An Examination of Internal Audit Function Size: Evidence from U.S. Government and Nonprofit Sectors

• In Event: Non-Profit and Gender Issues

Abstract

To our knowledge, this is the first paper to examine factors associated with the size of internal audit functions (IAFs) in U.S. government and nonprofit entities. Given the significance of these sectors to the U.S. economy and the increasing calls for accountability, it is important to consider these sectors’ commitment to organizational governance as evidenced through their investment in the internal audit function. Our results, based on responses from 345 government and nonprofit participants in the Common Body of Knowledge (CBOK) 2015 Global Internal Auditor Practitioner Survey administered by the Institute of Internal Auditors Research Foundation (IIARF), indicate that several factors related to organizational characteristics, internal audit department characteristics, internal audit department responsibilities, and information technology tools and audit activities are associated with the size of the internal audit function. Specifically, we find internal audit size is positively associated with: (1) whether an internal audit department is mandated, (2) extent of activity related to audits of general information technology (IT) risks, (3) use of a rotational staffing model, (4) degree of fraud detection responsibility, (5) conduct of performance audits, (6) extent of use of sophisticated audit technologies, (7) organization size, (8) opportunity to receive a bonus, and (9) age of the internal audit department. Internal audit size is negatively related to (1) extent of access to employee property and records for performance of audit activities, (2) nonprofit organizations, (3) entities classified as healthcare institutions, and (4) organizations classified as educational institutions. Additionally, our descriptive results indicate that many IAFs in the government and nonprofit sectors have not fully embraced the use of sophisticated audit technologies, including tools related to data analytics and data mining, or audits related to IT security, including cybersecurity.

Authors

• Sarah Ann Garven, Middle Tennessee State University

• Audrey Nicole Scarlata, Middle Tennessee State University