The Impact of Human Elements on Internal Control Environment

Tay, Joo Ye (2022) The Impact of Human Elements on Internal Control Environment. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

Internal control system has become increasingly imperative for all organisation over the century. From the collapse of many multinational and local companies to the occurrence of various crises, especially the COVID-19 pandemic, internal control system has taken on greater importance. Given that an internal control system is not an event nor a scenario, but rather a collection of activities conducted to monitor the organisational performance and is executed by individuals, the constraints on internal control are inextricably linked to human nature. In spite of this, human elements as a critical factor contributing to the effectiveness of internal control system have been ignored by majority of the organisations. With that, a quantitative research study is conducted through the collection of primary data via online survey questionnaire from 311 employees working in Malaysian Companies to answer the research questions and achieve the research objectives. The research findings exhibited that all hypotheses are supported and statistically important. This indicates that transformational leadership would stimulate the learning orientation and psychological empowerment among employees, which subsequently result in the development of employee competence, and further contribute to the establishment of a supportive internal control environment. Hence, this study provides insights into how human elements are deeply linked to the effectiveness of internal control system through the element of internal control environment. Practically, since employee learning orientation and psychological empowerment are found to be the critical determinant for employee competence, this study highlights the importance of learning orientation and psychological empowerment in the workplace. In addition, employee competence has a significant positive impact on internal control environment. This study, therefore, highlights the importance of employee competence and propose it as a beneficial suggestion for the management and companies to improve the effectiveness of internal control system.