In the context of financial performance, the control environment refers to the overall environment in which an organization's internal control system operates. It encompasses the organization's governance structure, management philosophy and operating style, integrity and ethical values and the attention and direction provided by the board of directors. A strong control environment is crucial for achieving and maintaining effective internal controls, which can positively affect financial performance. A strong control environment promotes an ethical culture within the organization, emphasizing integrity, accountability and transparency. This can prevent fraudulent activities, financial mismanagement and unethical behavior, which can have a detrimental impact on financial performance.

An effective control environment supports robust risk management practices. It encourages the identification, assessment and mitigation of risks that can affect financial performance. By implementing appropriate controls and risk management strategies, organizations can reduce the likelihood and impact of adverse events. A well-established control environment ensures compliance with applicable laws, regulations and industry standards. By adhering to regulatory requirements, organizations can avoid penalties, reputational damage and potential disruptions to their financial operations, leading to more stable financial performance. The control environment influences the accuracy and reliability of financial reporting. Through establishing strong internal controls and a control environment that emphasizes accuracy, organizations can enhance the quality of financial information, leading to better decision-making and improved financial performance.

The majority of financial institutions in the developed countries have improved their internal control structure, particularly following the collapse of the leading corporations, such as Enron, General Motor in the USA and others. In America, legislation called the Sarbanes Oxley Act of 2002 has been implemented, among other things requiring the company or entity to create and maintain an adequate financial system. The American Accounting Association stated that internal controls are used as a tool to improve the legitimacy of the financial statements such that the public who do not engage in the day-to-day operation of the company may have some degree of trust in the financial condition of the organization. 

In the United Kingdom and the United States, new legislation and stock exchange reforms on corporate governance practices have expanded the role of internal control, such as audit, to a prominent role in controlling and reporting on the efficacy of corporate funds. This led to a number of recommendations that the internal control feature report directly to the audit committee, not to the management. Sultana and Haque assessed the efficacy of existing internal control systems in the listed banks in Bangladesh. 

Wallace and Kreutzfeldt's study was among the first to demonstrate the significance of the control environment in explaining the presence of an internal audit function. Furthermore, recent research by Goodwin-Stewart and Kent provided evidence linking the existence of an internal audit function to the level of commitment to risk management. Case studies conducted in Belgium shed light on the importance of the control environment when examining internal control practices. Sarens and De Beelde discovered that specific control environment characteristics, such as the tone-at-the-top, level of risk and control awareness and the extent to which responsibilities related to risk management and internal controls are clearly defined and communicated, significantly influence the role of the internal audit function within an organization. The tone-at-the-top refers to an organization's ethical values, management's philosophy and operating style, as reflected in the company's code of conduct or code of ethics.

According to the findings, the majority of the banks examined in the study have successfully implemented most of the internal control components. However, it should be noted that certain banks are deficient in some aspects of their control systems. In relation to this, Ibrahim, Diibuzie and Abubakari [1], have highlighted the significance of maintaining an effective internal control structure within organizations. They emphasize that such emphasis is crucial due to the substantial and consistent positive impact it has on financial outcomes.

Worku [2], suggested that despite the fact that the internal control mechanism has been in place for many years in the financial sector, there have been recent cases and reports about the high rate of fraud. Ethiopian Commercial Banks have not been left out in this rise in crime – wave problems and bad banking, despite the presence of inter-control and fraud detection devices. Niyonsenga and Abuya [3], looked at the relationship between the internal control mechanism and the financial performance of financial institutions in Rwanda. Weak internal control leads to poor organization results as the organization is exposed to various forms of threats, such as fraud, misappropriation and waste, among others.

Tanzania, as a developing country, is seeking to improve the internal control mechanism through its institutions, such as the Central Bank. The Ministry of Finance urges financial institutions to concentrate on the implementation of an efficient internal control system. In Uganda, Mawanda [4], suggested that issues of internal control have left universities grappling with liquidity problems, that financial reporting is not timely, that responsibility for university financial resources is still missing, that bribery and abuse of institutional resources have been discovered and that a number of decisions taken have not produced the expected outcome.

Savings and Credit Cooperative Societies (SACCOs) in Kenya are financial cooperatives owned by their members and are focused on promoting thrift, savings and access to credit. These SACCOs operate under the Cooperative Societies Act of Kenya and are regulated by the Sacco Societies Regulatory Authority (SASRA). The primary objective of SACCOs is to provide affordable financial services to their members, which include mobilizing savings, offering credit facilities and providing various other financial products. However, it is important to note that there have been instances of mismanagement, fraud and corrupt practices within some SACCOs in Kenya, as highlighted in the inspection report conducted by the SACCO Societies Regulatory Authority. One notable case that exemplifies these issues is the situation of Elimu SACCO, where accounting tricks were employed to conceal forgery and non-payment of loans by certain members. Such instances underscore the need for effective governance, transparency and accountability within SACCOs to ensure the protection of members' interests.

According to Kinyua, Gakure, Gekara and Orwa [5], the control environment plays a crucial role in setting the organizational tone by influencing the control consciousness of individuals. They emphasize that the control environment serves as the foundation for all other components of internal control. Key factors within the control environment include the integrity and ethical values of personnel responsible for creating, administering and monitoring controls, the commitment and competence of individuals performing assigned duties, the board of directors or audit committees, management philosophy and operating style and the organizational structure.

Magara tried to establish the impact of internal controls on the financial performance of Savings and Credit Cooperative Societies (SACCOs) deposits in Kenya. It is also clear from the analysis that, without the existence of effective internal controls within these organizations, the SACCOs will perform poorly, with the possibility of eventual failure due to poor financial results. 

Mbaka [6], examined the relationship between internal control systems and SACCO output in Nyeri Central Sub-County. The findings showed that the internal control environment, the control of risk assessments and the control of activities had a positive and statistically relevant impact on the financial performance of SACCOs. Monitoring had a positive but statistically insignificant effect on the financial results of SACCOs. SACCOs should establish a policy that guarantees a frequent and comprehensive evaluation of internal control mechanisms and guarantees that the problems posed are addressed appropriately.

Statement of The Research Problem

Many authorized SACCOs in Kenya have established functional internal audit divisions staffed with qualified personnel responsible for ensuring the adequacy of internal control systems and the implementation of quality processes and systems. However, despite these investments in internal controls, poor financial performance, incidents of fraud, non-compliance with budgets and cases of quasi-compliance with rules and regulations regarding fund usage continue to persist. These issues pose a risk to the savings of the SACCO members.

Furthermore, a significant number of SACCOs fail to maintain the prescribed ratio of core capital to total deposits, with only 169 out of the total SACCOs meeting the threshold of 8% as of 2019. According to the SASRA Report, out of the 175 licensed deposit-receiving SACCOs in the country, only 69 consistently maintained the recommended Institutional Capital Adequacy ratio of 8%. This implies that 106 SACCOs are at risk of being expelled for non-compliance with regulatory requirements. Effective internal controls are necessary to ensure compliance with established regulations and laws.

While previous studies have highlighted the importance of control environment on financial performance, there is a knowledge gap due to conflicting outcomes. For example, Asiligwa and Rennox [7] and Magara found a significant influence of control environment on financial performance, whereas Mbaka [6], in a study on SACCOs in Nyeri Central Sub-County, found that certain control environment practices had statistically insignificant effects on financial performance. This knowledge gap necessitates further research to identify the role of control environment on the financial performance of SACCOs in the North Rift Region of Kenya.

Objectives of The Study

The objective of the study was to establish the effect of control environment on the financial performance of Deposit-Taking Savings and Credit Cooperative Societies in the North Rift Region of Kenya.

Theoretical Framework

This study was guided by accounting, agency and resource dependence theories which were discussed as follows

Accounting Theory

Accounting theory has been developed and contributed to by numerous individuals and scholars over time like Luca Pacioli who is often referred to as the "Father of Accounting," Luca Pacioli was an Italian mathematician and Franciscan friar who published the first known accounting textbook in 1494. William Paton, an American accounting professor, was influential in the development of accounting theory in the mid-20th century. Abraham Briloff was an American accounting professor known for his critical analysis of financial reporting and auditing practices. Stephen Zeff, an accounting professor and researcher, has made significant contributions to the field of accounting theory. Ray Ball and Philip Brown are accounting scholars known for their research on financial reporting quality and the relationship between accounting practices and capital markets in 1968.

Accounting theory refers to a set of principles, concepts and frameworks that guide the practice of accounting and provide a foundation for understanding and analyzing financial information. It encompasses the development and application of rules and standards for recording, reporting and interpreting financial transactions and events. Accounting theory serves as a framework for accountants and financial professionals to make informed decisions and judgments when preparing financial statements, conducting audits and analyzing financial data. It provides a systematic and logical approach to understanding the purpose, objectives and methods of accounting.

Accounting theory, including the contributions of various scholars and the development of standards like International Financial Reporting Standards (IFRS), is highly relevant to the study on the control environment and financial performance of Deposit-Taking Savings and Credit Cooperative Societies (SACCOs) in the North Rift Region of Kenya. Accounting theory provides a framework for the preparation, presentation and interpretation of financial statements. The principles, concepts and standards of accounting guide the recording, classification and analysis of financial information. In the context of the study, accounting theory helps establish the foundation for evaluating the control environment's impact on financial performance based on sound accounting practices. The study can utilize accounting theory to evaluate the quality, reliability and relevance of financial statements prepared by SACCOs. Accounting principles and standards ensure the comparability and consistency of financial information, allowing stakeholders to make informed decisions. By applying accounting theory, the study can assess how the control environment influences the adherence to these principles and the resulting impact on financial performance.

The mention of International Financial Reporting Standards (IFRS) highlights the global influence on accounting practices. IFRS provides a set of accounting principles and guidelines that promote transparency, comparability and international harmonization of financial reporting. The study can explore the extent to which SACCOs adhere to IFRS and investigate how the control environment affects their compliance with these standards, potentially impacting financial performance. Decision-Making and Stakeholder Interests: Accounting theory recognizes that financial information serves as a basis for decision-making by various stakeholders, such as investors, creditors and regulators. The study can analyze how the control environment influences the preparation and communication of financial information, thereby impacting stakeholder decisions. Accounting theory helps understand the conflicts of interest that may arise among stakeholders and how control mechanisms can address these conflicts to enhance financial performance.

Agency Theory

Proponents of Agency Theory include various scholars and researchers who have contributed to the development and application of the theory in understanding organizational behaviour and relationships like Michael C. Jensen [8], William H. Meckling, Bengt Holmström [9,10] and Oliver E. Williamson [11]. These scholars, among others, have made significant contributions to the development and application of Agency Theory. It's important to note that their work has been built upon by numerous researchers and scholars over the years, further refining and expanding the theory. This theory is a relevant framework for analyzing the relationship between the control environment and financial performance in SACCOs. In this context, Agency Theory helps to understand the conflicts of interest that may arise between the SACCO members (principals) and the SACCO management (agents) due to their differing goals and motivations. This theory suggests that agents may not always act in the best interests of the principals, leading to agency problems. The control environment, including internal controls, policies and procedures, serves as a mechanism to align the interests of the principals and agents and reduce agency costs. Through applying this theory, the study can explore how the control environment influences the behavior of SACCO management. It can investigate how effective control mechanisms, such as proper monitoring, performance evaluation and incentives, affect the behavior and decision-making of SACCO managers. Additionally, the study can examine how these control mechanisms impact the financial performance of SACCOs. In summary, Agency Theory provides a valuable framework to analyze the role of the control environment in mitigating agency problems and its subsequent impact on the financial performance of SACCOs.

Resource Dependence Theory

Resource Dependence Theory (RDT) has been influenced by several prominent scholars who have made significant contributions to its development like Jeffrey Pfeffer and Gerald Salancik, James Thompson, Richard Cyert and James March and Michael Hannan and John Freeman [12]. Resource Dependence Theory (RDT) is a theoretical framework that explains how organizations depend on external resources and how these dependencies shape organizational behavior and relationships. RDT suggests that organizations are not self-sufficient entities but rely on external resources, such as capital, information, technology and human resources, to survive and achieve their goals. This theory focuses on the external environment's influence on organizations. It suggests that organizations, including SACCOs, are dependent on various resources from their environment to acquire the inputs necessary for their operation and to fulfill their objectives. The theory recognizes that organizations face uncertainties and constraints in accessing these resources, leading to interdependencies with external entities. The control environment plays a crucial role in managing and accessing these resources, which can impact financial performance. This theory can help explore how the control environment affects the SACCOs' ability to acquire and utilize resources effectively.

The RDT highlights those resources are limited and organizations may face scarcity or competition for resources. The theory argues that organizations must strategically manage and negotiate their resource dependencies to ensure their survival and effectiveness. The theory examines power dynamics and control mechanisms between organizations and their resource providers. Organizations aim to gain control over critical resources to reduce their dependency and increase their autonomy. Power imbalances can influence the behavior and decisions of both organizations and resource providers. It emphasizes the significance of interorganizational relationships in managing resource dependencies. Organizations form alliances, partnerships and collaborations with resource providers to secure access to resources, reduce uncertainties and build long-term relationships. The theory recognizes that the external environment, including market conditions, regulatory frameworks and social norms, can shape resource dependencies. Organizations may conform to institutional pressures and adapt their strategies to align with external expectations and secure resources.

Empirical Literature Review

Chen and Ding [13], explored a study on the impact of internal control system quality on firm performance: Evidence from China. This study examined the relationship between the quality of internal control systems and firm performance in the context of China. The authors investigate how the effectiveness of internal control systems influences various aspects of firm performance, such as profitability, liquidity and operational efficiency. The study utilizes a sample of Chinese companies and employs quantitative analysis to assess the impact of internal control quality on firm performance. The findings of the study suggest that a higher quality internal control system positively affects firm performance. Specifically, companies with stronger internal control systems are found to have better profitability, higher liquidity and improved operational efficiency. The study provides evidence that effective internal controls play a significant role in enhancing firm performance.

A study conducted by Garcia-Meca and Martínez [14], focused on the board effectiveness and financial performance in Spanish Listed Companies. This study investigated the relationship between board effectiveness and financial performance in Spanish listed companies. The authors examine how various dimensions of board effectiveness, such as board size, board composition and board activity, influence the financial performance of these companies. The study aims to provide insights into the role of boards in improving financial outcomes in the Spanish context. Using a sample of Spanish listed companies, the authors employ quantitative analysis to assess the impact of board effectiveness on financial performance indicators, such as Return On Assets (ROA) and Return On Equity (ROE). The study also considers the potential moderating effect of firm size on the relationship between board effectiveness and financial performance. The findings of the study suggested that board effectiveness has a positive association with financial performance. Specifically, companies with smaller boards, a higher proportion of independent directors and more active boards tend to exhibit better financial performance in terms of ROA and ROE. The study highlights the importance of board characteristics and functioning in enhancing financial outcomes in Spanish listed companies.

Iatridis [15], sought to determine the effect of the association between voluntary disclosure and firm-specific risk in Europe. This study explored the relationship between voluntary disclosure and firm-specific risk in European companies. The author investigates how the extent of voluntary disclosure practices implemented by companies relates to the level of firm-specific risk. The study aims to shed light on the potential benefits of voluntary disclosure in managing risk and improving market perceptions of European firms. Using a sample of European companies, the author employs quantitative analysis to examine the association between the level of voluntary disclosure and firm-specific risk indicators. Firm-specific risk is typically measured by various financial metrics, such as stock return volatility and idiosyncratic risk. The study also considers the potential moderating effect of firm size on the relationship between voluntary disclosure and firm-specific risk. The findings of the study suggest a negative association between the extent of voluntary disclosure and firm-specific risk. In other words, companies that engage in greater voluntary disclosure practices tend to have lower levels of firm-specific risk. The study indicates that voluntary disclosure can play a role in mitigating risk and enhancing market confidence in European companies.

McNally [16], examined the impact of internal control weaknesses on firm risk and value: Evidence from SOX Section 404 Disclosures. The study investigated the effect of internal control weaknesses on firm risk and value, focusing on the disclosures made under Section 404 of the Sarbanes-Oxley Act (SOX). The author examines how the presence of internal control weaknesses, as disclosed by companies in their Section 404 filings, affects firm risk and market valuation. The study aims to provide insights into the consequences of internal control weaknesses on firm performance and investor perceptions. Using a sample of companies that disclosed internal control weaknesses under Section 404 of SOX, the author employs quantitative analysis to assess the impact of these weaknesses on firm risk and value. Firm risk is typically measured by various financial metrics, such as stock price volatility, while firm value is assessed through market valuation ratios, such as market-to-book ratio or Tobin's Q. The findings of the study suggest that the presence of internal control weaknesses is associated with higher firm risk and lower market valuation. Companies with disclosed internal control weaknesses experience increased stock price volatility and tend to have a lower market-to-book ratio or Tobin's Q, indicating a potential negative impact on firm value. The study highlights the importance of effective internal controls in managing risk and enhancing investor perceptions of firm value.

Chen, Ding and Kim [17], explored the effect of high-quality internal control, external auditor independence and firm value: Evidence from an Emerging Market. The study examined the relationship between high-quality internal control, external auditor independence and firm value in the context of an emerging market. The authors investigate how the effectiveness of internal control systems and the independence of external auditors influence firm value. The study aims to provide insights into the importance of internal control quality and external auditor independence in enhancing firm value in emerging market economies. Using data from an emerging market, the authors employ quantitative analysis to assess the impact of high-quality internal control and external auditor independence on firm value, measured by market-to-book ratio. The study also considers potential moderating effects of firm size and ownership structure on the relationship between internal control, external auditor independence and firm value. The findings of the study suggest that high-quality internal control and external auditor independence are positively associated with firm value. Companies with effective internal control systems and independent external auditors tend to have higher market-to-book ratios, indicating greater firm value. The study highlights the importance of strong internal control mechanisms and independent external audits in enhancing investor perceptions of firm value in emerging market contexts.

Conceptual Framework

The conceptual framework of the control environment and financial performance explores the relationship between the control environment, which is an independent variable and financial performance, which is the dependent variable measured by metrics such as Return on Assets (ROA), Return on Equity (ROE), Return on Investment (ROI) and profitability. The control environment represents the overall tone and attitude set by management regarding the importance of internal control, ethical behavior and compliance within an organization. It encompasses factors such as management integrity, governance, ethical standards, communication and employee training. A strong control environment is characterized by robust internal controls, effective risk management and a culture of ethical behavior (Figure 1). 

Financial performance, on the other hand, reflects the outcome of an organization's operational and financial activities. It is typically measured using various metrics, including ROA, ROE, ROI and profitability. These metrics assess the organization's ability to generate profits, effectively utilize its assets and investments and provide returns to shareholders. The conceptual framework posits that a strong control environment can positively influence financial performance. When an organization has an effective control environment, it is more likely to have reliable financial reporting, accurate financial statements and better risk management practices. This, in turn, can lead to improved financial performance. For example, a strong control environment can help prevent fraud, errors and misstatements in financial reporting, ensuring the accuracy and reliability of financial information. It can also facilitate effective risk identification and mitigation, leading to better resource allocation, cost management and operational efficiency. Furthermore, a control environment that emphasizes ethical behavior and compliance with regulations can help protect the organization's reputation and reduce legal and regulatory risks, which can positively impact financial performance.

Therefore, the conceptual framework suggested that a well-established control environment is expected to have a positive relationship with financial performance, as measured by indicators such as ROA, ROE, ROI and profitability. However, it is essential to note that other factors, such as industry conditions, competitive dynamics and macroeconomic factors, could also influence financial performance and should be considered when analyzing the relationship between the control environment and financial outcomes.

In the context of research methodology, an explanatory research design focuses on understanding the causal relationship between variables. It aims to explain the relationship between an independent variable and a dependent variable by identifying the factors that contribute to the observed outcomes. It goes beyond describing and correlating variables and seeks to determine the reasons or mechanisms behind the observed associations. In the study you mentioned, which employed an explanatory research design, the researchers aimed to explain the impact of the control environment (independent variable) on financial performance (dependent variable measured by ROA, ROE, ROI and profitability). They sought to understand the underlying factors and mechanisms through which the control environment influences financial performance. The explanatory research design allowed the researchers to go beyond mere observation and correlation and delve into the underlying factors that drive the relationship between the control environment and financial performance. It aimed to provide insights into the specific mechanisms and pathways through which the control environment influences financial outcomes, offering a deeper understanding of the dynamics at play.

The target population of this study comprised of 177 respondents from deposit taking SACCOs in North Rift Region of Kenya from SASRA records. The sampling frame consisted of managers, accountants, finance officers, internal auditors and credit officers. Data was collected from primary and secondary data collection instruments. Primary sources (primary data) were obtained through administration of a questionnaire to the target population. Secondary data involved review of financial statements, SASRA annual published reports and internal audit reports of the Saccos to ascertain their performance and controls established.

The reliability was determined by coding and keying in the data and conducting a reliability analysis. For the results to be more reliable, the responses have to be consistent. The higher the consistence, the more reliable the data will be. The study used a Cronbach’s Alpha coefficient of at least 0.7 which is acceptable implying that the instruments are reliable. Results yielded alpha value of 0.783 indicating that the instruments were reliable to be used in the final data collection and analysis. A pilot study was conducted on 15 respondents representing 10% of the entire sample size from the neighbouring county of Trans Nzoia. The piloted respondents were excluded from the main study sample.

Data analysis was carried out using regression analysis.

Response Rate

About 169 of the 177 questionnaires distributed were returned by research participants. Based on the suggestions made by Nachimias and Nachimias, this resulted in a response rate of 95.5%, which was commendable.

Descriptive Analysis of Control Environment and Financial Performance

This study sought to examine the association of control environment on financial performance. This was made possible by asking those who took part in the study to give their opinions based on the Likert scale of 1-5, where 1 = Strongly Disagree (SD), 2 = Disagree (D), 3 = Undecided (U), 4 = Agree (A), 5 = Strongly Agree (SA). Results are presented in Table 1.

Table 1: Control Environment

The mean response of these seven variables stood at 3.674. Those who took part in research were asked to state their observation on whether there was adequate communication and enforcement of integrity and ethical values in the Saccos. Outcomes of the study illustrated that µ = 3.580 with SD = 1.454. Therefore, majority (71.6%) of those who took part in research generally agreed that there was adequate communication and enforcement of integrity and ethical values in the Saccos. The study also sought to investigate whether the Sacco management was committed to ensuring employee competence in financial matters. It was realized that most (73.72%) of those who took part in research (µ = 3.686 with SD = 1.377) were of the view that the Sacco management was committed to ensuring employee competence in financial matters. 

The third item under this theme was to establish whether there was enough participation in the Saccos activities by those charged with governance. It was established (µ = 3.515 with SD = 1.468), who were the majority (70.3%) of those who took part in research agreed that there was enough participation in the Saccos activities by those charged with governance. The fourth item under this theme was to establish whether the management’s philosophy and operating style fostered the Saccos advancement while upholding rules and regulations. Outcomes of the study were that (µ = 3.615 with SD = 1.472). Generally, it was evident that majority (72.3%) of those who took part in research agreed indeed that the management’s philosophy and operating style fostered the Saccos advancement while upholding rules and regulations. The study sought to establish whether the Saccos’ organization structure had well established lines of reporting and decision-making hierarchies (µ = 3.568 with SD = 1.479); 71.36% of the respondents were of the views that the Saccos’ organization structure had well established lines of reporting and decision-making hierarchies. In establishing whether the management of the Sacco properly assigned authority and responsibility to qualified individuals, majority (74.44%) of those who took part in research agreed that the management of the Sacco properly assigned authority and responsibility to qualified individuals (µ = 3.722 with SD = 1.389).

The seventh item under this theme was to determine whether the Saccos had well designed human resource policies that were easy to implement and practice. It was established (µ = 3.994 with SD = 1.343) majority (79.88%) of those who took part in research agreed that the Saccos had well designed human resource policies that were easy to implement and practice. These findings were similar to previous studies by Oyoo, whom conducted a study on the effects of internal controls on the financial output of microfinance organizations in Kenya 's central Kisumu constituency. The study concluded that the Kisumu microfinance institution had an efficient internal control system, supported by the study findings of clear segregation of roles, supervision, management training and engagement, proper channels of communication, management information system, good internal audit and definite policy and guidelines. The results suggested that control environment had an effect on the financial performance.

Financial Performance of Deposit Taking Saccos

The dependent variable of this study was financial performance of Deposit Taking Saccos in the North Rift Region of Kenya. Those who took part in research gave the following responses as shown in Table 2.

Table 2 shows that the level of financial performance of Deposit Taking Saccos in North Rift Region of Kenya had an overall mean response of 3.653 (73.06%). The study sought to investigate whether the Saccos had been experiencing growth in terms of revenues and membership in the last four years (µ = 3.495 with SD = 1.055) shows that the 69.9% of the Saccos had been experiencing growth in terms of revenues and membership in the last four years. On whether the income from subscriptions had been increasing in the last four years, (µ = 3.881 with SD = 0.952), 77.62% of those who took part in research were of the views that the income from subscriptions had been increasing in the last four years.

Table 2: Financial Performance of Deposit Taking Saccos

On the question on whether increasing gross profit margins had enabled to increase the working capital base (µ = 3.682 with SD = 0.884), 73.64% of those who took part in research were of the views that increasing gross profit margins had enabled to increase the working capital base. The study sought to establish whether the Saccos had been able to increase their asset base to meet the diverse client needs (µ = 3.568 with SD = 1.491). Therefore, 71.36% of those who took part in research were of the views that the Saccos had been able to increase their asset base to meet the diverse client needs.

On whether the gains from investment had been increasing marginally with unit costs of investment (µ = 3.580 with SD = 1.642). The 71.6% of those who took part in research were of the views that the gains from investment had been increasing marginally with unit costs of investment. On whether the Saccos had accrued less debts in the last two (2) years compared to the past (µ = 3.722 with SD = 1.341). The 74.44% of those who took part in research were of the views that the Saccos had accrued less debts in the last two (2) years compared to the past. Nyakundi et al. [18], also found that a company's ability to survive in business is an indicator of good economic performance.

Correlation Analysis

Compared with prior studies, Pearson’s correlation coefficients were computed to establish the existence of relationship and to demonstrate the nature and strength of the relationship between the independent variable control environment and dependent variable financial performance (Table 3).

Table 3: Correlation Matrix

**. Correlation is significant at the 0.01 level (2-tailed)

Results show that control environment and financial performance were significant and positive (r = 0.492**, p-value = 0.00); in the North Rift Region of Kenya hence the test for the linear relationship was established

Linear Regression between Control Environment and Financial Performance

The means of control environment and financial performance of Deposit Taking Saccos in North Rift Region of Kenya were regressed. The hypothesis for this objective is stated as follows: 

• H01: Control environment has no statistically significant effect on financial performance in North Rift Region of Kenya

This was tested at p≤0.05. Table 4 gives a correlation coefficient ® of 0.492 which implied that control environment had a direct positive and significant relationship with the financial performance of Deposit Taking Saccos in North Rift Region of Kenya (Table 4).

Table 4: Model Summary for Control Environment and Financial Performance

a: Predictor: (Constant), Control environment, b: Predicted Variable: Financial performance

The coefficient of determination, R2 = 0.242 signified that 24.2% of the differences in financial performance of Deposit Taking Saccos were explained by control environment and this also meant that the model was statistically significant in predicting the effect of control environment on financial performance of Deposit Taking Saccos and the rest was contributed by other factors (Table 5). 

Table 5: ANOVA Results for Control Environment and Financial Performance

a: Predictor: (Constant), Control environment, b: Predicted Variable: Financial performance

Table 5 gives results for control environment and financial performance. Change statistics illustrated that control environment and financial performance of Deposit Taking Saccos were statistically significant {F = 53.405 (1,167), p<0.05}. F-value explains a significant amount of variance in the dependent variable (financial performance). Thus, the model was fit to predict financial performance of Deposit Taking Saccos using control environment.

The regression coefficients were generated when the means of control environment and financial performance of Deposit Taking Saccos in North Rift Region of Kenya were regressed; see the results in Table 6.

Table 6: Regression Coefficients of Control Environment and Financial Performance

a: Dependent Variable: Financial Performance

Findings illustrated that control environment had positive and significant effect with financial performance, β1 = 0.366, p-value <0.05. This suggested that that a unit increase in the control environment could account up to 0.366-unit increase in financial performance of Deposit Taking Saccos in North Rift Region of Kenya. From the model, when control environment was modified by one unit, there was a related shift in the financial performance of Deposit Taking Saccos in North Rift Region of Kenya by 0.492 units. The H01 was therefore failed to be accepted and it was determined that control environment had significant effect on financial performance. The following simple linear model was derived as shown below.

Financial performance of Deposit Taking Saccos = 2.344 + 0.366 Control Environment

These study findings are similar to the previous findings by Mbaka [6], who found a positive and statistically significant between effect internal control and financial output of SACCOs in the internal management environment, risk evaluation management and operation control. Chen and Ding [13], explored a study on the impact of internal control system quality on firm performance: Evidence from China. This study examined the relationship between the quality of internal control systems and firm performance in the context of China. The findings of the study suggest that a higher quality internal control system positively affects firm performance. Specifically, companies with stronger internal control systems are found to have better profitability, higher liquidity and improved operational efficiency. The study provides evidence that effective internal controls play a significant role in enhancing firm performance.

The study concluded that a stronger control environment had a positive effect on the financial performance of Deposit Taking Saccos in the North Rift Region of Kenya. A higher control environment, which includes factors such as management integrity, governance, ethical standards and effective communication, is associated with improved financial performance. This also meant that attention to and investment in strengthening the control environment can potentially lead to better financial outcomes for Deposit Taking Saccos in the North Rift Region of Kenya. The study underscores the potential benefits of implementing strong internal controls, ethical practices and effective governance mechanisms within Deposit-Taking SACCOs.

Recommendations

The study suggested that improving the control environment could have a positive effect on financial performance. Therefore, it is recommended that Deposit Taking Saccos in the region focus on enhancing their internal control systems. This includes implementing robust control mechanisms, establishing effective risk management practices and ensuring compliance with relevant regulations and ethical standards. The study emphasized the importance of management integrity and effective governance. Deposit Taking Saccos should focus on strengthening their board of directors, ensuring independence, expertise and diversity within the board. This can help promote sound decision-making, accountability and oversight of the control environment. Deposit Taking Saccos should establish a system for ongoing monitoring and assessment of their internal control systems. This involves regular risk assessments, internal audits and evaluations of control effectiveness. By identifying and addressing control weaknesses or gaps, Saccos can continuously improve their control environment and enhance financial performance.

Suggestions for Further Research

This research was done on the Credit Co-Operative Societies in Western Kenya and concluded that risk mappings had a significant casual effect on the quality of audit on savings and Credit Co-Operative Societies in Western Kenya. Similar study should be carried out in this area on a different population to affirm that risk mapping had a significant casual effect on the quality of audit of savings and Credit Co-Operative Societies. There are moderating factors in auditing which include internationally accepted auditing standards, government regulations on conducting of audits etc. Studies can be done with these moderating factors. There are equally other areas of risk mapping which include, information technology risks mapping, internal control risks mapping, political risks mapping etc. Further studies can be carried out to establish the effect of this risk mapping on audit quality.

Author Contributions

Juma Gilbert Cheshari sought for the study authorization from the relevant government institutions like Graduate School of Kibabii University and National Commission for Science, Technology and Innovation. He developed the study methodology that comprised of research instruments that were used in data collection. He further analyzed, interpreted and discussed the data. He undertook a literature review that included the background information on the study concepts and the theoretical context. He trained and supervised the research assistants as well as coordinated primary data collection. He also coded the collected questionnaires and thereafter undertook data entry and analysis using SPSS software. Dr. Kadian Wanyama Wanyonyi, Dr. Rashid Fwamba and Dr. Abraham Malenya ensured that the published article conformed to the journal’s formatting guidelines.

Acknowledgment

I would want to express my gratitude to my supervisors, Dr. Rashid Fwamba and Dr. Abraham Malenya, for their help during this process of study. I am thankful for the help I received from my family and friends throughout my studies. Additionally, I thank Kibabii University fraternity for their spiritual and moral assistance.

Conflict of Interest

The authors declare that there are no conflicts of interest regarding the publication of this Manuscript. In addition, the ethical issues; including plagiarism, informed consent, misconduct, data fabrication and/ or falsification, double publication and/or submission, redundancy has been completely observed by the authors.

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