Internal Control System and Financial Performance of Cooperatives in Rwanda: A Case of Zigama Credit and Saving Society

Abstract

This paper examined the contribution of internal control system on financial performance of cooperative banks in Rwanda with reference to Zigama Credit and Saving Society. Specifically, the study assessed effect of control environment on control activities and risk assessment on financial performance of Zigama Credit and Saving Society. The significance of research will be on practitioners, decision makers and researchers to get the knowledge about internal control system. The researcher used descriptive and correlation study design with a mixed approach on a sample of 167 participants drawn from 287 population using Yamane formula. Simple random technique was employed to obtain respondents and purposive sampling techniques are employed to choose participants and information were collected using questionnaire administered to respondents. Data entry, response code, edit and tabulation were used for data analysis. Data were analysed descriptively and regression analysis helped to general association between independent and dependent variables. Qualitative information analysis used content analysis. Data from the first objective felt that a unity of variation in control environment may stimulate a change in financial success by 0.482. The research established that financial cooperatives had conducive environment. To the second objective, the study show that a unit of adjustment in control activities stimulate variation on financial success by 0.214. Information established that financial cooperative has accounting system, which is strong enough to stimulate financial success through the reduction of risks and errors. Findings on the objective three demonstrated that a unit variation should lead to a change in identifying risks in financial success by 0.101. Results indicated that assessing risks as factor of internal control of the firm impact the financial success this show that managing risks had put in place assessment for reducing critical risks that can come from risk management where they had to assess risk that they are committed to assume responsibilities. In conclusion, the adequate control environment for suitable functions to the success through audit done and the extent to which workers are committed is still at minimum level. The second objective showed that strategic measures established for detecting frauds and errors are applied in way that is inadequate, the review of daily transactions is sometimes done. The third objective showed that strategic measures established to identify, analysis and reduce risks are applied inconsistently. The study recommended that managing team would rely on the clarification of duties, follow up, cost revision, and should rely on risk measurements. Review of daily transactions should on daily basis workers should be trained on regular basis so as to enhance their ethical values and their commitment at work place. Rigorous policies and procedure manual must be applied accordingly. There is a need to ascertain the use of resources that provide financial means to equity ratio has been improved in the last three years. There is a need to improve the adequacy and suitability for increasing the success of Zigama Credit and Saving Society in Rwanda. The research proposed that further studies would be done within other banking sector than Zigama Credit and Saving Society in Rwanda.

Keywords: Internal Control system, Cooperative, Risk assessment, Control activities, and Financial Performance