Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Internal Audit and the Effectiveness and Efficiency of Operations in
Hospitals
Naziru Suleiman
The ever increasing cases of financial frauds and corporate accounting scandals in recent years
have raised more concern on the operation of internal control mechanisms and performance of the
internal audit departments in organizations. In most cases the seeming presence of both the internal
control system and internal audit in organizations does not prove useful as frauds errors and
irregularities are being perpetuated. The aim of this study therefore, is to assess the role of internal
audit in achieving the objectives of internal control system of federal hospitals in Kano State from the
perception of the respondents. The study used survey research design and generated data from
primary source by means of questionnaire. A total number of 100 copies of questionnaire were
administered out of which 68 were duly completed and returned. Cronbach’s alpha was used to test
the internal validity of the various items in the constructs. Descriptive statistics, chi-square test,
Mann Whitney U test and Kruskal Wallis ANOVA were employed for the analysis of data. The study
finds that from the perception of the respondents, internal audit departments in Federal Hospitals in
Kano State are effective and that they contribute positively to the overall attainment of the objectives
of internal control system of these hospitals. There is no significant difference found on the views of
the respondents from the three hospitals. Hence, the study concludes that strong and functional
internal audit department is a basic requirement for effectiveness of operations of the internal control
system. In the light of the findings, it is recommended that internal audit should continue to ensure
that the objectives of internal control system of these hospitals are achieved through proper and
adequate evaluation and review of the system.
Key Words: Internal Audit, Internal Control, Federal Hospitals, Effectiveness of operations.
Introduction
Internal control is a topical issue in accounting and auditing literature. The concept has now been
given more prominence following global corporate fraudulent financial reporting and accounting
scandals. Many have attributed the problems to the absence of proper internal control
mechanisms or to major weaknesses in the entire internal control system.
Internal control system is a process of ensuring strict compliance with the laid down procedures
and standards in organizations. It refers to practices, laws and regulations put forward by
management for the smooth running of their organizations. Internal control is a process that
guides an organization towards achieving its objectives. These objectives include operational
efficiency and effectiveness, reliability of financial reporting, and compliance with relevant laws
and regulations (COSO, 1992). Absence of these variables often results in organizational failure.
However, just the presence of the internal control system does not suffice in preventing frauds,
errors and irregularities in organizations. Hence, the need for a higher control over the entire
control processes.
____________________________________________________________________________
Naziru Suleiman, Lecturer - Accounting Technology Programme, School of Management Technology, Abubakar
Tafawa Balewa University (Atbu) Bauchi, Pmb 0248,Bauchi- Nigeria. Telephone Numbers:+2348066053880,
+2348124432651
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
view of this, managements of organizations do institute an internal audit functions as a check and
balance on the other control procedures to prevent frauds, error and irregularities from occurring.
To this end therefore, a source of worry and concern to the scholars and researchers as well as the general
In
public is that, in spite of the seeming importance and presence of internal control system and internal audit
department in organizations, there is still the prevalence of frauds, errors and irregularities.
As organizations such as hospitals and the likes become more and complex and the activities they carry are
on the increase, there is every need to have an efficient and effective system of internal control and an
internal audit department to evaluate, examine and appraise the internal control system. Since it is the
internal control system that provides the practices and procedures to be complied with, while the audit
department checks and reinforces compliances with the established procedures, the entire system should be
seen working in harmony to guaranty the overall attainment of the objectives of the internal control system
in particular and in general, the organization’s objectives.
Obviously, hospitals and other health centres are increasingly and continuously required to take care of the
medical needs of the ever increasing number of the populace worldwide. Nigeria is no exception
particularly in states such as Kano, which has the largest population in the country. There is every need to
ensure that the medical needs of the general public are adequately catered for. However, the greatest
obstacle in the provision of affordable health care facilities in Nigeria as well as many other developing
countries is corruption. It has been observed that in so many situations, corruption is being caused as a
result of weaknesses in the internal control system and/or absence of a functional internal audit in
organizations.
In view of the foregoing therefore, this study aims at assessing the role of the internal audit in achieving
the objectives of the internal control system in the area of effectiveness and efficiency of operations in
Federal Hospitals in Kano State, Nigeria. Federal hospitals are hospitals established by the federal
government of Nigeria to compliment the efforts of the state governments in the provision health to the
citizenry. It is obvious that state governments alone cannot cater for the medical needs of their teeming
population, particularly in states such as Kano that have large populations. However, establishing such
hospitals is not enough without taking the much needed steps to ensuring that the resources committed
achieve their purposes. Hence, the need assess the role of internal audit on the entire internal control
procedures and processes. This is with a view to finding out whether effective internal control system and a
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
functional internal audit department exist in these hospitals and to ascertain whether the internal audit
departments are really functioning as a watch dog in these hospitals.
2.1 The Concept of Internal Control System
The auditing literature has documented a number of definitions on the concept of internal control system.
Internal controls are a system consisting of specific policies and procedures designed to provide
management with reasonable assurance that the goals and objectives it believes important to the entity will
be met. Internal Control System means all the policies and procedures (internal controls) adopted by the
management of an entity to assist in achieving management's objective of ensuring, as far as practicable,
the orderly and efficient conduct of its business, including adherence to management policies, the
safeguarding of assets, the prevention and detection of fraud and error, the accuracy and completeness of
the accounting records, and the timely preparation of reliable financial information.
Essentially, majority of the definitions emphasize on the entire system of control in all its ramifications.
For instance, definitions such as those provided by Dunn (1996), Dandago (1999), Vincent et al(1999),
Millichamp (2000), and Salaudeen (2006) stress the aspects of control of the overall activities of an
organization. Conversely, there are others who look at the concept of internal control from the planning
perspective of an organization (Awoyemi, 1989). To this end therefore, Whittington and Pany (2004)
observe that the difference in opinion have long existed about the meaning and objectives of internal
control.
Many people have interpreted the term internal control as a step taken by a business to prevent fraud both
misappropriation of assets and fraudulent financial reporting. Others while acknowledging the importance
of internal control for fraud prevention believed that internal control has an equal role to play in assuring
control over the entire organization and other processes. Whittington and Pany (2004) opine that such
difference in interpretation also existed in the professional publications issued by the American Institute of
Certified Public Accountants, The Institute of Internal Auditors Inc; and the Research Foundation of the
Financial Executives Institutes. This indicates that there can be as many definitions and explanations of
internal control system much as there can be the professional bodies. However, it was not until the early
1990s that the various professional organizations worked together to develop a consensus on the nature and
scope of internal control (Whittington and Pany, 2004). The outcome was the formation of the committee
of sponsoring organizations of the Treadway commission (COSO).
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Vincent et al (1999) report that COSO commissioned Coopers & Lybrand L.L.P to conduct a study to
develop practical, broad and accepted criteria for establishing internal control and evaluating its
effectiveness.
Similarly, Whittington and Pany (2004) note that accordingly, COSO commissioned a study to establish a
common definition of internal control to serve the need of different parties. Secondly, to provide a standard
against which businesses and other entities can assess their control systems and determine how to improve
them. According to the Internal Control- Integrated Framework as cited in Whittington and Pany (2004),
internal control is defined as “a process effected by the entity’s board of directors, management and other
personnel designed to provide reasonable assurance regarding the achievement of objectives in the areas of
reliability of financial reporting; effectiveness and efficiency of operations and compliance with applicable
laws and regulations.”
The COSO’s definition of internal control emphasizes that internal control is a process or means to an end
and not an end in and of itself. It is also worth noting that the process as provided by the definition is
effected by individuals not merely policy manuals, documents and forms. By including the concept of
reasonable assurance, the definition recognizes that the cost of an organization’s internal control should not
exceed the benefits to be obtained (Whittington and Pany, 2004). Similarly, Vincent et al (1999) contend
that the definition with its specification of different categories of objectives is intended to meet the needs of
different parties such as senior management, board members, independent accountants, internal auditors,
other business personnel, legislators and regulators and educators who have interest in internal control.
Apparently, accommodating such diverse groups necessarily leads to a broad definition and the inclusion
of a wide control to meet the varying objectives, which the definition has successfully covered. It is equally
pertinent to mention that the definition is comprehensive in that it addresses the achievement of objectives
of an organization in these vital areas of financial reporting, operations and compliance with laws and
regulations. It also encompasses the methods by which top management delegates authority and assigns
responsibility for different functions in an organization.
2.2. The Need for Control
Controls are needed in organizations to ensure smooth running of activities and then subsequently the
successful accomplishment of organization’s objectives. It is evidently clear that controls form the bedrock
for the success of organizations. Thus, controls are required for a number of reasons.
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
In the first instance, it is natural to expect both intentional and unintentional mistake in organizations.
Controls therefore serve as effective checks and balances in a system. Brewer and List (2004) contend that
it is axiomatic that things will go wrong. The challenge facing the management is to decide how much
resource to deploy to create sufficient controls to limit the possibility of bad events occurring and to limit
their damage when they occur. Similarly, Chambers (2010) opines that better internal controls may enable
the business to engage in more profitable activities that would be too risky for a competitor without those
controls. These imply that control have the effects of subverting undesirable that would have naturally
occurred within the organization.
Secondly, the size, nature and the geographical distribution of organizations are very important
consideration in discussing the necessity of controls. Santock (1984) as cited in Effiok (2003) asserts that
due to the large size of firm, the nature of business, the assets, the volume of transactions and the
geographical distribution and company operation, it becomes necessary for management to increase the
need for formal control. This of course calls for proper and continuous control mechanisms to be put in
place.
Thirdly, effective controls give reasonable assurance, even though not a guarantee that all the
organizational objectives will be achieved. Thus, it is the surest way to the continued survival of an
organization. There is growing appreciation that effective internal control does not evolve naturally. It
requires concerted effort on an on-going basis (Chambers, 2010). Control processes within an organization
require adequate planning and commitment on the part of management. It should also be taken on a
continuous basis so as to avoid its break down which will cause a serious damage on the entire system.
Frauds, errors and irregularities are evidences of weaknesses or even absence of controls in an
organization. Adamu (2004:3) as cited in Hamid (2005) reports that available statistics have shown that all
the banks that have at one time or the other gone under bankruptcy have a weak internal control system in
place. He further argues that without weak internal control system there is no way that accounts could
illegally be overdrawn or be overdrawn with in adequate collateral.
2.3 The Concept of Internal Audit
In an attempt to ensure strict compliance with internal control system, managements of organizations
institute an internal audit department. Thus, internal auditing is that management function which
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
independently evaluates the adequacy, effectiveness and efficiency of the systems of control within an
organization.
COSO Framework (1992) defines internal audit: The system of internal control comprises those elements
of an organization that support people in the achievement of the organization's objectives. They facilitate
the effective and efficient operation of companies by enabling them to respond appropriately to significant
business, operational, financial, compliance and other risks. This includes safeguarding assets from
inappropriate use or from loss and fraud, and ensuring that liabilities are identified and managed.
One of the most widespread definitions of internal auditing is presented by the Institute of Internal
Auditors. More precisely, the Institute of Internal Auditors (1999) defined internal auditing as “an
independent appraisal function, established within an organization to examine and evaluate its activities as
a service to the organization.
Hence, a comprehensive definition is given by Sawyer (2004) who stated that internal auditing is “a
systematic, objective appraisal by internal auditors of the diverse operations and controls within an
organization to determine whether (1) financial and operating information is accurate and reliable, (2) risks
to the enterprise are identified and minimized, (3) external regulations and acceptable internal policies and
procedures are followed, (4) satisfactory operating criteria are met, (5) resources are used efficiently and
economically and (6) the organization ’s objectives are effectively achieved – all for the purpose of
consulting with management and for assisting members of the organization in the effective discharge of
their governance responsibilities”.
2.4. The Scope of the Internal Audit
Auditing scholars and literatures have suggested the non restrictive view on the scope of the internal
auditing. For instance, Effiok (2003) asserts that there is no rule of thumb as to what should constitute the
exact extent of the area of coverage regarding the work of the internal auditor. His or her work can cover
matters which are not directly of accounting and financial nature. This suggests that the scope of the
internal auditing can cover the entire organization. It does matter whether it is financial or otherwise.
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Conversely, Salaudeen (2005) sees the scope of the internal auditing to vary from one organization to the
other depending on the size, structure and management of the organization.
This view recognizes the peculiarity of organizations. Hence, there is difficulty in determining the actual
borders for the operation of the natural audit in all organization. However there are others that consider a
restrictive view by limiting the scope of the internal auditing to just reviewing the system of internal
control. Jenfa (2004) and Okwoli (2004) as cited in Aliyu (2006) contend that the present requirement of
the internal audit is not the detection and prevention of errors and frauds, but reviewing the system of
internal control. Equally holding this view, Sharma (2004) and Obazee (2006) as cited in Salaudeen (2006)
opine that internal auditing is a significant aspect of controls in both private and public sector organizations
and it is generally accepted as an integral part of management control exercised within an organization.
Similarly, Effiok (2003), even though a different view, contends that it can be asserted with a degree of
certainty that monitoring internal control forms the bulk of the work of internal auditor in any organization.
Thus, there is a near consensus that evaluation of the internal control system is what the scope of internal
auditing seeks to cover. Interestingly, Dandago and Suleiman (2005) describe the scope of the internal
audit in a very fascinating manner by analyzing the role being played by an internal auditor through an
analogy with a live dog. They observe that the internal auditor barks by issuing audit query or raising audit
alarm and then bites by writing a report to the management detailing the infringement committed and their
implications to the specific and general financial wellbeing of the organization for appropriate disciplinary
or corrective actions to be taken.
4.0. Research Methodology
The use of survey research design was employed in the generation of the relevant data for the research.
The use of the survey research design is justified because of the method of data collection which is
qualitative that the researcher employed.The population of this study covers the entire Federal Hospitals in
Kano State. These hospitals are the Aminu Kano Teaching Hospital Kano, the National Orthopedics
Hospital, Dala and the Armed Forces Specialist Hospital, Kano.
The samples size of this research covers the entire federal hospitals in Kano State, whereas the respondents
to the study are the accounts/finance departments and internal audit departments of all the federal hospitals
in Kano state. The choice of the respondents is done using judgmental sampling. It is also in line with the
scope of the study. The accounts/finance department in most instances is the custodian of the internal
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
control system while the internal audit department oversees the function of the Accounts/finance
department to ensure strict compliance with policies and approved practices. As such, the choice of the
respondents is adequate and justifiable for the purpose of the research. However, the use of simple random
sampling technique was employed while administering the questionnaire in order to allow all respondents
equal chance of appearance. Table 3.1 presents the number of the respondents and their categories for
effective administration of the questionnaire:
Table 3.1 Number and Category of Respondents
S/N
Hospitals
Internal
Audit Accounts
Department
1
Aminu
Kano
Teaching 29
Total
Department
53
82
36
51
5
5
75
138
Hospital, Kano (AKTH)
2
National Orthopedics Hospital 15
Dala, Kano(NOHD)
3
Armed
Forces
Specialist -
Hospital Kano(AFSH)
Total
44
Compiled by the Researcher
This study utilizes primary source of data collection.
The primary data was obtained through
questionnaire administration. The questionnaire was administered on the sample selected from the staff of
the accounts and the internal audit departments of these hospitals through a staff each from these hospitals.
The intent of the questions was to measure the perceptions of the respondents on the impact of the internal
audit on the objectives of internal control system of the hospitals. Moreover, the questionnaire was
structured into the form of 5 points likert summating rating scales - Strongly Agree, Agree, Undecided,
Disagree and Strongly Disagree. The questions in the questionnaire were prepared bearing in mind the
research problem so as to ensure total coverage of the areas under investigation.
Accordingly, the qualitative nature of this research work necessitates the use of a nominal scale. Thus, the
techniques of data analysis used in this research are as follows:
(a) Chi square: The Chi square (X2) was used in testing hypotheses one, two and three and in the
answering research questions raised in chapter one.
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
The decision rule is to reject the null hypothesis at 95 level of confidence (alpha- α 0.05) if the
computed value of the test statistics(x2) exceeds the critical (table)
value of x2. Accept the null
hypothesis at 95 level of confidence (alpha- α 0.05) if the computed value of the test statistics( x2)
does not exceed the critical (table) value of x2.
(b) Descriptive statistics: The descriptive statistics were used to ascertain the level of agreement or
disagreement with the statement in the questions. This is for the purpose of bringing data into order,
which are data preparation, tabulation and summarization. The focus here was, on percentages,
mean, median, mode and standard deviation.
(i) Proportion (P) = f/ N
(ii) Percentage (%) = f/N * 100
(iii) Mean value > 3.50 is benchmarked as minimum
(iv) Minimum accepted values for median and mode stand at 3.50
(c) Mann-Whitney U test: The Mann-Whitney U test is a non-parametric test that can be used in place of
an unpaired t-test. It is used to test the null hypothesis that two samples come from the same population
(i.e. have the same median) or, alternatively, whether observations in one sample tend to be larger than
observations in the other. In this regard, the Mann-Whitney U test is used to determine whether there is
significant difference on the perceptions of respondents from accounts and internal audit departments on
the various items of the questionnaire.
Decision rule: At 95% confidence level, there is statistically significant difference if the computed p-value
is less than 0,05.
(d)The Kruskal-Wallis ANOVA: The Kruskal-Wallis ANOVA allows one to compare the scores on some
continuous variable for three or more groups. It is similar in nature to the Mann-Whitney tests which gives
room for comparison of more than just two groups. Scores are converted to ranks and the mean rank for
each group is compared. Therefore, the kruskal-wallis test was used to test the differences of the
perceptions of the respondents from three hospitals on the role of internal audit on the objectives of internal
control system of Federal Hospitals in Kano State.
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Decision rule: Conclude that there is statistically significant difference across the groups if the significant
level is a value less than 0.05.
4.0. Discussion of Results
This sub-section presents analyses and interprets the data generated from the respondents on the
Relationship between Internal Audit and the Effectiveness and Efficiency of Operations.
Table 4.1 Labels of items on the Contribution Internal Audit to the Effectiveness and Efficiency of
Operations
S/N
Questions
Identification of Questions
1
Security and custody of Assets
Effectiveness 1
2
Proper
segregation
of
duty
and
Authorization Effectiveness 2
procedure
3
Adequate review of activities and ensuring optimal Effectiveness 3
performance
4
Regular checking and audit of bank accounts
Effectiveness 4
5
Regular and adequate checking of revenue collector s Effectiveness 5
ensures collection and accountability of all money due
for the hospital
6
Proper verification of contracts and supplies guarantee Effectiveness 6
quality service and material delivery
7
Comparison of
budgeted
actual results of operations against Effectiveness 7
provisions
ensures
efficiency
and
effectiveness in the system
8
Efficient use of resources and elimination of wastages, Effectiveness 8
frauds and irregularities
Source: Generated by the Author using SPSS 16.0 from Questionnaire Response, 2012
Table 4.1 reveals the eight items and their respective labels on the Relationship between Internal Audit and
the Effectiveness and Efficiency of Operations. Therefore, it is the responses that were generated from
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
these items that are used in the analysis and consequently testing hypothesis two of this research work with
a view to drawing inference.
Table 4.2 Results of Descriptive Statistics on the Contribution Internal Audit to the Effectiveness and
Efficiency of Operations
Effective Effective Effective Effective Effective Effective Effective Effective
ness 1
ness 2
ness 3
ness 4
ness 5
ness 6
ness 7
ness 8
Valid
68
68
68
68
68
68
68
68
Missing
0
0
0
0
0
0
0
0
Mean
4.2647
4.2500
4.1765
4.5735
4.4559
3.9853
3.6471
4.0882
Median
4.0000
4.0000
4.0000
5.0000
5.0000
4.0000
4.0000
4.0000
Mode
4.00
4.00
4.00
5.00
5.00
5.00
4.00
4.00
Std. Deviation
.74549
.65506
.66784
.55493
.78100
1.05791
.89384
.92616
Minimum
2.00
3.00
2.00
3.00
2.00
2.00
2.00
1.00
Maximum
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
N
Source: Generated by the Author using SPSS 16.0 from Questionnaire Response, 2012
Table 4.2 presents the results of the descriptive statistics on the Relationship between Internal Audit and
the Effectiveness and Efficiency of Operations. From table 4.2 it can be inferred that the presentation and
analysis is based on 68, the total number of the responses validly returned and on the eight items
(questions) contained under that construct. Arguably, the median and the modal scores portray a very high
value implying that majority of the respondents opted for agreement and strong agreement with the
statements numbered effectiveness 1-8. Of particular reference here is on the issue of regular audit and
checking of the hospitals’ bank accounts (effectiveness 4) and adequate and regular checking of the
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
revenue collectors (effectiveness 5) whereby both the median and the modal scores stand at 5. This means
that almost all the respondents are in agreement with those two statements. In fact on item 4, there was no
any disagreement and for item 5 only 2.9% and 8.8 disagreement and undecided levels were recorded,
respectively. Impliedly, internal audit in these hospitals functions to ensure the duly remittance of all
monies due for the hospitals are collected, lodged into appropriate bank accounts and adequately accounted
for. Furthermore, it ensures that these hospitals are not taken by chance as the regular checking and audit of
all their bank accounts by internal audit serves as deterrent to misappropriation of monies belonging to the
hospitals.
In the same vein, the mean score of all the eight items has given a high value with the exception of item 7
(effectiveness 7) whose value (3.6471) is slightly above the cutoff point value of 3.50. However since all
the mean scores including item7 are above the cutoff value and in most cases very high, the study
concludes that internal audit enhances the effectiveness and efficiency of operations in Federal Hospitals
in Kano state. This position is augmented by the insignificant values of the standard deviation of 0.74549,
0.65506, 0.66784, 0.55493, 0.78100, 1.05791, 0.89384, and 0.92616 around the respective mean scores.
Similarly, on the role of internal audit of ensuring comparison of actual results of operations with
budgetary provisions (effectiveness 7) which has the lowest mean score (3.6471), the standard deviation
(0.89384) around the mean score is still very insignificant as explained by the percentage of the responses
for disagreement (13.2%) as highlighted by appendix C. However, considering the percentage response of
23.5% which stand at undecided level (appendix C), it is an indication that the role of internal audit in
ensuring comparison of actual results of operations with budgeted provisions is lagging to some extent.
Again, it could be understood from table 4.15 that majority of the respondents attested to the fact that
segregation of duties and authorization procedure is greatly enhanced by the internal audit. This finding is
vindicated by an absence of any response on either disagreement or strong disagreement. Appendix B
further explains this when it states that 51.1% and 36.8% responses are in agreement and strong agreement
levels respectively.
Finally, in all the responses, the minimum value is 2 with the exception of the statement that borders on the
role of internal audit in ensuring efficient use of resources and elimination of wastages, which has 1as its
minimum value. Even then, it is only one (1) out of the sixty eight (68) respondents that opted for that.
Therefore, the study concludes that it is only one out of the sixty eight respondents that strongly disagree
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
with a single item among the eight items on the relationship between internal audit and the effectiveness
and efficiency of operations. Impliedly, the respondents’ perception reveals internal audit in Federal
Hospitals in Kano to a large extent, as enhancing the effectiveness and efficiency of operations.
Table 4.3 Chi-square results on the Contribution of Internal Audit to the Efficiency and
Effectiveness of Operations
Effectiv Effectiv Effectiv Effectiv Effectiv Effectiv Effective Effectivenes
ChiSquare
Df
Asymp.
Sig.
eness 1 eness 2 eness 3 eness 4 eness 5 eness 6 ness 7
s8
40.706
16.441
50.353
33.912
54.471
15.647
21.765
50.088
3
2
3
2
3
3
3
4
.000
.000
.000
.000
.000
.001
.000
.000
Source: Generated by the Author using SPSS 16.0 from Questionnaire Response, 2012
Table 4.3 is an anatomy of the chi-square test results on the relationship between Internal Audit and the
Efficiency and Effectiveness of Operations. The results tested hypothesis two of the study which states in a
null form that internal audit does not enhance the effectiveness and efficiency of operations in Federal
Hospitals in Kano state. The table further conveys that the chi-square values of 40.706, 16.441, 50.353,
33.912, 54.471, 15.647, 21.765 and 50.088, with the corresponding degrees of freedom of 3, ,2,3, 2,
3,3,3and 4, and with a P-values of .000, .000, .000, .000, .000, .001, .000 and .000 which are all lower than
the convenient level of significance of .005. Going by the established decision rule, therefore, the second
research question is answered. Thus, the respondents perceive the role of internal audit as enhancing the
effectiveness of operations in Federal hospitals in Kano State, as earlier revealed by the analysis of the
descriptive statistics on table 4.15.
Essentially, the aggregate of the chi-square test results on the relationship between internal audit and
effectiveness and efficiency of operations portray the functions of internal audit on operations of Federal
Hospitals in Kano State as very effective, with the exception of the few areas highlighted. It is worth
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
mentioning here that the finding here correlates with the findings of a number of studies such as Schelker (
2008), who documents that internal auditors serve as “watchdogs” of the executive and the bureaucracy to
improve transparency, fight misappropriation, fraud, corruption, wasteful usage of public funds, and
general inefficiencies. Similarly, the finding is in support with the position of the revelation of Karagiorgos
et al (2010), who documents that internal auditing is a critical component of an organization’s management
and a foundation for its safe and sound operations. However, the finding does not correlate with many
other findings. For instance Tijjani (2003), Sabari, (2003) and Effiok (2003) who found that the activities
of the internal audit was not strong enough to ensure effective and efficient operations within the public
sector.
Table 4.4 Mann Whitney U Test Statistics Grouping by Department of
Respondents’ Perception on impact of Internal Audit on Effectiveness of Operation
Effectiv Effectiv Effectiv Effectiv Effectiv Effectiv Effective Effectiv
eness1
MannWhitney U
Wilcoxon
W
Z
Asymp. Sig.
(2-tailed)
eness2
eness3
eness4
eness5
eness6
ness7
eness8
463.000 425.500 476.000 454.500 472.500 456.500 320.500 473.000
673.000 635.500
1652.00 1630.50
0
0
682.500
1632.50
0
1496.500
1649.00
0
-.252
-.814
-.061
-.401
-.116
-.335
-2.305
-.101
.801
.416
.951
.688
.908
.738
.021
.919
Source: Generated by the Author using SPSS 16.0 from Questionnaire Response, 2012
Table 4.4 presents Mann Whitney U Test results of the respondents’ perception on the impact of internal
audit on the effectiveness of operations. The result presented is based on the two departments from which
the research respondents are drawn. From the eight items used in the questionnaire to measure perception
on effectiveness of operations ( effectiveness 1-8)only one item (effectiveness 7) shows a statistically
significant difference of the perception of respondents from accounts and internal audit departments. The Z
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
value of -2.305 with the corresponding significant level of .021 is quite below the significant level of .05,
thereby denoting statistical significant difference of the responses. However, the Asmp. Sig. values of
.801, .416, .951, .688, .908, .738 and .919 of the other items do not indicate significant difference. Hence, it
is concluded that there is no statistically significant difference on the perception of respondents from both
accounts and internal audit departments on the role of internal audit in ensuring the effectiveness and
efficiency of operations in Federal Hospitals in Kano State. Even though the responses differ on the
question on the role of internal audit on comparison of actual results with budgeted provisions, it is not
enough to indicate significant difference when compared with the remaining other 7 items.
Table 4.5 Kruskal Wallis Test Ranking, Grouping by
Hospitals of Respondents’ Perception on Effectiveness of
Operations
Hospital N
Effectivenes
AKTH
Mean Rank
39
34.59
NOHD 26
35.15
A FSH 3
27.67
Total
68
Source: Generated by the Author using SPSS 16.0 from Questionnaire Response, 2012
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Table 4.6 Kruskal Wallis Test Statistics, Grouping by
Hospitals of Respondents’ Perception on Effectiveness of
Operations
Effectiveness_Mean
Chi-Square
.393
Df
2
Asymp. Sig.
.821
Source: Generated by the Author using SPSS 16.0 from Questionnaire Response, 2012
From tables 4.5 and 4.6 the results of Kruskal Wallis Test are presented on the respondents’ perception on
internal audit role on effectiveness of operations hospital by hospital. Deduced from table 4.5 is the ranking
of NOHD higher than AKTH and AFSH in terms of the respondents’ views that internal audit enhances the
effectiveness and efficiency of operations in Federal Hospitals in Kano state. Even though, NOHD and
AKTH are closely ranked (35.15 and 34.59), ASFH is ranked far below (27.67). Apparently, this may
largely be due to the absence of proper internal audit department in AFSH which obviously has the effect
of affecting control procedures regarding operations in the hospital. Most importantly, table 4.6 reveals
absence of statistically significant difference of the perception of the respondents across the three hospitals.
This is vindicated by the p value of .821obtained, which of course is higher than the significant level of .05.
Thus, it is concluded that the respondents from the three hospitals do not differ significantly in the views
that internal audit enhances the effectiveness of operations in Federal Hospitals in Kano State.
5.0 Conclusion
Studying internal control and internal audit of public institutions and organizations is increasingly
becoming a necessity due to high incidences of frauds, errors and irregularities. Evidences abound, which
indicate that public functions are carried out in Nigeria, amidst corruption, which is very prevalent and that
transparency is almost lacking. Hence, the necessity to ensure that public funds achieve the purpose for
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
which they are meant for, particularly in the health sector. Essentially the study is set to determine the
perception of respondents on the role of internal audit in achieving the objectives of Federal Hospitals in
Kano State in the area of effectiveness and efficiency of operations.
The study adopted survey research design and explained its population as the entire operational staff in the
accounts and internal audit departments of the three Federal hospitals in Kano State. The use of both
random and judgmental sampling techniques was carried out to select the respondents of the study.
Descriptive statistics, chi square test, Mann Whitney U Test and Kruskal Wallis ANOVA were employed
as tools for the analysis of the data generated from the responses.
On the other hand, there was a presentation, analysis and interpretation of the data generated in the study.
Tables were used in presenting the results obtained from validity testing, descriptive statistics chi-square
tests Mann Whitney U test and the Kruskal Wallis ANOVA. The tables were followed by the analyses and
interpretations of the results. As a whole, the respondents’ perception show that internal audit in Federal
hospitals in Kano State plays a significant role in the attainment of the objectives of internal control system
of these hospitals specifically on the effectiveness and efficiency of operations. Conversely, the study
establishes that there are no statistically significant difference in the respondents’ views between and across
the respondents’ departments and hospitals.
Furthermore, the presentation, analysis and interpretation of the results obtained from the data generated
from the responses have led to the following findings from the study:
(a) Internal audit departments in Federal Hospitals in Kano State do not seem to properly appraise the
economy with which their resources are employed through adequate review of all activities.
(b) In spite of the positive impact of internal audit departments on the effectiveness of the internal
control system of federal hospitals in Kano state, the present staff strength and the level of
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
independence of the department as perceived by the respondents are inadequate to ensure the
continued optimal performance level of operations.
(c) There are indications as perceived by the respondents that management seldom override some of
the internal control procedures. This will have the effects of affecting the effectiveness and
efficiency of operations of these hospitals.
(d) One of the three hospitals studied is found not to have an internal audit section.
However, from the above findings the following recommendations are offered:
(a)
Internal audit in the Federal Hospitals in Kano State should continue to ensure that the objectives of
internal control system are achieved, so that the populace would adequately benefit from the services
rendered by the hospitals. In discharging their duties, internal auditors in these hospitals should
properly evaluate the entire internal control processes.
(b)
There should be proper and adequate review of all activities by the internal audit to allow for
appraisal of the economy and efficiency with which resources are employed.
(c) The number of staff in the internal audit should be adequate, such that their staff strength will enable
the departments meet up with the volume, challenges and complexities of the work involved.
Similarly, the level of independence of internal audit should be such that will allow the smooth
conduct of its responsibilities.
(d)
Management of these hospitals should give the internal audit the maximum support and cooperation
to carry out their responsibilities. No one should be allowed to override any established control
procedure. In order to achieve this, the management has to live by example by not promoting or
encouraging any activity that would circumvent any of the control procedures. Audit queries and
reports should be considered seriously and defaulters sanctioned accordingly.
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
(e)
There is the need for all the hospitals to have a strong and functional internal audit department. The
hospital without one should as a matter of necessity establish it.
REFERENCES
Adeniyi, A. (2004): Auditing and Investigations, Lagos: 1st Edition El-Toda Venture Limited.
Aliyu, M.D. (2006): “Due Process as an Internal Control Tool in the Public Service: Bauchi State
Experience”, In: Dandago, K.I. and Hamid, K.T. (eds): Commitment and Due Process. Proceedings
of the 4th National Conference on Ethical Issues in Accounting. Department of Accounting, Bayero
University, Kano.
Asika, N. (1991): Research Methodology in the Behavioral Sciences. Lagos: Longman Nigeria PLC.
Brewer, D. and List, W. (2004): Measuring the Effectiveness of Internal Control. Gramma Secure System
Limited. www.gammassl.co.uk/topics/time/time040317.pdf(Retrieved 18/10/2011)
Carhill, K.M. and Kincaid, J.K (1989): Applying the Standards in Governmental Internal
Intern. Audit., 46(5): 50-55
Auditing.
Coupland, D. (1993): The internal auditor’s role in public services orientation. Manage. Audit. J. 8(1): 313.
Chambers, A. (2010): Implementing an Effective Internal Control System. Finance.
www.qfnance.com/auditing-best.practice/implementing An Effective Internal Controls. (Retrieved
5/12/2010).
COBIT Internal Control Framework (2007):
http://www.isaca.org/AMTemplate.cfm?Section=Downloads&Template=/ContentManagement/Co
ntentDisplay.cfm&ContentID=34172 (Accessed: 21 July 2011).
Cohen, J. Krishnamoorthy, G. & Wright, A. (2004): The Corporate Governance Mosaic and
Financial Reporting Quality. Journal of Accounting Literature, 23, 87-152.
COSO (1992) Internal Control – Integrated Framework, Committee of Sponsoring Organizations of the
Treadway Commission, USA. www.coso.org/documents/wacffa-n-pmitchell.pdf. (Retrieved
21/06/2011).
Hamid, K.T. (2005): “The Role of Honesty and Integrity in Ensuring the Effectiveness of Internal Control
System in the Nigerian Banking Industry”. In: Dandago, K.I. and Hamid, K.T. (eds): Commitment
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
and Due Process. Proceedings of the 3rd National Conference on Ethnical Issues in Accounting.
Department of Accounting, Bayero University, Kano.
Hamid, K.T. (2006): “ Combating Corruption in Public Governance. The Role of Due Process”. In:
Dandago, K.I. and Hamid, K.T. (eds): Commitment and Due Process. Proceedings of the 4th
National Conference on Ethnical Issues in Accounting. Department of Accounting, Bayero
University, Kano.
Damagum, Y.M (2003): “Effective Internal Control for Fraud Detection”. The Certified National
Accountant. The Journal of the Association of National Accountants of Nigeria Vol. II, No2, April,
June 2003.
Dandago, K.I. (1999): Auditing in Nigeria: A comprehensive Text, Kano: Adamu Joji publishers LTD.
Dandago, K.I. and Dije, M.S.(2005): “The Role of Internal Auditors in Establishing Honesty and Integrity:
Are the Watch Dogs Asleep?” In: Dandago, K.I. and Hamid, K.T. (eds): Commitment and Due
Process. Proceedings of the 3rd National Conference on Ethnical Issues in Accounting. Department
of Accounting, Bayero University, Kano.
Daniel, G.J. (1999): Public Sector Accounting, Zaria: ABU Press Ltd.
Dunn, J. (1996): Auditing: Theory and Practice.London: Prentice Hall, 2nd Edition.
Effiok, O.S. (2003): “Effective Internal Audit for Efficient Internal Control System”, In: Dandago, K.I. and
Tanko, A.I. (Eds): Back Ground Issues to Ethics in Accounting; Proceedings of the First National
Conference on Ethical Issues in Accounting. Department of Accounting Bayero University, Kano
Nigeria.
Janfa, B.I. (2002):“Internal Control and Fraud Preventive: Accountant’s Perspective”, the National
Accountant: The Journal of the association of National Accountants of Nigeria Vol. 10 No 4
October –December 2002.
Karagiorgos, T., Drogalas, G., Gotzamanis, Ε. and Tampakoudis, I. (2009): The Contribution
of Internal Auditing to Management. International Journal of Management Research and
Technology, Vol. 3, No. 2, Serials Publications, pp.417-427.
Richiute, D. (2002): Auditing and Assurance Services. Southwestern Ohio: Natorp Boulevard, Mason.
Sabari, M.H. (2003); “Internal Auditor as a Custodian of Internal Control: A Case of National Electric
Power of Nigeria (NEPA)” In: Dandago, K.I. and Tanko, A .I. (eds): Background Issues to Ethics
in Accounting. Proceedings of the First National Conference on Ethical Issues in Accounting Vol. 1
(2003), Department of Accounting Bayero University Kano, Nigeria.
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
Salaudeen, Y. M. (2006): “An Analytical Review of the Role of Internal Auditor in the Promotion of
Adherence to Due Process in the Nigerian Public Sector”, In: Dandago, K.I. and Tanko, A I. (Eds):
Background Issues to Ethics in Accounting Proceedings of the First National Conference on Ethical
Issues in Accounting, Vol I (2003) Department of Accounting Bayero University, Kano. Nigeria.
Sawyer, D. (2004): Sawyer’s Internal Auditing.USA: 4th Edition, Institute of Internal Auditors Inc.
Schelker, M. ( 2008): Public Auditors: Empirical Evidence from the US States: University of
Fribourg, Switzerland and CREMA, available on-line at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=957528.
Tanko, M. (2003): “Internal Control and Fraud Prevention in the Nigerian Banking Industry”, In:
Dandago, K.I. and Tanko, A.I.(eds): Background Issues to Ethics in Accounting, Proceedings of the
First National Conference on Ethical Issues in Accounting. Vol 1 (2003), Department of
Accounting Bayero University Kano.
Tijjani, B,(2003): “Efficiency Assessment of Internal Audit in Nigerian Universities: Cases of Bayero
University Kano and University of Lagos”, in Dandago, K.I. and Tanko, A.I. (Eds): Background Issues
to Ethics in Accounting, Proceedings of the National Conference on Ethical Issues in Accounting Vol 1
(2003) Department of Accounting Bayero University Kano, Nigeria.
Turlea,E., Stefanescu, A., Calu, D.A., Pintia, C.M. and Mocanu, M.(2011):
“Empirical
research on the internal audit into public hospitals from Romania”African Journal of Business
Management Vol.5 (4), pp. 1509-1523, 18 February, 2011
Wallace, W. (1984): Internal auditors can cut outside CPA costs. Harvard Business Review,
62:2, 16-20.
Whittington, O.R. and Pany, K. (2004): Principles of Auditing and Other Assurance Services. New York:
McGraw Hill/Irwin.
Vincent, M.O., Barry, N.W., James, S.G. and Henry, R.J. (1999): Montgomery’s Auditing. 12th Edition,
Continuing Professional Education Version.USA: Price Water House Coopers LLP.
Proceedings of 11th International Business and Social Science Research Conference
8 - 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. ISBN: 978-1-922069-70-2
APPENDIX
Table 1 Relationship between Internal Audit and Effectiveness and Efficiency of Operations
S/No.
Level of
Agreement/Disagreement
No. of
Responses
Percentage
Cummulative %
1.
Strongly Agree
218
40
40
2.
Agree
236
43
83
3.
Undecided
61
11
94
4.
Disagree
28
5
99
5.
Strongly Disagree
01
01
100
544
100
-
TOTAL
Source: Generated by the Author using SPSS 16.0 from Questionnaire Response, 2012 TOTAL
RESPONSES = TOTAL RESPONDENTS x No. OF QUESTIONS = 68 x 8 = 544