CHAPTER ONE
INTRODUCTION
1.0 Introduction

The role of internal audit in enhancing financial performance has been a topic of interest in the field of public finance and management. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations (IIA, 2017). It 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.

In the context of public establishments, effective internal audit practices can lead to better financial management, improved resources allocation, and increased transparency and accountability (Mihret & Yismaw, 2007). This, in turn, can positively influence the overall financial performance of these organizations.

Cameroon, a country in Central Africa, has been grappling with financial management challenges in its public establishments, particularly in the south west region. Several studies have highlighted the need for strengthened internal audit functions improved financial performance in various public sectors (Njini & Neubeck, 2021; Etuk et al, 2021).

In Cameroon’s public establishments, Category Five refers to decentralized local government entities, including community schools, health centers, and other local administrative units. These establishments play a vital role in providing essential services to local communities and are responsible for managing public resources efficiently and effectively. However, some of these establishments have faced significant financial management challenges, which may be attributed to weak internal audit mechanism\s (Njini & Neubeck, 2021).

This Study aims to examine the effect of internal audit on the financial performance of Public establishments under Category Five in the Southwest region of Cameroon. Specifically, the study will focus on community schools as a case study, as they constitute a significant portion of Category Five establishments and play a crucial role in providing education services to local communities.
By investigating the relationship between internal audit and financial performance in these community schools, the study will contribute to the existing body of knowledge on public financial management and offer practical recommendations for improving the internal audit practices and financial management in Cameroon’s Public establishments.

1.1 Background of the Study

The concept of internal audit has been in existence for centuries, dating back to ancient civilizations such as the Roman Empire and the Dutch East India Company. However, it was not until the late 19th century that the modern form of internal auditing began to emerge (Stuart and Stuart, 2008). Internal audit is defined as an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes (The Institute of Internal Auditors, 2019).
In Cameroon, like many other countries, the concept of internal audit has evolved over the years. Before 1974, public establishments in Cameroon were managed and controlled by the central government, and there was no specific focus on internal auditing (Fomum, 2015). However, with the enactment of Law No. 74/25 of 19 December 1974 and Law No. 93/32 of 19 April 1993, the public sector was reformed, and public establishments were established as autonomous bodies with administrative and financial autonomy (Fomum, 2015). This change in the structure of public establishments gave rise to the need for internal audit to ensure effective and efficient utilization of resources and compliance with regulations and laws.
The evolution of internal audit in Cameroon can also be seen in the establishment of the Institute of Internal Auditors Cameroon (IIAC) in 2011. This professional association is responsible for promoting the practice of internal audit in both the public and private sectors in the country. It provides training, certification, and networking opportunities for internal auditors, further emphasizing the importance of internal audit in organizational management (IIA Cameroon, n.d.).
Furthermore, the enactment of Law No. 2016/017 of 14 December 2016 on the organization and functioning of internal audit in public establishments in Cameroon has further solidified the role of internal audit in the public sector (Fomum, 2015). This law provides guidelines for the establishment and functioning of internal audit units in public establishments, highlighting the need for independence, objectivity, and professionalism in carrying out internal audit activities.
The contextual background of the study shows that internal audit is becoming increasingly crucial in the management of public establishments in Cameroon. However, there are still challenges that need to be addressed to ensure the effective implementation of internal audit. According to Nfor and Fomum (2012), some of the challenges faced by internal auditors in Cameroon include a lack of independence, inadequate resources, and political interference.
Furthermore, studies have shown that the financial performance of public establishments in Cameroon is a cause for concern. For instance, a study by Njimanted and Ngege (2017) found that most public establishments under category five (which includes universities, hospitals, and public corporations) in the South West region of Cameroon were facing financial challenges, such as inadequate funding, poor financial management, and weak internal controls. This highlights the need for effective internal audit to help address these issues and improve the financial performance of public establishments.
In conclusion, the historical and contextual background of the study shows that internal audit has evolved over the years in Cameroon, with the establishment of laws and professional associations promoting its practice. However, there are still challenges to be addressed, and the financial performance of public establishments in the country remains a concern