Internal Control Systems and Financial Performance of Commercial Banks Listed at Nairobi Securities Exchange, Kenya
MetadataShow full item record
Internal control systems are put in place to ensure safe custody of all assets, detect, and safeguard against probable frauds. Commercial banks in Kenya are struggling with liquidity problems, untimely financial reports, and inefficient accountability for the firm's financial resources. Financial and accounting issues, such as financial misappropriation and fraud are currently rife in the Kenyan commercial banks. In the recent past, CBK had put three banks under receivership. The study, therefore, sought to determine the effect of internal control systems on the financial performance of commercial banks listed at Nairobi Securities Exchange (NSE), Kenya. The specific objectives of the study were: to determine the effect of control environment, control activities, Information Technology and monitoring of controls on the financial performance of commercial banks listed at NSE, Kenya. In this study, internal control system was measured by control environment, control activities, ICT, and monitoring. Financial performance was measured by Return on Assets, Net Income, and liquidity. Both the primary and secondary data was collected. Primary data was collected from the key informants (bank managers) and other employees of the listed banks using questionnaires. A purposive random sample of 55 respondents was used. Secondary data was extracted from bank websites, CBK and NSE websites, annual reports, and audited and published financial reports. The findings were analyzed using both descriptive (cumulative frequencies, percentages and measures of central tendency, such as mean, and standard deviation) and inferential statistics such as multiple regression and variance analyses with aid of Statistical Package for Social Sciences (SPSS) version 21.0. The study found that there was effect between control environment, control activities, ICT, and monitoring and the dependent variables; return on assets, net income and liquidity as was indicated in the regression analysis. The findings indicate a not significant effect between a unit increase in control environment and an increase in financial performance of commercial banks, the banks standard operating procedures, ethics and integrity, commitment to shareholders interests and organization created a control environment aimed at increasing the banks financial performance. The findings further indicate that there was a not significant effect between control activities such as Approvals and authorization, Verification, Reconciliation, Maintenance of records, Segregation of duties lead to increase in financial performance of commercial banks. The findings further indicated that improved ICT infrastructure, effective and efficient Procedures, had a significant and positive effect on increased commercial banks financial performance, however, capacity building and enhanced communications could still be improved to ensure optimum results, and further the findings indicate that Internal Audit, Self-assessment, Peer review were the major monitoring activities and had a positive significant effect on increased financial performance of commercial banks listed at NSE Kenya. The study concludes that internal controls systems have an effect on financial performance financial performance of commercial banks however, control environment and control activities do not have a significant effect on financial performance of commercial banks and little attention should be paid on them. This study recommends that commercial banks listed at the Nairobi Securities Exchange should re-evaluate their internal controls systems and strengthen their weak areas so as to improve their financial performance.