Internal controls and financial performance of commercial banks in Uganda

Abstract

The study examined the effect of internal controls on the financial performance of commercial banks in Uganda with Centenary Bank (U) Limited as a case. It was guided by four research objectives which were; the relationship between control environment and financial performance of commercial banks in Uganda, the relationship between control activities and financial performance of commercial banks in Uganda, the relationship between monitoring and evaluation and financial performance of commercial banks in Uganda and the relationship between risk assessment and financial performance of commercial banks in Uganda. The researcher used a cross-sectional survey design with both qualitative and quantitative approach for data collection and analysis. Data was collected using questionnaires and interviews. The study was carried out at Centenary Bank (U) Limited with a target population of 340 and a sample of 181 employees in Operations, Finance, Business development, Audit, Credit and Branch staff working at the headquarters of Mapeera House. The researcher believed that this categories of people were knowledgeable about the area of study and were able to avail the necessary data about the study. Stratified random sampling was used to select staff in Operations, Finance, Business development, Audit, Credit and Mapera Branch staff who participated in the study. Data was analysis involved use of percentages and mean, correlations and regressions to show the magnitude of the relationship as well as the effect of the independent variables on the dependent variables. The Study findings revealed that there is a positive significant relationship between control environment and financial performance of commercial banks in Uganda(Centenary Bank (U) Limited) (r=0.776**, p=0.00), a positive significant relationship between Control activities and financial performance of commercial banks in Uganda (Centenary Bank (U) Limited(r=0.648**;p<0.001)), a positive significant relationship between Monitoring and evaluation and financial performance of commercial Banks in Uganda(r=0.824**;p<0.001) and a positive significant relationship between risk assessment and financial performance of commercial Banks in Uganda(r=0.837**; p<0.001). The findings further revealed that any improvement in internal controls would lead to 78.5% variation in financial performance in commercial banks ( as per the adjusted R- square result) and that other factors not considered in this study accounted for the remaining 21.5% variation in financial performance of commercial banks. The study recommended that the banks should effectively implement and maintain internal controls due to the nature of the riskiness of the banking sector and its impact on bank‟s performance and the general economic growth of the Country. The banks must have an independent Board of Directors and its committee as a Corporate Governance regulatory requirement. Besides this, an independent audit department that is well trained and staffed should be set in all the branches of the banks to facilitate effective implementation of internal controls with keen interest on risk assessment