EFFECT OF INTERNAL CONTROL ON FINANCIAL PERFORMANCE OF STAR RATED HOTELS AT THE KENYAN COAST

Abstract

The study sought to examine the effect of internal control on financial performance of hotels at 
the Kenyan Coast. The study was inspired by the poor performance of hotels that lead to closure 
of some. The study was guided by both general and specific objectives as follows: to examine 
the effect of control environment on financial performance of hotels at the Kenyan Coast; to 
examine the effect of risk assessment on financial performance of hotels at the Kenyan Coast; to 
evaluate the effect of information system on financial performance of hotels at the Kenyan Coast 
and to determine the effect of control activities on financial performance of hotels at the Kenyan 
Coast. To strengthen the conceptual framework, the study used theories such as agency theory, 
stewardship theory, reliability theory and attribution theory. The target population of the study 
was 180 hotels and the sample size were 124. A modified Likert scale questionnaire will be 
developed and divided into three parts. A pilot study was carried out to refine the instrument. 
The quality and consistency of the study was further assessed using Cronbach's alpha. Data 
analysis was performed on a computer using Statistical Package for Social Science (SPSS 
Version 24) for Windows. Data was presented in form of means, standard deviation, percentages 
and tables.The study showed that there was a strong positive correlation between the 
independent variable control activities, risk assessment, information system and control activities 
and the dependent variable financial performance of hotels at the Kenyan Coast. Further the 
study results rejected all null hypotheses that control activities, risk assessment, information 
systems and control activities have no significant effect on financial performance of hotels at the 
Kenyan Coast. The study concluded that all the independent variables control environment, risk 
management, information systems and control activities have an effect on financial performance 
of hotels at the Kenyan Coast. From the study findings the following are the recommendations; 
That hotels control environment should be enhanced, that managers should embrace enterprise 
risk management and good corporate governance to maximize on the financial benefits of 
internal control systems; that management should also ensure that their organizations have 
strong internal control environment where internal control activities inform of policies and 
procedures are adequate and that control environment and control activities should on a regular 
basis be evaluated by internal audit department to provide management with the assurance on the 
adequacy and effectiveness of mitigation controls that management has put in place