Internal audit capability in public sectors : A study into the Indonesian Directorate General of Taxes

The public sector faces different challenges in pursuing their objectives. One of the units that could assist these efforts from the internal organization is the internal audit unit. The internal audit unit through its activities evaluates and improves the completion process of the organization’s objectives. In the Indonesian public sector, the Directorate General of Taxes (DGT) also faces challenges in fulfillment of its target from the government. The internal audit unit of the DGT could support the achievement of the organization’s objectives but it has to have the capabilities. The Institute of Internal Auditors (IIA) provides a tool to assess the internal audit capabilities in the form of Internal Audit Capability Model (IA-CM). This model could assess the internal audit of the DGT capabilities which have not been accessed yet. Therefore, applying the IA-CM in this study will show the progress of internal audit capability in the DGT. This study uses short surveys, observations, and interviews along with a documentary review from the DGT as the basis for assessing its internal audit capability. The study finds that the DGT has established its internal audit capability on level 2 of IA-CM and partly on level 3 of IA-CM. Nonetheless, the internal audit of the DGT still has seven weaknesses in the practice of level 2 of the IA-CM. The DGT could apply the recommendations in this study and address its weaknesses in order to strengthen the level 2 of IA-CM implementation. For the public sector of Indonesia, the President has encouraged all of the internal audit units to achieve level 3 of IA-CM by 2019. Therefore, the research is essential for the DGT to improve the current condition of its internal audit function. For the academic world, particularly within the public sector and internal audit studies, an interesting fact has emerged. An organization can partially achieve level 3 of IA-CM without having fully completed level 2 of the IA-CM. Therefore, this could lead to further study.