Effects of internal controls on revenue collection; a case of Kenya revenue authority

Abstract

The purpose of this study was to examine and evaluate the internal control system in operation at Kenya Revenue Authority with a view of knowing whether strengthening of internal controls can have any effect of revenue collection and to answer the question “To what extent has internal controls enhanced revenue collection in KRA? A descriptive survey design was used. The target population of the study consisted of 72 domestic taxes senior officers and 156 domestic taxes junior officers that were working at Kenya Revenue Authority Mombasa Region. This study used questionnaires as the main tool for data collection. The questionnaire content was checked to ensure completeness and accuracy. The researcher used the statistical package for social sciences (SPSS) to analyze the data. The statistical method of Pearson Product of Correlation Coefficient was used to analyze relationship between various variables. The results indicated that internal controls had a positive significant effect on revenue collection. For all the items, the critical values were significant at p < 0.05 level of significance. This indicated the acceptance of the research hypotheses, namely; control environment, risk assessment, control activities, and information and communication have a positive significant effect on revenue collection. The test statistic results were as follows: control environment and revenue collection (r = 0.412, p = 0.000 < 0.05), risk assessment and revenue collection (r=0.398, p=0.002<0.05), control activities and revenue collection (r = 0.451, p = 0.001 < 0.05) and information, communication and revenue collection (r = 0.471, p = 0.000< 0.05). Based on the results in the study, the researcher recommended that: the various policy managers, the top management and other stakeholders should establish and maintain an enabling control environment; KRA together with other partner agencies should come up with strong partnerships in assessing the various risks that could affect revenue collection negatively and should also ensure that the various risks are managed at any given level of operations effectively and efficiently; The KRA managers and strategists should ensure that all the control activities are identified, strategically positioned and implemented across all the departments in order to achieve improved revenue collection; and there should be well established information and communication platforms since internal controls are a good practice for avoiding information asymmetry but for revenue collection (there should be a proper tax base upon which projections are founded on information sharing/flow and proper communication). This facilitated with a revenue enhancement strategy definitely lead to maximisation of revenue collection.