Abstract

The risk in the financial sector is growing continuously because of the increased competition in the global market. Avoiding risk is not a solution to financial institutions as this process can minimize the chance of being profitable and successful. In addition, many corporate scandals have occurred in the past such as at Enron, WorldCom, Tyco, Adelphi communication etc. One of the major reasons behind these scandals was flawed management of internal control systems. This master thesis is concerned to the internal control practices undertaken by financial institutions in order to minimize the operational risk. The overall aim of the thesis is to analyze the internal control practices through the single case of Standard Chartered Bank Nepal Ltd. Moreover, this study has also analyzed how often internal control practices are adapted and re-configured in financial institutions.

Furthermore, to find the internal control practices of SCBNL we have conducted interview with nine employees. From this study we find that operational failure of financial institutions is due to the ignorance of established internal control guidelines in practice. Moreover, this study also finds some key factors which might cause internal control failure in financial institutions i.e. blaming culture, incomplete performance evaluation system and ineffective internal auditing process. Therefore, this research study propose motivating culture for financial institutions in order to make employee properly follow established control standards and minimize probable operational risk.

Key Words: Internal Auditing, Performance Evaluation, Internal Control system, Operational Risk Management.