Impact of internal control procedure on financial performance of middle range rice producers in Kurunegla district

Abstract

This study examines the impact of internal control procedures on the financial performance of middle-range rice producers in the Kurunegala district of Sri Lanka. Internal controls are methods, policies, and behaviours that are necessary to manage risks, protect assets, and guarantee effective operations. The purpose of this study was to evaluate the impact of these controls on financial transparency and decision-making as well as find the difficulties that rice farmers encounter while putting in place efficient internal control systems. Primary data were gathered through questionnaires and interviews with fifty people from ten rice production companies using a quantitative research approach. The association between financial performance measures like profitability, turnover, and fraud reduction and internal control components—control environment, risk assessment, control activities, information and communication, and monitoring—was assessed in the study using statistical analysis. The results show that a strong control environment, good risk assessment, and attentive monitoring have a major positive effect on financial performance. On the other hand, negative connections were evident in control activities, information, and communication, identifying possible areas for development. The issues that were noted included low education levels, high labour expenses, restricted quality inputs, inadequate storage facilities, outdated equipment, and little labour understanding regarding internal control systems. According to the report, internal control systems and financial performance can be improved by addressing these problems through microfinance programs, investments in mechanization and storage facilities, labour efficiency initiatives, training programs, and legislative assistance. Long-term studies, larger and more varied sample sizes, comparative assessments across other agricultural sectors, and the contribution of contemporary technology to enhancing internal controls should be the main areas of future research. By emphasizing the crucial role internal controls play in the financial stability of middle-range rice producers, this study advances academic understanding and offers stakeholders in the sector and policymakers’ practical advice on how to enhance both financial sustainability and agricultural practices