The Impact of Digital Transformation in Banking on the Components of the Internal Control System in Commercial Banks Operating in Tarhuna

Abstract

Digital transformation has emerged as a fundamental pillar in the modern banking sector, significantly reshaping accounting processes and organizational structures. This study investigates the impact of digital transformation on the components of the internal control system within commercial banks operating in Tarhuna, Libya. The research framework is built upon the five core components of the COSO internal control model: control environment, risk assessment, control activities, information and communication, and monitoring. To achieve the study objectives, a descriptive-analytical methodology was employed, utilizing a questionnaire distributed to a representative sample of bank employees. Out of the distributed surveys, 46 valid responses (85%) were analyzed using the Statistical Package for the Social Sciences (SPSS). The statistical analysis, including Pearson correlation and regression analysis, revealed a significant positive impact of digital transformation on all internal control components. Specifically, the results indicate that adopting advanced digital technologies—such as artificial intelligence and big data analytics—enhances the integrity of the control environment, improves the precision of risk identification, and automates control activities to mitigate human error. The study concluded that approximately 44.6% of the variation in the effectiveness of internal control systems is attributable to digital transformation initiatives. Based on these findings, the study recommends that the Central Bank of Libya continuously update regulatory frameworks to align with digital requirements. Furthermore, it emphasizes the necessity for commercial banks to invest in advanced cybersecurity systems and provide specialized training for staff to manage risks in a digital environment effectively.