The Impact of Internal Control Systems on the Financial Performance of Listed Commercial Banks in Machakos Town, Kenya

International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue VI, June 2022 | ISSN 2454–6186

The Impact of Internal Control Systems on the Financial Performance of Listed Commercial Banks in Machakos Town, Kenya

¹Ngeta Jacqueline ²Evusa Zablon & ³Wahome Ndirangu
¹,²School of Business, South Eastern Kenya University
³School of Business and Entrepreneurship, Jomo Kenyatta University of Agriculture and Technology
*corresponding author

Abstract: Recent past has seen commercial banks placed under receivership for poor performance which signals to poor internal controls which went undetected by the regulator. Because of this reason, this study aimed to evaluate the impact of internal control systems on financial performance of listed commercial operating in Machakos, Kenya. The study used both causal and correlation research designs. Census method was used to select the select the commercial banks since they are few. The study population comprised of all staff working all listed commercial operating in Machakos Town. Purposive sampling was used to select a sample of 39 respondents, three from each of the 13 listed banks operation within Machakos Town. The study used primary data obtained thorough a self-administered questionnaire. Data was analyzed by use of correlation and descriptive statistics with aid of SPSS version 26. The findings were presented in form of tables and percentages. Reliability of the instrument was evaluated using Cronbach’s alpha. All the variables had Cronbach’s alpha above 0.7 and thus were accepted as indicating that the instrument was reliable. The study findings showed that the predictor variables explained 54% of the variability in financial performance of commercial banks. The study found that risk assessment and monitoring had the highest positive and statistically significant impact on financial performance of commercial banks operating within Machakos Town. The study recommends that commercial banks should embrace internal control systems in order to enhance financial performance. Commercial banks should review their practices and policies in line with the internal control systems that significantly impact on the performance.

Keywords: Internal, Control, Systems, Financial, Performance, Commercial, Banks, Kenya

I. INTRODUCTION

Commercial banks play a fundamental role in a country’s financial system and the economy. As a key component of the financial system, banks facilitate efficient allocation of funds from savers to borrowers. Their specialized financial services reduce both information asymmetry and the cost of obtaining information on availability of savings and borrowing opportunities. These financial services help to make the overall economy more efficient. Businesses and

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