Effect of internal audit on financial performance of local governments

Abstract

The research was carried out to study the effect of internal audit on financial performance of local governments with the case study being SDLG. The major objective of the study was to find out the effect of internal audit on financial performance. In SDLG. The study was also guided by the following specific objectives: to find out the effectiveness of find out the effectiveness of internal audit in SDLG, to find out the effectiveness of financial performance in SDLG 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. After computing the descriptive statistics, average mean of the variables, it was found to be (3.58). This level was high enough for the researcher to conclude that internal controls in SDLG are effective. And after computing the mean and average mean of variables under effectiveness of financial performance, the mean average was high enough (3.72), implying financial performance in SDLG is effective. The findings also portray a high value of R squared 0.463(46.3%) that shows there is a strong and positive relationship between internal audit and financial performance. The study concluded that SDLG has an effective internal audit system; this can be determined by factors such as internal controls, conduct of ethics, governance policies, and other factors. The study also concluded that SDLG has effective financial system; financial system is tested on factors such timely reporting of financial reports, quality of financial statements, and liquidity levels. The study finally concluded that there is a strong positive relationship between internal controls and financial performance. The study finally recommends that in order to maintain and probably advance on internal audit, then SDLG should make efforts towards establishing an independent internal audit committee such that the quality of work done is not compromised. 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.