Internal Control and Organizational Performance: Evidence From A Local Government Agency In Indonesia

Abstract

This study examines the effect of internal control on organizational performance at the Medan City Trade Office. A quantitative causal design was applied. The population comprised 74 civil servants, all of whom participated through a census sampling technique. Data were collected using a five-point Likert-scale questionnaire and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS. Internal control was assessed through compliance with standard operating procedures and regulations, risk identification and response, segregation of duties and authorization, information and communication, and monitoring and evaluation. The hypothesis test yielded a path coefficient of 0.282, a t-statistic of 2.232, and a p-value of 0.026. The relationship between internal control and organizational performance was therefore positive and statistically significant at the 5% level. The findings underline the importance of embedding internal control in routine public-sector processes. Practical implications include consistent implementation of procedures, risk-based supervision, clear responsibilities, and periodic performance evaluation. The findings should be interpreted within the limits of the single-agency setting and the tested relationship.