Internal Controls Quality and the Financial Performance of Small and Medium Enterprises in Kisumu County

Abstract

Reliability and agency theory explained the interaction between study variables. A descriptive survey design was used targeting 38,000 registered SMEs in Kisumu County. Stratified sampling was used to select 100 respondents and data were collected through semi-structured questionnaires designed according to a 5-point Likert scale. The results of data analysis using frequency scale and evaluation of central tendency and inferential data showed that the mixed response of SMEs in Kisumu County was reasonable with 73% response from SMEs in manufacturing, retail and service sectors. The main results show that according to the regression analysis model, for each activity unit of SME financing, there is a value of 0.981 good information management, 2.222 good financial management is the value of financial management efficiency, and 0.663 positive risk assessment is found. Therefore, the study recommends conducting a risk analysis to uncover all risks associated with specific SMEs. More clearly, SME owners should provide all reports showing all risks and internal controls. The study adds to the body of knowledge as it identifies assumptions, including organizational and trust, that need to be changed in order to establish policies on when they should be used and when they should not be used. Finally, it is recommended that future researchers conduct further research to find other management methods that are best for achieving financial success not only in SMEs but also in other local businesses or national governments.