Home   >   CSC-OpenAccess Library   >    Manuscript Information
An Exploratory Study of Internal Control and Fraud Prevention Measures in SMEs
Jaya Kumar Shanmugam, Mohd Hassan Che Haat, Azwadi Ali
Pages - 90 - 99     |    Revised - 15-03-2012     |    Published - 16-04-2012
Volume - 3   Issue - 2    |    Publication Date - April 2012  Table of Contents
Internal Control, Fraud, Small and Medium Enterprises
Small business and entrepreneurship has emerged as an important area of research over the past 40 years. This paper revolves around the issues of the internal controls, fraud and it prevention measures on SMEs performance. The level of fraud incidence as reported by owners is still at a very low level and the overall cost incurred is still within expectation. However, there is a question of whether the low reported rate of fraud is due to adequate preventive actions currently employed by owners, or whether the owners are reluctant to reveal the truth in order to portray their efficiency and effectiveness in running their businesses. This conceptual paper attempts to analyze relevant literature on internal control, fraud, current trends on fraud and business crime prevention measure. Based on the literature, a future research could be suggested in the context of Malaysia. It is hoped that future research on this aspect will uncover the relationship between the effectiveness of internal control and fraud on SMEs and to gauge the adequacy of fraud prevention measure taken by SMEs owners in Malaysia. It is expected that effective internal control and the presence of appropriate fraud preventive measures will help to improve SMEs performance. KEYWORDS: Internal Control; Fraud; Small and Medium Enterprises
CITED BY (47)  
1 Malle, G. G., Mwonge, L. A., & Naho, A. (2022). Effectiveness of fraud prevention and detection methods in the public sector in Tanzania. Journal of Accounting and Taxation, 14(1), 30-36.
2 Chepkirui, S. P., & Oluoch, J. (2021). Effect of Internal Controls on the Financial Performance of County Referral Hospitals in Kenya. Global Journal of Management And Business Research.
3 Zainal, S. F., Hashim, H. A., Ariff, A. M., & Salleh, Z. (2021). Research on fraud: an overview from small medium enterprises (SMEs). Journal of Financial Crime.
4 Saud, I. M., Diyar, L., & Hakim, A. T. (2021, January). The Influence of Internal Control, Financial Pressure, and Compensation Compatibility on the Tendency of Accounting Fraud. In 4th International Conference on Sustainable Innovation 2020-Accounting and Management (ICoSIAMS 2020) (pp. 98-112). Atlantis Press.
5 Vlachopoulos, Th. (2021). Internal audit-case study of a small and medium enterprise.
6 ARDIANSAH, M. N., CHARIRI, A., & RAHARJA, S. (2021). CONTROL OF ACCOUNTING INFORMATION SYSTEMS IN E-COMMERCE: Structuring the Actions of SMEs in Maintaining Business Existence (Doctoral dissertation, UNDIP: Faculty of Economics and Business).
7 Kasoga, Z. S. (2020). Effects of internal control system on performance of revenue collection in local government authorities of Tanzania (Doctoral dissertation, The University of Dodoma).
8 Karim, A. A. (2020). Internal control (IC) system in SMEs: Challenges and implications for SMEs in the manufacturing sector in Malaysia.
9 Putra, R. R., & Susanto, S. (2020). Pengaruh Employee Morality Dan Leadership Style Terhadap Accounting Fraud Tendencies Yang Dimoderasi Oleh Internal Control System. JURNAL AKUNTANSI MANAJERIAL, 5(1), 28-42.
10 Yuniarti, R. D., & Nasim, A. (2020). Phenomological Study of Fraud Prevention Based on Islamic Principles in Small Business. Journal of Accounting and Financial Research, 8 (1), 71-88.
11 Onyeonoru, I. P., Omolawal, S. A., & Okunola, R. A. (2019). Types of Corruption in Small and Micro Enterprises (SMEs) in Ibadan, Nigeria. The Nigerian Journal of Sociology and Anthropology, 17(2), 128-141.
13 Manjah, N., Othman, R., & Yusoff, H. (2019). Internal Control System in Cooperative Society. In Organizational Auditing and Assurance in the Digital Age (pp. 276-301). IGI Global.
14 Fahriani, M. S., & Tobing, A. N. (2019, July). The Implementation of Fraud Risk Assessment in Anticipating Fraud in the Goods Purchasing Cycle Case Study on Small and Medium Enterprise: PT X. In Asia Pacific Business and Economics Conference (APBEC 2018). Atlantis Press.
15 Salum, M. A. (2019). The Effects of Crime Prevention on Small and Medium Business Enterprises: A Case of Ilala Municipality Dar-Es-Salaam (Doctoral dissertation).
16 Akimana, K. J. (2019). Effect of Internal Controls on Financial Performance of Small and Medium Enterprises in Nairobi County (Doctoral dissertation, United States International University-Africa).
17 Saadah, K. (2019). THE EFFECTIVENESS OF THE IMPLEMENTATION OF INTERNAL CONTROL IN MICRO, SMALL AND MEDIUM ENTERPRISES (UMKM) IN BANDUNG CITY. Expansion: Journal of Economics, Finance, Banking and Accounting, 11 (2), 141-156.
18 Sow, A. N. G., Basiruddin, R., Rasid, S. Z. A., & Husin, M. M. (2018). Understanding fraud in Malaysian SMEs. Journal of Financial Crime.
19 Edori, D. S., & Ogaluzor, O. I. (2018). The Role of Internal Control System in Mitigating Embezzlement and Payroll Fraud in Small and Medium Enterprises (Smes) in Obio/Akpor Local Government Area of Rivers State. J Account Mark, 7(298), 2.
21 Gunasegaran, M., Basiruddin, R., Rasid, S. Z. A., & Rizal, A. M. (2018). The case studies of fraud prevention mechanisms in the Malaysian medium enterprises. Journal of Financial Crime.
22 Agbenyo, W., Jiang, Y., & Cobblah, P. K. (2018). Assessment of government internal control systems on financial reporting quality in Ghana: A case study of ghana revenue authority. International Journal of Economics and Finance, 10(11), 40-50.
23 Otieno, J. O. (2018). Insurance stakeholders’ perceptions on effectiveness and usage of fraud detection and prevention techniques in motor insurance sector (Doctoral dissertation, Strathmore University).
24 Mbuva, P. M. (2018). Internal Control System, Innovation, Tax Compliance And Performance Of Small And Medium Enterprise Projects In Machakos County, Kenya (Doctoral dissertation, University of Nairobi).
25 Sow, A. N. G., Basiruddin, R., Mohammad, J., & Rasid, S. Z. A. (2018). Fraud prevention in Malaysian small and medium enterprises (SMEs). Journal of Financial Crime.
26 Kennedy, J. P. (2017). Functional redundancy as a response to employee theft within small businesses. Security Journal, 30(1), 162-183.
27 Mutua, E. M. (2017). The Relationship Between Internal Controls And Revenue Collection For Commercial State Corporations In Kenya. Unpublished Master of Science in Finance Thesis: University of Nairobi.
28 Williams, A. R. (2017). Examining the Potential Benefits of Micro Entrepreneurs Use of Information Security Measures against the Effect of Disasters (Doctoral dissertation, Northcentral University).
29 Nuhu, M. S., Salisu, S., Kofarnaisa, F. U., & Abidin, T. (2017). Internal Monitoring Mechanisms and Financial Fraud Prevention: Perceptions of Listed Deposit Money Banks in Nigeria.
30 Shkurti, R., Manoku, A., & Manoku, E. (2017). Internal Control System and Activities-a Study with Albanian Companies. Economic Alternatives, (4), 601-611.
32 Ng, S. W., Tazilah, M. D. A. B. K., Sin, S. Y., Chan, H. Y., Saw, W. Y., & Tham, S. J. Eastern European Business and Economics Journal.
34 Ibrahim, M. (2017). Determinants of Accounting Structure in Small and Medium Enterprises: Empirical Evidence from Bauchi State. International Journal of Operational Research in Management, Social Sciences & Education, 3(2).
35 Pinar, K. A. Y. A., & Saban, U. Z. A. Y. Risks that Endanger the Continuity of Enterprises and Control Suggestions: An Application in SMEs. Accounting and Finance Magazine, (July 2017 (Special Issue)), 46-64.
36 Kennedy, J. P., & Benson, M. L. (2016). Emotional reactions to employee theft and the managerial dilemmas small business owners face. Criminal Justice Review, 41(3), 257-277.
38 Usang, O. U. E. (2016). The impact of internal audit quality, effective internal controls, and institutional context factors on local government performance in Nigeria (Doctoral dissertation, Universiti Utara Malaysia).
39 Kamau, J. (2016). Effects of Internal Control Practices on Financial Performance of Small and Medium Enterprises in Nairobi County (Doctoral dissertation, University of Nairobi).
40 Katushabe, P. (2016). Internal Controls and Organisational Performance of United Nations Organisation Stabilization Mission in the Democratic Republic of Congo, Entebbe base (Doctoral dissertation, Uganda Management Institute).
41 Enofe, A. O. (2016). Internal Control Mechanism and Fraud Prevention in the Nigerian Public Sector: An Application of the New Fraud Diamond Theory. Journal of Accounting and Financial Management, 2(1), 35-47.
42 Kanu, A. M. (2015). The effect of corruption on small and medium enterprises: Perspective from a developing country. International journal of small business and entrepreneurship research, 3(3), 12-27.
43 Els, F., Cilliers, L., & Cilliers, L. (2015). Improving the information security in SMEs to protect customer’s personal identifiable information. on Business and Finance, 4.
44 Kennedy, J. P. (2014). A view from the top: Managers’ perspectives on the problem of employee theft in small businesses (Doctoral dissertation, University of Cincinnati).
45 Ndungu, H. (2013). The effect of internal controls on revenue generation: A case study of the University of Nairobi Enterprise and Services Limited (Doctoral dissertation, University of Nairobi).
46 Soleman, R. (2013). The Influence of Internal Control and Good Corporate Governance on Fraud Prevention. Indonesian Journal of Accounting and Auditing, 17 (1), 57-74.
47 Gulal, O. S. (2013). Internal control system and its application in a hotel business: Application in Dedeman Kapadokya Hotel (Masters thesis, Adnan Menderes University, Institute of Social Sciences).
1 Google Scholar 
2 CiteSeerX 
3 refSeek 
4 Scribd 
5 SlideShare 
6 PdfSR 
Adams. G. W. A Theoretical Comparison of the Models of Prevention of Research Misconduct, Accountability in Research, Policies and Quality Assurance, pp 51 – 66, 2006
Albanese, J. S. and Parsley, R. D. Crime in America, Englewood Cliffs N. J., Prentice Hall,1993
Albrecht. How to Detect and Prevent Fraud, Prentice Hall, 1982
Ashbaugh-Skaife, H., Collins, D., Kinney, W. and R. Lafond. The Effect of SOX Internal Control Deficiencies and their Remediation and Accrual Quality. The Accounting Review,pp 217-50, 2008.
Bologna, G.J. Corporate Fraud, The Basics of Prevention and Detection, Stoneham,Butterworth Publishers, 1984
Bronson, S.J, Carcello and K. Raghunandan. Firm Characteristics and Voluntary Management Reports on Internal Control. Auditing: A Journal of Practice and Theory 25,25-39, 2006
Corbitt, T. Detecting Computer Fraud, African Business, 1998
Coutorie, L. E. The Future of High Technology Crime: A Parallel Delphi Study, Journal of Criminal Justice, pp 13-27, 1995
Doyle, J., Ge, W., & McVay, S. (2007b). Accruals Quality and Internal Control Over Financial Reporting. The Accounting Review, pp 357-386, 2007
Farrell. G. Employee Theft Grows for Retailers, USA Today, 2000
Goff, J. Labor Pains, CFO, The Magazine for Senior Financial Executives, 36-44, 1998
Hayes, A.A. Jr. Fraud Happens: A Primer on Lying, Cheating and Stealing. Government Finance Review 11(6), pp 7-11, 1995
Henkel, H.V. For The Purpose Of Impairing, Obstructing or Defeating the Lawful Function of Any, 462-479, 1991
Hunt, S. On or Off Book Fraud, Management Accounting, (1997)
Johnnson. P. Preventing Fraud, Accountancy Ireland, Dublin, 1999
Jubb. C. Assurance & Auditing Concepts for a Changing Environment, Thomson SouthWestern,2008
Justice Files, Program for May 26, 2001.
Kumar, R. & Sharma, V. Auditing Principles and Practice, Prentice-Hall of India Private Limited, 2005
Leung, P., Coram, P., & Copper, B. J. Modern Auditing & Assurance Services, Wiley John Wiley & Sons, Inc, 2007
Megginson, W.L. “Small Business Management”, McGraw-Hill, 1997
Messier, W.F & Boh. M. Auditing and Assurance in Malaysia, McGraw-Hill, 2002
Mohd. Khairuddin Hashim & Mat Saad Abdullah. Working Paper in International Conference on Small and Medium Enterprises at New Crossroad: Challenges and Prospects, Malaysia, 1999
Mohd. Khairuddin Hashim. Working Paper in Rural Small and Medium Scale Industries in the Global Era: Critical Success Factors for SMEs in Malaysia: A Strategic Perpective,Malaysia, 1999
Peterson, B. K., and P.E. Zikmund. Ten Truths You Need to Know About Fraud. Strategic Finance, pp 29-34, 2004
rollman, W.K. and Colby, R.W. Internal Control for Small Businesses. The Journal of Accountancy, pp 64-67, 1978
Saleh, A. S. & Ndubisi, N. O. Small & Medium Enterprises (SMEs): Malaysian & Global Perspectives, Pearson Prentice Hall, 2006
Saleh, A. S. and Ndubisi, N. O. An Evaluation of SME Development in Malaysia.International Review of Business Research Papers, pp. 1-44, 2006.
Slade, P. & Gadenne, D. Factors Associated With Small Business Burglary, International Small Business Journal, pp 66-89, 2000
Smith, E.S. Franchising As a Small Business Growth Strategy: A Resource Based View of Organizational Development. International Small Business Journal, pp 237-256, 1997
Synder N.H., Broome O.W. and Zimmerman K. Using Internal Controls to Reduce Employee Theft in Small Businesses, Journal of Small Business Management, pp. 48-55,1989
Taylor, R.R, and O’Prien K. Preventing Employee Theft: A Behavioral Approach, Business Perspective, 1998
Welton, R.E. and Davis. J.R. Understanding Ethics Development and Employee Behavior,Internal Auditing, 1993
Zimmerman. A. How Shoplifters Use High-Tech Scams, Retail Losses Rise, The Wall Street Journal, pp 556-598, 2006
Mr. Jaya Kumar Shanmugam
Universiti Malaysia Terengganu - Malaysia
Mr. Mohd Hassan Che Haat
- Malaysia
Mr. Azwadi Ali
- Malaysia

View all special issues >>