A survey on the role of internal audit in promoting good corporate governance in state owned enterprises.

Abstract

There has been growing recognition in recent years of the importance of corporate governance in ensuring sound financial reporting and deterring fraud. Well performing internal audit function is one of the strongest means to monitor and promote good corporate in state owned enterprises. As a result, in many organizations it has received an increasing attention not only as an important component of prudent financial management but as a tool for improving the performance of public sector organizations and as a monitoring device. The purpose of this was to establish the role of internal audit in promoting good corporate governance in state owned enterprises. The study used exploratory research and primary data was collected via a questionnaire. The population comprised of all state owned enterprises headquartered in Nairobi. Twenty nine responses were received representing sixty seven percent of the sample size. A majority of state owned enterprises have set up internal audit departments and established audit committees. The study found that to enhance the independence of the internal audit function, it should report to the board or the audit committee and that internal audit staff be dismissed after the approval of the audit committee. The main activity of internal audit,is evaluating the adequacy of internal controls, providing assurance about the achievement of the organization's objectives with regard to reliability of financial reporting and compliance to applicable laws and regulations. Key challenges facing internal audit functions is the insufficient number of audit staff, management reluctance to implement suggested recommendations and the inadequate technical resources and skilled personnel in the audit of computerized systems. Major achievements reported by respondents include reductions of organization's costs, minimal cases of frauds and strengthening of internal controls. The study concluded that internal audit function plays a significant role in enhancing good corporate governance. The Board and management should offer the necessary support, appreciate the increasing status and role of internal audit in promoting good corporate governance practices.