The Effect of Internal Controls and Performance of Financial Institutions Case Study of Centenary Rural Development Bank Ltd

Abstract

The study investigated and sought to establish the relationship between internal controlsand performance of financial Institution. Internal controls werelooked at from the perspective of Control Environment, Risk Assessment and Management and Control Activitieswhereas financial performance focused on Liquidity, Accountability, Market shareand Profitability as themeasures of financial performance. The Researcher set out to establish the causes of persistentpoor financial performance from the perspective of internal controls.

The research was conducted using both quantitative and qualitative approaches using Survey,and Case study as research designs. Data was collected using questionnaires as well as review of available documents and records targeting Management Committee members and Finance andAccounts staff as respondents from a population of 50 staff. Datawas analyzed using the Statistical Package for Social Scientists where conclusions were drawnfrom tables, figures from the Package.

The study found that management of the institution is committed to the controls, activelyparticipates in monitoring and supervision of the activities of the bank, all the activities ofthe institution’s activities are initiated by the top level management, that the internal auditdepartment is not efficient, is understaffed, doesn’t conduct regular audit activities and doesn’tproduce regular audit reports although the few reports produced by the internal audit departmentaddress weaknesses in the system. It was further revealed that there is a clear separation of roles,weaknesses in the system are addressed, and there is a training program for capacity building inthe institution. However, the study also found out that there is lack of information sharing andinadequate security measures to safeguard the assets of the bank. It was also noted thatthere isn’t enough cash to meet intended goals, that the fees charged to customers arenot appropriate to cover costs, that all fees meant to be remitted to the bank are notcollected. It was however, revealed that all revenues and expenditures are properly classified,and that assets of the bank have generally increased. The study established a significantrelationship between internal controls and financial performance.

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