The perceived adequacy and effectiveness of internal control activities in South African small, medium and micro enterprises

Abstract

Background: South African small, medium and micro enterprises (SMMEs) add significant socio-economic value to the national economy. Unfortunately, up to 80% of these business entities fail after being in existence for only 4 years. Previous research shows that a probable reason for the latter dispensation is that these business entities make use of ineffective and/or inadequate internal control systems which, inter alia, comprises inadequate internal control activities.

Objectives: This study seeks to ascertain whether internal control activities implemented in South African SMMEs have an effect on the perceived adequacy and effectiveness of their overall internal control systems.

Method: Though exploratory in nature, this study followed an empirical stance through the assistance of survey research. Data were collected from 119 SMME managers and 98 employees of South African SMMEs operating in the fast-moving consumer goods industry.

Results: Although only 18 of the 64 tested relationships are found to be statistically significant, none of the formulated hypotheses can be rejected as relevant statistically significant predictions can be made in relation to the perceived adequacy and effectiveness of internal control systems when applicable internal control activities of these business entities are taken into account.

Conclusion: This study provides a foundation for future studies to both scrutinise and enhance the internal control environment in South African SMMEs, ultimately improving the sustainability rate of South African SMMEs.