EFFECT OF INTERNAL CONTROL SYSTEMS ON FINANCIAL PERFORMANCE OF LOCAL GOVERNMENTS IN MBALE DISTRICT: CASE STUDY OF MBALE DISTRICT

ABSTRACT

The purpose of this study was to examine the impact of internal control system on financial

management of local governments in Mbale district. This was guided by the following specific

objectives; to find out the impact of control environment on the financial management of local

governments, find out the impact of control activities on the financial management of local

governments, and finally examine the impact of information and communication on the financial

performance of local governments. The study adopted a research design in which 36 respondents

provided data through completion of structured self-administered questionnaires. The study found

out that for every unit change in control environment, there is a corresponding change of 12.7% in

financial performance. For the case of control activities, its corresponding change in financial

performance was 26.1% whereas there was a corresponding unit change of 22.4% of information

and communication in financial performance. The study concluded that there is an insignificant

change of control environment, control activities and information and communication on financial

performance. The study recommends among other things, the district should employ skilled and

competent professional internal auditors to strengthen the internal controls and minimize on fraud.

This will yield high better financial performance with efficient control environment, control

activities and finally information & communication as this would help the district on cases of fraud,

embezzlement and cash mismanagement. In addition, there should be training of employees in

corporation as important motivational tool of motivating employees towards better performance. In

fact, through training, employees will get motivated and a full understanding of all characteristics of

the internal control, their nature in relation to hence better management and performance.