Internal Controls Andfinancial Performance Ofcommercial Banks In Kenya

In the recent past there has been failure of some of the largest commercial banks in the Kenya. This trend puts into question the ability of the internal control systems and the Central Bank of Kenya prudential guidelines to steer the commercial banks stability and performance. However, the recent failures have put pressure on the industry regulators and players to rethink how best the institutions can align their internal control systems and compliance as tools of ensuring stability and positive performance. The study sought to assess the effects of internal controls on financial performance of commercial banks in Kenya. Specifically, the study assessed the effect of the control environment, risk assessment, information and communication, control activities and monitoring on the performance of commercial banks in Kenya. Both primary and secondary data was collected. Primary datawas for Questionnaire feedback while secondary data was extracted from audited financial reports of all the 43 commercial banks. The research philosophy of the study is positivism. The study used a descriptive research design with census methods being used. The study targeted all the 43 commercial banks as unit of analysis. The unit of observation in the commercial banks was the senior operations manager, senior risk manager and senior internal auditor per each bank. The study involved a census of 129 respondents. Qualitative data wasanalyzed using content analysis with themes being developed as per the responses obtained. Using SPSS, quantitative data wasanalyzed and findings presented and organized in tables for easy understanding and this wasinline with the specific objectives. A multiple linear regression was used to determine the extent to which each internal control affect financial performance among commercial banks in Kenya. The study findings established a positive and significant relationship between control environment and financial performance of the commercial banks. Findings also showed a positive and significant relationship between risk assessment and financial performance of the commercial banks.