Ali Baba Solomon.pdf
Transcript of Ali Baba Solomon.pdf
THE IMPACT OF EXTERNAL AUDIT IN ACCOUNTABILITY AND
TRANSPARENCY OF NGOS IN THE BOLGATANGA MUNICIPALITY
By
Ali Baba Solomon (BSc. Accounting and Computing)
© 2015 Department of Accounting and Finance
A thesis submitted to Department of Accounting and Finance
Kwame Nkrumah University of Science and Technology School of Business
in partial fulfilment of the requirements
for the degree of
MASTER OF BUSINESS ADMINISTRATION (ACCOUNTING-OPTION)
School of Business, KNUST
College of Humanities and Social sciences
August, 2015
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DECLARATION
I hereby declare that this submission is my own work towards the award of Masters
in Business Administration that, to the best of my knowledge, it contains no material
previously published by another person nor material which has been accepted for the
award of any other degree of any University or Professional Institution, except where
due acknowledgement has been made in the text.
Ali Baba Solomon ………………………. …………………
PG 9599613 Signature Date
Student Name
Certified by:
Mr. Richard Owusu Afriyie, …………………….. ………………..
Supervisor Name Signature Date
Certified by:
Dr. K. O. Appiah …………………….. ………………..
Head of Department Signature Date
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ABSTRACT
This study is to assess the impact of external audit in accountability and transparency
of NGOs in the Bolgatanga Municipality Both qualitative and quantitative approach
were used that included questionnaires, interviews, focus group discussions to collect
data. Purposive sampling technique was used in the selection of respondents. A
sample size of sixty four (108) respondent were selected from NGOs, stakeholders
and beneficiaries across board and SPSS was used in the analysis of the data. From
the findings, it is observed that the external audit report of NGOs are not utilised to
bring about compliance and that recommendations of the external auditors are not
enforced by management. This invariably calls for a case by case research on NGO
activities. It was established that external audit report does not have positive effect
on NGOs activities in relation to accountability and transparency. Project end
evaluation should not be only narrative as has been the case in most evaluations but
should include audited financial statement to be signed by the external auditor.
External Auditors should not be hired by management of NGOs but by the Board of
Directors or Donors so the external auditors will report to the Board or the donor or
funding agency and not management of NGOs. Beneficiary communities and
stakeholders should be educated to demand full disclosure of the entire package of
support or intervention such that they can hold NGOs implementing the projects
within their community accountable if they refused to render the agreed support
package.
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DEDICATION
I sincerely dedicate this work to the following:
My wife: Bernice Akolgo
Children: Racheal Kakpegre, Laura Kakpegre, and Lucretus Kakpegre
Who have given me the support, encouragement and permitted my long absence
from home most of the time to enable me complete this piece of work.
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ACKNOWLEDGEMENT
My first appreciation goes to the Lord Almighty for given me the wisdom, courage,
strength and ability to bring this work to a final stage
I am also grateful to Mr. Richard Owusu - Afriyie, my Supervisor who saw me
through the proposal writing. His useful comments and criticisms made me stay on
course through my presentation to the data collection stage.
I wish to acknowledge other researches, without their work this research would not
have come into completion, much was borrowed from them. Also this research
would not have come to a successful completion without the help of a number of
people.
My deepest appreciation and thanks particularly goes to Stephen G. Tobazaa (CA,
CFA) of Bolgatanga Polytechnic for his constructive suggestions, criticisms and
useful comments. Without his dedication, the work would not have become a reality.
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TABLE OF CONTENTS
DECLARATION ......................................................................................................... i
ABSTRACT ................................................................................................................ ii
DEDICATION ........................................................................................................... iii
ACKNOWLEDGEMENT ........................................................................................ iv
TABLE OF CONTENTS .......................................................................................... v
LIST OF TABLES .................................................................................................. viii
ABBREVIATIONS AND ACRONYMS ................................................................. ix
CHAPTER ONE ........................................................................................................ 1
INTRODUCTION ...................................................................................................... 1
1.1 Background to the Study ........................................................................................ 1
1.2 Statement of the Problem ....................................................................................... 1
1.3 RESEARCH OBJECTIVE .................................................................................... 3
1.3.1General objective ................................................................................................. 5
1.3.2 Specific objectives .............................................................................................. 5
1.4 RESEARCH QUESTIONS ................................................................................... 6
1.6 SIGNIFICANCE OF THE STUDY ....................................................................... 6
1.7 SCOPE OF THE STUDY ...................................................................................... 7
1.8: LIMITATIONS OF THE STUDY ....................................................................... 7
1.9 ORGANISATION OF THE STUDY .................................................................... 8
CHAPTER TWO ....................................................................................................... 9
LITERATURE REVIEW ......................................................................................... 9
2.0 Introduction ............................................................................................................ 9
2.1 The context of NGO accountability and transparency ........................................... 9
2.2 Upward and downward accountability .................................................................. 9
2.3 Hierarchical and holistic accountability ............................................................... 13
2.5 Concept of Auditing ............................................................................................. 15
2.6 Independent Auditing Standards .......................................................................... 15
2.8 Working with External Auditors ...................................................................... 19
2.9 The External Auditing Process ......................................................................... 20
2.10 Audit planning .................................................................................................. 20
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2.11 Responsibilities of management and auditors for fraud and error ..................... 21
2.1.1.1 Responsibilities of management .................................................................... 21
2.11.2 Responsibilities of the auditor......................................................................... 21
2.12 Detecting Fraud .................................................................................................. 22
2.14 The Audit Report ............................................................................................... 24
2.15 Internal Audit ..................................................................................................... 26
2.16 Difference between Internal Audit and External Audit ..................................... 27
2.17 Control Procedures ............................................................................................. 28
2.19 Audit Committees .............................................................................................. 30
2.19.1 Characteristics of Audit Committees .............................................................. 31
2.19.2 Effectiveness ................................................................................................... 32
2.19.3 Role of Audit Committee ................................................................................ 32
CHAPTER THREE ................................................................................................. 36
RESEARCH METHODOLOGY ........................................................................... 36
3.0 Introduction .......................................................................................................... 36
3.1 Study Design ........................................................................................................ 36
3.3 Study Population .................................................................................................. 37
3.4 Sampling Techniques .......................................................................................... 37
3.4.1 Sample Size ....................................................................................................... 37
3.5. Sources of Data ................................................................................................... 38
3.6. Data Collection Procedure .................................................................................. 38
3.7. Data Analysis ...................................................................................................... 39
3.8. Ethical consideration ........................................................................................... 39
3.9 LIMITATIONS TO THE STUDY ...................................................................... 39
3.10 The Study Area .................................................................................................. 40
CHAPTER FOUR .................................................................................................... 43
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA ............ 43
4.1 Introduction .......................................................................................................... 43
CHAPTER FIVE ..................................................................................................... 55
SUMMARY OF FINDING, CONCLUSIONS AND RECOMMENDATIONS 55
5.0 Introduction .......................................................................................................... 55
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5.1 Summary of findings ............................................................................................ 55
5.1.1 Assess how effective external audit is on NGO‘s in accountability and
transparency. ..................................................................................................... 55
5.1.2 To examine how external audit report is dealt with by NGOs in the Bolgatanga
Municipality. ..................................................................................................... 56
5.1.3 Challenges that NGOs face in ensuring transparency and accountability. ....... 56
5.2 Conclusion ........................................................................................................... 56
5.3 Recommendations ................................................................................................ 57
REFERENCES ......................................................................................................... 59
APPENDICES .......................................................................................................... 62
Appendix 1: QUESTIONAIRE TO STAFF AND BENEFICIARY ......................... 62
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LIST OF TABLES
TABLE PAGE
Table 2.1 Comparison Chart ...................................................................................... 28
Table 4.1: Selection of the Sample Size .................................................................... 43
Table4.2 Distribution of Respondents by Gender ...................................................... 44
Table 4.3: Distribution of Respondents According to Age:....................................... 44
Table 4.4: The Effectiveness of external auditing on NGO‘s accountability and
transparency approaches? .......................................................................... 46
Table 4.5: To examine how external audit report is dealt with by NGO‘s in the
Bolgatanga Municipality. .......................................................................... 47
Table 4.6 Challenges that NGOs face in ensuring accountability and transparency . 51
Table 4.6 Accuracy in assets records ......................................................................... 53
Table 4.7 Compliance with applicable laws and regulations ..................................... 54
Table 4.8 Transactions are recorded in the books of accounts .................................. 54
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ABBREVIATIONS AND ACRONYMS
IAU Internal Audit Unit
GoG Government of Ghana
IIA Institute of Internal Auditors
FAA Financial Administration Act
FAR Financial Administration Regulation
L.I Legislative Instrument
COSO Committee of Sponsoring Organization
ARIC Audit Report Implementation Committee
FMP Financial Management Practices
APR Annual Performance Report
BNI Bureau of National Investigations
IAA Internal Audit Agency
IIA Institute of Internal Auditors
MDAs Ministries Departments And Agencies
GOG Government of Ghana
PFM Public Financial Management
CEO Chief Executive Officer
SA Statutory audit
PV Private audit
IA Interim audit
MA Management audit
CA Continues audit
EA External audit
FRA Financial and Regularity audit
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EA Effectiveness audit
VMA Value for money audit
BMA Bolgatanga Municipal Assembly
SSPS Statistical Package for Social Science
UER Upper East Region
IAS International Accounting Standards
ISA International, Standard in Auditing
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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Issues of transparency, honesty and accountability have in recent years been regarded
as significant in matter relating to businesses of NGOs business. According to the
Nepal News (2001), "only a few of these NGOs appear to be transparent and
accountable in their activities‖. The Director General of the World Trade
Organisation (WTO), Mike Moore in 2001 instituted a code of conduct which would
be ensure and require that NGOs are transparent and accountable in their activities.
Such demands mostly mandate NGOs to deliver what they demand of others:
transparency, honesty, and accountability.
Transparency is regarded as an essential part of accountability. Therefore, ―effective
accountability requires a statement of goals, transparent decision-making and
relationships, and honest reporting of resource use and achievements, which can
emphasize the honesty and efficiency with which resources are used or the impact
and effectiveness of the work‖ (Ramesh, 1996: 8). External auditors are mandated by
law to evaluate and publicly issue an opinion on the transparency and accountability
on NGOs activities. Its purpose, in part, is to ensure that the financial status and
operating performance of NGOs are fairly presented and disclosed."
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Internal and external stakeholders need access to timely and adequate information
about the activities of NGOs since it plays significant roles to them performing
effectively. NGOs must thus not only be honest, but they ought to be regarded as
such. This is because, government bodies can politically isolate them, which would
render them incapable of going about their voluntary activities. The development of
NGOs has come up with issues not lonely relating to their task to perform but also on
accountability. There have been rise in the attentions for transparency and
accountability as a result of the increase and continual funding of projects by NGOs.
However the extent of NGOs balancing their effectiveness in performance and
accountability relies on the doing away with ambiguities of the concept of
accountability. Accountability, which basically refers to 'answerability', is a well
known concept to the Non-governmental sector. The extent to which one is
accountable is the standard requirement or expectation of the one whom the report is
given.
Rajesh Tandon, examines accountability in the context of stakeholder obligations,
including beneficiaries, donors, regulators and staff as well as other NGOs and
regard them as part of the system to ensure accountability. Rajesh further asserts that
since their stake is in relation to their performance and not in its governance, their
assessment of governance requires that NGOs perform effectively, thereby ensuring
accountability to stakeholders. This implies that if NGOs are to have the continued
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access to the flow of funds from donors, then their ―desirable processes and
outcomes‖, and ―interest and concerns must be matched‖ by performance. To
buttress these views, Tandon further explains that accountability to donors should be
more related to output indicators than it is being practice now.
1.2 Statement of the Problem
Governments and intergovernmental agencies have recognised the need for
maximising the effectiveness with which NGOs are operating in the beneficiary
communities. Thus, making external audit an integral part of transparency and
accountability towards achieving the desired goals.
Much aid funding is channeled through the medium of non-governmental
organizations (NGOs), which are responsible for how effective the funding is
translated into aid delivery. At both the project (NGO) level and country
(governmental) level, accounting and accountability mechanisms have the potential
to increase or decrease the effectiveness with which development funding is
deployed.
Furthermore, there is a general lack of independent research into the impact and
perceptions of, beneficiaries of those attempts that some NGOs have made over the
years to expand their accountability and transparency drive. Those studies that have
addressed this issue have tended to be narrowly focused on particular NGOs, and
have therefore not been able to provide broader insights into issues at the
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fundamental level associated with the development and implementation of new
forms of accountability and transparency mechanisms towards meeting beneficiary
needs among others.
It is argued that auditing as examination or review of various activities of the NGOs,
aims at ensuring internal controls, accountability and transparency. Such
organisations include both the government and non-governmental agencies.
In addition, few concerns have also been raised that most NGOs divert or misapply
funds allocated to them (Gaventa and McGee, 2008). Several attributes have been
given to the lack of external auditing in these organisations.
The global growth of NGOs has been a specific locus of discussions and initiatives to
achieve accountability that ensure effective and efficient performance of their
activities. Charitable codes of conduct, certification initiatives and other
accountability mechanisms have thrived in the sector in recent years, and
organisations have been established to support and promote accountability
improvement (Jordan, 2005; Lloyd, Oatham, & Hammer, 2007; Omelicheva, 2004).
A Survey conducted by Transparency International on How Corrupt NGOs in
Developing Nations are, by RICK Chohen, July 16th
, 2013, emphasis that NGOs in
Developing Nations are corrupt. September 26th
,2003 GNA Mr. Joseph Oji United
Nations Volunteer Program Officer in Ghana, on Friday has criticised Youth related
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Non – Governmental Organisations (NGOs) in Africa that misapply donor funding
projects by hiking overheads cost.
Although NGOs are audited by external auditors, the public perceptions and the
publications kept pointing figures at NGOs misapplying donor funds.
In respect of these, the researcher intends to assess the impact of external audit on
NGO‘s activities in relation to accountability and transparency in Ghana by focusing
on NGOs in the Bolgatanga municipality.
1.3 RESEARCH OBJECTIVE
1.3.1General objective
The general objective of the study is to assess the impact of external audit in
Accountability and Transparency in the Bolgatanga Municipality
1.3.2 Specific objectives
In order to achieve this objective the following specific objectives are designed in
that direction.
1. To assess how effective external audit is on NGO‘s accountability and
transparency
2. To examine how external audit report is dealt with by NGO‘s in the
Bolgatanga Municipality.
3. To ascertain the challenges that NGOs face in ensuring accountability
and transparency.
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1.4 RESEARCH QUESTIONS
The following are the research questions designed to achieve this objective;
1. •How effective is external auditing on NGO‘s accountability and
transparency approaches?
2. •How has external audit report on NGOs impacted on their performance in
the Bolgatanga Municipality?
3. •What challenges do NGOs face in ensuring accountability and transparency?
1.6 SIGNIFICANCE OF THE STUDY
It is known that every study play a major role in one way or the other. The findings
of the study are anticipated to be significant because of the primary role external
audit play in promoting the principles of good governance through accountability and
transparency.
The result of the study would identify the internal control practices that ensure
effective accountability and transparency in the NGOs, effectiveness of external
auditing on NGO‘s accountability and transparency and examine how external audit
report is dealt with by NGOs as well as ascertain the major challenges that hinder the
accomplishment of external audit by the NGOs.
These findings would help the researcher to make prudent recommendations to the
various NGOs and the beneficiaries to ensure efficient accountability. In addition, the
outcome of the study would enable NGOs to implement external audit report so as to
ensure effectiveness of external auditing on NGO‘s accountability and transparency.
It is again expected that after ascertaining those major challenges that hinder the
accomplishment of external audit by the NGOs would help the NGOs to apply best
strategies to that effect. The report will also be a source of reference for other
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researchers on should more about the impact of external audit instead of only
transparency and accountability
1.7 SCOPE OF THE STUDY
The study would be conducted in the Bolgatanga Municipality in the Upper East.
The content scope covered the impact of external audit of NGO‘s in the light of
accountability and transparency in Ghana by focusing on NGOs. The study will
concentrate on the management staff of the NGOs, Audit firms and beneficiary
communities and individuals.
1.8: LIMITATIONS OF THE STUDY
The study is to be limited to the impact of external audit on NGO‘s activities in
relation to accountability and transparency in Ghana by focusing on NGOs in the
Bolgatanga Municipality.
Time: The time of the research is very short and this makes it very difficult if not
impossible for the researcher to design a great number of items of questionnaires to
be administered for the research work.
Cost: The cost of producing this study is substantial considering the fact that one has
to type the manuscript, produce photocopies and commute frequently within twenty
(20) commies in the Bolgatanga Municipality for the information the NGOs.
Co-operation: This research needs a lot of information from both management staff
of the NGOs and some beneficiaries. However, some farmer groups and individuals
were skeptical in providing information with the excuse that they have responded to
a lot of such questions in the past but have not seen any benefit. Never the less,
response to the required information was gathered upon further persuasion.
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1.9 ORGANISATION OF THE STUDY
This study will be organized in five chapters as follows. Chapter One gives an
overview of the study including the background to the study, objectives of the study,
and significance of the study. The second chapter entails the review relevant
literature on the subject matter. Chapter Three provides an insight into the procedures
the researcher would use in carrying out the study. This includes the description of
the study type and design, population, sample and sampling technique to be used,
data collection methods and analysis among others. Chapter Four focuses on the
analysis of the results of the findings. This will consist of tables and charts to give
more meaning to the data that would be collected from the field. Chapter Five will
provide summary of the study findings and draw the final conclusions and
recommendations to ensure that possible improvement of accountability and
transparency in NGO operations in the Bolgatanga and Ghana as whole.
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CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
The chapter entails the review of literature which relates to the topic the impact of
External audit of NGO‘s in the light of accountability and transparency in Ghana by
focusing on NGOs in the Bolgatanga Municipality. Varied scholarly works and
research would be selected and relevant areas would be appraised, assessed and
evaluated. The chapter further gives relevant information about the aspects of earlier
works relating to the study.
2.1 The context of NGO accountability and transparency
NGO accountability and transparency issues are concepts that are regarded complex.
This is basically due to the ambiguous nature in which NGOs are known to operate.
According to Jordan and van Tuijl (2006) and O‘Dwyer (2007), intermediary
organisations essentially collaborate with multiple stakeholders who have diverse
demands. NGOs from developed nations and governments are further known to
provide funds and other resources as well as locally-based service delivery. There
exits numerous International NGOs (INGOs) from developed nations who also
mobilize resources (funds) and channel them to developing economies via local-
based operations. There are thus NGOs at the local level and local operations of
INGOs who serve as intermediary between international donors and the beneficiary
local communities.
Several research works have revealed that NGOs play important role when it comes
to health care delivery, education and other numerous welfare services in developing
countries. Such works include Dixon et al. (2006); Ebrahim (2003a); Edwards and
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Fowler (2002); Goddard and Assad (2006); Gray et al. (2006); O‘Dwyer and
Unerman (2007); Porter (2003); and Unerman and O‘Dwyer (2006a).
The concept of transparency is mostly deemed a significant characteristic of good
governance. It is also regarded an important requirement for promoting
accountability among states and citizens. Transparent government primarily shows
At its most basic, transparent governance according to Suk et al (2005:649) signifies
― the openness of government systems to citizens and the public through clear-cut
and well defined procedures, loose access to information, that in the end promotes
and leads to accountability in the duties of organizations and individuals managing
the resources or been in public office‖. Furthermore, transparency is ―regarded a
significant feature of government systems, organisations, companies and individuals
having access to open information on plans, rules, actions and procedures‖ as
indicated by the Transparency International (2009: 44).
Goetz and Jenkins (2005) further assert that accountability realistically takes into
consideration both ―answerability‖, which is the mandate of duty-bearers to make
available the required information and justification about their actions; and
―enforceability‖ which is the possibility of penalties or consequences for failing to
answer accountability claims.
According to Nelson and Dorsey (2003:2014), development practices of INGOs have
been revealed that concentrate much on development as a need and a gift. There are
however other recent revelations that indicates development to be more as a right,
which has the aim of ensuring assistance that involves the duty to aid in the
achievement of the entitlements of individuals. This step (rights-based) has resulted
to the INGOs playing the key role in educating those affected by the projects and
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activities of these INGOs. The educational actions are geared towards inculcating
higher levels of understanding or knowledge specifically on the rights of the
individual. Lastly Nelson and Dorsey (2003) indicate that the design of projects of
INGOs have happened in a more participatory manner, which have recognized the
needs to respect or consider the rights of the people who are affected by such
projects.
2.2 Concepts of Upward and downward accountability
A normal requirement attached to the funding provided to these NGOs is that the
locally based NGO has to account to the donor government or INGO for the manner
in which their funds have been used. Although this requirement can help to ensure
that funding is not being misappropriated or spent on undesignated projects, it has
also been shown to have problematic consequences. For example, there is some
evidence that the accountability mechanisms employed (or required) by INGOs to
address this need for so-called upward accountability to donors can prove
counterproductive by damaging the effectiveness of service delivery to the NGOs‘
beneficiaries (Dixon et al. 2006; Goddard and Assad 2006). To ensure that the
funding provided by donor governments and NGOs gives the greatest benefit to its
intended beneficiaries, it is clearly important for governments and other donors to be
aware of the potentially damaging and counterproductive impact of some of the
upward-accountability mechanisms they may be insisting that NGOs implement.
However, how information accessibility affects accountability and improves the
quality of governance is still poorly understood (Bellver and Kaufmann 2005).
Recent innovations in citizens‘ legal right to information and participatory budgeting
and community development processes have tested the extent to which ‗transparency
on decisions hand in hand with transparency on consequences‘ (Prat 2005: 869).
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More judiciously stated, the relationship of transparency to accountability is as a
necessary but insufficient condition. Relatedly, while some take the ‘accountancy‘
approach of treating accountability as a set of rules and procedures which can be
monitored and audited (Newell & Wheeler 2006) , others see it as a set of
relationships, which necessarily involve power and contestation. Fox, for instance,
discusses ‗the arena of conflict over whether and how those in power are held
publicly responsible for their actions‘ (2007a: 12). This arena, which he terms
‗accountability politics‘, cannot be reduced to a set of institutional mechanism or a
checklist of procedures. It is mediated by formal institutions but not determined by
them; an arena of contestation, not a tool for efficiency and effectiveness.
Goetz and Jenkins (2001) expand on horizontal and vertical notions of
accountability, identifying new ‗hybrid‘ forms they call ‗diagonal‘ accountability
relationships. Goetz and Jenkins (2005) also stress the important distinction between
de jure and de facto accountability. This review‘s focus on effectiveness and impact
points us towards de facto accountability – what occurs in practice, as opposed to
what is set out in law or intent.
Many NGOs and some donors now recognize that, in addition to ensuring that
upward-accountability mechanisms are not counterproductive, they can enhance the
effectiveness of NGO service delivery by ensuring that local NGOs, and the local
operations of INGOs, are downwardly accountable to their beneficiaries (O‘Dwyer
and Unerman 2007). This downward accountability should be designed and
implemented in such a way as to help the NGO identify the needs of its intended
beneficiaries and assess how well it is addressing these needs (Ebrahim 2003a).
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2.3 Hierarchical and holistic accountability
The concepts used in this research to frame and analyse the evidence about how
different NGO accounting and accountability methods influence the effectiveness of
aid delivery, draw on these ideas of upward and downward accountability. Upward
accountability to donors is regarded as a form of hierarchical accountability (Fowler
1996; Najam 1996; Dillon 2004; Kilby 2004; O‘Dwyer and Unerman 2007;
O‘Dwyer and Unerman 2008), characterised by fairly rigid accounting and
accountability procedures. This form of accounting typically provides donors with a
written (usually quantified) account comprising information in a form they have
requested to help ensure that the funds they have donated have been used for the
purposes they have specified. This is usually in the form of a one-way flow of
information from the NGO to the donor, with the focus being on the efficiency with
which the donors‘ funds have been spent (in terms of spending the funds on the
particular projects as specified by the donors) (Edwards and Hulme 1996a, 1996b;
Fowler 1996; Dillon 2004).
The one-way flow of information in hierarchical accountability often does not,
however, provide either the NGO or the donor with information about how
effectively the funding has been, or can be, used to provide the maximum alleviation
of human suffering for each dollar of aid (Fowler 1996; Leen 2006; Najam 1996;
Dillon 2004). It seems to presume that in specifying details of the projects upon
which their funding must be spent, donors know the most effective way to alleviate
poverty at the local level. Where donors have common project requirements and
specifications across a number of locations, it also presumes that variable local
conditions do not affect the manner in which aid projects should be run to deliver the
maximum benefit.
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In practice, there is a distance between the donors in more developed nations and the
localised aid projects, and differences exist in local conditions that affect the impact
of different aid delivery processes. This implies that to help maximize the
effectiveness of aid delivery, local knowledge needs to be used in deciding and
specifying the details of individual aid projects at the local level (Najam 1996;
Hilhorst 2002; Dillon 2004).
2.4 Obstacles that hinder the implementation of accountability systems
Lack of accountability, unethical behaviour and corrupt practices have apparently
become so pervasive, and even institutionalized norms of behaviour. Aside this,
outright bribery and corruption, nepotism, embezzlement, influence peddling, use of
one's position for self-enrichment, bestowing of favours on relatives and friends,
partiality, late coming to work, abuse of public property, leaking and/or abuse of
government information and the like are common manifestation of this plight.
Dealing successfully with this phenomenon requires a deeper understanding of its
underlying causes. Repeated attempts have been made over the years to combat
corrupt practices and unethical violations. A common feature of those is the
enactment of codes and establishment of institutional mechanisms to enforce ethical
behaviour (Rasheed, 1995). For example, Nigeria enacted a Code of Conduct in 1975
- which was subsequently incorporated into the 1979 and 1989 constitutions -
requiring public officials not to allow personal interests to conflict with their official
responsibilities; not to operate foreign bank accounts; not to ask for gifts; and to
declare their assets immediately after taking office, every four years and at the end of
their terms of office. In addition, the Economic and Financial Crimes Commission
(EFCC) and the Independent Corrupt Practices Commission (ICPC) and other bodies
have also been established to curb ethical violations.
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In some cases, these initiatives were partially successful in achieving some of the
immediate objectives behind these measures. However, this has not been generally
the case. More crucial has been the fact that the incidence of ethical violation has
increased even where a number of violators have been investigated and/or punished
especially by the EFCC. Therefore, the crucial question here is: why have these
measures been generally unsuccessful? In an attempt to answer this question the
following reasons are given.
2.5 Concept of Auditing
Auditing refers to a systematic and independent examination of books, accounts,
documents and vouchers of an organization to ascertain how far the financial
statements present a true and fair view of the concern. It also attempts to ensure that
the books of accounts are properly maintained by the concern as required by law.
This is done with the sole aim of ensuring that funds, resources and valuable of
corporations, on-Governmental Organisation, and government institutions are not
misappropriated, abuse or use for personal gains
Auditing has become such an ubiquitous phenomenon in the corporate and the public
sector that academics started identifying an "Audit Society". According to Power
Michael. 1999. (The Audit Society: Rituals of Verification. Oxford: Oxford University Press) the
auditor perceives and recognizes the propositions before him/her for examination,
obtains evidence, evaluates the same and formulates an opinion on the basis of his
judgement which is communicated through his audit report.[2]
2.6 Independent Auditing Standards
The auditing process is based on standards, concepts, procedures, and reporting
practices that are primarily imposed by the Institute of Chartered Accountants (ICA
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Gh). The auditing process relies on evidence, analysis, conventions, and informed
professional judgment. General standards are brief statements relating to such
matters as training, independence, and professional care. AICPA general standards
declare that:
External audits should be performed by a person or persons having adequate
technical training and proficiency as an auditor.
The auditor or auditors maintain complete independence in all matters
relating to the assignment.
The independent auditor or auditors should make sure that all aspects of the
examination and the preparation of the audit report are carried out with a high
standard of professionalism.
Standards of fieldwork provide basic planning standards to be followed during
audits. The AICPA's standards for fieldwork stipulate that:
The work is to be adequately planned and assisted, if any, are to be properly
supervised.
Independent auditors will carry out proper study and evaluation of the
existing internal controls to determine their reliability and suitability for
conducting all necessary auditing procedures.
External auditors will make certain that they are able to review all relevant
evidential materials, whether obtained through inspection, observation,
inquiries, or confirmation, so that they can form an informed and reasonable
opinion regarding the quality of the financial statements under examination.
17
Standards of reporting describe auditing standards relating to the audit report and its
requirements. AICPA standards of reporting stipulate that the auditor indicate
whether the financial statements examined were presented in accordance with
generally accepted accounting principles; whether such principles were consistently
observed in the current period in relation to the preceding period; and whether
informative disclosures to the financial statements were adequate. Finally, the
external auditor's report should include 1) an opinion about the financial
statements/records that were examined, or 2) a disclaimer of opinion, which typically
is included in instances where, for one reason or another, the auditor is unable to
render an opinion on the state of the business's records.
2.7 Related Terms: Audits, Internal; Accounting Methods
An audit is a systematic process of objectively obtaining and evaluating the accounts
or financial records of a governmental, business, or other entity. Whereas some
businesses rely on audits conducted by employees—these are called internal audits—
others utilize external or independent auditors to handle this task (some businesses
rely on both types of audits in some combination).
External auditors are authorized by law to examine and publicly issue an opinion on
the reliability of corporate financial reports. Dennis Applegate describes the history
of the external audits in an article appearing in the magazine Internal Auditor as
follows. "The U.S. Congress shaped the external auditing profession and created its
primary audit objective with the passage of the Securities Act of 1933 and the
Securities Exchange Act of 1934. This combined legislation requires independent
financial audits of all firms whose capital stock is bought and sold in open markets.
Its purpose, in part, is to ensure that the financial status and operating performance of
18
publicly traded companies are fairly presented and disclosed." Firms not obliged by
law to perform external audits often contract for such accounting services
nonetheless. Smaller businesses, for example, that do not have the resources or
inclination to maintain internal audit systems will often have external audits done on
a regular basis as a sort of safeguard against errors or fraud.
The primary goal of external auditing is to determine the extent to which the
organization adheres to managerial policies, procedures, and requirements. The
independent or external auditor is not an employee of the organization. He or she
performs an examination with the objective of issuing a report containing an opinion
on a client's financial statements. The attest function of external auditing refers to the
auditor's expression of an opinion on a company's financial statements. The typical
independent audit leads to an attestation regarding the fairness and dependability of
the statements. This is communicated to the officials of the audited entity in the form
of a written report accompanying the statements (an oral presentation of findings
may sometimes be requested as well). During the course of an audit study, the
external auditor also becomes well-acquainted with the virtues and flaws of the
client's accounting procedures. As a result, the auditor's final report to management
often includes recommendations on methodologies of improving internal controls
that are in place.
Major types of audits conducted by external auditors include the financial statements
audit, the operational audit, and the compliance audit. A financial statement audit (or
attest audit) examines financial statements, records, and related operations to
ascertain adherence to generally accepted accounting principles. An operational audit
examines an organization's activities in order to assess performances and develop
19
recommendations for improvements, or further action. Auditors perform statutory
audits which are performed to comply with the requirements of a governing body,
such as a federal, state, or city government or agency. A compliance audit has as its
objective the determination of whether an organization is following established
procedures or rules.
2.8 Working with External Auditors
Experts urge business owners to establish proactive working relationships with
external auditors. In order to accomplish this, companies should make sure that they:
Select an auditing firm with expertise in their industry and a proven track
record.
Establish and maintain efficient record keeping systems to ease the task of the
auditor.
Make sure that owners, executives, and managers know the basics of
financial reporting requirements.
Establish effective lines of communication and work processes between
external auditors and internal auditors (if any).
Recognize the value that external auditors can have as objective reviewers of
existing and proposed operational processes.
Focus on high-risk areas of operations, such as inventory levels.
Focus on periods of change and expansion, such as transitions to public
ownership or expansion into new markets.
Build an effective audit committee that can provide cogent financial and
operational analysis based on audit results.
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2.9 The External Auditing Process
The independent auditor generally proceeds with an audit according to a set process
with three steps: planning, gathering evidence, and issuing a report.
In planning the audit, the auditor develops an audit program that identifies and
schedules audit procedures that are to be performed to obtain the evidence. Audit
evidence is proof obtained to support the audit's conclusions. Audit procedures
include those activities undertaken by the auditor to obtain the evidence. Evidence-
gathering procedures include observation, confirmation, calculations, analysis,
inquiry, inspection, and comparison. An audit trail is a chronological record of
economic events or transactions that have been experienced by an organization. The
audit trail enables an auditor to evaluate the strengths and weaknesses of internal
controls, system designs, and company policies and procedures.
2.10 Audit planning
International Standard on Auditing 300: Planning an Audit of Financial
Statements requires auditor to plan the audit engagement. This involves setting up
audit strategy and then devising a plan in the light of strategy. As the engagement
progress, auditor may feel the need to update, extend or change the planned
procedures. How this is done and what needs to be done. Also the Auditor is required
to plan the audit by developing an audit strategy to guide the plan itself. Audit plan is
necessary for number of reasons of which the foremost is to achieve audit efficiency
and effectiveness. Audit plan involves planning risk assessment procedures, further
audit procedures and other audit procedures to obtain sufficient appropriate audit
evidence. During the audit if auditor concludes that initial plan requires alteration
21
then auditor shall consider revising audit strategy as well if needed. Change in audit
plan involves change in the scope timing or extent of planned audit procedures.
Auditor shall document the audit plan and any changes thereto.
2.11 Responsibilities of management and auditors for fraud and error
2.1.1.1 Responsibilities of management
Management is responsible for preparing financial statements that show a 'true
and fair view'. This role is reinforced by principles of good corporate
governance, which require management to set up appropriate systems and
controls. Management is therefore responsible for the prevention and detection
of fraud and error.
2.11.2 Responsibilities of the auditor
The auditor is responsible for reporting on whether the financial statements show
a 'true and fair view'. He is therefore only concerned with fraud and error that has
a material effect on the true and fair view. The auditor's responsibility is to
obtain reasonable assurance that the financial statements, taken as a whole, are
free from material misstatement, whether caused by fraud or error. It is not the
primary responsibility of the auditor to prevent or detect fraud error or, although
the audit may act as a deterrent to fraud. Auditors may also discover error or
fraud during the course of their audit work, but they are by no means certain to
do so whenever error or fraud has occurred. It must be recognized that some
material misstatements caused by fraud or error may go undetected, because of
the inherent limitations in any audit and the fact that deliberate attempts may be
made to conceal fraud from the auditor.
ISA240 states the responsibilities of management and the auditor as follows:
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'The primary responsibility for the prevention and detection of fraud
rests with both those charged with governance of the entity and
management.'
An auditor conducting an audit in accordance with ISAs is
responsible for obtaining reasonable assurance that the financial
statements as a whole are free from material misstatement, whether
caused by fraud or error.'
2.12 Detecting Fraud
Detection of potentially fraudulent financial record keeping and reporting is one of
the central charges of the external auditor. According to Fraudulent Financial
Reporting, 1987—1997, a study published by the Committee of Sponsoring
Organizations of the Treadway Commission, most companies charged with financial
fraud by the Securities and Exchange Commission (SEC) posted far less than $100
million in assets and revenues in the year preceding the fraud. Not surprisingly, fraud
cropped up most often in companies in the grips of financial stress, and it was
perpetrated most often by top-level executives or managers. According to the study,
more than 50 percent of fraudulent acts uncovered by the SEC involved
overstatements of revenue by recording revenues prematurely or fictitiously.
As the study's authors, Mark Beasley, Joseph Carcello, and Dana Hermanson, noted
in Strategic Finance, fraudulent techniques in this area included false sales,
recording revenues before all terms were satisfied, recording conditional sales,
improper cutoffs of transactions at period end, improper use of percentage of
completion, unauthorized shipments, and recording of consignment sales as
completed sales. In addition, many firms overstated asset values such as inventory,
23
accounts receivable, property, equipment, investments, and patent accounts. Other
types of fraud detailed in the study included misappropriation of assets (12 percent of
charged companies) and understatement of liabilities and expenses (18
percent).Accidental misstatements are almost always detected in audits. But these
errors should not be confused with fraudulent activity. Errors can occur at any time,
in any place with unpredictable financial statement effects. Fraud, on the other hand,
is intentional and is often more difficult to detect than are errors. Part of the job of an
external auditor is to recognize when conditions indicate potentially higher risks of
employee or management fraud and then increase the scrutiny of all records
accordingly.
2.13.The distinction between fraud and error
ISA 240 The auditor's responsibilities relating to fraud in an audit of financial statements
regulates this area. It makes the following distinction between fraud and error:
Fraud: may be defined as intentional acts which may involve:
fraudulent financial reporting (falsification of records or
documents, a deliberately incorrect application of accounting
policies)
misappropriation of assets.
Both types of fraud can result in material misstatements in the financial
statements.
Error may be defined as:
unintentional misapplication of accounting policies
oversights
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unintentional clerical errors, or
Misinterpretation of facts.
The key distinction between fraud and error is therefore whether the effect on the
financial statements is deliberate (fraud) or unintentional (error). However, there
may be little or no difference between fraud and error as far as the impact on the
audit is concerned. In both cases the auditor will be concerned about the impact
on the 'true and fair view' presented by the financial statements.
The main difference between fraud and error may arise in relation to any national
reporting requirements. There may be requirements to report suspicions of fraud,
but not error.
2.14 The Audit Report
The independent audit report sets forth the independent auditor's findings about the
business's financial statements and their level of conformity with generally accepted
accounting principles. A check is made to verify that representations over a period of
years are consistent. A fair presentation of financial statements is generally
understood by accountants to refer to whether the accounting principles used in the
statements have general acceptability. This includes such things as 1) the accounting
principles are appropriate in the circumstances; 2) the financial statements are
prepared so they can be used, understood, and interpreted; 3) the information
presented in the financial statements is classified and summarized in a reasonable
manner; and 4) the financial statements reflect the underlying events and transactions
in a way that presents an accurate portrait of financial operations and cash flows
within reasonable and practical limits.
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The auditor's unqualified report contains three paragraphs. The introductory
paragraph identifies the financial statements audited, states that management is
responsible for those statements, and asserts that the auditor is responsible for
expressing an opinion on them. The scope paragraph describes what the auditor has
done and specifically states that the auditor has examined the financial statements in
accordance with generally accepted auditing standards and has performed
appropriate tests. The opinion paragraph expresses the auditor's opinion (or formally
announces his or her lack of opinion and why) on whether the statements are in
accordance with generally accepted accounting principles.
Various audit opinions are defined by the AICPA's Auditing Standards Board as
follows:
Unqualified opinion — This opinion means that all materials were made
available, found to be in order, and met all auditing requirements. This is the
most favourable opinion that can be rendered by an external auditor about a
company's operations and records.
Explanatory language added—Circumstances may require that the auditor
add an explanatory paragraph (or other explanatory language) to his or her
report. When this is done the opinion is prefaced with the term, explanatory
language added.
Qualified opinion—This type of opinion is used for instances in which most
of the company's financial materials were in order, with the exception of a
certain account or transaction.
Adverse opinion—An adverse opinion states that the financial statements do
not accurately or completely represent the company's financial position,
26
results of operations, or cash flows in conformity with generally accepted
accounting principles. Such an opinion is obviously not good news for the
business being audited.
Disclaimer of opinion—A disclaimer of opinion states that the auditor does
not express an opinion on the financial statements, generally because he or
she feels that the company did not present sufficient information. Again, this
opinion casts an unfavourable light on the business being audited.
The fair presentation of financial statements does not mean that the statements are
fraud-proof. The independent auditor has the responsibility to search for errors or
irregularities within the recognized limitations of the auditing process. Investors
should examine the auditor's report for citations of problems such as debt-agreement
violations or unresolved lawsuits. "Going-concern" references can suggest that the
company may not be able to survive as a functioning operation. If an "except for"
statement appears in the report, the investor should understand that there are certain
problems or departures from generally accepted accounting principles in the
statements, and that these problems may call into question whether the statements
fairly depict the company's financial situation. These statements typically require the
company to resolve the problem or somehow make the accounting treatment
acceptable.
2.15 Internal Audit
The Institute of Internal Auditors defines Internal Audit as “…an independent,
objective assurance and consulting activity designed to add value and improve an
organization’s operations. It helps an organization accomplish its objectives by
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bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control, and governance processes.”
Internal audit function is also defined in ISA 610 as an appraisal or monitoring
activity established within an entity as a service to the entity. It functions by,
amongst other things, examining, evaluating and reporting to management and the
directors on the adequacy and effectiveness of components of the accounting and
internal control systems.
There are several parts to the definition of Internal Auditing which gives the core
role of the Internal Auditor as:
Independent and objective assurance and consulting activity;
Designed to add value and improve an organization‘s operations;
Helps an organization to accomplish its objectives by
bringing a systematic, disciplined approach to:
evaluate and
Improve the effectiveness of risk management, control, and
governance processes.‖
2.16 Difference between Internal Audit and External Audit
Internal Audit and External Audit are the two most important types of audit which
are performed in an organization. Internal Audit is not compulsory by nature, but
can be conducted to review the operational activities of the organization. Let‘s look
the other term External Audit which is obligatory for every separate legal entity,
where a third party is brought to the organization to perform the process of Audit and
give its opinion on the Financial Statements of the company. It happens many times
that we consider both as one, but they are thoroughly different from each other and
28
therefore we have compiled the most important difference between internal audit and
external audit.
Table 2.1 Comparison Chart
Basis of
Comparison
Internal Audit External Audit
Meaning Internal Audit refers to an ongoing
audit function performed within an
organization by a separate internal
auditing department.
External Audit is an audit
function performed by the
independent body which is not
a part of the organization.
Objective To review the routine activities
and provide suggestion for the
improvement.
To analyze and verify the
financial statement of the
company.
Conducted by Employees Third Party
Auditor is
appointed by
Management Members
Users of
Report
Management Stakeholders
Opinion Opinion is provided on the
effectiveness of the operational
activities of the organization.
Opinion is provided on the
truthfulness and fairness of the
financial statement of the
company.
Scope Decided by the management of the
entity.
Decided by the statute.
Obligation No, it is voluntary Yes, according to Indian
Companies Act, 1956.
Period Continuous Process Once in a year
Checks Operational Efficiency Accuracy and Validity of
Financial Statement
2.17 Control Procedures
Controls procedures are those procedures established to achieve the entity‘s specific
objectives. External auditor in this context tries ensure that proper authorization are
sought, there exist assets register in order to safeguarding of assets and ensuring the
existence of assets recorded. They include particular procedures to prevent, detect
and correct errors. According to Statement of Auditing Standards (SAS) (300), the
operation and internal controls ensure the completeness and accuracy of the financial
records. The following are some of the specific controls:
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Request by user departments and for appropriate authorization by the head
Control over computerized applications and the information technology
environment.
Checking the arithmetical accuracy of the records.
Ensure that goods are receipted in stores before requisitions are made
Reconciliations
Comparing the results of cash, security and inventory with accounting records
Comparison with external source of information
Comparison of results with budget
Limiting direct physical access to assets and records
2.18 Assessing the effectiveness of the external audit process
It is important that the audit committee has an independent point of view on audit
quality.
These requirements are part of recent measures intended to increase the transparency
of the external audit process and the accountability of the auditor to the audit
committee and the audit committee to shareholders. The latest development which
calls for further strengthening in this area is the Competition Commission‘s report.
Amongst other things the report recommends that:
An advisory vote be introduced on the audit committee‘s report (within the
annual report and accounts).
Audit committees report the results of any external quality inspections of the
auditor during the period.
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Only audit committees be permitted to negotiate and agree audit fees, the
scope of audit work, initiate tender processes, make recommendations for
appointment of auditors and authorize the external audit firm to carry out
non-audit services. Assessing the effectiveness of external audit process is not
new to audit committees.
Result in constructive and honest dialogue with the audit firm about its
performance, what went well and what could be improved.
Provide insights for the company into a broad range of areas including
governance, processes and controls and business improvement
Result in optimized assurance being derived from the audit
Help inform future audit tender processes that the audit committee will
undertake.
2.19 Audit Committees
There are a number of definitions for audit committees, each tailored to the
environment and structure in which they operate. According to Wong (2012) an audit
committee is defined as a subcommittee of the board of directors or its equivalent
structure. An audit committee is a committee of the board of directors responsible for
oversight of the financial reporting process, selection of the independent auditor, and
receipt of audit results‖ (AICPA, USA: 2009).
AARF, IIA-Australia, and AICD - Joint Publication Audit Committees 2002: Best
Practice Guide (second edition) defined ―An audit committee is a subcommittee of
the Board of an organization. It provides a forum where directors, managers and
auditors together can deal with issues relating to the management of risk and with
other governance obligations (AARF, IIA-Australia, AICD, AARF Joint Publication
2002 :10).
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An audit committee operates within a network of relationships. They are reliant on
management, internal audit and external audit to provide the information required to
meet their functions of assessment and exercise of control on behalf of their boards
(Wong, 2012). Typically an audit committee in the private sector is a committee of
the board of directors. Directors in the private sector are either executive or non-
executive independent members. Audit committee members in private sector
organisations are usually independent directors. The audit committee in the public
sector, where the governing body do not have a board audit committee, have
members appointed and selected by the organisation to provide advice to
Departmental Secretaries or boards of directors. In Ghana for example audit
committee report to Boards where it exists while in other countries audit committee
report to chairperson of the councils or the boards.
2.19.1 Characteristics of Audit Committees
The following are characteristics of audit committee according to Wong (2012) that
appear critical to enable audit committee performance include:
having clear authority and definition of its role, legal authority, charter, terms
of reference and organizational status;
having audit committee members with the right attributes qualifications and
experience; and
having the audit committee perform the required oversight functions,
processes, activities, procedures and compliance with professional standards.
The Blue Ribbon Committee (BRC 1999) regulating US corporate
environment also suggested that three important issues should be addressed in
order to successfully improve the performance of a Corporate Audit
Committee: (i) effectiveness, (ii) accountability, (iii) independence.
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2.19.2 Effectiveness
DeZoort & Salterio (2001) found that, in the case of auditor-management disputes,
the independent members of an audit committee and the level of members‘ auditing
knowledge were positively associated with support for the auditor, thus assuring that
financial disclosure would be in compliance with standards. Effectiveness is also
associated with the appointment of audit committee members who are financially
literate. Regarding financial expertise, Davidson, Xie & Xu (2004) found that
auditing and audit firm experience is more important than corporate financial
management and financial statement experience because auditors are required to
verify what management has prepared. Verifying and evaluating presented financial
reports against accounting standards by applying procedures specified in auditing
standards provides that additional assurance.
2.19.3 Role of Audit Committee
To perform its role an audit committee must be established and be empowered with
the authority to perform its duties. That is government departments and agencies are
required to establish audit committees. Best practice governance (OECD 2004)
requires Boards to establish boards and audit committees that are independent from
management. Independence however is related to composition of the committee.
Wong (2012) summarized the role of an audit committee as to ensure that reliable
information about the processes and outcomes of management control and operations
and their accountability are conveyed to the board. Therefore, a major issue for audit
committees to address is their oversight role. Wong further asserted that audit
committee assists the board or a departmental head in fulfilling its oversight
responsibilities for the financial reporting process, the system of internal control over
financial reporting, the audit process, and the organization‘s process for monitoring
33
compliance with laws and regulations. Audit committees (―Audit Committee‖) are
recognized as the cornerstone of a successful and credible financial reporting system.
To many, the Audit Committee is the epitome of corporate governance. The role of
the Audit Committee is to lend creditability to the integrity of the internal control and
financial reporting system, and to boost confidence in the company‘s financial
reporting. The essence to an Audit Committee‘s function is its independence, given
that it needs to be made up of entirely non-executive directors, majority of which are
independent, which allows it to carry out its roles effectively.
The Victorian Department of Heath website (2010) cited in Wong (2012) states ―The
role of the Audit Committee is to provide independent assurance and assistance to
the Secretary on the Department‘s risk management and control and compliance
frameworks and its external accountability responsibilities‖
Audit committees are responsible for financial and risk management oversight and
are one of several internal governance mechanisms whose function is to assist a
board of directors to monitor management performance (ASX 2007). Adamu and
Yusoff (2012) summarized the role of the audit committee in the following
statements as most of the organisation‘s failed due to lack of risk exposure relating to
the organisation‘s governance in relation to; compliance with laws, regulations, &
contracts operation and information system effective and efficiency of operation,
reliability and integrity of financial and operation information and safeguarding the
assets. They further contend that, audit committee is established with the aim of
enhancing confidence in the integrity of an organisation's processes and procedures
relating to internal control and corporate reporting including financial reporting
(Adamu and Yusoff, 2012). Audit Committee provides an ‗independent‘ guarantee to
the board through its oversight and monitoring role. Among many responsibilities the
34
boards entrust the Audit Committee with the transparency and accuracy of financial
reporting and disclosures, effectiveness of external and internal audit functions,
robustness of the systems of internal audit and internal controls, effectiveness of anti-
fraud, ethics and compliance systems, review of the functioning of the whistleblower
mechanism. Audit Committee also plays a significant role in the oversight of the
company‘s risk management policies and programs (Adamu and Yusoff, 2012).
According to the State Queensland Treasury and Trade (2012) audit committee can
involve all or a combination of the following duties and responsibilities:
Obtain assurance from management that all financial and non-financial
internal control and risk management functions are operating effectively and
reliably.
Provide an independent review of an agency‘s reporting functions to ensure
the integrity of financial reports.
Monitor the effectiveness of the agency‘s performance management and
performance information.
Provide strong and effective oversight of an agency‘s internal audit function.
Provide effective liaison and facilitate communication between management
and external audit.
Provide oversight of the implementation of accepted audit recommendations
and
Ensure the agency effectively monitors compliance with legislative and
regulatory requirements and promotes a culture committed to lawful and
ethical behavior.
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Adams, Grose and Donald (2004) listed a number of these functions which they
propose as generic functions that audit committee perform:
Approving the selection of the external auditor,
Reviewing the arrangements and scope of audit including reviewing the
emphasis of work so that areas considered in need of attention receive it,
Considering reports from the internal auditor and reviewing management
action on them,
Providing a forum for the board, management, or the auditor to raise matters
of concern,
Receiving the necessary information from the auditor as required under the
International Accounting Standards,
Reviewing the annual financial statements prior to their approval by the
board,
Coordinating the work of internal audit and external audit, Assessing the
effectiveness of management information systems, Reviewing significant
transactions of an extraordinary or abnormal nature and Assessing current
and potential risks.
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CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter will focus on the methodology the researcher will adopt to undertake the
study. The areas study will cover include the study design, the population, sample
size, sampling techniques; data collection and analysis as well sources of data for the
study.
3.1 Study Design
The researcher used mixed approaches which consist of both qualitative and
quantitative research methods. Qualitative analysis according to (Borrego et al.,
2009) is characterized by the collection and analysis of textual data which are
surveys, interviews, focus groups, conversational analysis, observation on the context
within which the study occurs. It allows the researcher to make connection between
the study and the situation. Due to this research being an explanatory research, both
quantitative and qualitative analysis was needed. The qualitative results served to
explain the quantitative results according to (Borrego et al., 2009).
The choice of the survey strategy allowed for the collection of large amount of data
from the population. The selection of survey design over other research methods
such as experimental, longitudinal, cross-sectional and others was determined by the
assertion of Saunders, Lewis, and Thornhill (2007) that survey is an appropriate and
a common strategy in business and management researches which is a highly
economical means of analyzing a large amount of data.
In addition, the research involves quantitative study. Miles and Huberman (1994)
indicated that quantitative research involves primary understanding in terms of
37
measurement of quantity, intensity or frequency. It is about asking people for their
opinions in structured way so that one can produce hard facts and statistics to guide
you. To get reliable statistical results, it is important to survey people in fairly large
numbers and make sure they are representative sample of the target. It is for this
reason that the researcher is selecting quantitative to gain deeper understanding of
the subject matter which is to assess the impact of external audit on NGOs in relation
to accountability and transparency.
3.3 Study Population
The study will focus on the impact of external audit of NGO‘s in the light of
accountability and transparency in Ghana by focusing on NGOs in the Bolgatanga.
The region has about twenty three (23) NGOs operating in various projects and
programmes. Out of the twenty three (23), sixteen (16) operate within the Bolgatanga
township and its environs.
The study focused on these 16 NGOs in addition to some selected beneficiaries. The
beneficiaries included heads of schools, opinion leaders and Assembly Men in
various areas.
3.4 Sampling Techniques
This study essentially targets Top management staff of these aforementioned offices
and personalities. The researcher therefore will use purposive sampling techniques to
selecting interview respondents. This will ensure that only people with relevant
information are sampled.
3.4.1 Sample Size
Staff of the NGOs will be contacted for all needed information in order to achieve
the study target. Sixty four (64) respondents would be selected from NGOs which
38
comprises of 4 staff each to be selected from each NGO and four (44) respondents
from the selected beneficiaries.
3.5. Sources of Data
Both primary and secondary sources of data will be obtained for the study. The
primary data will be obtained directly from respondents through the administration of
questionnaires and structured interviews. The secondary data will also be obtained
from the library of the schools, internet, journal articles, newspapers and research
reports on these NGOs. The idea of secondary data was to gather necessary
information to guide the conduct of the research project in order to confirm or reject
the primary data.
3.6. Data Collection Procedure
Both questionnaire and interview would be used for data collection. Questionnaires
will be the main data collection instrument to be used for the study. The
questionnaire will be appropriate because it is assumed that staffs of NGOs are
literate and for that reason they could be able to respond to the questions unaided.
The researcher would also interview some selected beneficiaries respondents to
collect data for the study. The interviews will cover the Assembly Men, Heads of
Schools, Opinion Leaders in the Commies and Municipal Assembly focal person.
Each interview will be likely to take approximately fifteen (15) minutes. The
interview will take place at the respondents‘ offices and homes. The interview will
involve an informal interaction process and utilization of open ended comments and
questions. The researcher would conduct all the interviews with the aid of interview
guide and then record all interviews within a few days of each interview.
39
3.7. Data Analysis
The researcher would use both quantitative and qualitative techniques to analyse the
data. The data that would be obtained from the field would be analysed using
frequencies and percentages, as well as inferential statistics. Statistical Package for
the Social Sciences (SPSS) version 17.0 will be employed for data analysis. The use
of this version is because there will be the need for data reduction through factor
analysis, for the purposes of regression and correlation analysis. Percentages would
be used to determine sample distribution across various demographic variables while
mean scores of the variables. Standard deviation would also be used in the analysis.
Frequency distribution tables and pie charts would be used to present the data.
3.8. Ethical consideration
Ethical consideration will be taken into consideration by first seeking authorization
from the top management of the NGOs where the study expects to be carried out.
The researcher will also ensure that questionnaires are structured in such a way that
there is no mention of the interviewee‘s name. A statement as to the strict
confidentiality with which data will be held will be expressly stated in the
questionnaire. Ethical consideration will again take care of by the researcher briefing
the respondents as to the purpose of the research, their relevance in the research
process, and expectations from them.
3.9 LIMITATIONS TO THE STUDY
i. Reluctance of some respondents to provide information as it is regarded
confidential. The researcher assured them that study was for academic purpose and
that the findings would also be of benefit to the organization. With this assurance
they cooperated well and the study was successfully done
40
ii. The time allocated to study was limited since the researcher had other academic
issues to accomplish. Here the researcher scheduled his work properly by use of
timetable and foregoing some duties.
iii. Funding gaps may arise in terms of transport costs to the offices of NWSC,
repetitive photocopying, binding and other logistics. The researcher managed to
overcome this problems by borrowing from friends and using his personal savings.
3.10 The Study Area
The study was conducted in the Upper East Region of Ghana.
Figure 3.1 Map of Ghana, inserted is the map of the Upper East Region.
Source: https://www.google.com
41
The Upper East Region is located at the north eastern corner Ghana with Bolgatanga
as its capital. It has a land area of 8,842 km2
that is about 3.7% of the land area of
Ghana with eight administrative districts.
The map of the Upper East is presented in figure 2. The map shows all the districts
that were selected form the study. The Upper East Region lies between longitude 00
and 10 west and latitudes 10
0 and 30
0 N and 11
0 N. It has two international
boundaries: Burkina Faso to the north and Togo to the East.
Figure 3.2: Map of the Upper East Region of Ghana
Source: https://www.google.com
The study was conducted in the Upper East Region of Ghana precisely Bolgatanga
Municipality. The Upper East region is located at the north eastern corner of Ghana
with Bolgatanga as its capital. It has a land area of 8842square KM that is about
3.7% of the land area of Ghana with 8 administrative districts.
42
It has two international boundaries: Burkina Faso to the North and Togo to the east.
Annual rainfall is short and scanty (800-900mm) with a long dry season, harmattan
winds, and average temperature of 40°C.Population from 2010 census is
1,046,545(this is about 4.2 percent of total population of the country).Population is
largely rural (87%). Settlement pattern is highly dispersed in 911 commies.
The region is mainly rural with agriculture employing over 80% of the population
and with the problem impinging upon livelihood development and poverty rate of
90%. The rural population are predominately peasant farmers. Compounds houses
are surrounded by relatively small farmlands.
43
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
4.1 Introduction
This chapter deals with presentation of the results relating to the study variables. It
analysed the general characteristics of the sample studied and also answers the
research questions. In other words it deals with four major issues, namely
characteristics of the sample, impact of external audit of NGO‘s in the light of
accountability and transparency in Ghana by focusing on NGOs in the Bolgatanga
Municipality, Challenges that hinder the accomplishment of external audit of the
NGOs and General Open-ended questions
Out of 108 targeted respondents from different NGOs in the Bolgatanga
Municipality, the researcher managed to get 86 respondents thereby representing a
response rate of 79.63%, which is good for any standards. The composition of
respondents was as follows.
SECTION A: Selection of the Sample Size
Table 4.1: Selection of the Sample Size
S/N Category of
Respondent
Questionnaire
Distributed
Questionnaire Completed
and returned
%
1 Staff of the NGOs 64 52 48.15
2 Selected
Beneficiaries
44 34 31.48
Total 108 86 79.63
Source: Field Survey, 2015
One hundred and eight (108) Questionnaires were distributed to both Staff of the
NGOs and Selected Beneficiaries. Out of 64 questionnaires to Staff of the NGOs 52
44
questionnaires were Completed and returned representing 48.15%. 34 out of 44
Selected Beneficiaries also completed and returned their questionnaires representing
31.48%.This implies that total respondents were 86 out 108 representing 79.63%.
SECTION B: BACKGROUND OF THE RESPONDENTS
This section shows the background of the respondents, according to gender and age.
Table4.2 Distribution of Respondents by Gender
Gender Frequency Percent
Male 54 62.79
Female 32 37.21
Total 86 100
Source: Field Survey 2015
Table 4.2 illustrates that out of the total of 108 respondents, Male had the highest
representation of about 62.79% and the female respondents had 37.21%. This was
because the male respondents figure was more than their female counterparts
Table 4.3: Distribution of Respondents According to Age:
Age Frequency Percent
Less than 21 years 10 11.63
21-30 years 30 34.88
30-40 years 30 34.88
More than 40 years 16 18.60
Total 86 100
Source: Field Survey 2015
Table 4.3 illustrates that the highest percentage of respondents (34.88%) were aged
between 21-30 years 30-40 respectively ,followed by 18.60% representing age more
than 40 years and the least number of respondents ( 5%) were below 21 years of age
45
SECTION C: IMPACT OF EXTERNAL AUDIT IN ACCOUNTABILITY
AND TRANSPARENCY OF NGOS IN THE BOLGATANGA
MUNICIPALITY
46
Table 4.4: The Effectiveness of external auditing on NGO’s accountability and transparency approaches?
S/No. STATEMENT NO (Strongly
Agree (%) NO
Agree NO
Strongly
Disagree NO Disagree Total Total(%)
(%) (%) (%)
6 Effectiveness of external auditing on NGO‘s
accountability and transparency 15 17.44 10 11.63 30 34.88 31 36.05 86 100
7 External audit ensures that correct
procedures are established among NGO,s 45 52.33 33 38.37 8 9.30 0 0.00 86 100
8 External audit ensures that the NGOs
maintained correct financial procedure 44 51.16 36 41.86 4 4.65 2 2.33 86 100
9
External audit ensures that correct
procedures are followed so that the financial
and management data disclosed through
timely reports
16 18.60 32 37.21 36 41.86 2 2.33 86 100
10 External audit ensures that accurate
accounts, and records of revenue and
expenditure are duly accounted for. 15 17.44 13 15.12 26 30.23 32 37.21 86 100
11 External audit promote accuracy and
reliability in accounting and operating data 12 13.95 15 17.44 29 33.72 30 34.88 86 100
12 External audit safeguard resources against
waste 11 12.79 19 22.09 22 25.58 34 39.53 86 100
13 External audit measure the extent of the
operating departments compliance with
donor policy 8 9.30 10 11.63 22 25.58 46 53.49 86 100
14 External audit evaluate the overall
efficiency of the operating functions 4 4.65 4 4.65 36 41.86 42 48.84 86 100
AVERAGE 18.89 21.96 19.11 22.22 23.67 27.52 24.33 28.29 86.00 100.00
Source: Field survey, 2015
47
Table 4.5: To examine how external audit report is dealt with by NGO’s in the Bolgatanga Municipality.
S/NO. STATEMENT NO
Strongly
Agree NO Agree
NO
Strongly
Disagree NO Disagree Total Total(%)
(%) (%) (%) (%)
15 External audit safeguard donor
resources against fraud 20 23.26 38.00 44.19 12.00 13.95 16.00 18.60 86 100
16 External audit safeguard government
resources against inefficiency 6 6.98 8.00 9.30 30.00 34.88 42.00 48.84 86 100
17
The report of external audit is studied
enforced by the audit committee and
ensure that recommendations are
enforced
12 13.95 10.00 11.63 44.00 51.16 20.00 23.26 86 100
18 The audit committee discusses the
report with the management 13 15.12 13.00 15.12 35.00 40.70 25.00 29.07 86 100
19 The content of the report is made
known to people concern 9 10.47 8.00 9.30 34.00 39.53 35.00 40.70 86 100
20 The audit committee ensure that the
recommendations are implemented 13 15.12 4.00 4.65 45.00 52.33 24.00 27.91 86 100
21 Management is tasked to implement
audit reports 4 4.65 8.00 9.30 42.00 48.84 32.00 37.21 86 100
AVERAGE
11.00 12.79 12.71 14.78 34.57 40.20 27.71 32.23
86.00 100.00
Source: Field survey, 2015
48
According to the findings indicated on table 4.4 above 17.44 % of the respondents
strongly agreed that there is Effectiveness of external auditing on NGO‘s
accountability and transparency, 11.63 % of the respondents agreed, significantly a
whopping 34.88% disagreed strongly as well as 36.05% disagreeing. This indicates
that the effectiveness of external auditing as a function is not effectively practised for
purposes of accountability and regulatory compliance leading to lack of transparency
in their performance. On the part of External audit ensuring that correct procedures
are established and followed by NGOS 52.33 % of the respondents strongly agreed, ,
38.37 % of the respondents agreed, 9.30% disagreed strongly no one (0) disagreed
The findings revealed that 51.16% of the respondents strongly agreed that the audit
committee ensure that the recommendations are implemented, 41.86% agreed to the
same, 4.65% strongly disagreed and whilst 2.33% disagreed. This implies there are
strict measures for the implementation of external auditors‘ recommendations
Accordingly, 18.60% of the respondents strongly agreed that Management is tasked
to implement audit reports, 37.21% agreed to the same, 41.86% strongly disagreed,
whilst 2.33% disagreed. The findings also revealed that 17.44% of the respondents
strongly agreed that the report of external audit is studied, enforced by the audit
committee and ensure that recommendations are enforced 15.12% agreed to the
same, 30.23% strongly disagreed, whilst 37.21% disagreed. Majority of the
respondents disagreed. This means that audit committees are not able to ensure that
recommendations are enforced within the organization leading to inefficient revenue
management. The employees however stated that the external audit sometime fails to
provide the reports in time probably due to lack of enough man power. This may
increase on the time taken by management to make decisions based on the audit
reports.
49
However, the findings also revealed that on the aspect of external audit ensuring
that accurate accounts and records of revenue and expenditure are kept,13.95%
strongly disagreed 17.44% disagreed whilst , 33.72% strongly agreed and 34.88%
agreed. External audit promote accuracy and reliability in accounting and operating
data. By this 12.79% strongly disagreed, 22.09% disagreed, 25.58%, 39.53%
agreed that External audit measure the extent of the operating departments
compliance with donor policy. With this 9.30% strongly disagreed, 11.63%
disagreed, 25.58% strongly agreed and 53.49% agreed. External audit evaluate the
overall efficiency of the operating functions was strongly disagreed at 4.65%, 4.65%
disagreed whist 41.86% strongly agreed and 48.84% agreeing. Majority of the
respondents especially the staff disagreed with the later assertions.
The work also revealed that in terms of External audit safeguarding donor resource
against fraud 23.26% of the respondents strongly agreed, 44.19% agreed, 5.81% of
the respondents strongly agreed, 9.30% agreed to the same, 39.53% strongly
disagreed and whilst 45.35% disagreed.9.20% strongly disagreed and 18.60
disagreed; On External audit safeguarding government resource against inefficiency,
the work revealed that 6.98% of the respondents strongly agreed,9.30%
agreed,34.88% strongly disagreed and 48.84% disagreed. On the report of external
audit been studied, enforce by the audit committee and ensures that
recommendations are enforced, It was also revealed that 13.95% of respondents
strongly agreed, 11.63% agreed, 51.16% strongly disagreed and 23.26% disagreed.
On the audit committee discusses the external audit report with management, the
work revealed that 15.12% of the respondents strongly agreed, 15.12% agreed,
40.70% strongly disagreed and 29.07% disagreed. On the content of the report made
known to the people concern, It was also revealed that 10.47% of respondents
50
strongly agreed, 9.30% agreed, 39.53% strongly disagreed and 40.70% disagreed.
On the audit committee ensures that the audit recommendations are implemented, It
was also revealed that 15.12% of respondents strongly agreed, 4.65 % agreed,
52.33% strongly disagreed and 27.81% disagreed. On management is tasked to
implement audit recommendation, It was also revealed that 4.65% of respondents
strongly agreed, 9.30 % agreed, 48.84% strongly disagreed and 37.21% disagreed.
51
SECTION C: IMPACT OF EXTERNAL AUDIT IN ACCOUNTABILITY AND TRANSPARENCY OF NGO’S IN THE
BOLGATANGA MUNICIPALITY
Table 4.6 Challenges that NGOs face in ensuring accountability and transparency
S/N STATEMENT NO Strongly
Agree NO Agree NO Strongly
Disagree NO Disagree Total Total(%)
(%) (%) (%) (%)
22 We experience corruption practice which
apparently become so pervasive
37 43.02 38 44.19 6 6.98 5 5.81 86 100
23 We encounter unethical behaviour which
become norms of the organisation
32 37.21 40 46.51 12 13.95 2 2.33 86 100
24 The people are lacking preparedness of
accountability
34 39.53 30 34.88 10 11.63 12 13.95 86 100
25 The people are not prepared to stop
accepting outright bribery
32 37.21 41 47.67 6 6.98 7 8.14 86 100
26 There is lack of patronage in the
implementation of accountability
20 23.26 39 45.35 15 17.44 12 13.95 86 100
27 There is lack of enabling environment 8 9.30 5 5.81 34 39.53 39 45.35 86 100
28 There is lack of enforcement of
accountability and transparency practices
30 34.88 16 18.60 12 13.95 28 32.56 86 100
29 Lack of resources for enforcement 35 40.70 43 50.00 5 5.81 3 3.49 86 100
30 There is lack of support from international
community
5 5.81 8 9.30 35 40.70 38 44.19 86 100
31 There is weak administrative and legislative
system among NGO,s
35 40.70 38 44.19 5 5.81 8 9.30 86 100
AVERAGE 26.80 31.16 29.80 34.65 14.00 16.28 15.40 17.91 86.00 100.00
Source: Field survey 2015
52
Respondents were asked whether they have experience corruption practice which
apparently become so pervasive. The findings revealed that corruption practice
which apparently become so pervasive exit in NGOS that 43.02% of the respondents
strongly agreed , 44.19% agreed to the same, 6.98% strongly disagreed and whilst
5.81% disagreed. On the part of whether they have encountered unethical behaviour
which has almost becomes norms of the organization. 37.21% of the respondents
strongly agreed, 46.51% agreed to the same, 13.95% strongly disagreed and whilst
2.33% disagreed unethical climate actually exist in of the organizations. On the part
of whether people are lacking preparedness of accountability, 39.53% of the
respondents strongly agreed, 34.88% agreed to the same, 11.63% strongly disagreed
and whilst 13.95% disagreed unethical climate actually exist in of the organizations.
On the part of whether people are not prepare to stop accepting outright bribery,
37.21% of the respondents strongly agreed, 47.67% agreed to the same, 6.98%
strongly disagreed and whilst 8.14% disagreed outright bribery in the NGOs. The
survey asked if there is lack of patronage in implementation of accountability,
23.26% of the respondents strongly agreed, 45.35% agreed to the same, 17.44%
strongly disagreed and whilst 13.95% disagreed.
On the part of lack of enabling environment for transparency and accountability,
9.30% of the respondents strongly agreed, 5.81% agreed to the same, 39.53%
strongly disagreed and whilst 45.35% disagreed that there is lack of enabling
environment to ensure transparency and accountability.
53
The survey asked whether there is lack of enforcement of accountability and
transparency practices , 34.88% of the respondents strongly agreed, 13.60% agreed
to the same, 13.95% strongly disagreed and whilst 32.56% disagreed. On whether
there is lack of resource for enforcement , 13.95% of the respondents strongly
agreed, 9.30% agreed to the same, 52.33% strongly disagreed and whilst 24.42%
disagreed. On the lack of support for in for internal community, 5.81% of the
respondents strongly agreed, 9.30% agreed to the same, 39.53% strongly disagreed
and whilst 45.35% disagreed. The work also showed that on whether there is a weak
administration and legislative system, 40.70% of the respondents strongly agreed,
50.00% agreed to the same, 5.81% strongly disagreed and whilst 3.49% disagreed.
Internal Audit Department helps ensure accountability and integrity within the
organization. Of the 86 respondents who answered the question that 9.3% of the
respondents strongly agreed, 15.12% agreed to the same, 24.42% strongly disagreed
and whilst 51.16% disagreed. On the question of lack of enforcement of
accountability and transparency practice 40.70% of the respondents strongly agreed,
44.19% agreed to the same, only 5.81% strongly disagreed and whilst 9.30%
disagreed. Majority of the respondents agreed to many key finds than those who
disagreed
SECTION D: OPEN-ENDED QUESTIONS
Table 4.6 Accuracy in assets records
S/N Number Percentage of respondent
Yes 64 74.42
No 18 20.93
Not Sure 4 4.65
Total 86 100.00
Source: Field survey, 2015
54
Findings from respondents as from the table above, 74.42% answered that there is
accuracy in assets records whilst 18% said no. But only 4% answered that they were
not sure. Majority of the respondents agreed that there is accuracy in assets records.
Table 4.7 Compliance with applicable laws and regulations
S/N Number Percentage of respondent
Yes 12 13.95
No 68 79.07
Not Sure 6 6.98
Total 86 100.00
Source: Field survey, 2015
Findings from respondents as from the table above revealed that 79.07% that there is
compliance with applicable laws and regulations 12% agreed whilst 6% were not
sure. This reveals that compliance with applicable laws and regulations are weak
with NGOS.
Table 4.8 Transactions are recorded in the books of accounts
S/N Number Percentage of respondent
Yes 54 62.79
No 28 32.56
Not Sure 4 4.65
Total 86 100.00
Source: Field survey, 2015
Findings from respondents revealed that 62.79 % transactions are recorded in the
books of accounts whilst 28 % disagreed. But only 4% still maintained that they
were not sure.
55
CHAPTER FIVE
SUMMARY OF FINDING, CONCLUSIONS AND RECOMMENDATIONS
5.0 Introduction
This chapter provides a summary of the major findings of the study, conclusion and
recommendations. The study assesses the impact of external audit on NGO‘s
activities in relation to accountability and transparency in Ghana by focusing on
NGOs in the Bolgatanga Municipality.
5.1 Summary of findings
The analysis of the data revealed the following findings:
Assessment of how effective external audit is on NGO’s in accountability and
transparency.
It was established that external audit report does not have positive effect on NGOs
activities in relation to accountability and transparency.
According to the findings indicated on table 4.4 above, on the average 21.96 % of
the respondents strongly agreed that there is Effectiveness of external auditing on
NGO‘s accountability and transparency, 22.22 % of the respondents agreed, whilst
27.57% disagreed strongly that there is effectiveness in external auditing on NGO
activities and 28.29% disagreed. Out of the total population who responded and
returned the questions majority disagreed strongly with the assertion that external
auditing is impacting positively on accountability and transparency. In other words it
indicates that though NGOs are audited periodically and report submitted to
management, it does not have any positive impact directly on the lives of
beneficiaries thus challenging their accountability and transparency approaches.
56
Examination of how external audit report is dealt with by NGOs in the
Bolgatanga Municipality.
From the findings, it is observed that the external audit report of NGOs are not
utilised to bring about compliance and that recommendations of the external auditors
are not enforced by management. This invariably calls for a case by case research on
NGO activities.
The research reveal on the average that 12.79% of the respondents strongly agree
that external audit report of NGOs are discussed, and recommendation enforced and
implemented, 14.78% of the population agree, 40.20% of all respondents strongly
disagree with the assertion, while 32.23 disagree.
Challenges that NGOs face in ensuring transparency and accountability.
On the basis of the facts from the research, indicators are that the resources, systems
and procedures are all in place but they are challenged in implementing these best
practices hence rendering NGO activities unaccounted for.
The research revealed that 31.16% of the respondents strongly agree that there are
challenges in NGOs in ensuring accountability and transparency, 34.65% of the
respondents agree, 16.28% strongly disagree whilst 17.91% disagree.
5.2 Conclusion
From the research work carried out, the following conclusions were arrived at.
55.81% of the total respondents disagree that there is effectiveness in external audit
on NGO in the pursuit to be transparent and accountable. While 44.19 agree with the
assertion that there is effectiveness in external audit. There is therefore more to be
done for external audit report to be effective in the NGOs industry.
57
It was revealed also that the audit reports of NGOs are not discussed with the key
players and recommendations are not enforced and implemented and as such
contributes nothing to accountability and transparency thereby further reinforcing the
assertion that corrupt practices is pervasive on NGO activities.
Finally the challenges NGOs face are as a result of non – compliance to their own
procedures and regulations, though logistically they are not constraint to ensuring
that accountability and transparency approaches are followed to the latter.
In conclusion external audit has no impact on NGOs activities in relation to
accountability and transparency.
5.3 Recommendations
For the impact of External audit to be effective on NGOs activities in relation to
accountability and transparency the following have been recommended.
Project end evaluation should not be only narrative as has been the case in
most evaluations but should include audited financial statement to be signed
by the external auditor.
External Auditors should not be hired by management of NGOs but by the
Board of Directors or Donors so the external auditors will report to the Board
or the donor or funding agency and not management of NGOs.
Accountability can best be enforced when anomalies are identified and
management is called to explain why compliance is compromised. NGOs
contracts with donor agencies could end if it is clear in external audit report
that there has not been transparency and that funds meant for beneficiaries are
not properly accounted for, so that only credible and accountable and
transparent NGOs are supported to implement projects.
58
Audit Committees should be established in NGOs so that they can educate
staff on the findings in the audit reports. This will help put information
available to all. The audit committees would ensure that external auditor‘s
recommendations are studied, enforced and implemented.
Beneficiary communities and stakeholders should be educated to demand full
disclosure of the entire package of support such that they can hold NGOs
implementing the projects within their community accountable if they refused
to render the agreed support package. The NGOs also at the time of
evaluation would require the various stakeholders to mention areas of support
for the external evaluator to document demonstrating how successful they
have been and the impact thereof. When communities and stakeholders who
these grants are meant to support understand their role in the roll out and
achievement of outcomes of the NGOs, the can hold them accountable.
5.4 Areas of Further research
This study has identified the need to assess the impact of external audit in
accountability and transparency of NGO‘s in The Bolgatanga Municipality In order
to better understand the accountability and transparency of NGOs future in broader
perspective, future research should be carried out covering the country as a whole
since this research is limited NGOs in Bolgatanga in the Upper East Region of
Ghana.
59
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62
APPENDICES
KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY
Appendix 1: QUESTIONAIRE TO STAFF AND BENEFICIARY
Dear Respondent,
You have been selected to respond to this questionnaire for the study for the
assessment of impact of external audit on NGO’s Activities in relation to
accountability and transparency in Ghana by focusing on NGOs in the
Bolgatanga. This is in partial fulfilment for the award of Master of Business
Administration in Accounting Kwame Nkrumah University of Science and
Technology. You are assured that any information you provide is solely meant for
the research and nothing else. Your response to the questions will be kept
confidential.
Thank You.
QUESTIONAIRE TO STAFF
Dear Respondent,
You have been selected to respond to this questionnaire for the study for the
assessment of impact of external audit on NGO’s in relation to Accountability
and transparency in Ghana by focusing on NGOs in the Bolgatanga. This is in
partial fulfilment for the award of Master of Business Administration in Accounting
from the university of Science and Technology. You are assured that any information
you provide is solely meant for the research and nothing else. Your response to the
questions will be kept confidential.
Thank You.
SECTION A: DEMOGRAPHIC CHARATERISTICS OF RESPONDENTS
Please complete this section by ticking the applicable box
1. Gender: Male ( ) Female ( )
2. Age:
a. Below 31 years ( ) b. 31 – 40years ( ) c. 41 - 50years ( ) d. above 51 years ( )
3. What is your level of educational level?
a. Diploma/HND ( ) b. Degree ( ) c. Masters ( ) d. Professional ( )
4. Number of years you have worked with the company
63
a. less than 3years ( ) b. 3 – 6years ( ) c. 7 - 10 years ( ) d. over 10 years ( )
5. Which of the following best describe your current job position?
a. Management Team Member ( ) b. Senior Staff ( ) c. Junior Worker ( )
SECTION B: Impact of External audit on NGO’s activities in relation to
accountability and transparency in Ghana by focusing on NGOs in the
Bolgatanga.
64
Objective One:
S/N STATEMENT NO Strongly
Agree
(%)
NO Agree
(%)
NO Strongly
Disagree
(%)
NO Disagree
(%)
6 Effectiveness of external auditing on NGO‘s accountability and
transparency
7. External audit ensures that correct procedures are established among
NGO,s
8 External audit ensures that the NGOs maintained correct financial
procedure
9. External audit ensures that correct procedures are followed so that the
financial and management data disclosed through timely reports
10 External audit ensures that accurate accounts, and records of revenue and
expenditure are duly accounted for.
11 External audit promote accuracy and reliability in accounting and
operating data
12 External audit safeguard resources against waste
13 External audit measure the extent of the operating departments
compliance with donor policy
14 External audit evaluate the overall efficiency of the operating functions
15. External audit safeguard donor resources against fraud
16 External audit safeguard government resources against inefficiency
65
S/N STATEMENT NO Strongly
Agree
(%)
NO Agree
(%)
NO Strongly
Disagree
(%)
NO Disagree
(%)
17. The report of external audit is studied
enforced by the audit committee and ensure
that recommendations are enforced
18. The audit committee discusses the report with
the management
19. The content of the report is made known to
people concern
20. The audit committee ensure that the
recommendations are implemented
21. Management is tasked to implement audit
reports
Total
66
Objective: Challenge that NGOs face in ensuring accountability and transparency.
S/N STATEMENT NO Strongly
Agree
(%)
NO Agree
(%)
NO Strongly
Disagree
(%)
NO Disagree
(%)
22. We experience corruption practice which apparently become so pervasive
23. We encounter unethical behaviour which become norms of the
organization
24. The people are lacking preparedness of accountability
25. The people are not prepared to stop accepting outright bribery
26. There is lack of patronage in the implementation of accountability
27. There is lack of enabling environment
28. There is lack of enforcement of accountability and transparency practices
29. Lack of resources for enforcement
30. There is lack of support from international community
31. There is weak administrative and legislative system among NGO,s
67
Open-ended questions
32. In your view, how would you suggest the best and effective role of external
audit could take in ensuring accountability and transparency
...................................................................................................................................
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33. Besides the above stated, what are other internal control practices you
recommend to ensure effective accountability and transparency in your
organisation
...................................................................................................................................
...................................................................................................................................
34. In your opinion, suggest other factors that could influence effective
accountability and transparency in your organisation
...................................................................................................................................
...................................................................................................................................
35. How would you recommend your organisation in the reduction of obstacles that
hinder NGOs its attempts to implement accountability systems
...................................................................................................................................
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36. Is there accuracy in assets records
a. Yes ( ) b. No ( ) c. Not Sure ( )
37. Do you ensure that all documents are approved and controlled?
a. Yes ( ) b. No ( ) c. Not Sure ( )
38. There is compliance with applicable laws and regulations
a. Yes ( ) b. No ( ) c. Not Sure ( )
39. Transactions are recorded in the books of accounts
a. Yes ( ) b. No ( ) c. Not Sure ( )
40. Transactions are recorded in the books of accounts
a. Yes ( ) b. No ( ) c. Not Sure ( )