Internal control has shown to be crucial to the business's operations of 

SMEs (Kamau, 2016). An

organization's internal control system is created to offer a realistic assurance tool to achieve SME goals.
According to COSO (2012), SMEs must also be reliable in their reporting and compliant with legal
requirements. Internal control has a significant impact on SMEs' performance. Internal control has
therefore been a reliable and useful technique that has assisted in enhancing company governance,
achieving goals, and reducing risks (Kamau, 2016).

Internal control produced competitive advantages, as demonstrated by IFAC (2012). Benefits of

having an effective internal control system for a business would be better equipped to handle
commercial risks. Monitoring activities, information and communication systems, and control activities
are all components of internal control in general (COSO, 2012), although the performance of small and
medium-sized enterprises (SMEs) was primarily impacted by these components (Kamau, 2016). Internal
control elements undoubtedly have an influence on both financial and operational performance. The
study supported the idea that internal controls have a major impact on performance at tertiary
institutions (Akinleye & Kolawole, 2019). The effectiveness of the organization was positively impacted
by a number of internal control factors (Abiodun,2020). The authors incorporated more information to
their study model while still confirming the link between internal control and performance in
businesses.

Due to their size and organizational structure, smaller businesses are more likely to have
internal control problems. Hardesty (2008) points up two problems. Managers of smaller organizations
tend to be more hands-on than managers of bigger organizations. Due to SMEs' lower levels of
management, they are also more likely to have access to higher levels of control. This is a problem since
there would be fewer tiers of management, which would allow one manager to have access to all
systems and essentially overrule any internal control procedures that were previously in place. Ju (2014)
concurs with this and continues by pointing out that managers of SMEs may not have had the necessary
training to keep their post. This is frequently the case since SME are family enterprises and it is practical
to have a close relative working for the organization. Although it is done for convenience, it doesn't
seem like much attention has been given to potential long-term commercial repercussions.

The risks that organizations face expand along with them. According to studies, a growing
organization will have increasing control issues. To be aware of possible risks and understand how to
lower the possibility that any risks would harm the firm, management must continually improve their
skills. A lack of training is frequently to blame for this, and it is well known that owners of smaller
businesses are not always ready to pay for their employees' additional education (Soobaroyen &
Sannassee, 2007). There are certain SMEs that do have a board of directors. majority of people don't.
Even if they do establish a board, it is typical for its members to lack professional qualifications.

Reference

Abiodun, E. A. (2020). Internal control procedures and firm’s performance. International Journal of
Scientific and Technology Research, 9(2), 6407-6415.

Akinleye, G. T., & Kolawole, A. D. (2020). Internal controls and performance of selected tertiary
institutions in Ekiti state: A committee of sponsoring organizations (COSO) framework approach.
International Journal of Financial Research, 11(1), 405-416.
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2012). Internal control-
integrated framework

International Federation of Accountants (IFAC). (2012). Evaluating and improving internal control in
organizations. Retrieved from https:// www.ifac.org/about-ifac/professional-accountants-business/pu
blications/evaluating-and-improving-internal-control-organizations-0

Kamau, J. (2016). Effect of internal control practices on financial performance of small and medium
enterprises in Nairobi County (Master’s thesis, University of Nairobi).