Effect of Internal Controls on Financial Performance

The purpose of this paper is to identify how different factors effect on the growth of small businesses. The growth of small businesses has been influenced by factors such as growth strategy, business forms, short and medium term goals, financing assistance, organizational structure and staffing needs, customers and promotion, and ethics and social responsibility. In this paper will to discuss how the different factors alter the advancement of small businesses.

Small businesses or SMEs can be defined as those types of businesses where the total number of employees is less than five hundred and such businesses have much fewer resources than large companies (Russell & Young, 2013). These businesses are a source of growth for the U.S. economy as they bring innovation and new opportunities for jobs in the market. These businesses represent approximately 99 percent of the US employer firms and contribute greatly towards the creation of new private sector jobs. Thus if these companies agree to adopt sustainable strategies, this will not only benefit them but also the entire American economy (Russell & Young, 2013). This makes the

“Internal controls are policies and procedures put in place to ensure the continued reliability of accounting systems” (Ingram 2017). WorldCom’s attempts at maintaining internal controls are less than favorable. Segregation of duties enables the division responsibilities to ensure that no employee completes two similar tasks. The CEO’s monitoring of WorldCom’s financial processes shows that the company has a lax segregation of duties, which makes it easier to commit fraud. Access controls protect financial data from unauthorized access, however, WorldCom’s extent is password-protected computers. No access inventories are taken to monitor employee usage, so there is no trail of when employees are doing during work.

To prosper, small enterprises need comfortable business environment and regulations, adequate basic infrastructure services, access to short and long-term financing at reasonable rates, equity and venture capital, advisory support, and knowledge about market opportunities (Lukács, 2005). They typically suffer from weak entrepreneurial skills as well as deficiencies in accounting, production management, and business planning. As small enterprises develop, they increasingly need connectivity to export markets and the world economy (Lukács, 2005).

In their study, they provide Iran and Malaysia as examples. In Iran, business that has 10 to 49 employees is categorized as SMEs. In Malaysia, the number of employees needed to be categorized as SME is between 5 to 19 employees. It can be seen SME’s definition cannot be defined in general, because each country having its own parameter in defining SME.

Firstly, SME can be defined as the companies that employ less than 500 employees in public companies or private businesses . This means that who is using less than 500 employees of the company are measured SMEs. These small and medium business operates in a small production company like small bakeries, small shops, large shopping malls, with branch offices, a limited number of small shops around the corner, away, small hotels, small restaurants, etc., there are many definitions of SMEs, they come from a different country to country, one economy to another.

Small and medium sized scale enterprise ( SMEs ) occupies the crucial position among the worldwide economic activities, particularly in developing country, whose flourish has already became a sign of the rapid development of economy. However, more than half SMEs face the severe challenges of surviving. Among all the possible threats during business activities, inadequate access to capital is the most important factor to determine the enterprise’s destiny (CCH, Australia, 2013). Even worse, SMEs are under the tremendous stress of the financial and economic crises which lead to the depressed consumer market, contractive loan of financial institutions. Given the important place of SMEs in world economy and the worsening global

The effect of globalisation has affected the way SMEs perform and provide services in the recent years. One of the reason being is that SME’s contribute massively to the economy (Asiedu et al, 2006). According to UNCTAD (2004), SME’s contribute to over 65 percent of total employment in high-income countries (Asiedu et al, 2006). In order to stay competitive, there has been a substantial change for SMEs to adopt new and unique methods to redefine their business strategy, which includes implementation of ICT strategies and tools that would help them engage with their customers, expand and most importantly, to compete with larger firms (Naylor, 2013). However, the hardest challenge is not implementing the strategy, but often learning the strategy because although the objectives are often the same, the traditional ways and tactics have been totally redefined. This includes allowing the SMEs to gain more profit, decrease expenditures and also improve their return of investment as a result (Naylor, 2013).

Small and medium-sized enterprises (SMEs) are a key source of innovation and make a significant contribution to the economy of New Zealand in terms of employment, output and growth. There is no universally definition of an SME in New Zealand. However, from a government perspective, they are considered to be firms having the following traits: personal ownership and management, having few specialist managerial employees, and they are not part of a larger business organization. These traits are typically demonstrated by SMEs in New Zealand, so New Zealand politicians and business organizations are usually define SMEs as enterprises with 19 or fewer employees. According to report 2011, SMEs account for 31% of total employment, and contribute 40% total outputs (Ministry of Economic Development, 2011).

The intersection between globalization and local entrepreneurship, defined by specialists as “international entrepreneurship”, has started to receive more and more attention over the last two decades (Mathews and Zander, 2007, p. 395). Small and medium-sized enterprises (SMEs) play a significant role in the global economy and have a big impact on incomes, outputs, and the employment sector.

In India, Micro, Small and Medium Enterprises (MSMEs), contribution to GDP exceeds 17% and over 40% to industrial production. MSMEs’ share of total exports is 40% and a large share of additional exports indirectly, through third parties, trading houses, etc. Traditionally, export sectors in which MSMEs operate in India have been Textiles and Garments, Leather products, Gems and jewelry and Handicrafts. MSMEs’ also have a large share of market in industrial goods segments like Electricals, Electronics, machine parts, plastics, etc.

The Growth and development of Micro, Small and Medium Enterprises needs to be supported by a unified fiscal support and enabling policies. Similarly, improving and enhancing the policy framework and motivating financial institutions to innovate, can increase the penetration of formal financial services to this sector. The three main pillars are:

Small businesses are generally regarded as the driving force of economic growth, job creation, and poverty reduction in developing countries. They have been the means through which accelerated economic growth and rapid industrialization have been achieved (Harris and Gibson, 2006; Sauser, 2005; Arinaitwe, 2002; Kiggundu, 2002; Monk,

The small and medium scale enterprises (SMEs) in developing countries such as Ghana have been playing very strategic role in the developmental agenda of the nations in the areas of rapid industrialization and other developmental goals as well as job creation among the youth. The interest in the role of SMEs in the development process continues to be in the forefront of policy debates in most countries. Citing Abor and Quartey (2010), Nyameet al (2013) revealed that SMEs represent 92% of Ghanaian businesses and contribute about 70% to Ghana’s GDP and over 80% to employment for the year 2010. Obviously, SMEs form a greater part of the informal sector, and hence contributes significantly to Gross Domestic Product (GDP) whenever assessing the overall productivity of an economy (Stokes & Wilson, 2006).

If efforts are put towards promoting SMEs, particularly, the likes that are concerned with the informal sector, achievement of development that is sustainable is inevitable. Most developing as well as developed countries depend on the small and micro enterprises in the provision of employment. Even though a number of small and medium-sized enterprises are not part of the formal sector that is