Effect of internal control system on financial performance of saccos in kenya: A case of tharaka nithi county

The Savings and Credit Cooperative Societies sector is considered both economically and socially important. The sector has continued to mobilize savings and developed demand driven financial products which has encouraged members to save additional resources to finance education from primary to university through affordable loans to the members. However, sectorial report indicates that nearly 5% of Savings and Credit Cooperative Societies collapse every year and registered members withdraw their membership annually. In terms of internal control literature, components of internal control have been studied in context of institutions like banks and manufacturing firms and little has been done on components of internal control system with respect to financial performance of Savings and Credit Cooperative Societies. Therefore, the study aimed at establishing the effect of internal control system on financial performance of Savings and Credit Cooperative Societies in Kenya. The specific objectives of the study were to establish the effect of control environment and risk assessment on financial performance of Savings and Credit Cooperative Societies in Tharaka Nithi County. The study adopted descriptive research design on the target population of 208 members of staff from ten Savings and Credit Cooperative Societies within Tharaka Nithi County. The study employed a non-probabilistic purposive sampling technique to come up with a sample of 69 members of staff. The study used both primary and secondary data. The questionnaires were pre-tested to ensure validity and reliability. The study used secondary data for four years (2013-2016). Multiple regression analysis was used to determine the relationship between dependent and independent variables. A t-test and F-ratio were applied to test hypothesis and overall significance of the regression model at 5% significance level. Findings of the study indicated that control environment and risk assessment had a positive and significant effect on financial performance of Savings and Credit Cooperative Societies. This implies that internal control system is a major determinant of financial performance of Savings and Credit Cooperative Societies as proposed in the theory. The study recommends the Savings and Credit Cooperative Societies should put in place effective policies to ensure proper implementation and management of internal control system.