Board audit committee support, Chief executive officers’ openness, Internal auditors’ moral courage, and effectiveness of internal auditors in financial institutions in Uganda

Abstract

Internal auditors’ effectiveness (IAE) is critical to preventing and detecting risks such as fraud. Despite the presence of internal auditors, fraud persists in Ugandan financial institutions. Existing research suggests that board audit committee support (ACS) influences internal auditors’ effectiveness. However, support-employee outcome findings are often mixed, suggesting the need to explore mediators and moderators. The general objective of this study is to investigate the effects of audit committee support (ACS) and CEO openness on internal auditors’ effectiveness directly and through internal auditors' moral courage to speak up about ethical issues (MC), and the moderating effect of CEO openness in the ACS-IAE relationship. The specific research objectives were to examine the effects of ACS on IAE, ACS on MC, MC on IAE, the mediating effect of MC in the ACS-IAE link, CEO openness on IAE, CEO openness on MC, the mediating effect of MC in the CEO openness-IAE link, and the moderating influence of CEO openness in the ACS-IAE link. A positivist paradigm underpins this study using an explanatory quantitative research design. Agency, social power, and upper-echelon theories grounded the study. A sample of 135 out of a population of 203 internal auditors in financial institutions in Uganda was randomly selected through multistage sampling. Primary data were collected using a structured questionnaire from 128 internal auditors. The hypotheses were tested using structural equation path modelling. The study findings indicated a positive relationship among the following variables: ACS and IAE (β=0.520; t =6.793; P < 0.01); ACS and MC (β=0.56; t = 10.981; P < 0.01); and total effect of CEO openness on IAE (β = 0.193; t =2.935; P< 0.05; MC and IAE (β=0.483; t =6; P < 0.01); ACS*CEO openness and IAE (β=0.297; t =2.744; P < 0.01). ACS affects IAE directly and indirectly through MC while CEO openness affects IAE on through MC since the direct effect of CEO openness on IAE was insignificant. Conclusively, audit committee support and CEO openness influence internal auditors' moral courage and, ultimately, internal audit effectiveness. Additionally, CEO openness moderates the audit committee support-internal audit effectiveness link such that the board audit committee support-internal audit effectiveness effect is higher with more open CEOs. Theoretical contributions include demonstrating internal auditors' moral courage as a mediator; CEO openness as a predictor of internal auditors' moral courage and, ultimately, internal audit effectiveness, and as a moderator; the wider application of the upper-echelon theory that posits that effectiveness in organisations reflects CEOs ‘values; and the power- dependence theory of responses to whistleblowing, which posits that whistleblowers are likely to be more effective when supported by superiors. Policymakers and regulators should encourage openness, courageous behaviour, and caring boards. In addition, board support for internal auditors. Country-specific regulations and cultures may limit this study’s generalization; thus, comparative studies are recommended