ABSTRACT This study investigated the Internal Controt System ~7C’S) that influenced financial performance (FP,) in Municipal Urban Councils in northern Uganda: a case of Kitgum Municipal Urban Council (KMUC,). The objectives of the study were: to explore the relationship between internal control activities and FP in KMLTC; to find out how the internal control environment affects FP in KIvIUC; and, to assess the impact of auditing on FP in KMUC.A descriptive research survey design was adopted using both qualitative and quantitative methods. The study targeted 70 respondents but 58 returned the survey questions, indicating a response rate of 83%. Strat~fled sampling techniques were used to select administrative staff and purposive sampling used to select political leaders and top-level administrators. Data analysis involved frequencies, percentages and inferential statistics such as correlations, and coefficient of determinations. Findings revealed a moderate positive relationship (0.271 *) between internal control activities and FP; significant relationship between internal control environment and FP (0.335*); and moderate positive relationship between audit and FP (‘0.265*,). The study concludes that internal control activities, internal control environment and audit positively affected FP in one way or the other. The study recommends that KJvIUC should employ projkssional members of the Institute of Certified Public Accountants of Uganda in the Internal Audit Department since 36.2% of the respondents opposed sufficient staffing of the department which is the custodian of the ICS. The environment for the implementation of ICS should be improved by ensuring that Management is committed to the operation of the system, closely monitoring its implementation and giving feedback to the staff District Public Accounts Committee capacity should be built and their office properly facilitated to enable them follow up on the internal audit reports so that corrective measures are taken.
