Abstract

This study explores the role of internal auditing in enhancing the financial performance of Microfinance Institutions (MFIs) in Buea, Cameroon. As key players in the financial inclusion of marginalized populations, MFIs face unique challenges in maintaining financial stability and operational efficiency. Internal auditing, an essential component of corporate governance, serves as a mechanism to ensure compliance with financial regulations, safeguard assets, and improve operational processes. This research seeks to evaluate how effectively internal audits contribute to the financial performance of MFIs in Buea, focusing on risk management, fraud detection, and overall financial governance.

The research employs a mixed-methods approach, combining quantitative analysis with qualitative insights. Data is collected through surveys distributed to internal audit departments and management teams within selected MFIs in Buea. Additionally, interviews with audit professionals and senior managers provide in-depth perspectives on the current internal audit practices and their perceived effectiveness in improving financial performance. Financial records of these institutions are also analyzed to assess the correlation between internal audit activities and financial indicators such as profitability, liquidity, and solvency.

Preliminary findings indicate that internal audits play a significant role in improving the financial health of MFIs by identifying inefficiencies, preventing fraud, and ensuring that financial procedures are followed rigorously. However, the effectiveness of these audits is often contingent on the independence of the audit function, the skill level of audit staff, and the degree of support from senior management. In some cases, internal audit findings are underutilized due to inadequate follow-up actions or resistance to implementing recommended changes.

The study concludes that while internal auditing is a critical tool for enhancing financial performance, its efficiency can be hampered by organizational and systemic barriers within MFIs. To optimize the impact of internal audits, the research recommends strengthening the independence of audit functions, increasing investment in auditor training, and fostering a culture of accountability and transparency within MFIs. By addressing these factors, MFIs in Buea can improve their financial performance, ensuring sustainability and greater impact in their communities.

Keywords: Internal audit, financial performance, Microfinance Institutions (MFIs), Buea, financial governance, risk management, fraud detection, corporate governance.