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Determinants and Consequences of Internal Audit Functions within Colleges and Universities

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  • Steven DeSimone

    (Department of Economics and Accounting, College of the Holy Cross)

  • Kevin Rich

    (Marquette University)

Abstract

Using a combination of publicly available and hand-collected data, this paper uses a two-stage model to first examine what drives the presence and use of internal audit functions (IAFs) at U.S. colleges and universities, and then how IAFs influence financial reporting quality (reported material weaknesses in internal controls for financial statements and federal programs) and grant outcomes therein. Results indicate that institutions receiving public funding, those with larger enrollments and endowments, and those that maintain a hospital and audit committee are more likely to maintain an IAF. Findings also suggest that the presence of an IAF is negatively associated with reported material weaknesses for major programs at significant levels. Finally, the presence of an IAF is found to have a positive and significant association with federal grants received by the institution. The study’s findings provide the first quantitative insights on IAF work within U.S. colleges and universities. Results should be of interest to college/university leadership as they attempt to improve financial reporting quality and transparency, as well as grant outcomes.

Suggested Citation

  • Steven DeSimone & Kevin Rich, 2019. "Determinants and Consequences of Internal Audit Functions within Colleges and Universities," Working Papers 1904, College of the Holy Cross, Department of Economics.
  • Handle: RePEc:hcx:wpaper:1904
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    File URL: https://hcapps.holycross.edu/hcs/RePEc/hcx/HC1904-DeSimone-Rich_IAFUniversities.pdf
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    References listed on IDEAS

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    1. Douglas F. Prawitt & Nathan Y. Sharp & David A. Wood, 2012. "Internal Audit Outsourcing and the Risk of Misleading or Fraudulent Financial Reporting: Did Sarbanes†Oxley Get It Wrong?," Contemporary Accounting Research, John Wiley & Sons, vol. 29(4), pages 1109-1136, December.
    2. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    3. Steven DeSimone, 2018. "Internal Audit and Financial Reporting Quality in the Public Sector," Working Papers 1802, College of the Holy Cross, Department of Economics.
    4. Gordon, Teresa & Fischer, Mary & Malone, David & Tower, Greg, 2002. "A comparative empirical examination of extent of disclosure by private and public colleges and universities in the United States," Journal of Accounting and Public Policy, Elsevier, vol. 21(3), pages 235-275.
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    Cited by:

    1. Abiodun Omidiji & Nives Botica Redmayne & Dimu Ehalaiye & Ernest Gyapong, 2024. "Internal audit in microfinance institutions‐ evidence from transitional and developing economies," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(1), pages 109-141, January.
    2. Larisa V. Iureva, Margarita S. Marfitsyna, 2024. "Assessing the Effectiveness of the Internal Control System of Russian Universities," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 23(2), pages 551-573.

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    More about this item

    Keywords

    Internal auditing; colleges and universities; financial reporting quality; material weaknesses; grants;
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