Section 1: Foundation of the Study
Small and medium enterprises (SMEs) constitute more than 90% of businesses in Nigeria (Shonubi & Taiwo, 2013) and account for more than 90% of total enterprise in Africa, the Caribbean, and Pacific countries (Bowale & Ilesanmi, 2014). The survival of SMEs is important because they account for a significant part of African economies (Ogundele, Akingbade, Saka, Elegunde, & Aliu, 2013). SME leaders are responsible for tackling corporate fraud and business failure by adopting strategies that improve the control of the internal activities of their businesses. Because internal control is critical to the viability of businesses, SME leaders should strengthen the internal control of their
firms (Kumar & Singh, 2013; Siwangaza, Smit, Bruwer, & Ukpere, 2014). Researchers have studied strategies corporate leaders use to improve internal controls of their companies.
Managers introduce controls to protect assets and ensure the proper preparation of enterprises‟ financial records. Corporate fraud and business failures lead to greater demand for better internal controls among companies (Fourie & Ackermann, 2013). The global financial crisis of 2007 and 2008 are indicators of the need to improve internal control for businesses (Kumar & Singh, 2013). Leaders of SMEs can avoid the high risk of fraud and business failure by developing strategies that improve internal control.
Background of the Problem
SMEs are the engine of economic growth and equitable development in developing economies (Agwu, 2014). In Nigeria, SMEs are the backbone of the economy and a key source of economic and dynamic growth and flexibility (Eniola & Entebang, 2015). More than 90% of all businesses in Nigeria employ fewer than 100 employees, which indicates that the majority of businesses in Nigeria qualify as small businesses (Agwu, 2014).
Some SMEs failed during the financial crisis of 2007 to 2008 because of a lack of effective internal control systems (Soininen, Puumalainen, Sjögrén, & Syrjä, 2012). The failure of SMEs was related to some managers‟ beliefs that establishing internal control
systems will increase costs without tangible results (Soininen et al., 2012). A significant number of SME leaders are unwilling to establish internal control systems because of shortage of human and financial resources (Luyolo, Yolande, Juan-Pierré, & Wilfred, 2014).