Internal control, organizational size and operational performance of international non-governmental organizations in Nairobi

Abstract

The current situation in Nairobi reveals significant deficiencies in the internal control systems of international non-governmental organisations (NGOs), leading to poor operational performance. These shortcomings span across all five components of internal control. The study aimed at determining the effect of internal control, organisation's control environment, risk assessment and monitoring activities on the operational performance of international non-governmental organisations in Nairobi. The study further established the moderating effect of organizational size on the relationship between internal control and operational performance of international NGOs. Theoretically stakeholder theory, risk management, institutional theory and agency theory were applied. The study employed a descriptive research design. The study targeted 288 stakeholders under 288 international NGOs based in Nairobi. The study comprised of one stakeholder per NGO thus top manager/chief internal auditor/ chief accountant or a board member for each NGO. This led to sample of 167 stakeholders. Random sampling technique was adopted. Data was collected using questionnaires. Reliability was tested using Cronbach alpha test and validity was tested using Kaiser Meyer Olkin for content analysis. Piloting was conducted on 29 stakeholders in Nairobi outside the sample group. Descriptive statistics used were frequencies, percentages, mean and standard deviation. Inferential statistics included Pearson correlation, simple linear and multiple linear regression analysis. The findings were that control environment; risk assessment and monitoring activities had significant relationship with Operational performance of international NGOs. Furthermore, organizational size had a significant moderating effect on the relationship between internal control and operational performance of international NGOs. The study suggests that a proactive approach to risk mitigation planning reflects a robust commitment to sustaining stable operational performance. The study concludes that the internal audit team's fast follow-up on audit issues demonstrates a proactive attitude to monitoring and evaluation. The study revealed that organizational size significantly moderates the link between internal controls and operational performance. The study advises that NGO management should implement control measures via internal auditors granted free access to do an extensive audit, facilitating a detailed evaluation of financial risks and controls. NGO management must establish stringent authorization and approval standards to mitigate the risk of unlawful transactions and mismanagement. Management of NGOs should prioritize prompt monitoring of audit findings to enable rapid corrective measures. Management must commit to expanding its regions by enhancing its workforce and asset base to bolster its size and scope for effective internal control.