Internal Audit Practices and Financial Performance of Savings and Credit Cooperatives in Kericho County, Kenya

Abstract

The declining performance in the SACCOs in terms of declining membership, increase in non-performing loans and low growth and returns, make it necessary to conduct the study. This study sought to establish the effect of internal audit practices on the financial performance of deposit taking SACCOs in Kericho County. The focus was on the internal audit practices including audit committees, internal auditor's independence, risk management and internal controls and their effect to financial performance. The study was anchored on agency theory, capture theory and contingency theory that were linked to the study variables. The study employed descriptive research design and targeted the five licensed deposit-taking SACCOs operating in Kericho and the respondents included only the staff holding management positions. Primary data was collected using questionnaires and the data was then entered into SPSS and analyzed using descriptive, correlation and regression analysis. The findings showed that internal audit practices significantly affected financial performance of the DT-SACCOs in Kericho County. Risk management had the strongest relationship (R=0.655), followed by internal controls (R=0.526), then audit committee (R=0.420) and lastly auditors' independence at (R=0.357). Further results showed that 47.4% of the changes in the financial performance of the deposit-taking SACCOs in Kericho County can be explained by changes internal audit practices. The study concluded that internal audit practices positively and significantly influenced the financial performance of the deposit-taking SACCOs in Kericho County. The study recommends the adoption of internal audit practices in firms that are seeking to improve their financial performance.