. As advocated for by the stakeholder theory, awareness of IAF should be raised amongst all the state-owned university stakeholders.