INTERNAL CONTROL IN SMALL AND MICROENTERPRISES IN THE VHEMBE DISTRICT, LIMPOPO PROVINCE, SOUTH AFRICA

Abstract

The absence of robust internal control mechanisms has been cited as one of the contributing factors to most business failures ‘internal control’ is a process effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. A major problem that companies face is that these objectives may not be met due to a miscellany of factors
The purpose of the study was to investigate the effectiveness of internal controls in SMEs in South Africa. Specifically, the study focuses on SMEs in the Vhembe District of the Limpopo Province. We use questionnaire to collect data pertaining to the five essential and interrelated components of internal control: control environment, risk assessment, information and communication, monitoring and control activities. The SPSS Statistical software was used to analyze the data. Chi-square statistical procedure was emloyed to establish the relationship between levels of internal controls among businesses by size of business and type of business in the Vhembe District.
The main findings of the study are : (i) that internal control practices among small business sector enterprises in the Vhembe District is low, with only 45 percent of firms surveyed having adequate internal controls systems in place; (ii) that the size of business in the sector studied determines the posssession of insurance cover (a major component of internal control).The policy implication of these findings is that there is need to encourage and support smll businesses to grow and expand in size in order to effectively employ internal control measures, the lack of which is firmly established as a major cause of busiess failures around the world.