Internal controls and the risk performance of small and medium manufacturers in the Cape Metropole

Abstract

In recent years, SMEs manufacturers seem to be refocusing and intensifying their keenness to know the nature of risks within their operational environments and their risk performance. Numerous external forces, including government regulators, credit-rating agencies, stock exchanges, occupational stakeholders, and institutional investors, are increasing their call for a significant focus on effective risk oversight and optimised risk performance. The manufacturing industry sector focuses on production, which makes them more exposed to risks of irregularities. This study investigates how small and medium manufacturers optimise their internal control systems and how the internal control systems are utilised to mitigate risks in the Cape Metropole. The study's objective is to explore how internal controls are utilised by manufacturing SMEs to (a) mitigate and (b) prevent risks by implementing standard practices from the onset. The research study was conducted on selected manufacturing SMEs in the Cape Metropole. The study follows a qualitative research paradigm, adopting an inductive approach to support the data collection, data analysis, and data presentation methods. The research study adds value to the body of knowledge. It gives a better understanding of the proper implementation and utilisation of internal control systems in small to medium manufacturers in the Cape Metropole. The managers were mainly the business owners and were largely responsible for implementing adequate internal control systems within their businesses. This would assist the managers to utilise the internal controls processes effectively to prevent and mitigate risks. To achieve the aim of the studies, interviews, observation and field notes were used to gather data from the relevant people in the businesses. The study showed that SMEs owners and managers were aware of the critical importance of the internal control systems; consequently, they effectively used the internal control systems. The owners and managers were aware of their challenges and limitations and were happy to learn better ways of efficiently implementing standard internal control systems.