PRACTICE OF INTERNAL CONTROL SYSTEM AND ITS CONTRIBUTION TO FINANCIAL PERFORMANCE OF PRIVATE BANKS IN ETHIOPIA A CASE STUDY OF SEVEN PRIVATE BANKS IN ETHIOPIA

Abstract

The study sought to establish a relationship between internal control and organizational financial performance of Private banks in Ethiopia. Objectives of the study were; to examine the effectiveness of internal controls used in Banks, to establish the level of performance and relationship between internal control and financial performance in private Banks of Ethiopia. The study mainly target and test some qualitative dependent financial performance variables like- Efficiency, Responsibility and Reporting over seven selected private bank of Ethiopia. A cross sectional survey was used in the course of the study. Qualitative data was gathered in order to establish the relationship between the independent and dependent variables, so as to examine how internal controls are used in private banks and therefore account for the performance levels. The study comprised of 60 employees. Purposive sampling was used to select respondents for the research merely to attain the purpose of the study. Data was collected using both primary and secondary sources. After collecting data, the researcher organized well-answered questionnaire, data was edited and sorted for the next stage. The data was presented in tabular form and pie charts with frequencies, percentages, mean and standard deviation. The researcher used Statistical Package for Social Sciences (SPSS) to analyze the relationship between the variables under study. From the finding, the study identified that there is a positive relationship between internal control system and financial performance of private banks. Moreover, the finding underline that currently there is a moderate effective and efficient internal control system across the tested banks though lots of works like; periodic evaluation of budget against actual expenditure, fixed asset defragging and proper usage and periodic revision of banks' risk tolerance limit are remaining works that have to improved to enhance performance of banks. The study recommends that equal attention should be given to some qualitative financial performance contributors by the Management of the Bank as that of liquidity management, enhancing RoA and RoE and the likes so as to keep the existing profitability and enhance financial performance of their Bank.