A Study on the Effectiveness of Internal Control System on Commercial Banks Risk Minimization in Zambia

Abstract

Banks are in business of risk management and not risk avoidance. As such, risk management should be their core competency. To survive in this highly uncertain world, financial institutions must manage risk effectively. It is in this light that internal control systems are put in place in the banking sector to assist minimize risk. The purpose of this study was to investigate the effectiveness of internal control system on commercial bank risk minimization in Zambia. The study adopted a quantitative research approach, and the study population was all auditors, internal control, and risk management personnel in Zambian commercial banks. Committee of Sponsoring Organization (COSO) internal control framework was used to identify the components of an internal control system and its effectiveness. This framework was adopted because it is a model that has generally been accepted for its prescribed model on internal control appraising. Results indicated that there is a positive and significant relationship between an internal control system and risk reduction of commercial banks at 5% significance level (p=0.00 <0.05). The study results also indicated that the internal control system present in Zambian commercial banks is effective in reducing risk.