EFFECT OF CONTROL ENVIRONMENT ON THE FINANCIAL PERFORMANCE OF MANUFACTURING COMPANIES IN RWANDA: CASE OF VERENA INDUSTRIES LTD.

Abstract

This study examines the effect of the control environment on the financial performance of manufacturing companies in Rwanda, with a specific focus on Verena Industries Ltd. The control environment encompasses the organizational culture, governance structures, and risk management practices that influence operational effectiveness and decision-making processes. The study was guided by contingency theory. This research adopted a descriptive survey design. The target population for the study includes 127 employees of Verena Industries Ltd. A sample of 97 respondents was determined using Slovin’s formula. Stratified sampling was employed as the method of selection. Primary data was gathered through the use of questionnaires, with responses being rated on a five-point Likert scale, with no room for free-form comments.  In order to compile secondary data, the study consulted a number of sources; to contribute to this data, the study asked participants to fill out a questionnaire. Pilot research utilized 10 individuals from Roba Industries. The validity of research instruments for the study on internal control systems and financial performance at Verena Industries Ltd was ensured through the assessment of face, criterion, and content validity.  The reliability level was determined using Cronbach's Alpha. The data was analyzed with SPSS (v25), and the results were presented using frequency tables, descriptive statistics, and regression analysis. This process identified significant topics linked to internal control systems and financial performance metrics. Furthermore, quantitative data gathered from surveys or project documents was examined using descriptive and inferential statistical techniques. Descriptive statistics, such as means, frequencies, and percentages were used to characterize the features of the data. Inferential statistics, such as correlation analysis or regression modeling, was applied to explore correlations between variables and test hypotheses. The findings from the survey on the control environment at Verena Industries Ltd indicate a generally positive perception among employees regarding ethical standards and organizational structure. The majority of respondents (98.9%) agree that the company's management demonstrates a strong commitment to ethical values, with a mean score of 4.55 and a standard deviation of 0.522. Furthermore, 96.6% of employees feel encouraged to adhere to ethical standards in all business dealings, reflected in a mean score of 4.65 (SD = 0.546). The organizational structure is perceived to clearly define lines of authority and responsibility, with a mean score of 4.52 (SD = 0.693). Respondents also believe that management's positive attitude towards internal controls influences financial performance (mean = 4.48, SD = 0.546) and that a culture of accountability contributes to financial stability (mean = 4.56, SD = 0.563). Additionally, 90.0% of employees agree that adequate training on internal controls is provided, with a mean score of 4.48 (SD = 0.659). Lastly, open and effective communication between management and employees regarding internal controls is acknowledged by 95.5% of respondents, yielding a mean score of 4.51 (SD = 0.586). These results highlight the importance of a strong control environment in promoting ethical behavior and financial performance at Verena Industries Ltd. The findings indicate that a strong control environment at Verena Industries Ltd, characterized by ethical commitment, clear organizational structure, effective communication, and accountability, significantly contributes to enhanced financial performance. To enhance the control environment and financial performance at Verena Industries Ltd, management should continue to promote ethical standards, ensure clear communication of roles and responsibilities, and provide ongoing training on internal controls to foster a culture of accountability and transparency. Future studies could explore the impact of specific control environment components on financial performance across a broader range of manufacturing companies in Rwanda to identify best practices and potential areas for improvement.