INTERNAL AUDIT, INTERNAL CONTROLS, AND FISCAL DISCIPLINE: EMPIRICAL INSIGHTS FROM STRENGTHENING CONTROL SYSTEMS AS DRIVERS OF FINANCIAL ACCOUNTABILITY IN NIGERIAN LOCAL GOVERNMENTS
Keywords:
Internal Audit Control, Internal Control System, Financial Accountability, Local Government, Fiscal Transparency
Abstract
The purpose of this study is to examine the effects of internal audit control and internal control systems on financial accountability in Nigerian local governments, based on a case study of Ilorin West, Kwara State. Using agency and stewardship theories as the theoretical base, a quantitative survey design was employed using purposive sampling of 125 accounting and audit staff members, with reliability analysis verifying the strength of the constructs and ordered logit regression empirically validating the hypothesised relationships. The results show that internal audit control and internal control systems have significant and positive effects on financial accountability, with internal control systems having a greater impact. These results emphasise the significance of institutionalised audit mechanisms, preventive controls, and staff commitment in maintaining transparency and fiscal discipline. The policy implications are that strengthening audit independence, strengthening compliance structures, and making use of incentive-compatible measures that combine sanctions with rewards are necessary. The study adds to the accountability and governance literature by illustrating how effective control frameworks enhance local government financial management and reinforce fiscal decentralisation and citizen confidence in public institutions.
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References
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Nasution, D. A. D., Napitupulu, J. Y., & Buaya, R. L. (2024). A systematic literature review of internal auditing in public sector finance (2015–2024). Preprint. https://www.researchgate.net/publication/392185417
Nunnally, J. C., & Bernstein, I. H. (1994). Psychometric theory (3rd ed.). McGraw-Hill.
Anuruddha, S., & Mahanamahewa, P. (2021). The influence of internal controls on public financial reporting quality (PFRQ) in Sri Lanka: An empirical study. Account and Financial Management Journal, 6(7), 2456–3374. https://doi.org/10.47191/afmj/v6i7.02
Izedonmi, F. I. O., & Olateru-Olagbegi, A. (2021). Internal audit quality and public sector management in Nigeria. European Journal of Social Sciences Studies, 6(5). https://doi.org/10.46827/ejsss.v6i5.110
Ike, E. R., & Felix, E. (2024). Public sector financial reforms and accountability in Nigeria. Zenodo. https://doi.org/10.5281/zenodo.13772390
Winarna, J. (2021). Government internal control system and local government performance. CORE. https://core.ac.uk/download/pdf/491353226.pdf
World Bank. (2021). World development report 2021: Data for better lives. World Bank. https://doi.org/10.1596/978-1-4648-1600-0
Etim, R., Jeremiah, M., & Jeremiah, O. O. (2020). Accountability in the public sector: The role of professional accountants in the present democracy in Nigeria. European Journal of Business Management and Research, 5(1), 1–12.
Ayagre, P. (2018). Public sector mergers and internal control systems of public sector organisations: Evidence from Ghana. African Journal of Accounting, Auditing and Finance, 6(2), 109–124. https://doi.org/10.1504/AJAAF.2018.10013533
Samuel, O. O., & Rufus, A. I. (2024). Transparency and accountability concerns in the Nigerian public sector. International Journal of Research and Innovation in Social Science, VIII(VI), 2406–2416.
Díaz Fuentes, D., Clifton, J., & Alonso, J. M. (2013). Did New Public Management matter? An empirical analysis of the outsourcing and decentralization effects on public sector size. Public Management Review, 17(5), [page numbers not provided]. https://doi.org/10.1080/14719037.2013.822532
Alqudah, H., Amran, N. A., Hassan, H., Lutfi, A., Alessa, N., Alrawad, M., & Almaiah, M. A. (2023). Examining the critical factors of internal audit effectiveness from internal auditors’ perspective: Moderating role of extrinsic rewards. Heliyon, e20497.
Boufounou, P. (2024). Enhancing internal control mechanisms in local government organisations: A crucial step towards mitigating corruption and ensuring economic development. Economies, 12(4), 78.
Ratmono, D., & Darsono, D. (2022). Effectiveness of internal audit in local governments: The moderating role of internal and external auditors’ relations. Accounting, 8(2), 177–186. https://doi.org/10.5267/j.ac.2021.7.004
Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20–47. https://doi.org/10.2307/259223
Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49–66. https://doi.org/10.1177/031289629101600103
Frank, P., & Angaye, P. E. G. (2020, January). Impact of accountability and financial reporting on public financial management in Nigeria. Century Group. Preprint available at
Etikan, I., & Bala, K. (2017). Sampling and Sampling Methods. Biometrics & Biostatistics International Journal, 5, Article No. 00149.
Eton, M., Mwosi, F., & Ogwel, B. P. (2022). Are internal controls important in financial accountability? Evidence from Lira District Local Government, Uganda. International Journal of Financial, Accounting and Management, 3(4), 359–372. https://doi.org/10.35912/ijfam.v3i4.810
Greene, W. H. (2018). Econometric analysis (8th ed.). Pearson Education.
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw-Hill.
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2020). Multivariate data analysis (8th ed.). Cengage.
Handoyo, S. (2024). Mapping the landscape of internal auditing effectiveness: Evolution, themes and future directions. Cogent Business & Management.
Hoai, T. T. (2022). The impact of internal control systems on the intensity of innovation and organizational performance of public sector organizations in Vietnam: The moderating role of transformational leadership. SAGE Open, 12(3), 21582440221123509. https://doi.org/10.1016/j.heliyon.2022.e08954
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Kabuye, F., Kato, J., & Bananuka, J. (2021). Internal controls, compliance with financial regulations and accountability in local governments: Evidence from Uganda. Journal of Accounting in Emerging Economies, 11(3), 407–430. https://doi.org/10.1080/23311975.2019.1573524
Karikari, A. M. (2022). Modeling the implications of internal audit effectiveness on value-for-money and sustainable public procurement. Cogent Business & Management, 9(1). https://doi.org/10.1080/23311975.2022.2102127
Ong’unya, G. O., Kalenzi, A., & Chan Peter, G. R. (2023). Internal controls and financial accountability in a public health sector: An empirical investigation of a local government in Uganda. African Journal of Business Management, 17(7), 120–127. https://doi.org/10.5897/AJBM2020.9060
Long, J. S., & Freese, J. (2014). Regression models for categorical dependent variables using Stata (3rd ed.). Stata Press.
Martinez-Vazquez, J., & Lago-Peñas, S. (2020). The impact of fiscal decentralization: A survey. Journal of Economic Surveys, 34(3), 645–672. https://doi.org/10.1111/joes.12182
Nasution, D. A. D., Napitupulu, J. Y., & Buaya, R. L. (2024). A systematic literature review of internal auditing in public sector finance (2015–2024). Preprint. https://www.researchgate.net/publication/392185417
Nunnally, J. C., & Bernstein, I. H. (1994). Psychometric theory (3rd ed.). McGraw-Hill.
Anuruddha, S., & Mahanamahewa, P. (2021). The influence of internal controls on public financial reporting quality (PFRQ) in Sri Lanka: An empirical study. Account and Financial Management Journal, 6(7), 2456–3374. https://doi.org/10.47191/afmj/v6i7.02
Izedonmi, F. I. O., & Olateru-Olagbegi, A. (2021). Internal audit quality and public sector management in Nigeria. European Journal of Social Sciences Studies, 6(5). https://doi.org/10.46827/ejsss.v6i5.110
Ike, E. R., & Felix, E. (2024). Public sector financial reforms and accountability in Nigeria. Zenodo. https://doi.org/10.5281/zenodo.13772390
Winarna, J. (2021). Government internal control system and local government performance. CORE. https://core.ac.uk/download/pdf/491353226.pdf
World Bank. (2021). World development report 2021: Data for better lives. World Bank. https://doi.org/10.1596/978-1-4648-1600-0
Published
2024-04-30
How to Cite
Kolawole, K. (2024). INTERNAL AUDIT, INTERNAL CONTROLS, AND FISCAL DISCIPLINE: EMPIRICAL INSIGHTS FROM STRENGTHENING CONTROL SYSTEMS AS DRIVERS OF FINANCIAL ACCOUNTABILITY IN NIGERIAN LOCAL GOVERNMENTS. J-MACC : Journal of Management and Accounting, 7(1), 182-197. https://doi.org/https://doi.org/10.52166/j-macc.v7i1.11778
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