The Role of Internal Audit in Enhancing Corporate Governance: A Case of Zambian Breweries Plc

Abstract

An internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It plays a critical role in evaluating financial records, internal controls, and governance processes. In recent years, Zambian Breweries Plc has faced increased competition from foreign alcoholic beverage producers, alongside financial and governance challenges. Notably, the company recorded losses exceeding K15.5 million in 2020, largely attributed to currency depreciation, rising production costs, and weakness in governance structures, including concerns related to internal audit effectiveness. This study aimed to evaluate the importance of the role of internal audit in enhancing corporate governance: a case of Zambian Breweries Plc. The specific objectives of the study were to assess the relevance of internal audit in enhancing corporate governance at Zambian Breweries, to evaluate the adoption of internal audit in enhancing corporate governance at Zambian Breweries, and determine the challenges facing internal audit in enhancing corporate governance at Zambian Breweries. The study adopted a deductive research approach and a quantitative research design. The study population comprised of 750 employees from Zambian Breweries Plc, sample size 220 employees that was determined using Yamane (1967) formula. Structured questionnaires were employed to collect primary data from a stratified randomly selected sample. The findings revealed that internal audit is highly relevant in enhancing corporate governance. A total of 84% of the respondents agreed that internal audit contributes to organizational growth, while 76.4% confirmed the existence of a dedicated internal audit department.  The majority also indicated that internal auditors effectively evaluate control systems, apply professional standards, and support governance processes. Regression analysis confirmed that internal audit significantly enhances corporate governance at a 95% confidence level (p < 0.05), with a 10.1% impact. These findings are consistent with agency theory, which emphasizes the importance of independent oversight in improving decision-making and accountability. Regarding adoption, respondents indicated that the organization invests in training, skills development, and communication of audit findings. Internal auditors are perceived as competent and adaptive to technological changes. However, regression results showed a minimal statistical impact (1.8%) of internal audits on the adoption of corporate governance practices. Despite this, the findings align with stakeholder theory, suggesting that internal audit contributes to meeting the expectations of diverse stakeholders through improved reporting and transparency. In terms of challenges, the study found that while the internal audit function is adequately funded, independent, and supported by the board, 82% of respondents indicated that it the department is not fully utilized as a mechanism for strengthening corporate governance. This underutilization limits its potential to provide independent assurance on risk management and internal controls. Regression analysis indicated that these challenges have a minimal impact (4%) on governance effectiveness. The study recommends that Zambian Breweries fully adopt internal audit as a strategic tool for corporate governance. This includes strengthening its role in providing independent assurance, enhancing risk management, improving compliance, and offering strategic insights. Effective utilization of internal audit can improve transparency, accountability, and stakeholder confidence, thereby transforming corporate governance into a source of competitive advantage.