THE IMPACT OF DEDICATED INTERNAL AUDIT FUNCTIONS ON STATE GOVERNMENTAL COMPLIANCE AUDIT FINDINGS

Frank Nation
Quentin Kuntzman
Mark Buxton
University of Illinois Springfield

ABSTRACT

This paper continues a stream of research focused upon the effectiveness of compliance
audits of state governmental agencies. Compliance audits hold state entities accountable for their
operational effectiveness and their compliance with laws and regulations. This study extends
prior research by examining additional, possibly influential variables related to number of
compliance audit finding. Specifically, this study examines the presence of a dedicated internal
audit function in a state governmental entity, and its relationship to the number of compliance
audit findings reported.
The study also includes the auditor type as an independent variable based on previous
literature. Additional covariate independent variables controlled for the effect of entity size and
complexity on the audit. This study applied backward stepwise regression methodology to
examine the relationships of the variable of interest and covariates. The results of the analysis
indicate that the presence of an internal audit function in a state agency was significantly related
to the number of compliance audit findings. Surprisingly, the study results indicated that the type
of auditor was not significantly related to the number of compliance audit findings. This
represents a departure from the results of previous studies of this relationship, indicating a
significant relationship.

Keywords: Compliance audit findings, government audit, internal audit function