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CHAPTER FIVE

DISCUSSION, CONCLUSION AND RECOMMENDATION OF FINDINGS

5.1 Introductions

The study will include; discussion, conclusion and recommendation of findings.

5.2 Discussion of findings

5.2.1 Existing internal control systems applicable to financial institutions at Stanbic Bank

The findings in the study indicates that Stanbic Bank regulates amount of cash released to customers , this findings is also in line with Beneish et al (2014) who indicates that for a financial institution to be able to survive in business it needs to have control measures  and this leads to a controlled business environment.  The environment has an effect on the effectiveness of specific control procedures, a strong control environment for example, one with tight budgetary control and an effective internal and function. Likewise, COSO (2004) looks at the ethical environment of an organization to encompass aspects of upper management’s tone in achieving organizational objectives, their value judgments and management styles.

The results in the study further demostrates that Stanbic Bank has a systems that helps it regulate the amount of activities so as it is able to be effective and efficient, this findings is also in line with Hilt, et al (2010) who indicates that liquidity control  measures the ability of an organization to cover their short term obligation. Baysinger, (2010) also emphasized the importance of current ration as a measure of an organization’s liquidity. Liquidity ratios are the ration’s that measure the ability of company to meet its short term debt obligations. These ratios measure the ability of company to pay off its short- term liabilities when the fall due.

The findings in the study further indicates that Stanbic Bank carries out auditing activities to enable the organization be in posiotion to determine its profitability and loss, these practices enables the bank to be in postion to redesighn its business process, this findings is also in line with Hayes, et al, (2011) indicates that Managers need regular financial reports so as to make informed decision. Reporting (particularly, financial reports) is one way through which managers make accountability for the resource entrusted to them. As the primary users of financial reports, members of the public may be less financially sophisticated than users of other types of financial reports. They likely have less access to intermediaries, such as investment analysts, who can interpret the financial reports for them. Therefore, financial reports must place great emphasis on the understandability of the information reported in them.

The findings in the study further shows that credit given to customers is regulated, this indicates that Stanbic Bank regulates its liguidity to enable be in position to manage its longterm liabilities, this view is also in line with whittington and Pany (2010), who emphasize on internal controls in addressing the achievement of objectives in the areas of financial reporting, operations and compliance with laws, and regulations. They further note that, Internal control also includes the program for preparing, verifying and distributing to the various levels of management those current reports and analysis that enable the executive to maintain control over the variety of activities and functions that are performed in a large organization.

The findings in the study indicates that majority of the respodents stated that the bank determines its profitability quarterly this view is also in line with Lannoye (2010) who indicates that inorder for the bank to do risk assessment they determine their propfitability so as to analyze its future this is because the identification and analysis of relevant risks to the achievement of objectives, forming a basis for how the risks should be managed. This component of internal control highlights the importance of management carefully identifying and evaluating factors that can preclude it from achieving its mission.

5.2.2 The relationship between internal controls and financial performance of financial institutions

The findings in the study indicates that through internal control systems Stanbic Bank is able to prevent fraud in an organization, this findings is also in line with  Wainaina (2011) who indicates that One benefit of internal controls is a reduction in fraud opportunities. A simple example of an internal control aimed at reducing fraud is requiring employees to submit receipts in order to receive expense reimbursements. examined the internal control function. He established that, other than the prevention and detection of fraud, internal controls should reflect the strength of the overall accounting environment in an organization as well as the accuracy of its financial and operational records.

Findings indicates that through having and effective internal control an organization like Stanbic Bank is able to have an effective accountability this view is also in line with Jones (2008) who indicates that internal control systems are essential in enabling organizations be in position to eliminate costs and increase profitability of the organization.

The findings in the study indicates that majority of the respodents hold the view that Stanbic Bank maintain adequate liquidity because of having an efficient internal control system in place, this view is also shared by Wee Goh (2009) who indicates that Stanbic Bank must maintain a high liquidity to ensure that customers needs are meant whenever they need cash. This helps the financial institution to maintain trust and loyalty among its customers.

The results in the study indicates that the respondents stated that through the use of internal control system at Stanbic Bank the organization is able to analyzing the credit risk of clients is possible, this view is also  shared by Kakucha (2009) argue that, there is a need to establish strict internal guidelines, which ensures that loans are based on sound credit analysis if the banks are to realize significant profitability. However, they did not specify the mechanisms that can be employed. In their analysis is of loans lending, they further argue that banks should not be allowed to engage in activities which regulators cannot be certain that they can monitor otherwise, it leads to losses to the bank.

5.2.3 Other factors affecting financial performance

The results shows that managerial decision making has an influence on the financial performance of Stanbic Bank, this view is also shared by Lannoye (1999) who indicates that management Override High level personnel may be able to override prescribed policies and procedures for personal gain or advantage. This should not be confused with management intervention, which represents management actions to depart from prescribed policies and procedures for legitimate purposes.

The findings in the study further indicates that collusion of organizational decision makers is key in enabling an organization have better performance, this view is also in line with (Williams 2009) who indicates that collusion Control systems can be circumvented by employee collusion. Individuals acting collectively can alter financial data or other management information in a manner that cannot be identified by control systems. The effectiveness of segregation of duties lies in individuals ‘performing only their assigned tasks or in the performance of one person being checked by another.

The results in the study further indicates that Presence of low income earners has an influence on the financial performance of Stanbic Bank, this view is also in line with Amudo and Inanga (2009), the COSO framework may be relevant to larger organizations, but inappropriate for small ones due to expenses and operational complexity. Administration of small organizations may not require formal internal controls for the reliability of the records and other information, because of their personal involvement in the operations of the organization. This raises a question whether the controls of small companies should be as complex as those of large companies for them to be effective they asserted that, the COSO framework did not perceive and capture the delicate balance between formal and informal controls in smaller organizations.

The results shows that competition among financial institutions has an influence on financial performance of Stanbic Bank, this shows that because of competition from other financial institutions the bank has to adjust its policies Kotler (2010) who indicates that through competition financial institution are able to adjust their liquidity policies but this also benefits customers who will in turn get cheaper credit.

The findings in the study indicates that High level of risks involved in holding and lending credit, this affects the performance of financial institution , this findings is also shared by Lysons (2013) who indicates that financial institutions face challenges with getting cash and therefore this has an influence on the ways policies of such organizations are designed.

5.3 Conclusion of the study

According to the findings in the study the bank regulates amount of cash released to customers this helps in the financial stability of an organization. Stanbic Bank also needs to strengthen its auditing systems so that ist ia ble to have an effective internal control systrems in place, more to that liquidity controls in Stanbic Bank should be high emphasized to improve better financial performance.

The results in the study further indicates that through internal control systems Stanbic Bank is able to prevent fraud in an organization. The organization wil also have better accountability in an organization and maintaining of adequate liquidity is possible. More to that when an organization like Stanbic Bank has an effective internal control is its able to analyze the credit risk of clients is possible.

The findings in the study indicates that managerial decision making has an influence on the financial performance of Stanbic Bank. Collusion of organizational decision makers is key in enabling an organization have better performance. Presence of low income earners has an influence on the financial performance and Competition among financial institutions has an influence on financial performance of Stanbic Bank.

5.4 Recommendations of the study

The study revealed that Stanbic Bank implements a number of internal control systems for it to runt effectively and these include; regulating the amount of cash released to customers,carries out auditing of institution financial activities, regulates the amount of credit given to customers which together determines its profitability. Therefor the study recommends that for any financial institution to succeed like Stanbic Bank, it needs to put in place tough financial control systems that can regulate cash flow,  employees finacial amount of activities,  credit given to customers, determines the profitability of the financial institution and be able to audit institutional financial activities to determine profitability.

The study found out that there is a significant relationship between internal control systems and financial performance since it helped prevent fraud in Stanbic Bank, promoted effective accountability and  helped in analyzing the credit risks taken by the bank. Therefore the study recommends that financial institutions should take into account that internal controls as one of the major factors that will determine their effective performance. However internal control systems are not the only determinant factor of effective financial performance, there are other factors.

The findings showed that there are several factors that affect financial performance of financial institutions and these include: managerial decision making, collusion of organizational decision makers, competition among financial institutions, High level of risks involved in holding and lending credit and presence of low income earners. Therefore the study recommends that financial institutions should consider the above factors as key determinants of financial performance taking into account internal controls.

5.5 Areas of further research

• Influence of credit on the small and medium enterprises
• Relationship between record keeping and performance of financial institutions
• Influence of computerized accounting on the performance of financial institutions