The impact of internal controls on the financial performance of private firms: A case study of Imperial Paints, Luteete-Gayaza Road
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This study aimed at identifying the advantages, disadvantages, challenges and opportunities of Internal Controls in private firms and their relationship to financial performance. The research was non experimental and the researcher had three specific objectives that included to find out the different series of internal controls applied at Imperial Paints, to establish the financial performance, and also relate the impact of internal controls on the financial performance of Imperial Paints. The study selected a sample of 20 respondents from a target population of 40 workers. The sample was drawn using purposive 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 private 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 private 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=1.334), 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 private 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. It was concluded that private firms that had invested on effective internal control systems had more improved financial performance as compared to those other firms that had a weak internal control system. Most large scales private firms that fully invested in strong internal control systems. The study further recommends that the governing body, possibly supported by the audit committee, should ensure that the internal control system is periodically monitored and evaluated. The limitation of this study is that the study was focused on 20 respondents at imperial paints only while we have more than 200 private firms in Uganda, therefore these findings may not be used for generalizations on all private firms in Uganda. It is therefore important for a study to be conducted using wider scope and coverage then, the findings can be compared and conclusions drawn.