Project – Effect of Internal Audit Effectiveness on Financial Accountability in Public Institutions: A Study of Selected Tertiary Institutions in Lagos State.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Financial accountability is a fundamental requirement for effective public-sector administration because public institutions are entrusted with resources that belong to citizens and are expected to use those resources for approved public purposes. Financial accountability involves the proper recording, reporting, monitoring and justification of the collection and utilisation of public funds. It also requires public institutions to comply with applicable laws, regulations, budgets and financial procedures while providing reliable information concerning their financial activities. In this regard, internal audit constitutes an important component of the governance and control architecture of public institutions because it provides independent and objective assurance and advisory services designed to improve organisational operations. The Institute of Internal Auditors (IIA, 2024) emphasises that internal auditing strengthens an organisation’s ability to create, protect and sustain value through risk-based assurance, advice, insight and foresight. Similarly, the Committee of Sponsoring Organizations of the Treadway Commission identifies control activities, information and communication, monitoring and other internal-control components as essential to effective organisational control and accountability (COSO, 2013). Thus, an effective internal audit function can contribute to financial accountability by helping institutions identify weaknesses, ensure compliance and improve the reliability of financial information.

The importance of internal audit is particularly evident in public institutions where financial activities involve public revenue, government subventions, internally generated funds, grants, procurement expenditure, payroll and other forms of financial transactions. Internal auditors are expected to examine financial procedures, assess compliance with established policies, review internal controls, identify irregularities and provide recommendations for corrective action. An effective internal audit function therefore goes beyond merely checking accounting records after transactions have occurred; it involves continuous assessment of risks and controls and providing assurance concerning the effectiveness of governance and financial-management processes. According to the IIA (2024), internal auditing is strengthened when auditors possess appropriate competence, maintain objectivity and independence, apply systematic approaches and communicate relevant findings to those charged with governance. In the Nigerian public sector, Hammayo, Shittu and Abdullahi (2020) found that auditor competence, information technology and audit quality are important considerations in determining internal audit effectiveness. These issues demonstrate that the quality and effectiveness of internal audit can have important consequences for how public institutions manage and account for financial resources.

Financial accountability is also closely connected with internal control and financial reporting. Public institutions require effective systems to ensure that expenditures are properly authorised, transactions are adequately documented, assets are safeguarded and financial reports reflect the actual financial position of the institution. Where control mechanisms are weak, opportunities may arise for fraud, unauthorised expenditure, financial misstatements, waste and diversion of public resources. Adeyemi and Olarewaju (2019), in their study of the Nigerian Southwestern public sector, found that internal control systems had positive effects on financial accountability, including effective financial operations, compliance with laws and regulations, reliable financial reporting, transparency and information flow. Similarly, the COSO (2013) framework explains that effective internal control provides reasonable assurance concerning the achievement of operational, reporting and compliance objectives. Internal audit effectiveness is consequently important because internal auditors provide an independent assessment of whether these control systems are appropriately designed and operating as intended. Where audit findings are properly communicated and corrective recommendations are implemented, internal audit can contribute significantly to stronger financial accountability.

The issue becomes particularly important in tertiary institutions because universities, polytechnics and colleges of education manage substantial financial resources while performing complex educational, administrative and infrastructural functions. Public tertiary institutions receive government funding and may also generate revenue through tuition-related charges, consultancy services, grants, research activities, accommodation, development levies and other approved sources. These resources must be managed transparently and in accordance with financial regulations and institutional objectives. Previous Nigerian studies have demonstrated the relevance of internal audit and internal control to tertiary institutions. Adegoke and Akinselure (2016) found that internal audit could strengthen internal control systems in selected public and private universities in Southwestern Nigeria. Similarly, Filli and Ibitomi (2016) observed that internal audit has an important role in enhancing accountability in tertiary institutions but raised concerns about the independence of internal auditors from management. These findings suggest that the mere existence of an internal audit department does not necessarily guarantee effective financial accountability; rather, factors such as auditor independence, competence, adequate resources, management support and implementation of audit recommendations are likely to influence the effectiveness of the function.

Internal audit effectiveness is influenced by several organisational and professional factors. Auditor independence is particularly important because internal auditors need sufficient objectivity to examine financial activities and report control weaknesses without inappropriate interference from the officers or managers whose activities they may be auditing. Auditor competence is equally important because increasingly complex financial systems require personnel with appropriate accounting, auditing, information-technology and risk-management skills. Adequate staffing, access to relevant records, appropriate technology, management support and timely implementation of audit recommendations may also influence the ability of internal auditors to perform their responsibilities effectively. The IIA (2024) places considerable emphasis on organisational independence, objectivity, competence and quality within the internal audit function, while Hammayo et al. (2020) found that auditor proficiency and audit quality are relevant to internal audit effectiveness in Nigeria’s federal public service. In tertiary institutions, therefore, internal audit effectiveness should be understood as a multidimensional concept involving the quality, independence, competence, scope, timeliness and usefulness of audit activities rather than merely the existence of an audit department.

Recent Nigerian evidence further demonstrates the connection between internal audit and financial accountability in tertiary institutions. Adereti (2024), in a study covering public tertiary institutions across Southwestern Nigeria, examined internal audit processes, compliance with internal audit frameworks and the effect of internal audit on financial accountability. The study found that internal audit processes included oversight, accountability and verification, influence on internal controls, organisational structure and follow-up actions, while monitoring and evaluation had a positive and significant effect on financial accountability. Similarly, Adeyemo et al. (2025), in their study of tertiary institutions in Ekiti State, found that internal audit control, asset and liability verification and compliance with plans and procedures were positively and significantly associated with financial accountability. More recent evidence from public tertiary institutions in Southeastern Nigeria also indicates that audit investigation and compliance can significantly influence accountability, while weaknesses in existing internal-control systems may limit their effectiveness when they are predominantly compliance-oriented rather than performance-driven (Orji, Ngwobia, & Okpara, 2025). These findings reinforce the argument that the effectiveness of internal audit is relevant to financial accountability in Nigerian tertiary institutions.

The Lagos State context provides an important setting for examining this relationship because the state hosts several major public tertiary institutions operating within a complex public-financial environment. These institutions are expected to maintain sound financial systems, comply with government regulations, safeguard public resources and demonstrate accountability to government, students, staff and other stakeholders. At the same time, public institutions may face challenges involving increasing financial responsibilities, inadequate resources, complex administrative structures, procurement processes, financial reporting requirements and the need to maintain effective internal controls. Recent research on public accountability in Lagos State has identified issues such as inadequate audit resources, resistance to scrutiny, inefficiencies in audit processes and regulatory non-compliance as factors that may affect financial accountability (Iredele & Olanrewaju, 2025). These challenges make the effectiveness of internal audit especially relevant to public institutions in Lagos State. Although previous studies have examined internal audit and accountability in other Nigerian states and regions, there remains a need for specific empirical evidence concerning selected tertiary institutions in Lagos State. This study therefore examines the effect of internal audit effectiveness on financial accountability in selected public tertiary institutions in Lagos State, with particular attention to internal audit independence, auditor competence, internal control evaluation, compliance monitoring and implementation of audit recommendations.

1.2 Statement of the Problem

Financial accountability remains a major concern in public institutions because government and other public resources are expected to be used efficiently, transparently and in accordance with approved purposes. Public tertiary institutions are entrusted with substantial financial resources for teaching, research, staff development, infrastructure, student services, administration and other institutional activities. However, weaknesses in financial controls can create opportunities for errors, waste, fraud, unauthorised expenditure, poor record keeping and other financial irregularities. The existence of internal audit departments is expected to provide an important safeguard against these problems, but the mere presence of an internal audit unit does not necessarily guarantee effective financial accountability. Filli and Ibitomi (2016) reported concerns regarding the independence of internal auditors in tertiary institutions, while Hammayo et al. (2020) identified competence, audit quality and technological capacity as important issues affecting internal audit effectiveness in Nigeria. The problem, therefore, is whether internal audit units in public tertiary institutions are sufficiently effective to provide the level of assurance and control necessary for sound financial accountability.

A second problem concerns the ability of internal auditors to operate independently and objectively within public tertiary institutions. Internal auditors are expected to evaluate financial procedures and report weaknesses, but their effectiveness may be compromised where they lack sufficient independence, adequate resources, management support or unrestricted access to relevant information. Where audit findings are not adequately communicated or recommendations are ignored, the internal audit process may become largely procedural without producing substantial improvements in financial management. The IIA (2024) identifies organisational independence and objectivity as fundamental conditions for an effective internal audit function, while Filli and Ibitomi (2016) found evidence of limitations in internal auditor independence in Nigerian tertiary institutions. Consequently, there is a need to determine whether internal audit effectiveness, including independence and objectivity, contributes meaningfully to financial accountability in selected public tertiary institutions in Lagos State.

A third problem relates to the adequacy of internal control evaluation, compliance monitoring and follow-up of audit recommendations. Internal auditors may identify weaknesses in procurement procedures, expenditure controls, revenue collection, asset management and financial reporting, but the effectiveness of the audit function ultimately depends partly on whether identified weaknesses are corrected. Adereti (2024) found that monitoring and evaluation had a positive and significant effect on financial accountability in public tertiary institutions in Southwestern Nigeria. Adeyemo et al. (2025) similarly reported positive relationships between internal audit control, asset and liability verification, compliance with plans and procedures and financial accountability in tertiary institutions in Ekiti State. However, Orji et al. (2025) found that some internal-control mechanisms in public tertiary institutions in Southeastern Nigeria were not significantly related to accountability, suggesting that the existence of controls alone may not be sufficient where audit activities are primarily compliance-oriented. This inconsistency creates a need for further investigation into whether effective internal audit activities actually translate into improved financial accountability within the specific context of public tertiary institutions in Lagos State.

A fourth problem is the limited empirical evidence specifically examining the effect of internal audit effectiveness on financial accountability among selected public tertiary institutions in Lagos State. Existing studies have examined internal audit and accountability in tertiary institutions in Kogi State, Ekiti State, Southwestern Nigeria and Southeastern Nigeria, while other studies have focused on broader public-sector organisations. Although these studies provide useful evidence, their findings may not fully explain the circumstances of public tertiary institutions operating within Lagos State’s distinctive administrative, financial and institutional environment. Iredele and Olanrewaju (2025) have highlighted the importance of audit resources, resistance to scrutiny, audit-process efficiency and regulatory compliance to accountability in the Lagos public sector, demonstrating the continuing relevance of effective auditing mechanisms. Nevertheless, there remains a need to empirically establish whether and to what extent internal audit effectiveness influences financial accountability in selected public tertiary institutions in Lagos State. This study therefore seeks to address this gap by examining the effect of internal audit effectiveness on financial accountability in selected public tertiary institutions in Lagos State.

1.3 Purpose of the Study

The general purpose of this study is to examine the effect of internal audit effectiveness on financial accountability in selected public tertiary institutions in Lagos State.

Specifically, the study seeks to:

1. examine the effect of internal auditor independence on financial accountability in selected public tertiary institutions in Lagos State;
2. determine the effect of auditor competence on financial accountability in selected public tertiary institutions in Lagos State;
3. assess the effect of internal control evaluation and compliance monitoring on financial accountability in selected public tertiary institutions in Lagos State; and
4. examine the effect of implementation of internal audit recommendations on financial accountability in selected public tertiary institutions in Lagos State.

1.4 Research Questions

The following research questions will guide the study:

1. What is the effect of internal auditor independence on financial accountability in selected public tertiary institutions in Lagos State?
2. What is the effect of auditor competence on financial accountability in selected public tertiary institutions in Lagos State?
3. What is the effect of internal control evaluation and compliance monitoring on financial accountability in selected public tertiary institutions in Lagos State?
4. What is the effect of implementation of internal audit recommendations on financial accountability in selected public tertiary institutions in Lagos State?

1.5 Research Hypothesis

The following null hypothesis will be tested at 0.05 level of significance:

H₀: Internal audit effectiveness has no significant effect on financial accountability in selected public tertiary institutions in Lagos State.

1.6 Significance of the Study

The study will be significant to management of public tertiary institutions because it will provide empirical evidence concerning the contribution of internal audit effectiveness to financial accountability. The findings may assist institutional management in identifying weaknesses in internal audit practices and strengthening financial-control mechanisms.

The study will be useful to internal auditors because it will highlight the importance of independence, competence, internal-control evaluation, compliance monitoring and follow-up of audit recommendations. The findings may encourage internal audit units to adopt more systematic and risk-based approaches to their responsibilities.

The study will also benefit accounting and bursary departments of public tertiary institutions. Effective cooperation between internal audit and financial-management units may improve the accuracy of financial records, compliance with financial procedures, safeguarding of institutional assets and quality of financial reporting.

The study will be relevant to government and regulatory authorities, including agencies responsible for supervising public tertiary institutions and public financial management. The findings may provide evidence that can support policies aimed at strengthening internal audit functions, improving financial transparency and enhancing accountability in public educational institutions.

The study will be useful to governing councils and audit committees of tertiary institutions because it may provide information for evaluating the adequacy of existing internal audit arrangements. The findings may assist governing bodies in strengthening oversight, ensuring appropriate auditor independence and monitoring management responses to audit findings.

The study will also be significant to researchers and students of accounting, auditing, finance, public administration and management because it will contribute empirical evidence to the literature on internal audit and public-sector financial accountability. It may also provide a foundation for future studies on auditing and governance in Nigerian tertiary institutions.

Finally, the study will benefit the general public and other stakeholders in tertiary education because stronger financial accountability can contribute to better utilisation of resources entrusted to public institutions. Effective internal auditing can help institutions reduce financial leakages, improve compliance and strengthen public confidence in the management of educational resources.

1.7 Scope of the Study

The study focuses on the effect of internal audit effectiveness on financial accountability in selected public tertiary institutions in Lagos State.

The content scope covers four major dimensions of internal audit effectiveness: internal auditor independence, auditor competence, internal control evaluation and compliance monitoring, and implementation of internal audit recommendations. Financial accountability will be examined in relation to transparency, compliance with financial regulations, reliability of financial information, proper utilisation of public funds and accountability for institutional resources.

The geographical scope of the study is limited to selected public tertiary institutions in Lagos State, Nigeria. The study does not cover all tertiary institutions in Nigeria or all tertiary institutions in Lagos State.

The study will focus on relevant personnel who have sufficient knowledge of internal auditing and financial management within the selected institutions. These may include internal auditors, accounting and bursary personnel, management staff and other appropriate officers involved in financial control and accountability.

The study is concerned specifically with internal audit effectiveness and financial accountability. It does not seek to examine external auditing as the principal independent variable, although external audit may be acknowledged as part of the wider institutional accountability framework.

1.8 Operational Definition of Terms

Internal Audit: An independent and objective assurance and advisory activity designed to add value and improve an organisation’s operations through systematic evaluation of risk management, control and governance processes.

Internal Audit Effectiveness: The extent to which an internal audit function successfully achieves its objectives of providing assurance, identifying control weaknesses, promoting compliance, detecting irregularities and improving organisational processes.

Financial Accountability: The obligation of public institutions and their officers to properly record, explain, report and justify the collection and use of financial resources entrusted to them.

Internal Auditor Independence: The degree to which internal auditors are able to perform their duties objectively and communicate their findings without inappropriate interference from management or other interested parties.

Auditor Competence: The knowledge, skills, professional qualifications, experience and technical abilities possessed by internal auditors to perform audit activities effectively.

Internal Control: The policies, procedures, structures and processes established by an organisation to provide reasonable assurance regarding effective operations, reliable reporting, safeguarding of assets and compliance with applicable laws and regulations.

Internal Control Evaluation: The process through which internal auditors assess whether an institution’s control systems are properly designed, implemented and operating effectively.

Compliance Monitoring: The systematic process of assessing whether financial transactions and institutional activities conform to applicable laws, regulations, policies, budgets and established procedures.

Audit Recommendation: A corrective or improvement measure proposed by internal auditors after identifying weaknesses, risks, irregularities or opportunities for improving institutional operations.

Implementation of Audit Recommendations: The extent to which management takes appropriate corrective action in response to findings and recommendations contained in internal audit reports.

Public Institution: An organisation established, funded or substantially supported by government for the provision of public services.

Public Tertiary Institution: A government-owned or government-controlled university, polytechnic, college of education or other institution authorised to provide post-secondary education.

Financial Transparency: The extent to which relevant financial information is accurately recorded, clearly presented and made available to appropriate stakeholders.

Financial Reporting: The process of preparing and presenting financial information concerning the financial activities, position and performance of an institution.

Audit Quality: The extent to which internal audit activities are conducted competently, objectively, systematically and in accordance with applicable professional standards.

1.9 Organisation of the Study

The study is organised into five chapters.

Chapter One presents the introduction to the study. It covers the background to the study, statement of the problem, purpose of the study, research questions, research hypothesis, significance of the study, scope of the study, operational definition of terms and organisation of the study.

Chapter Two will review relevant literature on internal audit effectiveness and financial accountability. It will discuss the concepts of internal audit, internal audit effectiveness, auditor independence, auditor competence, internal control evaluation, compliance monitoring, audit recommendations, financial accountability, financial transparency and related theoretical perspectives. It will also review relevant empirical studies and identify the gap that the present study seeks to address.

Chapter Three will present the research methodology. It will discuss the research design, area of the study, population of the study, sample size, sampling technique, research instrument, validity of the instrument, reliability of the instrument, method of data collection and method of data analysis.

Chapter Four will present the analysis and interpretation of data obtained from respondents. The findings will be organised according to the research questions, while the stated hypothesis will be tested at the 0.05 level of significance.

Chapter Five will present the summary of findings, conclusion and recommendations. It will also discuss the implications of the findings and make suggestions for further research.

Project – Effect of Internal Audit Effectiveness on Financial Accountability in Public Institutions: A Study of Selected Tertiary Institutions in Lagos State.