The Role of Internal Control System in the Risk Management of a Financial Institutional: Case study BPR Kimironko Branch, 2012-2016

Abstract

The study subject is the role of internal control system in the risk management of a Financial Institution. The case study was the Banque Populaire du Rwanda (BPR). The objective of research were to find out the causes of inadequate financial performance in BPR in year 2012-2016, the second was to examine the gaps of the internal control system established by BPR Management in order to improve its financial performance, the third was to assess the kind of frequent risks and the affected divisions, the forth was to assess the adopted risks management strategies to prevent and detect fraud and money laundering, the fifth was to examine the relationship between internal control and risk Management in BPR performance, the last was to recommend BPR; to operate practicable safeguard assets, to prevent and detect fraud and error to ensure accuracy and completeness of accounting records and the timely preparation of reliable financial information. The purposive sampling was used to select the BPR division to be visited and selected key informants within division. The research tools were developed the open-ended questionnaire and interview guide. Data collection was organized. The questions were constructed basing study objectives. The interview was conducted to the board committee that composed by the Board Risk, Audit and Compliance Committee and executive committee and the open-ended questions were asked to the 35 selected technicians. The data from guide interview were reported in specific format and data collected with open ended questions were entered and analyzed using SPSS. The summary results showed that BPR have inadequate financial performance due to the weakness of internal control system. The weakness of board committee (Auditors and Executive), failure linked to entire management of the bank and Embezzlement and money laundering risks were rated at above 80%. The risks of Failure of granting loan to the customers and Acceptance of related collateral forgery documents were above 70%. The risks of Weakness of staff management and setting salary of top leaders, Fraudulent linked to dishonest staff, Failure of Loan recovery were rated at 48.6% to 60%. These resulted to inadequate financial performance in BPR. The results in the table above 4.5 revealed that is a significance relationship and significance effects between identified risks and financial performance. All probability values are less than significance value of 5%. These results are supporting the research hypothesis that there is a significance relationship and significance effects between internal control systems toward risk management and financial management of BPR. The research finding proved that the internal control system in BPR failed to control and to avoid the reported risks in table 4.3. The most risks are Fraudulent linked to dishonest staff with (r = 0.92; sign 0.000) followed by Weakness of staff management and setting salary of top leaders with (r = 0.707, sign 0.000), the failure of Loan recovery with (r = 0.63, sign 0.000) and Failure of granting loan to the customers with (r= 0.55 sign 0.000).