Major internal controls in selected Maltese distribution companies : an analysis

Abstract

Purpose: The main objective of this study is to identify and analyse major internal controls applicable to distribution companies. In addition to this, this study analyses the Management’s perspective towards such internal control systems, evaluates barriers that may be encountered by management when formulating their company’s internal controls, and assesses measures which may be adopted by distributors in order to improve the effectiveness of internal controls. Design: The research methodology consisted of a qualitative evaluation composed of semistructured interviews conducted with a number of high-ranking personnel of distribution companies, including directors and senior managers. These interviews assisted the researcher to gain an in-depth understanding regarding major controls applicable to Maltese distribution companies, and to collect sufficient data to achieve data saturation. Findings: The findings of this study suggest that management of distribution companies perceive internal controls as useful to improve the efficiency of various major processes. Controls such as the use of purchase orders, having a reliable information system, installing a PDA System mainly through tablet PC, the conduct of regular stock-takes, and credit control, are to be considered as basic control requisites for distribution companies. In addition, one may conclude that resistance to change is the major barrier to an effective implementation of controls. The findings also indicate that prioritizing training and company-wide communication is useful to refine the effectiveness of internal controls within distribution companies. Conclusion: A basis for an effective implementation of an adequate internal control framework is presented in this research study. The importance of implementing adequate ICs should not be underestimated, as these will protect the interests of the company and its stakeholders. Value: The findings of this study point at the importance of having an information system, which is considered as a basic internal control requisite applicable to distribution companies. Furthermore, management needs to remain accountable for the implementation and monitoring of internal controls, while consistently communicating to all employees the purpose of such internal controls in order to ensure that employees value and adopt the controls assigned to them. This research study should be valuable to local distributors, given the lack of literature that deals with the distribution industry in Malta.