Ethical Climate as a Moderator  in the Influence of Internal Control Effectiveness on Treasury Performance among Local Government Units

Apgrant F. Cagoco

doi:10.51244/IJRSI.2026.1303000118

Ethical Climate as a Moderator in the Influence of Internal Control Effectiveness on Treasury Performance among Local Government Units

Authors

Apgrant F. Cagoco

Municipal Government of Kinoguitan, Misamis Oriental (Philippines)

Article Information

DOI: 10.51244/IJRSI.2026.1303000118

Subject Category: Finance and Management

Volume/Issue: 13/3 | Page No: 1369-1379

Publication Timeline

Submitted: 2026-03-24

Accepted: 2026-03-30

Published: 2026-04-07

Abstract

Local government units (LGUs) are entrusted with managing public funds and resources efficiently, transparently, and in accordance with regulations. Effective treasury operations depend on strong internal control systems, which are formally mandated in public institutions to enhance financial discipline, cash management, and organizational performance, but variations in implementation and ethical context may influence how these controls translate into actual performance outcomes. Supported by Agency Theory, Stewardship Theory, and Ethical Climate Theory, this study investigated the influence of internal control effectiveness on local treasury performance among LGUs in Misamis Oriental. It also determined whether the ethical climate had a significant moderating effect on the relationship between these variables. A quantitative design with moderation analysis was employed with 120 respondents across the selected 24 LGUs. Quantitative data were gathered using structured surveys, while key informant interviews (KII) were conducted to gather qualitative information. Descriptive statistics, non-parametric tests, and both simple linear and multiple regression were employed to analyze the data. The findings showed that the internal control effectiveness had a significant influence on local treasury performance. Furthermore, among the dimensions of internal control effectiveness, the control environment and monitoring strongly predict performance, highlighting the importance of leadership tone, integrity, and accountability, as well as continuous oversight of treasury operations. Moreover, no significant differences in internal control effectiveness or local treasury performance were observed when respondents were grouped by age, sex, or years of service, since public service requires integrity and adherence to standardized governance systems rather than demographic attributes. Finally, ethical climate did not significantly moderate the influence of internal control effectiveness on local treasury performance, but it did have a significant positive direct effect on such performance, as a positive ethical environment independently reinforces responsible behavior and performance, even when formal control systems are already in place in the LGUs. Qualitative findings identified implementation challenges, including resource constraints, weak ethical leadership & political influence, insufficient training, and resistance to change. The study further implies that treasury performance may be strengthened by institutionalizing ethical oversight structures, feedback mechanisms, embedding ethics in evaluation systems, investing in continuous training, and adopting digitalization and periodic internal audit review.

Keywords

Ethical Culture, Financial Stewardship, Public Financial Management

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References

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