The Effect of Internal Audit Function on Financial Performance of Saccos: the Case of Nairobi County

Abstract

This study investigated the effect of internal audit function on financial performance of Savings and Credit Cooperative Societies in Kenya. A causal research design was adopted in this study. The target population included twenty-six registered Saccos’ in Nairobi County. The study used primary data which was collected using a semi-structured questionnaire. Data was analysed using descriptive statistics and regression analysis. The study revealed that internal audit function; Internal Audit Roles, Internal Auditors’ qualifications, Reporting Structure and Records Accessibility explained 74.3% of variation in financial performance of Savings and Credit Cooperative Societies in Kenya. The study established that most Saccos always have an un-limited access to information they are supposed to audit. The internal audit overall performance in most Saccos was found to be good and adequate and the internal auditors were noted as the key important people to any Sacco. Prediction by regression indicated that a unit increase on the level of Internal Auditors’ qualifications leads to a 37.6% increase on financial performance of Savings and Credit Cooperative Societies. It was further noted that in most Saccos, operations and reporting structure are independent with only very few Sacco’s being the exception. Finally, the study established that internal auditors in most Saccos (70%) are provided with all the records for compiling audit reports and they are considered as the advisors to management on matters related to internal controls and governance. The study recommended that management of Saccos should keep organizing seminars and workshops whereby these internal auditors would be trained frequently by experts either internally or externally. Saccos should also adopt effective internal processes and practices that address key internal auditing practices for effectiveness of audit quality. This research recommends a similar study to be done but concentrate on the parastatal and government ministries.