An Evaluation Of The Internal Control System Of Cash In Management And Growth Of Small Businesses In Kenya: A Case Of Nairobi Small Businesses
This study was conducted to evaluate the internal controls system of cash in the management and growth of the small businesses in Nairobi. Th specific objectives of study were: To examine whether small businesses have effective and efficient internal control system for cash and to examine whether there is relationship between the age of an enterprise and the effectiveness of its system of the internal control of cash. The study used stratified random sampling method to select the sample size. The businesses were selected depending on their location such as Nairobi North, Nairobi South and the Central Business District. The study found that only 12.5% of the businesses have responsibilities for collection and deposit preparation functions adequately segregated from
those for recording cash receipts and general ledger entries. The remaining 87.5% did not segregate the duties (table 4.1). This was the same case for responsibilities for cash receipts functions adequately segregated from those for cash disbursements as well as for responsibilities for disbursement preparation and disbursement approval functions adequately segregated from those for recording or entering cash disbursements information on the general ledger. The study found that the age of a business has a positive influence on internal control on cash. About 77% of the variation in internal controls on cash is as a
result of age of the business. Thus, the older the business, the stronger it’s internal control on cash and vice versa. This analysis is shown in Table 1. The lower p-values show that the relationship is significant.
Effective and Efficient internal control system.
Ashton, R. 1974, ‘An experimental study of
internal control judgments’, Journal of
Accounting Research, Vol. 12, no.1, pp. 1143-
Aldridge, A & Colbert, L. 1994, ‘Management’s
report on internal control, and the accountant’s
response’, Managerial Auditing Journal, Vol. 9.
no.7, pp. 27-38
Alvin, A., Randal A & Mark, B. 2003, Auditing
and assurance services: An integrated
approach, Prentice Hall Publishers, New Jersey,
American Institute of Certified Public
Accountants 1987, Professional Standards, New
York. vol. 1, pp. 30-35.
American Institute of Certified Public
Accountants 1988, ‘Consideration of the internal
control structure in a financial statement audit’,
Statement of Auditing Standards 55, New York.
American Institute of Certified Public
Accountants 1993, ‘Use of COSO criteria over
SAS 55 preferred for SSAE 2 Engagements’, The
CPA Letter, New York. Vol. 73, no. 7
Association of Certified Fraud Examiners. 2004,
Report to the nation: Occupational fraud and
abuse, viewed 2 March 2008, http://www.yourcall.
Andersen, S. 2004. ‘Despite more rigorous
compliance programs, corporate fraud still
strives.’ Corporate Legal Times, pp. 1-6.
Beasley, M., Carcello, J., Hermanson, D &
Lapides, P. 2000, ‘fraudulent financial reporting:
Consideration of industry traits and corporate
governance mechanisms’, Accounting Horizons,
Vol. 14, no. 4, pp. 441-454
Bronson, N., Carcello, V & Raghunandan, K.
, ‘Firm characteristics and voluntary
management reports on internal control’,
Auditing: A Journal of Practice and Theory, Vol.
, no.2, pp.25-39.
Buijink, W., Maijoor, S & Meuwissen, R. 1996,
‘The role, position, and liability of the statutory
auditor within the European union’, Journal of
Contemporary Accounting Research, Vol. 15,
no.3, pp. 385-404
Caremark, E. & Melvin E. 2001. ‘The Board of
Directors and Internal Controls’, Corporate Law,
Prentice Hall Publishers, New Jersey
Committee of Sponsoring Organizations of the
Treadway Commission 1992, Internal Control
Integrated Framw2 ework, viewed 12
December 2007, available at:
Defond, M & Jiambavlo, J. 1991, ‘Incidence and
circumstances of accounting errors’, The
Accounting Review, Vol. 66, no. 3, pp. 643-655.
Donald, C. 2006, ‘Internal controls after Sarbanes-
Oxley: Revisiting corporate Law’s Duty of care
as responsibility for systems’, A Journal of
Practice and Theory, Vol. 2, pp. 3-6.
Doyle, J., Ge, W & McVay, S. 2005,
‘Determinants of material weaknesses in internal
control over financial reporting and the
implications for earning quality’, Accounting
Horizons, Vol 4. no. 2 pp. 27-38.Eisenhardt, K. 1985, ‘Control: organization and
economic approaches’, Journal of Management
Science, Vol. 32, no.2, pp. 134-149.
Frankel, R., Johnson, M & Nelson, K. 2002, ‘The
relation between auditor’s fees for nonaudit
services and earnings management’, The
Accounting Review, Vol. 77, no. 2, pp. 71-105
Ge, W & McVay, S. 2005, ‘The disclosure of
material weaknesses in internal control after
Sarbanes –Oxley Act’, Accounting Horizons, Vol.
, no. 3, pp.137-158
Geiger, M & Taylor, P. 2003, ‘CEO and CFO
certification of financial information’, Accounting
Horizons, Vol. 17, no. 4, pp. 357-341.
Haskins, M. 1987, ‘Client control environment: an
examination of auditors’ Perception’, The
Accounting Review, Vol. 62, no.3, pp. 542-563.
Kenneth, R. 2005, ‘Caroline’s candy shop: An inclass
role –play of the revenue cycle’, Journal of
Information Systems, Vol. 19, no.1, pp. 131-154.
Kinney, W., and McDaniel, L. 1989,
‘Characteristics of firms correcting previously
reported quarterly earnings’, Journal of
accounting and Economics, Vol. 11, no. 1, pp. 71-
Krishnan, J. 2005, ‘Audit committee quality and
internal control: An empirical analysis’,
The Accounting Review, Vol. 80, no. 2, pp. 649-
Loebbeck, K., Eining, M & Willingham, J. 1989,
‘Auditors experience with material irregularities:
frequency, nature and detect-ability’, Auditing: A
Journal of Practice and Theory, vol. 9, pp. 1-28.
Marden, E., Holstrum, L & Schneider, L. 1997,
‘Control environment Condition and the
interaction between control risk account type, and
Management’s assertions’, Auditing: A Journal of
Practice and Theory,Vol.16, no.1, pp. 51-68.
Maijoor, S. 2000, ‘The internal control explosion’,
International Journal of Auditing, Vol. 4, pp. 101-
Merchant, K. 1998, Modern Management Control
Systems, Prentice Hall Publishers, New Jersey
McMullen, D., Raghunandan. K & Rama, D.
, ‘Internal control reports and Financial
reporting problems’, Accounting Horizons, Vol.
l0, no. 4, pp. 67-75.
Millichamp, H. 1986, An instructional manual for
accounting student, Guernsey press, Guernsey.
Mock, J & Turner, J. 1981, ‘internal accounting
control evaluation and auditor judgment’, Audit
Research Monograph, no.3, pp. 12-17.
Moyes, G & Baker, C. 2003, ‘Auditor’s belief
about the fraud detection effectiveness of standard
audit procedures’, Journal of Forensic
Accounting, vol. 5. no.2, pp. 199-216
Michael, J. 2004, ‘How to comply with Sarbanes
Oxley Section 404: Assessing the effectiveness of
internal controls’, Audit Research Monograph,
no.3, pp. 60-61.
National Commission on Fraudulent Financial
Reporting 1987, Report of the national
Commission on fraudulent financial reporting
(Treadway report), viewed 1 March2008,
mlOgola, J. 1994, Company Law. (2nd ed). English
Power, M. 1997, The audit society: Rituals of
verification, Oxford University Press.
Pathak, J. 2005, ‘Risk management, internal
controls and organizational vulnerabilities’,
Managerial Auditing Journal,Vol. 20, no.6, pp.
Power, M. 1998, The Audit Implosion: Regulating
Risk from the Inside, Oxford University Press.
PricewaterhouseCoopers 2003, Global Economic
Crime Survey, Viewed 10 October 2007,
Raquel, M., Rebecca, S & Kimberly, G. 2005,
‘Internal controls and the state and local tax
function.’ Journal of State Taxation, Vol. 1, no.2,
Securities and Exchange Commission 1976,
Report on questionable payments and
practice,viewed2 March 2008,
Silverstone, H & Sheetz, M. 2007, Forensic
accounting and fraud investigations for nonexpert,
(2nd ed), Wiley, New Jersey.
Steven, M. 2000, ‘The internal control explosion’,
International Journal of Auditing, emerald
publishing group, Vol. 4, pp. 101-109