EFFECTS OF INTERNAL CONTROLS ON FINANCIAL PERFORMANCE (A CASE STUDY OF TECHNICAL TRAINING INSTITUTIONS IN KENYA)

ABSTRACT

The study investigated and sought to establish the relationship between internal control systems and financial performance in Technical Training Institutions in Kenya. Internal controls were looked at from the perspective of Control Environment, Internal Audit and Control Activities whereas Financial performance focused on Liquidity, Accountability and Reporting as the measures of Financial performance. The Researcher set out to establish the causes of persistent poor financial performance from the perspective of internal controls.

The research was conducted using both quantitative and qualitative approaches using Survey, Correlation and Case study as Research Designs. Data was collected using Questionnaires as well as review of available documents and records targeting basically Finance Officers, Heads of Departments, Management Committee members and Finance and Accounts staff as respondents from a population of 37 Technical Training Institutions in Kenya. Data was analyzed using the Statistical Package for Social Scientists where conclusions were drawn from tables, figures from the Package.

The study found that management of the institutions is committed to the control systems, actively participates in monitoring and supervision of the activities of the Technical Training Institutions in Kenya , all the activities of the Institution are initiated by the top level management, that the internal audit department is not efficient, is understaffed, doesn’t conduct regular audit activities and doesn’t produce regular audit reports although the few reports produced by the internal audit department address weaknesses in the system. It was further revealed that there is a clear separation of roles, weaknesses in the system are addressed, and there is a training program for capacity building in the institutions. However, the study also found out that there is lack of information sharing and inadequate security measures to safeguard the assets of the Technical Training Institutions in Kenya. It was also noted that there isn’t enough cash to meet intended obligations effectively as and when they fall due, that the fees charged to students are not appropriate to cover costs, that all fees meant to be remitted to the Technical Training Institutions in Kenya are not collected. It was however, revealed that all revenues and expenditures are properly classified, and that assets of the Technical Training Institutions in Kenya have generally increased.

The study established a significant relationship between internal control system and financial performance. The investigation recommends competence profiling in the Internal Audit department which should be based on what the Technical Training Institutions in Kenya expects the internal audit department to do and what appropriate number staff would be required to do this job. It also recommends that the institutions establishes and manages knowledge/information management system to enable all parties within the institution to freely access and utilize the official information. There should be a strategy to improve the generation of additional finances for the Technical Training Institutions in Kenya. The Study therefore concludes that internal control systems do function although with hiccups and that there is a significant relationship between internal control systems and financial performance of Technical Training Institutions in Kenya.