Effect of internal control practices on financial performance of supermarket chains in Nairobi central business district

Abstract

The globalization of the economy has led to retail supermarket opportunities in emerging markets. However, the Kenyan supermarket retailers face a dynamic retail environment highly challenging their financial performance. The survival of Kenyan supermarket retailers depends on the successful and proficient utilization of their financial resources. For the supermarket retailers to meet their financial performance target level, they should initiate internal control practices that keep them on a path toward achieving their financial objectives and the achievement of their missions Even though internal control practices have been implemented in most organizations, financial crimes have continued to rise among supermarket retailers. In Kenya several supermarket retail chains have been experiencing declining financial performance leading to the stores being placed under receivership in the last decade The empirical studies show that only limited studies focused on internal control practice and financial performance among supermarket retail chains in Nairobi central business district, depicting the existence of a knowledge gap. As noted above, there is need for supermarket retailers in Kenya to progress their financial performance by advancing on their internal control practices hence, the present study. The present study suggests that internal control practices help increase financial performance among supermarket retail chains in Nairobi central business district. The current study used a descriptive survey having the 54 main retail supermarkets in Nairobi central business district as its target population and obtained a sample size of 54 through census since the target operation was less than one hundred (100). Data collection involved the use of a questionnaire of which the primary source of data was tested for validly and reliability. Data was analyzed using Quantitative analysis and thereafter descriptive analysis. The study revealed that the average financial performance of supermarket chains in Nairobi central business district is moderate. It established that; there is a moderate positive effect of credit risk assessment practice on the financial performance of supermarket chains in Nairobi central business district, effective procurement control practice highly affects financial performance of supermarket chains in Nairobi central business district, adoption of proper internal checks practices highly affect the financial performance of supermarket chains in Nairobi central business district positively, and practice of segregation of duties has a major positive effect on the financial performance of supermarket chains in Nairobi central business district. The study revealed a 5% level of significance. 49.17% of change in financial performance of supermarket chains in Nairobi central business district is explained by; credit risk assessment practice, procurement control practice, internal checks practice and practice of segregation of duties. The study recommends that the supermarket chains in Nairobi central business district should; review their credit risk assessment practice in the dynamic retail environment, develop and implement a reviewed procurement policy, evaluate and employ the internal checks practices, and lastly the practice of segregation of duties should be actively employed by supermarket chains in Nairobi central business district.