ABSTRACT

The effect of internal audit on the performance of decentralized entities in Rwanda

By Dr. Jean Paul MPAKANIYE

E-mail : mpakajpl@yahoo.fr

This research entitled “the effect of internal audit on the performance of decentralized entities in
Rwanda, case study of NYABIHU District, Period of 2014-2016”. The specific
objectives were to identify the determinants of internal audit of Nyabihu District, to assess the
performance indicators of Nyabihu District and to establish the relationship between internal
audit and performance of Nyabihu District. The researcher tested the following hypotheses:
Control, risk management, determining level of compliance, assurance services, detecting errors
and frauds are determinant of internal auditors in Nyabihu District, Effective and efficient
operations, financial efficiency and accountability are performance indicators of Nyabihu
District and there is a close relationship between internal audit and performance of Nyabihu
District.

During the whole research process, both primary and secondary data have been used. Primary
data were directly obtained from responses provided by the 20 employees of Nyabihu District
selected from 60 populations. To attain the purpose of the study through the questionnaires and
interview. Secondary data were obtained through literature in the existing books related to this
study, academic papers, reports and internet. From the findings, it was revealed that that 100%
of the respondents are on positive side agreed that the determinant of internal audit are risk
management, control system and determining level of compliance while 20% of respondents not
agreed with detecting errors and frauds. The results showed that the indicators of performance in
NYABIHU District are financial efficiency as evidenced with 80% efficient operations with
75%, accountability with70 % and goals attained with 60% of respondents. Findings showed that
there is indeed a strong positive relationship between internal audit and performance at a Pearson
correlation coefficient of r = 0. 732 and p = 0.01. Since r > 0.1, this implies that internal audit
affects performance by 75.2% and 26.8% by other factors. From the discussion of findings, we
can conclude that the quality of audit work has a significant positive effect on performance of
decentralized entities. The recommendations were provided stating that the recruitment systems
should be streamlined so that recruitment is done of employees who are qualified in their
respective areas regardless of their political affiliation and the government of Rwanda should
creates the chartered institute of auditing for growing up the professional auditor with for better
function of audit

Key words: Internal audit, Decentralized entities and Performance

Electronic copy available at: https://ssrn.com/abstract=3051075

 1. GENERAL INTRODUCTION

Today globally, internal audit activity has the potential to provide to date unequalled tool to
management in the conduct of their duties. This potential has been transformed into a challenge
and embodied in the new definition of internal auditing from the institute of internal auditors
(Chambers & Odar, 2015).Thus, internal auditors devoted most of their time to checking on
individual transactions before the payments were made, mainly, to crosscheck the authenticity of
the transactions to be paid for (Abbass & Aleqab, 2013). Originally, audit emerged from the
State’s need to control public finances. Subsequently, the audit experienced a tendency of
diversification and expansion and today we are talking about tax audit, production audit, quality
audit, and legal audit. Internal auditors are seen more as faultfinders rather than solution
providers or witch hunters rather than watchdogs, and partners in the government strive for
organizational excellence. However, in recent years internal auditing has developed a strategic
dimension to become an essential component of public sector governance and financial
management reforms in many developing countries (Alzeban & Gwilliam, 2014).

The Minister of Finance and Economic Planning (MINECOFIN) issued Ministerial Order No
002/09/10/GPIA of 12/02/2009 setting out regulations for Internal Control and Internal Audit in
Government. An Internal Audit Charter was then developed to help to operationalize this Ministerial
order and guide operations of Internal Audit functions in Public entities and to enable internal audit
units to be functionally independent in providing professional and objective assurance and advisory
services in risk management, internal control and governance processes .Each government entity is
supposed to have an internal audit unit to fulfill the internal audit mission. Despite the above
initiatives, the audits identified that the existing internal audit units in public institutions are not
adequately staffed to effectively discharge their mandate. The structures of public entities provide for
only one Internal Auditor and their work if done is not reviewed by any senior person before
finalization of audits. In some institutions, Annual internal audit plans were not prepared by the audit
units and even where they were prepared, the planned activities were not fully implemented hence a
back log of activities. In some institutions, these plans were not approved (Office of the Auditor
General, 2016).

The audits also identified that Internal Auditors do not use standard working papers to document the
audit work done during the audit execution phase of their work. The work is done in an unsystematic

Electronic copy available at: https://ssrn.com/abstract=3051075

way and the scope of work covered is not clearly established, rendering internal audit units
ineffective. Similarly, there is no evidence of any work done by some internal audit units during the
year as they did not prepare any reports. There seems to be inadequate training of Internal Auditors
and there is need to train the internal audit staff on how to plan and execute the audits as well as the
required documentation. This will enhance efficiency of the internal audit function. Further, there is
need to review the function and ensure that this is adequately staffed depending on the nature and size
of the institution to enable them execute their mandate effectively. Proper capacity assessment should
be made and action taken to ensure that the Charter setting out Internal Audit activities is
implemented.

The performance of any company is originated from total integration of different activities
including internal audit function; it is very evident that the responsibility of internal control
management is reserved to organization management. Internal audit reduces misappropriation of
funds, financial risk management, effective and efficient use of limited resources, corruption and
ensures value for money (Subramaniam et al. , 2006). In this regard, the role of the internal audit
activities cannot be underestimated. However, according to Badara & Saidin ( 2013), insufficient
understanding of the role of internal audit in ensuring appropriate control in an environment
where the accounting officer is formally held accountable for his/her expenditure, combined with
weak capacities amongst Internal Audit Unit staff in the many organization both private and
public, undermine the effectiveness of the internal audit function in carrying out it roles.

Therefore, this research is very essential and beneficial to not only the researcher but also
academicians and scientists as well as the society as whole. The following are the interests of
these stakeholders. The Information generated is useful by providing insights that can be of
considerable use for restructuring of internal audit as a means of strengthening control in the
management of local entity resource and internal auditors can use the recommendations to
improve the value of internal audit and hence performance of local entities. This research can
help decisions makers of Government to adopt new strategies which can improve the
performance of decentralized entities. The study would further help to bring out the weaknesses
in internal auditing mostly found at NYABIHU District regarding to the auditing as well as
recommendable strategies to solve established weaknesses at the same entity.
 2. LITERATURE REVIEW

According to Füredi-Fülöp (2015), an audit is an independent review of the financial,

operational or technical operation of an organization. Auditing is the accumulation and
evaluation of evidence about quantifiable information of economic entity to determine and report
on the degree of correspondence between the information and established criteria. Bhaskar &
Kapoor (2014) defined internal auditing as “a systematic, objective appraisal of the diverse
operations and controls within an organization to determine whether financial and operating
information is accurate and reliable, risks to the enterprise are identified and minimized, external
regulations and acceptable internal policies and procedures are followed, satisfactory standards
are met, resources are used efficiently and economically, and organization’s objectives are
effectively achieved”.

The Internal audit as a concept has existed as early as there have been substantive human
relationships. Its origin can be documented and traced to civilized communities that existed
around 500 B.C the economically and politically influence throughout the whole civilized world
(Gill & Cerce, 2017). The Government of these empires imposed and collected these taxes on
individuals and businesses. For the proper accounting and collection, systems of checks and
counterchecks were established. Such early internal control systems were designed primarily to
minimize errors and safeguard state property from the dishonest tax collection. The bible
contains an extensive discussion of internal audit functions in the modem sense of the term. It
addresses limited access to assets, dual custody of liquid assets, surprise audits, care in selecting
employees, and separation of duties. The Bible even explains the rationale behind such internal
controls: the employees were likely to steal or misappropriate their master monies if given an
opportunity to do so (Gill & Cerce, 2017).

According to Loke et al. (2016), an effective public sector audit activity strengthens governance
by materially increasing citizens’ ability to hold their public sector entity accountable. Auditors
perform an especially important function in those aspects of governance that are crucial for
promoting credibility, equity, and appropriate behavior of public sector officials, while reducing
the risk of public corruption. Therefore, it is crucial that audit activities are configured
appropriately and have a broad mandate to achieve these objectives. The audit activity must be
empowered to act with integrity and produce reliable services, although the specific means by
which auditors achieve these goals vary. At a minimum, public sector audit activities need:
Organizational independence, Unrestricted access , Sufficient funding, Competent leadership ,
Objective staff, Competent staff, Stakeholder support and Professional audit standards.

3. RESEARCH METHODOLOGY

3.2. Research methodology

This section deals with methodology used within the research to collect and analyze data. This
section contains the research design, methods of data collection, study population and sample,
methods of data analysis size as well as methods of data processing.

3.2.1. Research design

This study was conducted through a survey design and both qualitative and quantitative
approaches were used. The present research used case research design, especially descriptive
research method to obtain the information based on the truth from various workers of Nyabihu
District.

3.2.1.1. Qualitative method

According to Misangyi (2006), qualitative data includes designs, techniques and measures that
do not produce discrete numerical data. More often the data are in the form of words rather than
numbers. By using this method, the information from respondents were obtained. The qualitative
methods helped in obtaining information that relates to the appreciation, feelings of respondents,
ideas, attitudes of respondents and thereafter to their meaning and interpretation (Kane, 2008).

3.2.1.2. Quantitative method

According to Pickering & Byrne (2014), the quantitative method allows socio-economic
researchers to focus on variables of interests and the value of mathematical symbols and permits
economical summary information. Quantitative method gives priority to searching for statistic
frequencies, tables, percentage, etc. It aims at collecting measurable and comparable data.
3.2.2. Population of the study

The population refers to an entire group of individuals, events or objects having common
observable characteristics (Sampson & Scott, 2012). The total population of this research was
composed by 60 employees as workforce but the target population was employees from the
management team of Nyabihu District.

3.2.3. Sample size

Winter (2013) defined a sample as a small group of cases drawn from the population used to
represent the large group or whole population under investigation. In this case, the study work
used a sample size of 20 employees from administration of Nyabihu District. Because they are
enough informed about internal audit and according to his own judgment, logic; intelligence and
experience to see which one that can help achieve the objectives.

Table 1: sample structures

Departments Sample size

Leaders 4
Personnel and administration department 2
Finance and administration department 8
Procurement department 2
Audit department 4
Total 20
Source: Researcher, 2017

The table above indicates a sample size of 20 respondents from the various departments

3.2.4. Sampling technique

In carrying out this study, in order to determine the sample size, the study work used purposive
sampling by selecting specific persons who could meet the purpose of the study. Wu Suen et al.
(2014) defined purposive sampling as a no probability sampling procedures where the study wok
uses judgment about which respondents to choose and picks only those who can best meet the
purpose of the study.
 3.2.5. Sources of data

The research used primary and secondary data . The primary data comes straight from the
people or works being researched and hence the information that is collected is in raw form and
collected for the first time (Koziol & Arthur, 2012). These comprise firsthand knowledge for
example eyewitness reports and original documents. According to Koziol & Arthur (2012),
secondary are data collected by someone else outside your study for purpose other than the study
at hand, in other words secondary sources are data collected by others. A secondary data refers to
the review of documents that new researcher uses in order to show arguments formulated
supporting his study.

3.2.6. Data collection techniques

In this research the following techniques were used to collect the data from the field:
Documentation, questionnaire and interview.

According to Yamada (2011), documentation is a way of getting information from materials

containing documentary evidence. These materials include: text books, newspaper and electronic
resources. The electronic resources were helpful enough especially because it helped in the
research process to get updated information.

3.2.6.2. Questionnaire

According to Morente-Sánchez & Zabala (2013), Questionnaires are information gathering

techniques that allow systems analysis to gather attitudes, beliefs, behaviors and characteristics
from several key people of the organization who were affected by current and proposed systems.
Both and open and close questions were used. The basic methodology in collecting primary data
is questionnaire. In this research the questionnaire was prepared for the staff of Nyabihu District
with respect to the objectives of the study.

3.2.6.3. Interviews

According to Huffcutt et al. (2011), an interview is as a discussion in which the interviewer tries
to get information from the interviewee. The researcher conducted direct interview with internal
auditor of this entity. This technique have used as a way of getting the frantic information about
the internal audit on performance.

3.2.7. Data processing

In data processing the given answers were distinguished and grouped based on their
comprehensiveness. This has been used for interview questions and questionnaires to which
answers have been provided by different respondents In the research, data collected have been
classified according to their comprehensiveness and meaningfulness. The analysis consists to
match each type of data mentioned in the analysis scheme with the number or frequency of the
respondents.

3.2.8. Data analysis

After data are processed, data were analyzed both qualitatively and quantitatively. Qualitative
data was analyzed in the field as it was collected. Qualitative analysis makes the investigator to
feel so close to the phenomena under investigation that he has little difficult in formulating
research questions and theories about the process involved. Quantitative data was analyzed by
using descriptive statistics through SPSS (Statistical Package for Social Sciences) Version 16.0.
The collected data was expressed in different tables especially the responses from the
representative sample under the study. The relationship between variables is established and
tested using the Pearson’s correlation coefficient. With reference to this study, the data collected
were analyzed basing on the number of respondents and calculated in percentages on which the
stud work designed the conclusion.

4. RESULTS AND DISCUSSION

This part deals with presentation, interpretation and analysis of the data collected from the field
in order to make appropriate conclusion. The percentages were used to analyze and interpret the
data after we have summarized the findings. The findings have been organized as per the
objectives of the study.
4.1. Background information of the respondents

The first part of this analysis deals with identification of respondents including their sex, age,
educational level, as well as work experience.

4.1.1 Gender of respondents

The sex of respondents have been identified and the table below indicate the sex of respondent

Table 2: Distribution of respondents according to sex

Gender Frequency Valid Percent Cumulative Percent

Female 7 35 35
Male 13 65 100
Total 20 100
Source: Primary data 2017

This table 2 shows that 7% respondents were female correspondent to 35% and 13 respondents
were male made 65%. This implies that most of the respondents were male in Nyabihu District.

4.1.2. Category of respondents by age

The analysis of the aspect related to the age took account of the young people and the adults. The
table which follows shows us this distribution

Table 3: Distribution of respondents according to the age

Ages Valid percent Cumulative

Frequency (%) percent
18-25 years 0 0 0
26-35 years 6 30 30
36-45years 10 50 80
46 years and above 4 20 100
Total 20 100
Source: Primary data 2017

Findings from table3 show that majority of the respondents belong to the age group of 26-35
years that correspond to 30% and third category of 36-45constitutes 50% meanwhile 20% of
total respondent have 46 years and above. This implies that most of the respondents were aged in
years which are a very active and productive age.

4.1.3. Education level of respondents

The table below shows how our respondents are distributed according to their education level.

Table 4: Distribution of respondents according to educational level

Education Level Frequency Valid percent Cumulative percent

Master’s degree 4 20 20
Bachelor’s degree 14 70 90
A2 level 2 10 100
Total 20 100
Source: Primary data, 2017

It is evident from table 4 that majority of the respondents are bachelors degree holders hence
taking the highest percentage (70%) while 20% of respondents have A2 level meanwhile 10% of
sample size also have Master’s degree. This implies that all of employees are knowledgeable and
skilled. According to the observation done during the study process, the capacity of the
respondents gives the researcher the confidence in getting the reliable information concerning the
study.

4.1.4. Experience of respondents

The table hereafter shows the distribution of respondents depending on their experience.

Table 5: Distribution of respondents according to experience

Duration Frequency Valid percent Cumulative percent
Less than 2 years 7 35 35
3 to 5 years 8 40 75
More than 5 5 25 100
Total 20 100
Source: Primary Data, 2017

Based on the results from table5, it can be observed that the majority of respondents are between
3years to 5years at the level of 40% of total respondents and 35% of respondents have been
working less than 2 years meanwhile 25% of the total respondents have been working more than
5 years. From the above results it seemed that the majority of respondents have experience of
work between 3years to 5 years, hence the reliability of the data.

4.2. Analysis and interpretation of the specific objectives of the study

This section analyses and interprets findings from the data collected through questionnaires
submitted to the respondents. All questions asked were analyzed and interpreted basing on
objectives of the present study.

4.2.2. Audit planning

On this point the researcher asked to respondents whether internal audit applies the first step of
auditing planning and their answers are in the following table:
Table 6: Opinion of respondents about auditing plan in Nyabihu District

Valid Frequency Valid Percent Cumulative Percent

Planned 20 100 100
Not planned 0 0 100
Total 20 100
Source: Primary data, 2017

Basing on findings of table 6, 100% of the respondents agreed that internal audit is planned in
Nyabihu District. The results associated to the fact of what said by Cahan & Sun (2015) who
argued that an efficient and effective audit can only be performed if the audit has been
thoroughly and properly planned. The importance of audit planning cannot be over emphasised
and ISA 300 (redrafted) 'Planning an Audit of Financial Statements' contains the provisions
which the auditor is required to comply with in planning an audit. In summary, ISA 300 says that
the planning stage of the audit should be used to establish an overall strategy for the audit,
develop an audit plan and reduce audit risk to an acceptably low level. In other words, the
auditor should plan the audit engagement so that it will be performed in an effective manner and
in accordance with auditing standards. Adequate audit planning will ensure that appropriate
attention is given to crucial areas of the audit and that potential problems are identified on a
timely basis.
4.2.3. Characteristics of internal audit

At its best, an organization's internal audit function adds value to that organization by constantly
improving its risk management, control and governance processes. Internal audit is a key pillar in
any organization is the reason why it has some characteristics.

Table 7: Characteristic of internal audit in Nyabihu District

Cumulative Percent
characteristics of internal audit Frequency Valid Percent

20
Independent 2 10

40
Objectivity 2 10

50
Professionalism 1 5

All above 15 75 100

Total 20 100

Source: Primary data, 2017

The results from the table 7 show that the majority of respondents said that the main
characteristic of internal audit is Independent, objectivity and professionalism with the rate of
75%. The result further are conformity with Abbott et al. (2016) argued that Independence is the
freedom from conditions that threaten the ability of the internal audit activity to carry out internal
audit responsibilities in an unbiased manner. To achieve the degree of independence necessary to
effectively carry out the responsibilities of the internal audit activity, the chief audit executive
has direct and unrestricted access to senior management and the board. Objectivity is an
unbiased mental attitude that allows internal auditors to perform engagements in such a manner
that they believe in their work product and that no quality compromises are made. Internal
auditing is a highly visible example of a profession whose very core is steeped in ethics. Not
only do internal auditors have and adhere to a code of ethics, but they also serve as an
organization’s ethical compass.

Table 8: The professionalism of internal audit function in your organization

Responses Frequency Percentage (%)

Very Good 10 50
Good 8 40
Fair 2 10
None 0 0
Total 20 100
Source: Primary Data, 2017

Based on the data presented in the table 8, the finding indicates that majority of the respondents
perceived that the professionalism of internal audit in Nyabihu District is very great good as
evidenced by 50% of respondents meanwhile 40% of respondents said that is good and 10% of
respondents said that is fair. These results were in conformity with research done by Wu et al.
(2016) who said that, the competencies of internal audit staff must take into account the skills
and knowledge base laid down by the profession. They added that, this includes personal
qualities, standards of education, sound judgment, innovation and operational and
auditing/evaluation experience. True professionalism requires growth. Taking advantage of
continued professional development programs keeps practitioners aware of innovative ideas and
best practices.
Table 9: Respondents view on determinants of internal audit in NYABIHU District

Determinants Responses

Strongly Strongly
agree Agree Disagree disagree Total

Fre % Fre % Fre % Fre % Fre %

q q q q q

Risk Management 4 20 16 80 - - - - 20 100

Control System 20 100 - - - - - - 20 100

2
Detecting errors and frauds 6 30 10 50 4 0 - - 20 100

Determining level of
compliance 20 100 - - - - - - 20 100

Source: Primary data, 2017 (N=20)

The findings from table 9 shows that 100% of the respondents are on positive side agreed that
the determinant of internal audit on are risk management, control system and determining level
of compliance while 20% of respondents not agreed with detecting errors and frauds . The
findings were in line with Date (2012) who argued that , the role of internal auditing can be
defined as involving three main elements, namely the evaluation and improvement of risk
management, control governance processes. Khlif & Samaha (2016) added that , Internal
auditing improves organization’s operations as it is an independent activity helping a firm
achieves its goals by using a well-organized approach to manage their risk, control and
governance efficient and effective as the ultimate goal of internal audit is achieve better returns
for the organization in shape of improved firm performance.

Table 10: Respondents’ views on if determinants of internal audit affect positively the
performance of NYABIHU District
Responses Frequency Percentage (%)
Strong agree 12 60
Agree 6 30
Not sure 2 10
Disagree 0 0
Total 20 100
Source: Primary Data, 2017 (N=20)

The findings from the table 10 showed that 60% of total respondent’s strongly agree that
determinants of internal audit affect positively the performance of NYABIHU District while
30% of total respondent’s agree with the statement but the remaining percentage that are equal to
10% are not sure that with this statement. This study indicates strong evidence that determinant
of internal audit identifies the overall audit approach and controls system to cover all areas of
risk that leads in minimizing fraud and other financial irregularities towards performance of
organization. This associated to the fact of what said by Mahzan et al.(2015), an effective
internal audit service can, in particular, help reduce overhead, identify ways to improve
efficiency and maximize exposure to possible losses from inadequately safeguarded company
assets all of which can have a significant effect on the financial performance of an organization.

Table 11: Respondents view on effectiveness of internal audit indicators in NYABIHU

District
Effectiveness of internal audit Responses
Strongly Strongly
Agree Agree Disagree Disagree Total
Fre % Fre % Fre % Fre % Fre %
q q q q q
Staffs competent 5 25 15 75 - - - - 20 100
Professional auditing standard 8 40 12 60 - - - - 20 100
Competent leadership 12 60 8 40 - - - - 20 100
Independent audit work - - 20 100 - - - - 20 100
Taking immediate actions and
timely report 4 20 16 80 - - - - 20 100
Source: Primary data, 2017 (N=20)

The table 11 indicates that Nyabihu District have internal audit that is effective as indicated in
the table above. 25% of respondents strongly agree that staff competent is the indicator of
effective internal audit while 75% agreed; 40%of respondents strongly agreed with professional
auditing standard as effectiveness of internal audit in Nyabihu District meanwhile 60% of
respondents agree with it; 60% of total respondents said the competent leadership as the
effectiveness of internal audit in Nyabihu District while 40% of respondents agreed with
competent leadership; 100% of respondents agreed that independent audit work is as
effectiveness of internal audit in Nyabihu District; Lastly, 80% of sample size said that taking
immediate actions and timely report also is effectiveness of internal audit in Nyabihu District and
20% of respondents agreed with this statement. This results is in line of Alzeban & Gwilliam
(2014) said that an effective public sector audit activity strengthens governance by materially
increasing citizens’ ability to hold their public sector entity accountable. Auditors perform an
especially important function in those aspects of governance that are crucial for promoting
credibility, equity, and appropriate behavior of public sector officials, while reducing the risk of
public corruption.
Table 12: Respondents’ views on the results of internal audit on the performance of
NYABIHU District

characteristics of internal audit Frequency Percentage

Financial efficiency 16 80
Efficient operations 15 75
Accountability 14 70
Goals attained 12 60
Total 20 100
Source: Primary data, 2017

The findings from table 12 shows that that the results of internal audit on the performance of
NYABIHU District are financial efficiency as evidenced with 80% of respondents, efficient
operations with 75% of respondents, accountability with70 % of respondents and goals attained
with 60% of respondents. This was supported by a survey conducted Association of Certified
Faud Examiners (2014) who found that the internal audit in organizations where it exists,
contributes substantially to performance improvement and assist in identifying profit evidence in
corporate disasters, particularly financial fraud consistently documents an association between
weak governance.
Table 13: Respondents view on relationship between the internal audit and performance of
NYABIHU District

Relationship Percentage
Frequency (%)
Helps in safeguarded of assets 15 75
Concerned with external regulation such as
financial services 16 80
Recommend improvement and changes in the
system of operation 18 90
Ensuring that entries have been made in
accordance with accounting principle 15 75
Source: Primary data, 2017

The table 13 above shows that the respondents’ view about the relationship between internal
audit and performance of Nyabihu District where 90% of respondents agreed that internal audit
recommend improvement and changes in the system of operation, 80% of respondents agreed
that internal audit concerned with external regulation such as financial services while 75% of
respondents said that internal audit helps in safeguarded of assets and ensuring that entries have
been made in accordance with accounting principle. This result indicated that internal audit and
organizational performance are significantly related. This Associated to the fact that an effective
internal audit service can, in particular, help to identify ways to improve efficiency and
maximize exposure to possible deficit from inadequately safeguarded company assets all of
which can have a significant effect on the performance of an organization (Alzeban, 2015).

4.2.4. Inferential statistics

The following section presents the inferential statistics for the study (regression model
and correlation analysis). The researcher performed a regression analysis to establish the
association between the independent variables (Internal Audit) with the dependent variables
(Performance) of the study.
The following regression model was adopted for the study:

Y= β0+ β1x1+ β2x2+ β3x3+ β4x4+Ɛ

Y : Performance of decentralized entity

X1 : Risk Management
X2 : Control system
X3 : Detecting errors and frauds
X4 : Compliance of Law
βo= Intercept,
β = Coefficient of independent variables, and
Ɛ = error term

Table 14: Pearson Correlations analysis

Correlations of variables Internal audit Performance

Internal audit Pearson correlation 1.000 .732**

Sig (2-tailed) . .000

N 20 20

Performance Pearson correlation .732 1.000

Sig (2-tailed) .000 .

N 20 20

**.correlation is significant at the 0.01 level (2-detailed)

Source: Statistical Package for Social Scientists (SPSS)

The table 16 is giving the relationship between internal audit and performance of private
companies whereby the respondents N is 20 and the significant level is 0.01, the results indicate
that independent variable has positive high correlation to dependent variable equal to .732**
and the p-value is .000 which is less than 0.01.

When p-value is less than significant level, therefore researchers conclude that variables are
correlated. This means that there is a significant relationship between internal audit and
performance of decentralized entities. The findings were in line with Coetzee & Lubbe (2014)
who confirmed that, internal audit measures, analyses and evaluates the efficiency and
effectiveness of other controls established by management in other to ensure smooth
administration, control cost minimization, ensure capacity utilization and maximum benefit
derivation.

5. CONCLUSION AND RECOMMENDATIONS

This section of the study reviews and discusses the major findings of the study, drawing
conclusions and recommendations in light of the findings according to the study objectives.

5.1. Conclusion

The main aim in this study is to examine the effect of internal audit on the performance of
decentralized entities in Rwanda particularly in NYABIHU District. With the establishment of
internal audit to enhance efficiency, accountability and transparency in the management of
resources in the public sector, it is expected that IA units in the local districts in Rwanda will
enhance their effectiveness and performance. The results from this study indicate there exist
effective IA units in Rwanda’s local Districts especially in Nyabihu District. The factors
identified as ensuring IA effectiveness are existence of audit committee, expertise and
experience of internal auditors, management support, staff competent, professional auditing
standard, competent leadership, independent, unrestricted access to records and implementation
of audit recommendations. From the discussion of findings, we can conclude that the quality of
audit work has a significant positive effect on performance of decentralized entities. In addition,
an internal audit is considered as a significant part of the decentralized entities structure and local
government covers the activities of oversight by audit committees to ensure credible financial
reporting process.
5.2. Recommendations

The following recommendations were provided

 The recruitment systems should be streamlined so that recruitment is done of employees

who are qualified in their respective areas regardless of their political affiliation.
  The government of Rwanda Should creates the chartered institute of auditing for growing
up the professional auditor with for better function of audit.

 The internal audit department should have more independence so as to be effective and
enhance performance.

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