Role of Internal Audit: A Case of Commercial Bank of Ethiopia

The objective of the study was to assess what roles does internal audit plays in the achievement of organizational objectives. To achieve the objective of the study, both qualitative and quantitative analysis methods were employed to investigate primary data, which were collected through interview and questionnaire. Secondary data was also used to some extent. The study result shows that internal audit plays indispensable role on achievement of organization’s objectives through ensuring effective and efficient utilization of resource, advocating ethical conducts throughout the organization, assessing and identifying system inefficiencies and providing recommendation for better achievement. Moreover, findings shows that compliances/traditional audit is the dominant one type of audit practiced. The study also identifies absence of sufficient training, no/little encouragement by management and lower acceptability of findings as major barriers to efficient audit function. Based on the findings the audit department is recommended to extend its scope in assessing risks proactively, create continuous and direct contact with management, to have harmonious relationship and develop their value-adding role. are analyzed through both qualitative and quantitative methods. Percentages and tables are used for analysis of data collected through questionnaire, which were distributed to 13 auditors out of 77 auditors, representing 17% of the total population. The researcher has used convenience sampling technique because auditors were not easily accessible as they are working at different location.

put into operations in the way intended. The internal audit department is used by enlightened managements to bridge the gap. As Brathwaite, 1988, said, it is an integral part of the organization and functions under the policies established by management and the board.
Researches that has been conducted by Metadel, (2006), andNigussie, (2007), has studied the internal audit practice of GTZ and Development Bank of Ethiopia, respectively. Both of them have assessed how the internal audit is in practice and its significance for an organization. Derjie, (2007), in his study of Role of internal Audit in public enterprise, has identified what roles internal audit is playing to the Ethiopian Electric power corporation. However, none of the above have not shown barriers to internal audit. As a result, the researcher is interested to fill this gap. The purpose of this study is therefore to investigate the role of internal audit on achievement of organization objectives in financial institutions on the case of commercial Bank of Ethiopia (CBE). This study addressed the following questions: 1. How the internal audit practice looks like? 2. What are the roles of internal audit? 3. What are barriers to successful internal audit in CBE?

Objective of the study 3.1. General objective
The general objective of this study is to investigate the role of internal audit in the case of Commercial Bank of Ethiopia.
3.2. Specific objectives In addition to general objective, the specific objectives of the study include:  To assess internal audit practice of Commercial Bank of Ethiopia.  To assess roles of internal audit.  To identify factors influencing the role of internal audit.

Scope of the study
The study was a case study focusing on Commercial Bank of Ethiopia (CBE). Even though the company has a number of department, due to time and financial constraints the study was about the internal audit department, which is most important to the study, too. The remaining section of this paper includes review of literature, research methods, findings of the study and proposed recommendations.

Literature Review
The institute of internal auditors (IIA) professional practices frame work defines internal audit as: "It is an independent, objective assurance and consulting activity designed to add value and improve an organizations operations. It 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 process." Based on this definition the following roles of internal audit has been presented.
5.1. Role in Control As noted in Arens, 2011, internal auditing is primarily directed at improving internal control. Under the committee of sponsoring organizations of the tread way commission (COSO) Frame work, internal control is broadly defined as a process, effected by an entity's board of director's (BOD's), management, and other personnel, designed to provide reasonable assurance regarding effectiveness and efficiency of operations, reliability of financial reporting and compliance with laws and regulations. Pickett, 2005, also stated the role of internal audit as "internal audit set what is found during an audit against what should be present to ensure good control. " Hermanson, (1989), also mentioned that internal audit ensure compliance with management's policies, plans, procedures and any applicable laws and regulations. Codjia, (2010), noted the importance of internal audit in corporate governance mechanisms of organizations through evaluating corporate activities control or procedures and ensures that they are adequate and incompliance with senior management's recommendation and human resources guidelines. An internal audit also helps a firm adhere with regulatory standards and industry practices. Internal auditors are critical to effective corporate governance and achievement of organization objectives, because they spend all of their time within on company as a result they have much greater knowledge about the companies as a result they have much greater knowledge about the company's operations and internal control than external auditors and hence in providing better recommendations (Elder, et al, 2010) 5.3. Role in Risk Management According to international standards for the professional practices of internal auditing, (2011) determining whether risk management processes are effective is a judgment resulting from the internal auditors assessment that significant risks are identified and assessed, appropriate risk responses are selected that align risks with the organization's risk appetite, and Relevant risk information is captured and communicated in timely manner across the organization, enabling staff, management and the board to carry out their responsibilities. (IIA 2120)

Role In Minimizing Cost of External Audit
According to Elder (2010), external auditors rely on internal auditors on assessment of control risk. If internal auditors are effective, the external auditors can significantly reduce control risk and thereby reduce substantive testing. As a result, external auditors may reduce their fees substantially when the client has a highly regarded internal audit function. The external auditor may use the internal auditor for direct assistance on the audit. By relying on internal audit staff for performing some of the audit testing, external auditors may able to complete the audit in less time and at a lower fee, too.

Internal audit as Strategic Advisor
Internal auditors, as stated in institute of internal auditors professional practice frame work, provide consulting activity designed to add value and improve an organization's operations. They also provide information which is reliable and used for strategic business decisions. As a result they minimize information risk, too, which is the possibility that the information up on which the business risk decision was made inaccurate, as defined by Elder, (2010) 5.6. Role in Improving Economy and efficiency Internal audit in its finding determines whether the entity is managing and utilizing its resources (Such as personnel, property) economically and efficiently, identifies the causes of inefficiencies or uneconomical practices, and whether the entity has complied with laws and regulations consuming matters of economy and efficiency. Thus internal audit provide how to improve weakness and maintain strengths which intern increases economic use of resources and efficiencies by avoiding misuses. (Hermanson, 1989) 5.7. Internal audit in establishing good internal communications The internal auditor's duties bring him into contact with all department of his organization, since his role is to check on the effectiveness of the system and the security of its assets at all levels. Naturally he will want to know the organization of responsibilities and manuals of operation of each department and provide remedies for inefficiencies of each unit in the organization and creating common understanding between the auditor and managers or other senior officers (Bigg and Davies, 1980). An audit report prepared by internal auditors, provide top management, departmental heads and segment level employees with relevant information about operating processes and weakness. Such data is important because it help various readers understand potential risks (and losses) that help typically may affect a company's operations (Codjia, 2010).

Role in discharge of responsibilities of employees
The institute of internal auditors (IIA), Stated that the objective of internal auditing is to assist members of the organization in the effective discharge of their responsibilities. To this end, internal auditing furnishes them with analyses, appraisals, recommendations, counsel and information concerning the activities reviewed "As cited in Hermanson 1989). Millichamp, 1986, also expressed internal auditing as" it is an independent appraisal activity". Internal audit initiates the activities of others through creating conducive environment in work place and serving as information communicator.

Research Design
This study is a descriptive research, which is concerned with investigating the roles played by internal audit on achievement of organizational objectives in financial institutions, especially on banks. To this end, the research was a case study focusing on Commercial Bank of Ethiopia (CBE).
The researcher has used both primary and secondary data, where primary data was collected through questionnaire and interview. Questionnaire was distributed to internal auditors, including team leaders and interview was made with Chief Audit executive. Secondary data was collected from printed materials of the bank.
Data about independence and competence of auditors, factors that were barrier to successful audit, and audit practice of CBE were collected through questionnaire. More over the perception of auditors towards how internal audit contributes to achievement of organization objectives were also collected through questionnaire. But, interview was used to collect additional data, as to the perception of Chief Audit executive towards the role internal audit on achievement of organizational objectives, and as to techniques used to measure competence of internal auditors, and barriers they face in performing the audit function.

Data Analysis Methods
Data collected are analyzed through both qualitative and quantitative methods. Percentages and tables are used for analysis of data collected through questionnaire, which were distributed to 13 auditors out of 77 auditors, representing 17% of the total population. The researcher has used convenience sampling technique because auditors were not easily accessible as they are working at different location.

Sampling Design
Percentages and tables are used for analysis of data collected through questionnaire, which were distributed to 13 auditors out of 77 auditors, representing 17% of the total population. The researcher has used convenience sampling technique because auditors were not easily accessible as they are working at different location.

Findings of the Study
This section presents the data collected using questionnaire and interview. Open-end questions are analyzed independently with data collected through interviewing the chief Audit executive of Commercial Bank of Ethiopia. The study was conducted in the internal Audit Department of CBE. Given the nature of questions, the questionnaires were distributed to internal auditors and team leaders. Out of 15 questionnaires distributed, 11 of answered questionnaires were collected. Of which 7 were internal auditors and 4 were team leaders. 100 Audit department shall be composed of different individuals qualified in different discipline having different level of experience. Because audit function is engaged in different type of matters, as a result economic issues shall be investigated by economist and the same is true for others. This enables the audit department to see things from different direction and increases the value of audit.

Background of Respondents
As shown in Table1 above 63.6% of the respondents were internal auditors while the rest 36.4% were team leaders. Educational qualification and year of experience of auditors shows their competence, because the more they are educated and have an experience, the more they become efficient and hence, all except one respondents were qualified by degree program. 36.4% of the respondents were accounting graduates 27.3% and 18.2% were graduate in management and economics,respectively.18.2% of the respondents were qualified in more than one field. Almost 90.1% of respondents have an experience of at least four years. Which indicates the audit department has good mix of professionals.  Determining the responsibility of internal auditors is important for efficient and effective audit work. Hence, all respondents agree that the responsibility of each auditor is set out formally. 71.4% of internal auditors and 50% of team leaders answered that there is no properly defined division of staff into section covering different service, while the rest 28.6% of internal auditors and 50% of team leaders agree that three is properly defined division of staff in to section covering different services.

Internal audit practice of CBE
The importance of internal audit is grasped when its recommendations and findings are implemented properly .25% of team leaders strongly agree ,85.7% of internal auditor and 50% of team leaders agree ,25% of team leaders are neutral ,and 14.3% of internal auditors disagree that there recommendations and finding are being implemented. Information, which is relevant for decision-making, may be collected from various departments. This information shall evaluate to check it reliability by audit department. Absolutely, as all respondents answer it is the responsibility internal audit department to insure this.
Audit department is independent when it does not perform management functions. It cannot plan and establish policies rather it provides consultation and reviews whether they are attainable. 28% of internal auditors and 75% of team leaders respond that it is the responsibility of internal audit department to establish policies and plans.
The above table also shows that 71.4% of internal auditor and all team leader respondents believe that internal audit department is responsible to identify and assess actual and potential risks to bank's operations. With regard to appraising efficient and effective use of resources, 42.9% of internal auditor and 75% of team leader respondents believe that the audit department is responsible for this .71.4 of internal audit department is also responsible to provide consulting service.
Recommendations provide are valid when appropriate action is taken. As 85.7% of internal auditor and all team leader respondents' state, it is the responsibility internal audit department to follow up The organization (bank) is established for achieving an objective, and internal audit play an important role. From the total respondents 71.4% of internal auditors and 75% of team leaders responded that, it is the responsibility of European Journal of Business and Management www.iiste.org ISSN 2222-1905(Paper) ISSN 2222-2839(Online) Vol.12, No.22, 2020 36 internal audit to facilitate the achievement of objectives in addition to top management. iii.
Manage information system risk proactively (before it occurs)   --3  75  3  27.3 iv. Structured on a fluid and flexible framework.
Effective internal audit function manages risks proactively, advocate ethical conduct throughout the organization, and structured on a fluid and flexible framework. 14.3 of internal auditors and 50% of team leader respondents agree that internal audit function (IAF) addresses third party risk and vendor risk, while all respondents agree that IAF advocates ethical conduct throughout the organization. Moreover 75% of team leaders and no auditor respondents agree that IAF manages information system risk proactively before it occurs, the same is true as to the structure of IAF on a fluid and flexible framework. ------All respondents believe that, most of the time they perform compliance audit, which enable them to identify an activity which is not compatible with objectives and rules and regulations of bank. System and operational audit is an audit activity performed to identify inefficiencies, and improving effectiveness. But, only 28.6% of auditors and 25% of team leaders believe that they are performing this function. Financial audit is evaluation of financial reports made by accounting department to increase the relevance of information for decision making. And auditors of CBE are performing this role as it is supported by 57.1% and 50% of auditors and team leader, respectively. As shown from the above table, all respondents perceive the role of internal audit on assessment of adequacy and effectiveness of internal control. As shown from table 6 all team leaders and 71.4% of auditors believe that assessing both actual and potential risk is the responsibility of internal audit, but only 42.9% of internal auditors and 50% of team leaders respondents perceive the role of internal audit on risk management.

Role of Internal Audit
Moreover, from table 6 42.9% of auditors and 75%team leaders perceive the responsibility of internal audit on improving efficient and effective use of resources. But above 57.1% of internal auditors and 75% of team leaders believe that internal audit is performing to ensure the economic and efficient use of resources. 85.7% of internal auditors and all team leaders' respondents believe that internal audit is playing an import ant role in insuring that the activities of the bank's operations are in compliance with its objectives. 71.4% of internal auditors and 75% of team leaders agree that internal audit department plays an important role in providing advisory services for key business and strategic decisions. 42.9% of international auditors and European Journal of Business and Management www.iiste.org ISSN 2222-1905(Paper) ISSN 2222-2839(Online) Vol.12, No.22, 2020 75% of team leaders believe that internal audit department is important to facilitate and appraise effective discharge of employee's responsibility. Furthermore, 14.3% of internal auditors and 75% of team leaders believe that internal audit department provides assistance to management in evaluation, appraisal and monitoring of individual schemes. Internal auditors are expected to find creative ways to cope up with dynamic environment that will add value to the organization. This is achieved mainly when there is encouragement by the management. 25% of team leaders absolutely agree, 14.3% of internal auditors and 50% of team leaders respond very, 14.3% of internal auditors respond somewhat while 71.4% of internal auditors and 25% team leaders insure that there is no constant encouragement from management so as to achieve better performance.

Factors Affecting the Performance of Internal Auditors.
Auditors shall be provided with technical and professional related training for better achievement 28.6% of internal auditors, and 25% of team leaders agree, 28.6% of internal auditors and 50% of team leaders respond neutral, and 42.9% of internal auditors and 25% of team leaders disagree as to the existence of technical and professional related training.
To improve technical and professional skills, it is good for internal auditor to have access to further education. 42.9% of internal auditors and 25% of team leaders responded that there exists access to further education. But 57.1% of internal auditors and 75% of team leaders agree that the bank is not providing access to further education. As per the chief audit executive, there was previously training provided by the general accounting office (GAO), but it is now discontinued. 7.5. Barriers to internal audit function. Interview and questionnaire result obtained show that, the following are considered as barriers to their function:  Absence of sufficient training to improve professional knowledge and get better satisfaction for higher performance.  No /little/ encouragement by the management of the corporation to find creative ways of better performance.  Lower acceptability of finding by management.  No access to see current international practice of internal auditing. For efficient audit function, internal auditors' performance and their competence shall be periodically reviewed by concerned party of the corporation. As of chief audit executive, internal auditors of CBE are evaluated through:  Looking the quality of internal auditors working paper documentation or quality of audit report and finding.  Supervision and review of internal auditing activities. Evaluating customer satisfaction by distributing a questionnaire to management and BOD's.