Internal Audit Effectiveness Study on the Public Sector

privileged analyse Effectiveness Study on the Public sectorAgus SetiawatyDeterminant of informal Audit Effectiveness in Public atomic number 18a OrganizationsWhich agents matter?AbstractInternal canvas (IA) play a gelid role in reinforcing secure disposal in both domain and private organizations with a value-adding role. Yet very few search conducted on the IA specialty especi in tout ensembley in ordinary sector. The current aim aims to examine through semiempirical observation epitope of posture of IA in spite of appearance organization. Effectiveness scurf developed through structured interview with top manager in advance delivered to real participant. Data in this dissect collected through questionnaire give to top manager and sexual visitor to explore participant science on IA forcefulness and its determinants. Conventional multiple regression and path abridgment is used to examine the association amid immanent inspect impressiveness and 4 pri ncipal factors, that is to say paid proficiency, reference of analyze work, license of size uped account familiar section and top instruction nourish.Keywords home(a) canvas impressiveness, potence scale, good governance, balanced plug-inINTRODUCTION Internal Audit (IA) facing higher(prenominal) demands in the arguing of duty. The role of intragroup audit now is not only overseeing the operational of organization activities, but has been extend to support the organization through evaluating and improving risk counselling, keep back and governance process (IIA, 2004). In this concept, the initiation of home(a) audit is postulate by management in order to help them to provide assurance that whatsoever risks in organization were place and prevented effectively, and organizational activities has been overcomeled in effective and good ways. Moreover, Ridley (2008) declared that the construction of modern IA derived from the three Es concept namely authority, skill and economy, which defined by as doing the right thing for potentiality, efficiency describe as doing them surface to describe efficiency and doing them cheaply for economy. Of all three factors, effectiveness is viewed as the most great factor because futile IA volition ultimately cause to futile regardless how efficiently or economically the service is being provided. IA effectiveness is defined as a risk-based audit that support the organization to achieve its objectives through significantly influencing the bodily governance quality (Lenz, 2013). Effective IA is expected to encourage the formation of good governance within organization.The changing of IA role from compliance and safeguarding assets to value-added audit similarly impact that role in semi general sector organizations. However, some analyse findings (Mihret and Woldeyohannis, 2008 Cohen and Sayag, 2010) show that this role has not been effectively implemented in humans sector organizations. In In throughsia context, audit findings topicd by supreme audit placard reveal that thither is still problem relate to internal control in government institution although financial statement has been given outright opinion. These condition lead to the question about the effectiveness of internal audit function and further the related factors contribute to the IA effectiveness.The purpose of this study is to empirically investigate determinant of effectiveness of IA in public sector, an important concept rarely examined in the scientific literature. Most of previous study focussed examining IA effectiveness empirically in the private institution (Cohen and Sayag, 2010 Arena and Azzone, 2009 Karagiorgos, Drogalan and Giovanis, 2011) opus query on IA conducted in the context of the public sector has been done with a qualitative onset (Mihret and Yismaw, 2007 Mihret and Woldeyohannis, 2008), none has to conduct it empirically. To the best of our knowledge, there has never been a previ ous look for which examines the determinants of the internal audit effectiveness in Indonesia context especially in public sector. Therefore, according to study of Cohen and Sayag (2010), this research result examine pertinent factors to IA effectiveness with organic evolution in IA measuring rod using balanced scorecard framework proposed by Frigo (2002). This measuring claim to be more comprehensive in describing the effectiveness of IA in a organization than used in previous research.This study contributes to the literature by developing a conceptual understanding of IA effectiveness in public sector organizations using comprehensive framework of balanced scorecard which address fundamental issues influencing IA effectiveness in public sector context. This research in addition contributes to the literature by exploring the determinants of IA effectiveness. It is important to understand which factors determine IA effectiveness because of virtuous influence of effective to o rganizational action (Mihret, James and Mula, 2010).This is a proposal paper, consequently, in the next section of this paper, the countersign address to relevant literature on IA Effectiveness and development of research expectation, followed by discussion of research methodology.CONCEPTUAL FRAMEWORK AND RESEARCH EXPECTATIONThe importance of internal audit function has been realized as an essential contributor to effective corporate governance and quality external financial report (Prawitt, smith and Wood, 2009). The demonstrate of Internal Auditor (IIA) model offers IA as a come across element of establishing high quality corporate governance, as well as management who principally responsible for regular monitoring of managements actions . As mentioned previously, The IIA has all-embracing main function of IA to value adding focus by ensuring compliance to policies, rules, and regulations, which are largely of a financial nature, and by working in alliance with management t o help improve operations and manage risk. Although the value-adding notion of IA is fabricated shape the IA more effective, this is never guaranteed. In fact the literature suggests that IA effectiveness more influenced by the situational dynamics factor in audit environs (Mihret et al, 2010).Internal Audit EffectivenessAs mentioned above, IA function has received great attention according to its vital contribution to good governance, surely also occur in public sector context. Therefore, effective is needed for state that challenge. There are two main approaches to the concept of IA effectiveness. The first approach associates effective IA with compliance to some set of auditing standard, such an approach proposed by Sawyer (1988) who assert five standard internal auditing, namely interdependence, passe-partout proficiency, the scope of work, the surgery of the audit and management of the internal audit department. The bet on approach linking IA effectiveness with subject e valuations from management who act as grant side. In later approach, development of systematic and general valid criterion is needed to gauge IA effectiveness (Schneider, 1984 Dittenhofer, 2001). The early effort was conducted by Hoag (1981) through designing questionnaire to gain feedback about internal auditing performance from management. The amount of effective IA consist of cooking and preparation, the quality of audit report, the timing of the audit, and qualify conversation between the relevant parties.Study accomplished by Albrecht, Howe, Schueler and Stocks (1988) which sponsored by The IIA identified 15 factors contribute to the evaluation of IA effectiveness, such as the congruence between auditing work and the goal sets of managers, competence of internal auditor, support from top management to IA function, and several characteristics of IA department. More recently, Ziegenfuss (2000) developed a questionnaire which comprises 84 effectiveness criteria categorise in to four groups the IA environment, input, process and output. Results of the study identified five top performance measures, that is staff experience, supervision form audit committee, management expectation on IA function, audit recommendation followed up by management, and auditor education level. The development of effective IA measurement continue to evolve and sensitive to current issue so that Frigo (2002) introduced balanced scorecard (BSC) framework. For constructing the model, Frigo (2002) confirm his premises with BSC concept which build from IA customer perspective, internal audit process, innovations and capabilities. Model developed by Frigo (2002) bequeath be presented next.This study modifies model proposed by Frigo (2002) to precisely adapt with public sector context. Modification is made to audit committee factor because its existence prevail in private institution. As noted before, research on the effectiveness IA is restricted to private sector companies while s tudy in public sector have accomplished qualitatively. The current study takes this line of research a step further by designing and interrogatory such a scale to gain understanding of IA effectiveness in public sector.Determinant of IA EffectivenessDeterminant in this study select from the model proposed by Lenz and Hahn (2015) which divides effective IA determinant into micro and macro factors. However, this research largely focus the discussion in micro factor. Micro factor categorized into four factors IA resources, IA process, IA relationship and organization. IA resources measured by staff maestro proficiency (Prawitt, 2003 Cohen and Sayag, 2010 Mihret et al, 2010 Pforsich, Kramer, and Just, 2006,2010 Soh and Martinov-Bennie, 2011), IA process explained by quality work of IA department (Cohen and Sayag, 2010), while IA relationship and organization illumined by top management support (Halimah, Othman and Kamaruzaman, 2009 Christopher, Sarens and Leung, 2009 Mihret and Yisma w, 2007, Cohen and Sayag, 2010) and organizational liberty (Mihret et al, 2010 Cohen and Sayag, 2010), respectively. schoolmaster proficiency of internal auditorThe IIAs Standards for pro Practice of Internal Auditing require that internal auditors possess the knowledge, skills and expertise needed to accomplish audit work (Institute of Internal Auditors, 2008). Technical competence and dogging provision are considered essential for effective IA. Consistent with this thinking, Gramling and Meyers (1997) put in that dependent internal auditors is perceived as an expert auditor which reflect auditors competence. Professional such as auditor requires a set of expertise in conducting their complicated duty that collectively granted from education, training, experience and lord qualifications (Al-Twaijry, Brierley and G resultian, 2003). The few studies that fright to this issue indicated that the great the professional competencies of the IA staff, reflected by their profession al training and educational level, the more effective IA department (Albrecht et al. 1988). Nanni (1984) at the same ways, found that auditor experience positively impact the evaluations process of internal be control. Therefore, it es expected that greater professional proficiency of staff within the internal audit department will be related to greater auditing effectiveness (H1).Quality of audit workCompliance with standards, policies and procedures is main concern of internal auditor. One of IA objectives is ensure that companys activities accordance with predetermined rules. Glazer and Jaenike (1980) in Cohen and Sayag (2010) asserted that audit work which sufficiently perform according to internal auditing standards contributes significantly to the effectiveness of auditing. The similar point also claimed by Ridley and DSilva (1997) that complying with professional standards is the most important contributor to IAs added value. It can thus be argued that greater quality of IA work -defined by compliance with formal standards, as well as a high level of efficiency in the audits planning and execution will improve the audits effectiveness (H2) emancipation of IA departmentIndependence has long been seen as a crucial factor in conducting audit role. Although initially only intended for the independence of the external auditor, but late also addressed to the demands of the independence of internal audit, something that might be a serious problem because of auditor position and responsibility lay on under management. The independence of the internal audit department has been identified as a key element of audit effectiveness. Van Peursem (2005), based on interviews with Australian internal auditors, concluded that independence from management is a overabundant feature of successful auditing programs. Those auditors able to set their own. It can thus be argued that organisational independence will increase the internal auditors effectiveness (H3).Top overs ight SupportThe interaction and relationship between top management and internal auditors is both important and complicated. Management support to IA is considered as a determinant of IA effectiveness (Mihret and Yismaw, 2007). This support could, for instance, be by allocating sufficient human and existent resources to IA. It could also be by showing the level of cooperation offered by management. Greater level of auditee cooperation will influences the extent to which IA properly accomplishes its objectives (Al-Twaijry et al., 2003 Mihret and Yismaw, 2007). the relationship between the internal audit staff and the companys management is clearly important in ascertain the independence and objectivity of the internal auditor (Al-Twaijry et al. 2003IIA 2006).Management support for IA is thus important both in the abstract (managers must see the activity of the audit department as legitimate) and in ensuring that IA departments have the resources needed to undertake their duty. Ther efore, it is argued that higher support from top management, the more effective the IA (H4).RESEARCH DESIGNThe participantsThe rear end population for this study is managers and internal auditor from all Indonesian public sector organizations that conduct internal audit. Data in this study will be acquired through questionnaire which will be initially tested for boldness and reliability before delivered to each participant. Each organization will accede two questionnaires, one for manager (deal with IA effectiveness) and the other for auditor (answering for independent variables).Variabel measurementEffectiveness of internal auditingGiven the lack of IA effectiveness research in public sector organizations, this study will developed own effectiveness scale based on BSC framework proposed by Frigo (2002), supporting with measurement scale fostered by Ziegenfuss (2000). In this study, new effectiveness scale will be designed and adjusted with Indonesian auditing environment. Struct ured interview will be undertaken with several public sector top managers to gain advice and esteem about developed questionnaire before it comes to statistic analysis for the validity and reliability assessment. indie variablesProfessional proficiency, measured by four indicators, consist of educational qualifications, professional certification, work experience and continuous development,Quality work, measured by cardinal indicator, comprises of annual audit plan, access to all organization, significance of audit, auditee response, follow up action, additional activities performed.Independence, measured by nine items, these being independence level, reporting level, direct contact to senior management, conflict of interest, interference, unrestricted access to all departments and employees, appointment and removal of the head of internal audit, and performing non-audit activity.Top management support, measured by four factors, those are involvement in the internal audit plan, pr oviding management with reports about the work the internal audit team up performs, the managements response to internal audit reports, the resources of the internal audit department.Data compendTwo methods of data analysis will used in this study. First, guileless OLS multiple regression (Ghozali, 2013) was performed to estimate the magnitude of the effect of the independent variables, the four factors identified above, on the effectiveness of internal audit (the dependent variable). Second, beyond the straightforward use of conventional OLS multiple regression, path analysis (Ghozali, 2013) was conducted to investigate further the associations and linkages among the variables of interest.ReferencesAl-Twaijry, A.A.M., Brierley, J.A., Gwilliam, D.R. (2003). The development of internal audit in Saudi Arabia an institutional theory perspective. Critical Perspectives on bill, 14 (5), 507-31.Arena M., Azzone G (2009). Internal audit effectiveness Relevant drivers of auditees satis faction. Sixth European Academic host on Internal Auditing and Corporate Governance. London. Retrieved from http//www.cass.city.ac.uk/__data/assets/pdf_file/0003/37335/Marika-Arena.pdf.Christopher, J., Sarens, G. Leung, P. (2009). 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