INTERNAL AUDIT AND FINANCIAL ACCOUNTABILITY IN COUNTY GOVERNMENTS OF WESTERN KENYA

Abstract

Internal audit is a critical aspect in all organizations as it aids in efficiently and effectively managing public resources. Auditor general report has established that many county governments are still facing challenges of resource allocation and misappropriation of funds which has increased the need for internal audits in all county governments. The main objective of this study was to evaluate the effect of internal audits on financial accountability in county governments of western Kenya. The specific objectives were to; evaluate the effect of internal audit independence on financial accountability, determine the effect of internal audit competence on financial accountability, establish the effect of top management support on financial accountability and ascertain the effect of compliance with internal audit standards on financial accountability in county governments of western Kenya. The study was guided by accountability, agency, and fraud triangle theories. The study's target population was 194 respondents composed of; 67 cabinet executive committee members for finance, 4 directors of internal audit services, 4 principal auditors, 36 audit assistants and 83 accountants in four county governments of western Kenya. A correlational research design was used. Proportionate stratified random sampling was used to select respondents. Primary data was collected through questionnaires and secondary data from the auditor general reports. Kisumu county government was used for a pilot study. Cronbach’s Alpha was used to test reliability. Experts and factor analysis were used to test validity. Data were analyzed using descriptive and inferential statistics. Multiple regression analysis indicated that internal audit independence, internal audit competence, top management support and compliance with internal audit standards had a significant effect on financial accountability by reducing the unsupported expenditure with a coefficient of -0.214, -0.246, -0.205, and -193 respectively. The study depicted that 71% of the variation in financial accountability is caused by internal audits. The study may help Government and policymakers to understand the shortfalls that still exist in internal audit, thus being able to formulate policies and strategies to improve internal audit in county governments and other public sectors. Therefore, the study concluded that internal audit adoption increases financial accountability by reducing unsupported expenditures. The study recommended that the management of county governments should not interfere with the duties of internal auditors, should employ experienced auditors and should also recruit adequate audit staff. It was also recommended that the internal audit scope should be well-defined.