Internal Audit Practices and Financial Performance of Deposit Taking Savings and Credit Societies in Western Kenya

Abstract

The main objective of the study was to examine internal audit practices on financial performance of deposit taking savings and credit societies in Western Kenya. The specific objectives were to determine the influence of internal audit independence, internal audit controls, Internal audit timeliness on financial performance of Saccos in Western Kenya. The study also sought to establish moderating effect of top management support on the relationship between internal audit practices and financial performance of deposit taking saccos in western Kenya. The main theory was agency theory and it was supported by contingency theory, signaling theory and upper echelons theory. The study was conducted in Western Region of Kenya comprising of counties of Kakamega, Vihiga, Busia and Bungoma. The study was guided by descriptive survey research design. The study targeted 129 internal auditors, accountants, finance officers and chief executive officers in all the 15 DT-SACCOS. Stratified random and simple sampling techniques were used to select 97 respondents from a target of 129. The study used both secondary and primary data. Self-administered questionnaire structured on 5-point Likert type scale was used. Secondary data was collected using secondary data schedule for a period between 2019 and 2023. Pilot test was done in 3 SACCOs targeting 10 respondents who were not used in the final study. To measure the reliability, Cronbach Alpha technique was employed. The study assessed two types of validity namely; construct and content validity. Data was analyzed using both descriptive and inferential statistics, thus for descriptive mean, standard deviation, frequency and percentages were used. For inferential correlation analysis, multiple and hierarchical regression was used. Data was analyzed using the SPSS 26 software. The results indicated that approximately 69.2% of the variability in financial performance is collectively explained by internal audit practices. A one-unit increase in internal auditor’s independence would results to significant increase in financial performance by 0.264 units(P=0.002). A one-unit increase in internal audit control would results to significant increase in financial performance by 0.321 units (P=0.000). A one-unit increase in internal audit timeliness would results to significant increase in financial performance by 0.339 units(P=0.000). Introducing top management support further improved R square to 0.798, P=0.017, indicating that the final model explained 79.8% of the variance in financial performance. Therefore, top management support is a significant predicator moderating variable. The study has provided valuable insights to Sacco management, Board of directors the Society regulatory Authority ( SASRA), relevant Ministries and the state corporations.