Internal Financial Controls and the Performance of Religious Organizations: A Case of Selected Protestant Churches in Tharaka-Nithi County, Kenya.

Abstract

Religious organizations have an important role of delivering social services in the society and have been entrusted with massive financial resources. Majority of them operate on the principal of mutual trust when it comes to financial management with the perception that all stewards are honest. However, many questions have been raised concerning the financial accountability of these organizations following the numerous scandals and lawsuits involving them and their leaders. The purpose of the study was to assess the role of internal financial controls on the performance of religious organizations in Kenya. The study aimed at establishing effects of control activities, continuous monitoring, accounting information control environment and risk assessment on the performance of religious activities. The study adopted descriptive research design. The target population for this study comprised of all the registered protestant churches in Tharaka-Nithi County. Data was be collected by use of structured questionnaires which was carefully designed and tested with a few members of the population for further improvements. The researcher collected data on the financial performance of the churches for a five-year period from 2016-2020. The collected data was entered into statistical package for social sciences analysis tool where descriptive statistics was done and created means and standard deviations. In addition, multiple regression analysis was conducted to establish the relationship between the variables. Data was presented in tables and charts. Qualitative data was presented in prose form. The study established that most of the religious organization maintained proper financial records and prepared final accounts. However, there were still others who did not maintain proper records nor prepared final accounts. The study also found that majority of the churches have their account audited, however not frequently. It was also observed that majority of the churches derived their income from member contribution, although others engaged in other income generating activities. Most of the churches under study had an elaborate strategic plan that include financial planning. They do budgeting and in their budgeting formulation it was established that members a highly involved. The study found out that in the Churches where there was application of basic financial management practices i.e. financial planning, budgeting and reporting, few cases of financial fraud were recorded. The correlation results showed that control activities and continuous monitoring were strongly and positively correlated to financial performance with R values at 0.434 and 0.348 respectively. Furthermore, the accounting information and communication and control environment have a strong effect to financial performance in the religious organizations based on the R values of 0.786 and 0.761 respectively. Based on the study findings the study concludes that effective internal controls in religious organizations positively relate with performance. The study finally recommends adoption of timely financial reporting to improve the quality of accountability, control of checks and balances and maintenance of proper books of accounts in religious based organizations.