The Effect Of Internal Control On The Operating Activities Of Small Restaurants

Journal of Business & Economics Research – June 2012

Volume 10, Number 6

The Effect Of Internal Control On The
Operating Activities Of Small Restaurants
Linval Frazer, College at Old Westbury, State University of New York, USA

ABSTRACT
Researchers have found that more than 67% of restaurants fail within the first 3 years of their operation. These findings underscore the restaurant industry’s current crisis of profitability and survivability. The industry’s average profit is generally small, ranging from 3% to 7%. Despite these problems, researchers have not examined the effect of internal control on the operating activities of small restaurants. Internal control is defined in this study as all the policies and procedures management uses to ensure the reliability of financial reporting, compliance with laws and regulations, and the effectiveness and efficiency of operations. The purpose of this study was to determine restaurant managers’ perceptions of the internal control systems and (a) the protection of assets, (b) the segregation of duties, and (c) the verification of transactions. Two hundred and seventy restaurants were selected through random sampling, and multiple regression and exploratory data analysis, including descriptive statistics, were used to analyze the data. The multiple regression analyses indicated statistically significant relationships linking perceptions of internal control systems in restaurants with each of the 3 predictors; protection of assets, segregation of duties and verification of transactions. The results indicated that majority of the study group perceived restaurants’ internal control system to be inadequate compared to the
Committee of Sponsoring Organization Treadway Commission (COSO) internal control integrated framework. The results of this research have potential for social change as they may increase government compliance, and improve financial reporting and best business practices of

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