INTERNAL CONTROL SYSTEM AND FINANCIAL EFFICIENCY OF DEPOSIT TAKING SAVINGS AND CREDIT CO-OPERATIVES IN BUSIA COUNTY, KENYA
Sharon Minayo - Student, Department of Accounting & Finance, Kenyatta University, Kenya
Dr. Francis K. Gitagia (PhD, CPA) - Lecturer, Department of Accounting & Finance, Kenyatta University, Kenya
ABSTRACT
Financial inefficiencies among deposit-taking savings and credit co-operatives remain a pressing concern in Kenya, despite the sector’s notable contribution of around 10% to the country’s GDP through savings mobilization and credit facilitation to individuals and small businesses. In Busia County, many DT-SACCOs face persistent inefficiencies characterized by high operational costs and suboptimal resource allocation, even with the implementation of internal control systems. The overall goal of the research was to ascertain the effect of internal control systems on the financial efficiency of DT-SACCOs in Busia County. The specific objectives were to determine the effect of control environment and risk assessment on financial efficiency. Anchored on Agency Theory, Stakeholder Theory, Systems Theory, and the RBV, the research utilized a mixed methods research approach. The unit of analysis comprised all 8 DT-SACCOs in Busia County, whilst the unit of observation included finance/accounting, internal audit, and finance department staff. A census approach was applied to target the full population of 40 staff members. Secondary data were extracted from annual reports to assess operating costs and income, while primary data were obtained utilizing semi-structured questionnaires. Quantitative data were analyzed utilizing SPSS version 28 through descriptive statistics Diagnostic tests including normality, multicollinearity, autocorrelation, heteroscedasticity, and linearity were conducted to validate the assumptions of regression analysis. Regression results revealed that control environment and risk assessment had a statistically significant and positive effect on the financial efficiency of DT-SACCOs in Busia County. Correlation results showed a positive association between the internal control variables and financial efficiency. These findings highlight the critical role of robust internal controls in improving the financial outcomes of SACCOs. The research concluded that when the control environment is strengthened and risk assessment mechanisms are improved, DT-SACCOs in the area are significantly more financially efficient. The research suggests that so as to be in compliance with evolving operational dynamics and regulatory requirements, DT-SACCOs should regularly review and update their internal control policies and procedures. SACCOs must also have structured training programs to aid employee recognize, assess, and communicate risks.