CHAPTER ONE

INTRODUCTION
1.0. Introduction
This chapter presents the introduction, background of the study, definition of the problem,
objectives of the study, research questions, significance of the study, scope of the study and
conceptual framework.
1.1 Background of the study
According to Rittenberg and Schwieger (1997), "in many global organizations today, auditing is
gaining importance by assisting management in evaluating controls and operations, thereby
providing an important element of global control".
Throughout the world, the practice of auditing in many parts of the world has been expanding in
many forms for some time. In the US, financial auditing has been expanded to review all areas
where money is spent, which inevitably leads auditors into operations; in the United Kingdom,
financial control was vested; in Canada and elsewhere, auditing has gained momentum since
1978. Within several countries, European accounting and auditing systems have been introduced
in the United States. As the size, scope and complexity of business activities grew, there was a
critical need for a separate interval assurance function to verify (accounting) information used
for management decision-making. At the turn of the 20th century, management needed some
means of evaluating not only the effectiveness of the work done for the business but also the
integrity of its employees, the establishment of a formal control function to which these
responsibilities could be delegated was seen as logical. Reply. In due course, the audit function
became responsible for the "careful collection and interpretive reporting of selected business
facts" so that management could monitor significant business developments and activities
(Mautz, 1964). It is therefore obvious that audit activity has the potential to provide services to
management in the performance of its duties.
In Malaysia, the development of auditing in the Malaysian public sector began in 1970 when the
Ministry of Defense established its Internal Audit Department. However, the scope was limited
to financial audit (Lee, 2004). Gradually, the extension of scope was recognized in later years,
when the scope covered both financial audits and management audits.
In Nigeria, research has shown that Nigerian local government councils have audit departments
(internal and external) with internal audit staff to carry out internal audit activities; Coker &
Adams, (2012). This establishment was in accordance with the provision of the Ministry of Local
Government under the Internal Audit Guidelines; which strongly recommends that all local
government councils in Nigeria be audited for the following reasons: (i) to promote good internal
governance (ii) to ensure compliance with other levels of government (iii) to improve the
effectiveness of risk management, controls and governance processes (iv) to instilling
stakeholder confidence in the organization's ability to operate effectively and efficiently (IAG,
2008).
The East African Community (EAC), comprising Kenya, Uganda and Tanzania, can trace its
audit origins back to the early decades of the 20th century.
In Uganda, the Office of the Auditor General of Uganda (OAG) is the Supreme Audit Institution
(SAI). The OAG conducts external audits of government departments and their relevant agencies
to ensure accountability and also oversees the work of the internal audit function. The Internal
Audit function in Uganda was established in 1997 and is a statutory body of local government.
The audit role can be described as comprising three main elements; evaluating and improving
risk management, control and governance processes, and auditors use tools such as financial
audits, performance audits and investigative and advisory services to fulfill each of these roles
(Deloitte, 2011). Hence, from the above observation, Ugandan local government now demands
great competence and professionalism from audit and scarce resources must be deployed more
effectively to minimize and manage risks. Therefore, nowadays local government must
demonstrate responsibility in the use of government money and efficiency in the provision of
services.
In terms of my area of study, Mbale City Council is currently using audit to fulfill the arguments
discussed above.

1.2 Problem Statement

According to Uganda's Local Government, Accounting and Audit Act 2003, every local
government entity is required to keep proper books of account and records in relation thereto and
must settle its accounts within four months of the end of each financial year.
The Local Government Act as amended (2002) of Uganda, section 91 states that “every district,
municipal or municipal authority shall provide for an internal audit department within and an
external audit at the end of each financial year by the Office of the Auditor General (OAG)
within the premises. support financial management.
Therefore, thanks to the presentation of this fact, the audit significantly contributes to the
achievement of the goals of local self-government and the implementation of strategies for their
achievement; Jovanov, (2011).
Additionally, in Uganda, recent corporate accounting scandals and the resulting calls for
transparency and fair reporting have created public demand for change and subsequent
regulatory action to transform corporate governance. Mutual (2012) examined the impact of risk-
based auditing on public sector financial performance. Financial performance has been found to
require appropriate risk-based audit procedures and hence effective and efficient auditing.
Today we have seen that government institutions have come to the realization that audit is
necessary to improve asset management and lead improvements in the management of
government funds by local government institutions, findings (Basel Committee, 2002).
However, available data in many local governments indicate that local revenues are performing
poorly compared to annual projections or budgets due to poor auditing. This is evidenced by the
accumulation of salary arrears, non-accounting of donor funds, non-financing of development
projects from local revenues and poor service provision.
Despite the government's efforts to establish statutory institutions to enforce the role of audit,
accountability and financial performance, then the researcher still feels that there are gaps that
need to be addressed, hence the researcher is motivated to study the role of audit. financial
performance audit of local government in Uganda with respect to the case study of Mbale City
Council.
1.3 Purpose of the study
The purpose of the study is to determine the role of audit on the financial performance of local
government in Uganda.
1.4 Objectives of the study
1. To examine the various ways in which audit supports the financial performance of Mbale City
Council.
2. To examine the level of financial performance of Mbale City Council.
3. To assess the relationship between internal audit and financial performance of Mbale City
Council.
1.5 Research questions
1. What are the different ways that audit supports the financial performance of Mbale City
Council?
2. What is the level of financial performance of Mbale City Council?
3. What is the relationship between the internal audit function and financial performance in
Mbale City Council?
1.6 justification of the study
The study is urgently needed for the following reasons
• Will provide practical solutions/approaches to achieve local government objectives and
implement strategies
• The existence of glaring audit gaps needs to be addressed through scientific research
• The need to find out how the audit contributed to the financial performance of local
governments
1.7 Significance of the study
This study will help to increase the role and image of audit in the public sector (local
government), that is, to make it more effective and professional.
The conclusions of the study will allow shareholders to appreciate the role of audit as one of the
most important managerial control systems in the organization for the protection of their
interests.
This will help academics, especially UMI in the future in line with auditing courses, to
appreciate and expand their knowledge of auditing to adhere to the professional ethics required
by International Accounting Standards (IAS).
Findings from the study will assist local government and others in formulating appropriate audit
role and accountability policies to help improve financial performance.
Findings from the study will also add a literature review to the already established information
on the variables. It will thus serve as a source of literature research for other academics who will
be interested in examining the same variable roles of audit in the management of public funds in
local governments.
In addition, the findings from the study will help reveal internal audit weaknesses. It is mostly
found at Mbale City Council in terms of audit as well as recommended strategies to address
identified weaknesses in the same organization.
1.8 Scope of the study
This section includes, Geographic scope, Time scope and finally Content scope.
1.8.1 Geographical Scope
The study will be processed by the Mbale Municipal Council (MMC). MMC is located in Mbale
District which is located in the Eastern part of Uganda. The city consists of three local councils.
That is, Northern Division, Wanale Division and Industrial Division. The main office, which
serves all three of these local councils, is located at Plot 62-68 along Republic Street in the
Industrial Division.
1.8.2 Time Range
The study will mainly focus on the information collected in the documents published between
2016 and 2022. This period will be chosen because it will allow the researcher to come up with a
comprehensive and large amount of data that was essential to obtain information about the audit
task. on the management of the territorial self-government, specifically the MMC. The period
will also give respondents an opportunity to provide information that will be representative of
their views from the observations they saw during that period.
1.8.3 Scope of Content
The study will determine the role of audit on the financial performance of a local government in
Uganda, Mbale City Council. It will cover the various ways in which audit supports financial
performance, the level of financial performance and the relationship between internal audit and
the financial performance of Mbale City Council.
1.9 Conceptual framework
A conceptual framework is a conceptual model of how one's theories make logical sense of the
relationships among several factors that have been identified as important to a given problem
(Sekaran, 2003).
It functions as a narrative outline or diagrammatic representation (or combination thereof) of the
variables to be studied and the hypothesized relationships between and among the variables, and
may be rudimentary, theory-driven, or simply sensory, descriptive, or causal. (Sekaran, 2003)
Understanding the factors that determine the role of auditing is very important because auditing
can improve four important processes in an organization such as learning, motivation, deterrence
and process improvement (Eden and Moriah 1996).
As far as this study is concerned, the following factors are mentioned; audit competence, internal
controls and independence of internal audit will be used to assess how they influence the role of
audit on the financial performance of Mbale City Council as a study area.

Figure 1: Showing The conceptual framework of the variables

AUDITING FINANCIAL PERFORMANCE
INDEPENDENT VARIABLES. DEPENDENT VARIABLES.
 Internal control  Accountability.
systems  Timely reports like
 Professional Statement of financial
competency of audits. position and
 Independence and comprehensive income
authority of auditing statement.
 Ratio analysis.
 MODERATING VARIABLES.

 Internal Standards of Auditing

(ISA)
 Government policies
 International Accounting
Standards (IAS)

Source: Researcher’s Design, 2021

The independent variable consists of internal audit independence, professional competence and
internal control systems were moderated by intervening variables such as International Auditing
Standards, Government Policies and International Accounting Standards, which lead to better
financial performance in terms of proper accountability, timely reporting and presentation as a
statement on the financial situation, the complete statement of profit and loss and ratio analysis
as parameters of dependent variables.
10.1 Key terms
Internal control systems
This includes the set of rules, policies, and procedures that an organization puts in place to
provide direction, increase efficiency, and enforce compliance.
Internal auditing standards
It is a method used to improve the accuracy of quantitative analysis
Government policy
Government policies are rules or regulations amended by the Government of Uganda to direct or
control the way activities are carried out in an organization
International accounting standards
Refers to professional standards dealing with the responsibilities of an independent auditor in
performing a financial audit of financial information
Ratio analysis
It is a quantitative method to gain an overview of a company's liquidity, operating efficiency and
profitability by studying its financial statements, such as the balance sheet and income statement.
Responsibility
This is when an individual or department feels consequences for their performance or actions
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter presents concepts and theories from other researchers and authors about the role of
auditing on LG's financial performance. During the research, the researcher will use different
literary works, consult books of different authors and other discussed problem, which in turn will
help in researching this topic of study. A literature review is therefore paramount, as it will show
a picture of the state of knowledge in the field of study. And often, the researcher's study will be
guided by research objectives that include examining the various ways that audit supports
MMC's financial performance, examining the level of MMC's financial performance, and finding
out the relationship between internal audit and MMC's financial performance.
Theoretical literature
2.1.0 Conceptual review
2.1.1 Audit concept
It is difficult to provide a precise definition of the term "audit". But to a large extent, some of the
definitions given by various authors are as follows:
According to Montgomery (1983), a well-known author, “an audit is a systematic examination of
the books and records of a business or organization with the objective of ascertaining or
verifying and reporting facts relating to a financial operation and its outcome. .” Spicer and
Pegler, (1989) expanded the above definition as follows: “An audit can be described as such an
examination of the books, accounts and vouchers of an enterprise as enables the auditor to
ascertain that the SFP is properly drawn. up so as to give a true and fair view of the state of the
business and whether the profit or loss for the accounting period according to his best
information and explanation given to him and as shown in the books of account and if not in
what respect he is not satisfied."
According to Dicksee, (1982), "an audit is an examination of accounting records made to
determine whether they accurately and completely reflect the transactions to which they relate. In
some cases, it may be necessary to determine whether the transactions themselves are supported
by authority."
Mautz, (1980) defines auditing as "dealing with the verification of accounting data, determining
the accuracy and reliability of accounting statements and reports."
It is clear from the above definitions that an audit is a systematic and scientific examination of
the books and records of an enterprise so that the auditor can satisfy himself that the SFP and
CIS are properly prepared to present a true and fair view of the financial condition of the
enterprise and the profit or loss for accounting period. The auditor will have to go through
various books and accounts and related evidence to ascertain the accuracy and authenticity of the
report on the financial health of the business.
Saleemi N.A., (1998), “audit refers to the creation of value for money through independent and
objective reporting on the state of affairs in a government entity, with the objective of adding
value and improving the performance of local government by introducing a systematic,
disciplined approach to evaluating and improving management effectiveness risk, control and
management.
The audit is expected to be independent and report directly to the CEO. The unit should be
properly organized, adequately staffed and equipped to be able to perform its functions
effectively. (Sabari and Sunday; 2003; Dandago; 2000). These should include periodic surprise
inspection of the treasury in all sections of the ministry or parastatals or local government,
inspection of the revenue collectors' cash books, cash books and cash banks, as well as stock
inventory and keeping plant registers and books of account for easy location and identification of
the organization's assets. (Jocelyn; 2003).
2.1.2 Concept of financial performance
Performance is a measure of the results achieved. Performance efficiency is the ratio between the
effort expended and the results achieved. The difference between the actual performance and the
theoretical performance limit is the performance improvement zone. A performance presupposes
an actor of some kind, but an actor can be an individual or a group of people acting in concert. A
performance platform is the infrastructure or equipment used in the act of performance; Malcom,
S., (2005).
According to Likert (2003), there are two main ways to improve performance: improving the
measured attribute through more efficient use of the performance platform, or improving the
measured attribute by modifying the performance platform, which in turn allows a given level of
use to be more effective in producing the desired output. Performance can be measured by
obtaining the magnitude of a quantity such as length or mass relative to a unit such as a meter or
kilogram.
According to Stoner (2003), performance refers to the ability to operate effectively, be profitable,
survive growth, and respond to environmental opportunities and threats. Accordingly, Sollenberg
and Anderson (1995) argue that performance is measured by how effectively a firm uses
resources to achieve its goals. It is a measure of achievement achieved by an individual, team,
organization or process (EFQM, 1999).
Hitt, et al, (1996) believe that the poor performance of many firms is the result of poorly
performing assets (businesses). The underperformance of underperforming assets is often related
to strategic mistakes made in the acquisition process in earlier years. For example, some firms
acquire businesses with unrealistic expectations of achieving synergies between the acquired
assets and their current asset pools. A common reason for such mistakes is managerial arrogance
(Roll, 1986) or an overestimation of managerial abilities in the acquisition process.
Performance in business refers to the ability to meet standards, increased market share, improved
facilities, ensuring return on profitability and overall reduction in waste, and when this is
achieved, the business is said to be operating efficiently. (Bulunywa; 1998) Organizational
performance can be measured in terms of financial aspects, profitability risk level, proper
accounting, good evaluation and time management. The International Auditing Practice
Statement (IAPS) 2003 states that the need for internal audit functions will usually be driven by
the size, risk and complexity of the business. The board's role in relation to internal audit is to
understand and embrace the committee. According to Ellis, internal audit is not special, so
auditors need to be able to justify the existence of an internal auditor just like any organization in
order to achieve their goals. Achieving these goals, however, is hindered by risk, and it is
precisely these risks that the audit is about.
2.1.3 Cooperation between internal and external audit:
Collaboration refers to the relationship where internal and external audit work together during
audits by providing each other with access to working documents. The external auditor relies on
the work of the internal auditor (Brody, Golen, & Reckers, 1998; Zain et al., 2006). It is a mutual
relationship that promotes efficiency in the audit process and creates value for the organization.
Studies have shown that relying on an external auditor for internal audit can lead to reduced audit
fees and minimized audit delays (Abbott, Parker, & Peters, 2012; Wood, 2004). This
collaboration has also been shown to reduce earnings management and improve the quality of
financial reporting (Prawitt, Smith, & Wood, 2009).
A positive relationship was also noted between the contribution of internal audit to the audit of
financial statements and the close relationship between internal and external audit (Zain et al.,
2006). In addition, observations and recommendations during the audit are easily taken up by
management and organizational processes are improved for better performance. Considering this,
the cooperation between internal and external audit has a significant influence on the
performance of self-government.
2.2.1 The different ways in which audit supports financial performance in local
government.
Historically, audit has been seen as a monitoring function, an organizational policeman and
watchdog, tolerated as a necessary part of organizational control, but considered subordinate to
the achievement of the main corporate objectives; Morgan, (1979). An examination of audit
pressures in recent years reveals a drive to demonstrate that the audit function can add value.
According to Millichap (2002), the following are the ways in which audit supports financial
performance in LG; by action: as an evaluation function, that is, to evaluate the activity of others
and not to perform a specific part of the data processing; as a service to the organization by
ensuring that policies are followed, the information required is reliable and complete, assets are
protected, the internal control system is well designed and operational; as the eye of the board
within the organization.
With respect to Basel, a document of the Committee on Internal Audit (2002), the scope of an
audit broadly includes the following ways in which auditing supports performance in firms: by
examining and evaluating the adequacy and effectiveness of ICS and by reviewing the
application and effectiveness of risk management procedures and risk assessment methodologies.
Furthermore, by ensuring that management and financial information systems, such as electronic
information systems, are prepared and presented to interested parties, the accuracy and reliability
of accounting records and financial reports. In addition, he argued that "auditing supports
financial performance by protecting assets and evaluating one's capital in relation to one's
assessment of risk".
According to Diamond; (2002) audit supports financial performance in fraud prevention and
detection that challenge local government performance. It involves identifying scenarios where
theft or loss could occur and determining whether existing control procedures can effectively
manage the risk to an acceptable level to prevent financial and administrative irregularities and
thus performance in the long term.
In (2012), Diamond affirmed that “audit favors physical accountability because users, especially
the public, easily see value for money over reading and interpreting budgets. Physical
accountability for public funds has intentionally evolved as stakeholders are involved in the audit
process in an effort to ensure performance in local government.
The audit activity evaluates the exposure to risks related to the management, operation and
information systems of the organization in relation to; efficiency and effectiveness of operations,
reliability and integrity of financial and operational information, protection of assets and
compliance with laws, regulations and contracts. Based on the results of the risk assessment, the
auditors will evaluate the adequacy and effectiveness of the method of risk identification and
management in the above-mentioned areas. They also consider other aspects such as ethics and
values within the organization, performance management, risk communication and control
information within the organization to facilitate the process of good governance (IIA Research
Foundation, 2004).
The ideal lead roles of the audit department in the risk management process were identified as
some of the ways in which audit supports financial performance at LG, such as: By; providing
assurance on risk management processes, providing assurance that risks are assessed correctly,
evaluating risk management processes, evaluating key risk reporting and finally reviewing LG's
key risk management; Kibara, (2007).
However, the Financial Memorandum (1999) states that the audit department will support the
financial performance of the local government by conducting independent evaluation of the
accounting, financial and other processes of the local government with the aim of; helps protect
LG's assets and interests through a process of continuous review of its activities, ensuring the
continuous operation of a sound system of internal control within each department, reviewing
and, where necessary, making recommendations to improve the system, controls and procedures
in local government to ensure their effective operation, monitoring the use of resources in
fulfilling the set goals of local self-government. The memorandum also stated that; the auditor
reports to the chairman at least four times a year on the progress of the internal audit work.
Reports must specifically state the auditor's findings regarding; revenue collection, protection of
LG's physical and other assets, current and capital expenditure, efficiency and effectiveness of
system control and procedure, use of LG's resources in achieving its objective.
Audit as a means of supporting financial performance and accountability, which is
fundamentally a key element of LG enforcement, is paramount to achieving its objectives;
Musari, R, (2005).
2.2.2 Level of financial performance of local government
Only a few academic studies have examined the effectiveness of internal auditing, and even
fewer have empirically addressed the issue. In one of the few studies that examined the effect of
internal audit on financial performance, Eden D, (1996) assigned 224 bank branches to
experimental conditions (audited or unaudited) and monitored their financial performance over a
one-year period. Their findings showed that financial performance improved significantly within
six months of the audit. While this study offers a useful springboard for understanding how good
auditing can improve company performance, it does not go far enough in explaining when and
why internal auditing works and the conditions that facilitate or hinder it. Helping to bridge this
gap will be one of the main contributions of this study.
At an empirical level, a survey conducted by KPMG (1999) found that an internal audit function
in organizations where it exists makes a significant contribution to improving performance and
helping to identify evidence of profit when corporate disasters, particularly financial fraud,
consistently document the link between poor governance. Thus, an internal audit acting as a
watchdog could save LG from unfair practices and irregularities. Thus, LG can achieve its goals
of ensuring a high level of productivity and profit.
According to Kiabel, (2012); the study revealed that where internal audit exists, it does not
significantly affect financial performance in government owned companies in line with the
findings of Mihret et al, (2010); that the effectiveness of internal audit does not significantly
affect the financial performance of companies.
Mutua (2012) investigated the impact of risk-based auditing on the financial performance of
commercial banks in Kenya. Although her study focused on risk-based auditing, she recognized
that financial performance requires an appropriately effective and efficient internal audit. Based
on the study's findings, it concluded that risk-based auditing through internal audit standards and
internal audit staffing should be strengthened to enable firms to detect risks early and focus on
high-risk areas, leading to increased transparency and accountability. thereby improving
financial performance. . This showed that there is indeed a relationship between internal audit
and financial performance
However, the profession in Australia in the early 1980s suffered from an image problem, it did
not have a strong professional body to represent its interests as it does now, and there were no
generally recognized professional qualifications recognized as necessary to practice as an
internal auditor. The study was conducted before the development of modern internal auditing as
we know it today. However, this set the stage for a number of subsequent studies in Australia,
Hong Kong and Malaysia.
According to the Basel Committee Report (2002), every bank should have a permanent internal
audit function in order to fulfill its duties and responsibilities. Senior management should take all
necessary measures to ensure that the bank can rely at all times on an adequate internal audit
function commensurate with its size and the nature of its operations. These measures include
providing appropriate resources and staff internally.
An Ernst & Young survey of 695 audit and C-suite executives found that 80 percent admitted
their organization's internal audit function has room for improvement. The report found that 75
percent of survey respondents believe strong risk management has a positive impact on their
long-term earnings. The same percentage of respondents believe that their internal audit function
has a positive impact on their overall risk management efforts. As the role of the internal auditor
evolves and stakeholder expectations rise, internal audit functions increasingly require
competencies that go beyond more traditional technical skills, such as the ability to work with
management and business units on relevant business issues.
2.2.3 The relationship between internal audit and financial performance in local
government
At LG, there is no clear relationship between internal audit and financial performance of
resources, as LG does not operate on a profit or loss basis. However, local government should
commit to a fiscal audit; this audit shows where the resources come from and also how they are
invested or used in the municipality (Dittenhofer, 2001). Today, a large amount of resources are
invested in the LG and therefore there is a lot of pressure on the LG to monitor the organization
in terms of audit and accountability (Shlomo and Idit, 2007).
Additionally, it is now noted that most internal audit professionals argue that an effective internal
audit function correlates with better financial performance. According to Beyanga (2011), an
effective internal audit service can particularly help reduce overhead, identify ways to improve
efficiency and maximize exposure to potential losses from undersecured company assets. All this
can have a significant impact on the financial performance of the organization. He also stated
that internal audit is an invaluable management tool for improving financial performance.
Related to Hermanson and Rittenberg (2005); also argued that the existence of an effective
internal audit is associated with superior organizational performance.
A survey conducted by KPMG (1999) with an empirical bias found that internal audit in
emerging organizations significantly contributes to improving financial performance and helps
identify evidence of profit in corporate disasters; especially financial fraud, which consistently
documents the link between weak governance.
Despite the existence of guidelines on financial management in local government as contained in
the Internal Audit, Finance and Performance Charter (Act 2003), there are currently various
weaknesses in financial management and high performance gaps in local government (Brenda,
2012). There is a significant lack of research on the direct link between internal audits and firm
financial performance in both developed and developing countries. More specifically, among
these few studies, the one conducted by Al-Matari et al. (2012) who investigated the relationship
between internal audit and financial performance of Kuwaiti firms. And finally, it ends with a
challenge for future researchers to examine the relationship between internal audit and financial
performance, both directly and indirectly, or in light of the moderating effect.
According to Watts, (1999); The internal audit procedure is a form and content manual that
includes notes on audits and responsibilities, documentation standards, local reporting standards
and objectives, training requirements and expectations, and performance measures and
indicators.
Zabihollah (2001) argues that there should be effective internal audit procedures to ensure the
reliability of financial statements, operational reports, protection of corporate assets and effective
organizational controls.
Accordingly, Maletta (2004) adds that audit committees and management teams are now looking
for opportunities for improvement within the audit department, and internal audit leaders are
looking for new ways to manage ongoing performance. This can be achieved by designing an
effective performance measurement framework, implementing quality assurance programs and
embedding improvement initiatives into the department's workflow.
(Roth 2004) noted that good internal controls provide reliable financial reporting for
management decisions and the achievement of goals and objectives, poor or excessive internal
controls reduce productivity, increase the complexity of transaction processing, increase the time
required to process transactions and add no value to the activity.
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter presents the methodology that the researcher will adopt during the study. It will
describe and discuss; research design, sample size and selection, data collection methods to be
used and their corresponding data collection instruments, data management and analysis
procedures, as well as steps taken to ensure validity and reliability during the study and
measurement of variables.
3.1 Research design
The study will use both descriptive and quantitative research designs. A descriptive method will
be used to describe the characteristics of the research variables. A quantitative method will be
used to collect data from a given number of respondents. To a lesser extent, a qualitative method
will also be used to obtain opinions from different respondents. The study will also be cross-
sectional in nature as the researcher collected data once every few days to answer the research
questions.
3.2 Study population
The survey population will include; chief auditors, members from the accounting department,
financial department, internal audit department and members from other departments within the
organization, totaling 45 people.
3.3 Sample size
The required numbers of subjects, respondents, elements or firms will be selected from the
population frame in order to create a sample. The study sample will consist of 40 respondents.
The size of this sample was determined using the Slovenian formula as shown below:
n = N/ (1+ A2*N)
Where, n = sample size
N = Total population
A = error factor (0.05)2
So n = 45/ (1 + (0.05)2 * 45)
n = 40
Table 3.1: Shows the study population, sample size and the sampling techniques
Respondents Study Sample size Sampling Techniques
Population
Chief Auditors 2 2 Purposive sampling
Internal Auditors 6 5 Purposive sampling
Town clerk 1 1 Purposive sampling
Planning Officers 3 3 Simple random sampling
Procurement Officers 4 4 Stratified random sampling
Town Agents 7 6 Simple random sampling
Chief Finance Officer 1 1 Purposive sampling
Accountants 6 5 Purposive sampling
Health Officers 4 4 Stratified random sampling
Inventory Officers 3 3 Simple random sampling
Environmental 8 6 Simple random sampling
Officers
Total 45 40
Source: Human Resource Manager (HRM), 2021

3.4 Sampling techniques and procedure

A number of sampling techniques will be used to select respondents for the study. And it;
stratified, simple random and purposive sampling techniques. A stratified random sampling
technique will be used to select health professionals and procurement officers. Stratified
sampling will involve the process of stratifying or segregating members of the target population
into mutually exclusive groups relevant, appropriate and meaningful in the context of the study
as observed. In this case, both health workers and supply officers will be stratified into tow strata
and respondents from each stratum will be selected using a simple random sampling technique.
Environmental, planning and inventory staff and city agents will be selected using a simple
random sampling technique. This technique will be used because; will ensure the generalizability
of findings and minimize bias. A purposive sampling technique will be used to select the Chief
Financial Officer, Chief Auditors, Internal Auditors, Accountants and the Town Clerk. These key
informants will be purposively selected as they will be considered technical and specialist in the
topic under investigation based on the offices they hold.
3.5.0 Data Sources
According to Ngech (2004), there are many sources of data collection. The choice of instrument
and tool mainly depends on the characteristics of the subjects, research topic, problem question,
objectives, design, expected data and results. This is because each tool and tool will collect
specific data. Donald (2006) notes that there are two main sources of data for respondents to use,
namely primary and secondary data.
3.5.1 Primary data
According to Kothari, (2004); primary data is that which is collected fresh and for the first time
and therefore has an original character. And that we can obtain primary data through observation,
direct communication with respondents or personal interview.
Primary data refers to information obtained first hand by the researcher about the variables of
interest for the specific purpose of the study (Sekaran, 2003). The study will use this resource to
collect data from respondents in the MMC using a questionnaire method and an interview guide.
During the data collection process, the researcher uses research instruments to approach the
study area to obtain information from the respondents.
3.5.2 Secondary data
Secondary data is that which has already been collected by someone else and which has
undergone statistical processes. It can be either published data or unpublished data (Kothari
2004).
The study will use secondary data such as internal and external audit reports, internal audit action
plan, internal audit charter and internal audit files, council annual financial reports, Comptroller
and Auditor General report and Local Authority Audit Committee (LAAC) report, textbooks,
journals and government publications to confirm some primary data.
3.6.0 Data Collection Methods
Data collection is the systematic collection of data for a specific purpose from a variety of
sources, including questionnaires, interviews, observations, and existing records. (Kothari, 2008)
Data will be collected using both primary and secondary data. Primary and secondary data are
different in many ways in that primary data is considered original and collected again while in
case of secondary data the nature of data collection is mainly based on compilation as it was
collected by someone else in the past. (Kothari, 2008)
Data will be classified as qualitative and quantitative. Quantitative data are those that can be
measured more or less precisely and their measurement involves quantities that are usually
expressed in numbers, while qualitative data are those that cannot be precisely measured and
counted and are generally expressed in words rather than numbers, and are descriptive and rarely
go beyond nominal and ordinal levels of measurement (Sekaran, 2003)
3.6.1 Interview method
The study will use the interview method. The interviews in this study will help the researcher to
get more information about the research topic. This method will be used because it offers the
researcher an opportunity to modify the questions, clarify the questions by using appropriate
language, clarify doubts and establish a relationship and get more information (Sekaran,
2003:253).
3.6.2 Questionnaire survey method
A questionnaire is a set of questions that are given to respondents via mail or email and
respondents complete the questionnaire themselves, in this case the tool is called a self-
administered or self-administered questionnaire (Kothari 2008).
Therefore, the study will use a questionnaire method to collect data. The use of questionnaire in
this study is important mainly because the purpose of the study is to find out the role of audit on
financial performance of LG in MMC. Such data are best used in closed questionnaires. Second,
using a questionnaire will allow busy respondents to complete it at a convenient time. It will also
allow respondents to express their views and opinions without fear of being persecuted
(Oso&Onen, 2008:18).
3.6.3 Document control method
The researcher reviews the documents to obtain the recorded information related to the research
issue. This method will be used because it allows the researcher to access the data at the
appropriate time, obtains data that is thoughtful in that the informants will pay attention to it
while obtaining it, and allows the researcher to obtain the data in the language of the respondent
(Oso& Onen, 2008). .
3.7.0 Data Collection Tools
The tools that will be used in this study are a questionnaire, an interview guide and a document
review checklist.
3.7.1 Questionnaire
The study will use a self-administered questionnaire as a data collection tool. Both open-ended
and closed-ended questions will be arranged in the questionnaire to allow respondents to choose
between a set of alternatives and also to allow respondents to answer some questions in any way
they like.
The self-questionnaire method of data collection is efficient, inexpensive, and collects responses
with a minimum of errors and a high degree of confidentiality. And it also enables the researcher
to collect all the filled responses within a short period of time and any doubts the respondents
might have regarding any questions could be clarified on the spot. (Kothari, 2004)
As part of this study, the researcher will therefore use a questionnaire for employees, which will
have four parts. Part A will include the demographic characteristics of the respondents, Part B
will focus on the ways in which the audit supports MMC's financial performance, Part C will
focus on MMC's financial performance. And finally, Section D will focus on the relationship
between internal audit and MMC's financial performance.
Questionnaires will be closed. Closed questions will be created to help respondents make quick
decisions; moreover, closed questions will help the researcher to easily code information for
subsequent analysis and narrow the gap between errors in data analysis as observed by Sekaran
(2003:231).
3.7.2 Interview guide
An unstructured interview guide will be used as a tool for gathering in-depth information from
key informants. The guide will include a list of typical issues and questions that will be explored
during the interviews. A guide will be compiled with questions asking key informants'
perceptions of the role of financial performance auditing in MMC. An interview guide will be
used as it will provide in-depth data that may not be possible to obtain using self-administered
questionnaires (Mugende, 1999:17; Kakoza, 1999:27).
3.7.3 Document review checklist
A document review checklist will be used to gather more detailed data on the research topic. It
will serve to provide in-depth qualitative information that cannot be collected using a closed
questionnaire.
3.7.4 Direct observation
In qualitative field research, direct observation is the primary method of data collection.
According to Auriacombe and Mouton (2007: 452), although other methods such as in-depth
interviews and document analysis will be used, field researchers almost always begin with field
observations in natural settings. In direct/total observation, the researcher will observe social
phenomena without becoming a part of them in any way. Brief notes will be taken at the time of
non-verbal data observation. Observational aspects will include the workplace, especially in the
MMC offices. Thus, direct observation will help the researcher in verifying some of the
information he collects through interview and document review.
3.8 Measurement of variables
Data on the respondent's views and opinions on the role of audit on financial performance will be
obtained using scaled variables from a self-constructed questionnaire. A five Point-Likert scale
of 1 – strongly agree, 2 – agree, 3 – neutral, 4 – disagree and 5 strongly disagree was used to
assess the respondent's perception of the study variables.
3.9.0 Validity and reliability of research instruments
3.9.1 Validity
Validity indicates the degree to which an instrument measures what it is supposed to measure.
Validity can also be understood as usefulness. In other words, according to Kothari, (2004);
validity is the extent to which differences detected by a measuring instrument reflect true
differences between test subjects.
According to Cook and Campbell; (1979) validity was defined as “the best available
approximation to the truth or falsity of a given conclusion, proposition or conclusion.
Therefore, to ensure validity, a questionnaire is developed and given to three research experts to
determine whether the research questionnaire instrument is valid as a way of collecting
information used to understand the research problem. Thus, the researcher constructs the validity
of the instruments using the expert judgment method as suggested by Gay (1996).
The tool is improved based on expert advice. The following formula will be used to test the
validity index.
CVI = Number of items considered relevant by judges
Total number of items
3.9.2 Reliability
Reliability will be important because the data collection instrument has the ability to consistently
provide the same results when repeated measurements are made on the same individuals under
the same conditions (Koul, 2004: 130). The preliminary test was conducted with 12 respondents
who were not part of the final study. Thus, reliability is conducted using Cronbach's (1964) alpha
(α) test to determine the internal consistency of the study variables.
3.10 Research Procedure
The researcher will receive an introductory letter from UMI, which will be submitted to the
relevant authorities at MMC. A list of MMC employees from the HRM office will also be
provided. After obtaining a list of survey respondents, the researcher randomly selects planning
officers, town agents, inventory officers and environmental officers to participate in the study.
The researcher will then purposively select the internal auditor, accounting and finance director,
city clerk and chief auditors and the rest of the respondents will be stratified. A self-service
questionnaire will be used to collect information from the aforementioned respondents.
Interviews will be used to obtain data from the above senior officers. After data collection, the
data will be analyzed; and a report is written and submitted for consideration to the UMI
Monitoring and Evaluation Department.
3.11 Analysis and presentation of data
Data analysis refers to the calculation of certain measures along with finding patterns of
relationships that exist between groups of data. It requires a series of closely related operations
such as estimating categories, applying these categories to the raw data through coding,
tabulation, and then drawing statistical inferences; Kothari, (2004).
Thus, data analysis will be vital to the researcher as the process of analysis aims to determine
whether the observations support or reject the questions to be formulated before going into the
field to collect information Adam and Kamuzora, (2008).
3.11.1 Analysis of quantitative data
The statistical package that will be used for data analysis in this study will be the SPSS version.
Descriptive statistics, namely frequency counts, percentages, will be used to analyze the
demographic characteristics of the respondents and the respondents' opinions on the role of
auditing on the financial performance of MMC.
3.11.2 Analysis of qualitative data
Qualitative data will be analyzed using content analysis. Key informant responses will be
grouped into recurring issues. Recurring issues emerging in relation to each guiding question will
be presented in the results with selected direct quotes from participants offered as illustrations.
3.11.3 Data editing
The collected data will be edited to make it ready and easier for presentation. The completed
questionnaires will be edited one by one to correct the errors made by the respondents. This will
be done on purpose to check accuracy, completeness, consistency and uniformity.
3.11.4 Interpretation of study results
Interpretation of the results will be done by the researcher explaining the power of the study
variables based on frequencies and percentages, tables and graphs. Statistical conclusions will be
formed as a basis for the interpretation of data obtained from the field.
3.12 Ethical Considerations
The principles of research ethics are paramount and relate to issues such as confidentiality,
fairness and respect for individual rights. According to Welman, Kruger and Mitchell (2005:
201); identify consent, the right to privacy, protection from harm and fraud as ethical issues that
require serious consideration by researchers.
Therefore, the researcher will consider the ethical morals while conducting the investigation. For
example, by ensuring confidentiality and a high level of integrity by ensuring that: Respondents
are informed in writing of the aims of the study and will be asked to participate as interviewees.
Furthermore, interviewees who will prefer to conceal their identity and only their designations
will be used in the citation of their contributions.
3.13 Limitations and Limitations
In the process of conducting the study, the following are the limitations that the researcher is
likely to encounter:
The high costs of research funding, such as stationary costs, airtime costs and transport costs, are
very high. However, asking for help from various groups such as friends and relatives to narrow
down these costs.
Some respondents will be initially uncooperative and reluctant to provide the necessary data in a
timely manner. In connection with this, some respondents have tight schedules and do not have
enough time to answer the questionnaires on time. This causes a delay in the completion of the
work.
The time to conduct research is also limited to conduct a comprehensive study.

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