An empirical investigation of turnover intentions of internal auditors

AN EMPIRICAL INVESTIGATION OF TURNOVER INTENTIONS OF INTERNAL AUDITORS A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Business at Virginia Commonwealth University by Satina V. Williams Master of Business Administration, University of North Carolina, Chapel Hill, NC, 1991 Bachelor of Science, Benjamin Franklin University, Washington, DC, 1984 Director: Dr. Benson Wier, Associate Professor, Department of Accounting Committee members: Dr. Epps, Chair, Department of Accounting, VA Commonwealth University Dr, Don W.

Finn, Chair, Department of Accounting, Louisiana State University Dr. Williams, Department of Management, VA Commonwealth University Virginia Commonwealth University Richmond, VA May, 2003 UMI Number: 3091837 UML UMI Microform 3091837 Copyright 2003 by ProQuest Information and Learning Company. All rights reserved. This microform edition is protected against unauthorized copying under Title 17, United States Code.

ProQuest Information and Learning Company 300 North Zeeb Road P. Box 1346 Ann Arbor, Mi 48106-1346 © Satina V. Williams 2003 All Rights Reserved School of Business Virginia Commonwealth University This is to certify that the dissertation prepared by Satina V. Williams entitled, AN EMPIRICAL INVESTIGATION OF TURNOVER INTENTIONS OF INTERNAL AUDITORS, has been approved by her committee as satisfactory completion of the dissertation requirement for the degree of Doctor of Philosophy in Business.

ÂwwU /JA« Benson Wier, Director, Virginia Commonwealth University Commmittee Mefners: Ắ TW ff yee! Ruth W. Epps, Virginie’ Commonwealth University Don W- Fam Don W. Finn, Louisiana State University 7 haramet Lh hill, 4Œ Margaret L. Williams, Virginia Commonwealth University Ruth W.

Epps, Chair, BepArtment of Accounting ntl rte, 7 Michael Sesnowitz, Dean, School of Buginess 49.# F, Douglas Boudinot, Dean, School of Graduate Studies Date “ ii Acknowledgements I wish to acknowledge my committee chair, Dr. Wier, for his support, guidance and patience throughout my dissertation process. I thank my committee members, Drs. Epps, Finn, and Williams for their support and guidance.

I acknowledge the VCU accounting faculty and other School of Business faculty and staff for always having encouraging words. To my classmates, thank you for your support and encouragement. Thank you to KPMG and Bernie Milano and the staff of the PhD Project for the financial support and the vision that is becoming a reality in business schools across the country. My family and friends have also played an important role in my completing the PhD program.

I thank my parents, John Arthur and Vernola Williams, who always came through for me. My sisters (Shelley, Leona and Arlisa) and brothers (Quintelle, John,and Reginald, PhD) and many friends who asked the important question, how is your dissertation coming? A special thank you to Dr. Charles Cook (Raleigh, NC) who made it possible for me to stay healthy while living the life of a student and always remembered to ask about my progress in the program. I must also thank those who came before me.

My ancestors, whose names I will never know, who came to this country in chains and endured hardships I can only imagine. Because of their determination to be free and live, I have reached this goal. To my ancestors born in this country and who are now asleep, they could not enjoy the many privileges we enjoy today but fought so their children could. Thank you to my grandparents who raised my parents to appreciate the importance of a good education.

To my parents who understand that the future belongs to those who prepare for it today. I thank you all. I only pray that you are as proud of me as I am of you. I thank God for this opportunity and the strength to complete the program.

He is my Foundation, To whom much is given, much is required. Freely I have received, freely I give. 1H Table of Contents lu. List Of FIBUTCS.

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KH ng ưếy oe Internal Audit Ôu[SOUTCITE. cung HH ng ng nh net Chapter 2 LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT. co càng HH TH Hà ng Hà the trrierveeee Ÿ PO) 8N. 19 Survivors’ Reactions to Layoffs.

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Gà HH HH HH KH To TK HT it ket cty TA Appendix B.e UE RHR O EME RHE S ERECTOR HEME DHA ERE HA EHSHEP EDEREDE Crd rereorandreer seceraeveasessneees OO « Appendix C DORR OER UE RER ASAE HCCI STH ORR ERE REROR PERE ROSEN PEAEAER PEPER ERIK OED ER EN OD muạahesddddPseadgedae+e Deena eer ner eNeeaeeNSe 88 VIA.`46^ "ˆˆY4%44021521946hn0 594520994 9402926084229 464402 eenvoeve +1Ä#eees® đx1ds°ase6 690429 tSŸ-C° List of Tables Table | Page 1. Reliability Scores and Factor LOAd1DBS. cá HH HH HH 9g 1x xay .9Ề1 11 1110121 tá Hà KH TT HT T1 Cà Hà trọ 47 3. Descrnptive Statistics of Measured Varlables.

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Internal Auditor Turnover Intention MoOđ€Ï. ng HH nh 1x ssesecreessze 2 Vil ABSTRACT AN EMPIRICAL INVESTIGATION OF TURNOVER INTENTIONS OF INTERNAL AUDITORS | By Satina Vivian Williams, Ph. A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Business at Virginia Commonwealth University. Virginia Commonwealth University, 2003 Major Director: Dr.

Benson Wier, Associate Professor, Department of Accounting Excessive tumover in any organization should be of concern to its management. The high cost of turnover, which includes losing qualified personnel, necessitates management’s continuing efforts to seek out reasons valued employees leave voluntarily. Prior studies show that organizational events requiring layoffs can lead to undesirable outcomes, such as turnover. This study examines how outsourcing, a management decision that results in layoff, impacts tumover intentions of internal auditors.

Although outsourcing is not a new phenomenon, management’s plans to improve efficiency and enhance financial performance by outsourcing have brought the topic to a higher level of attention. The study proposes that outsourcing creates a degree of job insecurity and can result in undesirable changes in professional and organizational commitments and a higher probability of turnover intentions. Internal auditors respond to survey items that measure their psychological state Gob insecurity), the consequences of job insecurity (professional commitment and organizational commitment), and the outcome (turnover vill intention). Structural equation modeling is used to analyze the relationships among the study variables.

Results of the study show that the internal auditors in this sample have relatively low levels of job insecurity. The results also suggest that it is in the organization’s best interest, when engaged in outsourcing, to monitor job insecurity. The significant relationships among variables indicate that an increased level of job insecurity negatively affects professional commitment and organizational commitment and 1S positively related to turnover intention. Chapter 1 _HNTRODUCTION _ The purpose of this study is to investigate turnover intentions of internal auditors who have remained in the profession subsequent to the increased outsourcing of internal audit functions.

Turnover intention is “an individual’s own estimated (subjective) probability that they are permanently leaving the organization at some point in the near future (Vandenberg and Nelson 1999, p.” This study is important because employee turnover, averaging 1.2 percent of the workforce per month, continues to plague American businesses costing firms millions of dollars and many valued employees each year, thus, negatively affecting organizational effectiveness (Vandenberg and Nelson 1999), Doll (1983) asserts that although a certain amount of turnover is necessary to maintain a healthy and vigorous organization, excessive, uncontrolled turnover of quality personnel is expensive, disrupts planning, decreases job efficiency, and negatively affects staff morale and client relations. Reducing turnover is beneficial, particularly when the employees who intend to leave have outstanding ability and high potential (Doll 1983). Enhancing managements’ understanding of the possible turnover effects of outsourcing will allow organizations to establish procedures to allay some of these undesirable outcomes. Therefore, it would be 2 in an organization’s best interest to use all available, relevant evidence to analyze turnover-related issues pertaining to outsourcing (Moody 2000).

While excessive turnover in any department would be of concern to management, internal auditors were chosen as subjects for this study because of their importance to _ management and their unique position in the organization. Often referred to as the eyes and ears of ‘management, internal auditors 1) possess intimate knowledge of the organization required for high-quality audit services, 2) are a management resource for immediate attention in crisis situations, 3) are in a position to help prevent fraud and handle fraud related issues and 4) help maintain independence and objectivity by ‘separating attestation and consulting services (Chadwick 2000). Vinten (1995) suggests that the internal auditor, as a participant observer, is in a better position to obtain more information and a greater depth of knowledge than would be possible from third party providers. When comparing organizations that maintain internal audit departments with those that do not, Welch, Holmes, and Strawser (1996) find that internal auditors are able to detect fraud earlier than others and limit resulting damage, thus, adding value to the firm.

Kalbers and Fogarty (1995) assert that internal auditors, a part of the accounting profession, serve an important role in today’s organizations. However, compared to other accounting professionals, research examining internal auditors is relatively limited. As the leading organization for the internal audit profession, the Institute of Internal Auditors (IIA) may find this study of value when carrying out its mission of promoting and developing the practice of internal auditing. TIA activities include educating members and others as to the practice of internal auditing as it exists in various 3 countries.! Not only should current and potential internal auditors be aware of the current trend in outsourcing, but they should also be aware of its impact on the profession.

This study also enhances our understanding of outsourcing and its effect on attitudes, behavior and commitment to the profession and employing organizations. Positive trends shown in the 2000 Job Market Survey for the internal auditing profession indicate that the health of the profession is strong (Oxner and Kusel 2000). Inasmuch as this may be good news for the profession, management must also consider how internal auditors’ perceptions of outsourcing impact their psychological state and behavior and that those perceptions may differ from the conclusions reached in the job market survey. Low levels of organizational commitment and job satisfaction coupled with high turnover adversely impact the internal audit department's ability to provide usable information to external auditors and organizations.

Low levels of organizational commitment and job satisfaction accompanied by high turnover can “.