Internal Control System and Financial Performance of Deposit Taking Savings and Credit Co-Operative Societies in Makueni County, Kenya

Abstract

Financial performance of DT-Sacco’s in Makueni County is plagued by severe deficiency in internal financial control due to continued lending of more than the deposits, which consequently destroys their liquidity. Majority of the Sacco’s are pushed to lend from the external sources so that they counter the shortfall that may arise. This study sought to investigate the effect of internal control system on financial performance of deposit taking Savings and Credit Cooperative Societies in Makueni County. The specific objectives of the study are; to examine the effect of monitoring on the financial performance of deposits taking Savings and credit cooperatives in Makueni County, to establish the effect of control environment on the financial performance of Deposit taking Savings and credit cooperatives in Makueni County, to determine the effect of control activities affecting the financial performance of deposit taking Savings and credit cooperatives in Makueni County, to investigate the effect of risk assessment on the financial performance of Deposit Taking Savings and credit cooperatives in Makueni County and to determine the effect of information and communication affecting the financial performance of deposit taking Savings and credit cooperatives in Makueni County. The study is anchored on the reliability, Contingency, agency, stewardship, shareholders and cost management and efficiency theories. The study employed a descriptive research design. The study adopted the census technique due to the low number of deposit taking Savings and credit cooperatives numbering 17. Data was collected using Semi-structured questionnaires using the drop and pick later method. Data was analyzed using Statistical Packages for Social Sciences version 26.0 software. The results were presented in tables, frequencies, median, mean scores and standard deviation. The findings indicate that all redundant processes and exercises concerned with internal control system are frequently replaced during monitoring to ensure efficiency. The findings also indicate that Control environment, as an aspect of internal control system is also key in influencing financial performance of deposit taking Saccos . From the analysed data the researcher derived conclusions and make recommendations. This study has highlighted the importance of internal control system on financial performance of deposit taking Savings and credit Cooperatives. Internal control systems that are effective are those that encourage staff to embrace high financial integrity with great diligence on values of financial propriety and high observance of ethics. This also requires the staff to have the prerequisite competence and capacity to enhance productivity through adequate segregation of duties, frequent job rotations and adequate processes to do internal checks, for example, authorizations and verifications for each transaction. Therefore, management of deposit taking Savings and credit Cooperatives should thoroughly concur with the commendations of our internal audit report, making each effort to make sure that all the financial books are orderly for external audit. Additionally, the management should make sure their organizations have installed appropriate Information Communication Technology controls, like, password access and pertinent software to control information access to permitted people only.