CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Tertiary educational institutions play a pivotal role in societal development because they shape the human capital that drives a nation’s economy (Adeniyi, 2014). Consequently, without efficient tertiary institutions, the quality of human capital declines, negatively affecting economic growth and societal development (Anao, 2012). Therefore, efficient management of institutional resources is critical, and internal audit serves as a key mechanism to ensure this efficiency (Fernandez & Rainey, 2016).

The Institute of Internal Auditors (2009) defines internal audit as an independent, objective assurance and consulting activity designed to add value and improve organizational operations. Similarly, Christopher (2015) emphasizes that internal audit creates value by enhancing organizational processes. Furthermore, Anao (2012) adds that internal audit provides independent and objective assessments, assuring management and the Board that financial and operational controls effectively manage risks and support organizational goals. DeSimone (2018) further explains that internal audit is a process conducted by qualified personnel to examine records and financial statements, forming an opinion on their fairness and accuracy. In addition, Unegbu and Obi (2017) note that internal auditing evaluates system controls, ensures compliance with policies, and recommends necessary improvements.

Internal audit is crucial because management must report the organization’s financial position to stakeholders. Specifically, Goodwin (2014) explains that auditing financial statements ensures that records present a true and fair view of the organization’s performance. Okechukwu and Mohammed (2011) highlight internal audit’s role in preventing fraud and mismanagement. Based on contingency theory, auditing ensures data reliability and proper management of organizational resources, thereby improving performance (Pratono, 2016).

Organizations worldwide prioritize performance and goal attainment. For instance, tertiary institutions measure performance not only by financial outcomes but also by student achievement, employee performance, and institutional reputation (Adejola, 2019). Tertiary institutions aim to provide high-quality educational services (Modibo, 2015). Hence, establishing effective internal audit units allows management to receive critical analyses, evaluations, and recommendations to make informed decisions (Dinapoli, 2007).

However, despite its importance, internal audit has faced criticism, as notable institutions like Enron, WorldCom, and Lehman Brothers implemented audit systems yet collapsed (Brown, Falaschetti & Orlando, 2010). As a result, questions remain about whether internal audit functions genuinely enhance organizational performance, particularly in education. Therefore, this study examines the impact of internal audit function and efficiency on organizational performance.

1.2 Statement of the Research Problem

Organizations strive to overcome constraints and achieve sustainability. In educational institutions, success extends beyond financial sustainability to effectively delivering knowledge and contributing to societal development. Thus, achieving this goal requires effective administration, which depends on a strong internal audit function (Modibo, 2015).

Nevertheless, many Nigerian tertiary institutions fail to integrate internal audit effectively, resulting in administrative inefficiencies. Akomolafe (2012) attributes this to institutions’ reluctance to invest in internal audit without clear evidence of performance improvement. Moreover, the scarcity of empirical studies on the link between internal audit and organizational performance limits evidence-based adoption. Therefore, this study addresses this gap by examining Babcock University as a case study.

1.3 Objectives of the Study

General Objective:
To determine the impact of internal audit function and efficiency on the organizational performance of Babcock University.

Specific Objectives:

1. Assess the impact of internal audit competency on operational efficiency.

2. Evaluate the effect of internal audit experience on organizational effectiveness.

3. Examine the relationship between internal audit independence and employee job performance.

4. Determine the effect of internal audit function on overall organizational performance.

1.4 Research Questions

1. How does internal audit competency affect operational efficiency at Babcock University?

2. To what extent does internal audit experience influence organizational effectiveness?

3. What is the relationship between internal audit independence and employee job performance?

4. How does the internal audit function impact overall organizational performance?

1.5 Research Hypotheses

Hypothesis 1
H0: Internal audit competency has no significant impact on operational efficiency.
H1: Internal audit competency significantly impacts operational efficiency.

Hypothesis 2
H0: Internal audit experience has no significant effect on organizational effectiveness.
H1: Internal audit experience significantly affects organizational effectiveness.

Hypothesis 3
H0: Internal audit independence does not significantly relate to employee job performance.
H1: Internal audit independence significantly relates to employee job performance.

Hypothesis 4
H0: Internal audit function has no significant effect on organizational performance.
H1: Internal audit function significantly affects organizational performance.

1.6 Scope of the Study

This study focuses on the impact of internal audit function and efficiency on organizational performance at Babcock University. Specifically, the target population includes accounting and finance staff. The sample size will be determined using the Taro Yamane formula. In addition, the study adopts a quantitative approach using primary data collected via a self-administered questionnaire. The study covers Babcock University, Ilishan-Remo, Ogun State, from November 2020 to April 2021.

1.7 Significance of the Study

• Accountants and Auditors: The study highlights how internal audit functions strengthen organizational performance, thus enhancing auditors’ understanding of their role.

• Management: Provides management with insights on leveraging internal audit to improve efficiency and effectiveness.

• Students: Educates students about internal audit, its efficiency, and organizational benefits.

• Researchers: Contributes to the limited empirical literature on internal audit and organizational performance in Nigerian tertiary institutions. Consequently, it fills a critical gap in knowledge.

1.8 Limitations of the Study

1. Time Constraints: The research was conducted within a limited timeframe, restricting methodology and findings.

2. Respondent Honesty: Some participants hesitated to disclose sensitive information.

3. COVID-19 Pandemic: Social restrictions affected physical data collection; however, alternative methods ensured the validity and reliability of the study.

1.9 Definition of Terms

• Audit: Verification of accounting information in financial statements to determine reliability and accuracy (Mautz, 2009).

• Internal Auditing: Independent, objective assurance and consulting activity designed to improve operations, add value, and enhance risk management, governance, and control (IIA, 1995).

• External Auditing: Periodic or ad hoc examination by independent accountants to assess accuracy and compliance with GAAP.

• IIA (Institute of Internal Auditors): Regulatory body overseeing auditing practices in Nigeria.

• Financial Statement: Formal records of financial activities of a business or entity.