THE EFFECT OF INTERNAL CONTROLS ON FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KENYA
Gabriel Mwaniki Ngari - Master of Business Administration, Jomo Kenyatta University of Agriculture and Technology, Kenya
Tabitha Nasieku - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
This project is on effect of internal control system on financial performance of micro finance institutions in Kenya. The study used descriptive and diagnostic research design on a sample of 21 out of a population of 53 microfinance institutions with respondents being internal auditor, senior accountant and five other staff in accounting department. Stratified and simple random sampling techniques were used to select study sample. Primary qualitative data was gathered using questionnaires and structured interview was administered to employees of the institutions. The data was edited, recorded and analyzed in tables and charts. The study found out segregation of duties is positively related to financial performance. Through institution of stages in accounting process as well as internal check the study concluded there was effect on financial performance thus recommending proper handling of division of labour, job rotation and job description. Similarly authorization and approval of accounting transactions are directly related to financial performance. The study concluded number of people authorizing payments as well as signatories to bank accounts should be limited as a control. Approval amount in the document go hand in hand with the position of the officer attending to the document. Thus the study recommended relevant training to the staff and sufficient provision of policies and procedure manuals. Internal audit functions improved financial performance especially operational and financial review. The study concluded in reviewing financial reports auditors must familiarize themselves with relevant policies and procedure manuals. It therefore recommended application of audit plans, relevant international auditing and accounting standards while adhering to professional ethics. Further vouching positively affects financial statements. The study concluded officers do thorough enquiries, review support documents, account history of the clients hence recommending training of officers and processing at central point. Additionally the study highlights areas for further research as other institutions besides MFIs’ especially for comparison.
