Abstract:
Internal control system plays an important role in preventing and detecting fraud and
also protecting the tangible and intangible assets of an organization. Therefore, it is
important to study how the internal control system of an organization affects the
organization’s performance. Indeed, it is critical for banks and financial institutions
to recognize the risk they encountered. So the purpose of this study is to investigate
the impact of internal control system on profitability of an organization and it is
mainly based on employees’ perception on internal control system of Licensed
Commercial Banks in Sri Lanka. Internal control system consists of control
environment, risk assessment, control activities, communication and monitoring. The
study selected a sample of permanent employees of 25 licensed commercial banks in
Sri Lanka. The study used on primary data and it was collected using semi-structured
questionnaires with open- ended and close-ended questions. Data was analyzed by
using Statistical Packages for Social Science (SPSS). Descriptive statistical measures
and the regression analysis were applied to analyze the data of the study. The results
of the study showed that the internal controls have statistically significant impact on
profitability. Furthermore, findings of the study revealed that the elements of internal
control systems comprising control environment, control activities and monitoring
have significant and positive impact on profitability in licensed commercial banks in
Sri Lanka
