Internal Control Environment

organizational structure and ethical considerations of internal control environment and how it influences financial performance in NGO sector.

2.2.1 Human resource policies and procedures and financial performance

Human resource policies and procedures clears out the ways in which certain actions such as hiring and firing, compensation and promotion concerning people should be carried out by management or individual managers (Armstrong, 2001). Such human resource policies and procedures should be written down to guide managerial decision and action on personnel and ensure that the policies are applied consistently. Armstrong (2001), outlined the procedures and policies for recruitment which should exist in written form to include obtaining

The board must possess an appropriate degree of management, technical and other expertise, coupled with the necessary stature and mindset to perform its strategic and oversight functions. Board members must be impartial and willing to question the management’s activities. The audit committee should also have suitably experienced qualified, independent and active members. Some studies such as Carcello and Neal (2003) contend that use of diligent and qualified Audit committees ensure effectiveness of internal control. Senior Management is responsible for implementing Board committee’s decisions and approved by the Full board. As part of the control environment, for effective oversight and monitoring for regulated banks the Board Audit committee, Risk Committee is statutory (Deumes and Knechel, 2008). The above literature is insightful in highlighting the role of oversight audit committees but such committees may not be present in NGOs. The literature does not equally provide empirical evidence on the extent to which existence of audit committees influences financial performance in NGOs. This study will therefore strive to cover the raised knowledge

In the same way that managers are primarily responsible for identifying the financial and compliance risks for their operations, they also have line responsibility for designing, implementing and monitoring their internal control system (Alvin & Loebbecke, 1997). These activities include authorization and approval, arithmetical and accounting controls, segregation of duties chart of accounts, system manuals, physical controls and independent checks (Andreasen, and Kotler, 2008). Controls can be either preventive or detective. The intent of these controls is different. Preventive controls attempt to deter or prevent undesirable events from occurring. They are proactive controls that help to prevent a loss. Examples of preventive controls are separation of duties, proper authorization, adequate documentation, and physical control over assets. Detective controls, on the other hand, attempt to detect undesirable acts. They provide evidence that a loss has occurred but do not prevent a loss from occurring. Examples of detective controls are reviews, analyses, variance analyses, reconciliations, physical inventories, and