Effects of Internal Control on the Financial Performance of Saccos in Meru County

Abstract

Sacco's main objective is to empower people's financial health through mobilizing members' savings and issuing credits. Word bank 2017 report showed that more than 1.2 billion persons globally belonged to at least one or two of 3 million co-operatives in the world. Kenya’s Sacco sector is the largest in Africa and the seventh worldwide with 8 million members in more than 11,000 registered Sacco’s. Out of these, 230 have Front Office Service Activities (FOSAs). The study sought to assess the effects of internal controls on the financial performance of Saccos in Meru County. This study evaluated the effect of the control on the financial performance of Saccos in Meru. The objectives of the study were to establish the effect of communication on the financial performance of Saccos; to determine the effect of risk assessment on the financial performance of Saccos; to find out the effect of control functions on the financial performance of Saccos; and to assess the effect of monitoring on the performance of Saccos in Meru County. The theories underpinning the study were agency theory, attribution theory and contingency theory. Questionnaires with open and closed-ended questions were administered to collect primary data among credit managers, finance managers and an auditor in 24 Sacco in Meru County. The research philosophy of the study was positivism. The study adopted a cross-sectional mixed design method. The study targeted a sample size n=96 respondents arrived by multiplying 4 respondents in the 24 Sacco as a basis of analysis. The data was analyzed both quantitatively and qualitatively using (SPSS V 23). The output was presented descriptively by use of mean, standard deviation, frequencies and percentages. Inferential statistics such as correlation coefficient β, coefficients of determination R and P-values were used from a multiple regression equation to measure the direction, strength and significance of the relationship between control activities and financial performance of Sacco Banks. ANOVA was utilized to verify the goodness of fit of the model. The results upon testing the hypotheses indicated that all the four independent variables; communication, risk assessment, control functions and monitoring had a significant relationship with the dependent variable while tested independently. Further, the variables were tested together and the results revealed that only communication and risk assessment had a significant relationship with the financial performance of Saccos in Meru County. The study concluded that all the four independent variables needed to be emphasized since they influenced the financial performance of Saccos in Meru County. The study recommended that Saccos should adopt internal control systems that best fit their kind of operations while emphasizing more on communication and risk assessment as these two seemed to have more influence on the financial performance.