AN EVALUATION OF EFFECTIVENESS OF INTERNAL AUDIT IN THE CAMEROON GOVERNMENT AGENCIES: A CASE STUDY OF THE MINISTRY OF FINANCE

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The global financial challenges faced by numerous organisations in recent years have necessitated the establishment of a comprehensive framework of ethical and professional regulations and standards. This framework aims to instill trust and reliability in the information presented within financial statements (Cenker, 2022).  The audit function is crucial in all institutions. It furnishes senior management with essential data for decision-making and also offers insights into the efficiency and effectiveness of the internal control system used in these institutions.   The significance of the internal auditor in establishing effective corporate governance systems has been generally acknowledged (Allegrini et al., 2019).

In recent years, organisations have faced swift changes in the business environment, increased regulatory demands, and technology improvements.  The reforms have elevated the internal audit function to a prominent position, enabling it to support and facilitate the fulfilment of responsibilities by members of the organisation. This perspective is endorsed by other scholars, including Coker (2023), who contends that the internal audit function has evolved into a crucial support function for senior management, the board of directors, and its audit committee. Nagy (2019) affirms that the collaboration between external and internal auditors is important in order to guarantee comprehensive coverage of all major systems and enhance the effectiveness of result reporting. According to Marcello (2019), the contemporary internal auditor collaborates extensively with senior management to identify and implement solutions.  According to Marcello (2019), their primary emphasis is on creating value rather than identifying faults.

Internal auditing is a self-governing, unbiased activity that provides assurance and consulting services with the aim of enhancing an organization's operations and adding value. By implementing a systematic and disciplined strategy, an organisation can enhance the effectiveness of its risk management, control, and governance procedures, hence facilitating the achievement of its objectives (Ruiz, Chambers & Michael, 2021). Internal audits in government organisations are crucial for guaranteeing accountability, openness, and optimal utilisation of public resources. In developing economies such as Cameroon, the public sector plays a significant role as a dominant economic force. This is primarily because the government is the largest business entity and its spending patterns, carried out through different ministers, agencies, and departments, stimulate a wide range of economic activities (Ene, 2020).

The public sector is responsible for determining the economic agenda of the nation. Consequently, it is necessary to establish a comprehensive system of internal inspections to ensure that government monies are utilised for their intended purposes. One effective method for accomplishing this is the implementation of internal audit. In the absence of a competent internal audit, persons with questionable integrity may take advantage of inherent vulnerabilities for their own benefit (Ruiz et al., 2021). Some say that the traditionally centralised and hierarchical structure of the public sector, along with its intricate bureaucratic procedures, offer a sense of security to those responsible for distributing public funds. Due to the multiple layers of control in the public sector, people in charge sometimes fail to recognise the necessity of an additional institutional layer, such as internal audit, to enhance public confidence in accountability (Jason, 2019).

Prior to the 1980s, internal audit was present in a basic and undeveloped manner in both the corporate and public sectors. According to David (2020), internal audit in the private sector primarily focused on ensuring adherence to organisational policies and processes and confirming the presence of assets. Within the public sector, various levels of the bureaucracy were primarily responsible for carrying out the tasks. As a result, there was never a strong demand for internal audits to provide further oversight. According to David (2020), the development of contemporary internal audit can be attributed to the influential 1987 report by the Committee of Sponsoring Organisations (COSO) on fraudulent financial reporting. He says that the enactment of the 2002 Sarbanes – Oxley act has also expanded the scope and complexity of the professional tasks performed by the Internal Audit (1A) community. He asserts that the primary goal of the contemporary Internal Audit role is to aid management in decision-making by implementing a methodical and rigorous strategy to assess and enhance the impact of risk management, control, and governance processes.

According to Sebastiano (2018), internal audit is perceived as a self-governing and unbiased assurance and consulting role that is intended to assist an organisation in accomplishing its goals. The objectives he identifies are: enhancing the effectiveness and efficiency of operations (including programs and projects), ensuring the reliability of financial and operational information, securing assets, ensuring compliance with laws and regulations, and preventing and detecting fraud. The objectives of internal audit are undeniably extensive, however, governments vary in their dedication to them. It is commonly argued that the effectiveness of internal audit is directly dependent on the government's commitment to accomplish these objectives (Olamilekan et al., 2019). Unegbu and Obi (2017) define internal audit as a component of the internal control system implemented by an organization's management to guarantee compliance with prescribed work procedures and to assist in management decision-making. Internal audit is responsible for assessing and appraising the efficiency and effectiveness of management's controls to ensure efficient administration, cost control, optimal resource utilisation, and optimum benefit attainment. Internal audit is a crucial component of a sophisticated system established by an organization's management to promote the smooth operation of its business and safeguard against asset misuse (Unegbu and Obi, 2017).

The Ministry of Finance in Cameroon is tasked with overseeing the administration of the nation's financial assets, encompassing activities such as budget allocation, income acquisition, and expenditure supervision. The performance of internal audit operations within the Ministry is crucial for providing sound financial management and accountability (Kingsley, 2021). The Ministry of Finance assigns internal auditors the responsibility of assessing financial and operational procedures to guarantee adherence to laws, rules, and policies. Their responsibilities encompass performing financial transaction audits and generating reports, assessing the efficiency of internal controls and risk management procedures, offering suggestions for enhancing financial management and operational effectiveness, and communicating findings to senior management and relevant stakeholders (Abaye et al., 2022). Internal auditing plays a crucial role in ensuring good governance and efficient financial management inside government institutions. The Ministry of Finance in Cameroon, as a crucial institution responsible for overseeing the country's financial resources, necessitates strong internal audit operations to guarantee accountability and transparency. The objective of this study is to assess the efficacy of internal audits within the Ministry of Finance. It will identify areas that require improvement and provide solutions to enhance the effectiveness of internal audit activities.

1.2 Statement of the problem

Internal audits play a crucial role in the Cameroonian public sector by assuring good governance, financial integrity, and operational efficiency in government institutions. Nevertheless, despite the acknowledged significance of internal auditing, there is a mounting apprehension regarding the efficacy of these audits in attaining their intended goals. This problem is most noticeable in the Ministry of Finance, which is a crucial organisation tasked with overseeing public monies and guaranteeing financial transparency.

Despite numerous statements regarding internal audit in Cameroonian government agencies, the prevailing view in literature is that the majority of public firms have not fulfilled their intended objectives. A significant number of individuals level allegations against directors of public firms in Cameroon, claiming that they lack efficacy and efficiency in managing resources. Sawyer (2022) asserts that the improper implementation of internal audit principles and procedures results in the blatant misallocation of limited resources, which in turn affects the government's traditional obligation to be accountable to the people. Lee, Johnson, and Joyce (2020) note that internal control is necessary to ensure that limited resources are not misallocated away from fundamental aspects of financial management system design, thereby providing reassurance to stakeholders. In an effort to halt the increasing number of prominent business collapses worldwide in the past 20 years, the International Federation of Accountants (IFAC) has created new laws, regulations, standards, rules, and guidelines. It should be noted that the inadequate execution of internal audit procedures in the public sector of Cameroon cannot solely be attributed to the lack of sufficient laws. It also depends on the presence of sufficient penalties for breaches of internal audit processes and the fair and efficient enforcement of these penalties when necessary.

Additionally, there are indications that the extent of internal audits may be restricted as a result of limitations in resources, time, and personnel. This may result in audits that are not fully completed and insufficient coverage of crucial areas, which might possibly leave important risks and inefficiencies unattended. According to Joe (2021), internal audit departments frequently have constraints in terms of funding and staff, which can impede their capacity to conduct comprehensive and efficient audits. These limitations can affect the calibre of audit work and the capacity to execute recommendations. According to Mahmoud (2020), internal auditors often face opposition from both management and personnel, which can hinder their capacity to obtain essential information and provide impartial evaluations. The absence of collaboration can compromise the efficacy of the audit procedure. In the end, the possibility of political and administrative involvement might undermine the autonomy and impartiality of internal audits. Interference of this nature can have an impact on the results of audits and the execution of audit recommendations (Aboubakar, 2021). The incomplete comprehension of these matters hinders endeavours to enhance the efficiency of internal auditing, hence affecting the overall governance and financial administration of the Ministry of Finance. This study aims to assess the efficacy of internal audit operations inside the Ministry of Finance in Cameroon.

Objectives of the study

The primary objective of this study is to critically evaluate of effectiveness of internal audit in the Cameroon government agencies: a case study of the Ministry of Finance. Specific objectives of this study are to:

To assess the impact of internal audit on financial management at Cameroon's Ministry of Finance.

To assess the impact of internal audit on accountability at Cameroon's Ministry of Finance.

To assess the impact of internal audit on transparency at Cameroon's Ministry of Finance

To Identify the challenges faced by internal auditors in the Ministry of Finance

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 audit on financial management at Cameroon's Ministry of Finance?

What is the impact of internal audit on accountability at Cameroon's Ministry of Finance?

What is the impact of internal audit on transparency at Cameroon's Ministry of Finance?

What are the challenges faced by internal auditors in the Ministry of Finance 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: Internal audit has no significant impact on financial management at Cameroon's Ministry of Finance.

Ha: Internal audit has significant impact on financial management at Cameroon's Ministry of Finance.

1.6 Significance of the study

The importance of this study is in its ability to strengthen governance, optimise financial management, facilitate policymaking, promote transparency, and contribute to the development of skills within the public sector of Cameroon. The study offers useful insights into the efficacy of internal audits inside the Ministry of Finance, which can inform practical enhancements in internal auditing methods and overall management of the public sector.

The study examines the efficacy of internal audits and offers insights into their contribution to the efficient supervision of financial and operational activities. It is imperative to improve governance processes and ensure responsible use of public resources. Efficient internal audits are crucial in ensuring that public officials are held responsible for their actions and choices. This study aims to elucidate the impact of internal audits on accountability inside the Ministry of Finance.

Moreover, the investigation will pinpoint deficiencies in internal audits, so facilitating the resolution of inefficiencies in financial management and control systems. This can result in enhanced precision and dependability in financial reporting and budgeting procedures. Through evaluating the efficacy of internal audit methods, the study can identify deficiencies in existing financial controls and propose enhancements, so facilitating improved financial management within the Ministry of Finance.

Moreover, the discoveries can offer policymakers significant insights into the present condition of internal auditing in government entities. This can facilitate the formulation of rules designed to fortify internal audit operations and improve overall governance. Gaining a comprehensive understanding of the efficacy of internal audits can aid in making well-informed decisions regarding the allocation of resources, such as investments in training, technology, and staffing for internal audit departments.

Moreover, the study contributes to the scholarly and practical understanding of internal auditing in the public sector. It offers a case study that may be utilised for future research and analysis. The results can provide direction for future studies on internal auditing techniques in Cameroon and comparable environments, thereby enhancing our comprehension of the effectiveness of public sector audits on a larger scale.

1.7 Scope of the study

Broadly, this study focus is to critically evaluate of effectiveness of internal audit in the Cameroon government agencies: a case study of the Ministry of Finance. Specifically, this study seeks to assess the impact of internal audit on financial management at Cameroon's Ministry of Finance and assess the impact of internal audit on accountability at Cameroon's Ministry of Finance. 

Further, this study will focus on assessing the impact of internal audit on transparency at Cameroon's Ministry of Finance and it also seeks to identify the challenges faced by internal auditors in the Ministry of Finance.

 The study is carried out in Cameroon. 

1.8 Limitations of the study

As with any human endeavour, the researchers faced 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 the efficiency of internal audit in government agencies in Cameroon. This was specifically observed in the case study conducted on the Ministry of Finance. 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 limits faced by the researcher 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 meeting 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 activities.

1.9 Definition of terms

Internal audit: Internal audit refers to an independent service to evaluate an organization’s internal controls, its corporate practices, processes, and methods. An internal audit helps in securing compliance with the various laws applicable to an 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.