Abstract:

Work retrenchment, business downsizing and other forms of stress might lead to an SME employee’s intention to commit fraud, hence could destroy the former’s growth. Fraud must be prevented even if the value is negligible. Setting the right tone from the top is essential, and senior management should actively encourage ethical behaviour in a transparent manner. With this point of view, internal control is compulsory for every company. The main objective of this study is to examine the effectiveness of internal control system towards fraud prevention in Malaysia SMEs of all sectors. A successful organization with no fraud allegations is thought to have a solid internal control system. This research result is based on designed questionnaires that were distributed to respondents employed by SME companies. The effectiveness of internal control depends and interrelated to five components of internal control system. The study statistically proved that risk assessment has strong positive correlation towards fraud prevention in Malaysian SMEs. Information, communication, and internal audits moderately effect fraud prevention in SME companies, whilst control environments and monitoring have no correlation to fraud prevention. It is recommended that there is still need to improve internal control system in Malaysian SMEs. This research may provide better understanding to organizations concerning the importance of internal controls. Better command of internal control can help SME organizations reduce the possibility of fraud, prevent poor management, safeguard a company's brand, and make organizations more transparent and reliable. This study also recommends the significance of internal controls system to prevent fraud in the time of post Covid19 pandemic.

Keywords:

Internal Control, Fraud, Fraud Prevention, Malaysia SMEs, Effectiveness.

How to Cite:

Halil Paino, Mohd Nazmul and Faraniza Jahari. Effectiveness of Internal Control System towards Fraud Prevention in Malaysia’s Small and Mid-size Enterprises. [ref]: vol.21.2023. available at: https://refpress.org/ref-vol21-a172/