EFFECTS OF INTERNAL CONTROL SYSTEMS ON THE FINANCIAL PERFORMANCE OF FINANCIAL INSTITUTIONS

LIST OF ABBREVIATIONS

CIPFA                        Chartered Institute of Public Finance and Accountancy

COSO                         Committee of sponsoring organizations of the trade way commission

ISA                             International Standard of Auditing

ABSTRACT

The topic of study was effects of internal control systems on the financial performance of financial institutions, the objectives of the study included; to establish existing internal control systems applicable to financial institutions., to examine the relationship between internal controls and financial performance of financial institutions and to establish other factors affecting financial performance in financial institutions.

The study adopted a descriptive research design this is because they provide an in depth study of a particular situation. The study also used qualitative and quantitative methodologies for data analysis. Quantitative and qualitative methodologies were used in effects of internal control systems on the performance of financial institutions. Data were collected from both primary and secondary sources; this included both qualitative and quantitative data. The study was carried out at StanbicBank , Mukono Branch plot no. Plot No 59-67. Cooper & Schindler (2011) observes that population is the total collection of elements about which one wants to make inferences. The study was conducted among administration, employees, Human resource management, casual workers, procurement officers, finance and accounting, and other stake holders of Stanbic bank Mukono district.

The results indicates that Stanbic Bankneeds to hire external auditors to help in the management of finance so that its able to maintain the necessary liquidity at all time for the customers improve profitability and get credibility from customers. Stanbic bank needs to redesighn better financial management policies to help it both in the short run and long run manage iots liquidity so that customers can alwaus get cash when needed.

The findings in the study further indicates that Stanbic Bank needs to have better accountability systems in place to eliminate costs and increase profitability in the organization. Accountability at Stanbic Bank is necessary as it helps to reduce costs and increase credibility.

The findings in the study indicates that the management of Stanbic Bank should emphasize and make better decisions to eliminate costs and increase profitability of the organization , more to that decision makers should avoid collusion of organizational decision makers .

The study recommended the following areas of further research; Influence of credit on the small and medium enterprises, relationship between record keeping and performance of financial institutions and Influence of computerized accounting on the performance of financial institutions.

CHAPTER ONE:

INTRODUCTION

1.1Background of the study

Firms are always keen on their financial performance and they usually engage in activities to appraise their financial performance and thus, make changes in their operations (Visser, Matten& Pohl., 2010). However, it is evident that there are some firms that are considered more successful than others. Similarly, there are firms that have traditionally adopted different methods to improve their financial performance, and these have made them more successful than other firms. Recent research on internal controls in Belgium illustrated the importance of the control environment when studying internal control systems. Research has found that certain control environment characteristics like tone-at-the-top, level of risk and control awareness, clearly defined and communicated are significantly related to the role of the internal control system and fraud detection within an organization ( Sarens & De Beelde, 2006)

Internal controls are systematic measures such as reviews, checks and balances, methods and procedures instituted by an organization to conduct its business in an orderly and efficient manner, safeguard its assets and resources, (Business Dictionary.com) .Internal control is the whole system of controls, financial and otherwise, established in order to provide reasonable assurance of effective and efficient operation, internal financial control and compliance with laws and regulations‖ (CIMA, 2006).

Internal control systems not only contribute to managerial effectiveness but are also important duties of corporate boards of directors. Accounting literature likewise emphasizes the importance of an organization’s integrity and ethical values in maintaining an effective control system (Verschoor, 1999).

The internal control process is integrated with all other processes within an organization and is a technique used by managers to help an organization achieve its objectives. (Internal Audit files. Internal control overview August 2007).

If an organization pursues integrity and clear ethical values reflected in a formal code of conduct, the internal control will take a greater importance (Saren & Beelde, 2008). A study was done to establish the impact of internal control design on banks’ ability to staff fraud and staff life style and fraud detection in Nigeria. Data were collected from 13 Nigerian banks using a four point like Scale questionnaire and analyzed using percentages and ratios. The study found that Internal control design influences staff attitude towards fraud such that a strong internal control mechanism is deterrence to staff fraud while a weak one exposes the system to fraud and creates opportunity for staff to commit fraud (Ewa & Udoayang, 2012).

A research was conducted by Mawanda (2008) on influence of internal control systems on financial performance of an institution of higher learning in Uganda. Internal controls were looked at from the perspective of control environment, risk assessment, Control Activities, information and communication and monitoring process whereas financial performance focused on liquidity, accountability and reporting as the measures of financial performance. Basing on the above this study intends to investigate into effects of internal control systems on the performance of financial institutions.

1.2 Statement of the problem

Financial institutions are faced with various challenges in their core operations. This hinders the effectiveness of their performance and impedes their profit levels. These issues can be related to poor portfolio management, lack of attention to changes in the economy that can lead to deterioration in the credit ratings of the institution. However, the major causes of serious banking challenges continue to be ineffective internal control system for core processes. Internal controls are established to ensure management has accurate, timely and complete information for effective decision making. Despite of the massive investment in Internal control systems, Stanbic Bank is facing challenges in its performance including failure to achieve its targets and an increment in non-performing loans (New vision, 10th March 2015). This study therefore intends to investigate into the effects of internal control systems on the financial performance of financial institutions.

1.3 Purpose of the study

To examine the effects of internal control systems on the financial performance of financial institutions.

1.4 Objectives of the study

1. To establish existing internal control systems applicable to financial institutions.
2. To examine the relationship between internal controls and financial performance of financial institutions.

• To establish other factors affecting financial performance in financial institutions.

1.5 Research questions

1. What are existing internal control systems applicable to financial institutions?
2. What is the relationship between internal controls and financial performance of financial institutions?

• What are the other factors affecting financial performance in financial institutions?

1.6 Scope of the study

The scope of this study was divided into subject, geographical and time scope.

1.6.1 Subject scope

The study variables were internal control systems which was the independent variable and financial performance of financial institutions which was the dependent variable. The study was geared towards investigating the effect of internal control systems on performance of financial institutions. Specifically, the study; Established existing internal control systems applicable to financial institutions, analyzed the relationship between internal controls and financial performance of financial institutions and the study established other factors affecting financial performance.

1.6.2 Geographical scope

The study was carried out in Stanbic Bank Mukono Branch located in Mukono district found in the central region of Uganda, 21 kilometers by the road east of Kampala the capital and the largest city in Uganda. The geographical coordinates of Mukono district are 00 degrees 28’50’’ N, 32 degrees 46’14.0 E (latitude; 0.480567; longitude 32, 770567). Specifically, at Stanbic Bank located at Plot No 59-67. Mukono district Uganda.

1.6.3 Time scope

The study covered data from 2012 to 2017and was carried out for a period of three months.

1.7 Significance of the study

Management

The study findings will help the management of Stanbic Bank have information regarding the different ways of enhancing the growth and development of Stanbic Bank.

The study findings will also help the management of Stanbic Bank make necessary decisions regarding the development of internal control system.

Customers

Study findings will enable the financial institutions to provide the best services to its customers

The customers will benefit from the various innovations that will come as a result of using the internal control techniques that the financial institution will initiate to improve on its performance.

Policy makers /government

The study will also enable the government have information on the challenges that the financial institutions face and design policies to enhance their better performance.

The study will help the government have information on the different ways of enhancing the growth and development of banking sector.

The researcher

The study will help the researcher to complete her studies for Bachelors degree at Kyambogo University, since it is a requirement for the completion of his study.

1.8 Definition of Terms

Internal controls

COSO (2010) defines internal control system as a process affected by an entity’s board of directors, management, other personnel, designed to provide reasonable assurance regarding the achievement of objective in the following categories; effectiveness and efficiency of operations, reliability of financial reporting, compliance with laws and regulations.

Performance

Stoner (2011) says that performance as the ability to operate efficiently, profitability, survive, grow and react to the environmental opportunities and threats.

Quality Statements

According to Clarke (2010), quality statements are statements that are prepared to communicate financial information to influence decisions of users of accounts.

Corporate Financial Statements

These are statements as reports that present fairly the state of affairs of the business and its activity for the year end and provide useful information to users of accounts. Wood (2010)

Quality of financial statements

Brookson (2011) defines quality of financial statements as statements prepared to the required accounting financial reporting standards to show the financial position of the business at the end of time period and also the operating results by which the business arrives at this financial position.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter presents an overview of the existing literature based on other writers’ opinions, findings, and viewpoints on the effects of internal control systems on the performance of financial institutions, this will be in line with study objectives which include; to establish existing internal control systems applicable to financial institutions, to examine the relationship between internal controls and financial performance of financial institutions and to establish other factors affecting financial performance.

2.2 Existing internal control systems applicable to financial institutions

Control Environment; The control environment means the overall attitude awareness and actions, of directors and management regarding the internal control system and its importance in the entity. 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. However, a strong environment does not, by itself, ensure the effectiveness of the internal control system (International Standard of Auditing ISA (400).

Beneish et al (2014), define the control environment as the tone of an organization and the way it operates. He further says that it concerns the establishment of an atmosphere in which people can conduct their activities and carry out their control responsibilities effectively. 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 control environment represents the control atmosphere for the entity and is the foundation for the other components (Nicolaisen, 2004).

Liquidity control; It measures the ability of an organization to cover their short-term obligation. Hilt, et al (2010) mention current ratio as a standard measure of liquidity in organization. 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 liquidity ratios are a result of dividing cash and other liquid assets by the short-term borrowings and current liabilities. They show the number of times the short-term debt obligations are covered by the cash and liquid assets. A company must possess the ability to release cash from cash cycle to meet its financial obligations when the creditors seek payment. In other words, a company should possess the ability to translate its short term its short-term assets into cash. The liquidity ratios attempt to measure this ability of a company.

According to Bank of Tanzania (2010), liquidity position of the banking sector considered satisfactory. The ratio of liquidity asset to demand liabilities and gross loan to total deposit (lending ratio) were 45.23% and 58.93% respectively compared to 2014. The deposit as the major source of the sector’s funding accounted for 81.77% of total funding (Annual report 2010) Likewise, the loan component in the loan- to deposit ratio would also benefit from a more differentiated analysis. The maturity structure of the loan and the degree of standardization of the loan agreements will have an important influence on the liquidity of the loan portfolio.

Accountability; According to Hayes, et al, (2011), 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 financial reports cannot exclude complex transactions nor simplify complex transactions such that their substance is misleading but the emphasis on understandability would need to be considered in determining the reporting of items in financial reports.

Reporting; Whittington and Pany (2010), 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 mention internal control devices to include use of budgetary techniques, production standards.

Risk Assessment; This is the identification and analysis of relevant risks to the achievement of objectives, forming a basis for how the risks should be managed. According to Lannoye (2010), this component of internal control highlights the importance of management carefully identifying and evaluating factors that can preclude it from achieving its mission. Risk assessment is the identification and analysis of the relevant risks to achievement of the objective, forming a basis for determining how the risks should be managed. Because economic, industry, regulatory and operating conditions will continue to change, mechanisms are needed to identify and deal with the special risks associated with change.

COSO (2011), emphasizes the importance of objective setting in the entity and relates it to risk assessment as a precondition. However, it should be emphasized that the company internal control framework should be established in order to have reasonable assurance to achieve established objective, risk identification and analysis are the critical components. In evaluating the effectiveness of internal control activities, it is essential to assess them against entity’s objectives and related risks.

Risk assessment is a systematic process for integrating professional judgment about probable adverse conditions and events, and assessing the likelihood of possible losses (financial and non-financial) resulting from their occurrence. The second internal control standard addresses risk assessment. Internal control should provide for an assessment of the risks the agency faces from both internal and external sources. Once risks have been identified, they should be analyzed for their possible effect. Management then has to formulate an approach for risk management and decide upon the internal control activities required to mitigate those risks and achieve the internal control objectives of efficient and effective operations, reliable financial reporting, and compliance with laws and regulations (CIPFA 2010).

Once risks have been identified, they should be analyzed for their possible effect. Management then has to formulate an approach for risk management and decide upon the internal control activities required to mitigate those risks and achieve the internal control objectives of efficient and effective operations, reliable financial reporting, and compliance with laws and regulations (CIPFA, 2010)

 Risk assessment Financial reporting and performance objective A precondition to risk assessment is the establishment of the objective for reliable financial reporting and performance Identification and analysis of financial reporting risk the company identifies and analyses risk to the achievement of financial reporting objectives as a basis for determining how the risk should be management. Assessment of fraud risk the potential for material misstatement due to fraud is explicitly. Considered in assessing risks to the achievement of financial reporting objectives Source: (COSO 2011)

Risk Identification; Management should perform a comprehensive analysis of identifiable risk, including all risks associated with departments and branches-wise and activity level objective (derived from the organization’s mission). The activities analyzed should include those that support both financial and non-financial objectives. Management must consider the significant interactions with external organizations as well as those internal to their organization at both the department-wise and activity levels. Several means of risk identification can be used, including; management planning conferences, strategic planning, periodic reviews of factors effecting department’s activities, changing needs or expectations of agency officials or the public and natural catastrophes. (Lannoye, 2010)

Risk Analysis; After identifying department-wise and activity level risk, management should perform a risk analysis. The methodology may vary since risks are difficult to quantify; however, the process generally includes the following; estimating risk significance, assessing likelihood/frequency of occurrence, and considering how to manage risk. Risk with little significance and low probability of occurrence may require special attention. After assessing the significance and likelihood of risk, management must determine how to control it. Approaches may differ among entity, but they must be designed to maintain risk within levels deemed appropriate by management, considering the concepts of reasonable assurance and cost-benefit. Once implemented, the approach should be continually monitored for effectiveness. (Lannoye, 2010)

Managing Risk; When change occurs in an organization it often affects the control activities that were designed to prevent or reduce risk. In order to properly manage risk, management should monitor any change to ensure that each risk continues to be managed as change occurs. Management should inform employees responsible for managing the organization’s most critical risks about any proposed changes that may affect their ability to manage those risks. Managers should continually monitor the factors that can affect the risks they have already identified as well as other factor that could create new risks. (Walker, 2010).

2.3 Relationships between internal controls and financial performance of financial institutions

Prevents Fraud, 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. Wainaina (2011), 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. Fraud is the crime of gaining money or financial benefits by a trick or by lying, oxford dictionary (1999). Fraud is a purposeful deception, misrepresentation, or concealment of facts intended to cause injury or loss to another party, typically for the sake of one own direct or indirect gain.  Norman Katz (1996).

Jones (2008) compared internal control, accountability and corporate governance in medieval and modern Britain. He used a modern referential framework (control 28 environment, risk assessment, information and communication, monitoring and control activities) as a lens to investigate medieval internal controls used in the twelfth century royal exchequer and other medieval institutions. He demonstrated that most of the internal controls found today were present in medieval England. Stewardship and personal accountability were found to be the core elements of medieval internal control.

Balancing risks and rewards is essential if an organization is to maintain adequate liquidity, According to Wee Goh (2009) Banks and other lending institutions must constantly balance risks and rewards. Too high a price on loan products, you lose the customer, too low, you starve the profit margin or take a loss, too much capital on reserve, you miss investment revenue too little, and you risk regulatory noncompliance and financial instability. When every department, line of business and region measures and reports risks differently with desperate risk management systems, it can be difficult to accurately gauge overall risk exposure and strike the right balance.

Analyzing the credit risk of clients before advancing cash to them, financial ratios cannot be analyzed in isolation because there are no reliable standards to determine what their values should be. The client’s ratios must be compared with those of peer firms in the industry. However, cross sectional analysis cannot be adequately performed unless the banks have sufficient data regarding the ratios of peer firms, which operate in the same industry. Though other countries like Malta there is a lack of statistical data and doubtlessly this makes it very difficult to build a database, which would help the lending officers to interpret the ratios is still imperative for financial institution analyze the credit of their clients in order to avoid being insolvent (Ewa & Udoayang, 2012).

Proper management of credit by banks, 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. This is significant in that it reduces on unnecessary banks’ bad debts.

Amudo and Inanga (2009) also carried out a study in Uganda to evaluate the internal control systems that the regional member countries of the African Development Bank Group institute for the management of the Public-Sector Projects that the Bank finances. There are 14 projects of the bank’s public-sector portfolio in Uganda. The 27-data received and analyzed is for eleven projects. Three projects were omitted because they were not fully operational to install effective internal control systems. The study identified the following six essential components of an effective internal control system: control environment, risk assessment, control activities, information and communications, monitoring and information technology. The outcome of the evaluation process was that some control components of effective internal control systems were lacking in those projects. These rendered the control structures ineffective.

Assessing clients before giving them loans, according to Alec and Annan (2004) Using SAS loan assessment based models as an analysis tool, managers are able to identify changes quickly within a portfolio and through the automated process, modify the assessment strategy for certain products in a matter of hours. In the event of customers failing to uphold their commitment, loan assessment information with in models developed is then analyzed and evaluated by the decision maker to manage customers consistently and appropriately. Some of these models include:

Employing experienced staff in an organization with professional training in finance, when an organization has highly qualified and experienced staff who can provide adequate knowledge to organization cash management becomes easy and organizational liquidity is maintained so that organization is able to competitive in the global market. (Erridge, 2003).

Error Prevention; Some internal controls are intended to spot potential errors before they happen. For example, you might have two people review each payroll before cutting and distributing checks. Each person will independently total employee hours, calculate their earned pay and check the deductions. The two will then compare their numbers against each other’s. A production facility might do a limited test-run on an order, checking the quality of items that come off the line before it runs the complete order. A restaurant might have an opening and closing checklist of tasks employees must perform each shift to ensure health requirements are met and adequate food inventory levels are maintained (Kantarelis, 2007).

Error Spotting; Internal controls enables an organization to detect errors early and address them before they get out of hand. In some instances, a recheck of numbers, such as monthly bank reconciliation, will help organization employees’ spot errors that occurred once. In other situations, such as reviewing new contracts after 30 days, organizations find ongoing problems (Barra, 2010).

Reduced Lawsuits and Insurance Claims; Having a company policies and procedures manual that lays out staff behavior restrictions can help an organization reduce risks and insurance claims. Working with an employment expert, you create policies that address state and federal workplace rules and regulations, such as those covering harassment and overtime. Having controls that address workplace safety can help reduce accidents, lowering your insurance premiums and reducing workers’ compensation claims and negligence lawsuits (Olumbe, 2012), he further asserts that in a study to establish the relationship between internal controls and corporate governance in commercial banks in Kenya. The researcher conducted a survey of all the 45 commercial banks in Kenya. It was concluded that most of the banks had incorporated the various parameters which are used for gauging internal controls and corporate governance.

2.4 Other factors affecting financial performance

Judgment The effectiveness of controls will be limited by decisions made with human judgment under pressures to conduct business based on the information at hand. According to Lannoye (1999) Effective internal control may be limited by the realities of human judgment. Decisions are often made within a limited time frame, without the benefit of complete information, and under time pressures of conducting agency business. These judgment decisions may affect achievement of objectives, with or without good internal control. Internal control may become ineffective if management fails to minimize the occurrence of errors, for example misunderstanding instructions, carelessness, distraction, fatigue, or mistakes (Lannoye, 1999)

Breakdowns Even well designed internal controls can break down. Employees sometimes misunderstand instructions or simply make mistakes. Errors may also result from new technology and the complexity of computerized information systems.

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. According to Lannoye (1999), management may override or disregard prescribed policies, procedures, and controls for improper purposes. Override practices include misrepresentations to state officials, staff from the central control agencies, auditors or others. Management override must not be confused with management intervention (i.e. the departure from prescribed policies and procedures for legitimate purposes). Intervention may be required in order to process non-standard transactions that otherwise would be handled inappropriately by the internal control system. A provision for intervention is needed in all internal control systems since no system anticipates every condition (Mercer University, 2015).

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. There is always a risk that collusion between individuals will destroy the effectiveness of segregation of duties. For example, an individual receiving cash receipts from customers can collude with the one who records these receipts in the customers’ records in order to steal cash from the entity (Williams 2009).

COSO Control Framework According to Putra (2015), in 1985 the American National Commission of Fraudulent Financial Reporting, known as the Treadway Commission, was created through the joint sponsorship of including American Accounting Association, and Institute of Management Accountants (America). Based on its recommendations a task force under the auspices of the Committee of Sponsoring Organizations (COSO) conducted a review of internal control literature. The eventual outcome was the document Internal Control—Integrated Framework. COSO emphasized the responsibility of management for internal control (Putra, 2015).

The COSO defines internal control as having five (5) components. These are control environment, risk assessment, 15 information and communication, control activities, and monitoring. COSO (1994) explained the components as follows: a. Control Environment. The control environment sets the tone of an association, impacting the control awareness of its people. It is the establishment for every single other part of internal control, giving discipline and structure. Control environment variables incorporate the integrity moral qualities and skill of the entities ‘people; administration’s rationality and working style; the way administration allocates power and obligation, and composes and builds up its kin; and the consideration and bearing gave by the top managerial staff. Risk Assessment. Each element confronts a mixed bag of risks from outer and interior sources that must be surveyed.

According to 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. Moreover, in what capacity can small companies ‘internal controls be compelling when just a few of the components recommended by COSO are available and yet the controls could still be effective? COSO did not address this question (Amudo and Inanga, 2009).

Standardized accounting process, including faster tracking of errors, improved quality control, efficiency in record keeping, greater efficiency through the use of information and communication components like internets, satellites among others that enables tracking and tracing of the goods in transit, during shipment as well as giving up to date information to the accountants about the quantity of goods in storage so that the accountants are able to reconcile the books of accounts with the physical stock in the store, (Kotler 2010).

Process Automation. With the use of technologically components such as Bar coding, Satellite, internets and Image processing among others in the process of managing accounting efficiency, there has been reduction on paper work thereby leading to a substantial reduction of errors, as well as increased capability to obtaining and exchanging real time information. This is possible through the use of information technology systems such as Bar code and scanners which represents a series of alphanumerical characters, bar code readers to interpret bar code symbology, and bar code printers to reliably and accurately print bar codes on labels, cartons, and/or picking /shipping documents Aberdeen group 2015)..

Compensation is one of the primary reasons for employees to seek employment. They are rewarded for their services and efforts that they exert for their organizations. They can be compensated in many ways for example salaries, holidays, bonuses etc. There are two basic compensation models; performance based pay and components based pay. In the former paradigm, employee’s compensation is either tied to the way he performs; if he performs better he would be rewarded accordingly (performance based pay) and on the other hand, nonperformance based pay; where, employee’s performance is not tied to getting rewards, rather the employee is paid or rewarded even if its performance is not up to the mark for example fixed pay and salaries (Taylor, 2005).

The relative importance of various factors used to measure the performance of employees should be related to how well each measure informs the principal about the employee`s actual performance (Lambert and Larcker, 1987; Banker and Datar, 2013). For decade`s employees measure has been used as primary indicators of managerial performance with prior research documenting a significant relation between employees based performance and financial compensation (Antic and Smith, 1986, Ittner, et at., 2013). Moreover, both the annual cash bonus and the sum of the cash bonus plus stock based compensation have been linked to employees based performance as well as numerous other attributes of the firm’s governance structure (Core, et al, 2011).

Improved distribution process. According to Dobler and Burt (2011) With improved tracking and tracing as a result of using internet, satellites among others, the company that is to say the distributing company is assured of efficiency and effectiveness in the distribution process as their trucks are properly tracked and traced so that in case the deliveries are made to a different location, the mistake can easily be rectified. This has therefore, improved Logistics efficiency in organizations and this has all been because of the introduction of information and communication technology. Other benefits include; delivering on time, reduced delivery enquiring time and improved distribution management.

Proper monitoring. The introduction of information and communication technology in logistics management has brought about efficient and effective monitoring of the materials during transit to their various destinations. This is done through use of technologies that allows communication across a very wide geographical area. Satellite communication provides a fast and high-volume channel for information movements. Satellite technology facilitates real time interaction which provides up to date information about location and delivery information about the products in transit. The satellite devices can also be used in tracking and tracing the materials in transit. Tracking is specifically achieved through the use of internet and others, this therefore enables both the delivering organization or the supplier and the buyer to know where specifically the goods in transit is and also in case of any problem encountered say by the truck being used for the transportation purposes, it can easily be recognized by the parties concerned (Kenneth Lysons 2013).

CHAPTER THREE

METHODOLOGY

3.1 Introduction

This chapter presented the methodology which consisted of the research design, area of study, study population, sample population and selection, sampling technique, data collection method, data quality control, data collection procedures and limitations of the study.

3.2 Research design

The study adopted a descriptive research design this is because they provide an in-depth study of a particular situation. The study also used qualitative and quantitative methodologies for data analysis. Quantitative and qualitative methodologies were used in effects of internal control systems on the performance of financial institutions. Quantitative research consisted of those studies in which the data concerned was analyzed in terms of numbers while qualitative describes events, persons and so forth scientifically without the use of numerical data. Quantitative research is based more directly on its original plans and its results are more readily analyzed and interpreted. Qualitative research is more open and responsive to its subject (Hughes, 2006).

3.3 Data type and sources

Data was collected from both primary and secondary sources; this included both qualitative and quantitative data.

Quantitative data is data which is numerical form and its presented inform of graphs, pie charts and Tables and it is normally got by administering questionnaires. Qualitative data is data that is presented in non-numerical form and it’s got from use of interview guide, It specifically presents the feeling of the respondents.

3.3.1 Primary data sources

Data from Primary sources was obtained by the use of questionnaires administered to the target respondents to gain opinions and practices on the Effects of internal control systems on the performance of financial institutions. The questionnaires were designed using Likert scale and were distributed to staff and clients in order to get staff views regarding the topic under study.

3.3.2 Secondary data sources

Data from secondary sources is data which has been collected by individuals or agencies for purposes other than those of a particular research study. It is data developed for some purpose other than for helping to solve the research problem at hand (Bell, 1997). This comprised of literature related to Effects of internal control systems on the performance of financial institutions in an organization in relation to the case study. Secondary data was sourced because it yields more accurate information than obtained through primary data, and it is also cheaper.

Secondary data was got from text books, new papers, magazines, articles, internet and earlier researches on the problem.

3.4 study area and population

The study was carried out at Stanbic Bank, Mukono Branch plot no. Plot No 59-67. Cooper & Schindler (2011) observes that population is the total collection of elements about which one wants to make inferences. The study was conducted among administration, employees, Human resource management, casual workers, procurement officers, finance and accounting, and other stake holders of Stanbic Bank Mukono district.

3.5 Sample Size and Selection Techniques

3.5.1 Sample Size

According to (Amin, 2005) sampling involves selecting a sample of the population in such a way that samples of the same size have equal chances of being selected. The sample size was determined using mathematical formula given by Miller and brewer (2003) as;

n =

Where,

n is the sample size

N is the target population

Margin of error (fixed at 5%)

Stanbic Bank        n= n

=52

The reason for the use of this method is used because it involves less bias in choosing the sample size and allows for uniform principle to be applied and different entities.

The study specifically chose 22 employees of Stanbic Bank Mukono branch who specifically included; 1 Branch manager, 4 supervisors, 7 tellers, 6 sales staff and 4 credit staff.  The study also chose 30 customers to be included in the study.

3.5.2 Sampling techniques

The study employed Random sampling technique in selecting customers of the bank. According to Amin, (2010) Random sampling is the process of selecting a sample that allows all members of the group or population to have an equal and independent chance of being selected for the sample. This technique was used because it’s not biased.

The study also used purposive sampling technique for selecting Employees of Stanbic Bank. Kothari (2010) purposive sampling technique refers to a process whereby the study selects a sample based on experience or knowledge of the group to be sampled. This technique was used because it’s easy to use and the population understudy was known.

3.6 Data Collection tools/Methods

The major instruments for data collection were questionnaires and interview guide. Surveys were just one part of a complete data collection and evaluation strategy. The major method of data collection for the study was the survey, which was done using selected instruments like questionnaires. The questionnaire provided respondents with ample time to comprehend the questions raised and hence, they were able to answer factually.

3.6.1 Questionnaires

The questionnaire was used to collect quantitative data. The study administered the questionnaires to respondents in different departments; procurement, administration, on Effects of internal control systems on the performance of financial institutions which was designed basing on study objectives and questions. Respondents read and wrote the questionnaires themselves. The questionnaires were close ended and were considered convenient because they were administered to the literate and its anonymous nature fetched unhindered responses.

3.6.2 Interview Guides

Qualitative data was collected from the informants using interviews. The interview guide was structured. The interviews were held with administration, and took approximately thirty to sixty minutes. This was used since it’s the best tool for getting first-hand information /views, perceptions, feelings and attitudes of respondents. Both formal and informal interviews were used to get maximum information from the different respondents to participate in the research.

3.6.3 Documentary review

A documentation technique involves selecting; reviewing and recording characteristics of objects or phenomenon were used. Documentary review checklist was also used to review the response from the respondents in the study while examining the effects of internal control systems on the performance of financial institutions. This helped the researcher identify strength, weakness and gaps which could have been omitted in other tools.

3.7 Data presentation and analysis

Raw data was processed into meaningful information. The process involved editing, tabulation and analysis with a view of checking the completeness and accuracy of the information.

3.7.1 Editing

This is intended to detect and eliminate errors that could occur. Only relevant, correct and crucial information was identified and used to draw conclusion.

3.7.2 Tabulation

Some data was presented in table to enable analysis and identification of relationship between variables.

3.7.3 Data analysis and presentation

The findings of the research were written down and worked out, edited and analyzed using comparison and percentage approaches with the help of computer program known as data statistical package for social scientist and Excel program to draw conclusions and recommendations. This helped the researcher to determine the effects of internal controls on the financial performance of financial institutions in Uganda in light of research objectives and literature review. The study used correlation to study the relationship between the variables of internal control systems and financial performance, in addition to that regression analysis was also carried out to determine the level at which internal control systems affects financial performance in an organization this helped in determining the relationship and answering objective three.

3.8 Data collection procedures

A letter of introduction was obtained from the Dean, School of management and entrepreneurship, Kyambogo University seeking permission to conduct the study. It was presented to the officials of Stanbic Bank seeking permission to carry out the study in the division. After being granted the permission, the researcher proceeded to make appointments with the selected respondents. Thereafter, the researcher administered questionnaires and the required data was collected. The researcher personally administered questionnaires to the respondents in order to avoid delay, to avoid collecting wrong data, ensure completeness and accuracy and confidentiality of the data collected is strictly adhered to.

The questionnaire pilot tested on ten (10) workers of the banks. The pilot testing of the questionnaire enabled the determination of any ambiguities in the questionnaires and the questions improved. The respondents indicated that the questions were understandable. After questions were updated, the questionnaires were distributed among the staff of Stanbic Bank.

3.9 Data validity and reliability

3.9.1 Validity

Data analysis in this study focused on data validity and reliability. To establish the validity of the questions, pre-testing was done amongst the selected categories of respondents. Their comments were incorporated in the final instruments to suit the data requirement of the study. The final amended research instruments were reviewed jointly by the researcher and the supervisor.

3.9.2 Reliability

Reliability was checked using the test –retest practice advocated for by Amin (2005). In other words, the questions were put to course mates and their comments noted, they then presented to the respondents and their views were compared with those of the course mates. On receipt of the questionnaires, manual editing was done, followed by coding. Frequency count of different variables will be done and this gave the number of occurrences and percentages out of total occurrences.

3.10 Limitations of the study

The research was hampered by the following challenges.

Non-responses

The researcher also experienced a problem of non-response from respondents who were given the questionnaires to fill. However, the researcher assured the respondents that any information given was treated with maximum confidentiality.

Cost

The researcher experienced a problem of limited finances with respect to this study. Costs regarding this limitation included transport, printing and photocopying of relevant materials. However, the researcher had to borrow some money from relatives, friends and use it sparingly so as to overcome the cost constraint.

Time

The researcher experienced time constraint in data collection, analyzing of data and in final presentation of the report. However, the study overcame this problem by ensuring that the time element was put into consideration and that all appointments agreed upon with respondents shall were fully met.

CHAPTER FOUR

PRESENTATION, ANALYSIS, INTERPRETATIONOF FINDINGS

4.1 Introduction

This chapter presents the results in reference to objectives in chapter one. Gender of    respondents, Age of respondents, education level of respondents, to establish existing internal control systems applicable to financial institutions, to examine the relationship between internal controls and financial performance of financial institutions and to establish other factors affecting financial performance in financial institutions.

4.2 The response rate

The researcher issued out 52 questionnaires to the respondents who managed to answer 50 of them. There were only two questionnaires left out. This meant that the response rate was 96%

4.3 Findings on Bio data

4.3.1 Findings on the age of respondents.

The age groups of the respondents were represented as shown below;

Figure 4.  1 Pie Chart Showing Age Category of Respondents

The table and pie-chart above shows that 33% of the respondents are in the age group of 18-29 while 50% of the respondents are in the ages of 30-39 while the remaining respondents of 16.6% are in the ages of above 40 years. This showed that respondents between the age 30-39 dominated the findings therefore this validates these findings since most respondents are mature and responsible therefore can give sound and clear responses in relation to the questions which gives accuracy in data collected.

4.3.2 Gender of respondents

Table 4. 1 Showing gender of respondents

Source: Primary Data

According to table the findings in the study it is evident that (74%) representing (37) of the respondents were male while (26%) representing (13) of the respondents were female, from the above findings it is evident that majority of the respondents in Stanbic Bank were male, this findings implies that male gender accepted to respondents to the questionnaires asked by the researcher. The results further specifically showed that there is no gender balance among the workers therefore the female gender was misrepresented in this study.

4.3.3 Marital status of respondents.

Table 4. 2 Findings on marital status of respondents

Source: Primary Data

The findings in the study indicate that majority of the respondents were married and their percentage was 60% of the respondents. The findings further indicated that 30% of the respondents were single and the remaining 10% were divorced. These results indicate that majority of the respondents had a settled family life and therefore they were very good for the study.

4.3.4 Education of respondents

Table 4. 3 Showing educational level of respondents

Source: Primary Data

According to the findings in the study (58%) of the respondents hold degrees, (22%) of the respondents were diploma holders, (12%) of the respondents were master’s degree and (8%) of the respondents were certificate holders, from the results in the study above it is evident that most of the respondents were degree holders this implies respondents were well educated professional in their respective fields who understood the variables and gave correct information..

4.3.5 Number of years worked by the respondents

Figure 4.  2 Number of years respondents have worked at Stanbic Bank

The bar graph above shows that majority of the respondents have works between  the range of 6-10 years this shows that  the majority of the respondents have enough knowledge on the operations of Stanbic Bank and therefore they were able to give detailed information regarding the topic. Then the least of respondents have worked there for 10 years and above however those that have worked between 3-5 years are more than them.

4.4 The existing internal control systems applicable to financial institutions

4.4.1Has Stanbic Bank adopted internal control systems?

Table 4. 4 Showing if Stanbic Bank adopted internal control systems

Source: primary data

The results in the study indicates that majority 90% of the respondents assert that Stanbic Bank has adopted internal control systems.

4.4.2 The internal control systems in place at Stanbic Bank

Table 4. 5 Existing internal control systems applicable to financial institutions at Stanbic Bank

Source: primary data

According to table, the results in the study (38%) of the stated that The bank regulates amount of cash released to customers , this findings indicates that Stanbic Bank has an internal control systems to enable it be in position to regulate the amount of activities. The results further indicates that 16% of the respodents further indicates that audting is carried at the bank to assess performance, 10% of the respodents indicates that financial reports are prepared for share holders , 22% of the respodents also further states that credit given to customers is regulated while 14% of the respodents stated that the bank determines its profitability quarterly.

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

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

Table 4. 6 Showing the relationship between internal controls and financial performance of financial institutions

Predictors: (Constant), Relationship between  internal control systems and financial performance of institutions include; helps to prevent fraud in financial institutions, Enables accountability in financial institutions, enables financial institutions to maintain adequate liquidity,  Analyzing the credit risk of clients is possible .

r² =0.353, this implies that 35% of the Relationship between  internal control systems organizational performance in Stanbic Bank , can be explained by, prevention of fraud, enhancing accountability and analyzing credit risk of clients is possible.

These results further indicate that there are many factors that affect financial performance in financial institutions other than only internal control systems.

4.6 Other factors affecting financial performance in financial institutions

4.6.1 Whether there are other factors affecting financial performance in Stanbic Bank

Table 4. 7 Showing whether there are other factors affecting financial performance in Stanbic Bank?

Source: Primary Data

The result above indicates that most of the respondents hold the view that the there are other factors affecting financial performance.

4.6.2 Other factors affecting financial performance in Stanbic Bank

Table 4. 8 Showing other factors affecting financial performance in Stanbic Bank

Source: Primary Data

The findings indicate that 34% of the respondents assert that managerial decision making has an influence on the financial performance of Stanbic Bank. The results further indicates that 28% of the respondents assert that collusion of organizational decision makers is key in enabling an organization have better performance. The findings in the study further indicates that Presence of low income earners has an influence on the financial performance of Stanbic Bank, 12% state that Competition among financial institutions has an influence on financial performance of Stanbic Bank and the remaining 12% of the respondents also held the view that High level of risks involved in holding and lending credit.

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

REFERENCES

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Casey smith, 2007 “Conceptual and Analytical Framework for the Management of Risk in Supply Chains” prentice hall publishers. Vancouver, Canada

Chopra, Sunil, and Peter Meindl. Supply Chain Management: Strategy, Planning & Operations. 3rd ed. Upper Saddle River, NJ: Prentice Hall, 2006.

David Jessop and Aloz Marrison, (2000), “Storage and supply of materials” 8^th edition pitman publishing.

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Lora Williams, Myers and jimmy White, 2007 “Globalization and the Supply Chain” Today’s Risks are not Yesterday’s Risks, AMR publishers.

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APPENDIX I: QUESTIONNAIRE

I am ALUM HARRIET OYAT a student of Kyambogo University, pursuing a degree, as part of the requirement for the award of completion of my course; I am carrying out a study on the effects of internal control systems on the performance of financial institutions a case study of Stanbic Bank.

You have been selected to take part in this study; the success of this study therefore depends on your kind cooperation. You are requested to answer the questions below according to the best of your understanding. The information given shall be treated with utmost confidentiality and used only for academic purpose.

Kindly Tick and or fill in.

SECTION A-BIO DATA

1. Name (optional)………………………………………………

• Age (optional) a) 18 -29 b) 30 – 39                    c)  40 and above

• Sex: a) Male b) Female

• Marital status: a) single b) Married c) Divorced

5. Educational Background

1. a) Master’s degree b) Bachelor’s degree                      c) Diploma

d)Others (Specify)………………………..

6. For how long have you been working with Stanbic Bank?

a)Less than 3 years                               c) 5-9years

b)3-5 years                                        d) 10 above

Section B: Specific Questions

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

7) Has Stanbic Bank adopted internal control systems?

1. a) Yes b)No

8) If yes what are some of the existing internal control systems applicable to financial institutions at Stanbic Bank?

• The bank regulates amount of cash released to customers

• Audting is carried at the bank to assess performance

• financial reports are prepared for share holders

• Credit given to customers is regulated

1. The bank determines its profitability quarterly
2. f) Others specify

…………………………………………………………………………………………………

Relationship between internal controls and financial performance of financial institutions.

9). Does internal controls affect financial performance of financial institutions?

Yes                                                                           No

10) If yes what is the relationship between internal controls and financial performance of financial institutions?

• prevents fraud in an organization

• Enables accountability in an organization

1. enable an organization to maintain adequate liquidity

• Analyzing the credit risk of clients is possible

1. e) Others specify?

………………………………………………………………………………………………

Other factors affecting financial performance

11) Are there other factors affecting financial performance in Stanbic Bank?

Yes                                                                           No

12) If yes what are other factors affecting financial performance financial performance in Stanbic Bank?

1. a) Managerial decision

1. b) Collusion of organizational decision makers
2. c) Presence of low income earners

1. d) Competition among financial institutions
2. e) High level of risks involved in holding and lending credit
3. f) Others specify

………………………………………………………………………………………………………

13) What is your general comment on the internal control system and financial performance of Stanbic Bank?

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

THANKS FOR YOUR COOPERATION

APPENDIX II: INTERVIEW GUIDE

• Has Stanbic Bank adopted internal control systems?
• If yes what are some of the existing internal control systems applicable to financial institutions at Stanbic Bank?
• Does internal controls affect financial performance of financial institutions?
• If yes what is the relationship between internal controls and financial performance of financial institutions?
• Are there other factors affecting financial performance in Stanbic Bank?
• If yes what are other factors affecting financial performance financial performance in Stanbic Bank?
• What is your general comment effects of internal control systems on the financial performance of financial institutions?

APPENDIX III: BUDGET ESTIMATES

APPENDIX IV: TIME PLAN