THE IMPACT OF INTERNAL CONTROL SYSTEMS ON THE FINANCIAL PERFORMANCE OF PRIVATE HOSPITALS IN NAIROBI

Internal control systems is a topical issue following global fraudulent financial reporting and
accounting scandals in both developed and developing countries. This requires a critical
evaluation of internal control systems and their impact on financial performance. The prior studies
evaluated tend to focus on aspects of controls that relates to performance reporting, organization structure,
behavior and external auditors’ work with no focus on financial performance. It is on this basis therefore
that this study sought to examine the impact of internal control systems on the financial performance of
private hospitals in Kenya.
The objective of this study was to examine the impact of internal control systems on the financial
performance of private hospitals in Kenya. The study was carried out using survey design. The
target population of the study was all the private hospitals accredited by National Hospital
Insurance Fund (NHIF) operating within the County of Nairobi. The sample size was based on
number of beds. Based on the researcher’s judgment, a private hospital was included in the
sample if it had a patient capacity of 20 beds and above. Regression analysis was used to find the
relationship between monitoring, control activities, risk assessment, information and
communication, control environment and financial performance of private hospitals in Kenya.
The findings of the study indicate that all the five components that is Monitoring, Control
Activities, Risk Assessment, Information and Communication and Control Environment must be
present for an internal control system to be considered effective. The findings also indicate that
Monitoring had the highest influence on financial performance of private hospitals in Kenya followed by
control environment, information and communication, risk assessment and control activities respectively

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