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Determinants of Internal Control Compliance in Public Organizations; Using

Preventive, Detective, Corrective and Directive Controls

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DOI: 10.1080/01900692.2019.1645689

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Determinants of Internal Control Compliance in

Public Organizations; Using Preventive, Detective,
Corrective and Directive Controls

Peter Yao Lartey, Yusheng Kong, Fatoumata Binta Maci Bah, Rupa Jaladi
Santosh & Isaac Akolgo Gumah

To cite this article: Peter Yao Lartey, Yusheng Kong, Fatoumata Binta Maci Bah, Rupa Jaladi
Santosh & Isaac Akolgo Gumah (2019): Determinants of Internal Control Compliance in Public
Organizations; Using Preventive, Detective, Corrective and Directive Controls, International Journal
of Public Administration, DOI: 10.1080/01900692.2019.1645689

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INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION
https://doi.org/10.1080/01900692.2019.1645689

Determinants of Internal Control Compliance in Public Organizations; Using

Preventive, Detective, Corrective and Directive Controls
Peter Yao Lartey a, Yusheng Kong a
, Fatoumata Binta Maci Bahb, Rupa Jaladi Santoshc,
and Isaac Akolgo Gumahd
a
School of Finance and Economics, Jiangsu University, Zhenjiang, China; bLife Sciences, Jiangsu University, Zhenjiang, China; cDepartment of
Finance, Walingkar Institute of Management and Development Research, Bangalore, India; dSchool of Management, Jiangsu University,
Zhenjiang, China

ABSTRACT KEYWORDS
Internal control is relevant in every entity, regardless of the objectives. However, its effectiveness varies Public administration;
greatly across jurisdictions. From a Ghanaian institutional perspective, this study presents evidence of accountability; quality
internal control compliance from selected public organizations, based on 395 sampled observations. reporting; control and
The relationships were measured using a structural equation modelling approach – SEM, and conclusion compliance
based on a set of hypothesis developed to test for reliability and model fitness. The findings suggest that
preventive, detective, corrective and directive controls are good determinants of compliance. Each
explanatory construct measured significant across all thresholds based on the statistical estimates
reported in the confirmatory factor analysis, regression weights and the goodness of fit indices. The
study further observed that internal control is more effective among organizations practising preventive
measures. The study implied that over reliance on detective controls may not significantly influence
compliance in the long term, as they are instituted to identify risks and events after they occur, a practice
that is common among public organisations. The emergence of new risks relative to increasing
accountability requirements, from quality perspective may require more preventive measures than
any other type of control. Lastly, policymakers in the public sector must ensure, the cost of implement-
ing controls does not outweigh its benefits. Preventive controls are efficient, proactive and cost effective.
However, detective controls and other controls are relevant, to support and provide evidence on how
effective preventive controls are functioning.

Introduction
framework which consist of; control environment; con-
Internal controls refer to those measures and procedures sists of the act of promoting integrity ethical values
designed and implemented by an entity’s board and man- throughout the entity. More importantly, is commitment
agement, to improve operational efficiency, financial and demonstration to the established controls in an inde-
reporting, compliance objectives and expectation of key pendent fashion from the board perspective. In a nut
stakeholders in matters of safeguarding assets and invest- shell, the audit committee also tightens and enforces
ments. This represents the view of the Committee of compliance requirements across the entire organization.
Sponsoring Organization of the Treadway Commission’s The rest of the components consists of control activities,
recommendations in 1992 (COSO, 2013). These policies monitoring, review, risk assessment and effective infor-
and measures are meant to validate, review processes, mation and communication (Abu-Tapanjeh, 2009,
transactions and operations to ensure compliance. Brown 2016; Wang, Chen, Chin, & Zheng, 2017). (Li,
Traditionally, external and internal auditors and audit Raman, Sun, & Wu, 2015; Sanchez-Marin, Lozano-
committees of the board contribute to quality internal Reina, Baixauli-Soler, & Lucas-Perez, 2017). Preferably,
control systems. The concept has been developed and any entity that engages these sets of traditional elements
applied globally in the form of frameworks (Brown of control could be performing preventive, detective,
2016; Engel, Hayes, & Wang, 2007; Kominis & Dudau, directive or even corrective controls, depending on the
2012; Adhikari & Gårseth-Nesbakk, 2016). The interna- judgment and understanding of the frameworks.
tionally accepted internal control model is built around According to the custodians of internal control, it is
specific components found in the COSO integrated a continuous process which should be reviewed, assessed

CONTACT Peter Yao Lartey [email protected] School of Finance and Economics, Jiangsu University, No 301 Xuefu Raod, Zhenjiang 212013,
China.
Color versions of one or more of the figures in the article can be found online at www.tandfonline.com/lpad.
© 2019 Taylor & Francis Group, LLC
2 P. Y. LARTEY ET AL.

and subject to consistent evaluation until its effectiveness right method of control to achieve specific objectives
can be guaranteed. Internal control can be effective (Axelsen, Green, & Ridley, 2017). The objective of the
this year but may not be good next year. New risks are study is to emphasize the increasing relevance of internal
emerging along with an increasing scope of responsibil- control in the public sector, using the right control tools
ities for organizations. The concept also stated that to address specific challenges in order to restore
a particular type of control could work well for one compliance.
organization, industries and sectors but may fail in a
different sector (Bajra & Čadež, 2018; Farrar,
Hausserman, & Rennie, 2018; Frecka, Griffin, & Stevens, Empirical review
2018). On the global front, internal control and internal
Compliance and financial reporting in the public
audit landscape have seen tremendous transformations
sector
with the emergence of new control and governance fra-
meworks for both public and private sectors. Many of Financial reporting objectives from a corporate business
these guidelines and rules mandate public and private perspective are quite different from the public. While the
entities to establish strong internal controls and internal CEO of a private business simply supplies investors and
audit functions (Al Qtaish, Baker, & Othman, 2014; creditors with detailed final accounts on profit and loss as
Alzeban & Gwilliam, 2014; Brown, 2016). These rules a basis for their investments decisions, the public sector
may or not be consistent with some domestic laws, due report on the basis of accountability and efficiency, to
to different political, economic and governance frame- stakeholders (Hung & Cheng, 2018). One major determi-
works that exist in different countries. Nonetheless, an nant of fulfilling this requirement is employing ethical
significant number of countries have endorsed the inter- standards and practices spelt in the laws and legislative
nal controls and public sector governance principles instruments guiding public organizations. Meanwhile,
developed by the Organization for Economic Co- accountability is the cornerstone of public accounting
operation and Development – OECD in 2004. To estab- and reporting and it is the responsibility as citizens to
lish internal controls, was originally considered as, simply demand to know how state resources were acquired and
best practices and the right thing to do. However, after spent, for example, taxes (Al Qtaish et al., 2014). Some
some decades of increasing financial fraud, misappropria- experts including Córdova, Durán, and Galindo (2014),
tions and bankruptcies relating to internal control weak- indicated the relevance of reporting as the means to
nesses, many countries globally have adopted and provide assurance on matters of efficiency, achievements
integrated internal controls and audit functions as legal and the difference between actual results and budget
frameworks guiding the operations of pubic organiza- estimates. In order to attach relevance to the content of
tions, notable examples emerged in the UK, Canada, financial reports, there should be evidence that the finan-
Australia, USA and France and still spreading throughout cial reports follow certain prescribed standards in order to
Asia, Africa and the rest of Europe (Chang, Yen, Chang, & fulfil compliance and reliability requirements (Adhikari &
Jan, 2014, Detthamrong, Chancharat, & Vithessonthi, Gårseth-Nesbakk, 2016). There are several reporting fra-
2017; Hung & Cheng, 2018). With reference to Ghana, meworks which prescribe transparency and disclosure of
reforms have been implemented to enhance internal con- financial information in an acceptable manner. The gov-
trols in the ministries, departments and agencies – MDAs, ernment of Ghana has adopted the International Public
including the district, metropolitan and municipals Sector Accounting Standards – IPSASs to guide public
assemblies, quite similar to other African countries. In sector accounting (Adhikari & Gårseth-Nesbakk, 2016;
Ghana, stakeholders rely on the internal audit agency, led Choi, Lee, & Sonu, 2013). Compliance imposes a duty
by the Auditor General to guarantee assurance of effec- on public accountants to report with evidence that the
tiveness and compliance (Brown, 2018; Brown et al., laws regulating the work are fully applied and that there
2016). Though assessment, evaluation validation and are no fraudulent acts or errors being committed, and also
monitoring are supported by the parliamentary accounts ensure that reports include full disclosure of material
committee, the Auditor General remains the custodian of information of all relevant operations (Yalkın, Demir, &
internal control principles in the public sector (King, Demir, 2008). The IPSASB standards are global account-
2016; Tackie, Marfo-Yiadom, & Achina, 2016). The ing regulations underlining the format for presenting
areas of verification cover budget and public expenditure financial statements on public entities. Although the
appropriations and controls in accordance with various guidelines according to many are complex and cumber-
laws such as the procurement Acts. Steps are still under- some, stakeholders believe it brought a lot of sanity into
way to improve and strengthen internal and inter- public accounting management and compliance
institutional controls to mitigate irregularities using the (Carmeli, 2004; Mohd-Sanusi, Khalid, & Mahir, 2015).
 INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 3

In this, regard disclosures of material events and transac- internal control procedures such as fraudulent record-
tions that will represent a true and fair fiscal position of ing can only be discovered after it has occurred. It is
public entities could be ascertained at any given time to based on this idea that many scholars prioritize pre-
inform reliable economic analyses (Wanke, Azad, & ventive controls over detective (Jimmieson, Tucker, &
Barros, 2016). Compliance and financial reform were Campbell, 2017). The most common detective controls
equally initiated by the public financial management are the reconciliation of the accounting ledgers and the
committee and the Ghana Institute of Chartered bank statements to discover discrepancies. This action
Accountants – ICA to further increase the rate of com- is closely related to the role of external and internal
pliance in public entities in the early 2000s (Chalmers, auditors’ review of the entire accounting systems and
Hay, & Khlif, 2018; Nadarajah, Ali, Liu, & Huang, 2016). operations. Traditionally, apart from identifying
The backbone of every sound economy is the ability to accounting errors and fraudulent reporting, the techni-
eliminate fraud and bad business practices in accounting que is also associated with daily compliance to stan-
for resources. Progress is required to modify the audit and dards and practically focused on daily goals and
internal control standards to be consistent with global objectives (Chang et al., 2014). A research hypothesis
standards, however, weak institutional governance has is formulated to test the above claims:
contributed to the widespread financial irregularities in
the public sector of many developing countries (Ahmi, Hypothesis (H1): There is a significant relationship
Saidin, & Abdullah, 2014; Unerman & O’Dwyer, 2004). between detective controls and quality reporting
Governments of many countries are encouraging public
institutions to revise domestic auditing standards in align-
ment with the International Organization of Supreme Preventive controls
Auditing standards – INOSAI (Brown et al., 2016; From a practical viewpoint, preventive controls are very
Kominis & Dudau, 2012). From all positive indications, critical branch of internal controls, since they are
these guidelines will guarantee a high degree of indepen- proactive tools that deter noncompliance. There are
dence to the auditor general and his staff to conduct their several ways to implement preventive controls. In
evaluation on public entities objectively. most case management may implement tough punish-
ment, relax exiting rules or motivate employees with
rewards packages, whichever way is feasible (COSO,
Key explanatory variables and hypothesis
2013). When preventive control fails it may be an
development
indication of major weaknesses in the entire control
Detective controls structure leading to deficiencies in the sub-
This type of control uncovers violators of internal controls components which will render the organization vulner-
structures within an organization after performing able to all manner of risks (Armstrong, Blouin,
a random check to validate transactions and compliance Jagolinzer, & Larcker, 2015; Bangmek, Yodbutr, &
practices. This forms the basis of the work of internal and Thanjunpong, 2018). Unauthorized access to vital
external auditors who perform reviews to ascertain quality information is a good example of preventive control
and reliability of accounting and financial events that have failure. The outcome may cause severe and irreparable
occurred within an accounting year (Bawole & Ibrahim, damage to the organization. Similarly, a study revealed
2016; Bryan, 2017; Charest, Bouffard, & Zajmovic, 2016). that the breakdown of internal control may compro-
Detective controls, from a practical point of view, refer to mise the corporate strategy with severe-associated
a control mechanism that is initiated to identify problems repercussions. Though preventive controls are superior,
and keep management informed timely about deviations in its effectiveness can only be ascertained by regular
any process or activity (Detthamrong et al., 2017; Gordon, monitoring such as validating accounting processes to
Loeb, Lucyshyn, & Sohail, 2006). In most cases, manage- intercept manipulations prior to the occurrence, which
ment experts tend to argue over whether the public sector means it functions alongside detective controls
over relies on detective controls unlike their private coun- (Arundel, Casali, & Hollanders, 2015; Brzeziński &
terparts who emphasis on preventive controls. According Bąk, 2015). The emergence of computerized systems
to Gursoy and Swanger (2007), detective controls may be of accounting processes has also lessens the work of
very effective in advance economies where the level of internal auditors. This system prompts management of
compliance is high, in that case, it could complement any possible breach within the control system, be it
preventive controls. errors, fraud or payments exceeding thresholds. Since
Detective controls investigative in nature and their preventive control is employed prior to the occurrence
not meant to prevent unforeseen events. Any breach of of errors and irregularities it is prudent for
4 P. Y. LARTEY ET AL.

management to enforce segregation of duties among standards and procedures forms part of corrective of
individuals, thus those performing related functions controls (Dang, Henry, Yin, & Vo, 2017; Ge, Koester, &
(ter Bogt & Tillema, 2016). According to Bajra and McVay, 2017). The main focus is to introduce a new
Čadež (2018), the corporate leadership may as well be approach that will appraise existing policies to match
subjected to rigorous evaluation, concerning their com- new trends of business and operations (Amore &
mitment to the control environment. Matei and Bennedsen, 2016; Meyer & Leixnering, 2015). With
Drumasu (2015), believe it is inappropriate for an indi- this type of control, financial irregularities may have
vidual performing accounting duties to process and occurred undetected however a clear communication of
authorize payments, as it constitutes a breach of management’s objectives may address the challenge and
accounting standards. Other dimensions of these con- limit the occurrence of future risks. There is another
trols involve the heads of departments verifying before dimension to this debate, Mohd-Sanusi et al. (2015),
approving purchasing requests to ensure the user believe despite the existence of specific policies and
departments are actually in need and that approval is guidelines of controls, the ideal strategy of corrective
given by only authorized persons (Horne, 2017; Tricker control could be, to adopt a system of continues
& Tricker, 2015). A recent study suggests that preven- improvement in leadership and management science
tive controls also manifest into proper documentation (Ahsan & Rahman, 2017; Cao, Li, & Zhang, 2015).
of newly purchased assets, updating existing assets reg- This is consistent with Bajra and Čadež (2018), who
ister with clear details on book values, and also confirm concluded in a study that a partnership between public
their existence and designated locations. The idea sim- and private sector entities could contribute to quality
ply suggests that an organization must be proactive in delivery of certain essential services based on shared
managing to avoid threats especially those originated compliance objectives. This, he said resulted in the
with deliberate intentions (García-Meca & widespread privatizations of public entities due to lack
García-Sánchez, 2018). Dzingai and Michael (2017), of compliance and weak controls. Caperchione,
believe preventive controls could be expensive in nature Demirag, and Grossi (2017), are among the scholars
but the positives outweigh the negatives impact. Below who argue that lack of priority to advance knowledge
is a hypothesis to estimate the relationship: management is a contributory factor to the poor per-
formance of public institutions. Gómez-Jiménez et al.
Hypothesis (H2): Preventive controls positively influ- (2018), confirms by saying that the private sector
ence financial standards and prevent errors. engages more in succession planning which includes
knowledge transfer across an organization, and this
equips everyone with the objectives and responsibilities.
Corrective controls For this purpose a hypothesis is developed to test the
The Committee of Sponsoring Organizations of the above assertions:
Treadway Commission-COSO, stated precisely the role of
management and board involve corrective actions to Hypothesis (H3): There is a significant relationship
address major setbacks after monitoring and reviews of between corrective and internal control compliance.
the systems of operation. This type of control comes
directly in the form of control activities to address pro-
blems discovered (Lawson, Muriel, & Sanders, 2017; Directive controls
Mokhtar, Elharidy, A., & Mandour, 2018). The result Directive controls refer to the establishment of desired
could be changed in training programs, introduction of guidelines that will produce favourable outcomes and
new reward systems or stiffer penalties for noncompliance. results. This type of control also guides the entity’s beha-
As the government’s financial responsibilities viour in a manner that will visualize expected results
increases, the operations are being threatened by var- based on specific policies and procedures. They are as
ious kinds of risks, aside that stakeholders are on relevant as any other type of control that comes from
demand for accountability and efficiency from public the corporate leadership where strategic decisions are
officers. Therefore, these controls are seen as formulated to guarantee the long-term sustainability of
a management tool that prevents errors and mistakes the organization (Bajra & Čadež, 2018; Ben-Hassoun,
from reoccurring in the process of accounting, admin- Aloui, & Ben-Nasr, 2018). Decisions meant to direct the
istration and reporting (Jimmieson et al., 2017). It may operations are influential enough to positively contribute
also form part of the daily routine policies to enforce to the future prospects of the organization, while manage-
compliance and influence quality performance and ment takes steps to correct and react to a significant shift
uplift general standards, mainly a review of reporting in strategic and operational deficiencies, it demands
 INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 5

caution to align all those decisions with the future out- the study to adopt a cross-sectional type. Aside this, it is
comes (Bamber, McMeeking, & Petrovic, 2018). Many challenging and time consuming to observe the change in
came into agreement that (Boţa-Avram, Adrian, the behaviour of individuals in an organization over a long
Răchişan, and Gavriletea (2018), Dimitras, Gaganis, C., period of time. It could be noted that data drawn for a cross-
and Pasiouras (2018)), excessive bureaucracy in the public sectional study could be less precise, bias and could contain
sector often metamorphoses and account for non-reactive errors (Xacur & Garrido, 2018). However, these tendencies
directive controls. In most cases when management were minimized right from administrating the survey
employs policies which work on specific instructions to instrument to the point of analysis of feedback.
achieve results but does not necessarily reflect the overall
corporate objectives, such critical decisions fall under
directives control (Axelsen et al., 2017; Bagheri, 2016). Measuring instrument
The danger associated with this type of control is most
A total of 395 structured questionnaires were answered to
decisions and policies may not be consistent with existing
respondents working in the public sector, across the minis-
control principles and as a result could be a recipe for
tries and departments located in the central business district
internal conflict. Meanwhile Amore and Bennedsen
of Accra Ghana. Questions were administered to staff and
(2016), proposed that directive controls may not work in
management to test their understanding of internal control
an environment where information and communication
compliance and implications of non-compliance to internal
are not effective believing that management would rely
control structures. We measured the questionnaire on 5
heavily on effective channels of communication to disse-
point Likert scale, rated between (5), strongly agree to (1)
minate critical strategic controls to achieve the desired
strongly disagree. The constructs were adopted from litera-
change within a period. In most cases directive control
ture and measured on a 22 item scale, to examine the
comes frequently in response to evaluation reports, details
explanatory power of the four latent variables depicted in
of rating performance against standards, benchmarked to
(Figure 1). Each variable represents a particular type of
competitors and industry leaders, since it measures results
control as shown in the conceptual framework. The choice
and outcomes (Edmonds, Smith, & Stallings, 2018).
of variables was informed by the limited amount of empirical
Directives controls are result oriented, hence does not
studies using the major types of controls, and since already
necessarily identify problems but rather implement, revoke
a vast literature discussing the main components of internal
and override ineffective ones. The hypothesis measures the
controls, more so the level of internal control weaknesses in
relationships between compliance and directive controls:
the public sector remains a cause for concern. The signifi-
cance of the study is found in COSO (2013), where it
Hypothesis (H4): Directive controls positively influ-
emphases that the internal control changes over time and
ences compliance and ethical practices
its effectiveness is a matter of continuous assessment.
This research framework adopted will be used to per-
form a confirmatory, reliable structural equation model-
ling – SEM, to visualize relationships, and minimize the
Research methodology
error in the model which represent the difference between
The study provides evidence in the context of Ghana and the real value and the predictor value (Block, Miller, &
determined to emphasize on the explanatory power of the Wagner, 2014; Francq & Govaerts, 2014).
constructs. A longitudinal research could have been appro- The sample size was decided based on a number of
priate enough to observe the steady variations over-time, factors, such a selected observation that will provide reli-
however, time limitation and cost implication compelled able statistical projections representing the entire

Figure 1. Research framework.

6 P. Y. LARTEY ET AL.

population. A bigger sample could provide a more precise were measured as well as the degrees of freedom. (Xacur
estimation, however the study relied on the assumption & Garrido, 2018). In principle, the regression model can be
proposed by Davis (1993), who prescribed between 200 written as:
and 400 as an acceptable range suitable for any statistical
rSDdy
inference using paths and regression as well as confirma- Y ¼ a þ bX; ¼ a ¼ Y  bx
SDx
tory factor analysis involving multiple latent variables.
This is consistent with Bentler (1990), who proposed 50
or more, for the measurement variable, a rule that is The model is traditionally linear, given each sample
widely practised. Overall this study considered 22 mea- n, and value of Yn. The coefficients of β will explain the
surement items to be used to measure the model and the impacts of the latent variables on compliance and while
five constructs. Though there are other variables that minimizing the errors associated by each sample n in
influence compliance, they were left outside the scope of the observation (Jöreskog, 1993). X1 represents the
this study and were held constant during the period of the K explanatory variables and Y is the dependent variable
study. Out of the total number of 450 survey instruments (Xacur & Garrido, 2018).
administered, 395 valid responses were received and con- X
k
sidered acceptable for performing a path analysis. The Yn ¼ βiXni þ εn
study used Amos and SPSS version 22, to perform the i¼0
analysis. The main techniques include a confirmatory The slope of the line of best of fit can be expressed by
factor analysis which determines the data dimension the using the formula: Slope =
and explanatory estimates, then the regression weights
ðNΣXY Þ  ðΣN ÞðΣN ÞðΣY ÞÞ
and goodness of fit for both latent and measurement Slope ¼
items for each construct. Cronbach (1951)’s reliability ðNΣX2  ðΣXÞ2
test was applied to ascertain the acceptable criteria, b = represents the slope of the regression curve.
which is ideally 0.7 and above. Table 1, reports a positive a = represents point of interception in the regression
reliability loadings for each construct, implying that the and y-axis.
criteria is met, pending further empirical analysis. Ӯ = represents means of the y variable (dependent
The structural approach works on same assumptions variable – Compliance)
underlining the Generalized Linear Models and multivari- SDx = represents the standard deviation of the
ate analysis, which estimates linear relationships and mea- X (Preventive, Detective, Corrective and Directive
sures the degree of association between constructs. controls)
McDonald and Marsh (1990), earlier studies emphasize SDXy = represents standards deviation in
that the models could predict accurately with minimal y (compliance)
errors. GLMs are built with several classes of regression
models with a robust capacity to handle a vast category of
the dataset; such as categorical data, binary values, con-
Empirical results
tinues data and proportional distributions. The GLMs can
be expressed as; (1) … ……. E(Y) = μ = g−1(Xβ), the Confirmatory factor analysis
variation can be determined by expression; (2) … … … The CFA technique aims at testing the factor structures
VarY = V (μ) = V (g−1(Xβ). E(Y) represents the expected to confirm the relationship between the target variable
variation in the target variable while Xβ represents the (compliance) and the independent constructs based on
predictors which possess the unknown parameters with the underlined hypothesis linking the latent variables to
coefficients β. In the equation, g stands for the link func- the observed variable. With the use of factor analysis, we
tions in the model. The model by implication relies on the could determine the direction and dimensionality of the
inbuilt error term of associated regression models (Xacur & data set relative to the influence of the explanatory vari-
Garrido, 2018). The Regression Weights among groups ables, and also observe outcome and variance relating to
each factor. The researcher’s judgement, interpretations
Table 1. Cronbach's alpha reliability test. Acceptable
and inferential analysis are based on a set of criteria
thr eshold = 0.70%. proposed by earlier scholars (see Table 2), whose find-
Constructs Threshold ings are still considered relevant assumptions underlin-
Preventive control 0.87 ing the application of confirmatory factor analysis,
Detective Control 0.72 regression weights, goodness of fit and many other mea-
Corrective Control 0.82
Directive Control 0.79 suring criteria. The model fitness is tested using five
Compliance 0.89 indicators benchmarked with the overall model score.
 INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 7

Table 2. Goodness fit = (Y2/df = 1/3), CFI = (0.90/0.95), SRMS = (0.08), RMSEA = (0.06), Pclose = (0.05), AGFI = (0.90).
Indices criteria Model result DetC(DetC) Prev(PrvC) 8 values Source of measurement
DFF/CMIN Below < 1/3 1.495 1.165 0.124 0.000 (McDonald & Marsh, 1990)
CFI Index Above ≥ 0.90/95 0.934 1.000 1.000 0.002 (Bentler & Bonett, 1980)
SRMS Below ≤ 0.08 0.700 0.005 0.006 0.001 (Jöreskog, 1993)
RMSEA Below ≤ 0.06 0.122 0.000 0.000 0.011 (Steiger, 1990)
PCLOSE Above > 0.05 0.000 0.758 0.987 0.021 (Davis, 1993)
AGFI Less than< 0.90 0.897

Jöreskog (1993), fixed the criteria for Y2/Dff at (1 and 3), theory as well. By implication, it explains the complex
while our model measured significant at (Y2/Dff interrelationships among the latent variables and how
<1.165). Next is the Comparative Fit Index (CFI). positive they can influence the endogenous variable,
Bentler (1990), recommended (CFI< 0.90 or 0.95), but thus compliance.
when compared to (CFI < 0.934), it implies that the
model is fit .The study reported on other fit indices Regression weights
such as the Standardized Root Mean Square Residual Evidence from Table 3, illustrates the level of influence
(SRMS <0.70), a criterion cited in Jöreskog (1993), stat- estimated by the model according to four parameters.
ing (SRMS < 0.80). Other thresholds include; Steiger The initial-unstandardized estimates produced positive
(1990) ‘ Root Mean Square Error Approximation criteria likelihoods to supplement the structural paths; how-
(RMSEA <0.06), and Davis (1993) ‘s Pclose <0.05 cri- ever, since that is not the priority, the analysis is
teria. We find it necessary to report on the Adjusted centred on the critical ratio, p-values and how the
Goodness Fit (AGFI < 0.897), which is also a relevant standardized errors affected some latent variables nega-
determinant of the model fitness. tively, in other words, caused a minimum variance in
In compliance with the goodness fit standards, it some constructs. Each observed variable linked to the
could be concluded that all the fitness indices meet the latent variables is very significant, giving way to
acceptance requirements, implying that the result could a marginal structural error term, which accounted for
be relied upon to inform decisions concerning the type a smaller unexplained variation in the model. It can
of control that could influence compliance most. A CFA also be noted that the constructs with higher error
test was performed to confirm the relative influence of terms had a negative effect or lower standardized esti-
the two most dominant variables, thus preventive and mates across the model.
detective controls. The outcome can be seen in (Table 2), The critical ratios (CR) can be taken as the estimates
where both constructs satisfactorily produced positives divided by the error term, CR 5.653 > 1.96 and it is
estimates which correspond to highly significant p values significant at 0.000 < 0.05. More importantly, Table 4,
less the 0.05. It could be implied that these values con- also explains the covariance between the constructs, for
tribute to the total variance explained by the model and example, DireC2 < – DireC recorded estimate of 0.926,
its efficient predictive power, in other words, the struc- an SE of 0.049 and a CR of 18.888, which are all
tural model is significant and the constructs significantly significant at p value < .000, and less than 0.05.
explained compliance. Apart from, Compl < – DetC path structure, which
A further confirmation can be seen in Figure 2, had an insignificant relationship, it could be inferred
looking at the structural paths estimates. There were that all the structural paths between the exogenous
no violation of the assumptions of the validity of the variables and the endogenous latent variables seem to
model fitness, in fact, all the indicator loadings are be very significant. Among the highly significant vari-
less than 1. The likelihood estimates of the structural ables that caused a direct effect on compliance could
paths remain significant across all latent variables. It be visualized looking the probability of having critical
implies that the hypothesized model significantly ratios such as 5.653, 3.312, 19.360, and 18.792 as
explains the causal effects on the dependent variable, absolute values falling below 0.005%. Statistically,
and based on this, the structural model can be said to this result means that the regression weight output
be close to a perfect model, considering the accuracy for preventive, detective, corrective and directive con-
of prediction and the significant influence by the trols conveys a positive signal, these types of controls
constructs (i.e. preventive, detective, directive and are good determinants of compliance. Significantly
corrective controls), estimated in the regression the prediction is different from 0 at confidence level
result. It could be inferred from Figure 2, that the 0.005, and on this note, the null hypothesis may be
model significantly supports the data set and fits the rejected.
8 P. Y. LARTEY ET AL.

Standardized regression weights public sector, there would be a significant impact on

The regression weights are represented along the indic- performance. Overall, the model has demonstrated that
tor paths Figure 2, they illustrate the standardized esti- internal control is a good predictor of performance,
mates which is also considered the regression hence the theory is relevant and could bring assurance
coefficients that determine the fate of the null hypoth- of achieving transparency and efficiency and restore
esis. The estimates produced positive coefficients ethical practices in public organizations. This relation-
implying that the types of control considered in this ship is expressed using the likelihood function L(π),
study would positively influence compliance. Even the drawn from the Generalized linear models;
covariance indices technically support the rejection of Statistically, it could be concluded that, based on
the null hypothesis and significant at 0.001 level. From the goodness of fit indices, the model has satisfacto-
Table 3, compliance will be influenced positively by rily measured the target variable and produced
directive controls at (β 0.232). Corrective control will a positive output as a result of the high percentage
positively influence compliance at (β 0.122), while pre- variance and relative degrees of freedom for all
ventive will multiply compliance at (β 0.610). Detective respective variables. On the other hand, the error
control is among the highly influential factors, and by term registered by the model could be associated
implication, the independent constructs have with the other factors and element, not considered
a substantial influence and positive relationship with in this study. However, the unexplained variance
internal control compliance, hence, if enforced in the remains marginal.

Figure 2. Confirmatory factor analysis.

 INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 9

Table 3. Critical ratio (CR)/SE/P values. Seghezza, 2018). Today, a good number of management
Estimate S.E. C.R. P Label literature is focused on control mechanisms meant to
Compl < – DireC .319 .056 5.653 *** par_22 satisfy the two major concerns of public organizations
Compl < – CorrC .210 .064 3.312 *** par_23
Compl < – DetC .055 .049 1.124 .261 par_24 thus, accountability and efficiency (Georgescu, 2013).
Compl < – PrevC 1.000 At the same time, new dimensions have emerged,
DireC1 < – DireC 1.000
DireC2 < – DireC .926 .049 18.888 *** par_1 focusing the need to intensify compliance by working
DireC3 < – DireC .780 .047 16.612 *** par_2 within certain frameworks to complement the tradi-
DireC4 < – DireC .881 .050 17.651 *** par_3
DireC5 < – DireC 1.069 .053 20.074 *** par_4 tional controls and other legal constitutional guidelines
CorrC1 < – CorrC 1.000 (Facchini & Seghezza, 2018).
CorrC2 < – CorrC 1.203 .062 19.368 *** par_5
CorrC3 < – CorrC 1.212 .064 18.791 *** par_6 All controls work on similar assumptions that seek
CorrC4 < – CorrC 1.071 .062 17.360 *** par_7
DetC1 < – DetC 1.000
to guarantee effectiveness in the operations of an entity.
DetC2 < – DetC 1.047 .061 17.055 *** par_8 This is similar to the responsibility of the Public Sector
DetC3 < – DetC .646 .047 13.662 *** par_9
DetC4 < – DetC .709 .052 13.569 *** par_10 Reform Secretariat-PSRS establish by the government
PrevC2 < – PrevC 1.000 of Ghana to supervise financial management across the
PrevC3 < – PrevC 1.129 .052 21.797 *** par_11
PrevC4 < – PrevC 1.196 .053 22.577 *** par_12 public sector and conduct evaluations and solicit for
Compl3 < – Compl .762 .031 24.387 *** par_13 innovative measures to improve government activities
Compl2 < – Compl .811 .035 23.240 *** par_14
Compl1 < – Compl 1.000 (Antwi & Phillips, 2013). Though the strategy could not
Compl4 < – Compl .795 .031 25.783 *** par_15 meet satisfactory results, it contributed to strengthen
Compl5 < – Compl .820 .032 25.861 *** par_25
PrevC1 < – PrevC .888 .071 12.555 *** par_27 compliance in the public sector. Many associated the
failure of such a good reform to lack of effective colla-
boration between member institutions, leaving internal
Table 4. Standardized regression weights. control vulnerable among public organizations.
Supported/ Policymakers at the time failed to visualize certain
Estimate unsupported
Compl < – DireC .232 Supported
limitations associated with the control devices; thus,;
uCompl < – CorrC .122 Supported inability to prevent unexpected events such as account-
Compl < – DetC .041 Supported
Compl < – PrevC .610 Supported
ing fraud and the lack of a robust public accounting
DireC1 < – DireC .795 Supported information system and weaknesses in the budgetary
DireC2 < – DireC .819 Supported
DireC3 < – DireC .739 Supported controls (Batuo, Mlambo, & Asongu, 2018). Public
DireC4 < – DireC .776 Supported organizations required a new set of techniques to man-
DireC5 < – DireC .861 Supported
CorrC1 < – CorrC .704 Supported age the impacts of imperfections in the control struc-
CorrC2 < – CorrC .959 Supported tures or rely on the traditional control devices but
CorrC3 < – CorrC .921 Supported
CorrC4 < – CorrC .848 Supported adopt a new approach (Fu, 2018). Subsequently, the
DetC1 < – DetC .795 Supported pressing desire for the public sector to improve com-
DetC2 < – DetC .959 Supported
DetC3 < – DetC .617 Supported pliance to equate the increasing demand for account-
DetC4 < – DetC .613 Supported ability compelled governments across different
PrevC2 < – PrevC .841 Supported
PrevC3 < – PrevC .839 Supported jurisdictions to rapidly develop control instruments
PrevC4 < – PrevC .860 Supported and frameworks to prevent, instead of over rely on
Compl3 < – Compl .885 Supported
Compl2 < – Compl .860 Supported detective controls (Frecka et al., 2018).
Compl1 < – Compl .810 Supported In France, research had taken note of the rapid reforms
Compl4 < – Compl .913 Supported
Compl5 < – Compl .914 Supported implemented in the early ’70s which initially faced sig-
PrevC1 < – PrevC .563 Supported nificant challenges. However, the French approached
public financial reporting and compliance by introducing
what is termed as the New Public Management – NPM
Discussion and emerging issues
(Bezes et al., 2012). It was a method of optimizing effec-
In the early seventies, public corporations initiated tiveness in operations of public entities without compro-
a series of controls which predominantly, originated mising on the responsibility to meet the demands for
from the private sector (Unerman & O’Dwyer, 2004). accountability (Grohmann, Klühs, & Menkhoff, 2018).
Arguably, the increasing concerns regarding weak During this period, the United States, Canada and
accounting controls could also be traced back to the Europe saw the need for the involvement of the private
early 19th century, and during that time, the private sector to ensure proper checks and balances and direct
sector was up with positive initiatives meant to increase appropriate sanctions to individuals for non-compliance
performance, while the same initiatives were tested in to financial regulations according to guidelines in the
the public sector but for different reasons (Facchini & Organization for Economic Co-operation and
10 P. Y. LARTEY ET AL.

Development – OECD, founded in 1961 in France and on the most effective type of control that will improve
the Sarbanes Oxley Act of 2002, which is also referred to compliance to ethical accounting practices in the public
as the Public Company Accounting Reform and Investor sector, preventive controls may be the most suitable
Protection Act (Gómez-Jiménez et al., 2018; Salas- (see Table 2 & Figure 2). Preventive controls, according
Velasco, 2018; Sanchez-Marin et al., 2017). to studies are cost effective, proactive, timely and very
Some credible sources noted that, early compliance convenient but requires less resources to sustain com-
reforms in the UK were inspired by setting remunerations pliance (Bryan, 2017). In a survey findings on the bank-
of public officials in accordance with performance, ing sector of Ghana by PricewaterhouseCoopers, it was
a condition that would offset any breach of financial reg- indicated that the most preferred operational and
ulation with the financial benefits and entitlements of pub- financial reporting efficiency strategies of banks have
lic officials as a preventive control (Bellavite Pellegrini, been decentralization of controls, to minimize the
Meoli, & Urga, 2017; Ghafran & O’Sullivan, 2017). This occurrence of risk and improve monitoring at the
could be a practical example of preventive control that branch levels; meanwhile, about 76% of the 34 banks
policymakers in Ghana and other developing economies believe risk management and internal controls are very
could consider. The main objectives of internal control are difficult to sustain (Boadi, Dana, Mertens, & Mensah,
to achieve organizational objectives in line with standards 2017; PwC, 2018). Most respondents in the banking
and limit activities within legal frameworks, hence policies survey see risk and internal controls are critical mea-
meant to align public entities to the enterprising character- sures to enhance performance, however, the responses
istic of the private sector are worth pursuing (Chen & Liu, gathered from the management and board suggests
2018; Jill & Houmes, 2014). Dilling and Harris (2018) . The a rather low commitment. From the scales of 0% to
study underscores the importance of public entities operat- 14%, the banks’ commitment to internal audit was 6%,
ing on similar competitive drivers as their counterparts in financial accounting 6%, compliance 8%, information
the private sector. This approach will better place the public technology 11% and risk management 12% (PwC,
on the same efficiency level with the private sector. 2018). It is evident that general compliance levels are
low in both private and public sectors, compared to
other performance indicators such as risk management.
Conclusion
However, aligning controls to technology-driven activ-
This study elaborates on a major managerial concern ities and operations is quite remarkable.
facing public and private organizations, using Ghana as It could be implied that preventive controls stop
the unit of study, and citing few examples of past errors from occurring in the books of accounts and
reforms in some advanced economies, under the dis- enhances quality reporting and compliance, in the
cussion section. The outcome of this study is also useful same vein, these controls can provide negative out-
to the banking sector of Ghana, where as a result of comes when applied wrongly, in that case, preventive
emerging risks, banks are facing supervisory challenges controls require the support of detective controls to
in coping with the increasing scale of operations function effectively. Meanwhile, the cost of implement-
(Caperchione et al., 2017). We focused on the types of ing any type of control should not exceed its benefits.
controls thus, preventive, detective, corrective and
directive controls, while previous studies extensively
Funding
examined the traditional components of internal con-
trols thus, control activities, control environment, mon- This work was supported by the National Natural Science
itoring, review and information and communication, to Foundation of China [7137108].
address control deficiencies (Hu, 2018; Kong Yusheng,
Maci, & Biswas, 2018) .
A perfect application of this concept depends on the ORCID
researcher’s understanding and judgement, hence, we Peter Yao Lartey http://orcid.org/0000-0002-8568-6552
integrated the components of controls to form the four Yusheng Kong http://orcid.org/0000-0002-7358-6482
main categories, in order to determine the general
influence by each category, since each control element
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