Effect of internal audit controls on the financial performance of insurance companies in Kenya

Abstract

This study examined the effect of internal audit controls on the financial performance of insurance companies in Kenya, focusing on four dimensions: quality assurance programs, internal control systems, communication, and the control environment. A descriptive research design was adopted, targeting all 56 registered insurance and reinsurance firms in the country. Out of these, 45 valid responses were collected through structured questionnaires, representing an 80.4% response rate. Descriptive results indicated consistently high implementation levels of internal audit controls, with mean scores ranging between 4.10 and 4.26. Correlation analysis showed significant positive associations between financial performance and internal control systems (r = 0.670), control environment (r = 0.626), quality assurance (r = 0.478), and communication (r = 0.465). Regression analysis further revealed significant effects for internal control systems (β = 0.482, p < 0.001), control environment (β = 0.357, p = 0.002), and quality assurance programs (β = 0.278, p = 0.016), while communication did not show a statistically significant effect (β = 0.021, p = 0.864). The overall model was statistically significant (F = 22.139, p < 0.001) and explained 68.9% of the variance in financial performance (R² = 0.689). The study concludes that internal audit controls play a critical role in enhancing financial performance and recommends strengthening audit frameworks, enforcing compliance, and fostering ethical governance within Kenya’s insurance sector.