Effect of internal control systems on Ghanaian manufacturing firms’ performance a moderating role of internal audit effectiveness

Abstract

The aim of this study is to assess the effect of internal control systems on the performance of Ghanaian manufacturing firms with a moderating role of internal audit effectiveness. A sample of 145 employees in the internal controls and audit department of the firms were used. This is a quantitative study that rides on an explanatory research design and partial least squares structural equation modelling estimation. The findings indicate that most Ghanaian manufacturing firms have been efficacious in their internal control systems. This is because they have achieved a high level of efficiency as far as their control environment as characterized by adherence to high ethical standards and organizational policies are concerned. It was further revealed that internal control system has a significant and positive effect on Ghanaian manufacturing firms’ performance. This revelation is validated by the fact that the firms’ commitment to making effective their control environment, risk assessment, control activities, information and communication and monitoring has had a significant influence on their performance. This implies that any firm having weak internal control mechanisms has the tendency of experiencing declining performance. It was finally found that internal audit effectiveness plays a significant moderating role in the causal relationship between internal control systems and Ghanaian manufacturing firms’ performance. It was thus recommended to policymakers, managers/board of directors and other key stakeholders in the manufacturing industry to institute a well formidable and resourced internal audit department necessary to strengthen the firms’ internal control systems which will eventually help improve their performance.