The Relationship Between Audit Committee Effectiveness And Risk Management Practices In The Public Sector (A Case Study Of The Government Ministries In Kenya)

Abstract

The motive of public sector enterprises is driven by the desire to deliver services that are of benefit to the larger public- an interest that is largely considered social as opposed to commercial motive of maximizing profits. In so doing, the enterprises encounter risks that are either external or internal. Important aspects that determine the achievement of these motives successfully is the ability of an enterprise to predict risk as well as managing these risks. An enterprise therefore employs various control tools to manage these risks. A popular control is use of internal audit function that helps in the management of risks of the different functions of an enterprise including financial, legal, operations and regulatory risks. The internal audit also has an added value of aiding in formulation of strategic policies that consequently lead to achieving the goals set by the enterprise. The audit committee is mandated to advise the board on matters regarding risk management, governance and internal controls in place. The audit committee plays the role of ensuring the public sector adopt sound risk management practices, however they are faced with various challenges that could hinder their effectiveness. This study aims to find out the relationship between the effectiveness of audit committees and the risk management practices in the public sector enterprises.The researcher will use the following objectives to guide the study to its completion: committee independence, number of meetings and member’s financial expertise to determine the relationship of the audit committee’s effectiveness to the risk management practises in the Kenyan Public Sector. The study used a descriptive research design. The target population was all the members of the audit committees in the 22 government ministries. Comprehensive sample of 132 respondents was purposively selected to participate in the study. This was be generated by sampling all the six members of each audit committee in the 22 ministries. Primary data was be used in this study and collected using questionnaires. The questionnaires were administered to the selected audit committee members and analysed using SPSS software version 21. Data was analysed and presented in tables and figures. The identity of the respondents to the questionnaire was kept confidential for security purposes and to motivate openness. The study findings will enable future scholars to make reference on the subject matter and provide recommendations on ways of strengthening audit committees in the public sector entities and thus improve risk management. Results indicated that the rate of meetings of the committee, independence and financial expertise influenced risk management practices in the public sector. Correlation and regression results indicated a positive and statistically significant association between audit committee meetings, audit committee independence and audit committee members financial expertise. The findings indicate that when all factors are held contacts and there is no audit committee, the risk management practises in the public sector will decrease. On the other hand, an increase in the frequency of the committee meetings affected the risk management practices in the public sector positively while any change in the independence of the audit committee affects the risk management practices negatively. Where the members of the audit committee have financial expertise, the risk management practices in the public sector are affected positively. It was recommended that the government should ensure that the audit committees meet regularly; members have financial expertise and their independent be upheld at all times so as to enhance the risk management practices in the public sector. The study has also recommended further research in other public entities such as parastatals.