Effect of Internal Control on Financial Performance in District Local Governments of Uganda Case Study: Bukedea District Local Government

Abstract

The research was carried out to examine the effect of internal controls on financial performance of local governments with the case study being BDLG. The major objective of the study was to find out the effect of internal control on financial performance. In BDLG. The study was also guided by the following specific objectives: to find out the effect of control activities on financial perfornance , to find out the effect of the control environment on financial performance in BDLG, to find out the effect of risk management on financial performance in BDLG and the relationship between internal control and financial performance.

The study adopted a case study research design to collect data from a population of 50 respondents out of which 44 were sampled; both simple random and purposive sampling techniques were used to select the respondents.The researcher administered a survey questionnaire to each member of the target population since it was the most appropriate tool to gather information. Quantitative analysis and regression analysis were used as data analysis techniques. Descriptive statistics such as mean, standard deviation and frequency distribution were used in the analysis of data. Data presentation was done by use of tables for easy understanding and interpretation.

Basing on the findings of the study, 84.1% of the respondents agreed with the fact that internal controls activities such as authorization of transactions, safeguards does exist in Bukedea district local government, and affects financial performance. The field findings also show that 70.1% of the respondents agreed control environment affects financial performance in the district. The findings from the field further show that 86.4% of the respondents agreed mitigation of risks enhances financial performance. The findings also portray a high value of R squared 0.331(33.1%) that shows there is a strong and positive relationship between internal audit and financial performance.

The study concluded that BDLG has effective control activities, this can be determined by factors such as physical safe guards, monitoring and supervision, authorization of transactions, etc., that minimizes financial losses and enhances financial performance. The study also concluded that BDLG has an effective control environment, this is determined by the competency of its workers, organizational structure, ethics, and the financial system used, this has led to enhanced performance in the district. The researcher also concludes that the district has a good risk management system. The study finally concluded that there is a strong positive relationship between internal controls and financial performance.

The study finally recommended that more internal controls such as monitoring and evaluation of government projects should be established to strengthen and minimize losses such that financial performance is enhanced. The district should in future establish a risk assessment committee in order to reduce damages caused by taking un calculated risks. The district should enhance its financial performance through maintenance of proper books of accounts, timely financial reporting, proper record keeping, following the national and international standards of financial reporting and employment of competent staff to minimize losses that affect financial performance in the district.

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