Internal Controls and Financial Risk Management in Selected Private Bank Institutions in Mogadishu, Somalia

ABST RACT This research investigated the relationship between internal controls and financial risk management in selected private bank institutions in Mogadishu, Somalia. with the major objectives of the study; to determine the of level internal control; to determine the level of financial risk management; and to establish if there is significant relationship between internal controls and financial risk management. The target population was 320 workers; using judgmental sampling the researcher selected 177 respondents in two banks operating in Mogadishu; from 102 employees includes managers and functional staff for Salam Somali bank while 75 employees includes managers and staff ftom Amal bank. The data was analyzed using SPSS to determine the mean of the two variables; the Person’s Linear Correlation Coefficient was used to determine the correlation between independents and dependent variables. The findings of this research revealed that r0.782 and there is strong positive relationship between internal control and financial risk management; while null hypothesis rejected. Based on the findings, the researcher recommended that: the private bank institution in Mogadishu should impalement Effective and strong internal control policy should be conununicated to all levels of the bank’s l)epartments and Divisions for managing deferent types of risk; and the management’s philosophy and operating style of the hank’s business strategies should be Formal for their integrity, ethics, and competence of personnel.

 TABLE OF CONTENT

Dedication .iii

Abstract

Tab1e of content

List of Tables

List of Figures

CRAPTERONE

1.0 lntroduction

1.lBackground ofthe Study I

1.1.1 Historical Prospective

1.1.2 Theoretical Perspectives 2

l.I.3ConceptuaiPespecut,es 3

1.2 Statement ofthe l’robleiy, 4

1.3 Research Objectives 4

I.3.IGeneral 4

1.3.2 Specific

1.4 Research Questioris 5

1.5 hypotheses

1.6 Scopc 6

1.6.1 Geographical Scope 6

1.6.2 Content Scope 6

1.6.3 Theoretical Scope .6

1.7 Significance of the Study 6

1.8 Operational Definitions of Key Terms 7

ChAPTER TWO 8

REVIEW OF RELATED LITERATURE 8

2.0 Introduction 8

2.1 Theoretical review 8

2.1.1 Agency theory 8

2.1.2 Signaling theory 9

2.2 Financial risk Management and controls 9

2.3 Credit risk Management And Internal Controls 11

2.4 Liquidity risk Management 1 3

2.5 Operational risk Management and Internal Controls 14

2.6 Market risk Management 15

2.7 Internal Controls and it is five Components 16

2.7.1 Control environments 18

2.7.2 Risk Assessment 19

2.7.3 Control activities 19

2.7.4 Accounting, information, and communication systems 19

2.7.5 Monitoring 20

2.8 Relationship between Internal Control and Financial risk Mangement 20

2.9 Related Studies 21

2. 10 Conceptual Frame Work 23

VII

CHAPTER TI-TREE .24

METHODOLOGy 25

3.0 Introduction 25

3.1 Research Design 25

3.2 Research Population 26

3.3 Sample Size 26

3.4 Research Tnstrument 27

3.5 Data Gathering Procedures 29

3.5.1 Before the administration of the questionnaires 29

3.5.2 During the administration of the questionnaires 29

3.5.3 After the administration of the questionnaires 29

3.6 Data Analysis 29

3.7 Ethical Considerations 31

3.8 Limitations of the Study 31

CHAPTER FOUR 33

PRESENTATION, INTERPRETATh)N AND ANALYSIS OF DATA 33

4.0 Introduction 33

4.1 Profile of the Respondents 33

4.2 The Level of Financial risk Management 35

4.3 The Level of Internal Control 39

4.4 Relationship between internal control and Financial Risk Mangernent 43

4.5 Regression analysis between internal control And Financial Risk Mgt 45

CHAPTER 1~IVE 47

FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 47

5,0 Introduction 47

5. 1 Summary of Findings .47

5.2 Conclusion .49

5.3 Recommendations 52

5.4 Suggestions for Further Research 54

References

Appendix 1A: Transmittal Letter from CI-IDR 59

Appendix 1B: Transmittal Letter for the Respondents 59

Appendix 11: Clearance From Ethics Committee 60

Appendix III: Informed Consent 61

Appendix IVA: Computation of Sample Size Using Sloven’s Formula 62

Appendix IVB: Calcualtion for the Content Validity Index (CVI) and Reliabilty of

the Instruments Using Alpha Cronpach 63