Keywords

1 Introduction and Background of Research

Under greater scrutiny and facing demands from taxpayers and voters for more transparency and accountability in public governance, governments have gradually adopted various forms of corporate governance practices, models, and mechanisms in public organizations through legislative changes and provisions [1]. The aim of the reforms is to increase public organizations’ performance and efficiency, to provide value and confidence in their social and economic transactions [2] and build a climate of trust [3]. Trusting relationships are crucial for transparency and disclosure of reliable information and enhance confidence in public policies [4].

Public organizations are usually perceived as serving the public interest because their benefits extend to society. There is an implicit “social contract” that balances citizens’ support through taxation and public policy in exchange for maximizing social welfare. Citizens are the stakeholders of public organizations to whom governments and civil servants pay a social dividend through the services they provide [5]. Therefore, they expect from them to serve the public interest with fairness, contributing to the efficient and effective functioning of the state, economic growth, and sustainable social development.

Public governance should ensure the credibility of the administration system, focusing mainly on accountability, transparency, and integrity, as public organizations are responsible for the management of financial and human resources and the quality of their services [6, 7]. Integrity refers to honest and reliable management; transparency refers to unrestricted access and timely information about governance’s decisions; and accountability refers to their obligations to manage public resources properly [8]. Accountability is tied new public management, and the adoption of corporate governance principles in public sector [9]. It is a key component and the symbol of good governance and is critical to economic development [10]. Citizens need full access to information to be able to assess public governance performance. So, transparency is a precondition for accountability [11]. Reliable information on the outcome of policies is the key for public organizations’ legitimacy, funding, and competitiveness and contributes to the quality of the decision-making process and their performance [12].

In the context of the recent reforms of the public governance, universities are considered as social organizations. The goal is to implement new business-oriented management strategies in universities to transform them into more inventive, flexible, and innovative entities [13]. Implementing tools for monitoring and supervision is important in universities’ governance framework, as they enhance the transparency of their activities and outcomes [12]. Audit activities encourage academic organizations to maintain and enhance their financial sufficiency and the financial viability of their sustainability. They contribute significantly to their efforts to improve their performance and increase their organizational quality [14].

The aim of the present paper is to present a theoretical analysis on how internal audit can influence universities’ reliability and performance.

2 Methodological Considerations

Since the paper provides a theoretical analysis, it refers to the study and evaluation of the relevant literature. Keywords including “governance”, “corporate governance”, “university governance”, “internal audit” were searched in the well know data bases Google Scholar and Scopus, to retrieve the relevant literature. Subsequently, the papers with the highest relevance to the subject of this research were selected to be analyzed. More specifically, out of 150 papers initially selected, 33 papers were finally used since they met the criterion of relevance with the paper’s core concepts referring to internal audit in universities and to universities’ performance.

3 University Governance and Performance

Academic organizations influence the progress of society and contribute to its economic development [15]. Social welfare is achieved by producing a skilled workforce, which take part to a country’s economic growth [16]. The state provides the needs of universities, universities provide the needs of society, and the high value of knowledge provides the needs to transform them into demanding and competitive enterprises [17].

Universities form a complex puzzle of market factors, government activities, and public funding. Their regulatory and organizational framework is determined by national legislation, but their management is determined by market rules due to high competition among them. They are nonprofit in nature and are also subject to influences from factors outside the market or not connected to the business world. Social and political influences, legal requirements and obligations comprise a nonmarket environment that affects and determines their performance [18]. Their governance is directly linked to their social responsibility, considering their social dimensions and the strengthening of accountability [19]. The degree of societal accountability and transparency determines the level of delivering public assurance about the quality of their performance [20]. So, university governance should ensure a closer alignment of higher education with societal objectives and contribute to the realization of social development.

University performance is multidimensional and can be defined in many ways. The principal measures to evaluate university performance are teaching and academic quality (teaching and academic performance), research quality (research performance), and financial viability for its sustainability (financial performance). Regarding financial performance, universities are nonprofit organizations and their performance criteria such as profit, return on assets, and return on investment are inadequate. Universities’ sustainability is a condition that must be satisfied to obtain quality organizations. Fundings initially stabilize the financial sustainability of universities, particularly those that face great fiscal risk, and, by extension, their sustainability [21]. So, university performance is closely tied to the organization’s funding as it is allowed to receive funding in return for full commitment to fulfill several concrete objectives. Many countries, such as Australia, Austria, Canada, Denmark, Finland, Germany, Ireland, Netherlands, and Scotland, have implemented performance contracts [21].

Efficient university governance plays the most important role in improving performance since it ensures financial sufficiency for the promotion of research and scientific programs, for the upgrading of educational infrastructures, and for the implementation of new innovative teaching methods [22].

4 University Governance and Internal Audit Services Cases

The race of a higher position in the world ranking of best universities, the increasing competition in research and academic education, and the acquisition of higher quality students and academics, create a particularly vulnerable and competitive environment. During the last decade, sudden and unexpected changes in the economy limited public resources, and university revenues derived from public funding, which led to a reduction in “academic investments.” Since then, universities have made a special effort to find out other sources of funding by trying to increase their overall income and provide high-quality services [23]. They seek to exploit new sources of income, such as income from intellectual property rights, professional postgraduate programs, and the rental of university facilities, to acquire funds to invest in upgrading research and academic education. They have started to become “entrepreneurial universities” and are organized and managed as businesses by adopting and implementing corporate governance principles such as internal audit activities.

According to Schneider and Meins [24] the most significant indicators of university sustainability governance is their strategy, their organization, the procedures applied, the influence of external factors and internal audit activities. Ineffective internal control system, inadequate procedures and audit activities have a negative impact on viability, organizational quality, and performance [25].

In the universities of the USA, the top leadership applies “corporate managerialism approach”, focused on enhanced internal audit activities, monitoring and supervision mechanisms, particularly related to financial system and grant processes, since they provide assurance about the quality of financial reports and federal grants outcomes [26].

In Italy, national governments have put pressure on universities to control their budgets, to use their resources more effectively and to steer their policies closely in line with corporate governance principles. Universities are required to be publicly accountable and to demonstrate value for money in teaching and research. Audit activities are focused more on the examination of the way universities conduct business to fulfill their objectives [27].

In Romanian universities, internal audit activities are focused on accounting system to ensure reliability. University leaders have more interest to provide reasonable assurance about the economic transactions regarding their compliance with laws and regulations in forced and less on system performance [28].

Federal government in Nigeria is the sole funder of universities and is expects from them to increase the quality of their services and their performance. The implementation of internal audit activities has reduced information asymmetry during decision making and ensured reliability of the financial reporting process [29].

In Ethiopian public universities, there was a great need to build a well committed human resource of high integrity and responsibility to adhere to internal audit activities. Risk management process and audit activities protect the financial resources of the universities by reducing the probability of a particular loss [30].

Public universities in Indonesia, imply internal audit activities, since these activities have a positive impact on decision making process, and on human and financial resources management. Cases of fraud and corruption appear due to the ineffectiveness of internal control system [31].

In Greece, all public organizations, including universities, that their budget is more than three million euros, are obligated to implement the internal audit activities. Subsequently, Law 4270/2014 and Law 4622/2019 provided the universal implementation of audit activities to all public entities that manage public money. However, in the annual report of the Court of Auditors for the year 2019, after financial and compliance audits were carried out, it is confirmed that in eight universities, the internal audit function was not implemented. Law 4957/2022 concerning the reform of higher education explicitly mentions the implementation of the internal audit function, and the Ministry of Education forced universities to fulfill their obligations without further delay. Finally, all universities established internal audit unit until December 31, 2022. The end of the year was the deadline, to comply with the legislative provisions. Before December 2022, only nine (9) organizations had set up internal audit unit, six (6) of them were even partially staffed and four (4) of them imply internal audit function.

5 Discussion and Conclusion

University governance reflects the way they are governed in a given political, social and economic context. It is a complex puzzle that encompasses structures, processes, functional framework, specific characteristics of each organization and relationship among decision making bodies, through which universities policies are developed, implemented, and reviewed. Over the last years, universities have been under a continuous pressure of changing the way of operations and their strategic vision and apply corporate governance models, practices, and procedures at their academic governance.

Universities use their financial and intellectual capital to improve their governance and achieve strategic outcomes, higher valuation, and higher brand performance [32]. Good university governance revolves around the principals of transparency, integrity, accountability, fairness, and responsibility in the management of the organizations. The above governance pillars can lead the financial management system to necessary improvements, and obtain reliable economic transaction, efficient allocation of resources without loss of revenues, controlling fraud and corruption and enhance trust in public higher education. Strong governance can be obtained thought the implementation of risk management and internal audit activities which guarantee the financial stability and sustainability of organizations and by extension their academic sustainability [33,34,35,36].

Public organizations including academic organizations facing financial problems and especially with high degree of budgetary pressure to ensure their macroeconomic sustainability and prevent losses of public resources which are restricted, imply internal audit activities oriented to compliance with laws and regulations and financial auditing. On the contrary, public organizations that have ensured their macroeconomic stability, imply internal audit performance since they are interesting more to maximizing their performance. Most of universities imply risk management and audit activities to improve their financial and accounting system, prevent and detect on time risks, threats, and fraudulent activities, and obtain efficient and effective use of public resources and property. Their financial stability affects positively their financial performance and gives them the ability to increase investments in research and scientific programs, upgrade their infrastructures, and adopt new innovative teaching methods.

Future research may analyze and critically evaluate the different audit systems of universities. Another area of future research could examine the existence of possible differences in the performance between mandatory and voluntary audit systems.