Thesis:

Assessing the effect of internal control systems on financial performance of commercial banks in Mombasa County, Kenya

Banks drive financial development and general economic growth in both developed and developing countries globally. However, the banking sector has continued to face several constraints leading to their collapse. In Kenya, commercial banks are protected by regulations formulated by the government and reviewed regularly to prevent collapsing. Despite these iv efforts, 17 banks have collapsed from 1990 to 2023. The Central Bank of Kenya (CBK) has revised commercial banks' capital requirements to avoid banking crises and also set minimum lending interests. These reforms are in line with the prevailing global financial conditions to ensure that banks are mitigated against risks associated with lending operations. The general objective of the study was to assess the effect of internal control systems on the financial performance of commercial banks in Kenya. The specific objectives of the study were: to assess the effect of the internal control environment on the financial performance of commercial banks in Mombasa County; to assess the effect of information and communication on the financial performance of commercial banks in Mombasa County; to analyze effect of risk assessment on the financial performance of commercial banks in Mombasa County; and to examine the effect of internal control activities on the financial performance of commercial banks in Mombasa County and. The study used a descriptive research design through census method. The primary data was collected using questionnaire feedback from 43 commercial banks as unit of analysis. The research philosophy of the study was positivism. The unit of observation in the commercial banks were the senior operations manager, finance officers, departmental heads and accountants per each bank. The study sample size was 209 participants. Qualitative data was analyzed using content analysis with themes being developed as per the responses obtained. Reliability of the research instrument was done using Cronbach's alpha value analysis while validity of the instruments considered both the face and content validity of the questionnaire. Quantitative data was analyzed by use of SPSS software. Means and standard deviations were used as descriptive statistics for data analysis. Inferential statistics including multiple regression model was analyzed at 95% significance. Findings were presented and organized in charts and tables for easy interpretation. Findings showed that there was positive relationship between internal control environment and financial performance with a beta value of 0.644 and p-value of 0.000; information and communication recorded a beta value of 0.111 and a significant p-value of 0.001; risk assessment versus financial performance showed a beta value of 0.714 and a significant p-value of 0.009 while effect of internal control activities against financial performance was significant with a beta value of 0.996 and p-value of 0.003. In conclusion, the findings established that there was a positive relationship between tested independent variables (internal control environment, information and communication, risk assessment and internal control activities) and financial performance with a beta value of 1.921 and pvalue of 0.002. The findings of this study will contribute to the formulation of appropriate guidelines and policies that will enhance financial performance among commercial banks in Kenya.