Determinants of internal audit efficiency

H A Kruger,P J Steyn,W Kearney

doi:10.4102/sajbm.v33i3.705

H A Kruger, P J Steyn + Show 1 more

Open Access

https://doi.org/10.4102/sajbm.v33i3.705

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Abstract

This paper describes a case study in which Data Envelopment Analysis (DEA) methodology was combined with regression analysis to evaluate the efficiency of an Internal Audit (IA) department over twelve consecutive months. Efficiency of audit projects was first estimated using DEA. These results were then used as one of the outputs to perform a multi-period DEA study with a choice of other inputs and outputs specific to the Internal Audit department under review. The efficiency of audit projects is viewed as one of the key outputs of an IA department and an explanation of these efficiencies would therefore be useful (necessary) to enhance insights gained from the DEA model applied to the twelve months. To assist in this explanation a multiple regression model was employed in which the efficiency score obtained from the DEA computations for the audit projects was used as the dependent variable. Following a description of the models and data, the results are discussed and notes are made of certain aspects pertaining to the department reviewed.

Highlights

One of the essential elements of the managerial control function is performance evaluation
To address the above-mentioned aspects, this study investigates the combination of Data Envelopment Analysis (DEA) methodology and regression analysis to evaluate the efficiency of an Internal Audit (IA) department over twelve consecutive months
In conjunction with the IA management team, eight possible explanatory variables capturing the characteristics of an audit project were identified

Summary

Introduction

One of the essential elements of the managerial control function is performance evaluation. Non-profit organisations are faced with special challenges during performance evaluations This is because non-profit organisations often have less clear-cut objectives. There is an element of conflict in this objective as it does not provide revenue to the organisation but it focuses on cost savings In performing their duties, IA departments, just like other departments or organisations, use resources to provide their services. For the purpose of this study one of the regional offices in the North West province was selected for evaluation of efficiency. This choice was based on a management request as well as the fact that the environment (staff, infrastructure, projects, etc.) was reasonably stable. The office performs on average 65 audit projects a year, which originates mainly from the annual audit plan, management requests and special investigations e.g. fraud

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