Effect Of Internal Audit Reporting Quality On Financial Performance Of Savings And Credit Cooperative Societies A Case Study In Murang’a County In Kenya

Abstract

The cooperative movement in Kenya now boasts of an annual turnover of Ksh 43.6 billion which is equivalent to 4.5% of the country’s Gross Domestic Product. SACCOs globally continue to perform poorly financially due to poor management and fraud. An inspection report compiled by the SACCO Societies Regulatory Authority showed that many SACCOs in Kenya have been involved in mismanagement, fraud and corrupt practices. SACCO regulations (2008) stipulated that every SACCO shall establish an internal audit function which shall be responsible for reviewing and reporting on the adequacy of the internal audit system and the financial matters of the SACCO. The general objective of this study was to determine the effect of internal audit reporting on financial performance of SACCOs. The specific objectives were to: determine the effect of objectivity of the internal audit reports on financial performance of SACCOs in Kenya; establish the effect of internal audit reporting channels on financial performance of SACCOs in Kenya; examine how internal audit report completeness affects financial performance of SACCOs in Kenya, and; determine the effect of internal audit report timeliness on the financial performance of SACCOs in Kenya. The researcher employed descriptive survey design. The target population of this study was all the SACCOs in Murang’a County which are estimated to be 400. Stratified sampling was utilized to select a sample of 120 SACCOs. A questionnaire was used to collect data. Descriptive statistics such as mean scores, percentages and frequency distributions were applied to data in nominal, ordinal and interval scales. Inferential statistics including regression and correlation analysis were applied to establish whether there was any significant relationship between audit reporting and financial performance of SACCOs. The study findings reveal that objectivity of financial reporting in SACCOs, internal audit report completeness and timeliness of internal audit reporting all had significant effect on financial performance of SACCOs. However, internal audit reporting channels did not have a significant influence on financial performance of SACCOs. The following recommendations are made. First, SACCOs should ensure that internal audit reports in the SACCO are not based on hearsay, subjective judgment or witch-hunting. Second, the internal audit departments should be independent and should report to the highest office in the SACCO to ensure that this department carries its function effectively and competently without any fear or favor. Third, the SACCOs should ensure that internal audit department provides comprehensive reports with an assessment of the entire effectiveness of risk, governance and controls that the organization has put in place. Lastly, SACCOs should ensure that internal audit reports on high risk areas are done regularly so that to make sure risk from these areas is managed effectively.