Internal Control Management as a Predictor of Financial Reporting Quality: Evidence from Microfinance Institutions in Bacolod City

Abstract

Background: Microfinance institutions (MFIs) serve as a bridge between the formal financial sector and underserved communities needing economic support. Internal control is a critical foundation for MFIs because it strengthens stability, transparency, and trust while supporting effective service delivery to vulnerable communities. Aim: The study aimed to assess the extent of implementation of internal control management and its effect on the quality of financial reporting of microfinance institutions (MFIs) in Bacolod City. Study Design:  A descriptive-correlational research design with predictive analysis was employed using a quantitative approach. The respondents were financial managers or accountants of MFIs who were directly involved in internal control implementation and financial reporting processes. Participants were selected through simple random sampling. Place and Duration of Study: The study was conducted in Bacolod City, Philippines, from October 2025 – December 2025. Methodology: Data were gathered using a researcher-made questionnaire and analysed using descriptive statistics such as mean and standard deviation, and inferential tools including the Kruskal–Wallis test, Mann-Whitney U test, Spearman’s rho, and simple linear regression. Results: The findings revealed no significant differences in the extent of internal control management implementation when MFIs were grouped according to length of operation and size of business. Likewise, no significant differences were found in the effect of internal control management on the quality of financial reporting when MFIs were grouped by length of operation and business size. However, the results demonstrated a very strong and statistically significant relationship between the extent of internal control management implementation and the quality of financial reporting, indicating that improved internal control practices are associated with more accurate, reliable, and transparent financial reports. Regression analysis further showed that internal control management is a strong and significant predictor of financial reporting quality, explaining a substantial portion of its variation. Based on these results, it is recommended that MFIs consistently strengthen and periodically review their internal control systems to sustain high-quality financial reporting. Conclusion: In conclusion, effective implementation of internal control management is a critical determinant of financial reporting quality among MFIs, regardless of organisational size or length of operation.