The relationship between ERP systems success and internal control procedures: a Saudi Arabian study

A thesis submitted to the University of Bedfordshire, in partial fulfilment of the requirements for the degree of Doctor of PhilosophyIn recent years, Internal Control has become the focus of attention every time there is a notable scandal in the corporate world. An effective internal control system can prevent an organisation from fraud and errors, and provide an organisation with assurance and competitive advantages. It is argued that in order to have a robust internal control system, an integrated system, such as an Enterprise Resource Planning (ERP) system is needed. ERP systems have the ability to control user access and facilitate the separation of duties, which is one of the most common internal control mechanisms used in order to deter fraud within financial systems. Moreover, there are other factors that can provide support for effective internal control systems. This thesis aims to explain how ERP success, organisational and ERP factors affect the effectiveness of internal control procedures. In particular, this thesis develops and validates a research model with empirical evidence collected in the context of the Saudi Arabia business environment. In order to achieve the research aim, this research identifies four key propositions derived from the existing literature to establish the relationships between organisational factors, ERP factors, ERP success and effectiveness of internal control procedures. An exploratory study is used to initially test the four propositions. The findings indicate that different companies follow different requirements that mainly depend on ownership. Additionally, the study indicates that the eight components of the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) Enterprise Risk Management framework are considered by the companies investigated, however there are variations regarding their level of consideration. The findings suggest that further study is needed to explain the impact of ERP success on internal control and to measure the effect of the organisational and ERP factors. Based on the four propositions, four hypotheses are developed and tested in a quantitative study. A questionnaire is constructed and sent to 217 Saudi ERP-implemented companies. 110 valid responses are received. Partial Least Squares Structural Equation Modelling (PLS-SEM) is adopted for data analysis and hypothesis testing. The results suggest that the maturity of the ERP systems, formalisation and centralisation can impact on the success of ERP systems. Prospectors’ strategy, organisational culture and management support are positively related to the effectiveness of internal control procedures. The study results show a positive significant relationship between the success of ERP systems and effectiveness of internal control procedures. This research contributes to the knowledge at different levels. At the theoretical level, it develops and validates a theoretical framework that links the ERP system success to the effectiveness of internal control procedures. At the methodological level, unlike many of previous studies, this study adopts multiple data collection methods, and a powerful statistical technique, PLS-SEM to generate more robust outcomes. Finally, at the practice level, the study is conducted in Saudi Arabia, which is different from the developed countries in many aspects, such as internal control regulations and taxation system. Thus, the findings can be beneficial to Saudi organisations as well as other Middle-East countries