A Dissertation Submitted to the School of Public Administration and Management in Partial Fulfillment of the Requirements for the Award of the Masters of Science in Local Government Management Degree of Mzumbe UniversityThe objective of the study was to determine the effectiveness of Internal Audit units in Local Government Authorities in managing LGA funds: The case of Mufindi District Council. The research was conducted through a series of data collection phases using observation, interview and questionnaires. Most of the respondents were from Accounting and Auditing sections. The results showed that internal audit units in the LGAs were not effective; their effectiveness was affected by several factors; including the independence of internal auditors, roles of audit committee, and resources to internal auditors, due care, training and promotion. These factors then affect effectiveness of internal audit unit; as a result they weaken the management of local authority funds in the Local Government Authorities. To address the problem, various recommendations from literature and others from respondents were obtained; they include: strengthening the independence of internal auditors, improvement of Audit committee functions and compositions, improving communication right of Internal Auditors, increasing resources to internal auditors, improving access of information to internal auditors, complying with International Professional Practice Framework (IPPF) by IIA, improving communication of CAG and internal auditors and needs for representation of CAG in audit committee meetings.