Asian Journal of Economics, Finance and Management

Operational internal control systems are vital in enhancing financial performance efficiency within the Non-Governmental Organization (NGO) sector, where accountability, transparency, and optimal resource utilization are paramount. In Kenya, NGOs continue to encounter persistent challenges, including financial mismanagement, weak budgetary control, delayed reporting, and inadequate donor fund accountability often stemming from deficient or poorly implemented oversight mechanisms. This study examined the influence of functional internal controls—preventive, detective, directive, and managerial—on financial performance efficiency in NGOs operating within Nairobi City County. The research investigated how mechanisms such as segregation of duties, authorization protocols, internal audits, financial guidelines, and budgetary procedures impact key performance measures, including program effectiveness, resource mobilization, overhead expenditure, budget deviation, and beneficiary expense efficiency. Guided by Agency Theory, Stewardship Theory, Contingency Theory, and the COSO Framework, the study adopted a descriptive survey design targeting fiscal administration staff in 263 NGOs. A stratified random sample of 157 respondents was selected. Data, collected through standardized questionnaires, were analyzed using descriptive statistics and multiple linear regression. Reliability was confirmed via Cronbach’s Alpha, and validity through expert review, factor analysis, KMO, and Bartlett’s tests. Multicollinearity was assessed using Variance Inflation Factors. Findings revealed that preventive controls exerted the strongest positive effect on financial performance efficiency (r = 0.691, B = 0.521, p < 0.001), followed by managerial controls (r = 0.772, B = 0.374, p < 0.001). Directive (r = 0.667, B = 0.439) and detective controls (r = 0.352, B = 0.423) also demonstrated significant positive impacts. The model explained 64.45% of the performance variation. The study concludes that robust preventive controls, complemented by strengthened detective, directive, and managerial measures, are essential for fostering transparency, compliance, and strategic oversight. Practically, the findings provide actionable insights for NGO management and policymakers by underscoring the need to institutionalize preventive mechanisms, reinforce audit and training frameworks, and align financial oversight with donor accountability requirements to enhance governance and sustainability