Effect Of Internal Audit Practices On Financial Performance In Kenya: A Case Of Vihiga County Government

ABSTRACT

Financial performance of County governments in Kenya has been rated to be below average,

as is evidenced in the 2017/2018 Auditor General’s report, on County governments’

performance. Available information attests to the fact that Audit practices are an inherent

function of the operations of all government activities. Audit provides unbiased, objective

assessments of responsible and effective public resources management in an effort to achieve

intended results, through accountability and integrity, improved operations, and instilling

confidence among citizens and stakeholders. Public sector audit not only supports the

governance responsibilities of oversight, insight, and foresight, but generally lends to

increased performance measurements. Below average performance despite existence of audit

functions is therefore an understatement.

The Purpose of this study is therefore to investigate the effect of internal audit Practices on

financial performance of County governments in Kenya, with specific interest on Vihiga

County Government. The study focused on Vihiga county because from the Summary of the

report of the Auditor General on financial statements for county governments for the year

2017/2018, Vihiga County executive and the County assembly had had qualified and

disclaimer opinions respectively, the county had total pending bills of ksh.1, 881,292,987 and

73 systemic issues affecting them. The specific objectives of the study were to establish the

association between risk management practices and financial performance, the contribution of

internal environment practices to financial performance; and analyse effect of monitoring and

control practices on financial performance. The study was guided by stewardship and

Agency theories; where stewardship explains that the executives and managers of an entity

work to protect and make profits for the stakeholder and agency explain principal-agent’s

relationship. The Cross –sectional correlation design was applied because it has capacity to

determine effect, and coefficient contribution of factors on single or aggregate dependent

variables. The study targeted population 100 people consisting of Heads of departments,

Directors, Chief Officers, Accountants, Internal auditors and Procurement Officers of Vihiga

County government. The study employed Krejcie& Morgan (1970) table to determine a

sample size of 80 respondents. The study used primary data collected using structured

questionnaires. The SPSS version 20 was used in the statistical analysis. Reliability of data

collection was realised through consistency measure known as Cronbach’s alpha (ɑ=0.767).

Data validity was achieved through liaison of research expert who validated the research

tools. The collected data was analysed using correlation, regression, Descriptive Statistics,

inferential statistic e.g. ANOVA, the results showed that internal audit practices affect

financial performance significantly, evidenced by F-statistics of + 0.679 and therefore the

null hypothesis (Ho) that there is no significant relationship between internal audit practices

and finance performance is rejected at 0.05 ( 5 %) level of significance. The study has

potential to researchers to understand why organizations perform poorly, despite internal

audit practices in place; students and academicians may use this study as a basis of

discussions on corporate governance practices and how these affect performance