The Relationship Between Audit Committee Effectiveness and Financial Management in Government Ministries in Kenya

Abstract

Like any other organization, audit committee is a vital mechanism the government needs to use to monitor management's behavior in the sector in order to enhance a proactive oversight of financial compliance, reporting and disclosure process. The audit committee plays an oversight responsibility and assists a board to monitor responsibilities of an organization or institution hence their effectiveness is crucial in proper financial management. The objective of the study was to examine the relationship between audit committee effectiveness and financial management in government ministries in Kenya. Specific objectives of the study were to establish the effect of audit committee membership composition on financial management in government ministries in Kenya, to find out the relationship between audit committee independence and financial management in government ministries in Kenya, to determine how audit committee charter affects financial management in government ministries in Kenya, and to establish the relationship between audit committee members technical skills and financial management in government ministries in Kenya. Therefore the study sought to carry out a research on effectiveness of audit committee in government ministries in Kenya. The study utilized a descriptive research design whereby descriptive survey designs were used. The target population of the study consisted of the members of the audit committee who made a target population of 60 respondents. The sample size of 30 respondents was generated by sampling 50% of the respondents in each committee. Primary data was used in this study by use of questionnaires. Data was organized mainly by use of frequencies, descriptive and inferential statistics. Descriptive statistics included mean and standard deviation. Inferential statistical techniques included correlation and regression analysis which was used to draw a causal relationship between the independent variables and financial management. The study found that audit committees with more than 3 members have been found to be more effective on ministerial financial management compared to those with fewer members. The study also established that competency determines the efficiency of the auditor in setting a systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes in your ministry. The study finally established that audit committee membership composition contribute most to the financial management followed by audit committee independence. At 5% level of significance and 95% level of confidence, audit committee membership composition, audit committee independence, audit committee charter, and audit committee members' technical skills are significant in financial management. The study concluded that audit committee meetings are held at least 4 times in a year in specified intervals increasing financial performance of the various ministries. The study recommended that government ministries to adopt proper audit charter by having independent directors on the board, an independent board chair, an effective audit committee both external and internal audit mechanisms so as to independently carry audit mandate in the department.