ABSTRACT

 The purpose of this study was to assess the effects of internal control on the financial performance of microfinance institutions in Bamenda. The objectives of this study included: to investigate the effects of internal control on microfinance institutions, to examine the effects of control environment on the financial performance of microfinance institutions, to evaluate the effects of internal control on the financial performance of microfinance institutions, to assess the extent to which control activities influence the financial performance of microfinance institutions and to evaluate the effects of information and communication on the financial performance of microfinance institutions. The researcher used descriptive research design in the collection if data from the various targeted categories of respondents of microfinance institutions. The sample size was 30 and the researcher used questionnaires to collect the data. The results of this study show that, internal control has a positive significance on the financial performance ofmicrofinance institutions thereby rejecting the null hypothesis which states that internal control does not have a significant effect on financial performance of microfinance inst  itutions. This study concludes that internal control is a necessity for microfinance institutions because it guides the organization towards the achievement of its objectives such as operational efficiency and effectiveness, reliability of financial reporting in compliance with laws and regulations governinginstitutions. The researcher stated some recommendations that can be put in place to ensure that internal control is effectively implemented in organizations and recommendations for further research were highlighted to enable the researcher and other researchers to obtain a deeper understanding of the this topic

CHAPTER ONE

INTRODUCTION

1.1. Background Information

 Many microfinance institutions have experienced poor financial performances over the years and this has led to the sudden falls and collapses in their businesses. In 2010 and 2012, the minister of finance in Cameroon revoked the licenses of over 33 microfinance institutions dotted in the seven out of ten regions in Cameroon and the reasons for these revolved around fraud and out lawlessness-non respect of defined laws (Business in Cameroon Website Article, July 30, 2013). Therefore, due to these sudden falls and collapses of these microfinance institutions, there has been a need to ensure some degree of integrity, transparency and proper conduct of business and for the growth and attainment of the objectives of organizations, the management of these organizations or microfinance institutions need to ensure the effective implementation, application and practice of internal control systems to regulate the way operations are carried out and avoid excesses. Internal control are the mechanisms, rules and procedures implemented by a company to ensure the integrity of financial and accounting information, promotes accountability and prevent fraud (Will Kenton, 2021). The concept of internal control is said to trace its history back to the beginning of the 20th century, where, internal control appeared as a practice in the USA. According to Brown (1962, p 696), the difference between no recognition and slight recognition of internal control was found in a 1905 publication entitled ‘Auditing by Lawrence Dicksee, and English audit specialist (Dicksee, 1892). In his study, originally published, it does notmention the term internal control itself, but addresses internal control by explaining that the scope of an audit h as three parts to it: ‘the detection of fraud, technical errors and errors in principle’. From approximately 1905 to 2004, Heier et al (2005, p. 41) show that the debate and definitions, interpretations and applications of internal control have emerged as a reaction revolution. Often, these changes of definitions, interpretations and application happened as a reaction to a major change in the economic situation of a country as a whole or to the actions of individual firms within the economy. Heier, Dugan and Sayer explain that the stock market crash of 1929, the economic boom after World War II, the evolution of bribery of several 100 US companies (including well respected firms such as Exxon) in the aftermath of the Watergate affair in the 1970s, and corporate failures at the beginning of the 1980s are earlier examples of events that had an impact on internal control regulation and interpretation. Most recent and prominent examples of such events and their reaction are a series of failures in the early 2000s associated with the scandals at Enron and WorldCom. As a major legislation reaction, the US Congress introduced the Sarbanes-Oxley Act of 2002 (SOX) which brought a series of new requirements for domestic and foreign companies that are not listed in the US stock exchanges. The ‘internal control’ was first defined by the American Institute of Certified Public Accountants (AICPA) in 1949. It defined internal control as a plan and other coordinated means and ways by the enterprise to keep safe its assets, check the covertness and reliability of data to increase its effectiveness and to ensure the settled management policies. 

1.3 Research Questions

This research will therefore investigate to answer the following research questions;

1.3.1 Main research question

What are the effects of internal control systems on the financial performance of microfinance institutions in Bamenda?

1.3.2 Specific research questions

1. I. What is the effect of control environment on the financial performance of Microfinance institutions?

1. II. How does risk assessment affect the financial performance ofmicrofinance institutions?

III. How do control activities affect the financial performance of Microfinance institutions?

1. IV. How does information and communication influence the financial performance of Microfinance institutions?

1.4 Objectives of study

This research study is carried out to meet up with the following objectives

which include;

1.4.1 Main research objective

To investigate the effects of internal control on the financial performance of

microfinance institutions in Bamenda.

1.4.2 Specific research objectives

1. I. To examine the effects of control environment on the financial performance of Microfinance institutions.

1. II. To evaluate the effects of risk assessment on the financial performance in microfinance institutions.

III. To assess the extent to which control activities influence the financial performance of Microfinance institutions

1. IV. To evaluate the effects of information and communication on the financial performance of Microfinance institutions

1.5 Research Hypothesis

 A research hypothesis is a statement of expectation or prediction that will be tested by research. To permit the achievement of the said objectives so as to

answer the above research questions, the following hypothesis will be

studied;

H₀: Internal control does not significantly affect the financial performance of microfinance institutions.

H₀: There is no significant effect of control environment on the financial performance of Microfinance institutions.

H₀: Risk assessment does not significantly affect the financial performance of microfinance institutions.