Internal Audit Practices, Top Management Support And Organizational Performance Of State Corporations In Kenya

Abstract

Internal auditing provides audit services to management at all levels thus improving organizational performance. This study has conceptualized a relationship between internal audit and organization performance. Extant literature has linked internal audit to organizational performance. However, the notion has largely been superfluous and hence needs to be grounded on empirical literature. Further, despite top management support moderating role in the association between internal audit and organizational performance being implied, there lacks empirical evidence. The study main objective was to examine the influence of internal auditing on the organizational performance of State Corporations in Kenya. Specific objectives were to: investigate the effect of professional competencies on organizational performance of the Kenyan State Corporations; examine the effect of internal audit standards compliance on organizational performance of Kenya’s State Corporations; establish the role played by internal auditors’ independence on organizational performance, and to examine the moderating effect of top management support on the relationship between internal audit and organizational performance of the State Corporations in Kenya. The objectives had corresponding hypotheses which were tested at a 95 percent level of confidence. The study employed a cross-sectional research design and had a target population of 288 state corporations. The study adopted criterion-based sampling and used a sample of 154 state corporations. Primary data was collected from a single respondent in each of the corporations’ using semi-structured questionnaires that were administered online. Out of the questionnaires sent 105 were filled and returned. This was a response rate of 68.2 percent and was considered adequate for the study. Through standard multiple linear regression and moderated multiple linear regression, findings indicate a statistically significant relationship between internal audit and organization performance. However, the internal audit could only explain 49.2 percent of the variations in organizational performance. Results of the independent effect of the disaggregated internal audit indicated positive and statistically significant effects of professional competencies, internal audit standards and internal auditors’ independence with organizational performance. The moderating effect of top management support gave rise to a marginal increase in the explanatory power of the model at 5.87 percent, although the moderation was found not to be statistically significant. The findings provide empirical grounding to the agency theory by supporting the postulation internal audit characteristics yields to organizational performance. The study further provides theoretical linkage contingency theory and stakeholder theories. The study has offered recommendations to managerial practice and policy to both the state corporations and the government regulatory agents.