The role of the internal control system on the financial performance of Umurenge SACCO Bwishyura of Karongi District, Rwanda
DOI:
https://doi.org/10.51867/AQSSR.3.1.4Keywords:
Agency Theory (AT), Financial Institutions, Financial Performance, Internal Control System, Stakeholder Theory (ST), Bwishyura SACCOAbstract
This research sought to analyse the role of internal control on the financial performance of one financial institution, namely Umurenge Bwishyura Savings and Credit Cooperative Organization, referred to as Bwishyura SACCO in this research. It specifically sought to assess the relationship between the control environment and the financial performance of Bwishyura SACCO, examine the relationship between control activities and the financial performance of Bwishyura SACCO, investigate the relationship between risk assessment and the financial performance of Bwishyura SACCO, and find out the role of internal control on the financial performance of Bwishyura SACCO. It was descriptive in nature. It was guided by two theories, namely the “Agency Theory (AT)” and the “Stakeholder Theory (ST)”. A quantitative approach was used for collecting, analysing and presenting data. The target population of this research comprised 19 individuals, including 9 staff of Bwishyura SACCO and 10 members of its board of directors. The study sample size included 19 individuals of Bwishyura SACCO. A universal sampling technique was employed in the selection of respondents. Questionnaires were used to collect primary data, whereas a documentary review was utilised for gathering the secondary data of this study. All data were recorded and coded into SPSS software. This research found out that a high and positive relationship exists between the control environment and the financial performance of the SACCO, which is equal to 0.715**, and the sig. is 0.000 (less than 0.01). In addition, this research identified the existence of a high and positive relationship between control activities and the financial performance of this SACCO. Moreover, the study depicted the presence of a high and positive correlation between risk assessment and the financial performance of Bwishyura SACCO. Furthermore, the results indicated that internal control plays a key role in the financial performance of Bwishyura SACCO. This research also identified a coefficient correlation of R=0.898. This means that there exists a positive and strong relationship between internal control and the financial performance of Bwishyura SACCO. However, 14.2% of the variation in financial performance of this SACCO is elucidated by other reasons which are not captured by this model. Finally, this study concludes that internal control is a critical factor influencing the profitability of Bwishyura SACCO, enhancing its financial performance by mitigating risks as well as ensuring its operational efficiency. The study, therefore, recommends that this SACCO should strengthen its risk assessment processes to efficiently detect, evaluate, and moderate risks to always help it protect its assets, reduce losses, and sustain its financial performance.
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