The paper deals with the issue of internal control in banking institutions. Referring to relevant literature, including professional standards and guidelines for internal control, she indicates the need to eliminate the confusion around the terminology. Internal control mechanisms should be distinguished from interal audit as a function within a company.

The author discusses the factors determining effective internal control in banks, the role and operation of internal audit department which monitors internal control processes within a company and measures the performance in this area. The role of strong internal control in supporting a bank's pursuit of its general goals is emphasised.

In the second part, the author presents possible actions by the banking supervision bodies. Specific supervising techniques and procedures, both on-site and "remote", are outlined. The main sources of weak internal control, as perceived by the Basle Committee for Banking Supervision, are finally discussed.

The final part of the paper deals with internal control as an instrument of supporting effective implementation of strategic goals in banks. The author identifies new challenges relating to analysis and evaluation of internal control, and indicates a need of a changed approach - towards identifying risk.

Banking supervision is not part of a bank's internal control, as any actions are necessarily conducted ex post. Therefore banking supervision attaches weight to solid internal system of control. This involves five mutually dependent elements. During on-site inspections, banking supervision bodies analyse and assess the bank's activities relating to the system.