Is Auditing Worth the Effort? The Impact of Internal Auditing on Local Fiscal Outcomes

Abstract Internal auditing systems are aimed to provide independent and objective assessments regarding decisions, processes, and procedures and to identify barriers to organizational effectiveness. While research has shown that such systems indeed achieve their goals, it is unclear whether such effective auditing systems and also efficient. The current study aimed to deal with this gap and investigated the contribution of effective internal auditing to local governments' fiscal outcomes and the factors that exacerbate or attenuate this relationship. We empirically tested our model in the Israeli local government setting using multi-source data from 644 employees, 277 managers, and 68 auditors in 68 local authorities. Our results generally support a relationship between several indicators of the effectiveness of internal audits and the local fiscal outcomes of the authorities as measured by self-income and collection efficiency ratios. Moreover, the extent to which the local authority's employees regarded their workplace as open to change and as suffering from organizational politics moderated this relationship. Theoretical and policy-related contributions are discussed.