THE EFFECT OF INTERNAL CONTROL SYSTEM ON THE PROFITABILITY OF SMALL MEDIUM ENTERPRISES IN RWANDA. A CASE OF CETRAF LTD (2016-2019)

Abstract

The aim of this study was to evaluate the effects of internal control systems on profitability of SME’s in Rwanda. A descriptive research design was adopted in this study while the population of this study was 445 employees of CETRAF Ltd. A sample of 82 employees of CETRAF Ltd was selected. Purposive sampling technique was used both primary data and secondary data were used; where primary data were collected using questionnaire and interview while the secondary data were collected using documentation.After the data collected were organized, edited and coded, quantitative data were entered into SPSS 20 and MS-Excel. The significance of the findings was tested using the p-value, to determine whether the null hypothesis should be accepted or rejected. If the p-value >0.05 then alternative hypothesis is accepted while null hypothesis is rejected.The results examined and established a significant relationship between internal control system and profitability of CETRAF Ltd through the dimensions of internal control systems (the control environment, control activities, risk assessment, information and communication, and monitoring activities) and that of the profitability (ROE) selected for this particular study. Details showed that control environment is linked to ROE (r = 1.000, p ≤0.05), control activities is also linked to ROE (r = 0.762, p ≤ 0.05), risk assessment is linked to ROE (r = 0.836, p ≤ 0.01), information and communication is also linked to ROE (r = 0.762, p ≤ 0.05), and monitoring activities is linked to ROE (r = 0.836, p ≤ 0.01). It implied that there a strong positive relationship between internal control system and profitability of CETRAF Ltd. The study concluded that there was a positive relationship between the control environment, control activities, risk assessment, information and communication, and monitoring activities and the profitability of CETRAF Ltd. The study recommended that SME’s should ensure that they have effective control environment, control activities, proper risk assessment policies, efficient information and communication methods and proper monitoring activities strategies to ensure that their internal controls systems are effective and to enhance their profitability.