The relationship between internal audit function and the corporate governance of deposit taking microfinance institutions is Kenya

Abstract

Every industry and organization should aspire to have a good corporate governance image that enhances the reputation of the industry and or organization making it attractive to customers, investors, suppliers, contributors or donors. Quite a number of studies have been done on the effectiveness of internal audit in promoting good corporate governance. Most of these previous studies focused on financial institutions. Others focused on establishing the relationship that exists between corporate governance and performance. The researcher felt that the internal audit function and the corporate governance area has not been fully exhausted and therefore focused on the licensed deposit taking microfinance institutions in Kenya. The objective of this study was to establish the relationship between the internal audit function and the corporate governance of the deposit taking microfinance institutions in Kenya. A descriptive cross-sectional design method was preferred for this study. The target population of this study was the 9 licensed deposit taking microfinance institutions in Kenya. The study targeted the Heads of Internal Audit and Company Secretaries of all the 9 deposit taking institutions. The study collected primary data on the current state of affairs of the deposit taking microfinance institutions. The main instrument for data collection was questionnaires with structured questions. The research was quantitative in nature and this implies that descriptive statistics was employed. The researcher also used a multivariate regression analysis to determine the relationship between the independent variables and the dependent variable. The study found out that that risk management had the greatest effect on corporate governance within deposit taking microfinance institutions in Kenya followed by internal controls while compliance and consulting and audit committee had the least effect respectively. The study recommends that the deposit taking microfinance institutions should recognize contribution of internal auditing in promoting good corporate governance. Additionally, the study recommends that the deposit taking microfinance institutions should apply internal auditing in its operations as an effective tool for ensuring compliance with set policies and procedures. The study further recommends that deposit taking microfinance institutions in Kenya be well equipped to implement corporate governance practices in their daily activities to the levels acceptable in developed market economies and improve accessibility to firm financing by enhancing transparency and accountability in the information disclosed.