Abstract:
Internal control systems play an important role in every organization as it help to
accomplish their financial performance objectives. The main objective of this study
is to determine the effect of internal control system on financial performance of
licensed commercial banks in Sri Lanka. Internal controls are looked at from the
perspective of Control Environment, Risk Assessment, control Activities,
Information and communication and monitoring whereas financial performance
focused on Return on Assets. The target population was 25 licensed commercial
banks, supervised by the central bank under the banking Act No. 30 of 1988. The
random sampling method was used to select the sample and sample size of the study
was 16 licensed commercial banks in Sri Lanka that represent 62% of total
population. The study relied on both primary and secondary data. Primary data
obtained through the standard questionnaire in five likert scale format while the
secondary data is gathered from financial statements. Multiple regression models
were used to test whether internal controls have any influence on financial
performance. The study adopted descriptive research design using both quantitative
and qualitative approach. The data is analyzed by the aid of Statistical Package for
Social Science (SPSS). Based on the research findings it can be concluded that
internal control system is a positive significant predictor of financial performance. In
addition, control environment, Risk Assessment, internal control activities,
information and communication have positive relationship with financial
performance licensed commercial banks
