The status of internal controls in fast moving consumer goods SMMEs in the Cape Peninsula

Abstract

At present, South African Small Medium and Micro Enterprises (SMMEs) play an important role in the stimulation of the national economy. Despite the above, prior research shows that the failure rate of these entities is exceedingly high. Several factors which impact on SMME sustainability have been identified by prior research and as a result SMME sustainability has received attention from both local- and national Government. One of the factors, which is perceived as a major contributor towards the high failure rate of SMMEs, is the lack of proper internal controls. The responsibility to implement internal controls and internal control frameworks, including the task to ensure that these controls are optimally used, lies with management. In essence, it can be said that a business that is uncontrollable, is ultimately, unmanageable. The analogy was made by the author that “SMMEs are perceived as not sustainable owing to the utilisation of inadequate internal controls”. With the absence of adequate internal controls, an environment would be created where a business is susceptible to all kinds of detrimental risks (for example, fraud risk). When these risks are realised within a small business environment the overall sustainability of such a business will, more often than not, be negatively impacted upon. The main objective of this study was to determine the degree to which the implementation of an adequate system of internal controls can help to improve SMMEs’ sustainability. The research that was conducted was empirical in nature and fell within the ambit of the positivistic research paradigm. The logical stance that was undertaken in this study was that of deductive reasoning and, furthermore, this research was regarded as applied research which incorporated quantitative research characteristics. To achieve the above dispensation, questionnaires were administered and distributed to 110 owners and/or managers of SMMEs which operated within the fast moving consumer goods industry, situated in the Cape Peninsula. The non-probability sampling technique that was executed comprised of purposive sampling, and data that were collected from this research was analysed by deploying descriptive and inferential statistics. Lastly, the research conducted found that SMMEs have implemented internal controls as part of their business measures; however, the issue remains that a majority of these SMMEs are not aware of formal internal control frameworks to further enhance their existing internal control processes. To remedy the above concern, the author was of the perception that respondents should be trained on formal internal control frameworks in order to address the concern of limited awareness of existing internal control frameworks.