The study was about to examine internal financial controls and financial reporting in local governments in Uganda, using as a case study of Arua District Local Government. The study focused on three specific objectives: to examine how auditing contributes to effective financial reporting; to assess how monitoring contribute to financial reporting and to find out how supervision contributes to financial reporting in Arua District LG. The study used a population of 65 selected from staff of Arua District LG and a sample of 56 respondents was selected using Neumann’s formula (2000), but 45 respondents were used. Cross-section and descriptive design were employed and both quantitative and qualitative approaches of data collection were used. The study findings (R=.658, P<0.05) revealed that there is significant relationship between auditing and financial reporting; the study findings (R=.280, P<0.05) further revealed that there is no significant relationship between monitoring and financial reporting in Arua District LG; the study findings (R=.754, P<0.05) also indicated that there is significant and positive relationship between supervision and financial reporting in Arua District LG. The study concludes that internal audit unit to independently monitor compliance of internal control policies and procedures; monitoring has a beneficial impact on financial reporting and that an underlying threat to the achievement of a key financial reporting objective is associated with poorer monitoring systems at Arua District LG. It also concludes that supervision raises the level of transparency in financial reporting and comparability of financial statements, preserving the credibility of the financial statements and the quality of accounting information during the reporting process. The study recommends that management of Arua District LG should audit and communicate acceptable risks levels to all staff in their duties as well as train them to get the needed knowledge and skills coupled with adequate resources to enable them carry on the financial reporting work effectively and efficiently. The management of Arua District LG should also ensure that, the right thing is done, and it should establish an anonymous hotline to monitor the reporting activities and it should also enact a whistle-blowers protection policy.

A Research Dissertation Submitted to the School of Business Administration In Partial Fulfillment of the Requirements for the Award of the Degree of Master’s in Business Administration (Accounting and Finance) of Nkumba University