AUDIT COMMITTEE AND FINANCIAL PERFORMANCE OF DEPOSIT TAKING SAVING AND CREDIT COOPERATIVE ORGANISATIONS IN NAIROBI CITY COUNTY, KENYA
AUDIT COMMITTEE AND FINANCIAL PERFORMANCE OF DEPOSIT TAKING SAVING AND CREDIT COOPERATIVE ORGANISATIONS IN NAIROBI CITY COUNTY, KENYA
Jane Wanjiru Muturi - Master of Business Administration, Kenyatta University, Kenya
Dr. Grace Kariuki - School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Savings and Credit cooperatives (SACCOs) are important players in financial intermediation and a critical indicator of how well society will fare in the future. Deposit-taking SACCOs in Kenya have been facing challenges related to financial mismanagement, fraudulent activities, and inadequate internal controls, which have jeopardized the safety and stability of these institutions. The financial performance of the SACCO sector is very weak and spread weakness to other areas, the independence, composition and technical skills of the audit committees which has often been compromised by both internal and external forces of the institutions. This study therefore1 sought to establish the effect of audit committee on financial Performance of deposit taking Saccos in Nairobi City County, Kenya. The specific objectives were the effect of audit committee independence; audit committee expertise and audit committee diversity on the financial performance of deposit taking SACCOs in Nairobi City County, Kenya. The underpinning theories of th1 study included agency theory, institutional theory and stakeholder theory. In this study, descriptive research design was adopted. The target population of this study was all deposit taking SACCOs. The unit of observation was 43 licensed deposit taking SACCOs are operating in1 Nairobi City County. The1 unit of analysis was 258 respondents1 comprising of Chief Executive1 Officers (CEOs), and audit committee1 members. The sample size of 157 respondents was attained using stratified random sampling and simple random sampling techniques. Primary data was obtained using questionnaires, which were emailed to the1 respondents. Inference from test score to a large domain of items similar to those of test is drawn using content validity which was used in this study. In order to check for reliability, the research used Cronbach alpha. The research used diagnostic tests such as stationarity test/ unit root test, normality test, multicollinearity test, autocorrelation1 test, Hausman test and heteroscedasticity test. This study utilized the descriptive and inferential statistics. Quantitative data was descriptively analyzed by use of measures of central tendencies and measures of dispersion. The measure of central tendency was the arithmetic mean while standard deviation was the measure of dispersion for data obtained from interval scales and ratio scales. Multiple regression analysis was used to analyze inferential data. The study information was displayed in tables. Throughout the research exercise, ethical principles were observed in the constitutional rights1 of every person and as such informed consent was sought from the respondents and was assured of confidentiality of the data and information to be collected. The study found that the board ensures a balanced representation of independent directors on the audit committee. The study found that it was uncertain whether there are mechanisms to ensure the independence of each committee member, and tenure limits ensure a continuous infusion of fresh ideas and skills. The study found that there is open and effective communication between the audit committee and external auditors. The study also found that audit committee meetings are not held with regular frequency. Moreover, the research found that the role of the audit committee in managing risks associated with the size of the SACCO’s loan portfolio is crucial. The research concluded that audit committee expertise had the greatest effect on the financial performance of deposit taking Saccos in Nairobi City County, Kenya, followed by audit committee independence, then audit committee meetings, then audit committee diversity while audit committee diligence had the least effect to the financial performance of deposit taking Saccos in Nairobi City County, Kenya. Moreover, it was concluded that the significant relationship between audit committee and financial performance of Deposit Taking Saccos in Nairobi City County depends on size of the Sacco. The study recommended that there is need to strengthen audit committee independence by implementing fixed terms for committee members. To boost audit committee expertise, the study suggested that targeted training programs should be provided, focusing on the specific challenges and risks inherent in the SACCO sector.
