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.
Highlights
South African small, medium and micro enterprises (SMMEs) were only formally recognised by the national government in 1996 through the publication of the National Small Business Act No 102 of 1996 (South Africa 1996), these business entities have added significant socio-economic value1 to the national economy from as early as the 1980s (Rogerson 1997; Visagie 1997)
The results of the logistic regression analysis, all statistically significant relationships had a positive relationship and referred to the perceived adequacy of the internal control activities, namely, the safeguarding of people and equipment (PE) ( β = 0.740); the location of the business (LOCATION) ( β = 0.550); when management in South African SMMEs were solely responsible for authorising transactions (MANAUT) ( β = 1.045) and when internal control activities that had sound characteristics (OICA) were used ( β = 2.224)
A negative effect is reported when employees in South African SMMEs authorised transactions based on policies in the business (EMAUT) ( β = ‒1.466) and when employees were supervised in the business (STAFSUP) ( β = ‒1.393)
Summary
South African small, medium and micro enterprises (SMMEs) were only formally recognised by the national government in 1996 through the publication of the National Small Business Act No 102 of 1996 (South Africa 1996), these business entities have added significant socio-economic value to the national economy from as early as the 1980s (Rogerson 1997; Visagie 1997). Internal control systems are collections of various inter-related elements that should collectively provide reasonable assurance to management surrounding the attainment of relevant business objectives (Agbejule & Jokipii 2009; Lee 2013; Spira & Page 2003). One of these elements is internal control activities, which are those activities, as implemented by management, that should assist management with the mitigation of risks by either preventing risks from occurring and/or detecting loss events after risks have materialised (Committee of Sponsoring Organizations of the Treadway Commission [COSO] 2013; McNally 2013). 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
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