Internal Control Systems and Financial Performance of Public Institutions of Higher Learning in Vihiga County, Kenya
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Date
2018-05
Authors
Kisanyanya, Govedi Andrew
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Most public institutions in many parts of the world have poor financial performance compared to private institutions. The poor financial performance can be attributed to financial management practice. The sound financial management practices require the institutions of robust internal control systems. The main objective of the study was to establish the effect of internal control systems on financial performance of public institutions of higher learning in Vihiga County. The study specific objectives were: to determine the impact of control activities, risk assessment, control environment, information and communication and monitoring on the financial performance of institutions of higher learning in Vihiga County, Kenya. The study was anchored on agency theory, stewardship theory, positive accounting theory and attribution theory. The study adopted a descriptive research design. The target population comprised of 140 employees of the four public institutions of higher learning under study in Vihiga County. The study had a sample of 96 employees. Primary datain this study was collected from sample population with aid of semi-structured questionnaires. Descriptive statistics was used in the data analysis and information presented in statistical forms. A multiple linear regression was used to analyze the relationship between the dependent and independent variable. The data was analyzed using the Statistical Package for Social Sciences (SPSS). The study findings revealed that the institutions under study had adequate and effective control activities which included regular internal audit reports, adequate segregation of duties in the finance and accounts departments and physical controls to prevent excess allocated funds. Control activities were found to have a positive significant effect on the financial performance of the institutions under study. The study found that the institutions under study had proper risk assessment tools and risk assessment management system because they carried out continuous financial assessment of their organizations coupled with regular, timely and profound audits. Risk assessment was found to have a positive significant effect on the financial performance of the institutions under study. The study established public institutions of higher learning in Vihiga County had effective control environment. The number of staff in finance and audit departments was adequate and well trained on accounting and financial management system. Control environment was found to have a positive and significant effect on the financial performance of the institutions under study. The study found that the institutions under study had effective flow of information and communication channels. The institutions had modern and efficient information and communication technologies to enhance adequate transfer of information, excellent record of transactions and proper accountability for assets. In addition, the study found that effective flow of information and communication enhanced financial accountability and financial performance of the institutions. The expenditure of the institutions was properly monitored and audit departments were independent. In addition, the institutions had proper supervisory activities to enhance accountability and transparency and they held regular management meetings to assess the financial status of the institutions. Financial monitoring was found to have a positive and significant effect on the financial performance of the institutions under study. The study recommends that the institutions establishes and manages regular and timely financial audit to help them identify any loop holes in their financial systems as well as financial performance.
Description
A Research Project Submitted to the School of Business in Partial Fulfillment of the Requirements for the Award of Degree of Master of Business Administration (Finance Option) of Kenyatta University.