The Effectiveness of Internal Controls in Preventing Fraud and Financial Misconduct

Abstract

Objective: The objective of this study is to examine the role of internal control in mitigating fraud and professional misconduct among small and medium-sized businesses (SMEs) within the Enugu metropolis.
 
 Method: To achieve this objective, a mixed-methods approach was employed. Qualitative interviews were conducted with SME owners and managers, and quantitative data were collected for analysis. A sample of SMEs was selected from the Enugu metropolis, and their internal control mechanisms, maintenance practices, and effectiveness in reducing fraud and professional misconduct were assessed.
 
 Result: The study's findings reveal several key insights. Firstly, SMEs in the Enugu metropolis actively create and implement internal control measures tailored to their operational needs. Secondly, SMEs that consistently maintain and update their internal controls experience a significant decrease in instances of fraud and professional misconduct. Finally, there is a clear correlation between well-implemented internal controls and reduced levels of fraud and professional misconduct within SMEs.
 
 Conclusion: In conclusion, the study highlights the crucial role of internal control in addressing the challenge of fraud and professional misconduct, especially within SMEs. SME owners and managers should assess their existing internal control mechanisms to ensure they are well-suited to their business operations. Regular review and adaptation of internal controls are necessary to sustain their effectiveness in preventing and detecting fraudulent activities. Proper maintenance of financial records and regular statement preparation contribute significantly to the success of internal control systems.