Significance of Managerial Monitoring Efficacy on Principalagent Monitoring Outcomes in Tanzania District Councils

Abstract

The purpose of this study is to find out whether control and monitoring
effectiveness in an entity has any significance on external audit reporting
outcome. This study used 475 yearly observations from 95 district councils from
2011 to 2015. Data were analysed in a panel model that controls for time
specific factors. This study found that when internal monitoring mechanisms are
effective, they can predict the likelihood of an entity to receive a clean
(qualified) audit opinion at 82 percent accuracy. Results further showed that
effectiveness of control environment is very important if we take it alone or when
it becomes effective in absence of an ineffective internal audit. However, there
was no enough statistical significance on the direct effect of risk management or
fraud prevention controls. Also, managers should plan and implement all
controls to maximize possibility of getting a clean (unqualified) audit opinion in
order to secure their positions. External auditors, on the other hand, should
continue emphasizing on importance of internal monitoring and report any
weakness if they find. They may encourage clients to at least strengthen control
environment in case it happens that the internal audit is weak.

Key words: governance, agency theory, local government, Tanzania