Abstract

Research on the effects of internal control systems on organizational performance have been concentrated on large firms with little attention given to Small and Medium Scale Enterprises. To this end, the study examines the effect of internal control systems on the organizational performance of SMEs in Ondo State, Nigeria. The study employs survey primary data which are collected from 323 SMEs that were selected using stratified and random sampling techniques. The data collected were analyzed using descriptive statistics and multiple regression analysis. The results show a significant positive relationship between internal control and all proxies of organizational performance which are business growth, survival and operational efficiency. Furthermore, internal control systems and organizational performance when all the three proxies are aggregated have positive relationship. The findings of this study suggest that internal control systems are necessary, and they should be established in SMEs’ business operations for enhanced productivity, business growth and organizational performance. The study recommends the use of internal control systems by SMEs for their growth, sustainability, operational efficiency and curtailment of wastes. Also, agencies of government that provides financial support and financial advisory services to the SMEs should educate the SMEs operators on the importance of internal control systems in their business operations.

Key words: Internal control systems, business growth, small and medium enterprises, operational efficiency, control environment.