ABSTRACT

In recent times, the global economic landscape has been reshaped by factors such as globalization, technological progress, the complexity of business transactions, and heightened scrutiny due to reports of fraudulent financial activities. These developments have intensified the focus on the necessity of internal controls and the function of internal auditing. Concurrently, the capital markets are witnessing the introduction of novel financial instruments and new market participants, further complicating business transactions and operations.

Against this backdrop, this study aims to investigate the influence of internal control on the operational performance of commercial businesses. For this purpose, a survey was conducted using questionnaires directed to the headquarters of CONGELCAM SA in Douala, a Cameroonian company engaged in the import, export, and trade of frozen goods. A cluster sampling method was employed to facilitate the research objective. Out of the 60 questionnaires distributed, 50 were completed and returned, providing a substantial data set for analysis. The evaluation focused on five main elements of internal control: the control environment, risk assessment, control activities, the accounting information system, and the monitoring process. These elements were selected based on their prominence in relevant literature, including frameworks such as COSO.

The analysis of the data revealed a positive correlation between the different aspects of internal control and the operational performance of commercial enterprises. The findings led to the conclusion that internal controls are indispensable for the efficient, effective, and profitable management of commercial businesses.

CHAPTER ONE INTRODUCTION

1.1 Background to the Study

Internal controls are essential mechanisms implemented by an organization to ensure the achievement of its objectives, missions, and goals. These measures, which are a series of policies and procedures, help an organization in the proper processing of its transactions, thereby preventing waste, theft, and misuse of its resources. As defined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), internal control is a process, effected by an entity’s governance, management, and other personnel, aimed at offering a reasonable guarantee regarding the attainment of objectives in various facets: operational effectiveness and efficiency, reliable financial reporting, adherence to applicable laws and regulations, and protection of assets from unauthorized use. Internal controls, by design, offer reasonable, albeit not absolute, assurance that the organization’s goals will be met, recognizing that limitations are inherent in all internal control systems.

Effective internal control ensures the minimization or evident manifestation of mistakes and irregularities. It encompasses the control environment and the procedures, including all the policies and methods enacted by the directors and management to aid in achieving their goal of conducting business in an orderly and efficient manner. This goal also includes asset protection, fraud and error prevention, ensuring the accuracy and completeness of accounting records, and the timely generation of reliable financial information.

The evolution of the concept, definition, and application of internal controls in auditing and their impact on audit engagements have undergone significant changes from 1905 to 2004, often in response to substantial economic events or corporate actions. The early discussions on the necessity for internal control reviews during audits and the reporting for stakeholder protection, as well as the administration’s role in financial reporting, date back nearly a century before the well-known corporate scandals in the early 21st century.

Following the stock market crash in 1929, the U.S. Congress enacted the Securities Act of 1933 and the Securities Exchange Act of 1934, which led to the establishment of the Securities and Exchange Commission (SEC), focusing on the regulation of financial disclosures by publicly held companies.

In 1949, the AIA’s Committee on Auditing Procedure, now known as AICPA, defined internal control in its Special Report on Internal Control, emphasizing safeguarding assets and promoting operational efficiency. More recently, the Sarbanes-Oxley Act of 2002 was passed in the United States to restore investor confidence by enhancing corporate responsibility and improving financial disclosures.

In Cameroon, the Supreme State Audit (MINCSP) has been instrumental in fighting corruption and mismanagement in the public sector, holding entities and individuals accountable for financial irregularities, as evidenced by cases involving SODECOTON and various government officials.

1.2 Problem Statement and Justification of Study

The recurring economic and financial crises, alongside numerous business scandals, are often attributed to detached corporate cultures and the absence of robust internal controls. Weak internal controls can lead to the demise of companies, as seen with Enron and WorldCom. In Cameroon, similar issues in the public sector, such as fraud and embezzlement, have resulted in reduced performance and company failures.

This study poses research questions to explore the effectiveness of internal controls in improving the performance of commercial enterprises, safeguarding cash and inventory, reducing pilferage, and guiding management practices.

1.3 Objectives of the Study

The primary aim of this research is to assess the effect of internal controls on the performance of commercial enterprises, with a focus on CONGELCAM S.A. The specific objectives include determining the impact of robust internal control systems on performance, evaluating safeguards for cash and inventory, and investigating the influence of sound accounting practices on commercial success.

1.4 Hypothesis

The hypothesis posited for this study is that internal control does not have a significant effect on the performance of commercial enterprises.