ABSTRACT The study was set to examine the impact of internal auditing on financial performance of commercial banks in Uganda. The objectives nature of the internal auditing function fInancial performance of centenary bank, examine the challenges faced in the internal audit function in financial performance of centenary bank and determine the effect of internal audit function on financial performance of centenary bank. The study was conducted used a descriptive correlation design. This design was selected because the researcher intended to establish fuels that already existed as opposed to creating new information that would have necessil ted experimental research. The data was collected from the respondents using the questionnaires from 50 respondents of the bank. The study conclude that that nature of auditing in the banks was coupled by the use of internal auditing standards suitable for auditing in the banks, the internal auditing standards are st~fficient to enable bank operations, bank periodically review the audit standards the bank periodically review the audit standards, professional audit competency. the study on the second objective conclude that a series of the factors challenges include igh degree offrauds and errors hinder effective auditing, high costs of auditing in the banks, operational challenges hinder effective operation of the bank, high degree of banking interruptions affect the auditing function. The third objective conclude that there is ned /br enhancing the communication within the organization, Increase effectiveness in credit control, improves marketing activities of the organization and detection offailures for redress in the organization. The study recommend that the management of commercial banks should keep organizing seminars and workshops whereby these internal auditors would be trained frequently by experts either internally or externally. Internal Auditors must have st~fficient proficiency and training to carry out the tasks assigned to them. The auditor~ work must be carefully directed, supervised and reviewed. The amount ofsupervision required corresponds to the experience and skill of the auditor. The management of the bank should keep organizing seminars and workshops whereby these internal auditors would be trained frequently by experts either internally or externally. Internal Auditors must have sufficient proficiency and training to carry out the tasks assigned to them. The auditor~ work must be carefully directed, supervised and reviewed. The management of the bank should also procure the latest ICT audit software s that would enhance fast delivery of services and detection of frauds or any mischief in this field.

TABLE OF CONTENTS

DECLARATION

APPROVAL iii

DEDICATION iv

ACKNOWLEDGEMENT v

LIST OF ACRONYMS vi

ABSTRACT x

CHAPTER ONE I

INTRODUCTION

1.0 Introduction 1

1.1 Background of the study 1

1.1.1 Historical Perspective 1

1.1.3 Conceptual Perspective 3

1.1.4 Contextual Perspective 4

1.2 Problem Statement 5

1.3 Purpose of the study 5

1.4 Research Objectives 6

1.5 Research Questions 6

1.6.0 Scope of the study 6

1.6.1 Subject Scope 6

1.6.2 Geographical Scope 6

1.6.3 Time Scope 6

1.7 Significance of the study 6

CHAPTER TWO 8

LITERATURE REVIEW 8

2.0 Introduction 8

2.1 Theoretical review 8

2.2 Conceptual framework 10

2.3Nature of internal auditing in commercial banks 10

2.3.1 Role of Internal Audit Standards 10

2.3.2 Effect of professional audit Competency 12

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2.3.3 Effect of internal controls audits .13

2.4 Challenges to the internal audit function in financial performance of commercial banks .. 14

2.5 Relationship between internal auditing and financial performance of organizations 17

2.6 Research Gaps 19

CHAPTER THREE 20

METHODOLOGY 20

3.0 Introduction 20

3.1 Research Design 20

3.2 Population of the study 20

3.3 Sample size 20

3.3.2 Sampling Procedure 21

3.4 Research Instrument 22

Questionnaires 22

3.5 Validity and Reliability of the instrument 22

3.5.1 Validity 22

3.5.2 Reliability of the instrument 22

3.6 Sources of data 23

3.6.1 Primary Data 23

3.7 Data Collection Procedure 23

3.8 Data Processing and Analysis 24

3.8.1 Data Processing 24

3.8.2 Data presentation and analysis 24

3.9 Ethical Considerations 24

CHAPTER FOUR 25

PRESENTATION, INTERPRETATION AND ANALYSIS OF FINDINGS 25

4.0 Introduction 25

4.1 Demographic Characteristics 25

4.1,1 Gender ofrespondents 25

4.1.2 Academic Qualifications 26

4.1.3 Age ofrespondents 26

4,14 Findings Period of work 27

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4.2 Nature of the internal auditing function financial performance of Centenary bank 28

4.3 Effect of internal auditing on financial performance of organizations 30

4.4 Challenges faced in the internal audit function in financial performance of Centenary bank.

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CHAPTER FIVE 35

DISCUSSION OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 35

5.0 Introduction 35

5.1 Discussion of findings 35

5.2 Conclusion 38

5.3 Recommendations 38

5.4 Areas for further studies 39

REFERENCES 40

APPENDICES 43

Appendix i: Research Questionnaire 43

Appendix ii: Study Budget 47

Appendix iii: Time Frame 48