SHIKDON YAHYA AHMED

TOPIC

Impact of internal auditing on selected financial institutions in Uganda, a case study of centenary
bank, Kampala Road branch

Statement of the Problem

Poor financial performance of commercial banks adversely affects the economic growth of the
Ugandan economy. Most banks have functional internal audit departments charged with
responsibility of providing management with re-assurance that internal control systems are
adequate and quality of services is in place Jensen, M. C. & Meckling,W. H. (1976),. Internal audit
ensures compliance to set management policies. It also ensures that top management meet its
overriding responsibility of establishing and maintaining a system regarding quality
management, goals, resources, processes and effective performance which include monitoring
and measuring the system's effectiveness and efficiency. Internal audit generally referred to as
first party audit is one of the tools/resources used by the bank to check the effectiveness and the
delivery capability of its quality management system. However, despite all the efforts to put in
place internal audit, there are continued reports of a wide range of financial fraud practices inside
the Bank, mismanagement, error of the transactions, thefts, waste of organization’s assets and by
passing laid down policies and procedures. In addition there is continued poor financial
performance, where budgets are not followed, rules and regulations on the use of finances are
not adhered to and there is massive unaccounted for funds (Centenary Bank audit report, 2014).
This has put centenary bank at risk of financial inadequacy, employee dissatisfaction and poor
financial performance Kalbers, L.P. & Forgarty, T. J. (2013). It’s against this background that
the study attempt to find out if there is a relationship between internal auditing and
organizational performance in the selected Centenary Bank –Kabalagala Branch in Kampala
Uganda.

Objectives of the study

The study will be guided by the following specific objectives:
 To assess the impact of internal audit on liquidity in Centenary Bank
 To establish the impact of internal audit on solvency in Centenary Bank
  To determine the impact of internal audit on return on investment in Centenary Bank

Conceptual Review / Framework

Independent variable Dependent variable

Control system Financial performance

 Control environment  Increase in liquidity levels
 Control activities  Gain in profitability
 Segregation of duties  Return on investments
 Solvency

Intervening variable/ moderate variables

 Government policy and support

 Level of education
 Business opportunities
 Materials

Source: Kalbers, L.P. & Forgarty, T. J. (2013)

The conceptual framework above shows the relationship between the study variables in relation
to the impact of internal auditing on the financial performance in centenary bank Kabalagala
branch. The independent variable is Internal Audit Activities such as prove the true and fair
view of the company’s prevention of errors and fraud and advising the management of business
in the public institution, while on the hand the dependent variable is financial performance which
is indicated by increase in liquidity levels, gain in profitability, return on investments and
solvency. However the two variables are intervened by moderating factors like; government
effort, the level of education of Auditors; business opportunity and materials used for better
evaluation.
References

Jensen, M. C. & Meckling,W. H. (1976), ‘Theory of the firm: managerial behaviour, agency
costs, and ownership structure’, Journal of Financial Economics.

Gerrit Sarens and Mohammad J. Abdolmohammadi (2010), Monitoring Effects of the Internal
Audit Function: Agency Theory versus other Explanatory Variables. International Journal of
Auditing. Blackwell Publishing Ltd

Diamond,J. (2002), The Role of Internal Audit in Government Financial Management: An

International perspective.