Effect of Internal Control Systems on Financial Performance of Public Universities in Kenya

Abstract

Most public Universities across the world have reported suboptimal financial performance compared to private universities. The poor financial performance can be attributed to financial management practices. The sound financial management practices require the institutions to have robust internal control systems. However, there are limited empirical research findings regarding the relationship between the internal control systems and financial performance in public universities in Kenya. The general objective of the study was to establish the effect of internal control systems on financial performance of public universities in Kenya. The study specific objective was to investigate the effect of detective controls on the financial performance of public universities in Kenya. The study was anchored on agency theory, stewardship theory, systems theory and attribution theory. The study adopted a causal research design. The target population of respondents were the deputy vice chancellors finance, registrar finance and administration, ICT personnel, finance officers and internal auditors in the 37 public universities in Kenya. The target population was 185 respondents. The study worked with a sample of 34 public universities through stratified random sampling, and the other three were used for pilot testing. Primary data was collected from sample population using semi-structured questionnaires. Secondary data was collected through evaluation of reports, organizational journals, publications and review of information from the organizations website. Quantitative data was analyzed using Statistical Package for Social Sciences (SPSS). All the questionnaires received were referenced and items in the questionnaire coded to facilitate data entry. After data cleaning which entailed checking for errors in entry, descriptive statistics and frequencies were estimated for all the variables and information presented inform of tables, graphs and pie charts. Descriptive statistics and inferential statistics were used because they enabled the researcher to meaningfully describe distribution of scores or measurements using a few indices. Inferential data analysis was done using Pearson Correlation coefficient and regression analysis. Regression analysis was conducted to empirically determine whether detective controls were significant in determining the financial performance of public universities in Kenya.  Regression results indicated the goodness of fit for the regression between detective controls and financial performance was strong.

From the regression model, detective controls and financial performance to a constant zero, financial performance would be 3.132. It was established that a unit increase in detective controls would cause an improvement in financial performance by a factor of 0.237. This clearly showed that there was a positive relationship between detective controls and financial performance. P-value was less than 0.05, which showed that variables covered in the study on detective controls were statistically significant to influence financial performance. The study concluded that detective controls had a positive and significant influence on the financial performance of public universities in Kenya.

Keywords: Internal control Systems, Detective Controls, Financial Performance

DOI: 10.7176/RJFA/12-16-09

Publication date:August 31^st 2021