The Relationship Between Internal Controls and Financial Success of Small and Medium Size Mobile Phone Retailers in Nairobi

Abstract

Internal control system is fundamental in every organization for the business entity to achieve its objective. Internal control is the plan of organization and the coordinated procedures used within an entity to; safeguard its assets from loss by fraud or errors, check the accuracy and reliability of accounting data which management uses in decision making, and promotion of operational efficiency and encourage adherence to adopted policies in those areas in which the accounting and financial departments have direct or indirect responsibilities. Financial performance is a measure of how well a firm can use assets from its primary mode of business and generate revenues. It is a general measure of an entity financial health over a given period of time and can be used to compare similar firms across the same industry or sector. A sample of 30 SMEs was studied. The sample was collected from Communication Commission of Kenya and Nairobi City Council. The sample was matched with data from Kenya National Bureau of Statistics (KNBS) to relate the SME and the number of staff and to ensure the number of staff was 5 and above. From the data obtained from KNBS a random sample was done to obtain a sample of 30 SMEs. Financial success was measured by the level of profitability of the firm over 5 years. On the other hand the overall effectiveness of internal controls was measured by the extent to which control environment, risk assessment, control activities, information and communication and monitoring factors were adhered to in the organization. A multiple regression analysis was used to measure the quantitative data which was analyzed using the statistical package SPSS. Using multiple regression analysis, the researcher established that there is a strong positive relationship between the internal control – control environment, internal control – control activities, risk assessment, information and communication, monitoring and evaluation and financial success