Internal Audit, Institutional Characteristics, Internal Controls and Performance of Water Service Providers in Kenya

Abstract

The study was to establish the association among internal audit, institutional characteristics, internal controls and organisational performance of Kenyan WSPs. The gist of the study was to determine the influence of institutional characteristics and internal controls on the association between internal audit and organisational performance. To address the study gaps, four hypotheses were derived and tested on a population of 87 Water service providers. This cross sectional descriptive study that attained a response rate of 84% of the targeted 87 water service provider units was guided by a positivist study paradigm. Key statistical tests done including Cronbach alpha; descriptive statistics, the mean and standard deviation were done. Data Envelopment Analysis approach, correlation analysis, multiple and stepwise regression analysis was then used to test the hypotheses. Correlation analysis found a statistically significant positive relationship between internal audit and internal controls, statistically significant positive relationship between internal audit practices and firm performance, statistically insignificant positive association between Location of water providers and firm performance, statistically insignificant negative associations between internal Controls and firm performance as well as between size of WSPs and firm performance. Null hypothesis one was rejected as the regression analysis found that the p-value was less than .05. The adjusted R squared was .10.1 meaning that 10.1% of variations in firm performance are explained by variation in internal audit. This infers that internal audit influence performance of Water service providers in Kenya. Null hypothesis two was tested. The test failed to reject the null hypothesis an indication that firm characteristics: Size and location of water service providers do not moderate the relationship between internal audit and organisational efficiency of Water service providers in Kenya. The third null hypothesis test was done. The test failed to reject the hypothesis indicating that Internal controls do not mediate the relationship between internal audit and performance of Water service providers in Kenya. The fourth hypothesis was tested and the result showed that it failed to reject the null hypothesis; an indication that the joint relationship of internal audit, size and location of WSPs on internal controls does not influence performance of WSPs in Kenya. This study has provided an empirical foundation for investigating the impact of institutional characteristics and internal controls on organizational performance. The study has also contributed greatly to the academic literature by integrating Agency theory, Monitoring theory; Resource based theory, Policeman theory and Contingency theory. Further, the study made a unique contribution to policy formulation and development to benefit the understanding on how internal audit in the Kenyan context influence organizational performance resulting to formulation of reforms in various public institutions to strengthen internal audit. One of the bottlenecks of this study was that the primary data on internal audit and internal control were collected cross sectionally using a Likert scale. There is a chance that some of the respondents may have either over/under rated their scoring on some of the questions leading to subjective results. The reliance on primary data has the potential associated with sources of systematic measurement error. Future studies may focus on using secondary data to measure, for example, organizational non-financial performance. Secondly, the study employed a cross sectional approach whereas a longitudinal approach would provide for a longer time of study to observe relationships among study’s variables.