Role of internal audit in promoting effective management By water service providers: a case study of Embu water and Sanitation company limited
The purpose of this study was to investigate the role of internal audit in promoting effective management in water provision services. Internal auditing is primarily directed at improving internal controls designed to provide reasonable assurance regarding achievement of objectives in effectiveness and efficiency of operations, reliability of financial reporting, compliance with laws and regulations. Internal auditor is considered one of the “four pillars” of corporate governances, the other pillars being the board of directors, management and the external auditor (Glascock, 2007). According to Hamers (1998) duties and responsibilities of Internal Auditor (IA) are reviewing the compliance with the existing governance financial regulations, instructions and procedures, evaluating effectiveness of internal control systems, appraising the economy and the effectiveness with which financial and other resources are being used, reviewing the reliability and integrity of record keeping and reporting the financial and operation information system, post audit of payment, assessment of risk and consulting the management as need arises. This study aims to establish the relationship between the role of internal audit and effective management in water services providers. The study used a summary based on a case study of the Embu Water and Sanitation Company Limited (EWASCO). The sample for the study was obtained using purposeful sampling technique, stratified sampling and cross-sectional methods since the respondents were from different layers of the company stakeholders, and that the cost of internal auditing function which results from implementation of internal audit practices (roles) was picked between years 2007 – 2011 in EWASCO Ltd. The sample used is made up of various categories of stakeholders, roles of internal audit and the consequential cost of internal audit function which includes salaries and wages, traveling and accommodation, training and development among others. The benefits of the role of internal audit lead to increased effectiveness of management of EWASCO Ltd which was able to increase both revenue and house hold water connections. The research v established a relationship R f (c) where R is the total revenue earned by EWASCO and C is the cost of implementation of the functional roles of internal audit. The study used qualitative and quantitative methods of data analysis. Descriptive method was applied on qualitative data. Scales of 1 – 5 were used to quantify the qualitative data which captured the roles and benefits of the internal audit. Quantitative data was fed to the computer and analyzed using SPSS version 17 program. Person model of analysis, charts and tables were used to present the results conveying visual impression of relationships. Correlation, coefficient was used to establish the relationship. In this study Person’s correlation was determined at 1 tail test, 5% significant level and 95% confidence interval, and it was found to be 0.8999 which implies a very high correlation between variables cost of internal audit and revenue earned. The study has revealed that an increase in cost of internal audit will lead to an increase in the revenue earned when all other variables remain constant. That is R f (c), (revenue is a function of cost). The water reforms by EWASCO which have called for development infrastructure and organizational structures that include well developed internal audit; will achieve greater efficiency and more responsiveness to the public needs. The study found out that 83% of respondent’s believe that the roles of internal audit increased effectiveness and integrity of financial and operations of EWASCO. 75% believe there is increased reliability and integrity of financial and operational information; 67% of respondents’ believe there is increased compliance with laws and regulations; ability to validate and honor customer’s needs and expectations and that communications of audit findings to the board of directors and shareholders is improved. However, the study found out that only 17% of respondents believe that role of internal audit enhance job satisfaction for internal audit staff. vi There is efficient and effective internal audit and internal control system and investigating units at Embu Water Services Provision Company (EWASCO). Thus, the water services providers should be remolded and strengthened to position them to discharge their duties effectively and efficiently. The component sectors should be unbundled into separate distinct, independent entities that handle generation, transmission, distributions and marketing. The sector should be without falsifications and frauds currently being witnessed.