Survey of internal control systems among the listed private companies and the public sector companies in Kenya

Abstract

Internal control serves many important purposes. There are increasing calls for better internal control systems and report cards on them. Internal control is looked upon more and more as a solution to a variety of potential problems that touches on the effectiveness and efficiency of an organization. The financial reporting and corporate governance arenas have been in an uproar. Some external actions through the Nairobi Stock Exchange as well as professional association e.g. ICPAK and regulatory bodies e.g. Capital Market Authority (CMA) and Central bank of Kenya (CBK) are attempting to regain trust and stability in the financial markets. One of the strongest means to monitor financial reporting, ethics, and governance is implementing a strong internal control system. Internal control can ensure the reliability of financial reporting and compliance with laws and regulations. However, an internal control system, no matter how well conceived and operated, can provide only reasonable--not absolute--assurance to management and the board regarding achievement of an entity's objectives. This research is a study of internal control system in the public and private sector. The main objective of the study is to find out the practice in regard to design and implementation of internal control systems in the private and the public sector and whether there is any difference in effectiveness and efficiency as the result. The research focused on the key components of internal control systems namely control environment, risk assessment, control procedures, information and communication and finally monitoring. The study explored the designs of the respective sectors to find out if their similarities and difference. Data of this study was collected by questionnaires and focused group discussion. The data collected was analyzed by use of descriptive and inferential statistics. Frequency tables and graphs were used to present the results of this study. The results of this study showed that the private sector compared to the public sector has a strong internal control system than the public sector in all the component of internal control However the public sector and private sector do not have a significant difference in monitoring and control activities and the public sector even has stronger elements of preventive controls. Thus Public sector should enhance the design of internal control in control environment, risk assessment, monitoring and information control components while the private sector should enhance design of control activities