Internal Control Systems and Financial Accountability in State Owned Corporations: A Case of National Water and Sewerage Corporation in Bushenyi Area, Uganda

Abstract

In recent years, the implementation of internal control systems has become increasingly critical for promoting accountability, transparency, and effective resource management in state-owned enterprises. This study examined the impact of internal control systems on financial accountability in the NWSC Bushenyi Area, Uganda, addressing the challenges of ensuring financial accountability, which is essential for effective public resource management. Financial accountability is a cornerstone for economic growth and development; however, many state-owned enterprises struggle with inadequate financial management. Grounded in Principal-Agent Theory, Institutional Theory and Reliability theory the research investigated the relationship between control environment, risk assessment, and control activities on financial accountability, the study employed a quantitative approach using correlational and descriptive research designs. The target population comprised 139 staff of NWSC, from which a sample size of 103 respondents was determined. Out of the 103 questionnaires administered, 98 were successfully returned, yielding a high response rate of 95.2%. Data were collected using self-administered structured questionnaires and analyzed with SPSS version 27 to generate both descriptive and inferential statistical results, with multiple linear regression applied to test three hypotheses. Findings indicated that the control environment system had significant relationship with financial accountability (t = 4.219, p = 0.000 < 0.05), risk assessment system was insignificant (t = 2.091, p = 0.063 > 0.05), and control activities system had a significant impact on financial accountability (t = 5.46, p = 0.000 < 0.05). Recommendations include simplifying risk assessment processes, streamlining control activities, strengthening control environment mechanisms, and providing targeted training programs for staff. This study makes a significant contribution to academia by offering insights into the effectiveness of internal control systems, providing practical recommendations for the Auditor General, and delivering actionable outcomes for NWSC Bushenyi area to enhance financial accountability and transparency, thus addressing a knowledge gap in the existing literature. The findings provide evidence-based guidance for policymakers and oversight institutions to strengthen regulatory frameworks governing state-owned enterprises. They highlight the need for standardized internal control guidelines, continuous monitoring mechanisms, and mandatory capacity-building programs within public corporations. The study also supports the formulation of policies that reinforce accountability structures, enhance compliance with public financial management regulations, and promote a culture of transparency and ethical governance in Uganda’s public sector.