Internal Control Activities and Operational Performance of Supermarket Chains in Kenya
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Date
2025-03
Authors
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Publisher
Kenyatta University
Abstract
The retail sector in Kenya has emerged as a dynamic and attractive investment hub in sub Saharan Africa, driven by rising disposable incomes and a growing consumer base. However, this promising growth trajectory has been marred by significant challenges, including the disruptive impact of the Covid-19 pandemic and a troubling trend of financial instability within the supermarket industry. Over the past decade, several prominent supermarket chains, such as Uchumi, Nakumatt, and Shoprite, have faced severe financial crises, culminating in closures or market exits. These challenges have been largely attributed to mismanagement, inadequate cash flow systems, and weak internal controls, underscoring the critical need for effective governance and operational strategies. Against this backdrop, this study investigates the relationship between internal control activities and the operational performance of supermarket chains in Kenya, with a focus on segregation of duties, inventory management controls, authorization and approval procedures, monitoring activities, and the moderating role of cash management. Drawing on the Miller Orr Model, Agency Theory, and the Institutional Theory of Organizations, the study sought to elucidate the intricate relationships between dependent and independent variables. This study adopted a positivist research philosophy, utilizing a cross-sectional research design to examine the relationship between internal control activities and operational performance in supermarket chains in Kenya. The target population comprised 39 supermarket chains, with data collected from key managerial roles: finance and accounts managers, human resources managers, and operations managers to ensure a comprehensive perspective on internal control practices and their impact on operational outcomes. A judgmental sampling technique was employed to select knowledgeable respondents, and data from 117 individuals were aggregated at the supermarket level for analysis. The study utilized both descriptive and inferential statistics. Additionally, the moderating role of cash management was explored using interaction terms in the regression model. Data collection was conducted through structured questionnaires, employing a five-point Likert scale to ensure consistency and reliability. Through a comprehensive analysis, the study reveals that segregation of duties, inventory management controls, and authorization and approval procedures significantly enhance operational performance, underscoring their importance in fostering accountability, efficiency, and transparency. However, monitoring activities were found to have a negative impact on performance when excessively implemented, suggesting that over-monitoring can lead to bureaucratic inefficiencies and employee dissatisfaction. The study further identifies cash management as a critical moderating factor, demonstrating that effective cash management strengthens the positive relationship between internal control activities and operational performance. These findings highlight the need for a balanced and integrated approach to internal controls, supported by robust cash management practices. The study contributes to the existing body of knowledge by providing empirical evidence on the role of internal controls in operational performance, emphasizing the contingent nature of their effectiveness, and offering context-specific insights for supermarket chains in developing economies. Practical recommendations include optimizing inventory management, streamlining authorization processes, and adopting strategic monitoring systems.
Description
A Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirement for the Award of Degree In Master of Science (Finance) in Finance of Kenyatta University, March 2025.
Supervisor
1. Ambrose Jagongo
2. F. W. S. Ndede