INTERNAL CONTROL AND OPERATIONAL RISK OF QUOTED BANKS IN THE NIGERIAN STOCK EXCHANGE

Banks are more likely to fail from operational risk than from credit risk, and internal control at banks create operational risk losses. This study investigates the effect of internal control on operational risk of quoted banks in Nigeria. 16 quoted banks were studied based on the 2012 banking reform on corporate governance by the then CBN governor Sanusi Lamido Sanusi’s “Project Alpha Initiative” (PAI). The analysis carried out included pooled OLS regression, fixed and random effect and Hausman tests utilizing E-View 9 software. The findings shows that internal control activities have a negative correlation and internal control risk assessment has positive significant effect on operational risk. We recommend that internal check staff at banks should be sustained as there was an inverse relationship between internal check and operational risk at banks. Penalties should be spelt out for banking staff who are non-compliant with bank policies and guidelines especially in the area of breech in software codes. Banks should ensure that internal control unit personnel are qualified and adequately trained especially IT staff