Redesigning Internal Controls for Small Enterprises: A COSO-Based Framework for Fraud Prevention and Regulatory Compliance

• Author(s): Elisha Oloruntobi Adeboye ; Ekere Victor Ifeanyi ; Gbemisola Labisi
• Paper ID: 1709189
• Page: 334-344
• Published Date: 31-03-2021
• Published In: Iconic Research And Engineering Journals
• Publisher: IRE Journals
• e-ISSN: 2456-8880
• Volume/Issue: Volume 4 Issue 9 March-2021

Abstract

Small and Medium Enterprises (SMEs) form an integral component of economic development globally but are disproportionately vulnerable to fraud, financial mismanagement, and regulatory non-compliance due to constrained financial resources, limited expertise, and informal governance structures. The research presents a remodeled COSO-based internal control system framework specifically tailored to the operational realities of SMEs. According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated Framework, the study integrates empirical data with theoretical principles to offer a scalable and flexible framework for enhancing governance, avoiding fraud risk, and fostering compliance. By comparative analysis of existing case studies and peer-reviewed research in Malaysia, Lebanon, Nigeria, and Egypt, the study uncovers the different uses and implications of COSO's five core elements: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. Malaysian SMEs evidence, for example, illustrates a statistically significant positive correlation between formalized risk assessment processes and reducing fraud cases. Lebanese firms echo imperatives of constant monitoring and internal audit processes in enhancing fraud detection effectiveness and performance evaluation. In the Nigerian context, firms that utilize COSO-based internal controls achieved measurable improvement in resource planning, strategic planning, and financial reporting. Egyptian SMEs, however, were positively impacted by state-enforced audit interventions, which created a better control environment and greater adherence to financial reporting requirements. The study adopts a qualitative multi-case design supported by secondary data analysis with the aim of identifying best practices and structural limitations in the execution of internal controls within SME environments. It also addresses the implementation challenges, such as digital illiteracy and budget constraints, while proposing the use of technology enablers like cloud-based accounting systems and AI-powered fraud detection systems in streamlining control activities. By combining empirical findings and governance theory, the article argues for the adaptation of the COSO framework to the size and setting of SMEs. The proposed model emphasizes simplicity, cost-effectiveness, and cultural appropriateness, enabling small firms to actively manage internal risks, guarantee regulatory compliance, and foster long-term organizational viability. The article concludes with actionable recommendations to policymakers, auditors, and SME managers to enable sustainable internal control environments in the global SME sector

Keywords

COSO-based internal control framework, Fraud prevention in SMEs, Regulatory compliance strategies for small enterprises, Risk assessment under COSO, Internal control systems in small enterprises

Citations

IRE Journals:
Elisha Oloruntobi Adeboye , Ekere Victor Ifeanyi , Gbemisola Labisi "Redesigning Internal Controls for Small Enterprises: A COSO-Based Framework for Fraud Prevention and Regulatory Compliance" Iconic Research And Engineering Journals Volume 4 Issue 9 2021 Page 334-344

IEEE:
Elisha Oloruntobi Adeboye , Ekere Victor Ifeanyi , Gbemisola Labisi "Redesigning Internal Controls for Small Enterprises: A COSO-Based Framework for Fraud Prevention and Regulatory Compliance" Iconic Research And Engineering Journals, 4(9)