The role of internal control systems in enhancing financial performance of small and medium enterprises in Mukono Municipality Central Division
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Date
2026-04-21
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Uganda Christian University
Abstract
Small and Medium Enterprises (SMEs) are a cornerstone of Uganda’s economy, contributing significantly to employment, GDP, and local development. However, many face high failure rates within the first three to five years, largely due to poor financial management, fraud risks, cashflow challenges, and weak internal control systems. This study examined the role of internal control systems in enhancing the financial performance of SMEs in Mukono Municipality Central Division. The study adopted a descriptive-correlational design with a quantitative-dominant mixed methods approach. Data were collected from 93 SME owners and managers along the Mukono Mall to Collins Hotel commercial corridor using structured questionnaires based on the COSO (2013) framework. Data were analysed using descriptive statistics (frequencies, means, standard deviations) and inferential statistics (Spearman’s rank correlation and simple linear regression) in STATA software. Findings revealed moderate adoption of internal control systems, with strong emphasis on physical asset security (Mean = 4.09) and owner emphasis on honesty (Mean = 3.97), but weak segregation of duties (Mean = 2.89) and risk assessment. A moderate positive relationship existed between internal control systems and financial performance (ρ = 0.564, p < 0.01), explaining 33.9% of variance in performance (R² = 0.339, β = 0.614, p < 0.001). Major challenges included high cost (83.9%), owner-managed structures (76.3%), and low knowledge of formal controls (68.8%). The study concludes that simplified, practical internal controls contribute meaningfully to SME financial performance in this localized urban setting, but implementation is constrained by resource poverty and informality. Recommendations include low-cost control adoption by owners, targeted training by policymakers and USSIA, and refined lending criteria by financial .
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undergraduate research