INTERNAL AUDIT AND GROWTH OF PUBLIC INSTITUTIONS

General Introduction

Internal audit is a long-standing function and an effective tool of management in many organizations. According to Okezie,(2004)Internal Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. Internal auditing is a catalyst for improving an organization's governance, risk management and management controls by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity.  OKEZIE, 2004.

The scope of internal auditing within an organization is broad and may involve topics such as an organization's governance, risk management and management controls over: efficiency/effectiveness of operations (including safeguarding of assets), the reliability of financial and management reporting, and compliance with laws and regulations. Internal auditing may also involve conducting proactive fraud audits to identify potentially fraudulent acts; participating in fraud investigations under the direction of fraud investigation professionals, and conducting post investigation fraud audits to identify control breakdowns and establish financial loss.  Internal auditors are not responsible for the execution of company activities; they advise management and the Board of Directors (or similar oversight body) regarding how to better execute their responsibilities. As a result of their broad scope of involvement, internal auditors may have a variety of higher educational and professional backgrounds.

A company’s accounting control practices (such as internal auditing) is widely believed to be crucial to the success of an enterprise as it acts as a powerful control system on the possible deviations from the predetermined objectives and policies.

 Internal auditing is traditionally developed as an audit on behalf of management to ensure that:

• The existing internal controls are adequate and effective.
• The financial and other records and reports show the result of actual operations accurately and promptly.
• Each unit of the organization follows the policies and procedures as laid down by the top management.

This fact indicates the need or importance of an audit. For the limited companies, it is compulsory to have their annual accounts to be audited by the independent and qualified auditor. Sometimes income tax officials such as Rwanda Revenue Authority, bank management and lenders/creditors also require audited accounts before making any decisions. 

Talking on the public institution, In general, a public institution is governed by the state and there is a board of trustees which is elected for controlling the institution. An educational public institution has its council of members to control the functioning of the educational body and the funding for the organization occurs through the tax dollars.

According to Raw, (1986), Business growth refers to a business that generates significant positive cash flows or earnings, which increase at significantly faster rates than the overall economy. A company associated with growth tends to have very profitable reinvestment opportunities for its own retained earnings. Businesses that grow are often seen in the technology industries.

Problem Statement

It used to be that internal auditing in the public sector served as a simple administrative procedure comprised mainly of checking accuracy of transactions, pre-payment verification and control, counting assets and reporting on past events to various types of management. But in recent times, a combination of forces has led to a quiet revolution in the profession. Governments are now moving toward higher levels of transparency and hence Public Institutions must demonstrate accountability in the use of public money and efficiency in the delivery of services.  Internal audits provide a number of important services to company management. These include detecting and preventing fraud, testing internal control, and monitoring compliance with company policy and government regulation, and these services or functions of Internal Audit are intended to spearhead growth and efficiency of the Public Institutions. Unfortunately, ONATRACOM has undergone financial crisis for the last two years, despite the fact that this Public Institution procedures have been subjected to Internal Audit.  Ithas therefore not been able to meet its commitments with most of its suppliers and lack of internal audit. This study is therefore aimed at establishing the role of internal audit towards business growth.

I. General Objective

The main aim of this study is to examine the effect of internal audit on business growth,taking the specific case study of the former Rwanda National company of public transportation otherwise known as ONATRACOM.

I.1. Specific Objectives

In order to achieve the above stated main objective, specific objectives are defined and from them will derive the main indicators that will help us to understand the main parameters to measure. Set specific objectives are as follows:

• To find out if internal audit increases Sales and Net profit of ONATRACOM
•   To assess whether internal audit has led to the expansion of ONATRACOM operations.
• To find out if internal audit related to the growth of Public Institutions.

I.2.Research Questions:

•    Does internal audit increase the Sales and net profit of ONATRACOM?
•   Has internal audit assisted the expansion of ONATRACOM operations?
• Does internal audit lead to the growth of Public Institutions? 

II. The scope of the study

This study provides some insights on financial strength of ONATRACOM in terms of sales, profits and cash flow. Findings from the research show whether internal audit leads to the business growth of ONATRACOM and if achieving internal audit increases the net profit and sales of ONATRACOM. It will also help to understand at what extent internal and external sources of funds for pursuing growth opportunities in ONATRACOM are available and if this is linked with the effect internal audit.

II.1. Content Scope

The content of the scope contain the Conceptual framework develop two parts, one part encompasses the different activities of internal Audit which contributes to the business growth of Public Institutions   and the other part is enhancement of advantages of good internal audit on the business growth of many public institutions, then a comparison between internal audit and business growth in any public institutions.

Geographic Scope

In terms of geographic coverage, this study targets ONATRACOM as a Company ltd in KIGALI-City

II.2 Time Scope

As far as time is concerned, the study covered the period from 2008 to 2013.This period especially interests us because it is overlapping the clearly performance and the functions suspension of ONATRACOM in Rwanda on that our findings can be compared to the information needed in our research.

II.3 Significance of the study

The idea of this research has its genesis from our own interest about the impact of dependent internal audit on the business growth for the purpose verification of the results shown by the profit and loss account and the state of affairs as shown by the balance sheet.

Globally, it is hoped that this research will contribute in providing updated data on Fraud refers to intentional misrepresentation of financial information with the intention to deceive. And know that the Frauds can take place in the form of manipulation of accounts, misappropriation of cash and misappropriation of goods. It is of great importance for the auditor to detect any frauds, and prevent their recurrence. Errors refer to unintentional mistake in the financial information arising on account of ignorance of accounting principles.

This will be especially useful in Africa in general, Sub-Saharan Africa in particular where mismanagement in some companies is still a chronic handicap of countries’ development. This will benefit the Rwandan society in general, private and public companies. This research will also continue studies from previous researches done from this specific issue.

Therefore the significance of this research lays in the hope that findings from this research project will contribute to the broad of knowledge on the impact of dependent internal audit on the business growth in different companies 

Findings from this Research Project will especially be useful for the following stakeholders: Policy makers, planers, managers and implementers will benefit from the outcome of this research project whereby it will help them find better ways of internal audit and their impact on company’s performance.

III. Conclusions

The study aimed at examining impact of internal audit on the business growth of public institution, case study of ONATRACOM. This research was conducted as a case study using ONATRACOMin NYARUGENGE District. The study was built at four specific objectives which are to determine if internal audit lead to the business growth of ONATRACOM, to find out if achieving internal audit increases the net profit and sales of ONATRACOM, to explore if there is internal sources of funds for pursuing growth opportunities in ONATRACOM, to assess whether ONATRACOM is able to obtain external sources of funds for pursuing growth opportunities as a result of internal audit impact or not.

Data was collected by the questionnaire as the main data correction instrument. The findings were got from 27 respondents as the sample from the total target population of 96.   It was found out that ONATRACOMwas failure in its services because it was not achieve its targeted objectives and in this company, the internal audit was not effective in order to make performance of that company.

IV. Recommendations

After analyzing the finding and the general conclusion of the study, the researcher came up with these recommendations.

The government should revise the regulatory system governing transport companies as this can help increasing their capacity following the role they play in enhancing it performance.

Governmentprofessionalize public transport industry, exonerate it from taxes, from its operations in rural areas,tight ling control all operation, Total privatize it and add more funds for operations .

Reform in public transport system-The existing public transport service providers are currently operating in the cities and in Kigali cityand they have ignored the village and surrounding region; the reforms in public transport is required with the purpose of facilitating the registered companies to operate in different remote areas and also train their staff on the  management of companies.

ONATRACOM should encourage its clients, employees and other partners to own them the satisfied services as this can solve the challenge of lack of effectiveness of services since when they are together one can work as a security to another.

Auditors of ONATRACOM should be independent, and avoid nepotism in their daily activities which led to the performance of such company.

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By Jean Paul NTEZIRYAYO

March 2015