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ANALYSIS OF THE INFLUENCING FACTORS REGARDING THE

IMPROVEMENT OF THE INTERNAL MANAGERIAL CONTROL
AND OF THE INTERNAL AUDIT AT THE ENTITIES OF PUBLIC
INTEREST
Ph.D. Student, Georgiana - Janina SOARE
“Valahia” University of Târgovişte, Romania
E-mail: [email protected]

Abstract: Implementation and development of the relationship internal managerial control - internal
audit is not only a legislative issue, but rather a problem of changing the mentality that aims over time and
change the organizational culture. For these reasons, the implementation and development of the internal
managerial control system in correlation with the internal audit has produced and will produce a series of
fundamental changes in the organization and functioning of public interest entities, which contribute to:
increasing managerial responsibilities; understanding the philosophy of risk management; inherent risk
management and awareness of the introduction of specific internal management control techniques and
tools.
Keywords: Internal managerial control, internal audit, public interest entity, risk management.
JEL Classification: M42.

1. Introduction
The internal audit function is especially useful for the management of the entity,
offering it assistance and counselling for decision making, based on the experience and
knowledge gained during the verifications and evaluation of the activities subject to audit.
At the same time, through the opinions, conclusions and recommendations given to the
management, the internal audit contributes to the adoption and improvement of their
decisions. We also believe that better communication between management and internal
audit can lead to an increase in the efficiency of the decisions taken.
Public internal audit should not be confused with the internal control function of
which it is a part, it is not a more “sophisticated” form of strengthening control as it is
often misunderstood, but a managerial counselling function.
In our opinion, the concept of audit- counselling should be used as often as possible
to eliminate confusion with the notion of audit-control, even if the two notions are not
incompatible. The audit, by examining the efficiency and effectiveness of the entity’s
actions, adds value to the control and a rigorous control facilitates the auditor’s work. This
added value brought in the decision-making processes that take place in public entities,
managers substantiate their decisions, based on the information they have and after
consulting with internal and external specialists who master the field of activity specific to
the entity. Specialists must include internal auditors who have in-depth knowledge of all
activities within the entity, as by the nature of their function, using specific techniques and
methods, they examine and evaluate both the adequacy and effectiveness of the internal
control system and the quality of the activities carried out in the entity, thus enriching its
knowledge and experience in the field. At the same time, auditors assess (Macarie, 2008)
the degree of risk that may affect the achievement of objectives if certain decisions are
made and determine the level of risk that the entity is prepared to accept.

2. Literature review
Until the consolidation and regulation of audit and internal control functions,
respectively, in most European countries, the main research in the field focused on: Strain
M.M. (1946) - audit questions from professional examinations, comments on selected
cases and topics; Field W.H. & Cashin J.A. (1947) - Internal control standards and audit

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procedures; Cashin J.A. & Owens G.C. & Byrnes W.T. (1963) - Audit, Brasseaux J.H. &
Miles F.L. (1972) – Auditor’s Report: Cases and Illustrations; Marwick P. & Mitchell &
CO (1976) - Research Opportunities in Auditing. Also noteworthy are the research of
specialists Arens A., Loebbecke K. (2003) or Littleton A. (1961) who develop an
integrated approach to auditing.
Staciokas R. & Rupsys R. (2005) conducts a dynamic analysis of the evolution of
internal audit responsibilities and states that, “internal auditors provide counselling and
recommendations for general management, take part in risk management processes and
provide recommendations for improving these processes”.
From a management perspective, Saam J. (2007), considers that internal audit
“supports the management of the entity in fulfilling its obligations and strengthens the trust
of the entity’s owners in the integrity of management", and J. Renard (2006) considers that
internal audit is all that should be to make a person in charge to make sure that he has a
good control over the business if he had time or if he knew how to proceed”.
Following the signing of the European Accession Agreements in 1993 and the
submission of the application for accession to the European Union in 1995, Romania
received recommendations regarding the organization of the audit and internal control
activity.
Regarding the public internal audit, at the recommendations of the European
Commission was introduced, in the control and audit system in Romania, the internal
control and implicitly the internal audit, through O.U.G. no. 119/1999 on internal public
audit and preventive financial control.
Currently, the internal public audit is regulated by Law no. 672/2002 regarding the
internal public audit, explained by its application norms issued in 2003, which regulates
the activity within the public institutions, with extension to the other organizations whose
owner is the state. It should be noted that the introduction of public audit activity in our
country is not an imperative imposed by the acquis communautaire, a takeover or an
adaptation, thus leaving a fertile ground for finding solutions adapted to the specifics and
particularities of the national economy. To the regulations mentioned above is added the
adoption of the Internal Control Code by O.M.F.P. no. 946/2005, including the standards
of management and internal control at public institutions and for the development of
managerial control systems, elaborated according to the model of the Integrated Code of
Risk Management (COSO-ERM model) from 2004.

3. Research methodology
This research is a process of choosing from a population a group whose opinions
we wanted to know. Thus, each part of the study has an equal probability of being selected.
In this study, the population consists of internal and external auditors from some public
entities analysed in Bucharest.
The questionnaire was sent to 82 internal and external auditors, only 50
questionnaires were returned with complete data, obtaining a response rate of 60.97%.
The questionnaire was conducted for a study, including 2 types of questions
relevant to the empirical case, respectively:
a) General questions, with the role of providing a clear picture of the personal
profile of the respondents in the sample;
b) Questions regarding the opinion and perception regarding the opinion and
perception of the respondents regarding the way of improving the internal managerial
control and the internal audit).
The data collected from the 50 participants in the questionnaire were included in a
database created within the SPSS program variant 22.
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In order to highlight the processed information, the functionalities of statistical data

analysis were used, by approaching several types of analyses, as follows:
 Univariate analyses: frequencies, distributions;
 Bivariate analyses: Pearson Correlation, ANOVA;
 Significance tests: T test for independent samples.
The instrument reliability of this study was tested using Cronbach's Alpha.
According to the authors (Kaiser, 1974, pp.31-32), the instrument is considered acceptable
when the value is over 60%.
Table no. 1 shows the level of reliability coefficients of the items processed in the
questionnaire that are higher than 70%, which is considered extremely reliable.

Table no. 1 Reliability coefficients for measuring variables

Number Variables Cronbach's Alpha
of items
1. Profession of auditor and the connection with education 0.872
2. Internal managerial control system (IMCS) organization 0.864
3. Approaching and applying a IMCS standard 0.823
4. IMCS evaluation 0.759
5. IMCS implementation 0.831
6. IMCS development and improvement 0.797

The results of the socio-demographic information are presented in (table no. 2) and,
respectively in the graph from (Figure no. 1) as follows:

Table no. 2 Socio-demographic information

Variables Answer Frequency Percent
Genre Female 32 64%
Male 18 36%
N Average
Average age and Internal auditor 28 34.27
status External auditor 22 26.8

Figure no. 1 Results of socio-demographic information

Source: Own projection

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4. Perceptions on the means of improving the internal managerial control

system (IMCS)
The study used a dependent variable, which is represented by the improvement of
the internal managerial control system and 4 independent variables reflected in the prism
of the topics of perception debated, the country approached being Romania.
The integral regression model for the empirical investigations in estimating the
factors that could explain the means of improvement of the managerial internal control
system through the prism of the auditor profession, is presented as follows:

The regression model highlights the relationship between a dependent variable

(Improving the internal managerial control system - IMCSi) and four independent
variables, respectively:
1. Fulfilment of functions and duties in an economical and efficient way -
Fi;
2. Compliance with legal regulations and management provisions- Ri;
3. Protection of resources against abuse, loss or fraud - PRi;
4. Development, maintenance and provision of accurate and complete
financial information DIFi.
The standard deviations of three of the topics addressed were less than 3, namely:
the perception of the fulfilment of functions and duties in an economical and efficient way,
the perception of Compliance with legal regulations and management provisions and the
perception of the Development, maintenance and provision of accurate and complete
financial information.
The results in (table no.3 ) show that the perceptions regarding the Improvement of
the internal managerial control system are not, on average, similar.
The calculation of the indicators of the central tendencies, the average and the
standard deviation of the variables involved in the model is presented in the same table,
where the general statistics of the regression equation are highlighted.

Table no. 3. General statistics of the regression equation

N Average Standard
deviation
Perceptions of performing functions and duties in an 50 1.5500 0.7491
economical, efficient and effective way
Perceptions of compliance with legal regulations and 50 2.3650 0.9787
management provisions
Perceptions of protecting resources against abuse, loss or 50 3.9000 1.4813
fraud
Perceptions of developing, maintaining and providing accurate 50 3.2300 0.8082
and complete financial information

Table no. 4 presents the results of the Pearson correlation analysis regarding the
variables, by testing the hypotheses and interpreting the Pearson correlation results.

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Table no. 4. Results of Pearson correlation analysis

IMCS F R PR DIF
Correlation 1
Statistical significance
IMCS (second extremity)
N
50
Correlation 1.130 1
Statistical significance
F (second extremity)
N 0.079
50 50
Correlation -0.017 0.043 1
Statistical significance
R (second extremity)
N 0.000 0.001
50 50 50

Correlation 0.147 0.169 0.106 1

Statistical significance
PR (second extremity)
N 0.000 0.001 0.001
50 50 50 50
Correlation 0.297 0.359 0.217 0.056 1
Statistical significance
DIF (second extremity)
N 0.000 0.001 0.001 0.000
50 50 50 50 50

It is observed that out of the total of 4 explanatory variables tested in this study,
there is a significant correlation between 3 independent variables Fulfilment of functions
and duties in an economical and efficient way (F), Protection of resources against abuse,
loss or fraud (PR) and Development, maintenance and provision of accurate and complete
financial information (DIF) and the dependent variable, for example, Improvement of the
internal management control system. The correlation between Compliance with legal
regulations and management provisions and Improvement of the internal management
control system (IMCS) has a very weak value. Based on the results in the table, there is a
positive relationship between the dependent variable (IMCS) and most independent
variables.
In the analysis of the factors that could influence the improvement of the internal
managerial control system, a regression analysis was used to test the effect of the 4
independent (explanatory) variables on the dependent variable (explained).

Table no. 5. Regression analysis

Model Sum squared Df Average F Sig.
deviation
Regression 4.582 4 0.936 0.499 0.801a

Residual 51.506 43 1.867 - -

statistics
Total 57.100 47 - - -
a) Elements: (Constant variable), F, R, PR, DIF

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Table no. 6 contains information on the dependent variable explained by the

existing model used in this study and the residual one that indicates the oscillation of the
dependent variable that is not included in the model.
In order to ensure the statistical adequacy of the model, the conformity can be
measured by the sum of the correlation coefficients called R2.

Table no. 6. Conformity based on correlation coefficients

Model R R2 adjusted R2 Estimated
errors
1 0.285a 0.082 -0.082 1.361
 Elements: (Constant variable), F, R, PR, DIF

As presented in Table no. 6, both R2 and adjusted R2, measure the conformity of the
model, for example, the proportion of the oscillation of the dependent variable explained
by this model.
Since the adjusted R2 represents the modification of the limitation of R2, the value
of the adjusted R2 is meant to measure the conformity of the model. Thus, according to the
table, the value of adjusted R is 0.082, indicating that the independent variables in the
model explain an 82% oscillation of the dependent variables. In this case, it can be
deduced that the study model provides good data compliance. This result practically
indicates that the independent variables in this research are the major factors in improving
the internal managerial control system.

Table no. 7. Correlation between the explanatory variables and the IMCS dependent
one
Variables Coefficients Statistical term t Probability
Constant variable 2.216 1.968 4.542
Fulfilment of functions and duties in an -0.217 -0.672 0.425
economical and efficient and effective way
Compliance with legal regulations and
management provisions 0.058 0.248 0.555
Protection of resources against abuse, loss or -0.186 -1.151 0.139
fraud
Development, maintenance and provision of -0.045 -0.169 0.539
accurate and complete financial information

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5
Compliance with legal
regulat ions and
4 management provisions
Constant variable
3
Fulf ilment of funct ions
and dut ies in an
2 economical and ef ficient
and ef fect ive way
1 Development,
maintenance and
provision of accurate and
0 complete f inancial
Sum of Coef ficients Sum of Stat ist ical term t Sum of Probability
informat ion
-1 Protect ion of resources
against abuse, loss or
-2 fraud

Figure no. 2
Source: Own projection

As underlined in the table and figure above, the results of the 4 explanatory
variables tested in this study confirm that there is an insignificant relationship between
them and the analysed dependent variable (IMCS).
Taking into account the highlighted values, the multiple regression line is
represented by the following regression equation:
IMCS = 2.216 – 0.217*F + 0.058*R - 0.186*PR - 0.045*DIF

5. Analysis of the reliability coefficients of the measured variables analysed

Factor analysis is a technique that is used to reduce variables to factors with a
small number. Before using the factor analysis, the hypotheses of normality,
homoscedasticity and linearity were verified.
In this regard, the Kaiser Meyer Olkin (KMO) model was used to measure the
adequacy of the sampling, also the Bartlett globosity test was used to test the inter-
correlation between the factors.
Table no. 7 illustrates the KMO guide for interpreting factor analysis values.

Table no. 7. KMO Guide

KMO Opportunity for factor analysis
0.90 - 1.00 Wonderful
0.80 - 0.89 Satisfactory
0.70 to 0.79 Medium
0.60 to 0.69 Mediocre
0.50 to 0.59 Ungrateful
Less than 0.50 Needs to be excluded

The reliability was tested again after factor analysis to ensure the reliability of the
instrument.
Cronbach's Alpha is considered an appropriate test of the reliability of the survey
instrument.

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Table no. 8 shows that Cronbach's Alpha ranges from 70.6 to 86.1%, which
exceeds the minimum value of 70% to be acceptable. This means that the instruments used
to measure the variable were acceptable and the data were subsequently used for further
analysis.
Table no. 8. Reliability of the survey instrument
Number Variables Cronbach's Alpha
of items
1. Profession of auditor and the connection with 0.790
education
2. IMCS organization 0.861
3. Approaching and applying a IMCS standard 0.848
4. IMCS evaluation 0.851
5. IMCS implementation 0.706
6. IMCS development and improvement 0.790

The present study relies on tolerance (TOL) and variance inflation factor (VAR) to
test collinearity. TOL values should be above 10% and VAR should be less than 10%.
(Table no. 9) indicates that there is no multi-collinearity between the variables, because the
values of the inflation factor of the VAR variance were between 1,428 and 1,975, and the
TOL tolerance values were between 50.1% to 69.7% percent.

Table no. 9 Tolerance and variance values

Variables TOL VAR
Profession of auditor and the connection with education 0.643 1.541
IMCS organization 0.501 1.975
Approaching and applying a IMCS standard 0.697 1.428
IMCS evaluation 0.595 1.673
IMCS implementation 0.529 1.880
IMCS development and improvement 0.536 1.789

For the analysis of linearity, normality and homoscedasticity, the Skewness and
Kurtosis tests were performed before testing the hypotheses.

Table no. 10. Skewness and Kurtosis Tests

Variables Skewness Kurtosis
Statisti Std. Statisti Std.
c Error c Error
Profession of auditor and the connection -.541 .203 -.215 .302
with education
IMCS organization -.436 . 203 .453 .302
Approaching and applying a IMCS -.697 . 203 .402 .302
standard
IMCS evaluation -.782 . 203 .226 .302
IMCS implementation -.326 . 203 -.198 .302
IMCS development and improvement .526 203 -.205 .302

The results show that the Skewness and Kurtosis ratios are between ± 1.94 and
2.56, respectively, indicating that the data are normally distributed.

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Table no. 11 shows that, in general, auditors have a moderate and favourable
perception of the improvement of the internal managerial control system.

Table no. 11 Auditors’ perception of IMCS improvement

Variables Number of Averag Standard
items e deviation
Profession of auditor and the connection with 4 3.453 .64543
education
IMCS organization 7 3.953 .62171
Approaching and applying a IMCS standard 7 3.653 .60151
IMCS evaluation 8 3.899 .62123
IMCS implementation 10 3.903 .67532
IMCS development and improvement 10 3.925 .69061

This section presents the conclusions of the relationship between the dependent
variable (Improving the internal management control system) and the independent
variables (Profession of auditor and the connection with education, IMCS organization,
Approach and application of IMCS standard, IMCS evaluation, IMCS implementation,
IMCS development and improvement). In this regard, the study used multiple regression.
The regression result shows that the value of R2 is 49.7% and the value of F is
12,534. (Table no. 12) presents these results.

Table no. 12. Multiple regression results

Variables Non-standardized Standardize
coefficients d
Std. B t- Sig.
Error value
Constant 2.123 .036 4.261 .002

Profession of auditor and the .617 .096 .479 2.223 000

connection with education
IMCS organization .613 .103 .391 2.679 .006
Approaching and applying a .437 .112 .302 3.162 .000
IMCS standard
IMCS evaluation .395 .101 .199 4.415 .003
IMCS implementation .326 .015 .496 5.302 .000
IMCS development and .529 .010 .463 5.313 .000
improvement
*F= 12.534 R2 = .497 Sig. = 0.05

The study shows the relationship between internal and external audit, as well as the
improvement of the internal management control system using a questionnaire survey
among auditors.
Interestingly, the extracted results showed that the participants perceived
favourably the link between internal control and internal audit in relation to external audit
in order to increase the quality of the managerial internal control system.

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7. Conclusions
Currently, implementing rules are established for all CIM standards and specific
activities are being carried out to maintain and develop these standards, but, as in any field,
there is the possibility of improvement. At the level of public interest entities, it is
important to maintain and develop a coherent system of internal managerial control, taking
into account the minimum requirements of internal managerial control standards.
Particular importance must be given to Standard no. 8 - Risk management, which is a
key element of the internal management control system. Risk management involves a
series of complex activities, because the risks are found in various fields and categories:
security, war scenarios, financial, environment, IT, reputation, occupational health, etc.
The main aspects to be taken into account in the future by public interest entities, in
terms of internal managerial control, according to the legislation, would be: creating an
organizational framework conducive to the implementation and development of the
internal managerial control system, establishing a clear flow of information and coherently,
a good risk management, useful procedures, updated and adequate to the structures and
activities of the entity.

References:
1. Brasseaux, J. H., 1972. Raportul auditorului: cazuri şi ilustraţii. [online]
Available at: <https://www.bookdepository.com/Readings-Auditing-J-Herman-
Brasseaux/9780538010207> [Accessed 12 March 2021].
2. Ghiță, M., 2008. Guvernanță Corporativă. Bucharest: Economică Publishing
House.
3. Kaiser, H. F., 1974. An index of factorial simplicity. Psychometrika, 39(1).
4. Littleton, A., 1961. Essays on Accountancy. [online] Available at:
<https://www.littletoncocpa.com/auditing.php> [Accessed 12 March 2021].
5. Macarie, C. F., 2008. Auditul public intern – suport în procesul decisional.
Transylvanian Journal of Administrative Sciences, 2(22), pp. 34-43.
6. Loebbecke, K., 2003. Audit – o abordare integrată. Bucharest: Arc Publishing
House.
7. Peat, Marwick, Mitchell & CO, 1976. Annual financial report. NASSP
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8. Renard, J., 2006. Théorie et pratique de l’audit interne. Paris: d’Organisation
Publishing House.
9. Saam, N. J., 2007. Asymmetry in information versus asymmetry in power:
Implicit assumptions of agency theory? The Journal of Socio-Economics, 36.
10. Staciokas, R. and Rupsys, R., 2005. Internal Audit and its Role in
Organizational Government. Organizaciju Vadyba, 33, pp. 169-180.

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