CHAPTER ONE

GENERAL INTRODUCTION

Background to Study

Internal audit has been recognized as an elementary administrative scheme comprising principally of examining documents, reviewing operations and presenting to the panel of executives, board or external auditors since history. Internal audit had been known to enhance the objectives and discussions within and without the organizational departments which in turn enhanced the value within the organization (Raja, 2002). Management is obliged to increase or maximize shareholders’ wealth while displaying competence in the performance of its duties. Internal audit therefore checks on this performance in accordance with modern day practices due to the amalgamation of diverse forces which led to a quiet revolution of the profession. Companies presently require immense capability from internal audit, in light of inadequate capital, to display enhanced competence in identifying and mitigating risks. The expansion of technology has enabled internal audit to monitor and examine facts with intensified rapidness, thereby improving the internal audit sector. Making changes to an existing internal audit department can be an important undertaking as it differs among organizations. The transformation from simply establishing and observing rules and regulations, to accurately delivering additional significance requires numerous organizational changes. According to Ramamoorti (2003), various microfinance institutions pay their staff poorly hence making them unenthusiastic, have weak ethical standards and their governance practices are unproductive emerging into asset mismanagement. 2 There is an apprehension in the entire world whether the internal audit function has the capability to grant hitherto, divergent benefits to an organization in achieving its objectives. This latent deviated into a provocation and resulted into actualization of the meaning of internal audit by the Institute of Internal Auditors (the IIA). According to Basel Committee (2002) microfinance institutions have come to an understanding that internal audit is significant in enhancing supervision of resources in the microfinance institutions conveying an enhanced fiscal performance of microfinance institutions. There are various theories that try to explain internal audit’s importance to an organization. The agency theory which is the overarching theory, makes the assumption that separation of ownership and management leads to transparency in internal audit function. The contingency theory states that internal audit is most effective when it is matched with the financial risks inherent to the nature of the organization. The stakeholder theory identifies stakeholders and defines performance outcomes as the defined satisfaction measure. These theories have been further discussed under literature review. Ondieki (2014), investigated the effect internal audit had on commercial banks’ financial performance in Kenya. He observed that internal audit practices and financial performance had a positive relationship. The study focused on internal controls, internal control standards, independence of internal audit and professional competency. It is against this backdrop that the current study will be focusing on the Microfinance Institutions in Bamenda and investigate whether similar findings will be replicated

1.2 Statement of the Problem.

The project aims to investigate “The Effect of Auditing in Macroeconomics in Bamenda.” Bamenda, a city in Cameroon, is a dynamic economic hub facing challenges in its macroeconomic landscape. The absence of a comprehensive study on the impact of auditing practices on the microfinance sector in this region underscores the need for research. The project will examine how auditing processes contribute to the overall financial stability, transparency, and efficiency of macroeconomic activities in Bamenda. By exploring the current auditing practices and their implications on the microfinance sector, the study seeks to provide valuable insights that can inform policy decisions, improve financial governance, and foster sustainable economic growth in the region.

1.3 Research Question

1.3.1 Main Research Question

What is THE IMPACT OF INTERNAL AUDITING PRACTICES ON THE PERFORMANCE OF MICROFINANCE INSTITUTIONS IN BAMENDA?”

1.3.2 Specific Research Questions

• How does the frequency of internal audits conducted by microfinance institutions in Bamenda affect their financial performance?
• To what extent do internal audit findings and recommendations contribute to the improvement of governance and compliance within microfinance institutions in Bamenda?
• How do internal audit reports and recommendations influence decision-making processes within microfinance institutions in Bamenda?

1.4 Research Objective

1.4.1 Main Research Objective

 What is the impact of internal auditing practices on the performance of microfinance institutions in Bamenda?”

1.4.2 Specific Research Objectives

• Assess the relationship between the frequency of internal audits and the financial performance of microfinance institutions in Bamenda.
• Evaluate the contribution of internal audit findings and recommendations to enhancing governance and compliance within microfinance institutions in Bamenda.
• Examine the influence of internal audit reports and recommendations on decision-making processes within microfinance institutions in Bamenda.