Abstract

The study was aimed on the assessment of internal control systems in small and medium size enterprise in Buea municipality. The specific objectives of the study where as follows: to assess the existence of control environment components which affects internal control system, to evaluate the various risk assessment measures taken to ensure internal control effectiveness in SMEs, and to identify the various control activities implemented to ensure effectiveness of the internal control system.

The study used survey method of data collection through questionnaires to employees of the institution and semi-structured interview with the institution management. The sampling technique used is the non-probabilistic sampling technique.

The population for the study was made of fifty-six (56) small and medium enterprises in Buea of which fifteen (15) of them was selected as a sample using a purposive sampling technique.

The data gathered from the respondent was analyzed and interpreted by the help of descriptive statistics making use of frequency table, minimum & maximum value, mean and standard deviation. The result indicated that internal control in the institutions is satisfactory.

Though risk assessment elements with the lowest mean value of 3.45 is still better in the institution. There is adequate control environment and control activity. Hence, it needs commitment from both the institution management and responsible authorities to improve those specific areas of deficiencies in the internal control elements indicated in the final chapter of the study.

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Due to the dynamic and volatile nature of the current global business environment, organizations get in to stiffer and complex working conditions where the importance of internal control is unquestionable. To this point, internal controls are put in place to keep organizations on course towards profitability goals and achievement of its mission and to minimize surprise along the way.

They also enable management to deal with rapidly changing economic and competitive environment, shifting customer demands, priorities and restructuring for future growth. According to the Committee of Sponsoring Organizations COSO (1992), internal controls promote efficiency, reduce risks of asset loss and help to ensure the reliability of financial statements and compliance with laws and regulations.

COSO (1992) also states that due to internal control importance there has been increasing call for better internal control systems; internal control is looked upon more and more as a solution to a variety of potential problems.

According to Chambers (1995), Cosserat (1999), Ridley and Chambers (1998) internal controls are systems comprising of the control environment and control procedures. They further state that the internal control systems include all the policies and procedures adopted by the directors and management of an entity to assist in achieving their objective of efficiently conducting their businesses including adherence to internal policies, the safeguarding of assets, the prevention and detection of fraud and error, the accuracy and completion of the accounting records and timely preparation of reliable financial information. Successful organizations ensure that they attain and consolidate continuous survival in a competitive environment Ducker (1999).

Thus, successful organizations set performance measures that identifies and communicates the success, support organization learning and provide a basis for assessment and reward (Brown, 1996).

Organizational performance is measured in terms of customer satisfaction, through reduced customer complaints. In order to be able to perform organizations should critically look at customers and all stakeholders in business and know how best they are satisfying their needs. Kloot adds that organizations should continuously improve their services through assets accumulation, create value, improved quality services and flexibility.

Internal control system is intervened with organizations operating activities and it is most effective when controls are built into the organizations infrastructure becoming part of the very essence of the organizations success in terms of continued improvement on performance standards as part of the competitive advantage of the organization (Kloot, 1999).

1.2 Statement of problem

SMEs play a very vital role in the economy of every nation particularly for developing nations and economically emerging nations (Chakraborty, 2015). Majority of SME are really struggling to survive. Those that are able to survive are still performing so poorly despite their crucial contributions to the entire economy (Neneh & Zyl, 2012).

As such, an effective internal control in SMEs has the potential of enabling them to succeed and reducing employee fraud (European Federation of Accountants, 2014). However, many small businesses comprise of only the owners of the business with possibly one or two executives and some few employees who focus more on business performance and not accounting and undervalue the importance of strong internal controls (Long, 2009).

However, despite the fact that internal control is a vital factor affecting a firm regardless of its size, there is little evidence on the effect of internal control practices in SMEs since most of studies on internal controls globally and in Cameroon focus more on large firms than SMEs.

Thus, a literature gap, which this study intends to determine by Assessing the effectiveness of internal control systems in small and medium size enterprises in Buea. Therefore, focusing on this business area is a timely issue and a rewarding one since it contributes a lot for the majority of business enterprise involved in SMEs.

1.3 Research Questions

1.3.1 Main Research Question

How does the internal control system of SMEs comply with the principles of effective internal control?

1.3.2 Specific Research Questions

1. To what extent do control environment elements exist in the enterprise’s internal control systems?
2. Do risk assessment elements exist in the institution’s internal control system?
3. What are the control procedures and policies put in place for effective internal control in SMEs in Buea?

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