CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Internal controls are designed to provide reasonable assurance regarding the achievement of an organization’s objectives in terms of effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. It is generally believed that small and medium scale enterprises are the pillars on which the economy of a country rests, especially a developing economy like Nigeria. The impact of small and medium scale enterprises (SMEs) cannot be over emphasized as their contribution to gross domestic product (GDP) is significant. (Matlay and Westhead, 2005).Where internal control systems come to play, every company must create a unique system because some of these controls may be either cumbersome or inefficient (committee of sponsoring organisations of the tread way commission, 2000). However there are some general factors that affect internal control design systems in SMEs. The stumbling blocks in designing effective internal control systems should therefore be brought to limelight.
The possibilities of developing an internally designed control system also should be explored. Internal control means different things to different people. It is pertinent that an effective and efficient system of internal control is consciously designed to mitigate risks in firms. Internal control means that enterprises, in order to improve their self-quality of business information, promote operation efficiency, fully obtaining and using the each kind of resources, under the related laws and regulations, so as to reach the fixed management goal, take the various kinds of restrictions and regulative organization, planning, methods and procedure in the enterprise (CCSE, 2008). SMEs form a major part of the economy and internal control serves as a major tool to prevent such firms from falling apart, hence the need for it. In order to carry out internal control effectively, there has to be conscious effort put in place to ensure that there is a gearing towards the achievement of corporate objectives in all the separate but inter-twined and overlapping parts of the firm (Committee of sponsoring organizations of the tread way commission, 2013). The Sarbanes-Oxley Act of 2002 increased the amount of internal control systems that a company needs to use. This is because internal control helps in relieving ethical dilemmas, increasing accountability, deterring fraud and improving the quality of financial information used by creditors and investors: however, an internal control system is only as good as its design. This study is therefore geared towards proper identification of the problems and prospects of internal control systems design for small businesses in Kwara state.
1.2 Statement of the problem
SMEs in Kwara state have not performed creditably well and hence have not played the expected vital and vibrant role in the economic growth and development in Kwara State (Onugu, 2005). Considering any ideal model, SMEs should have little or no barriers in designing an effective and efficient internal control system alongside very high prospects and much ease in instituting internal control systems for the smooth running of the business. This is not always so in reality due to some (avoidable and unavoidable) reasons, some of which are: suitability of objectives.Disciplined management and staff of SMEs is the cornerstone the success of SMEs. Where a good internal control system design exists, they themselves stand up to their roles and responsibilities and advocate for others to abide by already established controls. They themselves therefore serve as social controls, adding up to the administrative controls already existing. However, in reality there are indiscipline members of SMEs hence, the reverse is the case. As a result of lack of controls bringing up a new internal control system or trying to resurrect already established ones meet with so much difficulty. Therefore, the study seeks to investigate whether there is strong internal control systems design for small businesses in Kwara State.
1.3 Research Questions
This study is directed towards answering the following questions: i. What is the effect of efficient information and communication system on the profitability of small entities? ii. What are the effects of internal control systems on risk management in Small entities? iii. What are the problems encountered in designing internal control systems for small entities?
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