Effect of internal control systems on performance of companies in the insurance industry in Ghana

Abstract

The performance and survival of any industry in a rapidly changing environment, among other factors, depends largely upon the internal control systems (ICS) put in place. Given the critical role that ICS play in every industry, the study sought to examine the effect of ICS on performance of companies in the Ghanaian insurance industry. The five variables of ICS developed by the Committee of Sponsoring Organisations (COSO) were used as independent variables whereas the dependent variable relied on performance measures of building block model. Cross-sectional survey design was used and data were obtained from a sample of 91 out of a population of 113 using questionnaires. Stratified, simple random, purposive and oversampling techniques were adopted. Analyses of the data involved descriptive statistics, Kruskal-Wallis, Mann Whitney U Test and ordinary least square regression techniques from Statistical Product for Service Solutions version 21 (SPSS 21.0). Key findings suggested that oil and gas, lost adjustor and reinsurance firms had low levels of performance and weak ICS whereas brokerage, life and non-life insurance firms had strong ICS and high levels of performance. Findings also revealed significant difference in the risk assessment procedures of non-life and brokerage firms. The study also found that ICS significantly influenced performance. It was concluded that life, nonlife and brokerage insurance companies paid much attention to their control systems. Recommendations were made to reinsurance, oil and gas, and lost adjuster firms in the industry to strengthen their information and communication systems. Non-life and brokerage firms were also advised to adopt risk assessment procedures based on their organisational context.