Internal controls systems and the risk performance characterizing small and medium manufacturing firms in the Cape Metropole

Abstract

In recent years, manufacturers are refocusing and intensifying their keenness on the nature of risks within their operational environments. They are also concerned about their risk exposures. Numerous stakeholders, including government, credit rating agencies, stock exchanges, occupational agencies and institutional investors are increasing their call for significant focus on effective risk oversight and optimised risk performance. For the manufacturing firms, the primary focus is production which exposes them to complex risks. This study investigates how small and medium manufacturers are optimising their internal control systems in order to mitigate risk. The study seeks to understanding how internal controls are utilised by manufacturing SMEs to mitigate and prevent risks, and how internal controls are implemented by manufacturing SMEs. The study is conducted on selected manufacturing SMEs in the Western Cape, South Africa. The study follows a qualitative research paradigm, adopting case-based interpretive approach employed to support the data collection, data analysis and data presentation methods. Manufacturing SMEs that are in process of implementing effective internal controls within their businesses would have a better understanding of the importance and value of preventing or mitigate risk. An analysis of interviews with managers and owners from manufacturing SMEs indicates that businesses that often create contingency risk plans, and implement internal control systems are less exposed to risk. Their risk-buffer strategies towards perceived risks helps them achieve higher risk performance.