EFFECT OF INTERNAL CONTROL SYSTEMS ON FINANCIAL PERFORMANCE OF PUBLIC INSTITUTIONS OF HIGHER LEARNING IN NAIROBI CITY COUNTY, KENYA
Benson Mugi Muhunyo - Master of Business Administration Student, Kenyatta University, Kenya
Dr. Jagongo A. O. - Lecturer, Department of Accounting & Finance, Kenyatta University, Kenya
ABSTRACT
Most public institutions in many parts of the world have poor financial performance compared to private institutions. The poor financial performance can be attributed to financial management practice. The sound financial management practices require the institutions of strong internal control systems. However, there are limited empirical research findings regarding the relationship between internal control system and financial performance. In public institutions, there have been a lot of weaknesses in their policies and procedures and also in their Internal Audit, the extent to which employee’s in positions handling cash fail to take regular leave and lack of rotation of employees handling very sensitive areas in finance and administration department. The main objective of the study was to establish the effect of internal control systems on financial performance in public institutions of higher learning in Nairobi City County. The study specific objectives were; to determine the effect of control activities, risk assessment, control environment, information and communication and monitoring on financial performance of institutions of higher learning in Nairobi City County. The study was anchored on agency theory, stewardship theory, and positive accounting theory and attribution theory. The study used a descriptive research design. This study took a sample study approach with its target population being the different categories of staff in different departments of Public Institutions of Higher Learning in Nairobi City County, Kenya. It took on a sample of 96 employees. Primary data was collected from sample population using open and closed ended questionnaires. Descriptive statistics was used in the data analysis and information presented in statistical forms. A multiple linear regression was also used to analyze the relationship between the dependent and independent variable. The study realized that the control environment, risk assessment, control activities and information and communication as indicators of internal control systems have a significant influence on the financial performance of the institutions of higher learning in Nairobi City County, Kenya. The variables explained 99.1% of the changes in financial performance of the institutions. The study recommends that internal control systems among the institutions need to be improved and accountability of organizational resources be upheld.
