Abstract:
This study examined the impact of internal control systems on employee performance in
small-sized businesses in Hargeisa, Somaliland. Although small-sized businesses play a
critical role in employment creation and economic development, many operate with weak
internal control systems that undermine operational efficiency and workforce performance.
The study focused on the five COSO components of internal control, namely control
environment, risk assessment, control activities, information and communication, and
monitoring. Employee performance was measured using task completion rate and employee
attendance.
A sequential exploratory mixed-methods research design was adopted. Primary data were
collected through semi-structured interviews and structured questionnaires administered to
owners, managers, and employees of selected small-sized businesses. A total of 298
questionnaires were distributed, of which 290 valid responses were used for the final
analysis. Qualitative data were analyzed thematically, while quantitative data were analyzed
using descriptive statistics, correlation analysis, and multiple linear regression with the aid
of STATA version 17.The results revealed that internal control systems had a positive and statistically significant
effect on employee performance. Specifically, control environment, control activities,
information and communication, and monitoring showed significant positive relationships
with task completion rate and employee attendance, while risk assessment exhibited a
positive but comparatively weaker effect. The overall regression model was statistically
significant, confirming the critical role of internal control systems in enhancing employee
discipline, efficiency, and reliability.
The study concludes that strengthening internal control systems is essential for improving
employee performance and ensuring sustainable operations in small-sized businesses. It
recommends that business owners and managers formalize internal control procedures,
strengthen supervision and monitoring, enhance internal communication, and invest in basic
internal control training. Support institutions and policymakers are also encouraged to
promote awareness and technical support for improved internal control practices within the
small business sector
