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 monitoringeffectiveness in an entity has any significance on external audit reportingoutcome. This study used 475 yearly observations from 95 district councils from2011 to 2015. Data were analysed in a panel model that controls for timespecific factors. This study found that when internal monitoring mechanisms areeffective, they can predict the likelihood of an entity to receive a clean(qualified) audit opinion at 82 percent accuracy. Results further showed thateffectiveness of control environment is very important if we take it alone or whenit becomes effective in absence of an ineffective internal audit. However, therewas no enough statistical significance on the direct effect of risk management or fraud prevention controls. Also, managers should plan and implement allcontrols to maximize possibility of getting a clean (unqualified) audit opinion inorder to secure their positions. External auditors, on the other hand, shouldcontinue emphasizing on importance of internal monitoring and report anyweakness if they find. They may encourage clients to at least strengthen controlenvironment in case it happens that the internal audit is weak. Key words: governance, agency theory, local government, Tanzania