ASSESSING THE IMPACT OF INTERNAL AUDITS ON MANAGEMENT PERFORMANCE IN PUBLIC ENTERPRISES IN CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

There is a global recognition of the necessity to prioritise the enhancement of public sector management. The government, being the largest single commercial organisation, stimulates a significant amount of economic activity through its many parastatals, agencies, and commissions (Mohammed, 2019). Due to extensive government involvement in economic operations, efforts are being made worldwide to enhance the quality of government accounting and auditing departments (Angus, 2021). Public sector managers function under an intricate and demanding setting. This is partially indicative of the changing requirements and anticipations of the society, government, and the Parliament.

Globalisation has directly or indirectly enabled the emergence of misappropriation of public funds and its associated problems, such as corruption and influence peddling (Djalili, 2020). Therefore, among the forty-eight (48) countries in Sub-Saharan Africa, it is exceedingly difficult to identify a single country that has not encountered at least one instance of embezzlement of public monies. Therefore, in Senegal, we have not forgotten the "Karim Wade affair" involving illegal accumulation of wealth, as well as the prosecution and conviction of former South African President Jacob Zuma for corruption (Snviti, 2022). Between 2012 and 2017, the State of Cameroon experienced significant misappropriation of public finances, amounting to six trillion CFA francs (6,000 billion FCFA) (Snviti, 2022). Recently, there has been significant media coverage of the purported misappropriation of monies designated for the development of sports facilities for the 2021 Africa Cup of Nations and the efforts to combat the coronavirus in Cameroon. Seldom in Africa and elsewhere has there been such an unrelenting assault on government funds (Diouf, 2023).

One of the reasons for this phenomena is probably the inefficiency of the control systems that have been utilised so far to protect the State's assets, particularly its financial resources, which hold a prominent position (Sahut et al., 2020). In spite of the presence and comprehensive awareness of regulatory authorities, the battle against corruption and embezzlement of public funds persists as unscrupulous administrators persist in engaging in this reprehensible conduct. In order to address this issue, the State of Cameroon has implemented new control systems, including internal auditing, to ensure the security of its assets in the face of the prevailing focus on personal gratification at the expense of the collective welfare (Boulerne et al., 2023).  Put simply, the internal audit should help ensure that the state's funds are used efficiently to meet the established objectives, without relying on extra budget allocations or waiting for subsidies or other forms of additional funding. This can be achieved by improving the organisation and allocation of resources. Implementing such a policy will unquestionably yield a beneficial outcome in terms of protecting public funds (Lavallee & Elgowari, 2023).

In Africa, the management of public finances, including those of public corporations, is plagued by numerous problems caused by those in charge. Multiple studies elucidate the detrimental effects of corruption on both the individuals affected and the overall progress of the continent (Razafindrakoto, 2018).  The weak ability of politicians to establish and execute adaptable mechanisms in response to changes in the socio-economic sphere can account for concerns regarding the misappropriation of public funds and financial scandals (Muchiri, 2017; Mbasya, 2022).

Internal audit is a crucial component of the various tools and methods that public sector managers have at their disposal to help them fulfil their responsibilities in this setting. Anao (2018) states that internal audit offers an impartial and objective assessment and advisory service to provide confidence to the Chief Executive and/or Board that the organization's financial and operational controls, which are designed to manage risks and achieve objectives, are functioning efficiently, effectively, economically, and ethically. Additionally, it aids management in enhancing the organization's business performance. Auditing, as defined by Izedonmi (2020), is the process of conducting an impartial evaluation of an enterprise's financial statements, which are prepared by the management, by an appointed individual known as an auditor. The purpose of this evaluation is to provide a professional opinion on whether the financial statements accurately represent the financial position of the enterprise at the end of the financial period. This evaluation is conducted in accordance with the auditor's terms of engagement and other relevant statutory and professional regulations, as stated by Médard et al. (2019). 

The separation of ownership from management in organisations has created a necessity for auditing. In the past, internal auditing in the public sector mostly involved conducting administrative tasks such as verifying transaction accuracy, pre-payment verification and control, asset counting, and reporting on past occurrences to different levels of management. However, in recent decades, a convergence of factors has resulted in a subtle transformation in the field. Governments that are transitioning towards increased transparency must exhibit accountability in the utilisation of public funds and effectiveness in the provision of services (Merchant, 2020). Internal auditors must possess a higher level of skill and professionalism in order to effectively minimise and manage risk in larger and more complex operations. Internal audit is a component of many internal assurance and business review activities that should work together in a coordinated and complementary way for the organization's advantage. These additional activities encompass management monitoring, evaluations, quality assurance, and control self-assessment arrangements. Their purpose is to instill confidence and assurance in Chief Executives and/or Boards that management is fulfilling its responsibilities and the organisation is attaining its objectives (Anao, 2018). 

Internal auditing plays a crucial role in ensuring successful organisational governance and management. The purpose of this assessment is to enhance the efficiency of an organization's risk management, control, and governance procedures by offering an impartial and unbiased evaluation of its operations (Pastore et al., 2019). Internal audits in public organisations are crucial for maintaining accountability, transparency, and efficiency, especially due to the substantial public interest and the utilisation of public funds. Public enterprises in Cameroon are engaged in several industries such as utilities, transportation, and natural resources. These firms play a vital role in delivering crucial services and facilitating economic growth. Nevertheless, they frequently encounter obstacles associated with inefficiency, mismanagement, and corruption. Internal auditing can effectively solve these difficulties by providing monitoring and encouraging best practices in management and operations (Anao, 2018). The success and sustainability of public enterprises heavily rely on the performance of their management. Efficient management results in increased operational efficiency, superior service delivery, and greater financial success. Internal audits can assist management by finding areas that can be improved, ensuring adherence to rules and processes, and offering suggestions for boosting efficiency and effectiveness. This study intends to evaluate the influence of internal audits on management performance in public firms in Cameroon.

1.2 Statement of the problem

Although internal audits play a crucial role, numerous public firms in Cameroon still face challenges such as inefficiency, mismanagement, and lack of accountability. These obstacles impede their capacity to provide high-quality services and accomplish their organisational goals. This study focusses on the influence of internal audits on the managerial effectiveness of public firms in Cameroon. The study aims to investigate the impact of internal audits on management practices, decision-making processes, and overall organisational performance.

There is a persistent concern that the internal audit department consistently lacks sufficient staff and resources to operate at full effectiveness. Insufficient staffing of internal audit divisions has resulted in a significant backlog of work. The auditing of computerised systems is hindered by a lack of sufficient understanding of Electronic Data Processing (EDP) and Computers (Silas, 2021). The majority of the working papers in public sector management lack sufficient documentation due to this issue. The employees of the internal audit department receive inadequate compensation, which leads to a lack of motivation and enthusiasm for their work (Setan et al., 2019). Some argue that internal auditors working in the public sector lack the necessary independence and freedom to carry out their audit duties effectively. Amidst the ongoing debates over the poor performance of the public sector, Cameroon, as a developing economy, must gather its resources to effectively utilise them for development. The demand for internal auditors in the public sector becomes even more crucial.

Objectives of the study

The primary objective of this study is to critically assess the impact of internal audits on management performance in public enterprises in Cameroon. Specific objectives of this study are to:

To assess the impact of Internal Audits on Management Decision-Making in Cameroon

To assess the impact of Internal Audits on identifying operational inefficiencies within public enterprises in Cameroon

To assess the Impact of Internal Audits in enhancing accountability within public enterprises in Cameroon

To assess the Impact of Internal Audits in enhancing transparency within public enterprises in Cameroon

To identify Barriers to Effective Internal Auditing within public enterprises in Cameroon

1.4 Research Questions

The following research questions which are in line with the objectives of this study will be answered in this study:

What is the impact of Internal Audits on Management Decision-Making in Cameroon?

What is the impact of Internal Audits on identifying operational inefficiencies within public enterprises in Cameroon?

What is the Impact of Internal Audits in enhancing accountability within public enterprises in Cameroon?

What is the Impact of Internal Audits in enhancing transparency within public enterprises in Cameroon?

What are the Barriers to Effective Internal Auditing within public enterprises in Cameroon?

1.5 Research Hypotheses

To determine the effectiveness of this study, the following research null hypotheses will be formulated to guide the study and it will be tested at 0.05% levels of significance.:

Ho: There is no significant impact of Internal Audits on Management Decision-Making in Cameroon.

Ha: There is no significant impact of Internal Audits on Management Decision-Making in Cameroon.

1.6 Significance of the study

This study is important because it offers crucial information on the impact of internal audits on management performance in public businesses, which in turn enhances governance, accountability, and operational efficiency. It will function as a reference point for stakeholders, policymakers, researchers, and scholars.

Internal audits are essential for assessing and enhancing the efficiency of management operations. The study offers valuable insights into the contribution of internal audits to enhancing management performance in public enterprises, resulting in increased operational efficiency and effectiveness. Internal audits are essential in ensuring the transparency and accountability of public enterprises. This study aims to uncover the ways in which internal audits contribute to these objectives, thereby fostering good governance and mitigating the risk of mismanagement or corruption.

Moreover, internal audits evaluate the efficiency of internal controls in public organisations. The study can elucidate the role of these audits in pinpointing vulnerabilities in control systems and proposing enhancements, hence fostering stronger internal controls and risk management techniques. Efficient internal auditing enhances the dependability of financial and operational reporting. As a result, this enhances the trust and belief of stakeholders, including government officials, employees, and the public, in the effectiveness and honesty of public companies.

Moreover, through assessing the influence of internal audits, the research might offer useful insights to policymakers and senior management regarding the efficacy of audit procedures. This information can provide valuable insights for the formulation of policies and strategies targeted at improving management performance and organisational effectiveness.

Moreover, the study has the potential to set standards for optimal procedures in internal auditing in public organisations. These standards can be used as a template for other firms or organisations aiming to enhance their internal audit functions and management performance. The study's findings can enhance our comprehension of how internal audits can facilitate ongoing enhancement within public organisations. This promotes a culture of acquiring knowledge and adjusting, aiding organisations in efficiently addressing new challenges and opportunities.

In essence, this study can establish the foundation for future investigations into the relationship between internal audits and management performance in different contexts or sectors. This case study offers an opportunity to examine similar challenges in various contexts or to compare research results across different geographical areas. This study makes a valuable contribution to the academic literature on internal auditing and management performance by offering case-specific insights and theoretical ideas. Additionally, it provides pragmatic expertise for auditors, managers, and consultants who are employed in the public sector.

1.7 Scope of the study

Broadly, this study focus is to assess the impact of internal audits on management performance in public enterprises in Cameroon. Specifically, this study seeks to assess the impact of Internal Audits on Management Decision-Making in Cameroon, assess the impact of Internal Audits on identifying operational inefficiencies within public enterprises in Cameroon and assess the Impact of Internal Audits in enhancing accountability within public enterprises in Cameroon. 

Further, this study will focus on assessing the Impact of Internal Audits in enhancing transparency within public enterprises in Cameroon and it also seeks to identify Barriers to Effective Internal Auditing within public enterprises in Cameroon.

 The study is carried out in Cameroon. 

1.8 Limitations of the study

As with any human endeavour, the researchers experienced many minor constraints during the investigation. The main limitation was the lack of extensive literature on the subject, due to the limited availability of data about the evaluation of internal audits' influence on management performance in public firms in Cameroon. Hence, a significant allocation of time and exertion was necessary to ascertain the appropriate materials, books, or information and amass data. 

Furthermore, this study is constrained by its small sample size and narrow geographical scope, focussing solely on Cameroon. Therefore, the conclusions of this study cannot be extended to other situations, thus requiring further investigation. 

Moreover, the researcher's restrictions were primarily due to financial constraints, as they are a student without any source of income to sustain themselves. The exorbitant transportation charges at the research location posed a challenge in covering the expenses for transportation fees.

Furthermore, the researcher faced a time constraint due to the need to do this research while still fulfilling the obligations of attending lectures and participating in other educational endeavors.

1.9 Definition of terms

Audit: Audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organization.

Corporate governance: Corporate governance is the structure of rules, practices, and processes used to direct and manage a company. A company's board of directors is the primary force influencing corporate governance.

Accountability: Accountability is the practice of being held to a certain standard of excellence. It is the idea that an individual is responsible for their actions and, if that individual chooses unfavorable actions, they will face consequences.

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