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IJAREM: Current Issue (Volume 04 - No. 10, 2018)

 

1. Effect of Internal Control Systems on Financial Performance of State Corporations in Kenya
Cecilia Ndunge Waweru, Dr, Oluoch Oluoch
Abstract
The impact of maintaining functioning internal control systems in organizations has been insistently and vastly underscored due to its positive effects on financial performance. Several state firms in Kenya are characterized by monopolistic production, highly indigenized management and appointments of a large number of top managers based on political considerations. Capacities exist for income generation through innovation and inventions in most public sector institutions in African countries. Internal controls provide practical but not total guarantee to an entity‟s management and board of directors that the organization‟s objectives will be realized. The probability of attainment is affected by limitations integral in all systems of internal control. However, realization of full potentials of these institutions may not be possible due to several failures in their internal control systems. A number of studies have been conducted to determine the impact of internal control systems on performance of the public sector in Kenya. The main goal of this study was to fill the conceptual, contextual and methodological gaps by examining the effect of internal control systems on financial performance of state corporations in Kenya. The specific objectives were to determine the effect of control environment, risk assessment, task control and monitoring and evaluation activities on the financial performance of state corporations in Kenya. Descriptive research design was adopted for this study. The target population consisted of 187 state corporations in Kenya. Using simple random sampling, 30% of the 187 state corporations, which had head offices in Nairobi were selected. Self-administered questionnaires were used to collect primary data. Statistics such as frequencies, percentages, mean scores and standard deviations were adopted. Findings are presented using tables and charts. To quantify the effect of each variable, the researcher used regression analysis. Testing the significance of the coefficients at 95% confidence level, the analysis indicate that all the variables had a significance value less than 0.05 (p<0.05) thus confirming the significance of the results. In addition, from the analysis, all the variables indicated a positive coefficient indicating a positive relationship between the dependent and independent variables. The study revealed that internal controls significantly affected financial performance of most of state corporations in Kenya. Internal control systems impacted on various aspects of performance such as development index, efficient operations, financial leverage, responding to risks, facilitates ethical values, organizational activities and objectives. The study concluded that there is a significant effect of control environment, risk assessment, task control and monitoring and evaluation on the financial performance of the state corporations in Kenya. The study recommended that state corporations should ensure that they have effective control environment and ensure that they establish relevant policies to ensure that their internal control environment is effective to enhance financial performance. The management of the state corporations should put in place relevant measures to determine the level of risk carefully. The management of state corporations and other public institutions should develop task control mechanisms to attract relevant feedback from the various stakeholders into their internal control system. The state corporations should develop a monitoring and evaluation system that determines compliance with internal controls and reports instances of noncompliance to the relevant authorities.

 

2. Influence of Credit Appraisal on Loan Performance of Deposit Taking Saccos in Meru County
Phineas Mutwiri Muriungi, Professor Willy Muturi
Abstract
Empirical studies have proven that saccos make a huge impact to the social-economic and political growth in Kenya and other developing countries. One of the biggest obstacles in micro and small enterprises is access to financial services. Saccos in Kenya have made it easy to access these facilities hence the main stimulus of economic growth. However, they face several challenges in non-performing loans leading to insufficient funds. These nonperforming assets arise due to inadequate or lack of clear lending policies. This has led to a high level of nonperforming loans in majority of the Saccosleading to the suspension of their trading licenses by their regulator. This has prompted the need to restructure their credit appraisal. This study sought to establish the influence of credit appraisal on loan performance in deposit taking SACCO in Meru County. The specific objectives of the study involved were; to assess the influence of borrower’s character, ability to pay, availability of collateral and loan usage on loanperformance. The study was informed by the following theories, modern portfolio theories, asymmetric information theory and agency theory. All the independent variables were reviewed against the dependent variables using previous studies done by other researchers. A descriptive research design was adopted in order to analyze the topic thoroughly. The entire population of eleven saccos with their head offices in Meru county was studied. A pilot study was carried out by administering questionnaires to the selected deposit taking saccos in Meru county. Primary data was collected from the chief executive officers, finance managers credit managers and operation managers using structured questionnaires,this is because they possessed relevant information for the study. Reliability was improved by allowing the respondents sufficient time to fill the questionnaire. Computer aided software (SPSS) was used for data analysis and the research finding presented using frequency table, percentages and bar graphs. The findings from the study established that there is a significant positive relationship between the credit appraisal factors and loan performance at 95% confidence level and the conclusion was that credit appraisal factors have influence on loan performance. Regression coefficients were also developed that showed a strong relation between the dependent and independent variables. However in the cause of the study there was a major limitation in using closed ended questionnaires since the respondents were limited in the choices they could make. However this was mitigated through pre-testing the questionnaire. Validity and reliability were mitigated by ensuring that the likert table contained relevant option for each question. The study recommends that before loans are issued out a due diligence on the borrower’s character, ability to pay, availability of collateral items for surety of the loan repayment and also the intended purpose of the loan be considered as these factors significantly affect the loan performance. The study recommends a further study of the legal and regulatory procedures on loan recovery since current recovery procedures are highly monitored by the saccos regulator. Future researchers can also study on influence of nonperforming assets on financial performance of the saccos, or even introduce other independent variables apart from the ones factored in this research.

 

 

 

 

 

 

 

 

 

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