THE EFFECTS OF INTERNAL CONTROL SYSTEMS ON THE FINANCIAL PERFORMANCE OF THIRD TIER LICENCED COMMERCIAL BANKS IN KENYA

Abstract

The review concerned with the internal control system of third-tier banks has responsibility for all the employees who use the internal control system to search for mistakes so as to protect the asset and detect errors and fraud. The overall economic profile of the internal audit function is highly significant, especially in recent years, and some of these factors are involved, what is professional and some are academic. With the growing use of information technology, Third tier banks have worked to take advantage of data processing electrically, so that information technology has become part of the bank’s environment and if any information technology continues to affect the operations of different banks and process their data, internal control systems must keep pace with these developments.  Third Tier banks contain a set of policies and procedures that are designed to provide management with adequate assurance of the goals to envisage essentials for the bank system. The internal control is carried out by management to determine the efficiency of the internal control, and to determine the possibility of modifying it. The results of the regression model show that there is a positive relationship between internal controls and the financial performance of tier three commercial banks. Holding other factors constant, financial performance is measured by the efficiency and effective implementation of internal controls. The study recommended that: Control environment has a positive significant relationship with financial performance and the tier three commercial banks should therefore ensure a suitable environment to secure their operational activities.