Effect of internal controls on the financial performance of manufacturing firms in Kenya

Abstract

Effectiveness of internal control on performance should be considered most important in every firm because the task of internal controls is to prevent and detect fraud in the firm. Internal controls are put in place to ensure safe custody of all assets; to avoid misuse or misappropriation of the firm’s assets and to detect and safeguard against probable frauds. Every firm whether manufacturing or non-manufacturing, should have management of the highest qualifications, caliber and dedication since its inception. Thus the purpose of this study is establishing the effect of internal controls on the financial performance of manufacturing firms in Kenya. The findings of this study would be crucial in informing the policy makers in Kenya on the effect of internal control on financial performance of manufacturing firms. A cross sectional survey was used which targeted 65 manufacturing firms in Kenya. The primary data was collected by use of a structured questionnaire. A Statistical Package for Social Sciences (SPSS) version 21.0 was used to analyze the data. From the findings of the study, it was concluded that manufacturing firms which had invested on effective internal control systems had more improved financial performance as compared to those manufacturing firms that had a weak internal control system. Hence it was recommended that Kenya Association of Manufacturers should monitor and supervise manufacturing firms to ensure that the accountants comply with accounting regulations and requirement as provided by the Institute of Certified Public Accountants to ensure proper implementation and compliance with accounting standards and principles, organizations should develop a mechanism to incorporate relevant feedback from the various stakeholders into their internal control system; and also that the governing body ensure that the internal control system is periodically monitored and evaluated