Effectiveness of internal audit in local governments: The moderating role of internal and external auditors’ relations

Dwi Ratmono,Darsono Darsono

doi:10.5267/j.ac.2021.7.004

Abstract

Research on the internal audit function is relevant for improving the quality of governance in organizations. The internal auditor is an important element of government management in the context of realizing good governance by providing quality and effective audit results. The aim of this study is to examine the factors influencing (determinants) the effectiveness of the internal audit function in Indonesian local government organizations. The research samples were 137 respondents. This study used primary data in the form of a questionnaire. The hypothesis testing technique used Partial Least Squares-Structural Equation Modelling (PLS-SEM) analysis. The results of statistical tests showed that independence, competence, and management support could increase the effectiveness of the internal audit function. However, this cooperative relationship does not moderate the influence of competence and management support on the effectiveness of internal audit. The practical implication of this study is that in order to increase the effectiveness of internal audit, internal auditors must uphold an attitude of independence, objectivity and freedom from conflicts of interest in carrying out their professional responsibilities. The practical value of this study also shows that to increase the effectiveness of public sector internal audit, internal and external auditors must increase cooperation to improve the effectiveness of internal audit, especially in discussion activities between internal and external auditors, communication between internal and external auditors, and activities to share working papers between internal and external auditors.

Highlights

The role of internal audit in public service organizations is to provide facilities for independent assessment and review, to determine and report the level of control reliability (Coupland, 1993; Arena et al, 2006)
Management support variable for internal audit is measured by providing a score for the attributes of management support for internal audit, namely supporting internal audit to carry out its duties and responsibilities, involvement in internal audit planning, reports on internal auditor team work sent to management, management responses to audit reports. internal, and the resources of the internal audit department
This supports the statement in the auditing standards of state finances which states that the auditing and examining organizations are responsible for maintaining their independence in such a way so that opinions, conclusions, considerations or recommendations resulting from the results of the investigation carried out are impartial and are seen as impartial by any party

Summary

Introduction

The role of internal audit in public service organizations is to provide facilities for independent assessment and review, to determine and report the level of control reliability (Coupland, 1993; Arena et al, 2006). The role of internal audit has traditionally only emphasized internal control and compliance with financial management. The results of these studies show inconsistent findings about the determinants of internal audit effectiveness in government organizations (Alzeban & Gwilliam, 2014; Shamsuddin, 2014; Chidinma et al, 2016; Udeh & Nwadialor, 2016; Kagaba & Mulyungi, 2016; Mupeta, 2017; Montondon & Fischer, 1999; Ofori & Lu, 2018; Saputra et al, 2020; Ratnawati, 2020). The inconsistency of the findings that test the determinants of the effectiveness of internal audit in government organizations indicates the need for further research by developing models

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Conclusion