The influence of internal control system to the financial performance of SMEs in Panabo City

Abstract

The study aimed to determine the influence of the Internal Control System on the Financial Performance among Small and Medium Enterprises in the areas of Panabo City by evaluating the level of the internal control system in terms of control activities, risk assessment, and information and communication; and the level of financial performance particularly in accountability and profitability of small and medium enterprises. A Quantitative and Descriptive research design is used, with a correlation technique through adapted survey questionnaires where a total of 200 people responded in the study. Results were tested at 0.05, whereas Control Activities has the highest level (4.35 mean and standard deviation of 0.67), Accountability is very much observed (4.45 mean and standard deviation of 0.57). Using Pearson-r, significant value (P-0.001) confirms that the financial performance of small and medium enterprises was significantly associated with the level of the internal control system. Moreover, through multiple regression analysis, 59.00% variance with a corresponding F-ratio 94.082 and P-0.001 revealed that internal control system has a significant influence on financial performance. Thus, establishing an effective control activity with the information and communication and proper risk assessment policies will ensure their internal controls are effective and well enhance their financial performance.