DIRE DAWA UNIVERISTY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF INTERNAL AUDITING PROCEDURES AND

PRACTICES IN CASE OF ETHIO TELECOM DIRE DAWA DISTRICT

A Research Paper Submitted to College of Business and Economics,

Department of Accounting and Finance in Partial Fulfillment of the
Requirement for Bachelor of Arts (BA) Degree in Accounting And Finance.

Prepared By: Julia Mulugeta

Advisor: Abdurahman A.

OCTOBER, 2022
DIRE DAWA, ETHIOPIA
 DECLARATION
Declaration by candidate:
This research paper is my original work and has not been presented for a degree in any other
University

Name: _____________________ Signature: _______________ Date: __________

Declaration by supervisor:

I confirm that the work in this research paper was done by the candidate under my/our
supervision

Name: _____________________ Signature: _______________ Date: __________

 ACKNOWLEDGEMENT
First of all, I thank the God for being with me in all my academic activities and in all my life.
The fulfillment of this paper involves various people. I would like to express my appreciation
to all people for their support, hardworking, and great efforts which help me in preparation
and compilation of this paper. I would like to express my deepest gratitude to my advisor
Abdurahman A. for his encouragement, guidance, advice, and great supervision to ensure this
work is achieved. I also thank all Internal Auditors of the Ethio-telecom Dire Dawa Branch
who served as my respondents by spending their time to fill my questionnaires. It is not
possible to name those people who support me in production of this report I thank all people
who encourage and contribute in preparations of this report.

TABLE OF CONTENT

I
ACKNOWLEDGEMENT.......................................................................................................I
TABLE OF CONTENT..........................................................................................................II
LIST OF TABLES.................................................................................................................IV
ACRONYMS...........................................................................................................................V
ABSTRACT............................................................................................................................VI
CHAPTER ONE.......................................................................................................................1
INTRODUCTION....................................................................................................................1
1.1 Background of the Study......................................................................................................1
1.2 Statement of the Problem.....................................................................................................3
1.3 Research Questions..............................................................................................................4
1.4 Objective of the Study..........................................................................................................4
1.4.1 General Objective..........................................................................................................4
1.4.2 Specific Objective..........................................................................................................4
1.5 Scope of the Study...............................................................................................................4
1.6 Limitation of the Study........................................................................................................4
1.7 Significance of the Study.....................................................................................................4
1.8 Organization of the Study....................................................................................................5
CHAPTER TWO.....................................................................................................................6
REVIEW OF RELATED LITERATURE.............................................................................6
2.1 Theoretical Review..............................................................................................................6
2.1.2 Overview of Internal Auditing......................................................................................6
2.1.2 The History and Evolution of Internal Auditing...........................................................7
2.1.3 Establishment and History of Internal Audit in Ethiopia..............................................8
2.1.4 The Roles of Internal Auditors......................................................................................9
2.1.5 Types of Audits Performed by Internal Auditors........................................................12
2.2 Assessing Internal Audit....................................................................................................14
2.2.1 The Internal Audit Quality..........................................................................................14
2.2.2 The Internal Audit Charter..........................................................................................14
2.2.3 The Management Support...........................................................................................15
2.2.4 The Resource availability............................................................................................16
2.3 Empirical Reviews.............................................................................................................16
2.4 Summary............................................................................................................................20
CHAPTER THREE...............................................................................................................21

II
3. RESEARCH METHODOLOGY.....................................................................................21
3.1 Research Design.................................................................................................................21
3.2 Research Approach............................................................................................................21
3.3 Data Source and Type........................................................................................................22
3.4 Data Collection Instrument................................................................................................22
3.5 Population of the Study......................................................................................................23
3.6 Method of Data Analysis and Presentation........................................................................23
3.7 Ethical Considerations........................................................................................................23
CHAPTER FOUR: RESEARCH FINDINGS AND DISCUSION....................................24
4.1 Introduction........................................................................................................................24
4.2 Demographic Characteristics of Respondents....................................................................24
4.3 Presentation of Findings.....................................................................................................25
4.3.1 Internal Audit Quality..................................................................................................25
4.3.3 Approved Audit Charter..............................................................................................27
4.3.4 Management Support...................................................................................................27
4.3.5 Availability of Resources............................................................................................29
CHAPTER FIVE: SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS......31
5.1 Introduction........................................................................................................................31
5.2 Summary of the Study........................................................................................................31
5.3 Conclusion..........................................................................................................................32
5.4 Recommendations..............................................................................................................32
5.5 Suggestion for Future Research.........................................................................................33
REFERENCES.......................................................................................................................34
Appendix A: Questionnaires for IA Staffs...............................................................................41
Appendix B: Interview for IA Head and Management............................................................43

III
 LIST OF TABLES
Table 1 Demographic Characteristics of respondents..............................................................25
Table 2 Descriptive statistics of Internal Audit Quality...........................................................27
Table 3 Descriptive statics of Approved Audit Charter...........................................................28
Table 4 Descriptive statics of Management Support...............................................................29
Table 5 Descriptive statics of Resource Availability...............................................................30

IV
 ACRONYMS
CPA Certified Public Accountants

IA Internal Audit

IAF Internal Audit Function

IIA Institute of Internal Auditors

IPPF International Professional Practices Framework

MOFED Ministry of Finance and Economic Development

QAIP Quality Assurance and Improvements Program

SPPIA Standards for the Professional Practice of Internal Auditing

V
 ABSTRACT
Internal Audit has an important role in assisting a firm to achieve its objective when it is
implemented, operated, and managed effectively. Organizations that effectively implemented,
operated, and managed Internal Auditing were better able to identify their business risks and
system inefficiencies for the sake of taking corrective actions and improvement in the process.
The overall objective of the study is to assess the Internal Audit Procedures and Practices of
Ethio-telecom Dire Dawa Branch. The study adopted a descriptive research design and
covered the Internal Auditors of Ethio-telecom Dire Dawa Branch. The study adopted a
mixed research method by employing quantitative and qualitative research methods. The
quantitative research method was used through 15 self-administered questions. The
qualitative research method was used through the interview with the Internal Audit director
of Ethio-telecom Dire Dawa Branch and selected documents review. According to the results
of the study; the quality of Internal Audit is as per the International Audit Standards. Ethio-
telecom Dire Dawa Branch has an approved Internal Audit charter and it is reviewed
regularly as required. The researcher mainly recommended; the Ethio-telecom Dire Dawa
Branch management shall revise its organizational structure so that the Internal Audit
Department reports to the Board of Directors, the management of the Ethio-telecom Dire
Dawa Branch shall give serious attention to give adequate training to the internal audit staff,
for better audit coverage and better assurance of control, risk management and good
governance, the adequate number of staff shall be fulfilled for the Internal Audit department.

Key Words: - Internal Audit Procedures and Practices, Ethio-telecom Dire Dawa Branch

VI
 CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Internal auditing is an impartial, independent assurance and consulting activity that adds
value and improves the operation of a company. It aids businesses in achieving their goals by
implementing a systematic, disciplined approach to assessing and improving the efficacy of
risk management, control, and governance processes. Internal auditing is a catalyst for
improving an organization's governance, risk management, and management control by
providing insight based on analyses and assessments of data and business processes. Internal
auditing adds value to governing bodies and senior management as an objective source of
independent advice with a commitment to integrity accountability (Institute of Internal
Auditors, 2015).

Internal auditors don't have any statutory responsibilities; hence they don't have a specific
role. According to Aguolu (2017), an internal auditor's responsibilities are defined by the
management that appointed him or by an audit committee if one exists. They are responsible
for reviewing the data and information provided to management for decision-making
purposes.

The internal auditor is not responsible for establishing an internal control system. This is still
management's responsibility. Internal auditors, on the other hand, are expected to make
significant contributions in the establishment of a competent system of internal control,
which, once established, becomes his job to assure its efficiency and effectiveness. The
control system used in every economy has a significant impact on its development and
growth. Controls are necessary to ensure that money; materials, machinery, time, resources,
and manpower management are all optimized. Many companies, especially banks, use these
controls to see how effective and efficient they are with their resources (Ahlawat & Lowe,
2016).

Internal auditing is one of the most popular controls used to reduce waste and lead programs
toward completion. Auditing has been around for a long time, dating back to ancient Egypt
and the middle Ages' big mercantile establishments. This demonstrates that internal auditing
cannot be overlooked or undervalued in today's economy, as it arose from the intricacies of

1
today's company atmosphere and transactions. Internal auditing was regarded as valuable
machinery in accomplishing a target judged accurate at a given moment in time by other
management of many significant company enterprises and government concerns.

The word 'audit' comes from the Latin word 'audire,' which means he listens. This is because
an estate domain's account was examined by having those who compiled it called out to those
in charge. With the expansion of trade and commerce, a more accurate system of recording
commercial activities became necessary. Auditing is a process in which business entities'
books of account and vouchers (including charities and trusts) are subjected to critical
examinations by professionally qualified and independent account (Auditors) on such a level
of detail that they can form an opinion as to their truth and fairness. Auditing serves as a
bridge over the credibility chasm generated by managerial separation (Corama, et al, 2016).

Generally, the history of internal auditing in Ethiopia dated back to the 1940s just about the
time the profession is also evolving in Europe and in the United States (Lemma, 2016). In
addition, the internal audit service is currently being considered as a good contributor to
corporate governance. Recently, in developing countries, there has been increased interest
and more emphasis is placed on the IAF (Internal Audit Function) as one tool to crisis
prevention and enhancing good governance system of the public sector (Zeleke, 2017).
Therefore, the study was focused on assessing the internal auditing procedure and practice in
case of Ethio-telecom Dire Dawa Branch.

2
1.2 Statement of the Problem
Nowadays, the internal audit profession is moving rapidly from the traditional transaction-
based approach to the new business-based (risk-based) approach. Also its culture is under a
continuous change and improvement. While the complexity of business activities becoming
more and more, its internal control systems should also be well strong and adequate to protect
the interests of the organization and its stakeholders.

The IIA provides internal audit professionals worldwide with authoritative guidance that
organized in the IPPF as mandatory guidance and recommended guidance. Conformance with
the principles set forth is required and essential for the professional practices of internal
auditing. Effective January 2017, The Internal Audit Standards Board (IIASB) has released
one of the mandatory guidance elements of IPPF, the revised standards of internal auditing.
These standards together with the code of ethics encompass all mandatory requirements of
the IPPF.

The following cases more elaborate the existing internal audit practices and the related
research gaps that detected from review of the related literatures regarding Ethiopian private
and government owned organizations, and that derived the researcher’s attention to dwell
much time and effort in the subject area.

The existing audit practices revealed that the internal audit practices did not comply with the
IPPF guidelines that promulgated by IIA (Tigabu, 2013). Most internal auditors undertake
their day to day internal audit activities traditionally and did not have profound knowledge of
the IPPF (Kedir, 2014).

Internal auditing was not practiced to the expectations of international standards by many
private and government organizations of Ethiopia (Tigabu, 2013; Teshay, 2016). Very few
researches have been done regarding assessing the practices of internal audit rather than
concentrating on the effectiveness of internal audit in Ethiopian organizations. Even though
there are some researches done on internal audit practice and audit effectiveness (Mihret &
Yismaw, 2007; Bethlehem, 2009; Mohammed, 2011; Shewamene, 2014; Tariku, 2015;
Weyneshet, 2017; Sisay, 2018), as to the knowledge of the researchers, it seems that no study
appears to have been made in Ethio-telecom in Dire Dawa branch that exclusively assess the
Internal Audit Practice. Hence, filling the knowledge gap, this study attempted to assess the
Internal Audit Practice and tries to suggest the possible solutions.

3
1.3 Research Questions
1. Does the Internal Audit maintain the required Audit quality?
2. Does the Approved Audit charter in the organization adequately prepared as per the
standard?
3. Does the management support the Internal Audit Department?
4. Does the management allocate adequate resources to the Internal Audit Department to
conduct audit activities in the organization?

1.4 Objective of the Study

1.4.1 General Objective
The general objective of the study is to assess internal audit practices and procedures in
Ethio-Telecom, Dire Dawa Branch.

1.4.2 Specific Objective

1. To evaluate the Internal Audit Quality in Ethio-telecom in Dire Dawa.
2. To assess the Approved Audit charter in Ethio-telecom in Dire Dawa.
3. To assess the Management Support to the internal audit of Ethio-telecom in Dire Dawa.
4. To evaluate the Availability of Resources to conduct the audit activities.

1.5 Scope of the Study

This study is only limited to the Ethio-Telecom in Dire Dawa. The researcher evaluated the
Internal Audit procedures and practices in the organization in order to judge how the Internal
Audit Practice appears in Ethio-Telecom in Dire Dawa.

1.6 Limitation of the Study

The fundamental weakness of this study is that it was based in part on the internal audit
director's and internal auditors' assessments of the organization. As a result, it is not
maintained that individual perceptions adequately assess the underlying reality that they are
supposed to represent.

1.7 Significance of the Study

The study aids Ethio-Telecom's managers and Board of Directors in recognizing Internal
Audit processes and their impact on the company's performance. The research also aids in the
identification of areas of weakness and provides constructive recommendations. Furthermore,

4
by looking at the various described above, this study adds value to the existing Internal Audit
process that has been undertaken in Ethio Telecom in Dire Dawa. In addition, the study is a
valuable source document for future academics with an interest in the subject. Last but not
the least, the successful accomplishment of this research paper will be helped the researcher
to get BA degree in Accounting which is granted from Dire Dawa University. In addition, it
helps to get an experience.

1.8 Organization of the Study

This research report dividing into five chapters: Chapter One deals with the Introduction of
the study which includes Background of the study, Statement of problems, Objective of the
study, Limitation, and scope of the study, and the Significance of the study. Chapter Two
presented the related literature review regarding the research area on Internal Audit practice
and therefore sets out the theoretical and empirical grounds for the research. Chapter Three
showed the Research Methodology of the study. Chapter Four reports the Analysis and
Interpretation of the data. Chapter Five discussed with Summary of the study, conclusions of
the study and also presented Suggestions for further research were given.

CHAPTER TWO
REVIEW OF RELATED LITERATURE
This chapter presents an overview of the literature that relates to the topic under investigation
namely Internal Auditing Practices and Performance in Ethio Telecom Dire Dawa. This
5
chapter consists of overview of internal auditing, the history and evolution of internal
auditing, the roles of internal auditors, the roles of audit committee, development of the
Standards for the Professional Practice of Internal Auditing (SPPIA), agency theory and the
internal audit, literature sources which review internal auditing practices, elements of SPPIA
(2015), internal control system and performance of internal audit department.

2.1 Theoretical Review

2.1.2 Overview of Internal Auditing
Over the years, internal auditing has had different emphasis and roles. Previously, the
emphasis was more towards one-size-fits-all approach whereby audits were scheduled on a
cyclical, methodological basis, and auditors’ role was reported against a checklist of existing
company policies and procedures to ensure that the internal controls of the company were
functioning well. Ever since, the role of internal auditor is only to reduce or to eliminate risk.
This practice may have been appropriate in times of slower development and not-so-rapid
technological evolution but they would not be applicable today since today’s businesses rely
on sophisticated electronic technology in every aspect of their operations and they also
require timely information to make decisions regarding global operations. Internal auditing is
an independent, objective assurance and consulting activity designed to add value and
improve an organisation’s operations (Sawyer & Dittenhofer, 2017). Being independent and
objective, internal auditing helps an organization accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the effectiveness of risk
management, control, and governance processes.

Internal audit activities are performed in diverse legal and cultural environments; within
organizations that vary in purpose, size, and structures; and by persons within or outside the
organization (Sawyer, 2016). These differences may affect the practice of internal auditing in
each environment. However, compliance with the Standards is essential if the responsibilities
of internal auditors are to be met. Internal auditing dates from ancient times. The role of
auditors during that period was limited to providing validation services for governmental and
family units in order to prevent theft, fraud, and other malfeasance from the treasuries of the
ruler (Carmichael & Willingham, 2017).

For auditing purposes, two persons were employed to check the accounts: one was the
internal auditor and the other was the external auditor (Felios, 2016). The usual technique

6
utilized by the auditors was to listen to the oral reports given by the appointed officials
responsible for financial matters. That is why the term “auditor” is thought to have been
derived from this “hearing of accounts”. This practice continued until it was replaced by
paper as the means to evidence financial transactions.

Internal auditing is an important element to management since it provides audit services for
managers at all levels including the board of directors and audit committee (Rezaee &Lander,
2015). Internal auditor’s responsibilities are assuring the integrity of financial and operational
information and reports, organization is complying with laws, statutes, policies, procedures
and financial instruments and is operating efficiently and economically, the goals and
objectives of the company have been accomplished and resources have been provided with;
and also safeguarding the assets of the organization.

This means internal auditors’ responsibilities are now broader and more demanding. Based
on these responsibilities, it is not difficult to observe how the internal auditing practices can
improve the company’s corporate governance structure. In fact the revised definition of
internal auditing indicates that the scope of audit work includes evaluating and improving the
effectiveness of a company’s governance process since the new internal auditing concept
expects the internal audit to function efficiently, effectively and economically the
organizational activities and controls besides assisting management in high-level decision-
making (Internal Auditors, 2015). Brodie (2016) however commented that generally
management has been rather slow to recognize the full value and potential of internal audit
experience even though there has been a steady improvement in the professional standing of
internal auditors. Therefore, there is a need for continuous effort to enhance the
understanding of the role of internal auditing and the benefits it can bring to the organizations
and to society as a whole.

2.1.2 The History and Evolution of Internal Auditing

Internal auditing was developed in the years between ‘1900 to 1950’. However, it was not
until the late thirties and early forties that it became widely utilized. Brinks (1941) published
the first significant text on internal auditing. This publication served as a catalyst to bring
together in that same year the twenty-four founders of the Institute of Internal Auditors
(Cadmus, 2014). The Institute and the profession grew rapidly due, to a great extent, to the
pressing needs of World War II.

7
It was also during this period that internal auditors began to be more concerned with more
than a financial audit. Large organizations began to realise that the internal auditors can
perform a greater service than just looking for accounting errors. Thus, internal auditors
began to change to new concepts of auditing and focus upon improving operations rather than
just scouting for accounting errors. This new concept of auditing received management
acceptance because the recommendations made by internal auditors were more helpful than
those typically provided by external auditors; and, significantly, because findings remained
internal and were not made public (Setter, 2015)

Internal auditors adopted the term “operations” or “operational” auditing to describe their
new improved service. This term first came to the attention of internal auditors in an article
by Kent (2017). Basically, operational auditing uses an inductive approach in that it drew
from accounting documents recommendations for change that is it moved from the specific or
actual to the ideal. Internal auditors thus pioneered the concept of operational auditing.
However, during this same period a similar concept, called management auditing, was
developed in the literature of management.

Benedict’s (2017) followed Rose’s work and his system offers to evaluate management by
means of weighted factorial analysis. Both writings by Rose (2016) and Benedict (2017)
represent the earliest attempts to develop an interview type management audit. The
management audit was organised around the functions of management and followed a
deductive approach as opposed to the inductive approach of operational auditing. These two
similar but separate concepts were the forerunners of today’s movement toward the extension
of the scope of auditing.

2.1.3 Establishment and History of Internal Audit in Ethiopia

The emergence of Internal Audit as a discipline is traced to the early 1940s when the Institute
of Internal Auditors (IIA) was established in 1941 at Lake Mary, Florida, USA.
Subsequently, the Internal Audit profession has been growing globally under the global
leadership of the Institute of Internal Auditors (Soh & Bennie, 2016). The need to effectively
utilize funds in the public sector was the main cause for the rapid implementation of modern
audit practice in Ethiopia and to achieve this, the Office of the Audit General is formulated in
1961 by amending the office and auditors' duties and responsibilities. In 1987 and onwards
there were significant developments in public sector auditing systems. Besides, the coming of
Proclamation No. 13/1987 empowered the Office of the Audit General to direct the internal
8
auditors of government offices and public enterprises in three aspects that are; Whether
accounting records are properly maintained and reliable, Whether the assets of the ministries
and enterprises are adequately safeguarded and properly maintained; and Whether policies
and procedures laid down by top management are complied with the proclamations.
Nowadays, IA in Ethiopia is conducted mainly based on the IA standards that are developed
by the Ministry of Finance and Economic Development (MOFED, 2015).

These newly formed standards are similar to the standards of IIA. Currently, the government
has established different public enterprises by allocating a huge amount of capital. Due to this
significant money allocated to different corporations and other enterprises as capital, the
government needs efficient and effective financial management to function with
accountability and due diligence conforming to the specific rules and regulations and other
instruction appropriate to financial management. In this regard, developing the IA department
and supporting the staff so that they add value to their organization they belong to is one of
the best tools to ensure whether every organization meet their obligation as well as follow the
rules and regulations firmly at the time of doing their activities (Mihret & Yismaw, 2017)

2.1.4 The Roles of Internal Auditors

Internal auditors play a vital role in ensuring that an organization is efficiently run, morally
sound, technologically advanced, cognizant of the environment and other areas of concern,
and safe from unnecessary risk (Institute of Internal Auditors, 2015). Previous definitions on
internal auditing suggested by different authors also enhanced the roles of internal auditors.

Sawyer and Dittenhofer (2016) defined internal auditing as “a systematic, objective appraisal
of the diverse operations and controls within an organization to determine whether financial
and operating information is accurate and reliable, risks to the enterprise are identified and
minimized, external regulations and acceptable internal policies and procedures are followed,
satisfactory standards are met, resources are used efficiently and economically, and
organization’s objectives are effectively achieved”.

In the revised Statement of responsibilities of Internal Auditing issued by the Institute of

Internal Auditors (2016) as part of the Standards framework, the section on objectives states:

“The objective of internal auditing is to assist all members of management in the effective
discharge of their responsibilities by furnishing them with analyses, appraisals,
recommendations and pertinent comments concerning the activities reviewed. The internal
9
auditor is concerned with any phase of business activity where he can be of service to
management. This involves going beyond accounting and financial records to obtain a full
understanding of the operations under review”.

With reference to these objectives, Sawyer (2016) noted four benefits managers have gained
from internal auditing assistance. These benefits were providing managers with the bases for
judgement and action, helping managers by reporting weaknesses in control and performance
and in recommending improvements, providing counsel to managers and boards of directors
on the solutions of business problems, and supplying information that is timely, reliable and
useful to all levels of management.

Additionally, the Statement sets forth the types of services that should be performed and the
kinds of activities carried on by the internal audit function in attaining the overall objective.
Internal auditors should first review and appraise the soundness and adequacy of the
accounting, financial, other operating controls, and promote effective controls at reasonable
cost. Secondly, the internal auditors should ascertain the extent of compliance with
established policies, plans, procedures, laws and regulations, which could have a significant
impact on the company’s’ operations. Then the internal auditors review the means of
safeguarding assets and when appropriate, verify the existence of such assets and appraise the
economy and efficiency with which resources are employed. Lastly, the internal auditors
review operations or programs to ascertain whether results are consistent with established
objectives and goals and whether the operations or programs are being carried out as planned
(Engle, 2016).

Reviewing and evaluating the adequacy and effectiveness of an organisation’s internal

control system and the quality of performance in carrying out assigned responsibilities is
representative of several primary core activities of internal audit work. The purpose of the
review of the adequacy of the internal auditing is to ascertain whether the established system
provides reasonable assurance that the organisation’s objectives and goals will be met
efficiently and economically (Atkinson, 2015).

Adequate control is considered to be present if administrative management has planned and

organised in a manner, which provides reasonable assurance that the organisation’s objectives
and goals will be achieved efficiently and economically. Reasonable assurance is provided
when cost –effective actions are taken to restrict deviations, such as improper or illegal acts,

10
to a tolerable level. The role of internal auditing in the review of effectiveness of the system
of internal control is to ascertain whether the system is functioning as intended Effective
control is present when the administrative management directs the system in such a way as to
provide reasonable assurance that the organisation’s objectives and goals will be achieved.
The purpose of the review for quality of performance is to ascertain whether the
organisation’s objectives and goals have been achieved.

The primary objectives of an organisation’s system of internal control are to provide

administrative management with reasonable assurance that financial information is accurate
and reliable; the organisation complies with policies, plans, procedures, laws, regulations and
contracts; assets are safeguarded against loss and theft; resources are used economically and
efficiently; and established objectives and goals for operations or programs can be met.
Internal auditing focuses on an evaluation of this system or framework of internal control.
(Braithwaite, 2016).

A second type of audit work that internal auditors are guided to perform is reviewing the
accuracy and reliability of financial and operating information and the means used to identify,
measure, classify and report such information. Information systems provide data for decision-
making, control, and compliance with external requirement. Therefore, internal auditors
should examine information systems and determine whether financial and operating records
and reports contain accurate, reliable, timely, complete and useful information, and controls
over record keeping and reporting are adequate and effective. The performance of reviews of
the systems established to ensure compliance with policies, plans, procedures, laws,
regulations and contracts represents a third elements of audit activity described by the
Standards. Administrative management is responsible for establishing the systems designed
to ensure compliance with such requirements as laws, rules, regulations, policies and
procedures. The internal auditor’s role is to determine whether the systems designed by
management are adequate and effective and whether the activities audited are complying with
the appropriate requirements. (Bigg and daves, 2016)

Further, as described by the Standards, the internal auditor’s role includes providing
appraisals with recommendations regarding administration management established
objectives and goals for operations and programs. (Settler, 2017).

11
Acting as a monitoring agent, the internal auditor is expected to perform two interrelated
functions, auditing and consulting. These are performed to maintain reliability of financial
statements, prevent occurrence of irregularities and enhance effectiveness and efficiency of
operations (Neuman, 2015). Thus, the demand for internal auditing is presumed to arise due
to an accountability relationship between two (or more) parties (e.g. top management vs.
board member) (DeAngelo, 2016; Evans, 2015).

2.1.5 Types of Audits Performed by Internal Auditors

Internal Audits are conducted for different reasons and with varying objectives and with each
type of risk exposure an organization would need to conduct a particular type of Internal
Audit. Some audits are required by regulation or policy, while others are requested by
management to help improve processes or identify internal control weaknesses. According to
(Adukia, 2016), the major types of Internal Audits are hereunder.

A. Operational Audit- An operational audit evaluates the performance of a particular

function or department to assess its efficiency and effectiveness. Financial data may be used,
but the primary sources of evidence are the operational policies and achievements related to
organizational objectives. Internal controls and efficiencies may be evaluated during this type
of audit. Some areas of operational audits include organizational structure, processes and
procedures, the accuracy of data, management, and security of assets, staffing, and
productivity.

B. Compliance Audit- A compliance audit evaluates an area’s adherence to established laws,

standards, regulations, policies, and/or procedures. Compliance audits are done because of a
policy or statutory requirement. While the audit is done for regulatory reasons, the objectives
are still to ensure adequate control over an important internal process.

C. Financial Audit - A financial audit is a historically oriented, independent evaluation

performed to attest to the fairness, accuracy, and reliability of financial data. The central
objective is to ensure that the financial activity of the department, unit, or area is completely
and accurately reflected in the appropriate financial reports.

D. Follow up Audit-these are audits conducted approximately six months after an internal or
external audit report has been issued. They are designed to evaluate corrective action that has
been taken on the audit issues reported in the original report. The purpose of a follow-up
audit is to revisit a past audit’s recommendations and management’s action plans to
12
determine if corrective actions were taken and are working, or if situations have changed to
warrant different actions.

E. Investigative Audit-This is an audit that takes place as a result of a report of unusual or

suspicious activity on the part of an individual or a department. It is usually focused on
specific aspects of the work of a department or individual. Investigations are conducted to
determine the extent of loss, assess weaknesses in controls, and make recommendations for
corrective actions.

F. IT Audit an Information Technology (IT) audits- evaluates controls related to the

institution’s automated information processing systems. The information technology audit
function develops audit programs to assess, evaluate, and make recommendations to
management regarding the adequacy of internal controls and security inherent in
organization’s information systems, and the effectiveness of the associated risk management.
The goal is to ascertain that IT systems are safeguarding assets, maintaining data integrity,
and efficiently operating to achieve business objectives.

G. Management Audit- Also called the performance audit, are internal consulting projects.
Because an internal audit is an activity independent of management, it is often an excellent
resource to provide independent and objective insight on the efficiency of business processes.
Management can request internal auditors to review a business process, organization, or
strategy; and the auditors do not have to worry about backlash from management. A common
management audit is a review of organizational structure, such as having an internal audit
look at how administrative work is divided among divisions and if there are opportunities to
be more efficient.

Other types of internal audits would include the integrated audit, which is a combination of
the IT Audit and the Operational Audit.

2.2 Assessing Internal Audit

2.2.1 The Internal Audit Quality
Internal Audit quality requires auditors to carry out their role objectively and in compliance
with accepted criteria for professional practice, such that internal audit activity will evaluate
and contribute to the improvement of risk management, control and governance using a
systematic and disciplined approach (Chartered Institute of Internal Auditors, 2017). This is

13
important not only for compliance with legal requirements but because the scope of an
auditor’s duties could involve the evaluation of areas in which a high level of judgment is
involved. Greater quality of IA work understood in terms of compliance with formal
standards, as well as a high level of efficiency in the audit’s planning and execution will
improve the audit’s effectiveness.

Internal Audit quality is a function of the level of staff expertise, the scope of services
provided, and the extent to which audits are properly planned, executed, and communicated
(Mihret & Yismaw, 2017).Adequate staffing is essential for a system to its full capability.
Weakness in staffing can lead to mismanagement, error, and abuse, which can refute the
effect of other controls (MOFED, 2017). The size of IA staff and the competency of internal
audit are the critical characteristics of IA quality that can’t be separated. This means at the
absence of one dimension the other cannot contribute to the quality of internal auditors. The
empirical findings by (Al-Twaijry et al., 2014), based on questionnaire and interview
responses from internal and external auditors, working in Saudi Arabia, suggest that the
external auditors believe that IAF size is an important indicator of its quality. In addition, the
large size of the IA staff has many benefits for the internal operations of the IA unit. For
instance, in larger-sized functional units, there will be more opportunity and flexibility to
have a staff rotation schedule that can also influence IA effectiveness by promoting a more
healthy relationship and resulting in more objective audit investigations.

2.2.2 The Internal Audit Charter

Internal audit charter is defined by the IIA as “a formal written document that defines the
activity’s purpose, authority and responsibility. The charter should be (a) establish the
internal audit activity’s position within the organization; (b) authorize access to records,
personnel and physical properties relevant to the performance of managements; and (c)
defined the scope of internal audit activities”(Chartered Institute of Internal Auditors, 2017).
Additionally, an internal audit charter typically includes the responsibilities of the IA in broad
terms, the standards followed by the IA; and the relationship between the IA and the audit
committee. It may also defines access to the information (documents, records, systems, and
personnel) necessary to perform and reach conclusions on the work, and it is a vehicle for
asserting that there are no unreasonable limitations on the scope of the auditor work.
According to (Van Peursem, 2005), the presence of a strong Charter adds an official and
respected layer of authority to the position of Internal Audit in the company. It is also an

14
important feature of insuring success in achieving the independent status of an Internal Audit.
Furthermore, according to (Van Peursem, 2005), the existence of audit charter in organization
influences senior management to flow the recommendations of the internal auditor
(Hailemariam, 2014).

2.2.3 The Management Support

Management support is expressed in terms of supporting the auditing process by fulfilling the
necessary resources, finance, transport if required, providing training, introducing auditors
with new technology and procedures, budgeting funds for certification and other facilities
that facilitate the internal auditing works. Management support has a far-reaching
consequence on IA effectiveness in organizations. For example, (Mihret & Yismaw, 2018) in
their case study of IA effectiveness on public sector shows that the component of
management support consists of the response to audit finding and the commitment to strength
internal audit which has significance influence on IA effectiveness. Given the fact that
internal audit activities are performed in dynamic management process and more supportive
environment, internal auditor expects senior management to take the first steps to support the
IA process. Because, (Sarens & Beelde, 2016) argue that the overall acceptance and
appreciation of IA within the company is strongly dependent upon the support they receive
from senior management. Internal audit actively seeks management support with resources,
commitment to promote and communicate their added value. The management support is
almost crucial to the operation and internal audit; because all other determinants of IA quality
derive from the support of top management, given that hiring proficient IA staff, developing
career channels for IA staff, and providing organizational independence for IA work are the
results of decisions made by top management (Cohen & Sayag, 2010). This means it is the
interest of management to maintain a strong internal audit department (Mihret & Yismaw,
2017).

2.2.4 The Resource availability

To perform the audit activities the management of the organization should implement
sufficient amount of resources in terms of time, budget and staff. The audit department must
have sufficient funding relative to the size of its audit responsibilities. This important element
should not be left under the control of the organization under audit, because the budget
affects the audit function’s capacity to carry out its duties (Chartered Institute of Internal
Auditors, 2017). The Internal Audit Department needs to have adequate resources to achieve

15
its objectives (Arena & Azzone, 2009); (Mihret & Yismaw, 2018). Assessing the sufficiency
of resources should generally include comparisons with similar organizations, the business
risks, and the degree of change within the organization. According to the Institute of Internal
Audit, insufficiency of internal audit resources may be an indication for; management does
not respect the role and contribution of internal audit, management includes internal audit in
general under-funding to meet short term forecasts, management diverts internal audit
resources to meet short-term goals, operational crisis, and special projects. Lack of authority
for budget administration adversely influences the performance of the internal audit function
(Mihret & Yismaw, 2018). Hence the function needs to administer its own budget.

2.3 Empirical Reviews

The main aim of this research is to assess the practice of Internal Audit in the views of
different authors and the researcher’s ideas and recommendations regarding the related topic
of internal audit.

In Ethiopia, different studies have been conducted on IA Effectiveness (IAE). Such as

(Mihret & Yismaw, 2017; Mihret & Woldeyohannis, 2018; HaileMariam, 2014) studied on
IAE by using Ethiopian higher educational institutions as a case study. They have formulated
a model with audit quality, management support, organizational setting an attribute of the
audits as an attribute of IAE. The finding revealed that internal audit quality and management
supports are the main factors that influence IAE. In contrast, organizational setting and audits
attributes haven’t significant impact on IAE.

Besides (Mihret & Woldeyohannis, 2018) conducted a case study research in an Ethiopian
public sector. This study assessed the value-adding role of the Internal Audit Function in an
Ethiopian public sector. The value-adding role of the Internal Audit function is determined by
the perception of audits and internal auditors. They found that the traditional/ compliance
audit is dominant in the organization under study in contrast to value-added auditing. Internal
Audit Effectiveness, on the other hand, stands for the function's capability to achieve the
objectives of the function.

Similarly (Mihret et al., 2018) examines factors that are associated with the attribute of IAF.
He used analytical survey responses of 188 CIA and internal auditors from ministers, state-
owned enterprises, and private companies. He founds that in organizations where the role of

16
IA is clearly defined, high-risk profile and IA is highly linked with external audit has good
internal audit quality.

HaileMariam, (2014) also studied on “Determinants of internal audit effectiveness in the

public sector offices”. The researcher founds that management support, adequate and
competent internal audit staff, and the presence of an approved charter has a positive and
significant impact on IAE. On the other hand management perception and organizational
independence has a positive relationship but they have no significance to IAE.

Kedir et al., (2014) in their article entitled Internal auditing standards and its practice the case
of East Arsi Zone, Ethiopia presented the result of their case study that evaluated the current
practices of internal auditing in the internal audit departments of selected public enterprises in
East Arsi Zone, Ethiopia as compared to major internal audit standards. The purpose of the
study was to investigate how major internal audit standards are applied in the internal audit
departments of selected public enterprises in East Arsi Zone of Ethiopia, taking competency,
compliance, Independency, Risk management, and quality assurance as major parameters of
the IIA standard for comparison. The result of the study showed that the scope of the Internal
Audit function in the enterprises surveyed did not yet go far from the traditional practices and
much time is devoted to performing financial and compliance audits. Regarding the quality
assurance program, none of the respective public enterprise’s audit departments have quality
assurance programs. Thus, the researcher concluded that the selected public enterprises
should be able to develop quality assurance programs.

Fekadu Bethlehem, (2017), conducted research on Internal Audit Practices: A Case of

Ethiopian Governmental Higher Educational Institutions for the purpose of investigating
challenging factors that have influenced the Ethiopian higher governmental institution's
internal audit practices. The study was done on four universities, Adama, Hawassa,
Haramaya, and Addis Ababa Universities. Seven Internal Auditors who were selected using
convenience sampling techniques were used as the data source and open-ended and closed-
ended questionnaires were used as data gathering tools. Then qualitative approaches were
employed to analyse and interpret the filled-in data. The findings of the study showed that
IAAs in the sample Universities lacked the following: none of the sample universities have
established the audit committee, their Internal Audit Departments were not sufficiently
resourced that affected their effectiveness, no developmental programs for their internal
auditors, risk-based internal audit plans were not established and none of the respective

17
universities audit departments have quality assurance program including the internal and
external quality assessment processes as required. Proper management commitment and other
organizational factors were critical factors influencing the effectiveness of IAF in the
respective universities. The research concluded that proper management commitment, lack of
capacity development programs for internal auditors, and other organizational factors were
critical factors influencing the effectiveness of IAF in the respective universities. To alleviate
those problems, it was recommended that management and the audit division of the
respective universities have to work jointly to improve the IAF of their respective universities
as per requirements of international standards (Bethlehem, 2017).

Tsegaye, (2018) conducted research on The Internal Audit practices in private commercial
banks of Ethiopia with a general objective of assessment of internal audit practice. The
research was focused on five private banks that were selected by using the purposive
sampling technique. The qualitative and quantitative data types were applied in the study.
And the data were collected by using questionnaires and document review. The result
revealed that, the current practices of Internal Audit in Private Commercial Banks of Ethiopia
through taking the Mandatory Guidance requirements of IPPF as a benchmark could be
summarized into three groups: components of standards that fairly complied, did not
adequately comply, and poorly (below the expectation) complied within the selected private
banks. The existing healthy conformance with certain mandatory Guidance requirements of
the IPPF should be kept up and goes to the sound conformance level by all elements. And
lastly, it was attached with poor/below the expectation/ conformance, the Quality Assurance,
and Improvements Program standard. The researcher recommended that the existing
inadequate conformance have to make improvements until it satisfies the needs of all
stakeholders; and, the Quality Assurance and Improvements Program (QAIP) standard;
should be carried out properly by all Private Commercial Banks of Ethiopia were the given
ways to curve all unsatisfactory conformances of the mandatory guidance requirements by
private commercial banks of Ethiopia.

Mulugeta, (2018) conducted research on Internal Audit: Reporting Relationship in Ethiopian

Public Enterprises With objectives of analysing the reporting line of internal audit and
investigate its relationship with internal audit scope, independence, good governance, and
audit committee. He conducted the survey study on selected Ethiopian public enterprises and
recommended possible ways to cope up with the problems identified in the research to

18
promote the good image of the Internal Audit profession. The results of the survey showed
that the functional reporting lines in practice were not always organized according to the
theoretical assumptions, particularly in ETC (at Zonal and regional level) and Zequala steel
rolling Factory; internal audit has been seen as outside the management structure (outsider)
and board members are ministers who have several other responsibilities so that they do not
have sufficient time to deal with the oversight of the internal audit function; the Ethiopian
public enterprise's Internal Audit scope is more limited on the verification of financial
transaction (Financial audit), Compliance audit, assessments of internal control, and fraud
investigation. The researcher finalized his study by recommending corrective actions to
address the weaknesses identified. (Ali, 2011)has conducted research on Internal Audit and
risk assessment in Ethiopian public enterprises with a general objective of seeing internal
audit function’s contribution to risk assessment. This research paper examined internal
auditing and risk assessment in the Ethiopian public enterprise context using 20 purposefully
selected public enterprises. A mixed research approach is used and the data were collected by
using questionnaires and document review. Results of the survey showed that all public
enterprises have an Internal Audit function that performs; operational audit which requires
most resources and compliance audit as a second important audit type; the amount of audit
resources devoted to risk assessment reveals the relative relevance of each kind of activity.
Results of the research showed that many Ethiopian public enterprises had introduced a
formal risk assessment process in their internal audit function, and few enterprises were on
the way to introduce a formal risk assessment process. Hence, the research recommended that
internal audit functions that did not incorporate control risk self-assessment will be better off
by incorporating it as part of the scope of operation of their respective IAAs for effective risk
assessment. Thus, this study will be beneficial in terms of the decision making of the board of
directors, audit committee of the organization, and other regulatory bodies The researcher
critically reviewed and analysed different kinds of literature that are related to this research.
In order to present the assessment of Internal Audit Practice in the Insurance industries, that
literature easily understands the factors that assess the Internal Audit Practices, such as
Internal Audit Quality, Organizational setting, Approved Audit chartered, Management
support, and Resource availability are sequentially presented hereunder.

19
2.4 Summary
Researches were previously conducted regarding Internal Auditing related topics like
Effectiveness, Challenges, and Determinant factors at various Public sector and private
organizations in Ethiopia. From the above discussion, the majority of the previous studies
were concentrated on the Effectiveness of Internal Audit in various organizations in Ethiopia.
Prior literature regarding IA effectiveness was made through either quantitative or qualitative
methods (Mihret et al., 2017); ( AbuAzza ,2015). The study expects to expand the limitation
in the literature regarding the research method through the study in mixed-method research
(AbuAzza, 2014). There is a limitation of literature on the area of practice of IA in Ethiopia
especially in the case of Ethio-Telecom. So, the study contributes to the existing literature
regarding the practice of IA in the Ethio-Telecom, Dire Dawa Branch. There is a limitation
on research conducted concerning Internal Audit Practices. Some researchers advocated
further research and the need for a more comprehensive study on the issue of Internal Audit
Practice. As well, since to-date, no research has been done by paying a special attention to
assess the practices of Internal Audit in study area by taking additional factors and using
mixed research method. Therefore, this study attempted to fill the gaps by assessing the
practice of Internal Audit in Ethio-Telecom, Dire Dawa Branch.

20
 CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1 Research Design
Research design is usually a plan or blue print which specifies how data relating to a given
problem should be collected and analyzed. It provides the procedural outlines for the conduct
of any investigation. According to Kothari (2016), research design is the arrangement of
condition for collection and analysis of data in a manner that aims to combine relevance to
the research purpose with economy in procedures. In this study, a descriptive research
design was employed. Due to it is more convenient and its commonly applied method in
analyzing humanistic and social phenomena, the researcher will utilize the descriptive
analysis research methodology. Descriptive research is devoted to the gathering of
information about prevailing conditions or situations for the purpose of description and
interpretation. The advantage of this type of research design is that it is easy to understand.
Moreover, a descriptive type of research design will be used because it helps the researcher to
clarify and explain the existing phenomenon in a meaningful, justifiable and numerical
manner. Descriptive research also helps to describe and asses a certain issue in detail.
According to Kumar (2011) descriptive research attempts to describe systematically a
situation, problem, phenomenon, service or program, or provide information about, says the
living conditions of a community, or describes attitude towards an issue.

3.2 Research Approach

As noted in Creswell (2017) research approach is the general framework for the study that
links, knowledge claims, strategies of enquiry, specific methods and implicitly reflects the
researcher attitude as to how knowledge is constructed and commands what method to be
employed in the study. Thus, researcher was used a mixed research approach to accomplish
the research objective and answer the research questions where relied on quantitative data
obtained from closed-ended questionnaire and qualitative data obtained from interview and
document review.

Qualitative approach attempts to get an in-depth opinion from participants. Apart from this, it
facilitates responses, and provides data in-depth with leading respondents (Dawson 2002). It
is capable to generate a theory by addressing issues which cannot be quantified. It also
explores issues which are not studied in the past properly (Creswell 2007). However, this
21
approach has been given less than a fair sense of appreciation. It has been criticized for lack
of scientific rigor, small samples, subjective and nonreplicable efforts.

The second approach, quantitative research, generates statistical data through the use of
survey research, using methods such as close-ended questionnaires and/or structured
interviews (Dawson 2002). Creswell (2009) noted that quantitative approach employs
strategies of inquiry such as experiments and surveys, and collect data on predetermined
instruments that yield numeric data that can be analyzed using statistical procedures. It
minimizes bias from the researcher’s influence. Hence, the results can be believed on
population. However, it is not capable to address issues which cannot be quantified.

Finally, mixed methods approach is the blend of both qualitative and quantitative approaches.
It employs strategies of inquiry that involves collecting data either simultaneously or
sequentially to best understand the research problem. The data collection involves gathering
both numeric information and text information (Creswell 2009). To sum up, in order to
achieve the research questions stated in the previous section, the researcher used both
qualitative and quantitative approach (mixed approach) in collecting and analyzing data as
discussed in the following section.

3.3 Data Source and Type

In order to meet the objectives of the study on the assessment the practice and procedures of
internal audit both qualitative and quantitative data was collected from primary and
secondary source. Primary and secondary source of data was used in this study. The primary
data was gathered by using a questionnaire and interview from selected sample of Ethio-
telecom IA staffs and director whereas the secondary data was through a review of relevant
documents. Those documents will be reviewed are IA reports, plans, programs, working
papers, websites, journals, books and research’s materials, all served as a means of generating
secondary data.

3.4 Data Collection Instrument

Questionnaire was applied for the primary data and interview. Whereas in the secondary
source was obtained from IA reports, plans, programs, working papers, websites, journals,
books and research’s materials. In this study the researcher were developed a questionnaire in
accordance with the study’s objective in such a way to capture only relevant data and
information from the respondent. A self-administered was distributed to all internal auditors

22
at the head office in the case organization. The response helps to understand the opinion of
Internal Auditors about the practice of internal audit in Ethio-telecom in Dire Dawa branch.
Document Review was adopted to gather information from documents held in the
organization concerning the practice of Internal Auditing. Document review is relevant to
enhance the quality of finding (Leedy & Ormrod, 2015).

3.5 Population of the Study

Total employees working in the area of internal audit practice and management positions in
the Ethio-telecom is a source of data for the study. According to the information obtained
from the company’s human resource department, the population size of the study becomes
16. The study was adopted purposive sampling method to select staffs working on the
internal audit department and also they are more experienced in doing so.

3.6 Method of Data Analysis and Presentation

The analysis of the data was done using the MS-Excel, this help to summarize the data in
tables. Collected data will be analysed using simple descriptive statistics like frequency,
percentage, mean and standard deviation. Finally, the data was presented using tables.

3.7 Ethical Considerations

Respondent’s participation was voluntary and they had the right to withdraw from the study
at any time they are not interested. Confidentiality was promised and ensured, and by
requesting respondents not to write their names on the questionnaire. In addition, an
authorized letter which explained the aim and objectives of the study accompanied each
questionnaire.

23
 CHAPTER FOUR: RESEARCH FINDINGS AND
DISCUSION
4.1 Introduction
This chapter consists of two major sections. The first section is descriptive statistics of
respondents’ demographic characteristics and the second section reports the investigation
results obtained from questionnaire and interview.

4.2 Demographic Characteristics of Respondents

The following section presents respondents’ profile in terms of Gender, Field of study, Level
of education, Current position in the organization and Service year in Ethio-Telecom, Dire
Dawa Branch.

Table 1 Demographic Characteristics of respondents

Demographic Characteristics Frequency Percept
Male 10 66.7%
Gender
Female 5 33.3%
Accounting 12 80%
Field of
Management 2 13.3%
Study
Information Technology 1 6.7%
Diploma 0 0%
Education
Degree 7 46.7%
level
Masters and above 8 53.3%
Less than 5 years 3 20%
6 to 10 Years 2 13.3%
Service Years 11 up to 15 Years 5 33.3%
16 up to 20 Years 4 26.7%
Greater than 20 Years 1 6.7%
Current Manager/Supervisor 1 6.7%
positions in Team leader/Assistant 3 20.0%
the Internal Auditor 11 73.3%
organization
TOTAL 15 100%
Source: Field Survey (2022)

As shown in above table, it describes that 10 (66.70%) of the respondents are male while the
remaining 5 (33.30%) of the respondents are female. From this, the researcher inferred that
the majority of internal auditors worked in Ethio-Telecom, Dire Dawa Branch are male. Field

24
of Study, Out of the total 15 respondents, 12 (80%) of the internal audit staff are Accounting
graduates, 2 (13.30%) are Management graduates and 1 (6.70%) is an IT graduate.

The field of study of most of the Internal Audit staff is accounting. This shows that the scope
of IA activity in Ethio-Telecom, Dire Dawa Branch covers mainly financial and performance
auditing. To some extent, it also covers IT Auditing. The educational level of the 15
respondents as shown in the above table are 7 (46.70%) of them obtained Bachelor degree
and the remaining 8 (53.80%) of them obtained a post-graduate degree. From the result, the
researcher concluded that internal auditors in Ethio-Telecom, Dire Dawa Branch are at a
good level of education to perform their duties well.

Respondents’ work experiences in Ethio-Telecom, Dire Dawa Branch range from five years
and less up to above twenty years. From the data collected, 3 (20%) respondents have less
than five years of work experience, 2 (13.30%) have six to ten years of experience, 5
(33.33%) respondents have eleven to fifteen years of experience, 4 (26.70%) respondents
have sixteen to twenty years of experience and only 1 (6.70%) respondent has greater than
twenty years of experience. Based on the participants’ responses, they have good work
experience in Ethio-Telecom, Dire Dawa Branch and better knowledge about the entity’s
business environment.

The current position of the respondents in their organizations, internal auditors that are 6 in
number shared the leading percentage 40% and senior internal auditors/officers 5 in numbers
shared the next higher percentage 33.30%. Only 1 respondent that possessed 6.70 % share
was audit manager/ supervisor and the other share, 20% has possessed by 3 team leaders/
assistants. According to the analysis results, the greater part was possessed by internal
auditors.

4.3 Presentation of Findings

4.3.1 Internal Audit Quality
To measure audit quality in Ethio-Telecom, Dire Dawa Branch five items with a five-point
Likert scale were distributed. In the five items Likert scale, the overall average mean score
resides between 1 and 5, and the average mean score is 2.5. Thus overall average mean score
was used to make a descriptive analysis.

In Ethio-Telecom, Dire Dawa Branch the overall mean score of Internal Audit Quality is
3.48; from this, the researcher can infer that the quality of internal audit is good. As we can

25
see in the below table, as per the responses collected from Internal Audit staff regarding the
audit quality through the questionnaire revealed that the mean results of each are above
3.00. This indicated that there exists a good internal audit quality within the Ethio-Telecom,
Dire Dawa Branch. With the further support of the senior management, the quality assurance
of the internal audit can be enhanced more than the current status.

Table 2 Descriptive statistics of Internal Audit Quality

Std.
ITEM N Mean
Deviation
The annual audit plan is determined
completely by the Internal Audit 15 3.27 1.033
department.
Auditing is conducted on areas that are very
15 3.73 1.163
significant to the organization.
Internal Audit designs quality assurance and
improvement program to enable an
15 3.27 0.799
evaluation of Internal Audit activities
conformance with the standard.
The Internal Audit assessments properly
supervised to ensure the quality and 15 3.40 1.242
achievement of objectives.
The Internal Audit head communicates the
result of the quality assurance and
15 3.73 0.961
improvement program to the senior
management and the board.
TOTAL ITEMS MEAN 3.48
Source: Field Survey (2022)

The interview reveals that the Internal Audit staffs are composed of Management and
Information Technology graduates in addition to Accounting and Finance graduates. Both the
educational background and work experience of all Internal Audit teams are related to the
required qualification. As per the assessment made on the Internal Audit plan, program, audit
report, and other working papers, it has been learned that the Internal Audit Practice and
function is based on the International Internal Audit standard and procedural guidelines of the
organization. Besides, the activities carried out by the Internal Auditors in ensuring control,
risk assessment, and governance are in practice as required and they report to the
management. The Internal Audit guideline also indicates that the Internal Audit activities are
clearly stated in a manner that all Internal Audit staff can use to conduct their assignment and
also that can help the Audit Director to conduct the required supervisory function.

26
4.3.3 Approved Audit Charter
An approved internal audit charter is the other variable of this study and the finding of the
study revealed that the overall average means value of an approved internal Audit chart is
3.47 which are above the mid mean value a five-point Likert scale therefore, it can be implied
that the overall average response for presence of approved Internal Audit Charter was good.
All the questions under this category have got a mean score of 3.07, 3.53, 3.80, and 3.47
respectively.

Table 3 Descriptive statics of Approved Audit Charter

Std.
ITEM N MEAN
Deviation
Internal Audit has the approved Internal Audit
15 3.07 0.961
Charter.
The Internal Audit charter has comprised of
15 3.53 0.915
purpose, authority, and responsibility.
The Internal Audit charter establishes the
Internal Audit activities position within your 15 3.80 0.561
organization.
The nature of consulting services by the
15 3.47 1.060
Internal Audit is defined in the Audit charters.
TOTAL ITEMS MEAN 3.47
Source: Field Survey (2022)

Internal Audit Department has an approved Internal Audit Charter. It comprises of Definition
of Internal Audit, Purpose, Authority, and Responsibility. The nature of consulting service by
the Internal Audit is also defined in the Internal Audit Charter. The interview result reveals
that the Internal Audit Charter is reviewed regularly in the organization and it establishes the
Internal Audit activities position in Ethio-Telecom, Dire Dawa Branch.

4.3.4 Management Support

Management Support has been considered as one of the variables to measure the Internal
Audit practice in Ethio-Telecom, Dire Dawa Branch. To measure management support in
Ethio-Telecom, Dire Dawa Branch nine items with a five-point Likert scale were distributed
to the Internal Audit staffs in Ethio-Telecom, Dire Dawa Branch. The overall mean score of
management support to the Internal Audit is 2.73. It is above the midpoint and the standard
deviation of the most items is less than one it implies that the respondent's perception in this
regard is very close to each other. On the other hand, the standard deviation of senior
management understands the work of internal audit, Internal auditors have full access to

27
records and information they need in conducting audits and senior management encourages
capacity building to the internal audit staff are greater than one it indicates that the
respondents perception are far away from one another.

As we can see in the below table, trust and values of management to the advice of Internal
Audit as well as access of Internal Audit to information and recordings have the mean value
of 3.33, 3.00 and 3.40 respectively are significantly higher. Also, the support of management
in considering internal audit as a key strategic partner means is 2.73, in understanding the
work of internal audit the mean value is 2.87 as well as in supporting the work of internal
audit means is 2.87 it is relatively good. From the respondent's response, the mean values are
less than three, the researcher has evaluated that the management support to the internal audit
about the commitment to strengthen mean value is 2.27, in encouraging capacity building and
in providing training to the internal audit staff mean values are 2.07 and 2.00 respectively. It
is weak. Hence, the management should work on the weak support areas to further enhance
the work of internal audit in Ethio-Telecom, Dire Dawa Branch.

Table 4 Descriptive statics of Management Support

Std.
ITEM N MEAN
Deviation
Top-level management trusts the advice of
15 3.33 0.816
the internal audit department.
Top-level management values the advice of
15 3.00 0.926
the internal audit department.
The internal audit department is considered
a key strategic partner throughout the 15 2.73 0.884
organization.
Senior management understands the work
15 2.87 1.187
of internal audit.
Senior management fully supports the work
15 2.87 0.990
of internal audit.
Internal auditors have full access to records
and information they need in conducting 15 3.40 1.183
audits.
There is a management commitment to
15 2.27 0.799
strengthen the Internal Audit department.
Senior management encourages capacity
15 2.07 1.033
building to the internal audit staff.
Senior management provides training to the
15 2.00 0.926
internal audit staff.
TOTAL ITEMS MEAN 2.73
Source: Field Survey (2022)

28
The interview result reveals that audit assessment results are discussed with the management
and significant findings are reported accordingly. There is a low response to audit findings
and recommendations from the management side. From the document review, corrective
actions are mostly taken but few departments are not taking the required corrective action.

It has been understood that the senior management understands the work of Internal Audit but
there is lesser support in providing the required training and capacity building.

4.3.5 Availability of Resources

Under this, there are six questions the respondent's response IA department has an adequate
budget aligned with the planned audit work the mean score is 3.07. It is good because the
mean value of the respondents was greater than three, and the standard deviation is greater
than one it implies that the respondents’ perception is far away from each other. The
department of IA is large enough to successfully carry out their duty the mean is 3.00 it is
good and the standard deviation is greater than one. It implies the perceptions of the
respondents are far away.

Table 5 Descriptive statics of Resource Availability

Std.
ITEM N MEAN
Deviation
The internal Audit department has an
adequate budget aligned with the planned 15 3.07 1.100
audit work.
The Internal Audit department is large
15 3.00 1.195
enough to successfully carry out its duties
The head of Internal Audit communicates the
Internal Audit resource requirement to the
15 3.53 1.060
senior management and board for review and
approval.
The head of Internal Audit ensures the
internal audit recourses are adequate to 15 3.33 1.047
accomplish the approved plan.
Internal Audit develops and document
resource allocation for each audit 15 4.00 0.756
assignment.
Internal Audit resource allocation to each
assignment is based on the evaluation of the 15 3.71 0.825
nature and complexity of the assignment.
TOTAL ITEMS MEAN 3.44
Source: Field Survey (2022)

29
The interview result indicates that the Internal Audit department has put in its plan all the
required resource and presents to the management for approval. Through its budget hearing
committee, the management fairly approves the requested resources of the Internal Audit
such as per-diem and accommodation, fuel for field travel, stationeries, and printings. The
allocation of the approved budget to each assignment is based on the evaluation of the nature
and complexity of the assignment and the Internal Audit develops and documents resource
allocation for each audit assignment. The interview result in this regard shows that there is no
problem with the approval and utilization of the budget but the number of auditors in the
organization is not adequate.

30
 CHAPTER FIVE: SUMMARY, CONCLUSIONS, AND
RECOMMENDATIONS
5.1 Introduction
This chapter deals with the summary of the study on the assessment of internal audit practices
and procedures in Ethio-Telecom, Dire Dawa Branch. Based on the major findings, some
summary and conclusions have been drawn and practical recommendations have been finally
forwarded.

5.2 Summary of the Study

The main purpose of this study was the assessment of internal audit practices and procedures
in Ethio-Telecom, Dire Dawa Branch. To achieve the above purposes, the following basic
questions were set:-

 Does the Internal Audit maintain the required Audit quality?

 Does the Approved Audit charter in the organization adequately prepared as per the
standard?
 Does the management support the Internal Audit Department?
 Does the management allocate adequate resources to the Internal Audit Department to
conduct audit activities in the organization?

A mixed research approach was employed to assess the practices and procedures of the
Internal Audit Department of the Ethio-Telecom, Dire Dawa Branch. That is, both
quantitative and qualitative data were collected at a time. Questionnaires and interview
questions developed by the researcher were used to collect data from the respondents. The
sources of the data for the study were 15 respondents from the Internal Audit Department
staff of the Ethio-Telecom, Dire Dawa Branch. Mean values and standard deviation were
used for data analysis.

To assess the quality of Internal Audit from the responses of Internal Audit staffs in the five
items Likert scale was provided to the respondents. Thus, the study showed that the overall
mean score of Internal Audit Quality is 3.48. This indicated that there is a good Internal Audit
quality in the Ethio-Telecom, Dire Dawa Branch.

31
On the other hand, the finding of the study revealed that the overall average means value of
an approved Internal Audit chart is 3.47 which imply that the presence of an approved
Internal Audit Charter is good in Ethio-Telecom, Dire Dawa Branch as it contains all the
requirements.

To measure management support to the Internal Audit in Ethio-Telecom, Dire Dawa Branch,
a five-point Likert scale was distributed to the Internal Audit staff. Accordingly, the overall
mean score of management support to the Internal Audit is 2.73. This describes that top
management supports the Internal Audit in the organization needs attention to further
enhance the efficiencies of Internal Audit.

To assess the allocation of resources in the Internal Audit Department, the study revealed that
the management fairly allocates the required resources during its annual budget approval.
However, the required number of Internal Audit Staff is not adequate as compared with the
audit coverage.

5.3 Conclusion
Based on the findings of the study, the following concluding remarks are drawn.

The practice of Internal Audit of Ethio-Telecom, Dire Dawa Branch is aligning with the
current level of professional development. The respondents’ of the study agreed with
practices undertaken by the professional Internal Auditors. The quality of Internal Audit is as
per the International Audit Standards. The findings have shown that Internal Audit
department of the Ethio-Telecom, Dire Dawa Branch has an approved Internal Audit charter
and it is reviewed regularly as required. In addition, it can be concluded that there is a lesser
support from the top management in providing training to the Internal Audit staff.

Furthermore, the study concluded that the Internal Audit department has adequate budget
allocation aligned with the planned audit activities regardless of the inadequate number of
internal audit staff. Finally from the study, it was concluded that most departments of the
organization are taking corrective actions within a reasonable period on audit findings except
in few departments where there are delays in taking corrective action.

5.4 Recommendations
The overall objective of this study is to assess the Internal Audit Practice and procedures in
Ethio-Telecom, Dire Dawa Branch. In this regard, the data analysis using quantitative and

32
qualitative methods was made. According to the research objective and based on the data
analysis, the researcher provides the following recommendations to the concerned bodies:-

Best practices as well as the IIA standard requires that the Internal Audit Head shall report to
the board of directors and shall attend a board meeting. This is from the viewpoint of
ensuring the independence to freely exercise their Internal Audit roles. Hence, the Ethio-
Telecom, Dire Dawa Branch management shall revise its organizational structure so that the
Internal Audit Department reports to the Board of Directors.

Management support is very inevitable to the successful implementation of Internal Audit

activities. The management of the Ethio-Telecom, Dire Dawa Branch is indeed supporting
the Internal Audit Department in many aspects except that the support of providing the
required training is not as required. Hence, for the better performance of the internal audit
department, the management of the Ethio-Telecom, Dire Dawa Branch shall give serious
attention to give adequate training to the Internal Audit staff.

Adequate manpower following the audit assignments to be covered is equally important with
the available time and other resources. In Ethio-Telecom, Dire Dawa Branch, lesser attention
is given to the recruitment of the required number of internal audit staff. Therefore, for better
audit coverage and better assurance of control, risk management, and good governance, an
adequate number of Internal Auditors shall be fulfilled for the Internal Audit department.

5.5 Suggestion for Future Research

The researcher encourages further research to extend the results of this study and improve the
results by minimizing the limitation of the study. Although the research questions developed
in this paper were tested using a single organization, future research needs to be conducted
with other organizations that underwent Internal Audit Practices to validate the findings of
this study. Further research also treated by using other research methodology like data
collection tools and research type, by considering Audit committee member or other board of
director members, regulatory bodies, external auditors, Chief Executive Officer of the
company in addition to Internal Audit Department staffs and also by adding additional
variables to assess the practice of Internal Audit in the organization. The above all mentioned
will extend the conclusion of this study.

33
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Appendix A: Questionnaires for IA Staffs
Internal Audit Quality
ITEM SD DA N A SA
The annual audit plan is determined completely by
the Internal Audit department.
Auditing is conducted on areas that are very
significant to the organization.
Internal Audit designs quality assurance and
improvement program to enable an evaluation of
Internal Audit activities conformance with the
standard.
The Internal Audit assessments properly supervised
to ensure the quality and achievement of objectives.
The Internal Audit head communicates the result of
the quality assurance and improvement program to
the senior management and the board.

Approved Audit Charter

ITEM SD DA N A SA
Internal Audit has the approved Internal Audit
Charter.
The Internal Audit charter has comprised of purpose,
authority, and responsibility.
The Internal Audit charter establishes the Internal
Audit activities position within your organization.
The nature of consulting services by the Internal Audit
is defined in the Audit charters.

Management Support
ITEM SD DA N A SA
Top-level management trusts the advice of the internal
audit department.
Top-level management values the advice of the
internal audit department.
The internal audit department is considered a key
strategic partner throughout the organization.
Senior management understands the work of internal
audit.
Senior management fully supports the work of internal
audit.
Internal auditors have full access to records and
information they need in conducting audits.
There is a management commitment to strengthen the
Internal Audit department.

41
Senior management encourages capacity building to
the internal audit staff.
Senior management provides training to the internal
audit staff.

Resource Availability
ITEM SD DA N A SA
The internal Audit department has an adequate
budget aligned with the planned audit work.
The Internal Audit department is large enough to
successfully carry out its duties
The head of Internal Audit communicates the
Internal Audit resource requirement to the senior
management and board for review and approval.
The head of Internal Audit ensures the internal
audit recourses are adequate to accomplish the
approved plan.
Internal Audit develops and document resource
allocation for each audit assignment.
Internal Audit resource allocation to each
assignment is based on the evaluation of the
nature and complexity of the assignment.

42
Appendix B: Interview for IA Head and Management
1. What are your understanding of internal audit practice and internal audit function in your
organization?

 Are the role and benefits of internal audit sufficiently understood in your
organization?

 How are audit acceptance and cooperation with the internal audit in your
organization?

 What do the competencies of internal audit look like in your organization in terms of
Educational background? Work experience?

2. What is the relationship of internal audit with the board of directors /audit committee?
Are there accounting/ finance experts on the board (audit committee)?

 Is the Internal Audit head in a higher position in your organization and Management
Promise adds value to internal audit?

3. Does it have a charter (guidelines) approved by the board of directors?

 What does the charter (guideline) include?

 How is Audit acceptance and cooperation with Internal Audit in your corporation?

4. To what extent the top Management supports the Internal Audit Department?

 Who decides to hire /remove the internal audit in your organization?

 Does the Internal Audit report audit findings to the audit committee freely?

 Does corporation Management take corrective action regarding audit findings?

 Is there follow up whether an action taken on audit finding’s reported by the auditors?

5. Does the Internal Audit department have a sufficient budget and an adequate number of
auditors?

43