NABASUMBA LYDIA

BR/DA/4003/22

The Effect Of Internal Control Systems On Financial Performance Of Private Universities.

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 CHAPTER ONE

INTRODUCTION

1.0 Introduction

This chapter consists of the background to the study, statement of the problem, purpose of the study,
objectives of the study, research questions, and scope of the study, justification of the study, significance
of the study, limitations of the study, delimitation of the study and definition of terms.

Background of the study

Internal control systems refer to a set of policies, procedures, and practices designed to ensure
the reliability of financial reporting, compliance with laws and regulations, and the effectiveness
and efficiency of operations in an organization. These systems are essential to prevent and detect
fraud, errors, and irregularities. According to recent studies, effective internal control systems
can have a significant impact on an organization's performance and reputation. For example, a
study by Sharma and Sharma (2020) found that internal control systems positively affect firm
performance and reduce the likelihood of financial misreporting.

Another study by Kroll and Mitchell (2020) found that internal control systems are critical to
managing cyber risk, which is an increasing concern for organizations in today's digital age. The
authors argue that a comprehensive internal control system that includes cybersecurity policies
and procedures can help prevent cyber attacks and mitigate their impact. Furthermore, a study by
Galloway, Hay, and Worthy (2021) highlights the importance of internal control systems in the
public sector. The authors found that strong internal control systems can improve accountability
and transparency, leading to more effective and efficient public service delivery.

Previous research has investigated the impact of internal control systems on financial
performance in various contexts. A study by Yartey and Adjasi (2007) examined the impact of
internal control systems on the financial performance of banks in Ghana. The study found that
internal control systems have a significant positive impact on the financial performance of banks.

Another study by Sori and Mulatu (2016) investigated the impact of internal control systems on
the financial performance of Ethiopian private commercial banks. The study found that internal

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control systems have a significant positive impact on the financial performance of private
commercial banks in Ethiopia. Research on the impact of internal control systems on the
financial performance of private universities is limited. However, a study by Omondi (2021)
examined the relationship between internal control systems and financial performance of private
universities in Kenya. The study found that effective internal control systems have a positive
impact on the financial performance of private universities in Kenya.

In the study by Kusevija and Ivanovic (2017), the authors aimed to examine the impact of
internal control systems on the financial performance of small and medium-sized enterprises
(SMEs) in Serbia. The study revealed that effective internal control systems positively impact
financial performance by improving transparency, accountability, and risk management. The
authors suggest that SMEs can improve their financial performance by designing and
implementing effective internal control systems.

Kiyaga (2019) investigated the relationship between internal control systems and financial
performance of microfinance institutions in Uganda. The study found that internal control
systems have a significant positive impact on financial performance. The author suggests that
microfinance institutions can enhance their financial stability and sustainability by designing and
implementing effective internal control systems.

Ndungu and Kihoro (2020) studied the impact of internal control systems on the financial
performance of selected private universities in Kenya. The study revealed that effective internal
control systems positively impact the financial performance of private universities. The authors
suggest that internal control systems can help universities to mitigate risks, improve compliance,
and enhance financial reporting and accountability.

Acquaah and Agbeblewu (2019) examined the impact of internal control systems on the financial
performance of small and medium-sized enterprises (SMEs) in Ghana. The study found that
effective internal control systems positively impact financial performance by reducing fraud,
improving cash management, and enhancing accountability. The authors suggest that SMEs can
improve their financial performance by designing and implementing effective internal control
systems.

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Matovu and Ntayi (2017) investigated the effect of internal control systems on the financial
performance of small and medium-sized enterprises (SMEs) in Uganda. The study found that
effective internal control systems positively impact financial performance by improving financial
reporting, reducing fraud, and enhancing accountability. The authors suggest that SMEs can
improve their financial performance by designing and implementing effective internal control
systems.

Internal control systems are a crucial element for any organization to ensure effective and
efficient operations. Private universities, as non-profit organizations, also require effective
internal control systems to ensure they meet the expectations of stakeholders, such as students,
faculty, staff, and donors. The financial performance of private universities is of utmost
importance as it directly affects their ability to provide quality education and remain competitive
in the market.

The focus of this research is to examine the impact of internal control systems on the financial
performance of private universities. Effective internal control systems help private universities to
mitigate risks, safeguard assets, and ensure compliance with regulations. This research aims to
contribute to the literature by examining the relationship between internal control systems and
financial performance of private universities.

In Nigeria, Oladejo and Adekoya (2021) conducted a study that examined the relationship
between internal controls and financial performance in private universities. The study found a
significant positive relationship between internal controls and financial performance. The authors
also identified some weaknesses in the internal control systems of the universities studied and
made recommendations for improvement.

Similarly, Ajibolade and Adegbie (2019) investigated the impact of internal controls on the
financial performance of private universities in Nigeria. The authors found that effective internal
controls have a positive impact on financial performance. However, the study also identified
challenges in implementing internal controls in private universities and suggested ways to
overcome them.

In Malaysia, Al-Swidi and Al-Hosam (2014) examined the relationship between internal controls
and financial performance in private universities. The authors found that effective internal

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controls have a positive impact on financial performance. However, the study also noted that the
implementation of internal controls in private universities is challenging due to the complex
nature of their operations.

Given the limited research on this topic in Uganda, there is a need for further studies to
investigate the relationship between internal controls and financial performance in private
universities. Such studies could provide insights into the specific challenges faced by private
universities in Uganda and suggest ways to overcome them. Additionally, these studies could
provide recommendations for improving internal control systems in private universities, which
could lead to better financial performance.

In Muteesa 1 Royal University, internal control systems were introduced in order to facilitate the
smooth running of the organization. The norm of internal control systems is to enhancing
organizational and financial reporting processes as well as ensuring compliance with pertinent
laws and regulations. Financial Performance of University has remained a big challenge in the
modern competitive business environment. Regardless of the internal control practices, but
according to external report clearly indicate that Institutions face quiet a number of challenges
during internal controls in performance like struggles with liquidity problems, financial reports
are not made timely, accountability for the financial resources is still wanting, frauds and misuse
of institutional resources. Thus the study intends to examine the effects of internal control
systems on financial performance of private Universities, a case of Muteesa 1 Royal University.

1.2 Statement of the problem

Efficient internal controls creates an organization’s confidence in its ability to perform or

undertake a particular task and prevents errors and losses through monitoring and enhancing
organizational and financial reporting processes as well as ensuring compliance with pertinent
laws and regulations and assist in the formulation and implementation of quality procurement
procedures that helps to factor justification for requisition at proper lead-time, quantity and at
lowest prices This will boost profitability than blind ordering which result to loss and waste
(Ngechu, 2020).

Several studies have been carried out on the effect of internal control system on profitability of
diverse firms and also established the relationship between effective controls and financial

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performance of private Universities. Abu-Musa et-al., (2004). However according to various
annual report at Muteesa 1 Royal University there is number of challenges during internal
control systems in performance such as liquidity problems, financial reports are not made timely,
accountability for the financial resources is still wanting, frauds and misuse of institutional
resources. Thus, the study intends to examine the effects of internal control systems on financial
performance of private Universities, a case of Muteesa 1 Royal University.

1.3 Purpose of the study

The purpose of this study is to determine the effect of internal control systems on the financial
performance of Muteesa 1 Royal University.

1.4 Objectives of the study

The main objective of the study is to establish the effect of Internal Control Systems on financial
Performance of Muteesa 1 Royal University.

1.4.1 Specific Objectives

To evaluate the effect of internal control environment on financial performance of Muteesa 1

Royal University

To examine the level of internal control systems in private universities in Muteesa 1 Royal
University and identify the strengths and weaknesses of their internal control systems.

To examine the effect internal control activities on financial performance of Muteesa 1 Royal
University

1.5 Research Questions

What is the effect of internal control environment on financial performance of Muteesa 1 Royal
University?

What is the current level of internal control systems in Muteesa 1 Royal University, and what are
the strengths and weaknesses of their internal control systems?

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What is the effect of internal control activities on financial performance of Muteesa 1 Royal
University?

1.6 Scope of the study

This study will be divided into the following;

1.6.1 Geographical scope

The area of study is Muteesa 1 Royal University located in central Uganda in Mengo-Kakeeka
Rubaga Division. The study will covered most of departments; finance department, accounts,
cash department internal auditor, quality assurance.

1.6.2 Time scope

It will focus on the period 2020 – 2023 as this will help the researcher cover enough area for the
study and also enable the research to come up with concrete information from the respondents to
give responses that are typical of their opinion from the observation made over this period.

1.6.3 Content Scope

The study will comprise of two variables that is to say, internal control systems as an
independent variable and financial performance as a dependent variable. It will therefore cover
the effect of internal control systems on financial performance of Muteesa 1 Royal University.

1.7 Significance of Study

The study will help in very many ways and some of them included the following;

The study will enrich economic literature by determining the effect of internal control systems on
financial performance.

The study will help policy makers to take appropriate actions for revenue mobilization. The
existing knowledge of the subject matter will help the policy makers to use the result from the
research to determine favorable financial accountability and transparency.

This serves as secondary data based information to others researchers who might to add some
information or comply for similar related topics.

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The study findings are likely to help the management in formulating appropriate internal control
systems functions and policies that will help in enhancing a better financial performance and
reporting.

The study findings will empower the finance and accounting departments to evaluate some of the
policies governing financial reporting and management and see whether they are generating the
intended quality.

This study may further point out the weakness in the internal control systems of Muteesa 1 Royal
University regarding financial performance as well as recommendable strategies to solve the
established weakness.

The study is a requirement for partial fulfillment of award of a Diploma in business

administration.

It will prove the success and growth associated with the adoption of internal control systems.

It is resource material for students, academic institutions and individual that wants to know more
about the impact and relevance of strong internal control systems

1.8 Limitation of the Study

The following among others are foreseen limitations that may be faced by the researcher while
under taking this particular study;

Poor cooperation by the respondents as they may have a negative perception towards the study
that probably their response could bring a negative impact on their employment.

The main constraint of the study is the limited time; the specified time for the study is not
adequate for a thorough research. The problem of finance for printing of materials and cost of
internet access for data

The researcher may also encounter problems in eliciting information from the respondents as the
information required will be subject to areas of feelings, emotions, attitudes and perceptions,
which could not be accurately quantified and/or verified objectively.

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1.9 Delimitations of the study

In regards to unwillingness to give information by respondents the researcher will use possible
methods of polite and persuasive languages so as to access information and in order to elicit
information from the respondents (accountants and internal auditor) on full time, the researcher
will make an appointment with them based on their convenient time.

The researcher will get financial assistance from the relatives that supported the researcher
during the study.

Uncooperative respondents will be handled wisely and openly explaining the purpose of the
study.

1.10 Definition of terms

Financial performance is the ability to operate efficiently, profitability, survives, grow and
react to the environmental opportunities

Internal audit refers to an independent appraisal activities established within organization as a

service to the organization and it controls functions by examining, evaluating the accuracy and
effectiveness of other controls.

Accounting systems is defined as a consistent way of organizing, recording, summarizing and

reporting financial transactions.

Internal control refers to ability to perform or undertake particular task and present errors and
losses through monitoring and enhancing organizational and financial reporting processes as well
as ensuring compliance with the laws and regulations.

Finance is defined as ability to assess money in order to fund business activities.

Internal Control Systems Is a process for assuring achievement of an organization's objectives

in operational effectiveness and efficiency, reliable financial reporting, and compliance with
laws, regulations and policies.

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Management This is the process of planning, controlling, directing, and coordinating and
evaluating ideas, activities and programmers in order to achieve the aims and objectives of an
organization.

Risk refers to the degree of uncertainty or potential financial loss inherent in an investment
decision.

Risk assessment is identification and analysis of relevant risks to the achievement of an

organization’s objectives for the purpose of determining how that risk should be managed.

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter presents the review of the literature from various authors. The review is presented
according to the theme drawn from the research objectives.

2.1 The effect of internal control environment on financial performance

Anthony, (2004) noted that control environment sets the tone for the organization, influencing
the consciousness of its people. It is the foundation for all the other components of internal
controls. The control environment is the consciousness of the organization, thus, the atmosphere
that compels organizational members to conduct their activities and responsibilities as per the
laid down control objectives.

According to Lower, (2008), an effective control environment is where competent people

understand their responsibilities, the limits to their authority, and are knowledgeable, mindful,
and committed to doing what is right and doing it the right way.

Jenny & Pamela, (2006) assert that “a governing board and management enhance an
organization’s control environment when they establish and effectively communicate written
policies and procedures, a code of ethics, and standards of conduct”. They also enhance the
control environment when they behave in an ethical manner - creating a positive tone at the top –
and when they require that same standard of conduct from everyone in the organization.

Kinyua (2015) states that private institutions which have enforcement of proper internal control
systems will always lead to improved financial performance. The study, therefore, recommends
that internal control environment should be enhanced to further improve the financial
performance of companies quoted in Nairobi securities exchange so as to provide appropriate
measures to correct misfeasance in the operation of accounting and financial management
systems.

According to Kamau, (2014) investigation on private universities revealed that most private
universities had a control environment as one of the functionality of internal controls of the

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organization that greatly impacts on the financial performance of the firms. In that management
acts with a great degree of integrity in execution of their roles and has got independent and active
audit committee whose work is to check the quality of financial reporting and accountability of
responsible officers which promote transparency within organization and it has led to the staffs
were training to implement the accounting and financial management systems, the security
system identified and safeguarded organizational assets.

A study carried out by Palfi and Muresan, (2010) examined the importance of a well-organized
system of internal control in regards to the banking sector, thus credit institutions of Romania
state that management are committed to the operation and closely monitors implementation of
systems within the institutions. This analysis survey answers revealed that the continuous
collaboration, based on periodical meetings, between all structures of bank, characterizes an
effective internal audit department.

The Abu Musa et-al.., (2004) study investigated the existence and adequacy of implemented
security controls of computerized accounting information systems in the Saudi banking sector.
The results of study revealed that the vast majority of Saudi banks have adequate internal
controls environment in place with management provide clear feedback to the junior officers
about the operation of internal control systems.

Many private institutions in Uganda are faced with poor financial performance which in extreme
cases has led to the closure of some of them, despite having the necessary resources to run them
Ndiwa (2014). The study, therefore, endeavored to assess the persistent poor financial
performance from the perspective of internal controls which had previously been ignored yet the
institutions has an accounting and financial management systems and well organized chart that
clearly defines lines of authority and responsibilities. This was limited to the African Institute of
Research and Development Studies (AIRDS). The findings indicated that most respondents were
of the view that indeed there was a relationship between internal control and financial
management.

Israel, et-al.., (2011) consider control environment is the major aspect of managing an
organization. This is because it is a reflection of the attitude and the policies of management in

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regard with the importance of internal audit in the economics. However, it is the foundation for
the other components of internal control and providing structure.

Sudsomboon and Ussah awanitchakit, (2009) Control environment assist toward reducing the
level fraudulent activities within organizational operation also the quality of an entity’s internal
controls system depend on the function and quality of their control environment.

According to Bakibinga (2001), corporate law requires a divorce between ownership and
management of an entity. Owners normally entrust their resources in the hands of managers.
Managers are required to use the resources entrusted to them in the furtherance of the entity’s
objectives. Managers normally report to the owners on the results of their stewardship for the
resources entrusted to them through a medium called financial statements. It is these financial
statements that reveal the financial performance of an entity. John J. Morris (2011) believes that
Enterprise Resource Planning systems provide a mechanism to deliver fast, accurate financial
reporting with built-in controls that are designed to ensure the accuracy and reliability of the
financial information being reported to shareholders.

According to Mwakimasinde, Odhiambo and Byaruhanga (2014), the internal control system
was characterized by control environment, risk assessment process, information system and
control activities while financial performance was characterized by cost per unit, goal attainment
and profitability or surplus. Despite the fact that the study produced meaningful results it was
subject to some limitations which provide avenues for further research.

2.2 Effect of risk assessment processes on financial performance.

Hawkins and Mihaljek et-al.., (2010) the issue of effect of financial risk assessment on financial
performance of private universities has seen an extensive amount of empirical investigation in
the recent years. The subsequent countless of such studies signify the important role played by
the financial system of a country as a foundation of a functioning and efficient economy. At the
heart of an economy’s financial system is the university institutions; which in developing
countries; is the biggest player in the role of financial intermediation

Considering risk assessment, particularly in private administration, IT security management can

be uses for risk management in supporting public administration if risk management supporting

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tools are developed (Baginski, 2014). Organizations that often create contingency risk plans, and
implement internal control systems are less at risk. Their risk buffer strategies towards perceived
risks help them to achieve higher risk performance.

Dubihlela & Nqala, (2017) not all organizations fail due to weak internal control systems but
inefficient cost controls and risk assessment processes such as risk prevention, risk control and a
significant influence on financial performance. Development plans as well as implementation of
effective control systems within an organization can sustain organizational stability and growth
(Shabri, Saad, & Bakar, 2016).

Mutukua et-al…, (2016) postulates that all private universities operate in an unstable and fragile
environment and confront various risks which may, in one way or the other, lead to the closure
of a private institution as a result of inability to meet its financial obligations and failure to
consider the effect of risk on institution’s fees income and revenue for a period of time.

More importantly, George, (2014) denotes that in the financial systems, there are at least three
broad categories of risks being; financial risk, business risk and operational risk. Further, and as
noted by Celin, (2010), these risk exposures have made private higher institutions a business of
risk, hence efficient risk management is critical to the survival of private universities. Despite the
perceived positive role of risk management on improving university’s financial performance,
studies in this area have offered inconsistent results. In one end of the spectrum are studies that
assert a positive relationship and among others.

Adeusi and Oladunjoye et-al.., (2014) & Olamide, Uwalomwa, and Ranti et-al.., (2015), The
positive role of risk assessment on university performance could be seen in terms of better
management of funds, and reducing unnecessary costs such as doubtful advances. At the
opposite end are those studies that stress that a negative relationship exits: India (Shetty and
Yadav, 2019); Kenya (Muteti, 2014; Juma and Atheru, 2018). The negative relationship could be
due to less leverage and risk taking, as risk management practices get tightened and this reduces
bank profitability.

In developing economies, where financial sophistication is low, banks play the primary role of
moving capital from households to businesses with productive purposes. A large part of this role,

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therefore, is to assess risks of potential projects and businesses in the economy and appropriately
price them to ensure that the projects are correctly funded (Saeed and Zahid, 2016).

Applied Finance and Accounting structured, while making the investments worthwhile for the
funding bank. Therefore, one of the university’s biggest functions is striking the balance of
correctly assessing and managing risk while creating sustainable profits and value for
shareholders (Sinha, 2011). This particular balance has become increasingly more important in
the past 10 years since the Financial Crisis.

Karagiorgos et-al.., (2010) stated that internal control is an essential factor in the efficient risk
management and at the same time in the business survival and success. While the studies have
been carried on how effective internal control can contribute in a company’s risk management,
they do not go far enough in explaining how and why internal control works, and the conditions
that facilitate its effectiveness, they do not talk about why organizations are still failing to
achieve their objectives as per the plan. However, companies are also still collapsing yet they
have established control systems.

According to Bank of International Settlements (2018), the 10 years prior to 2008 saw
unprecedented growth in the world economy and financial services, largely fueled by risk taking
as bankers took more and more risky positions in the pursuit of profits and bonuses.

Johboz and Mwangi, (2014), the disadvantage-incentivized universities to do proper risk

assessment on projects and that led to the melt down in 2008 which resulted in a global crisis
which stalled economies and wreaked confusion on financial markets across the globe. Since
then, a greater emphasis and oversight has been placed on risk management at banks and has
resulted in passing of regulatory legislation, Basel III, which has called for increased risk
management. Basel III, which had its first version published in 2009 by the Basel Committee on
university Supervision, is grounded in three main principles to counteract the ills, which causes
the financial crisis.

The Committee on the Global Financial System Report Number 60 found that in the decade after
the Financial Crisis, the university sector has evolved. There have been changes in school
capacity and structure as most university sectors declined, business models have changed with a
move away from trading and complex structuring to less capital intensive activities like private

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universities, and across the world, banking profitability has fallen as a result of less leverage and
risk taking, but also as a result of a slow-down in most economies during that period (Bank of
International Settlements, 2018). The challenge, therefore, across the world, is for universities to
manage their risks and avoid another crisis while remaining profitable and using their capital as
efficiently as possible.

According to Celin, (2010), Private Universities has not been immune to the above challenge of
increased risk management. The regulatory and supervisory oversight by the ministry of
education, which is the regulator of all private universities and related institutions, continued to
focus on ensuring good governance and appropriate risk-taking by regulated institutions. The
education sector was adequately capitalized, profitable and liquid as at December 31, 2018, and
the industry compliance with the regulatory and prudential requirements was satisfactory.

2.3 The effect of internal control activities on financial performance

Rezaee, Elam & Sharbatoghlie (2010), the institutions that had entrenched prudent internal
control strategies were most likely to manage their finances better hence meeting their financial
and other pertinent obligations almost seamlessly. The study concludes that most training
institutions had an internal audit department which was largely understaffed. The researcher
concluded that staffing of the internal audit department determined financial performance of the
institution in question

Ndifon, (2014) sought to establish the relationship between internal control activities and
financial performance in Tertiary Institutions in Nigeria. The study revealed that all activities of
the College are initiated by the top management. Regarding control activities, the study found
that there is clear separation of role in the institution’s finance and accounts department and that
superior officer in the College supervised regularly work done by their subordinate.

Also, the Ndifon, (2014) study found that the institution financial statements are audited annually
by external auditors. The study results further show that there is no significant relationship
between internal control activities and financial performance of Cross River State College of
Education. The investigation recommends proper checks and balances in all financial
transactions. There should be effective and efficient security network to reduce frequent theft,
threat to life and property.

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The development of proper internal controls activities helps organizations ensure accountability.
Accountability requires that the organization comply with all applicable laws and ethical
standards; adhere to the organization’s mission; create and adhere to conflict of interest,
personnel, whistleblower and accounting policies; and protect the rights of members (Office of
NYS Attorney General, 2015). While the effectiveness of internal control is challenged with
limitations such as costs, few employees and other constraints, it is worthwhile to note that
effective internal controls can still be possible (Frazer, 2016)

Control activities are policies, procedures and mechanisms that ensure management’s directives
are properly carried out (Aikins, 2011); Proper documentation of policies and procedural
guidelines in these aspects help to determine not only how the control activities are to be
executed but also provide adequate information for auditors examination of the overall adequacy
of control design over financial management practices

Aldridge & Colbert, (2012) all employees understand the concept and importance of internal
control systems including the division of responsibility and the reporting systems on organization
structure spell out all the duties of each section whereby every employee’s work check on the
others and corrective actions are taken to address the weakness of the systems.

According to Matata, (2015)internal control systems entails the upholding of the policies,
strategies and legislation where water service providers have to develop and manage water
resources in an efficient and effective manner while being accountable to the recipients of the
services. With this focus on transparency, participation and accountability, this study will
provide a valuable contribution to addressing challenges facing the financial performance of
water companies

Abdi, (2015) this study reveal that majority of the private banks in Mogadishu has enough cash
to meet its intended goals. Also there is a clear separation of duties and there is appropriate
supervision by senior staff on the work of juniors. This study suggests that the internal auditors
perform their duties fast, efficient and reliable. Besides, internal control effectiveness is
important to the entity level of the firm especially it provides reliable financial information,
safeguard assets and records, encourages adherence to prescribes policies and comply with
regulatory agencies (IIA, 2006).

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Nyakundi, Nyamita and Tinega, (2014) examineinternal control activities on financial
performance among Small and Medium scale Enterprises in Kisumu city, Kenya; specifically
assessing the controls in place to exclude incurring expenditure in excess allocated fund and
return on investment and establishing the level of business knowledge of an entrepreneur in
internal control systems and its effect on financial performance.

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 CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter will present the methodology that will be used when conducting the study. It
focuses on the research design, study population, sample size, sampling techniques, data
collection instruments, data processing and analysis and instrument reliability and validity.

3.1Research design

The study will use the descriptive research design in order to gather data as it existed in the
current state. It will examine the situation at its current state of occurrences. It will involve
identification of attributes of a particular phenomenon based on an observational basis, or the
exploration of correlation between the effects of internal control systems on financial
performance of Muteesa 1 Royal University. It will be the most commonly used method since it
will be based on an in-depth investigation and provide a systematic way of looking at events,
collecting data, analyzing information and reporting the results. The design will encompasses a
collection of a wide range of data or information. Data will be collected using instruments such
as questionnaires and interview guides. Both quantitative and qualitative data will be used in this
research design. The researcher will use quantitative approach when carrying out the study to
allow the researcher collect more data on the effect of internal control systems on financial
performance of Muteesa 1 Royal University.

In the study, the researcher will use qualitative approach as it is beneficial to the researcher as
able to get deeper insight on the effect of internal control systems on financial performance of
Muteesa 1 Royal University. This will make coding of data easy.

3.2 Population of the study

Population is defined as complete set of individual cases or objects with some characters which
are different from other population (Mugenda, 2003) defined target population as the population
to which the researcher wants to generalize results of study.

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The study population will comprise of respondents that constitute vice chancellor, deputy vice
chancellors, quality assurance officer, internal auditor, accountants, and finance officer, cashier,
teaching staff, manager, administrator and students. The sample size of 75 respondents will be
put into consideration from the target population. This is because they are knowledgeable of the
topic under study.

3.3 Sample size

The sample size will be 75 people and the sample is the population from each category.

Figure1: Showing category of respondents for the study

Category Population Sample size Sample

techniques
Vice chancellor 01 01 Purposive
Deputy vice chancellors 02 01 Purposive
Internal auditor 01 01 Purposive
Finance officers 02 01 Simple random
HR Management 01 01 Purposive
Quality assurance 02 01 Purposive
Administrators 15 06 Simple random
Teaching staffs 45 22 Simple random
Cashier 02 02 Purposive
Accountants 02 01 Purposive
Students 500 40 Simple Random
Total 576 75 -
Source: primary source, 2023 Muteesa 1 Royal University

3.4 Sampling techniques

This refers to the methods that researcher will use in selecting representative cases for the study
from the study population. Sampling is defined as a means of selecting a given number of

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subjects from a defined population as a representation of that population. The study will
employee both purposive and simple random sampling techniques as explained below;

3.4.1 Purposive sampling.

This refers to the technique that will be used when the researcher is confident that the person has
got the information he/she wants. This technique will be chosen as it will be used to select
focused information. Here the vice chancellor, deputy vice chancellors, quality assurance,
internal auditor, accountants, finances office and cashiers will be purposively sampled because
they are knowledgeable about the study variables. Their participation will be pre-arranged in
advance to benefit from their rich knowledge. They will fill the questionnaires given the nature
of their work and they will freely fill them at their own convenience

3.4.2 Simple random sampling (SRS)

This is probabilistic method of sampling which depends on equal chance for every member in
the population to be selected. This reduces the biasness when selecting the respondents from the
target population. The researcher will use simple random technique (randomization) as it gives
the same probability and equal chance to all members in the population. Therefore the researcher
will make a random survey in selecting teaching staffs, administrator and students to get the
required sample as it will give a potential participant an equal opportunity to take part in the
research study. In this, the researcher will obtain a list of teaching staffs, administrator and
students.

3.5.0 Data collection instruments

3.5.1 Questionnaires

A questionnaire is a data collection instrument consisted of a series of questions and other

prompt for the purpose of gathering information from respondents. The researcher will use this
method as it will help to collect a lot of information over a short period of time. This is because
the population is literate, is large and time is limited and the information needed can be easily
described in writing. The researcher will design questionnaires to be distributed to the required
persons from whom she will get the information from. The questionnaires will be close

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structured. This tool will be used in order to collect a lot of information hence questionnaires
shall be distributed to many people.

3.5.2 Interviews

It’s the best method of carrying out research; however it can be combined with other methods.
This will involve presentation of oral/ verbal reply in terms of oral responses. It will involve the
researcher or interviewer in asking questions to the respondent who will be expected to give an
answer immediately. It will be personal or through telephone and it will be used by the research
because the information needed will be got very fast because respondent are anxious to reply.
This is because the information to be obtained cannot be directly observed, it’s historical and one
cannot gain control over the line of questioning. The research will interview the managers and
administrators.

3.5.3 Observation

Observation means a purpose examination of something particularly for the purpose of gathering
data. It also means to select the provocation recording and encoding of that set of behavior and
settings concerning organization in a locality. The researcher will use observation as an
instrument to describe data that will be collected regardless of the technique used in the study
and its relied on the researchers’ five senses of seeing, hearing, testing, smelling and feeling.
This dependes on getting information from somebody else but rather it depends on personal
ability.

Observation as a method enables the researcher to study the behaviors as it occur and happens.
This is a method that will be used when respondents are expressing themselves or unwilling to be
interviewed. However, it is time consuming as the researcher will wait until the phenomena or
event to be observed occurs.

3.6 Area of the study

22
The study will be carried out in Muteesa 1 Royal University,Mengo Kakkeka Camps. This area
was selected because it has high population concentration of offices with a variety of internal
control systems.

3.7 Sources of data

The researcher will collect data from both primary secondary sources.

3.7.1 Primary source

Primary data will be obtained through observations, questionnaires and interviews. These
sources will be vital in understanding respondents’ perceptions, attitudes and general views
about the study.

3.7.2 Secondary source

Secondary data will be obtained through documentary analysis like text books, articles,
magazines, newspaper, journals, internet and other sources.

3.8 Data analysis

The data will be gathered, validated, edited and then coded; it consisted of qualitative and
quantitative data. After the data has been collected from the field it will be processed and
analyzed as laid down in the research plan. The analysis will be calculated by Excel and include
frequencies standard deviation, means and percentages. The research will use descriptive statistic
such as frequencies, percentage bar chart, table and graph chart to analyze gathered from the
field. Percentages will be calculated and analyzed as per the objectives of the study. From the
data to be analyzed, the research will be able to come up with the findings, conclusions and
recommendations.

3.9 Ethical consideration.

The researcher will obtain an introductory letter from Buganda Royal Institute of Business and
Technical Education to show to the concerned authorities to seek permission to carry out the
research.

3.11 Quality control

23
Quality control will be censured by;

The researcher will check the uniformity, accuracy, logical, coherence, validity and reliability
through the use of computer programmers such as Microsoft word,Excel. In order to reduce the
possibility of getting the wrong answer, attention will be kept to the particulars on the research
design, reliability and validity.

3.11.1 Validity of instruments

This is the measure of the extent to which a data collection tool measures what it is supposed to
measure. (Stephanies, 2017) in determining the validity of the research instrument, the research
will validate the tools by re-examining the contents there in whether they are in relation to the
variables, removed I appropriate questions and streamlined them before using them in field. This
will be through pre-requisites rating the information as very relevant (VR) relevant (R), not
relevant (NR). This will be made them to be free from bias and valid hence collecting authentic
data. In testingvalidity, the researcher will also prepare and present the questionnaires to the
supervisor for scrutiny and suggestions on the relevance. Clarity and suitability of the
informationthe supervisor then will make suggestions which will be incorporated into the final
draft.

3.11.2 Reliability of instruments

The reliability of the research instruments refers to as the ability for a test or research findings to
the repeatable (Stephanie 2017) to establish reliability of research instruments, the researcher
will determine the questionnaires and a pilot study test using 10 (ten) respondents to test their
accuracy and vagueness after which the researcher will make the necessary corrections to the
questionnaires so the instruments should be consistently measure thus producing dependable
data.

24
 CHAPTER FOUR

DATA ANALYSIS AND PRESENTATION OF THE FINDINGS

4.0 Introduction

This chapter presents the findings of the study based on each research objective, data analysis,
and biographic information of respondents, demographics of the respondents.

4.1 Biographic information of the respondents

There are the characteristics of the respondents that were incorporated in the study, these helps to
understand the nature of the respondents for easy analysis of the data and they include the age,
sex, marital status, education level, religion of the respondents among others.

Table 1: Shows the sex of the respondents

Sex Frequency Percentage (%)

Male 48 65.2
Female 27 34.8
Total 75 100
Source: Field Data 2021 Muteesa 1 Royal University

To ensure gender balance, the researcher incorporated 48 male respondents who constituted
65.2% of the total sample size to engage in the study, 27 (34.8%) of the total sample size were
females and they were the minority in the study. This implied that majority of respondents were
male since they are the key informant.

25
Table 2: shows the age of the respondents

Age Frequency Percentage (%)

Below 20 03 4.1

20-29 28 37.3

30-39 22 29.3

40-49 12 16

Above 50 years 10 13.3

Total 75 100

Source: Field Data 2021 Muteesa 1 Royal University

Table 2 revealed that the age brackets that various respondents belonged during the time of the
study. Only 3(4.1%) were below 20years of aged, 28 respondents who constituted 37.3% of the
total sample size were aged between 20-29 years and basically students, meanwhile 22 (29.3%)
of the sample size were aged between 30-39years and they were lecturers, administrators,
finance officers and some students, 12 respondents that constituted 16% of the total sample size
belonged to the age bracket of between 40-49 years, while above 50years of age were 10 (13.3%)
respondents who constituted only.

26
Table 3: Occupation of the respondents

Education level Frequency Percentage (%)

Administrators 15 20

Lecturers 20 26.6

Accountants 05 6.7

Students 30 40

Others 05 6.7

Total 75 100

Source: Field Data 2021 Muteesa 1 Royal University

Education level of the respondents revolved within administrator, lecturers, students, accountants
and others. From the table above it indicate that 15(20%) were administrators, 20(26.6%) were
lecturers, 30(40%) were students, 05 (6.7%) accountants and others respectively.

4.2.1 The effect of internal control environments on financial performance.

The first objective of the study was to evaluate the effect of internal control environment affects
financial performance.

The respondents were asked to respond to a number of statements regarding internal control
environment the findings are summarized in the table below;

27
Table 4: Descriptive statistics about the Effect of internal control environment on financial
performance.

S/ Effect of internal control environment on financial SA A SD D NS

N performance
1 Our institution has an accounting and financial 73 5 00 00 00
management system. 97% 6% 00 00 00
2 Management is committed to the operation of the 5 10 40 20 5
system. 6% 13% 53% 26% 6%
3 Management closely monitors implementation of 15 30 20 5 4
Internal control systems in our institution. 20% 40% 26% 6% 5%
4 Management provides feedback to the junior officers 30 10 00 5 10
about the operation of the system. 40% 13% 00% 6% 13%
5 Appropriate measures are taken to correct misfeasance 45 10 00 00 9
in operation of our Accounting & Finance Management
60% 13% 00% 00% 12%
System.
6 Management acts with a great degree of integrity in 3 5 40 12 5
execution of their roles. 4% 6% 53% 16% 6%
7 Ethical values are upheld in all management decisions. 30 30 5 2 6
40% 40% 6% 2% 8%
8 Our Institution has an objective, independent and active 5 5 45 15 00
audit committee. 6% 6% 60% 20% 00%
9 Our Board of governors and its committees are 30 30 10 00 00
independent of Management. 40% 40% 13% 00% 00%
10 The organization has an organizational chart that clearly 70 5 00 00 00
defines lines of authority and responsibility
93% 6% 00% 00% 00%

The study examined the effect of internal control environments in financial performance and it
was revealed that

28
Based on the results of the research, it can be seen that the majority of respondents strongly agree
that their institution has an accounting and financial management system (97%) and that there is
a clear organizational chart defining lines of authority and responsibility (93%). These findings
suggest that private universities have established internal control systems and structures to
support their financial management.

However, the results also indicate that there may be areas for improvement in terms of
management commitment and monitoring of the internal control systems. Only 6% of
respondents strongly agree that management is committed to the operation of the system and
only 20% strongly agree that management closely monitors implementation of internal control
systems. This suggests that management may not be fully invested in ensuring the effectiveness
of the internal control systems.

In addition, there may be issues related to management integrity and ethical values, as only 4-6%
of respondents strongly agree that management acts with a great degree of integrity in execution
of their roles and that ethical values are upheld in all management decisions.
Furthermore, only 6% of respondents strongly agree that their institution has an objective,
independent, and active audit committee, and only 40% strongly agree that appropriate measures
are taken to correct misfeasance in the operation of the accounting and finance management
system. This suggests that there may be weaknesses in the institutional governance and oversight
of the internal control systems.

Overall, the results suggest that private universities have established internal control systems and
structures, but there may be areas for improvement in terms of management commitment,
integrity, and governance to ensure the effectiveness of these systems. Previous research has
shown that effective internal control systems can have a positive impact on financial
performance, including increased efficiency, reduced risks of fraud and errors, and improved
decision-making (Ahmed et al., 2020; Adedeji & Lawal, 2021).

29
Therefore, private universities should prioritize the improvement of their internal control systems
by investing in management training and development, strengthening institutional governance
and oversight, and establishing independent and objective audit committees.

4.2.2 To examine the level of internal control systems in private Universities in Muteesa 1
Royal University and identify the strengths and weaknesses of their internal control
systems.

The findings were as tabulated in table 4.2.1 below;

Table 5: Descriptive statistics about the level of internal control systems and identify their
strength and weakness.

S/ Examine the level of internal control systems and SA A SD D NS

N identify their strength and weakness.
1 You have an internal audit function in place to assess 30 30 20 3 00
the effectiveness of your internal control systems. 40% 40% 26% 4% 00%
2 Have they implemented internal control systems in your 45 10 00 00 00
organization. 60% 13% 00% 00% 00%
3 Do you believe your internal control systems are 51 15 00 00 5
effective in preventing fraud 68% 20 00% 00% 6%
4 Have you identified any weaknesses in your internal 47 10 00 00 8
control systems 62% 13% 00% 00% 10%
5 Have you experienced any financial losses due to 69 6 00 00 3
weaknesses in your internal control systems?
92% 08% 00% 00% 4%

6 Have they allocated sufficient resources to maintain and 18 4 45 5 00

monitor your internal control systems?
24% 5% 60% 6% 00%

The results of the research indicate that the implementation of internal control systems in private
universities is not comprehensive, as only 60% of respondents reported that internal control
systems have been implemented in their organizations. This suggests that there is a need for

30
more efforts to be made to ensure that all private universities have internal control systems in
place.

The presence of an internal audit function is critical for assessing the effectiveness of internal
control systems, and it was reported that 70% of respondents have an internal audit function in
place. This is a positive indication that private universities are taking measures to monitor the
effectiveness of their internal control systems.

In terms of the effectiveness of internal control systems in preventing fraud, the majority of
respondents (68%) believe that their internal control systems are effective in preventing fraud.
However, the fact that 5% of respondents were unsure about the effectiveness of their internal
control systems in preventing fraud highlights the need for greater awareness and education
about the importance of internal control systems in preventing fraud.

While 62% of respondents reported that they have identified weaknesses in their internal control
systems, it is concerning that 92% of respondents reported experiencing financial losses due to
weaknesses in their internal control systems. This indicates that the weaknesses identified are
significant enough to result in financial losses, and further underscores the importance of
improving internal control systems in private universities.

Lastly, the fact that only 24% of respondents believe that sufficient resources have been
allocated to maintain and monitor their internal control systems is an area of concern. This
suggests that private universities may need to allocate more resources to ensure that their internal
control systems are adequately maintained and monitored.

Research conducted by previous scholars supports the notion that internal control systems are
important for enhancing financial performance in organizations. For instance, a study by Amran,
Hassan, and Taib (2013) found that internal control systems significantly and positively affect
financial performance. Another study by Chen, Deng, and Wu (2014) found that internal control
systems can help to reduce financial risk and improve financial performance.

In conclusion, the results of the research highlight the need for private universities to implement
comprehensive internal control systems, and to allocate sufficient resources for maintaining and
monitoring these systems. Such measures can help to prevent financial losses due to weaknesses

31
in internal control systems, and ultimately contribute to enhanced financial performance in
private universities.

Previous research has also indicated that internal control systems can have a positive impact on
the financial performance of private universities. A study conducted by Li, Li, and Wang (2019)
found that the implementation of internal control systems in private universities can improve
financial performance by reducing the risk of financial fraud and improving the accuracy and
reliability of financial reporting.

Another study conducted by Nkongho, Ashu, and Jing (2016) found that internal control systems
can also improve the efficiency of financial management in private universities by enhancing the
effectiveness of financial decision-making processes.

Overall, the results of the research and previous studies indicate that internal control systems can
have a significant impact on the financial performance of private universities. It is important for
private universities to ensure that they have adequate internal control systems in place, that these
systems are effective in preventing financial risks, and that they are regularly monitored and
improved to enhance financial performance.

Overall, the study highlights the importance of internal control systems in private universities
and the need for these institutions to invest in resources and training to ensure the effectiveness
of their internal control systems. The strengths identified by respondents, such as regular
monitoring and review and clear communication and documentation of internal control policies
and procedures, can serve as best practices for other private universities to adopt. Similarly, the
weaknesses identified, such as lack of compliance and enforcement and inadequate training and
awareness, can serve as areas of improvement for private universities to focus on to strengthen
their internal control systems. Ultimately, effective internal control systems can contribute to
improved operations and financial performance of private universities.

32
4.2.3 Effect of Internal Control activities on financial performance.

Table 5: Descriptive statistics about the Effect of control activities on financial

performance

S/ Effect of control activities on financial performance SA A SD D NS

N
1 All employees understand the concept and importance of 30 25 3 6 00
internal controls including the division of responsibility 40% 33% 4% 8% 00%
2 The reporting system on organizational structures spells 65 5 00 3 00
out all the responsibilities of each section 86% 6% 00% 4% 00%
3 Every employee’s work check on the others. 04 34 20 5 07
5% 45% 26% 6% 9%
4 There is appropriate supervision by senior staff on the 21 30 05 15 00
work of their juniors. 28% 40% 6% 20% 00%
5 Corrective action is taken to address weaknesses. 25 20 07 02 06

33% 26% 9% 2% 8%

6 Staffs are trained to implement the accounting and 45 05 07 11 00

financial management system.
60% 6% 9% 16% 00%

From the table above, the results of the research provide insights into the effect of control
activities on financial performance in private universities. The study assessed six control
activities: understanding of internal controls, reporting system on organizational structures, work
check by employees, appropriate supervision by senior staff, corrective action for weaknesses,
and staff training on accounting and financial management systems.

The first control activity assessed was the understanding of internal controls, including the
division of responsibility. The results indicate that only 30% of the respondents agreed that all
employees understand the concept and importance of internal controls. This suggests that there
may be a lack of awareness or training on internal controls among employees in private

33
universities. This lack of understanding may lead to a higher risk of fraud, errors, and financial
mismanagement, which could negatively impact financial performance.

The second control activity assessed was the reporting system on organizational structures,
which spells out all the responsibilities of each section. The results indicate that a higher
percentage of respondents, 65%, agreed that the reporting system on organizational structures is
in place. This suggests that private universities have formalized their organizational structures,
which may result in clearer accountability and responsibility among employees. This, in turn,
could positively impact financial performance by reducing the likelihood of financial
mismanagement and errors.

The third control activity assessed was the work check by employees, which refers to the practice
of every employee checking the work of others. The results indicate that 34% of the respondents
agreed with this control activity, which suggests that private universities may not have a
formalized process for employees to check each other's work. This lack of work check may
increase the risk of errors and fraud, which could negatively impact financial performance.

The fourth control activity assessed was the appropriate supervision by senior staff on the work
of their juniors. The results indicate that 51% of the respondents agreed with this control activity.
This suggests that private universities may have some level of supervision in place. However, the
percentage of respondents who disagreed or were neutral suggests that there may be room for
improvement in this area. This lack of appropriate supervision may lead to a higher risk of errors
and fraud, which could negatively impact financial performance.

The fifth control activity assessed was corrective action to address weaknesses. The results
indicate that 33% of the respondents agreed that corrective action is taken to address weaknesses.
This suggests that private universities may have some level of responsiveness to addressing
weaknesses in their internal controls. However, the percentage of respondents who disagreed or
were neutral suggests that there may be room for improvement in this area. The lack of
corrective action may lead to a higher risk of errors and fraud, which could negatively impact
financial performance.

The sixth control activity assessed was staff training on accounting and financial management
systems. The results indicate that 60% of the respondents agreed that staffs are trained to

34
implement the accounting and financial management system. This suggests that private
universities may have a formalized training program in place to ensure that employees have the
necessary skills to manage accounting and financial systems. This could positively impact
financial performance by reducing the likelihood of errors and financial mismanagement.

In conclusion, the results of the research suggest that private universities may have some control
activities in place to ensure their internal controls are effective. However, there is room for
improvement in some areas, such as employee supervision and corrective action to address
weaknesses. The lack of these control activities may lead to a higher risk of errors and financial
mismanagement, which could negatively impact financial performance. On the other hand,
control activities such as a reporting system on organizational structures and staff training on
accounting and financial management systems may positively impact financial performance.
Therefore, it is recommended that private universities prioritize improving their internal controls
by strengthening their control activities in areas that require improvement.

The results of the research indicate that the majority of respondents believe that internal control
activities have a positive impact on financial performance in private universities. Specifically, a
high percentage of respondents (86%) agree that the reporting system on organizational
structures spells out all the responsibilities of each section, suggesting that a clear delineation of
roles and responsibilities within the university can lead to better financial outcomes.
Additionally, the majority of respondents (60%) believe that staff training in accounting and
financial management systems has a positive effect on financial performance.

These findings are consistent with prior research on the topic. For example, a study by
Oyadonghan and Amadi (2017) found that internal control systems have a positive impact on
financial performance in Nigerian universities. The study specifically found that internal control
activities, such as effective communication and training, were associated with better financial
outcomes. Another study by Ng’ang’a and Munene (2017) found that internal control systems
have a significant effect on financial performance in Kenyan universities. The study found that
effective internal control activities, such as clear policies and procedures and regular monitoring,
were associated with better financial performance.

35
Overall, the results of this research and prior studies suggest that effective internal control
systems can have a positive impact on financial performance in private universities. It is
important for universities to implement clear policies and procedures, provide training to staff,
and regularly monitor and evaluate their internal control activities to ensure their effectiveness.
By doing so, universities can improve their financial outcomes and better manage their
resources.

36
 CHAPTER FIVE
DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS
5.0 Introduction

This chapter presents the discussion of the key findings, conclusions drawn from the findings
highlighted and recommendations drawn were based on the objectives of the study.

5.1 Discussion of the key findings

5.1.1 The effect of internal control environments on financial performance

Based on the key findings, it can be concluded that there is a need for private universities to
improve their internal control systems to enhance their financial performance. Effective internal
control systems can reduce the risk of financial mismanagement, fraud, and errors, which can
ultimately lead to improved financial performance.

One area for improvement is management commitment and monitoring of the internal control
systems. Private universities should invest in training and development for their management
team to ensure that they are fully invested in ensuring the effectiveness of the internal control
systems. This can include training on the importance of internal controls, risk management, and
ethical behavior.

In addition, there is a need to strengthen institutional governance and oversight, including the
establishment of objective, independent, and active audit committees. This can provide a
mechanism for effective oversight and monitoring of the internal control systems, which can help
to identify and correct weaknesses in a timely manner.

Private universities should also prioritize the establishment of ethical values in all management
decisions, which can help to reduce the risk of financial mismanagement and fraud. This can
include the establishment of a code of ethics and the implementation of policies and procedures
to ensure that ethical behavior is upheld throughout the organization.

Overall, the findings suggest that private universities need to prioritize the improvement of their
internal control systems to enhance their financial performance. By investing in management
training and development, strengthening institutional governance and oversight, and establishing

37
independent and objective audit committees, private universities can ensure the effectiveness of
their internal control systems and ultimately improve their financial performance.

5.1.2 To examine the level of internal control systems in private and identify the strengths
and weaknesses of their internal control systems.

The key findings suggest that there is room for improvement in the implementation of internal
control systems in private universities. While the majority of respondents believe that their
internal control systems are effective in preventing fraud, it is concerning that a significant
percentage of respondents reported experiencing financial losses due to weaknesses in their
internal control systems. This highlights the importance of allocating sufficient resources to
maintain and monitor internal control systems to prevent financial losses.

Previous research supports the notion that internal control systems can have a positive impact on
the financial performance of private universities by reducing financial risks and improving
financial reporting accuracy and reliability. Therefore, private universities should prioritize the
implementation of comprehensive internal control systems and allocate sufficient resources to
maintain and monitor these systems to enhance their financial performance.

The strengths identified by respondents, such as regular monitoring and review and clear
communication and documentation of internal control policies and procedures, can serve as best
practices for other private universities to adopt. On the other hand, the weaknesses identified,
such as lack of compliance and enforcement and inadequate training and awareness, should be
addressed to strengthen the internal control systems of private universities.

In conclusion, effective internal control systems are essential for improving the financial
performance of private universities. Private universities should invest in resources and training to
ensure the effectiveness of their internal control systems and prioritize the implementation of
best practices to strengthen their internal control systems.

5.1.3 The effect of internal control activities on financial performance

The findings of the research indicate that internal control activities have a significant effect on
the financial performance of private universities. Specifically, the study assessed six control
activities and found that there is room for improvement in some areas, such as employee

38
supervision and corrective action to address weaknesses. However, control activities such as a
reporting system on organizational structures and staff training on accounting and financial
management systems may positively impact financial performance.

These findings are consistent with prior research on the topic, which also suggests that effective
internal control systems can have a positive impact on financial performance in universities.
Therefore, it is important for private universities to prioritize improving their internal controls by
strengthening their control activities in areas that require improvement, implementing clear
policies and procedures, providing training to staff, and regularly monitoring and evaluating their
internal control activities to ensure their effectiveness. By doing so, private universities can
improve their financial outcomes and better manage their resources.

5.2 Conclusions on the Study Findings

Based on the findings of the study on the effect of internal control environments on financial
performance, it can be concluded that effective internal control systems are crucial for the
financial success of private universities. The study highlights the need for private universities to
improve their internal control systems, which can reduce the risk of financial mismanagement,
fraud, and errors, leading to improved financial performance.

The study identified various areas for improvement, including management commitment and
monitoring of the internal control systems, strengthening institutional governance and oversight,
and establishing ethical values in all management decisions. Furthermore, the study highlighted
the strengths and weaknesses of the internal control systems in private universities and
recommended best practices that can be adopted to improve the internal control systems.

Overall, private universities should prioritize investing in resources and training to ensure the
effectiveness of their internal control systems and implement best practices to strengthen their
internal control systems. By doing so, private universities can improve their financial outcomes
and better manage their resources.

39
5.3 Recommendations of the Study

From the above conclusions, the study recommends:-

Private universities should prioritize the improvement of their internal control systems to
enhance their financial performance. This can be achieved through investing in management
training and development, strengthening institutional governance and oversight, and establishing
independent and objective audit committees.

Private universities should allocate sufficient resources to maintain and monitor their internal
control systems to prevent financial losses. They should also implement comprehensive internal
control systems and adopt best practices such as regular monitoring and review, clear
communication and documentation of internal control policies and procedures, and compliance
and enforcement.

Private universities should prioritize employee supervision and corrective action to address
weaknesses and implement control activities such as a reporting system on organizational
structures and staff training on accounting and financial management systems.

Private universities should establish ethical values in all management decisions to reduce the risk
of financial mismanagement and fraud. This can include the establishment of a code of ethics
and the implementation of policies and procedures to ensure that ethical behavior is upheld
throughout the organization.

Overall, these recommendations emphasize the importance of prioritizing effective internal

control systems in private universities to reduce financial risks, improve financial reporting
accuracy and reliability, and ultimately enhance their financial performance

5.4 Areas for further research

The researcher recommends further research on the following topics;

In order to improve on this study, the researcher suggests that further investigations be done on
the effects of internal controls on the financial performance of other institutions such as banking,
educational and commercial sectors.

40
 The effect of internal control systems on customer satisfaction level in private business and
impact of internal control systems on financial performance of public universities, among others
in the country so as to generate adequate empirical literature.

41
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 APPENDICES

APPENDIX I: QUESTIONNAIRE
Dear respondent,

I am Nabasumba Lydia a student of Buganda Royal Institute of Business and Technical

Education carrying research on the topic “The effect of internal control systems on financial
performance of private universities. A case of Muteesa 1 Royal University”. You have been
selected to participate in this study and therefore your kind cooperation is required. Take note
that any information you provide in this questionnaire will be treated with much confidentiality
and will only be used for academic purpose. You are therefore requested to fill in the given
spaces correctly. Thank you in advance for sparing your valuable time to answer this.

SECTION A: BACK GROUND INFORMATION (tick where applicable)

(a) Sex: Male

Female

(b) Age: 20-29 30 – 39 40 – 49

50 – 59 60 – 69 70+
(c) Education level:

Masters

Degree

Diploma

Certificate

Others please specify ……………………………………………….

(d) Marital status: Single Married Divorced Others ………………..

(e) Religion: Anglican Catholic Moslem Others…………….......

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SECTION B: The effect of internal control environment on financial performance.

Please indicate whether you strongly agree (SA), agree (A), strongly disagree (SD), disagree
(D), or Not sure (NS) with the following statements about the effect of control environment on
financial performance.

Table 1: To what extent has the following affected control environment on financial
performance of Muteesa 1 Royal University?

S/N Effect of internal control environment on financial SA A SD D NS

performance
1 Our institution has an accounting and financial
management system.
2 Management is committed to the operation of the system.

3 Management closely monitors implementation of Internal

control systems in our institution.
4 Management provides feedback to the junior officers about
the operation of the system.
5 Appropriate measures are taken to correct misfeasance in
operation of our Accounting & Finance Management
System.
6 Management acts with a great degree of integrity in
execution of their roles.
7 Ethical values are upheld in all management decisions.

8 Our Institution has an objective, independent and active

audit committee.
9 Our Board of governors and its committees are
independent of Management.
10 The organization has an organizational chart that clearly
defines lines of authority and responsibility

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SECTION C: The effect of risk assessment process on financial performance.
Please indicate whether you strongly agree (SA), agree (A), strongly disagree (SD), disagree
(D), or Not sure (NS) with the following statements about the effect of risk assessment process
on financial performance.

Table 2: To examine the level of internal control systems in private universities in Muteesa
1 Royal University and identify the strengths and weakness of their control system.
S/N Examine the level of internal control systems and SA A SD D NS
identify their strength and weakness.
1 you have an internal audit function in place to assess the
effectiveness of your internal control systems.
2 Have they implemented internal control systems in your
organization.
3 Do you believe your internal control systems are
effective in preventing fraud
4 Have you identified any weaknesses in your internal
control systems
5 Have you experienced any financial losses due to
weaknesses in your internal control systems?

6 Have you allocated sufficient resources to maintain and

monitor your internal control systems?

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SECTION C: Effect of control activities on financial performance.

Please indicate whether you strongly agree (SA), agree (A), strongly disagree (SD), disagree
(D), or Not sure (NS) with the following statements about the effect of control activities on
financial performance.

Table3. To what extent have the following affected control activities on financial
performance of Muteesa 1 Royal University?
S/ Effect of control activities on financial performance S A SD D NS
N A
1 All employees understand the concept and importance of internal
controls including the division of responsibility
2 The reporting system on organizational structures spells out all the
responsibilities of each section
3 Every employee’s work check on the others.
4 There is appropriate supervision by senior staff on the work of
their juniors.
5 Corrective action is taken to address weaknesses.

6 Staffs are trained to implement the accounting and financial

management system.
7 Our Institution has a well-developed Chart of Account.
8 It is impossible for one staff to have access to all valuable
information without the consent of senior staff.
9 Controls are in place to exclude incurring expenditure in excess
allocated funds.
10 Departments have budget reviews where actual expenditure is
compared with budgeted expenditure and explanations for the
variances given.
11 Our security system identifies and safeguards Institutional Assets.

Thanks very much for your cooperation.

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