EFFECTS OF INTERNAL CONTROL ON FINANCIAL PERFORMANCE OF BANK OF ABYSSINIA

Abstract

The research was conducted at the Bank of Abyssinia in Addis Ababa and examined how internal control systems affected financial performance. A total of 197 people were chosen at random. Semi-structured questionnaires were created at the bank to collect data on socioeconomic factors and the effect internal control systems have on financial performance. A semi-structured, self- completion research questionnaire was distributed and collected. After the completed questionnaires were reviewed for plausibility, integrity, and completeness, there were 180 respondents that could be used. From the 197 questionnaires distributed, 180 relevant examples were chosen. The data was then summarized using descriptive statistics, regression, and correlation analysis, and averages were statistically compared using SPSS version 24.0. Five independent variables were found and scored on a five-point Likert scale ranging from 1 (strongly disagree) to 5 (strongly agree). The independent variables were control environment, control activity, internal auditing, risk assessment, and information communication. The dependent factor was the extent to which the company met its financial performance targets during the last seven years. To discover the internal control systems that influence financial performance, regression and correlation analyses were employed. the correlation analysis that the relationship between risk assessment and financial performance is positive and insignificant, study’s correlation analysis findings disagree with the findings which indicated that financial performance of banks was strongly positively related to risk management. Control activities and risk assessment have a significant positive impact on financial performance; whereas Information and communication has an insignificant impact on financial performance and control environment in banks of Abyssinia negatively influence the financial performance. The following recommendations are made based on the findings: the researchers advise the management of banking institutions should make sure that every part of the control environment that has a negative impact on financial performance should be properly dealt with and that appropriate steps are taken in order to reduce those effects.