Employee perceptions on the relationship between internal controls and firm performance in Kenya

Abstract

Internal control is a fundamental component of good corporate governance. It ensures efficiency, effectiveness, reliability and compliance matters are adhered to. The problem stated in this study is that with increased financial scandals in some quoted organizations, financial performance is declining and hence it is worth investigating the role of staff perception on the relationship between internal controls and firm performance plays. The target population of the study was finance staff in selected companies quoted at the Nairobi Securities Exchange. The study sample comprised of 120 respondents drawn from a population of 63 listed public companies. Specifically, the sample was drawn from agriculture, finance, energy, service and manufacturing sectors, all selected using purposive sampling. The study adopted multi-stage sampling technique design to establish employee perceptions on the relationship between internal control and performance in public organizations in Kenya. The study used primary data that was collected using a questionnaire. Data collected was coded and entered into Statistical Package for Social Sciences which aided in organizing and summarizing the data using descriptive statistics, inferential statistics and Pearson’s correlation coefficient. The data collected was presented by use of percentages, frequency distributions, tables and graphs. The study findings revealed that, control activities such as checks and balances, separation roles, corrective action, budget allocations and access to key information were considered important by staff and all impacted on firm performance. Further, controls and responsibilities were understood, and there was smooth flow of information, while risk identification was considered as very important. Although the general employee perception of internal controls relationship to company performance was considered high, there were outliers. Agriculture employees’ perceptions was generally average while the Finance sector though considered more error prone with a higher magnitude, was considered a high-performance sector. The study finally recommends that organizations should enforce compliance with internal control measures in order to enhance investor confidence and ensure improved performance.