Internal Control and Financial Performance of Reco Industries Limited Kasese, Uganda.

ABSTRACT 

The main objective of this study was to investigate whether internal control affects financial performance of Reco industries limited Kasese, Uganda. The study was guided by the following research objectives; To identify the extent internal control of Reco industries limited Kasese district in Uganda,to examine the level of financial performance of Reco industries limited Kasese district in Uganda and establish if there is a significant relationship between internal control and financial performance of Reco industries limited Kasese district in Uganda. This study adopted quantitative method of data collection. it is economical and efficient in data collection (Fama,E.2007).It is used in investigating relationships between 0. ,variables. It is very precise and objective; more focused and out-come-oriented. Data were represented quantitatively and processed using quantitative models (inferential statistics). Questionnaires were chosen because of time limitations and also this study was dealing with the right respondents. Questionnaires were administered using drop and pick method targeting the 154 respondents. In conclusion, In regard to internal control, there was evidence of proper internal control system in the company with internal Control staff often evaluating internal controls to identify profiles of stakeholders and clients, their needs and expectations. Financial reports are also regularly reviewed as an internal policy that is clear to all employees in the company. However there are no clear levels of approval and authorization and employees do not adhere to controls in place. The researcher recommended that the study should establish the employees who do not adhere to internal control systems in place. There is therefore need to train employees on how best they can apply internal control to ensure that they monitor and report any uncommon financial performance due to risks emergence. The company should also come up with strong policies to manage risks and to make sure that there are effective internal controls for better financial performance. To improve control activities, procedures and policies of the company should be regularly revised at least annually and ensure they are communicated to the implementers. This will help detect any financial mismanagement on the side of internal Controllers.

TABLE OF CONTENTS

DECLARATION

APPROVAL

ACKNOWLEDGEMENTS

LIST OF TABLES

ABBREVIATIONS AND ACRONYMS

ABSTRACT

CHAPTER ONE i

1.0 Introduclion 1

1.1 Background of the study

1.1.1 Historical Perspective

1.1.2 Theoretical Perspective 3

1.1.3 Conceptual perspective

1.1.4 Contextual perspective -

1.2 Statement of the problem 6

1.4 Specific Objectives 7

1.5 Research questions 7

1.6 Null hypothesis 8

1.7 Scope of study 8

1.7.1 Geographical scope 8

1.7.2 Time scope 8

1.7.3 Content scope 8

1.8. Significance of the Study 8

CHAPTER TWO io

LITERATURE REVIEW 10

2.0 Introduction 10

2.1 Theoretical review 10

2.2 Conceptual frame work 12

2.3. Internal control 14

2.3.1 Internal Control and financial performance 17

2.3.2 Risk Management and financial performance 18

2.3.3 Control Environment and activities and financial performance

2.3.4 Internal Monitoring and financial performance 20

2.4 Financial performance 21

2.4.1 Budget Performance 21

2.4.2 Financial ratios for evaluating financial performance 23

2.4.2.1 Profitability Ratios 23

2.4.2.2 Return on Equity 23

2.4.2.3 Profit Margin 23

2.4.2.4 Liquidity Ratios 24

2.4.2.5 Current Ratio 24

2.4.2.6 Acid Test or Quick Ratio 24

2.4.2.7 Asset Management Ratios 25

2.4.2.8 Accounts Receivable Turnover 25

2.4.2.9 Inventory Turnover 25

2.4.2.10 Capital Turnover 25

2.4.2.11 Operating Income to Sales 26

2.4.2.12 Leverage Ratios 26

2.4.2.13 Debt to Equity 26

2.4.2. 14 Debt Ratio 26

2.4.2.15 Times Interest Earned 27

2.4.2.16 Earnings Per Share 27

2.4.2.17 Book Value per Share 27

2.4.2.18 Calculated as Total Equity less Preferred Equity 28

2.5 Empirical Literature review 28

2,5,1 Relationship between Internal control and Financial Performance 28

2.6 Gaps from related studies 31

CHAPTER THREE

METHODOLOGY 32

3.0 Introduction

3.1 Research design 32

3.2 Research Population 32

3.3 Sample Size 33

3.4 Sampling Procedure 34

3.5 Research Instrument 34

3.6 Validity and Reliability of the Instrument 35

3.7 Data Gathering Procedure 36

3.8 Data Analysis 36

3.9 Ethical Considerations

CHAPTER FOUR 38

PRESENTATION, ANALYSIS AND INTEPRETATION OF DATA 38

4.1 Demographic Characteristics of Respondents 38

4.2 Internal Control in Reco industries in Kasese district Uganda 39

4.3 financial Performance in Reco industries in Kasese Uganda 43

4.4 The Relationship between Internal Control and Financial Performance 46

DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS 49

5.0 Introduction 49

5.1 Discussion of the findings 49

5.1.1 Internal Control 49

5.1.2 Financial Performance 52

5.1.3 The Relationship between Internal Control and Financial Performance 53

5.2 Conclusion 53

5.4 Limitations of the Study 56

5.5 Areas for Future Research 57

APPENDICES 61

QUESTION NAIRES 61

Questions addressed to the control group members of Reco Industries Ltd 61