THE CONTRIBUTION OF INTERNAL AUDIT TO THE PERFORMANCE OF FINANCIAL INSTITUTIONS CASE STUDY: BANK OF KIGALI PLC (2020-2022)

Abstract

Banking institutions undertake different activities and services including accepting deposits, providing loan, to the public which they must manage effectively and efficiently towards the financial performance improvements. The overall objective of this study was to find out the contribution of internal auditing on the performance of financial institutions. It also intended to assess the effectiveness of internal audit functions in Bank of Kigali; to analyze the contribution of the internal audit system on the financial performance of Bank of Kigali. The literature review focused on data relating to internal audit function and performance of financial institutions and provided the critical literature and conceptual framework. This research uses descriptive research design and using sample size of 50 respondents selected in 100 using Morgan and Krejcie table; Data were collected from primary and secondary sources by means of questionnaire and documentary analysis. The collected data were presented in tables, analyzed and arranged in form of numbers, percentages and frequency distribution, summarized, statistically treated and drafted using the Statistical Package for Social Sciences (SPSS). To ensure reliability, alternative form method was used while expert panel model was used to ensure validity of instruments. It was found that banking institutions put into practices internal audit function and internal control systems with the purpose of improving financial performance. The findings of the study indicated that banking institutions, mainly Bank of Kigali, apply the principles of internal audit and internal control systems and this helped them to improve financial performance as reveled by the majority of the respondents (on average, 4.321) regarding the assessment of the functioning of internal audit department in financial institutions of Bank of Kigali and 4.223 on average regarding the evaluation of the application of internal control systems in Bank of Kigali. It was found that the proper internal audit function has led to the improvement in financial performance of Bank of Kigali whereby the level of liquidity has been improved ahead of other financial performances as revealed by 4.339 averages, followed by improvement in the level of profit and return on investment as indicated by 4.201 and 4.165 respectively. Return on the assets was also influenced positively by the internal control. It is remarkable that the consistent performance of Bank of Kigali finds source in proper internal control. It was concluded that internal audit function has contributed to the improvement of financial performance of Bank of Kigali.