Effect Of Internal Controls On The Financial Performance Of Manufacturing Firms In Uganda( A Case Study Of Kakira Sugar Works).

ABSTRACT

The study sought to determine the effect of internal control system on financial pe1fonnance of manufacturing firms in uganda. To achieve the objective of this study, the study used hypothesis testing research design. The study tested the following hypotheses: H1, Internal Controls and Financial Performance are positively related; H2, Internal Controls have a significant impact on Financial Performance. The population chosen for this study was 65 eployees from kakira sugar works to represent all manufacturing firms in Uganda. The study selected a sample size of 20 employees from a target population of 65 employees. The sample was drawn using stratified random sampling technique. The study relied on both primary and secondary data. Primary data was collected using structured questionnaires while the secondary data was gathered from financial statements based on availability and accessibility of data. The findings revealed that most manufacturing firms had a control environment as one of the functionality of internal controls of the organization that greatly impacts on the financial performance of the firms. It was also established that the management had put in place mechanisms for mitigation of critical risks that may result from fraud. The study examined the effect of control activities on the financial performance of manufacturing firms in Uganda. The results also revealed that that the staff were trained to implement the accounting and financial management systems (M=3.24, S.D=l.334), the security system identified and safeguarded organizational assets (M=4.20, S.D =1.334). The statistical results from the regression analysis show that there is a positive relationship between internal control and financial performance of manufacturing firms in uganda. The independent variables (Control Environment, Risk Assessment, Control Activities, Information and Communication and monitoring) contributed to 75.7% of the variation in financial performance as explained by adjusted R2 of 0.75.7% which shows that the model is a good prediction. 

TABLE OF CONTENTS 

DECLARATION ................................................................................................................................... i 

APPROVAL ......................................................................................................................................... ii 

DEDICATION ..................................................................................................................................... iii 

ACKNOWLEDGEMENTS ................................................................................................................. iv 

TABLE OF CONTENTS ...................................................................................................................... v 

LIST OF TABLES ............................................................................................................................. viii 

LIST OF ABBREVIATIONS AND ACRONYMS ................................. : ........................................... ix 

ABSTRACT .......................................................................................................................................... X 

CHAPTER ONE ................................................................................................................................... 1 

INTRODUCTION ................................................................................................................................ 1 

1.1 Background of the Study ................................................................................................................ 1 

1.1.2 Financial Performance ............................................................................................................... 11 

1.1.3 Internal Controls and Financial Performance ............................................................................. 12 

1.1.4 Manufacturing Firms in Uganda ................................................................................................ 13 

1.1.5 Background of case study .......................................................................................................... 14 

1.2 Research Problem .............................................................................. : .......................................... 16 

1.3 Purpose of the study .................................................................................................................... 19 

1.4 Objective of the Study .................................................................................................................. 19 

1.5 Research questions ........................................................................................................................ 19 

1.5 Scope of the study ......................................................................................................................... 19 

1.4 Value of the Study ........................................................................................................................ 19 

CHAPTER TWO ................................................................................................................................ 21 

LITERATURE REVIEW ................................................................................................................... 21 

2.0 Introduction ................................................................................................................................... 21 

2.1 Review of Theories ....................................................................................................................... 21 

2.1.1Agency Theory .......................................................... : ................................................................. 21 

2.1.2 Contingency Theory ................................................................................................................... 22 

2.1.3 The Theory of the Firm .............................................................................................................. 22 

2.2 Determinants of Financial Performance of Manufacturing Firms ................................................ 23 

2.3 Review of Empirical Studies ......................................................................................................... 24 

2.4 Summary of Literature Review ..................................................................................................... 29 

CHAPTER THREE ............................................................................................................................ 30 

RESEARCH METHODOLOGY ........................................................................................................ 30 

3.0 lntroduction ........................................................................................ : .......................................... 30 

3.1 Research Design ........................................................................................................................... 30 

3.2 Population ..................................................................................................................................... 31 

3.3 Sample .......................................................................................................................................... 31 

3.4 Nature ofData ............................................................................................................................... 31 

3.5 DataAnalysis .......... : ...................................................................................................... .-.............. 31 

3.6.1 Tests ofSignificance .................................................................................................................. 33 

CHAPTERFOUR ..........................•.................................................................................................... 34 

DATA ANALYSIS AND PRESENTATION OF FINDINGS ........................................................... 34 

4.0 Introduction ................................................................................................................................... 34 

4.1 Response Rate ............................................................................................................................... 34 

4.2 Descriptive Statistics ..................................................................................................................... 34 

4.2.1 The Level of Education Attained by the Respondents ............................................................... 34 

4.2.2 The Duration that the Institution had been in Operation ............................................................ 35 

4.2.4 Functionality of Internal Controls of Manufacturing firms in Uganda ............................... 36 

4.2.5 Control Environment ................................................................................................................. 37 

4.2.6 Risk Assessment ........................................................................................................................ 38 

4.2.7 Control Activities ....................................................................................................................... 47 

4.2.8 Information and Communication .............................................................. : ................................ 48 

4.3 Regression Analysis ...................................................................................................................... SO 

4.3.1 Model Summary ......................................................................................................................... 51 

4.3.2 Analysis of Variance .................................................................................................................. 51 

4.3.3 Test for Coefficients ...................................................... , ........................................................... 52 

4.4 Summary and Interpretation of Findings , ..................................................................................... 53 

CHAPTER FIVE ................................................................................................................................ 57 

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ....................................................... 57 

5.0 Introduction ................................................................................................................................... S7 

5.1 Summary of findings ..................................................................................................................... 57 

5.2 Conclusions ................................................................................................................................... S8 

5.4 Policy Recommendation .............................................................................................................. ,59 

5.5 Limitations of the Study ................................................................................................................ 60 

5.6 Suggestions for Further Study ................... : ................................................................................... 61 

REFERENCES ................................................................................................................................... 62 

APPENDICES .................................................................................................................................... 64