An Examination of Government Internal Audits’ Role in Improving Financial Performance

Abstract

This research empirically examines how the work of government internal audits lead to improvements in government financial performance. Periodic economic downturn and dwindling state aid to local governments have left many public managers looking for ways to improve financial oversight and operational efficiency. Although internal audit is one area with the expertise to assess efficient utilization of financial resources and help improve oversight and financial performance, public administration research has paid little attention to the role of internal audit in the financial management process. A survey was sent to local government Chief Auditors to learn of audit's examination of government operations and financial management. Financial performance data were obtained from the Comprehensive Annual Financial Reports (CAFRs) of survey respondents’ local governments and analyzed with the survey responses. Results show that in general, local government auditors perform more audits in operational areas that deal with fiscal receipts and outlays. Additionally, auditors’ work significantly influences local government financial performance both directly and indirectly through improvements in internal controls and efficiency of operations.