Do independent checks positively influence the perceived financial sustainability of South African SMMEs?

Abstract

Since the late 1980s, many business entities around the globe have fortified their overall sustainability by making use of internal control systems. These systems are predominantly based on the COSO Integrated Internal Control Framework, and have the main responsibility to provide reasonable assurance to management that relevant business objectives will be attained in the foreseeable future. In a South African dispensation, previous studies show that Small, Medium and Micro Enterprises (SMMEs) – comprising 90% of all operational business entities in the country – make use of customised internal control systems which do not add substantial value in the mitigation of risks. Taking into account that 70% of South African SMMEs fail after being in operation for only four years, it becomes apparent why these business entities are believed to have one of the worst (financial) sustainability rates in the world. One manner in which business sustainability can be reasonably fortified is by enhancing internal control – by deploying a sound internal control system. A sound system of internal control comprises five elements, one of which is internal control activities. For this study empirical research was conducted to determine whether independent checks, as a component of internal control activities, evident in South African SMMEs had a positive influence on these business entities’ perceived financial sustainability. Stemming from the results it was found that there was an association between the two phenomena, but they were not statistically significant.