The Effect of Internal Auditor Independency, Competency, and Integrity on Internal Control Effectiveness(Case of PT. Garuda Indonesia, (Persero) Tbk.)

Undergraduate Thesis

A thesis submitted as a partial fulfillment of the requirements for the degree of Sarjana Ekonomi in Faculty if Economics and Business

Advisor: Arief Surya Irawan, S.E., M.Com

By:Nadhira Astari Prasetyaningtyas11/311426/EK/18231

FACULTY OF ECONOMICS AND BUSINESSUNIVERSITAS GADJAH MADAYOGYAKARTA2015

CHAPTER IINTRODUCTION

1.1. Background and IssueToday companies which going public are growing rapidly, this enforced the growing of importance to fulfill the shareholders interest while ensuring their security. Shareholders evaluate the companys performance and make economical decision based on companys financial report. This dependence require the company to improve their financial report quality while in the same time upgrade their corporate governance by increasing the internal control effectiveness. The emphasis on good internal control of course arises because it is considered to be an important factor in achieving good quality financial reporting (Krishnan, 2005). Therefore to maintain its internal control quality, it is important for companies to evaluate the internal control every year. The American Institute of Certified Public Accountants (AICPA) also stated about the importance of effective internal control could reduce the risk of assets loss and help to ensure that plan information is complete and accurate, financial are reliable, and the plan complies with the laws & regulation. Then it is required to have the performance of organizations internal control evaluated regularly. Management, line personnel, internal auditors and board members are responsible for monitoring internal control at various levels throughout an organization (COSO, 2008). Effective Internal Control help prevent and detect fraud (Beasley, 2007). The Committee of Sponsoring Organizations (COSO) is one of standard referral for the implementation of GCG. In the US, COSOs Internal Control-Integrated Framework provides a suitable and available framework for purposes of managements assessment (PCAOB Auditing Std, No. 2). State Owned Enterprise (SOE), or in Indonesia more familiar as Badan Usaha Milik Negara (BUMN) are one of the companies that face the challenge to improve their internal control performance as the increasing number of them decided to be a private entity. Therefore, private SOEs are enforced to have a consistent Good Governance, as they are expected by shareholders to be more professional in any ways. Indonesian SOE adopting the COSO concept in implementing a good internal control as regulated in Ministry of Finance Regulation No. 59/PMK.06/2005, about the System of Accounting and Government Financial Reporting. The obligation about implementing a Good Corporate Governance (GCG) in SOE was stated in article 22 SOE Ministerial Decree No. Kep-117/MMBU/2002. Implementation of internal control play an important role in actualize the GCG concept in SOE, as explained in the same decree, article 26, that management of SOE should maintain an effective internal control in entity.PT. Garuda Indonesia (Persero) Tbk is the pioneer of commercial aviation industry in Indonesia. The company had their Initial Public Offering (IPO) at February 11th 2011, and indicated they are a state owned company who went private company since then. Being a reliable airline with a world-class reputation enforced Garuda Indonesia to have an optimum operational and financial outcomes to meet the expectations of all stakeholders and shareholders. As well it is important for them to apply a Good Corporate Governance. Currently the company already implemented booth GCG and Enterprise Risk Management formally in 2009 which referring to the framework of COSO framework.Audit quality needs a sophisticated combination of auditor practical competency, independency, and integration in issuing audit report and opinion. Because decision makers and investors need credible and reliable information to support their decisions. As De Angelo (1981) described audit quality as a function of market assessment on auditors competency and independency. Hence, it is important to have a group of qualified internal auditor to monitor and conduct performance assessment on the organizations internal control system, structure, and effectiveness. Auditors must have and improve their knowledge regarding audit methods and techniques as well as all matters relating to governance such as organizations, functions, programs, and activities of government (BPKP, 1998). An auditor must also be independent, that is a mental attittude that is free from influence, not controlled by other people, do not depends on others. The ability to find material misstatements in the companys financial statement depends on the competence of the internal auditors, while the willingness to report any findings depends on the auditors independence and integrity. Without a combination of qualified auditors with good practice of internal audit and internal control in an organization, there will be big potential problems on the organization and potential fail to fulfill the shareholders interest and assure their safety.

1.2. Research ProblemsThe problems that need to be addressed in this research will be:1) How internal auditor independency affect the PT. Garuda Indonesia (Persero) Tbk. internal control effectiveness?2) How internal auditor competency affect the PT. Garuda Indonesia (Persero) Tbk. internal control effectiveness?3) How internal auditor integrity affect the PT. Garuda Indonesia (Persero) Tbk. internal control effectiveness?4) How internal auditor independency, competency, and integrity simultaneously affect the PT. Garuda Indonesia (Persero) Tbk. internal control effectiveness?

1.3. Purpose of The Study1) To analyze whether the internal auditor independency significantly affect the internal control effectiveness of PT. Garuda Indonesia (Persero) Tbk.2) To analyze whether the internal auditors competency significantly affect the internal control effectiveness of PT. Garuda Indonesia (Persero) Tbk.3) To analyze whether the internal auditors integrity significantly affect the internal control effectiveness of PT. Garuda Indonesia (Persero) Tbk.4) To analyze how internal auditor independency, competency, and integrity simultaneously affect the PT. Garuda Indonesia (Persero) Tbk. internal control effectiveness?

1.4. Contribution of The Research1) To give general view to the internal audit group of PT. Garuda Indonesia (Persero) Tbk about their current performance in the company. This will help them to evaluate and improve their performance concerning to pursue a better control 2) To help the management of the company by giving them reasonable assurance towards the effectiveness of the current internal control reflecting from the current internal audit activity.3) To give information to other parties including the researcher herself about how significance is the impact of internal auditor quality to internal control effectiveness

1.5. Research MethodThis research will use the mixed methods approach which brings together approaches that the included in both the quantitative and qualitative formats (Creswell, 1999). The variables used are internal auditors quality as the independent variable and internal control effectiveness as the dependent variables.Researcher will conduct the research on PT. Garuda Indonesia (Persero) Tbk to collect the necessary data, with some basic approaches as follows:a. Survey to the respndents through questionnaireb. Interviewc. DocumentationAfter the date have been collected, the next step is to analyze and test the data through several kinds of statistical tests, they are validity and reliability test, classic assumption test. Then to test the hypotheses will be using multiple linear regression, T-test and F-test

1.6. The Organization of ThesisCHAPTER I: INTRODUCTIONThis chapter describes the background of the research, the importance of it, problems formulation, purpose if the research, contribution of the research, border of the problems, and the writing systemCHAPTER II:LITERATURE REVIEW AND HYPOTHESES DEVELOPMENTThis chapter consists of some relevant literature reviews to support the research about SOEs internal control, internal auditor quality, and of COSO Internal Control-Integrated Framework. In this chapter, researcher also discuss the research framework and hypotheses development.CHAPTER III: RESEARCH METHODThis chapter give general view on how the research will be conducted. As well as discussion about the population and samples used in this research, data collection method, data development technique, and data analysis and interpretation technique CHAPTER IV:COMPANY PROFILE AND DATA ANALYSISThis chapter consists of two sections, they are (1) company profile section, which explain briefly about the company; and (2) the data analysis section, will cover the discussion on the result of both validity and reliability test, data analysis, and the result.CHAPTER V: DISCUSSION AND CONCLUSIONThis chapter consists of the conclusion of the research, the implication of the research result, limitation of the research and suggestions for the next researches.

CHAPTER IILITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

2.1. Internal AuditThe Institute of Internal Auditors (IIA) defines internal auditing as:Internal auditing is an independent, objective assurance and conducting activity designed to add value and improve an organizations operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes

Boynton and Johnson (2006) later elaborate the definition then it can be derived that there are four essential parts of internal audit:1. Internal which indicates the auditing activities are conducted within an organization. The organizations employees are able to do the auditing activities, or it can be from external parties and outsourced to serve the entity2. Independent and objective which obviously stated that the auditors judgement should be free of bias to have value.3. Systematic, disciplined approach, implies that auditors should follow professional standards as the guidance to conducting auditing activities.4. Helps an organization accomplish its objective, indicates that internal auditing is exist to benefit the entire organization with the guidance of organizational goals.

2.1.1. Internal Auditor RoleThe objective of internal auditing is to help the management of the organization in achieving an effective discharge of its responsibilities (Boynton and Johnson, 2006). In order to achieve an effective operation and good governance in the organization, Millichamp and Taylor (2008), stated that internal auditors have role to give an opinion on whether internal controls, such as policies and procedures put in place to manage business risks are actually working as intended. Internal audit is likely to be the only function within an organisation that has deep understanding of risk and control. They work with the board, the audit committee to embed risk management and internal control into the organisation as a whole with provide risk management and control advice to relevant staff accross organisation, provide independent and objective assurance to the board about the adequacy and effectiveness of key controls and other risk management activities across the organisation, and act as risk and control educators across the organisation (Pickett, 2005)The Institute of Internal Auditors (IIA) is recognized nationally and internationally as leaders in establishing professional audit standards that provide a framework which is essential to meet the responsibilities of internal auditors and the internal audit activities. IIA standards number 2120 explain that one of internal audit role is to evaluate the effectiveness and contribute the improvement of risk management process. Continue to standard number 2030, audit activity must assist the organization in maintaining effective controls respnding with risks by evaluating the effectiveness and efficiency and promoting continuous improvement.2.1.2. Assessing the Performance of Internal AuditorsIIA issued the International Professional Practice Framework (IPPF) or more familiar called as IIA standards in 2008 and have been updated the latest was October 2012. The structure of the standards is divided into two: (1) Attribute standards, and (2) performance standards. Attribute standards address the attributes of organizations and individuals who perform internal audit activities, while the performance standards provide the quality criteria against the performance of internal audit services.Researcher will emphasize more on the three categories of independency, competency, and integrity of internal auditor, which will be used as the independent variable of the research.

2.1.2.1. Internal Auditor IndependencyIn the IIA standards number 1100 about independence and objectivity of internal audit, it explains the internal audit activity must be independent, and internal auditors must be objective in performing their work. It means internal auditors should perform in a condition where free from threat in all matters relating to audit work, the audit organization and the individual auditor. To achieve the degree of independence necessary, the chief audit executive has direct and unrestricted access to senior management and the board. The chief audit needs to report at least annually about the organizational independence of the internal audit activity.As mentioned by Boynton and Johnson, auditors judgement have to be bias free. Hence, auditors need to be independent from any organizational activity that being audited, so it will avoid any kind of compromise related to auditing assessment and judgement.So it is crucial to have a standard that regulate anything related with objectivity and obligate auditors within an organization to perform audit independently, to avoid auditors being dependent with anyone or any function investigated in order to achieve bias free judgement.

2.1.2.2. Internal Auditor Competency Boynton & Johnson (2006) stated that auditor required to have sufficient knowledge to plan and to perform an audit to obtain reasonable assurance that material weakness in internal control are defined.IIA standards number 1210 explains about auditors proficiency and professional due care, where emphasizing on internal auditors must possess the knowledge, skills, and other competencies needed to effectively carry out their professional responsibilities. IIA also required internal auditors to continually enhance their knowledge, skills, and other competencies through substantially have professional development.The IIAs IPPF (2011) elaborate the rules of conduct about internal auditors competencies are:1. Internal auditors should engage only in those services if which they have the necessary knowledge & experience.2. Internal auditors should perform internal auditing services in accordance with the international standards for the professional practice of internal auditing3. Internal auditors should improve their proficiency and the effectiveness and quality of the services.

2.1.2.3. Internal Auditor IntegrityThe IPPF has emphasized more on a part about code of ethics for internal auditor profession, which divided into both ethical principles and ethical rules. One of the rules of conduct set by the IIA is the integrity, which believed to establish trust on auditors, thus provides the basis for reliance on their judgement. It required all of internal auditors to:a. Perform their work with honesty, diligence, and responsibility.b. Observe the law and make disclosures expected by the law and the profession.c. Not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the profession of internal auditing or o the organization.d. Respect and contribute to the legitimate and ethical objectives of the organization.

2.2. Internal ControlMoeller (2009), internal control is one of the most important and fundamental concepts that business professionals at all levels and both internal and external auditors must understand.The importance of internal control extends beyond only accounting and financial matters, and includes all enterprise processes. Moeller then add explanation an enterprise unit or process has good internal controls if meet several criteria:1. Accomplishes its stated mission in an ethical manner2. Produces accurate and reliable data3. Complies with applicable laws and enterprise policies4. Provides for economical and efficient uses of resources5. Provides for appropriate safeguarding of assets.On the other hand, The Institute of Internal Auditors (IIA) established International Standards for the Practice of Internal Auditing, define internal control as controls, which explain as follows:Any action taken by management, the board, and other parties to manage risk and increase the likelihood that established objectives and goals will be achieved. Management plans, organizes, and directs the performance of sufficient actions to provide reasonable assurance that objectives and goals will be achievedInternal control covers all aspects of an organization and therefore it needs an integrated control concept or a control framewo_rk. The Committee of Sponsoring Organizations (COSO) established a model that already recognised internationally as a useful standard for internal control guidance in an organisation.2.2.1. Internal Control Framework (COSO)There are some organization who establish definition about internal control. Even though there is slightly difference in each definition, but The Internal Control Integrated Framework, established by COSO provides a perfect description of the multidimensional concept of internal control as:internal control is a process, affected by an entitys board of directors, management, and other personnel, designed to provide a reasonable assurance regarding the achievement of objectives in the following categories: (1) Effectiveness and efficiency of operations; (2) Reliability of financial reporting; (3) Compliance with applicable laws and regulations

From this definition, it can be derived that COSO uses three dimensional model to describe an internal control system in enterprises. The five levels on the front-facing side, and three major components of internal control on the top of diagram, and the right-hand side represents the segments of an entity, as presented in figure 2.1Information & CommunicationMonitoringRisk AssessmentControl ActivitiesControl Environment

Figure 2.1 COSO Internal Control Framework

Moeller (2009) emphasizing the importance for every internal auditor to develop and understand the COSO internal control framework, no matter what area under is review. The five elements of internal control later elaborate in greater detail:a. Control EnvironmentCOSO place the internal control environment as the foundation of internal control framework, to emphasize that it has a pervasive influence on how all activities are structured and risks assessed. It is the fundamental foundation for all other components in internal control, because it reflects the overall attitude, awareness, and actions by the board of directors, management and others regarding the importance of internal control in the organization.Internal environment control is consists of some significant elements that needed to be implemented by an organization such integrity and ethical values; commitment and competence; BOD and audit committee; managements philosophy and operating style; organizational structure; assignment of authority and responsibility; HR resources and practices; and COSO control environment in perspective. An active and independent board is an essential component of the COSO control environment (Moeller, 2009)b. Risk AssessmentThe next level after the foundation, it is risk internal risk assessment which means an enterprises ability to understand and manage risks environment that may disrupt the enterprise to achieve its objectives, and management should have a process in subsequent to evaluate the potential risks that may impact attainment of its objectives.COSO internal control risks assessment should be a looking-forward process that all elements in an enterprise should implement at all activities (Moeller, 2009). COSO elaborate there are three steps to perform risk assessment:a. Estimate the significance of the riskb. Assess the likelihood or frequency of the risk occurringc. Consider how the risk should be managed and assess what actions should be undertakec. Control ActivitiesThe upper level comes after internal risk assessment is internal control activities, which are the policies and procedures set up to help management ensure that actions identified to address risks are carried out, following a wide range of controls activities sub-processes.d. Information and CommunicationAbove the previous layers, is the process to communicate all appropriate information to all level management in a manner and time so allows them to carry out their responsibility in response with the information.e. MonitoringOn the top of all layers, is the monitoring process to assess the effectivity of all control components established, and in response take corrective actions when needed. Monitoring process certainly points to the important role of internal audit, but as well all level management when they remains oblivious to other potential control problems.

2.3. Theoritical FrameworkThe relationship between variables used in this research can be illustrate as:

H1H2H3H4

Figure 1 Theoritical Framework

2.4. Hypothesis Development2.4.1. Relationship between internal auditor independency and internal control effectivenessThe importance of independent auditor is emphasized by the US Securities and Exchange Commission (SEC) who required every registrant to include an internal control report in its annual report, and its independent auditor to issue an attestation report on managements assessment of the companys internal control over financial reporting (SEC 2003a, 1).Krishnan (2004) found a negative association between the proportion of independent members in the audit committee and the existence of internal control problems. Independency is not only a slogan but it is crucial to have in order to have an effective internal control and its function can work properly. It is supported with a research by Yusrina Adani who found there is a strong relationship between internal auditor independency and internal control. Another similar research Desyanti and Ratnadi (2008) showed the independency significantly affect the effectiveness of implementation of internal control structure of Bank Perkreditan Rakyat in Bandung. In consequence the better independency by an auditor, the better internal control.Hence, researcher try to retest the relationship between independency and internal control based on these findings with a hypothesis:H1: Internal auditor independency is partially affect significantly the internal control effectiveness.

2.4.2. Relationship between internal auditor competency and internal control effectivenessWith a public company, a deep understanding of internal control is highly needed regardless of which strategy is chosen because of the auditor must issue an opinion on the effectiveness of the entitys system of internal control. Managements are responsible to manage the internal control in the organization, and work with internal auditors in assessing the control effectiveness and make appropriate recommendation.Internal control effectiveness also support with the quality of audit findings results from audit examination activities done by internal auditors in entity. Yusnita (2009) found in her research that there was a significant influence of competence of internal auditors to the quality of examination results on BPR Tasikmalaya.A number of similar researches have been undertake in related to test the relationship between internal auditor competency and internal control. Darmawan et al. (2014) did their research in hotel industries, found that internal auditor competency has positive effect on the internal effectiveness. An entity needs a competence human resource in order to run a complex operational and implement a strong internal control structure in order to avoid loss from any leak in the organization. Internal auditors who are highly competent will result in a high quality performance in conducting their responsibilities. Hence the higher competencies owned by auditors, the higher internal control effectiveness in an entity. It is proved in the previous researches by Ruslina Lisda (2007) whit title The Effect of Competence and Objectivity of Internal Auditor Function Towards the Implementation of Internal Control, as well a research by Nova (2005) who investigate factors of internal audit to increase the effectiveness internal control.Ni Putu Eka Desyanti and Ratnadi (2008) in their research also tested about the effect of professional competence of internal auditor to the implementation of internal control. They found professional competence partially have significant effect on internal control effectiveness, so the higher competence of internal auditors, the higher effectiveness of internal control in an entity. Based on these previous researches, now researcher try to bring similar hypotheses in this research:H3: Internal auditor competence is partially affect significantly the internal control effectiveness.

2.4.3. Relationship between internal auditor integrity and internal control effectivenessAn ethical auditor is highly needed in order to make a fair and ethical judgement and opinion. According to Pujiastuti (2014) integrity is a form of impartiality, brave, wise and responsible by auditors in performing audit activities. She found on her research that integrity have significant score in affecting audit quality which will support the realization of effective internal control.Result on Sumadyo (2013) research showed the integrity of audit committee in internal audit system significantly affect the implementation of GCG in banking industries in Bandung. Good governance in an entity is important to have a fully effective internal control. But, Sukriah et al (2009) didnt found any significant influence of auditor integrity to audit quality. Which indicate auditor integrity does not influence the result of audit activity then does not affect an entity internal control effectiveness. Therefore, researcher try to test the effect integrity on internal control effectiveness with hypothesis:H3 : Internal auditor integrity is partially affect significantly the internal control effectiveness.H4 : Internal auditor independency, competency, and integrity are simultaneously affect significantly the internal control effectiveness.

CHAPTER IIIRESEARCH METHOD

1. 2. 3. 3.1. Research MethodResearcher chose to use mixed method approach which brings together approaches that the included in both the quantitative and qualitative formats, because both of them works to provide the best understanding of the research problems (creswell, 1999).Quantitative method has aim to generate rich and detail valid data through statistical calculation, to contribute a deep understanding on a phenomena. While qualitative method is more subjective based on the knowledge and primarily on constructivist perspectives. In this research, researcher intend to mix both method because it is believed to helps develop information that will be useful for determining how significant the independent factors influence outcomes and address exploratory recommendation for PT. Garuda Indonesia (Persero) Tbk.The data will be primary data that contain information collected directly by researcher from the selected sample suitable with variables which is used to achieve the research objectives (Sekaran, 2009). The variables researcher chose to investigate are 3 independent variables of internal auditor quality which are independence, competency and integrity; as well one dependen variable which is internal control effectiveness.

3.2. Research SampleDeterminig population and sample is an important step when doing survey on research. The sample size should not be too small or too large. The population that suitable with target are all 34 employees in internal audit unit of PT. Garuda Indonesia (Persero) Tbk, consist of 4 senior manager, 27 auditors, 2 secretaries, and 1 vice president. Because the total size of population is not too large, so researcher decide not to select samples but all population as the respondent for the questionnaires. While the target for interview approach are several internal auditors and several auditee which will be randomly chose.

3.3. Data Collection MethodIn mix method, researcher will employs Concurrent Nested Strategy. The data will be collected from both numeric information from an instrument that is questionnaire, as well as text information from interviews and field observation, then it is expected to generate a final database which represents both open-ended qualitative and closed-ended quantitative information. When the data are collected concurrently nested, both qualitative and quantitative data are gathered at the same time in the project and the implementation is simultaneous (Creswell, 2003). This model utilized in purpose to gain broader perspective. Morse (1991) described qualitative data could be used to describe an aspect of a quantitative data that cannot be quantified.After setting up the questionnaire and choosing population, researcher then start to collecting the data. First thing to do is distributing the questionnaires to all employees in internal audit unit to collect the primaryboth quantitative and qualitative-data, with some basic approaches as follow:a. Survey to the respndents through questionnaireThe questionnaires prepared by a set of questions which later will be weighted using the Likert scale. This scale has score range from 1 to 5 for each question answered. Answer varies from satrongly agree (sangat setuju) to strongly disagree (sangat tidak setuju).Questions formed are about internal auditor attitudes toward an event by adopting from several previous researches with similar variables and proxies, which are reliably and validly tested. Questionnaire about internal auditor independency adopted from Lintings research (2013), internal auditor competency adopted from Putras research (2012), integrity questionnaires adopted from Yennys research (2012), while the Internal control effectiveness questionnaires adopted from Nettys research (2013).Questionnaires will be distributed to all population 34 employees, or the population of the internal audit unit of PT. Garuda Indonesia (Persero) Tbk head office, Jakarta. b. InterviewTo complement the result of the resarch, primary data will also be collected through a face-to-face interview scheme with the internal auditors and several auditee which will be randomly chose. They will be asked several questions about the independence, competence, and integrity of internal auditors in conducting audit activities. The interview also will be submitted to the audit committees who are responsible to reviewing the adequacy and effectiveness of companys internal control system. Then later the anwers from interview will be intepret qualitatively by the researcher.

3.4. Data Development TechniqueThe instrument used is in the form of questionnaires that consist of 32 closed-ended questions. The questions will be classified into 4 components as follows:1. Part I is the aspect of independence of internal auditors, consists of 6 questions2. Part II is the aspect of competence of internal auditors, consists of 6 questions3. Part III is the aspect of competence of internal auditors, consists of 8 questions4. Part IV is the aspect of competence of internal auditors, consists of 12 questions

Table 1 . Data Development TechniqueVariableIndicatorScale

Internal Auditor Independence (X1) Independence in fact Independence in responsibilities Objectivity Bias-freeOrdinal(6 questions)

Internal Auditor Competence (X2) Personal competence General knowledge Professional competenceOrdinal (6 questions)

Internal Auditor Integrity (X3) Honesty Courage Attitude ResponsibilityOrdinal (8 questions)

Internal Control Effectiveness (Y) Environment control Risk assessment Information and communication Control activities MonitoringOrdinal (12 questions)

3.5. Data Transformation, Analysis and Interpretation TechniqueAfter necessary data have been collected through concurrent nested model which survey at one level (internal audit unit) to gather quantitative results, at the same time data collected through interview to some individuals of audit committee to explore the phenomenon with specific individuals.First of all, quantitative data will be transformed from ordinal scale to interval scale through method of successive interval. Classic assumption that apply in this research is the normality test with purpose to test whether the regression model of both dependen and independent variable have normal distribution or not (Herawaty, 2013). classic assumption test have various tests that usually used by researchers. One of them is multicorrelation assumption to see there is no correlation between independent variables utilized. Because classic assumption required there is no correlation between independent variables so it wont interfere the relationship with dependent variable.After the data have been collected, the next step is to analyze and test the data through several kinds of statistical tests, they are validity and reliability test, classic assumption test. Then to test the hypotheses will be using multiple linear regression, T-test and F-testIn a concurrent study, the quanlitative and quantitative data will be presented in a seperate sections, but both data will be analyse and interpret blend in one form of data to seek convergence among the results (Creswell, 2008)

3.6. Validity and Reliability TestsWhen a research using questionnaires as measuring instrument in data collecting process, it is important to tet the validity and reliability of the questions. The main objective of the tests is to ensure the use of a measuring instrument is truly measure what researcher intend to measure. 3.6.1. Validity TestThe validity test is a test to know whether the measurement intruments truly measuring what it is intended to measure by researcher, not something else (Sekaran, 2010 : 158). An instrument classified as valid when it is measuring the right concept as it is intended.To measure how valid the questions addressed in the questionnaire, researcher have to correlating each score on respondents answers with the total score of each variable (Masrun in Herawaty, 2013). Item with positive correlation with total skor, and it has high correlation, it indicates a high validity as well. When the score r = 0.3 it meet the minimun requirement to be a valid instrument. The correlation test will be conducted with the help of SPSS program.

3.6.2. Reliability TestReliability test have objective to show the consistency and stability of the measuring scale employs in the research (Kuncoro, 2009 in Vitaloka, 2015). Researcher will implement the Cronbachs Alpha statistical test to measure the reliability. There are three classification of reliability in Cronbachs Alpha (Sekaran, 2010):a. Cronbachs Alpha 0.8 1.0 = good reliabilityb. Cronbachs Alpha 0.6 0.70 = acceptable reliabilityc. Cronbachs Alpha < 0.6 = poor reliabilityHypotetical testing will implement the T-test and F-test:1. T-testThe objective to have this test is to examine the minor hypothesis, which is the effect of independent variable to the dependent variable partially. There are some criterias that should be met in the T-test (Herawaty, 2014): When the result of t-calculation > t-table with significant level of 5% ( value < 0.05), so H0 rejected and Ha accepted. When the result of t-calculation < t-table with significant level of 5% ( value < 0.05), so H0 accepted and Ha rejected.

2. F-testThe objective to have this test is to examine the mayor hypothesis, which is the effect of independent variable to the dependent variable simultaneously. There are some criterias that should be met in the T-test (Herawaty, 2014): When the result of f calculation > t-table with significant level of 5% ( value < 0.05), so H0 rejected and Ha accepted. When the result of t-calculation < t-table with significant level of 5% ( value < 0.05), so H0 accepted and Ha rejected.Here is the calculation that will be utilize in this research:

Y =Internal Control EffectivenessIndependency of internal auditor

Constanta =Competency of internal auditor

=Coefficient of Independent variableintegrity of internal auditor

error