Assessing the Impact of Internal Control on the Performance of Commercial Banks in Tanzania

Purpose: The purpose of this study was to assess the impact of internal control on the performance of commercial banks listed on Dar es Salaam Stock Exchange (DSE) in Tanzania. Design/Methodology/Approach: The researcher adopted a cross-sectional descriptive design where a mixed approach was applied to collect qualitative and quantitative data using questionnaires and interview guides. The study used both primary and secondary data, and the sample size was 100 commercial bank employees, and 7 branch managers as key informants. Descriptive statistics and regression models were used to analyse quantitative data, while content analysis was used to analyse quantitative and qualitative data respectively. Respondents were randomly selected. The independent variables were internal control components; control environment, information and communication and monitoring, while the dependent variable was the financial performance (ROA) of commercial banks. Findings: The descriptive findings show that the majority of respondents to a larger extent agreed that banks implement internal control. Also, the regression results show that the control environment has a positive and highly significant ( $$\beta = 1.213$$ β = 1.213 , t = 58.207, p = 0.000) impact on the financial performance of commercial banks. Similarly, information and communication show a positive and highly significant ( $$\beta = 1.060$$ β = 1.060 , t = 48.989, p = 0.000) impact on the profitability of commercial banks. Furthermore, the study found that monitoring has a positive and highly significant ( $$\beta = 1.049$$ β = 1.049 , t = 52.020, p = 0.000) impact on the financial performance of commercial banks. Implications/Research Limitations: The study is not without limitations, the study focused on seven commercial banks listed in DSE; it is recommended that future studies consider expanding the scope to include the entire banking sector. The study further did not consider all internal control variables; there is a need for future studies to consider expanding the scope to include all control variables. Practical Implications: Based on the findings this study concludes that control environment, information and communication, and monitoring are important elements which contribute to the profitability of commercial banks and thus need to be improved to ensure the system is fully safeguarded. Originality/Value: The study analysed the impact of control environment, communication and information and monitoring system on the performance of commercial banks. It was important because existing studies fall short of explaining these internal control components and their effect on commercial bank performance in the Tanzanian context. As such, this study has added to the body of knowledge of the importance of these internal control components to the performance of commercial banks in Tanzania.