Effective Internal Control Systems and Return on Assets (ROA) of Deposit Money Banks in Nigeria

This study investigated the impact of effective internal control systems on the Return on Assets (ROA) of deposit money banks in Nigeria. Internal controls are crucial for ensuring the accuracy and reliability of financial reporting, compliance with laws and regulations, and the overall operational efficiency of financial institutions. The study adopted an ex-post facto research design. Secondary data were extracted from the audited financial statements of 10 deposit money banks, listed on the Nigerian Exchange Group (NGX). Data were subjected to descriptive statistics (mean, median, mode, and standard deviation) and inferential statistics (fixed effect regression analysis). Results from the analysis revealed that the internal control system affects the return on assets significantly, which means that any slight reduction in the internal control system will affect the rate at which the assets will generate revenue to the banks negatively, especially when the risks that may arise are not properly assessed and mitigated by the risk management committee. The paper concludes that there is a statistically significant relationship between the two variables; it can be inferred that there is an established connection between the internal control system and the financial performance of the sampled deposit money banks in Nigeria at a significant level.

Internal Control Systems, Return on Assets, Control Environment, Deposit Money Banks, Nigeria.

1. Adebayo, O., Ayo, B., & Funmi, L. (2020). The Impact of Internal Control Systems on Financial Performance of Nigerian Banks. Journal of Finance and Accounting, 8(2), 145-156. [Google Scholar] [Crossref]

2. Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Lapides, P. D. (2022). Fraudulent financial reporting: Consideration of industry traits and corporate governance mechanisms. Accounting Horizons, 14(4), 441-454. https://doi.org/10.2308/acch.2000.14.4.441 [Google Scholar] [Crossref]

3. Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2013). Internal Control - Integrated Framework. [Google Scholar] [Crossref]

4. Doyle, J. T., Ge, W., & McVay, S. E. (2007). Accruals quality and internal control over financial reporting. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.789985 [Google Scholar] [Crossref]

5. Ege, M. (2015). Does Internal Control Improve Operating Performance? The Accounting Review, 90(2), 495-527. [Google Scholar] [Crossref]

6. Eze, P. (2018). Internal Controls and Performance of Commercial Banks in Nigeria. Journal of Banking and Finance, 42(1), 78-92. [Google Scholar] [Crossref]

7. Kirchler, E., et al. (2008). The Slippery Slope Framework. Journal of Economic Psychology, 29(2), 210-225. [Google Scholar] [Crossref]

8. Modica, A., et al. (2018). Enhancing Development through Domestic Revenue Mobilization. IMF Working Paper. [Google Scholar] [Crossref]

9. Njanike, K., Dube, T., & Mashayanye, E. (2009). The Effectiveness of Internal Controls in Revenue Management: A Case Study of Zimbabwe Revenue Authority (ZIMRA) at Kurima House. Journal of Case Research in Business and Economics. [Google Scholar] [Crossref]

10. OECD. (2021). Revenue Statistics in Africa. OECD Publishing. [Google Scholar] [Crossref]

11. Ogundana, O. M., Omojola, S. O., & Okoye, L. U. (2017). Effect of Internal Control on Financial Performance of Firms in Nigeria: A Study of Some Selected Firms in Nigeria. Journal of Business and Management, 19(4), 30-37. [Google Scholar] [Crossref]

• The Role of Value and Growth Stocks in Portfolio Returns: Insights From the Nigerian Stock Market
• The Impact of Environmental, Social, Governance (ESG) and Profitability on Firm Value Moderated by Firm Size
• Assessment of the Impact of Environmental Operating Costs on Return on Assets: Evidence from Listed Breweries in Nigeria
• Mobile Money and Digital Financial Services Ecosystem in Adamawa State
• A Quantitative Approach of Professional Skepticism and Fraud Detection among Malaysian Internal Auditors