Corporate Governance and Internal Controls over Financial Reporting in Ugandan MFIs

Irene Nalukenge
Makerere University Business School, Uganda
 
Venancio Tauringana 
University of Southampton, UK

Joseph Ntayi
Makerere University Business School, Uganda

Abstract 
Purpose-The purpose of this paper is to investigate the relationship between corporate governance and internal controls over financial reporting (ICFR) of micro finance institutions (MFIs) in Uganda. 
Design/methodology/approach- This study was cross sectional and correlational.  We surveyed 70 Ugandan MFIs and the data was analyzed using SPSS to test whether selected corporate governance variables are associated with ICFR. The hypothesized relationships were tested using Ordinary Least Squares Regression (OLS). 
Findings – The findings based on multiple regression analysis suggest that board role performance, expertise and membership of the Association of Micro Finance Institutions of Uganda (AMFIU) are significant predictors of ICFR. However, board independence and separation of CEO and Chairman (CEO duality) roles are not significant predictors. The results also show that the firm specific control variables (accounting qualification and size) are also not significant. 
Research limitations/implications – This study has limitations in that it is cross sectional thus limiting monitoring changes in behavior over time and also because the effectiveness of ICFR was assessed using perceptions. 
Practical Implications- Efforts by regulators and other stakeholders to improve ICFR must focus on the corporate governance aspects such as board expertise and ensuring that the board performs its roles.  
Originality/Value-
The paper adds to the existing literature on corporate governance and ICFR by documenting the relationship between board expertise and board role performance and ICFR. Such evidence does not currently exist. 
Keywords-Microfinance institutions, corporate governance, ICFR

Paper type – Research paper 

Introduction 
The demand for an improvement in the quality of financial reporting has led regulators to devote efforts to finding mechanisms that will improve financial reporting (Onumah, Kuipo, & Obeng, 2012). The emphasis going forward is being placed on improving the Internal Controls over Financial Reporting (ICFR) as a method of achieving quality reporting.  ICFR are controls designed to address risks that are related to financial reporting. They consist of all the controls that are designed to provide reasonable assurance that the entity’s financial statements are reliable and prepared according to the Generally Accepted Accounting Practices (GAAP). Examples of ICFR include employment of qualified staff in the accounting department, supervision of accounting personnel, reconciliations segregation of duties and others (Doyle, Ge, & McVay, 2007). 
	Internal controls over financial reporting are important for the firms’ stakeholders for a number of reasons. For example, Ashbaugh-Skaife, Collins & Kinney (2007) argue that if a firm has weak internal controls, managers are not able to make reliable accrual estimates necessary to produce high quality earnings and other financial information.  Doyle et al. (2007) assert that weak internal controls lead to low quality accounting accruals from intentional mis-statements and unintentional accounting errors. Weak ICFR undermine management’s ability to make well informed decisions as wells as damaging management’s credibility with shareholders, regulators and the public. On the whole, weak internal controls give managers an opportunity to manipulate earnings which leads to distorted financial information. 
Our study with the objective of investigating the relationship between corporate governance and ICFR in the Micro Finance sector in Uganda using a sample of 70 MFIs is timely. This is because with the transformation of MFIs from NGO status to being regulated MFIs (Ledgerwood & White, 2006), there is need for increased external funding which puts pressure on the internal control system and places new demands on the quality of management and corporate governance. Further, with the decrease in external funding, funds will only be available to MFIs that demonstrate good governance. As noted by Ashbaugh, Collins, Kinney & Lafond (2009), firms with effective internal controls are rewarded by a lower cost of capital. Moreover, many MFIs in Uganda accept savings/deposits from members even if they are not regulated by any government agency or Bank of Uganda which increases the vulnerability of savers and other stakeholders. In such an environment where the regulatory mechanisms are weak (World Bank, 2014), strong corporate governance mechanisms and ICFR become the only credible mechanisms of protecting the investors (Kosgei, Abdi & Kosgei, 2014). 
Moreover, the MFIs in Uganda have been found to have poor internal controls over financial reporting. Research by Department for International Development (DFID, 2007) indicates that many Savings and Credit Cooperatives (which are examples of MFIs) have weak internal controls allowing errors and omissions to go on for long before they are detected. This is exacerbated by the low staffing levels making segregation of duties very difficult. As a result, it is common to find one person initiating a transaction, approving it and also making a payment. DFID (2007) further indicates that the management board is expected to supervise the work of staff but lack the technical capacity to do so. 
We focus on the efficacy of corporate governance on ICFR because literature indicates that weak corporate governance practices might explain the existence of weak internal controls in the MFIs (Zhang, Zhou & Zhou, 2007; Mitra & Hossain, 2011; Hoitash, Hoitash & Bedard, 2008). Goh (2009) suggests that corporate governance characteristics such as audit board quality are associated with timeliness in remediation of internal control weaknesses.  Krishnan & Visvanathan (2007) add that the quality of governance and external auditors play important roles in maintaining good internal controls that are critical to the integrity of financial reporting. Hoitash, Hoitash, Bedard (2009) also found that board and audit board characteristics are associated with internal control quality. 
Despite a number of prior researches on corporate governance and ICFR, the findings are mixed.  For instance, Doyle et al. (2007) finds no significant impact of eight corporate governance attributes on internal control disclosures. Moreover, the findings of Krishnan et al. (2007) also indicate that board independence, proportion of ownership of CEO, CEO duality, auditor type were not significant predictors of internal control disclosures. However, Beasley (1996) found that the inclusion of outside members on the board increases effectiveness of monitoring management for the prevention of financial statement fraud.  As a result, it is not clear whether corporate governance attributes studied in the listed firms would equally yield the same results in non-listed firms such as the Ugandan MFIs. 
This paper makes two contributions to accounting literature on corporate governance and ICFR. Firstly, it provides evidence of the relationship between corporate governance and ICFR in a different environment to that of existing studies. For example, current research evidence on corporate governance and ICFR focused on the disclosures of weaknesses in the internal control system in developed countries where the regulatory mechanisms are strong. While in the developed countries e.g. USA, reporting on the ICFR is a requirement for public companies, in Uganda there are no regulatory requirements to make such disclosures even for firms listed on the Uganda Securities Exchange (USE). The paper’s findings therefore add to our knowledge evidence of how corporate governance affects ICFR in a developing country where there are no regulatory requirements for ICFR disclosures. Second, the paper contributes by providing evidence of the effect of board role performance on ICFR. In particular, our findings demonstrate that while board role performance is associated with ICFR, when board role performance is disaggregated into the three board roles (control, service and strategic), it is only the control role that is significantly associated with ICFR. To the best of our knowledge, such evidence does not currently exist. Overall, the results study add to the dearth of literature on the efficacy of corporate governance in improving ICFR in general, and that of board role performance in particular. 

The regulatory framework of MFIs in Uganda
The regulatory and supervisory framework for micro finance industry in Uganda is formulated under the tiered approach. The tiered approach reflects the concept of microfinance as a line of business. Microfinance Institutions are found under Tier 3 and Tier 4, as categorized by Bank of Uganda. Micro Finance Institutions in Tier 3 are deposits taking institutions, regulated by the Central Bank of Uganda under Micro Deposit Taking Institutions (MDI) Act 2003. Under the MDI Act 2003, the board is responsible for good corporate governance. The board is also tasked with reporting to shareholders at the AGM that the internal controls provide reasonable assurance as to the integrity and reliability of the financial statements. Further, the MDI Act 2003 mandates the external auditor to warn the board in case there are no adequate internal controls. 
MFIs in Tier 4 which include SACCOs, NGOs, limited companies and others are not regulated by the Central Bank of Uganda although the regulation is underway. It’s important to note that these different MFIs in Tier 4 have the respective legislations under which they are formed for instance SACCOs are regulated under the Cooperative Act of 1991. The duty of the board/ board members under the Cooperative Act 1991 in relation to the ICFR is not explicit as it is in the MDI Act. For MFIs that are registered as companies, they are regulated by the Companies Act of 2012. The Act is silent on the role of the board on the ICFR. However, it indicates that the balance sheet has to be signed by two directors on behalf of the board. We therefore expect that MFIs in Tier 4 will have poor governance and weak ICFR. 

Corporate Governance Guidelines for MFIs in Uganda
As stated above, MFIs operating in Uganda can operate as NGOs, Companies and SACCOs. The companies Act as revised in 2012 provides for the corporate governance practices under Section 14 and Table F. The code of corporate governance supplements the substantive provisions of the Act on the composition and responsibility of the board directors. The code also requires the division of responsibility of the chairperson and CEO. The codes is however only enforceable against a public company and for private companies of which all MFIs are,   have the option to adopt the code or not. 
For MFIs that are registered as SACCOs, the Cooperative Act of 1991 provides for the committee in proxy which is the board. In general little guidance is given by this Act regarding current corporate governance practices. For instance, the Act does not say anything about audit committees, internal audit, qualification of directors etc. The Act, however, specifies the roles of the board. Although in most cases the Chairman of the board is not the CEO, there are cases where both roles are combined especially in societies which are small and probably due to lack of enforcement.   This is not a surprise as Lynham, Taylor, Dooley & Naidoo (2006) noted that an improvement in corporate governance in Africa is very difficult to achieve in the absence of stringent regulatory structures. Similarly, the findings by Wanyama, Burton and Hellier (2009) indicated that the level of implementation of the corporate governance guidelines is poor due to lack of appropriate framework to support implementation and enforce compliance. 

Literature Review 
Theory and prior studies 
Many of the studies linking corporate governance structures and internal controls have been founded on agency theory (Mitra & Hossain, 2011). Agency theory primarily deals with the principal-agent relationship (also referred to as the agency relationship) existing in the separation of ownership and management, or in the separation of risk bearing, decision making and management functions (Jensen and Meckling,1976; Morris, 1987). Corporate governance and quality ICFR are intended to resolve problems and issues that arise from principal-agent relations of self-interest.Shareholders and other stakeholders may employ a range of corporate governance mechanisms to help reduce the agency costs such as appointing independent directors on the board, CEO different chairman, and reporting on the internal control system. 
	Indeed, the PCAOB (2004) notes that an effective internal control imposed by an active governance mechanism can mitigate the adverse effect of agency problems on reported accounting numbers because internal controls are designed to provide reasonable assurance about the reliability of reported financial information in accordance with GAAP. The “model of man” underlying agency theory is that of self-interested actor rationally maximizing personal economic gain. According to Donaldson & Davis (1991), there are other “models of man” who originate in organizational psychology and organizational sociology. This introduces stewardship theory as an alternative theory that can be used to explain governance. Stewardship theory advocates the CEO being the chairman and the organization will enjoy benefits of unity of direction. The role of the board according to stewardship theory is to guide management to achieve the corporate mission and objectives. Stewardship theory dismisses the need for control mechanisms as they are seen as counterproductive (Hernandez, 2012) because stewards are acting in the best interests of the principals. 

Hypotheses development 
Board independence 
The board of directors receives its authority over internal controls and other decisions from the shareholders of the corporation. As representatives of owners, the board is responsible for supervising the financial reporting function which extends to ICFR (Hoitash et al., 2008). The responsibilities of the owners are delegated to the board because shareholders generally diversify their risks by owning securities in different firms and this creates a challenge of monitoring (Fama,1980). As stated by Beasley (1996), although the board delegates its decision management functions to top management, the board retains the ultimate control over top management. Such control includes board’s right to ratify and monitor important decisions. Consequently, the board assumes responsibility for establishing appropriate internal control system within the firm and monitoring top management’s compliance with the system. Krishnan (2005) argues that an entity’s internal control is a function of the quality of its control environment and that includes the board of directors and the audit committee.
Board independence refers to the extent to which the board is comprised of the non-executive directors who have no relationship with the firm beyond the role of the director (Davidson, Stewart & Kent, 2005). The existence of independent directors on the board acts as a monitoring and control mechanism to the executive directors due to their opportunistic behavior (Jensen & Meckling, 1976). Outside directors are considered as decision experts, independent and not intimidated by the CEO and able to act as a positive influence over director’s deliberations and decisions. 
The findings of Beasley (1996) indicate that “no fraud” firms had a higher proportion of outside directors suggesting that board independence is associated with fraud prevention.  Other studies relating board independence to financial reporting quality indicate that independent directors are associated with reduction in income smoothing and improve the quality of financial reporting (Lai & Tam, 2007; Shen & Chih, 2007). The findings of Dechow, Sloan & Sweeney (1996) indicate that companies committing fraud tended to have weaker corporate governance and a lower percentage of outside directors.  Indeed, Mitra & Hossain (2011) asserts that a board comprising of more independent members and diligent members is likely to monitor management actions in corporate affairs. A board that lacks independence will find it difficult to respond to failures of top management including failures in the internal control system. 

H1: Board independence is positively associated with the soundness of ICFR

Financial expertise of the board
The financial reporting scandals that occurred revealed that board members either did not exercise their responsibilities or did not have expertise to understand the complexities of the businesses and financial reporting in general (Duff, 2009). Thus, it is critical that board members have expertise in financial reporting and auditing issues (Cohen, Krishnamoorthy & Wright, 2004). It is presumed that specialized experience and expertise should assist identifying key audit bottlenecks to improve ICFR. Recent finding of Nkundabanyanga, Tauringana & Muhwezi (2015) indicate that financial expertise was significantly associated with performance. Similarly, Michelon, Bozzzolan & Beretta (2015) argue that accounting expertise is relevant for board members not only in evaluation of management performance (through internal and external reporting) but also in appreciating the impact of accounting procedures and information systems on reliability of financial reporting. Moreover, accounting experts on the board promote the improvement of the ICFR devoted to quality assurance of financial reporting (Krishnan, 2005; Zhang et al., 2007).  Thus it is expected that where the board has some members with accounting and financial expertise, they are likely to promote quality ICFR. 
H2: Board expertise positively associated with the soundness of ICFR

Board role performance 
Corporate governance literature recognizes different roles of the board in decision making. The resource dependence theory and stakeholder theory emphasize resource allocation and boundary spanning roles of the boards. On the other hand, agency theory focuses on board roles to mitigate agency problems and to monitor management. The involvement of directors in the strategic course of the entity is mainly explained by stewardship theory. Maassen (1999); Zahra and Pearce (1989); Babić, Nikolić & Erić (2011) suggest three roles of the board, which are the strategic, service and control roles. 
The service roles of the board include co-opting external influencers, establishing of contacts, enhancing the organization’s reputation and giving advice to the organization (Mintzberg, 1983). In the service role, the board is expected to secure linkages to various stakeholders with the purpose of diffusing power of external influencers and securing critical resources of the corporation. Indeed, Nkundabanyanga & Ahiauzu (2012) confirm that the board of Ugandan service firms should act as a source of knowledge reinforced by the number of contacts they access and requisite experience and expertise on particular issues relevant to the challenges organizations face. The control role involves selecting a chief executive officer, exercising control during a crisis and reviewing managerial decisions and performance. However, the findings of Nkundabanyanga et al. (2012) for Uganda’s setting favored stewardship theory which argues that interests of managers and members of the board are not in conflict as the control role seems to suggest.  
The board’s responsibility towards internal controls extends to assessing the risks facing the entity, the probability of such risks materializing; the entity’s ability to reduce the impact of the risks and the costs and benefits that related to operating controls (Zaman, 2001).  Further, in its monitoring role, the board is expected to encourage high quality financial information in order to avoid expropriation by one party (management) and to align management interests with those of shareholders. An effective board that encourages high financial reporting is expected to monitor the financial discretion and ensure that accounting choices made by management are valid.   Dichev & Skinner (2002) further argue that the board influences the integrity of financial accounting process by providing an independent oversight over management performance and to hold management accountable to shareholders. 
Epps & Ismail (2008) articulate that the board is supposed to monitor management actions and limiting manager’s opportunistic behavior. This opportunistic behavior especially relating to earnings management is restrained by instituting and monitoring internal controls over financial reporting.   It is thus expected that firms where the board performs its roles, will choose less opportunistic and more conservative approaches as evidenced by prior research (Ahmed and Duellman, 2007; Garcia,Osma & Penalva, 2007) as result of the strong ICFR. It is therefore hypothesized that:
H3: Board role performance is positively associated with the soundness of ICFR
H3a: Board role performance (control) is positively associated with the soundness of ICFR
H3b: Board role performance (service) is positively associated with the soundness of ICFR
H3c: Board role performance (strategic) is positively associated with the soundness of ICFR

CEO Duality 
The position of chairperson is thought to be important in improving board effectiveness (Haniffa and Cooke, 2002). The corporate governance guidelines assume that the board’s ability to perform its monitoring role is weakened when the CEO is also the chairperson of the board (Davidson et al., 2005). The appointment of the CEO to the position of the chair can lead to concentration of power (Beasley, 1996) and possible conflicts of interest, resulting in a reduction in the level of monitoring. Finkelstein & D’Aveni (1994) argue that when the CEO obtains so much power, he is able to use the firm for their own interests rather than those shareholders rendering the board ineffective. A CEO who is also the chairperson of the board can dominate the agenda, content of the board meetings, control the process of nominating directors, facilitating consideration of individuals who are loyal to the CEO. Since the CEO in this case will in fact be monitoring his own decisions and activities, CEO domination will reduce the board effectiveness to provide oversight over managerial decisions and activities.  Also 
CEO dominated boards are more likely to be associated with lower levels of monitoring management performance and a weak internal control environment.  Yang and Zhao (2014) investigated CEO duality and firm performance; the results indicate that separating these roles is very beneficial to firm performance especially when competition intensifies.  Jensen (1993) points out that the internal controls of a firm would fail where there is role duality as the board cannot effectively perform its key functions including those of evaluating and firing the CEO.  Kyereboah & Biekpe (2006) indicate that when the CEO doubles as the board chairman, it leads to conflict of interest and monitoring of top management reduces having a negative impact on profitability. Likewise, Katundu & Samaila (2015) argue that when both roles are combined, it gives the CEO ability to override the firm’s internal control structure.  This is too confirmed by the findings of Abbot, Park and Parker (2000) and Beasley (1996)   who indicate that role duality is associated with financial statement fraud. This may perhaps be as a result of being able to override the existing internal controls due to concentration of power.  We thus argue that the separation of power of CEO and Chairman will greatly assist in having sound internal controls over financial reporting which will in turn improve on the quality of financial reporting.   
H4: CEO duality is negatively associated with the soundness of ICFR. 

Control Variables
The works of Bartov, Gul & Tsui (2000) suggest that failure to control for confounding variables could lead to falsely rejecting the hypothesis when in fact it should be accepted. For this reason we control for size, accounting qualification and membership of the Association of Micro Finance Institutions of Uganda (AMFIU).  For example, it has been consistently found size is associated with quality of the ICFR. The findings of Doyle et al. (2007) indicate that firms disclosing Internal Control Material Weaknesses (ICMW) tend to be smaller, financially weaker, more complex, growing rapidly or undergoing restructurings. This position is supported by the works of Bryan & Lilien (2005) who suggest that larger firms on average have resources to dedicate to effective internal controls compared to smaller firms. Resource constraints are likely to hinder the ability of such firms to adequately staff their operations with competent personnel. We therefore expect to find better ICFR in larger firms than the small firms. Accounting qualification/ expertise has also been associated with disclosure of internal control weaknesses in studies such as (Krishnan 2005; Goh 2009). As a result we also control for accounting qualification of the MFIs managers. Finally, we also controlled for membership of Association of Micro Finance Institutions of Uganda (AMFIU) since members are expected to have better internal controls than those who are non-members. This is because AMFIU members are required to be willing to be externally audited and attend financial education trainings conducted by AMFIU as a condition of membership. Katto, Wanyama and Musaali (2014) argue that in the absence of a strong regulatory framework for MFIs, bodies such as AMFIU through self- regulation play a critical role in fostering corporate governance standards through the membership criteria, codes of conduct and training.  

Research Methodology 
The population of the study was made up of 125 MFIs which are registered with Association of Micro Finance Institutions of Uganda (AMFIU) and non AMFIU members. A sample of 95 was generated using Yamane’s formula of 1973 that guides sample selection. According to Yamane, sample size is given by n=N/(1+N(e)2 where n- is a sample size, N- is the total population and e-is tolerable error. On the basis of Yamane’s approach with a total population (N) 125 and tolerable error (e) 0.5%, a sample size of 95 was obtained. We used simple random sampling to select the MFI from the list and the questionnaire was self-administered.  The study targeted two respondents per MFI who were the finance manager and a board member in order to limit response bias from a single individual. These two respondents were considered knowledgeable.  This approach of having more than one respondent per institution has been used in previous researches of Baer and Frese (2003) and Kamukama, Ahiauzu & Ntayi (2011).  The board member being targeted was the manager responsible for the overall running of the MFI. Since the unit of analysis is an MFI, all responses were aggregated to an MFI during data analysis. The questionnaire was delivered to the MFIs in person and the completed questionnaires were completed after a week or agreed time period. This approach ensured that in the end responses had been received from 70 MFIs, making a response rate rate of 73.68 per cent. Further analysis using ANOVA showed that there were no significant differences in their perceptions regarding corporate governance and ICFR between the two responses from each MFI.  Before aggregation, data were checked for completeness. Simple frequency runs were performed to screen the data so as to identify missing values. The identified missing values were replaced using linear interpolation. 

Questionnaire and variables measurement
The questionnaire used consisted of sections relating to background information, internal controls over financial reporting and corporate governance. The background information required the respondents to indicate their education level, to indicate how long they had been in business, the number of employees, the type of auditor etc.  Both ICFR and corporate governance were assessed through perceptions of the respondents. The soundness of ICFR (the dependent variable) was measured based on the five components of COSO framework which are control environment, control activities, monitoring, information and communication and risk assessment (Amudo & Inanga, 2009; Onumah et al., 2012). Although the COSO framework broadly defines internal control in terms of  achieving  the effectiveness and efficiency of operations , reliability of financial reporting and compliance with applicable laws and regulations, in this research we were majorly interested in controls related to financial reporting hence the  items in the questionnaire were biased towards  financial reporting.  Some items on the internal controls over financial reporting were derived from the COSO Model requirements for instance under information and communication; the COSO Model requires that accurate information is captured, therefore two items bringing out this requirement are  “ The accounting system in place is able to capture all the transactions”; “ The system in place produces accurate data”.  
Unlike previous studies such as Hoitash et al. (2008), Byran & Lilien (2005) and Doyle et al. (2007), this study used perceptions to measure corporate governance (the main independent variable). Corporate governance was operationalised in terms of board independence, board expertise, board role performance and CEO duality. To measure board independence, the questionnaire included statement such as: “Board members have no conflict of interest”; “Our managers reward board members through unconditional loans approvals”; “The national politics interferes with the appointment and operations of the board”. These items were deemed to best describe the factors that influence board independence in Uganda for the following reasons. First, Katto et al. (2014) notes that there is political interference in the operations of MFIs in Tier 4 because many receive government support. Second, the USAID Report (2007) notes financial conflict of interest among board members with many of them interested in obtaining sitting allowances and loans from the MFIs. Board role performance was measured in terms of the three roles (strategic, control and service role) by Maassen (1999). The items on the control role are obtained from Zahra and Pearce (1989) while the service role items from Mintzberg (1983) and Pearce and Zahra (1992). The strategic role items are obtained from Andrews (1980), Sadtler (1993). CEO duality was measured by establishing whether the roles of the CEO and chairman were performed by the same person. Board expertise was measured in terms of whether the some board members had accounting expertise or experienced in financial services industry. The questionnaire also included some questions to measure our control variables, namely accounting qualification, size and membership of AMFIU. Size of the MFI was operationalised in terms of small and medium. MFIs with employees below 5 were considered small while those above 5 employees were considered medium.  In terms of age, MFIs of 10 years and above were considered old and those below, considered as young. 
To assess validity of the instrument, it was given to 5 experts (2 academicians and 3 practitioners) to assess the relevancy of the questions. The practitioners included one external auditor of MFIs, a board member and an accountant.  Their contribution was taken into consideration in designing the final questionnaire that we used for data collection. We used factor analysis based on (principal components) and Cronbach’s α to examine the validity and reliability of the scales as measures of both ICFR and corporate governance. The coefficients were all above 0.7 and therefore the questions were reliable. 

[TABLE 1 ABOUT HERE]

To establish convergent validity, the principal components were extracted by running principal component analysis using varimax rotation method and factor loadings below 0.5 coefficients are suppressed to avoid extracting factors with weak loadings. Prior to performing the principal component analysis for our scales we assess the suitability of the data for factor analysis based on sample size adequacy, the Kaise-Meyer-Olkin (KMO) and Bartlett tests. The results show that the KMO value for all the variables was above 0.5 which indicates factorability of data according to Field (2009). The KMO value for Corporate Governance is 0.779 and ICFR 0.820.  The Bartlett’s test of sphericity was also significant for all variables (p < .05). 

[TABLE 2 ABOUT HERE]

This result supports the factorability of the correlation matrix because our correlation matrix is significantly different from the identity matrix in which the variables would not correlate with each other. The determinant was greater than 0.01 implying that there was no multicollinearity or singularity between variables.

The Model
Ordinary Least Squares (OLS) multiple regression analysis was used to determine the predictive strength of the relationship between ICFR and corporate governance. Specifically, the following regression models were tested:

ICFR=β0+β1BODIND+β2BODEXP+β3BODPERF +β4CEODUALITY+ β5ACCQ + β6SIZE+ 
            β7 MEMBER +εj 		 				         		                         (1)
ICFR=β0+β1BODIND+β2BODEXP+β3BODPERFCON+ β4BODPERFSER + β5BODPERFSTR 
           +β6CEODUALITY+ β7ACCQ + β8SIZE+ β9 MEMBER +εj.           		                 (2)
The variables are already defined in Table 3.  

[TABLE 3 ABOUT HERE]

Results and discussion 
Descriptive statistics 
We generated means and standard deviations to summarize the observed data. These are presented in Table 4. The statistics show that the mean rating for dependent variable (ICFR) is 5.3606 with a maximum of 6.00 and minimum of 4.05. The rest of the independent variables (ACCQ, SIZE and MEMBER) are all measured dichotomously hence the minimum is 0 and maximum 1. Of the 70 sampled MFIs, 49 had their financial statements audited by a certified auditor by ICPAU, 49 medium-sized and 46 were members of AMFIU. 

[TABLE 4 ABOUT HERE]

Correlation analysis 
Pearson’s correlation coefficient analysis was used to establish the association between the study variables. The correlation analysis results are shown in Table 5.  The findings reveal a weak positive association between board independence and sound ICFRs (r=0.263, P< 0.05). The results also indicate a strong significant positive relationship between board role performance and quality ICFR (r=0.713, p<0.05).  Similarly, the relationship between board expertise and quality ICFR is strong, positive and significant (r=0.703, p<0.05). AMFIU membership has a significant positive relationship with ICFR (r=0.375, P<0.05).  However, findings too indicate that accounting qualification and size are not associated with soundness of ICFR. 

[TABLE 5 ABOUT HERE]

Multiple regression results and discussion
The multiple regression results of the relationship between the soundness of ICFR and the independent variables (board independence, board expertise, board role performance, CEO duality) and control variables (accounting qualification, size and AMFIU membership) are shown in two models in Table 6. Model 1 presents the results when board role performance is aggregated while in Model 2, the board role performance is split into control, service and strategic role. The results in Table 6 (Model 1) indicate that the total variation in ICFR explained by the independent variables is 63.9%. Specifically, the results indicate that corporate governance variables (board expertise and board role performance) are significant explanatory variables of ICFR.  This means that our hypotheses H2 and H3 are supported. The results, however, show that board independence and CEO duality are not significant explanatory variables and therefore H1 and H4 are not confirmed. In terms of the control variables, the results indicate that AMFIU membership is significantly associated with ICFR while accounting qualification and size are not.
The results in Table 6, Model 2, show that the model explains 65.9% of the variation in ICFR. They model shows that board expertise and board role performance (control role) are the only significant predictors of ICFR, hence supporting H2 and H3a.

[TABLE 6 ABOUT HERE]

The significant findings in both regression models (Table 6 and 7) in respect of board expertise suggest that when board members have expertise, they are able to institute proper ICFR. Boards with financial expertise have been linked to market advantages, and quality financial reporting as they are able to deal with the complexities of financial reporting. Directors with expertise are able to interpret the recommendations of auditors (internal and external) in relation to improving ICFR. Moreover, such boards are more likely to understand auditor judgments and support the auditor in auditor- management disputes than members without such knowledge. Further, board members with financial expertise are more likely to be aware of the regulatory requirements such as the requirement to employ a qualified accountant (Accountants Act, 2013), the role of the board in relation to ICFR which enhances ICFR. 
The findings are consistent with those reported by Nkundabanyanga et al. (2015) who reported the relevance of board expertise the Uganda secondary schools’ competitive advantage. Our findings are also consistent with those reported by Agrawal & Chadha (2005) and Kaawaase (2013) in respect of incidences of earnings restatement and audit quality respectively. Our findings are further evidence of why ICGU (2008) recommends that a board be composed of qualified individuals who reflect a diversity of training, experience and background. The findings thus suggest that board expertise can lead to greater assurance of the effectiveness of ICFR as directors with expertise will demand better financial reporting systems to be in place.
The findings of a significant effect of board role performance on ICFR suggest that when the board performs its role, it leads to ICFR of higher quality.  Our findings are consistent with Nkundabanyanga et al. (2015) as their findings also indicated that the more the board performed its role of resource provision, service, monitoring and control, the better the performance of the schools. One of the roles of the board is monitoring the intrinsic ability of top management. The monitoring of managerial actions is part of the board’s obligations against managerial malfeasance. We expect the monitoring role by the board to extend to the well-functioning of the soundness of ICFR as the self-serving behavior of management is reduced. 
The results in Table 6 and Table 7 (Model 2) provide strong evidence of the control role significantly influencing the ICFR. This implies that the control role is then only important board role performance that contributes to the better functioning of ICFR. One of the control roles of the board is ensuring that management is acting in the best interests of the owners.  The board is able to carry out this role through its choice of the external auditor.  Through its choice of the auditor, the board exercises its oversight over financial reporting requirements and controls all the accounting practices. Cohen, Dey &Lys (2008) argue that the external auditor plays a significant role in monitoring financial reporting quality and hence can be viewed as an important participant in the governance process.  According to Kaawaase (2013) the board carries out its monitoring role by inquiring about the quality procedures, assessing the skills and experience of the proposed audit teams. Further, Hay, Knechel & Wong (2006) and Carcello, Hermanson, Neal & Riley (2002) argue that quality boards insist on an expanded audit scope and vigorously monitor the audit process.  Other control roles of the board include the board evaluating the performance of management and communicating the successes and failures. Through evaluation of management performance, management will be under pressure to put in place proper systems such as the ICFR. 
The findings in both Table 6 and 7 also show that board independence is an insignificant explanatory variable of ICFR. Such a finding contradicts previous studies for, instance, He, Labelle, Piot & Thornton (2009), Beasley (1996), Beasley, Carcello & Hermanson (2000); which indicate  board independence increases the board’s ability to monitor management, reduction in financial statement fraud and  enhanced disclosure. However, our findings are consistent with those reported by Krishnan (2005) and Zhang et al. (2007) which indicated that the independence of the audit committee was not associated with disclosure of material weaknesses regarding ICFR.  Our results should be interpreted with caution as our measurements of board independence are different. The majority of the existing studies operationalize board independence as proportion of non executive directors to the total number of directors. In this study, board independence was measured by perceptions and was multi-dimensional. 
In respect of control variables, our results which suggest that being a member of AMFIU is associated with the soundness of ICFR indicates that the self- regulatory functions of AMFIU such as settings standards through eligibility requirements and capacity building have a positive impact on ICFR in MFIs.  MFIs that are members of AMFIU are able to share information on the best practices in the industry which improves their ICFR. The findings in respect of accounting qualification are consistent with Parry and Groves (1990) who found that employment of qualified accountants had no significant impact on quality of financial reporting. Abayo & Roberts (1993) believe that the qualification alone may not be the only solution to problems facing developing countries with respect to inadequate accounting systems. In this regard, even when the finance director is qualified, the environment within the MFI may hinder the proper functioning of the control procedures. However, our findings contradict previous studies that have been carried out which indicate that preparers of financial information that possessed an accounting qualification produced better quality financial reports (Lin, Li & Yang, 2006; Mangena & Pike, 2005 & Taurigana, Kyeyune & Opio,2009).  Our findings of no significant effect in respect of size on ICFR contradict those reported in prior studies such as Mitra & Hossain (2011); Bryan & Lilien (2005) and Doyle et al.  (2007). The results may be due to the differences in the way size was measured. In the majority of the studies above, size was measured in terms of total assets, sales turnover and market value of equity as opposed to number of employees used in the current study. Another probable reason for the insignificance of control variables could be that once the board has expertise and it is performing it control role, then factors like age and size of the MFI may not be so critical in attaining proper ICFR. 

Robustness checks
To further test the robustness of the models, we substituted MFI’s size and accounting qualifications of the managers which were insignificant in both Model 1 and Model 2 with firm age and auditor type. The results which are presented in Table 7, Model 1, show that board expertise, board role performance and AMFIU membership still remain significant, predicting 64.4% of ICFR. The new control variables are not significant.  These results are similar to those before substituting size and accounting qualification hence providing strong evidence in support of board expertise and board role performance as predictors of ICFR.  

[TABLE 7 ABOUT HERE]

The results in Table 7, Model 2, also show that board expertise and the control role remain significant, however, AMFIU membership which was previously insignificant, becomes significant. This Model predicts 66.9% of ICFR.  Given these results we concluded that our model is fairly robust.

Summary and conclusion 
This aim of this study was to investigate the relationship between corporate governance and ICFR. We surveyed 70 MFIs and our findings suggest that corporate governance characteristics (board expertise and board role performance) are significantly associated with ICFR. However, board independence and CEO duality are not associated with ICFR. Among our control variables, the membership of AMFIU is significantly associated with the soundness of ICFR while accounting qualification and size are not. 
These results have important implications for stakeholders such as shareholders, Government of Uganda and the different regulators of MFIs.  For the regulators such as the Ministry of Trade, Registrar of Companies our findings suggest that they need to insist of boards being composed of some individuals with financial expertise. Secondly, the issue of a regulating body for MFIs in Tier 4 can no longer be ignored.  AMFIU is self-regulating but our results have shown that membership improves ICFR, implying that an external regulating authority established by  Government responsible for licensing and supervising these MFIs would deliver improvements in the soundness of ICFR.   

The results reported should, however, be interpreted in the light of the following limitations. First, the data is cross sectional thus limiting monitoring changes in behavior over time. We utilized perceptions in measuring board independence, board expertise, board role performance and ICFR. Operationalisation of variables like board independence is unique compared to existing literature hence when we cannot directly compare our findings with previous studies that used quantitative measures to operationalize corporate governance. Second, all our control variables except AMFIU membership were found not to be associated with ICFR. This is especially surprising given that size has been found to be consistently found to be associated with ICFR. More research is therefore needed to better refine the measurements used in the study. 
Despite the limitations, the study makes two important contributions to accounting literature on the relationship between corporate governance and ICFR.  First, we provide evidence of the relationship between corporate governance and ICFR based on unlisted firms in a developing country with no requirement for disclosure of ICFR as opposed to existing evidence based on listed firms in developed countries with stringent requirements for disclosing ICFR. The evidence is therefore valuable as it offers some insights of how corporate governance affects ICFR in a different setting. Secondly, we also contribute by providing specific evidence on how board role performance affects ICFR for the first time. More importantly, the results show that although board role (control, service and strategic) performance affects ICFR, only the control role significantly influence the soundness of ICFR. 

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Table 1: Reliability of the Instrument 
Variable 	No of Items 	Cronbachi’s apha	
Dependent			
ICFR	30	0.953	
ICFRENV	8	0.810	
ICFRISK	7	0.867	
ICFRAC	5	0.855	
ICFRINFO	4	0.895	
ICFRMON	6	0.911	
Independent			
BODIND	11	0.701	
BODEXP	5	0.900	
BODPERF	15	0.836	
BODPERFCON	6	0.830	
BODPERFSER	4	0.796	
BODPERFSTR	5	0.905	

Table 2 – Factor Analysis of Internal Control Over Financial Reporting and Corporate Governance

Panel A- Internal Control Over Financial Reporting						
 	1	2	3	4	5	
Proper financial records and accounts are maintained in relation to the entity’s operations. 	.802					
Transactions go through a series of checks to facilitate authorization before completion. 	.735					
Management has put in place mechanisms for mitigation of financial reporting risks.	.715					
There are measures put in place to report unusual transactions.  	.692					
No employee can process a transaction alone from the start to the end   	.691					
Write off of bad debts is authorized by a senior member of staff or the board. 	.645					
The potential for material misstatements due to fraud is explicitly considered in assessing risks to the achievement of financial reporting objectives.		.850				
The risky areas identified that affect financial reporting are ranked.		.848				
Management has identified all risky areas that can result into fraudulent financial reporting. 		.726				
Management has identified those accounting standards where compliance is not easily achieved. 		.718				
The Board periodically reviews policies and procedures to ensure that proper risk assessment and control processes have been instituted.		.629				
The accounting system in place produces accurate financial data to enhance decision making. 			.840			
There is room for discussion in case there are transactions that an accountant is not sure how they should be treated.  			.774			
The accounting system in place is able to record and report all the transactions that take place in the Institution. 			.772			
Financial Accounting information is used at all levels of the organization. 			.732			
Management always provides the Board complete access to bank records. 				.832		
Our top management is willing to report the true financial position of this Institution to stakeholders. 				.697		
The Board exercises its oversight responsibility of financial reporting.				.682		
Management implements internal control recommendations made by the external auditor. 					.636	
The Board reviews the independence of the external auditors.					.567	
Eigen Values 	11.145	2.221	1.822	1.423	1.192	
% Variance Explained 	23.125	17.215	14.991	9.401	6.483	
Cumulative Variance Explained 	23.125	40.340
	55.337	64.732	71.215	
1.Control Activities 2. Risk Assessement 3. Info & comm. 4. Environment 5.Monitoring 	
Panel B-Corporate Governance 
	1	2	3	
Our Board is balanced in terms of skills.	.894			
Some of our Board members have accounting experience.	.867			
Our Board chairman does not hold substantial shares in this Institution.	.860			
We have a Board with individuals who are experienced in the nature of our business.	.858			
The Board appoints the managing director/manager and can also dismiss (control role).		.810		
The Board presides over important functions such as the Annual General Meeting, press meetings etc (service role)		.795		
Our Board ratifies major decisions (control role).		.792		
The Board contributes to strategy development through careful refinement of strategic plans (strategic role).		.754		
The Board secures linkages with various stakeholders in the business environment (strategic role)		.611		
The majority of our Board members are non executive members.			.848	
Board members have no conflict of interest. 			.747	
Eigen Values 	4.601	1.975	1.234	
% Variance Explained 	31.004	27.736	12.259	
Cumulative Variance Explained 	31.004	58.740	70.999	
1.Board  expertise 2. Board role performance 3. Independence				

Table 3:  Measurement of the dependent and independent variables
Variable	Acronym	Variable Description	
Dependent			
Internal Controls over Financial Reporting	ICFR	Measured by average rating on a 5 point Likert scale on questions internal control environment, risk assessment, control procedures, information and communication and monitoring. 	
Independent			
Board Independence	BODIND 	Average score of questions on board independence.	
Board Expertise	BODEXP	Average score of questions on board expertise.	
Board Role Performance	BODPERF	Average score of questions on the control, service and strategic role of the board. 	
Board Role Performance – Control role 	BODPERFCON	Average score of questions on the control role of the board. 	
Board Role Performance – Service role 	BODPERFSER	Average score of questions on the service role of the board.	
Board Role Performance - Strategic	BODPERFSTR	Average score of questions on the strategic role of the board. 	
Chief Executive Officer Duality	 CEODUALITY 	A dummy variable coded as 0 if CEO is not Chairman of the board and 1 if CEO is the chairman of the Board.	
ACCOUNTING QUALIFICATION	ACCQ	A dummy variable coded as 1 if the finance manager had an accounting qualification; or otherwise	
SIZE	SIZE	A dummy variable coded as 1 if the firm is medium sized; 0 or otherwise	
MEMBERSHIP	MEMBER	A dummy variable coded as 1 if AMFIU member; or otherwise	
AGE OF MFI	AGE	A dummy variable coded as 1 if the firm has been trading for ten years or over; or otherwise	
AUDITOR TYPE 	AUDTYPE	A dummy variable coded as 1 if the auditor if certified by ICPAU; or otherwise. 	

Table 4. Descriptive statistics for the independent and dependent variables
Variable 	Obs	Mean 	Std 	Min 	Max	
ICFR	70	5.3606	0.45869	4.05	6.00	
BODINDEP	70	4.7302	6.2442	3.00	5.89	
BODEXP	70	5.0938	0.8929	1.50	6.00	
BODPERF	70	5.1560	0.52748	3.70	5.95	
BODPERFCON	70	5.2038	0.5061	3.83	6	
BODPERFSER	70	5.1571	0.6067	3.00	6	
BODPERFSTR	70	5.1643	0.7865	3.20	5.85	
CEODUALITY	70	0.585	0.49615	0.00	1.00	
ACCQ	70	0.2394	0.42978	0.00	1.00	
SIZE	70	0.6857	0.46758	0.00	1.00	
MEMBER	70	0.6571	0.47809	0.00	1.00	

Table 5: Correlation results
	ICFR	BOD
INDEP	BOD
EXP	BOD
PERF	BOD
PERFCON	BOD
PERFSER	BOD
PERFSTR	CEO
DUALITY	ACCQ	SIZE	MEMBER	
ICFR	1											
BODINDEP	.263*	1										
BODEXP	.703**	.449**	1									
BODPERF	.713**	.099	.647**	1								
BODPERFCON	.710**	.224	.613**	.868**	1							
BODPERFSER	.547**	.013	.542**	.904**	.754**	1						
BODPERFSTR	.657**	.175	.684**	.863**	.644**	.696**	1					
CEODUALITY	.346**	-.317**	.148	.353**	.233	.304*	.348**	1				
ACCQ	.169	.014	.022	.208	.082	.231	.283*	-.065	1			
SIZE	.132	.025	.108	.123	.110	.011	.134	-.007	.047	1		
MEMBER	.375**	.096	.121	.270*	.252*	.282*	.290*	.309**	-.433**	.035	1	

Table 6. Regression Results of the Relationship of Corporate Governance and 
Financial Reporting Internal Controls
	Model 1	Model 2	
Adjusted R2	0.639	0.659	
Standard Error	0.277559	0.26804	
F-Ratio	  18.449**      	 15.784**	
Observations	70	70	
Main variablesa,b	 	 	
Constant                                                                 	2.156(4.860**)	 2.359(5.518**)	
BODIND	.93(1.389)	  .018(.260) 	
BODEXP	.190(3.243**)  	   .216 (3.519**)	
BODPERF	.302(3.233**)	                     -	
BODPERFCON	 	 .407 (3.676**)   	
BODPERFSER	 	   .140 (1.418)	
BODPERFSTR	 	 .044 (.585)	
CEODUALITY	.136 (1.705)     	.151(1.924) 	
Control variables	 	 	
ACCQ	.008 (.0.093)    	.089(.961)	
SIZE	.053 (0.734)    	  .031(.429)	
MEMBER	.194 (2.362*)   	   .152(1.881)	

**Significant at 0.01 level.
*Significant at 0.05 level.
aAll variables are defined in Table 1.
bt-Statistics are in parentheses.

Table 7: Regression Results of the Relationship of Corporate Governance and 
Financial Reporting Internal Controls
	Model 1	Model 2 	
Adjusted R2	0.644	0.669	
Standard Error	.27365	.26483	
F-Ratio	18.838**	16.333**	
Observations	70	70	
Main variablesa,b		 	
Constant                                                                 	2.011 (4.574**)	 2.126(4.970**)	
BODIND	.109 (1.589)	  .0025(.357) 	
BODEXP	.204(3.97**)	   .230 (3.764**)	
BODPERF	.292(3.214**)	                     -	
BODPERFCON		 .410 (3.733**)   	
BODPERFSER		   .159 (1.628	
BODPERFSTR		 .007 (1.000)	
CEODUALITY	.102 (1.232)	.112(1.380) 	
Control variables		 	
AGE	.048 (.621)	.115(1.517)	
AUDTYPE	.085 (1.000)	  .039(.468)	
MEMBER	.230 (2.872*)	   .211(2.672*)	
**Significant at 0.01 level.
*Significant at 0.05 level.
aAll variables are defined in Table 1.
bt-Statistics are in parentheses.

RESEARCH QUESTIONNAIRE
Dear respondent, 

I am undertaking a research study on Corporate Governance and Internal Controls over Financial Reporting in Micro Finance Institutions in Uganda.  This is entirely for academic purposes. I kindly request you to complete this questionnaire and all responses will be treated with a high level of confidentiality. Your kind cooperation is highly appreciated. 

Thank you.  

Background information of the respondent

1.	Name of Institution ……………………………  

2.	Branch…………………………………….

3.	Highest  academic qualification attained of the respondent 
UACE
	Certificate	Diploma	1st Degree 	Masters 	PhD 	
1	2	3	4	5	6	

4.	Professional qualification possessed by the finance director
a)	ACCA               b)  ATC/CAT                   c) CPA             d) None             d) Others ……………..

5.	Age of the respondent 

25 years and below 	26-35 years 	36-45 years 	46-55 years 	Above 55 years 	
1	2	3	4	5	

6.	Gender of the respondent   a) 	Male                               b) Female 

7.	Designation of the respondent 
a)	Finance Manager              b) Board member            

8.	How long have you worked with this organization 
a) Less than 1 year to 5 years                 b) 6-10years                 c) 11- 15 years                 d) Above 15 years           

9.	Number of years the Financial Institution has been operating in Uganda.

a)	Less than 1 year to -5 years              b) 6-10 years              c) 11-15 years               d) Above 15 years

10.	Indicate the number of employees in the Financial Institution 
a)	4 and below  employees           b) 5-50 employees               c) Above 50 employees  

11.	Name of the external auditors for the financial year 2013/2014……………………………………

12.	Size of the audit firm 
a)	Big four member         b) Small firm(1-2 partners)           c)  Medium sized firm (3+ partners)
     
d)  Cooperative registered auditors 
This section has statements about ethical culture, corporate Governance, expected utility, deterrence measures and compliance with accounting standards. You are provided with a scale of six options. Kindly tick (√) once the choice suits the statement in the space provided.

	INTERNAL CONTROLS OVER FINANCIAL REPORTING	Strongly  Disagree	Disagree	Somewhat  Disagree	Somewhat Agree	Agree	Strongly Agree	
	Internal control environment 							
IC1	Our top management is willing to report the true financial position of this Institution to stakeholders. 							
IC2	The board exercises its oversight responsibility of financial reporting.							
IC3	Our top management is enthusiastic about presenting the true financial position of the entity. 							
IC4	The board periodically reviews policies and procedures to ensure that proper risk assessment and control processes have been instituted.							
IC5	There is always collective board decision making.  							
1C6	Management always provides the board complete access to bank records. 							
1C7	The board reviews the independence of the external auditors.							
IC8	The company’s organizational structure supports effective internal controls over financial reporting. 							
	Risk assessment							
1C9	Management has identified all risky areas that can result into fraudulent financial reporting. 							
IC10	The potential for material misstatements due to fraud is explicitly considered in assessing risks to the achievement of financial reporting objectives.							
IC11	Management has identified those accounting standards where compliance is not easily achieved. 							
IC12	The risky areas identified that affect financial reporting are ranked.							
IC13	Management has put in place mechanisms for mitigation of financial reporting risks.							
IC14	Management is aware of the objective of financial reporting. 							
IC15	There are measures put in place to report unusual transactions.  							
	Control activities							
1C16	No employee can process a transaction alone from the start to the end   							
IC17	Transactions go through a series of checks to facilitate authorization before completion. 							
IC18	Write off of bad debts is authorized by a senior member of staff or the board. 							
		Strongly  Disagree	Disagree	Somewhat  Disagree	Somewhat Agree	Agree	Strongly Agree	
IC19	Staffs that handle finances are regularly rotated. 							
IC20	There is adequate supervision of finance staff while carrying out their duties. 							
	Information and communication 							
IC21	Financial Accounting information is used at all levels of the organization. 							
IC22	An accountant is free to consult in case there are transactions an accountant is not sure how they should be treated							
IC23	The accounting system in place is able to capture all transactions							
IC24	The system in place produces accurate data							
	Monitoring							
1C22	Internal controls relating to financial reporting are evaluated often with the changing environment. 							
IC23	Management implements internal control recommendations made by the external auditor. 							
IC24	This Institution has a designated board to deal with weaknesses raised by the external auditor.  							
IC25	Management gives appropriate and timely attention to material control weaknesses once identified. 							
IC26	There are regular checks to ensure compliance with the internal controls. 							
IC27	Ineffective or unnecessary controls have been identified and eliminated. 							
	CORPORATE GOVERNANCE							
	Board Independence 							
CG1	Our board is constituted of both executive and non executive members.							
CG2	The majority of our board members are non executive members.							
CG3	Board members have no conflict of interest. 							
CG4	The national politics interferes with the appointment and operations of the institution’s  Board							
CG5	The Managers of this institution influence Board members to take decisions in their favor.							
CG6	Our managers reward board members through unconditional loan approvals.							
CG7	We have a dominating board chairman.							
CG8	We have clear separation of roles between the board and management.							
CG9	Our board chairman does not hold substantial shares in this Institution.							
CG10	The tenure of our board members is well defined 							
CG11	All the board members are appointed on contract basis. 							
	Board financial expertise 							
CG12	We have a board with individuals who are experienced in the nature of our business. 							
CG13	Some of our board members have accounting experience. 							
CG14	Some of board members have expertise in financial services activities. 							
CG 15 	Most of our board members are also board members in other entities							
CG 16	Our board is balanced in terms of skills.							
		Strongly  Disagree	Disagree	Somewhat  Disagree	Somewhat Agree	Agree	Strongly Agree	
	Board role Performance							
	Control role							
CG17	Our board of members delegates authority to management and monitors its implementation. 							
CG18	The board monitors managers’ activities to ensure that they are acting in the interest of owners.							
CG19	The board appoints the managing director/manager and can also dismiss.							
CG20	Our board monitors management performance. 							
CG21	Our board ratifies major decisions. 							
CG22	Our board members ensure that senior management’s successes and failures are communicated							
	Service role 							
CG23	The board secures linkages with various stakeholders in the business environment.							
CG24	The board represents the Institution’s interests in the community. 							
CG25	The board presides over important functions such as the Annual General Meeting, press meetings etc.							
CG26	The board contributes to strategy development through careful refinement of strategic plans. 							
	Strategic role 							
CG27	The board requires management to have a unique corporate strategy. 							
CG28	The board reviews the corporate strategy quite often. 							
CG29	The board ensures that corporate strategy is well thought and executed. 							
CG30	The board sets resources aside to achieve the mission of Financial Institution.							
CG31	The Board regularly identifies the strength of, opportunities available, the weaknesses and threats to the Institution  and maps a strategic direction to take							

Corporate Governance (CEO Duality)
CG 27    The CEO is the chairman of the board

a)	Yes                                       b) No