Internal Control System, Audit Quality and Financial Accountability in Non-Governmental Organizations: A case study of Gulu district.

Abstract

The study was intended to establish the relationship between internal control system, audit quality and financial accountability and the mediating effect that audit quality has on the relationship between internal control system and financial accountability. The study population was 140 NGOs from which a sample size of 103 NGOs was derived using table for determining sample size by Krejcie and Morgan, (1970). The NGOs for the study were selected basing on the simple random sampling methodology. Due to the various challenges and constraints in data acquisition and the limited time frame, the study targeted only respondents from the administrative, monitoring and evaluation and program departments, with preference to the finance departments of the NGOs. The unit of analysis was the NGO. Data was tested for reliability and validity and analyzed using SPSS version23 and results presented based on the study objectives.

The findings indicated a strong positive relationship exists between the internal control system and financial accountability; with internal control system a significant predictor of financial accountability. In addition, a moderate positive relationship was found to exist between audit quality and internal control system. The results however revealed that audit quality was not a significant predictor of financial accountability therefore the inclusion of audit quality, as the mediating variable could not alter the strength of the relationship between Internal Control System and financial accountability.

It was concluded that the enhancement of internal control system in selected NGOs in Gulu district would inevitably lead to significant improvement in their financial accountability. Moreover, it was concluded that improvement in the quality of audit could not be a stand-alone initiative towards the enhancement of financial accountability of NGOs in Gulu district.

It was recommended that NGOs in Gulu district should emphasize the establishment, implementation and enhancement of effective internal control system for them to have satisfactory financial accountability of donor funds.