INTERNAL CONTROLS AND PERFORMANCE IN NON-GOVERNMENTAL

ORGANIZATIONS: A CASE STUDY OF MANAGEMENT SCIENCES FOR HEALTH

SOUTH SUDAN

BY

ABRAHAM AYOM AYOM

002/0315/12352

A RESEARCH REPORT SUBMITTED TO THE FACULTY OF BUSINESS

MANAGEMENT IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF

BACHELOR’S DEGREE IN BUSINESS

ADMINISTRATION OF CAVENDISH

UNIVERSITY UGANDA

OCTOBER, 2013

i

DECLARATION

I Abraham Ayom Ayom hereby declare that this is my original work and has never been

presented by any academic award in any University.

Signed………………………………………………. Date…………………………

Abraham Ayom Ayom

002/0315/12352

ii

APPROVAL

This to certify that this Research Reportentitled “Internal Controls and Performance of

Non-Governmental Organizations” has been written under my supervision and is hereby

approved for submission for a Bachelor’s Degree of Business Administration of Cavendish

University Uganda.

Approved by…………………………………. Date…………………………

Bamuswankwire Charles

Supervisor

iii

DEDICATION

I dedicate this book to my children; Ayom Junior and Achai Abraham, my wife Susan and my

younger brothers& Sisters; Santino Adhieu Ayom, William Wol Ayom, Mary Aluel Mawien

Abuk Mayom and Peter Ayom Makoldit.

iv

ACKNOWLEDEMENT

I take this opportunity to thank all people who made a contribution in my academic life so far.

I would like to express heartfelt gratitude to my supervisor, Bamuswankwire Charles whose

tireless efforts have made this dream a reality. Charles you restored hope in me when I felt

hopeless, you invoked the hitherto hidden abilities in me; a reason I will always walk with my

head high. No amount of words can express my sincere gratitude for your unending support

during the research period. May the Lord reward your efforts.

I am greatly indebted to my colleagues and workmate; the lecturers in the faculty of Business

Administration and Management, and the entire staff of Cavendish University Uganda and to my

many student colleagues (BBA 2012) for your unending support in this journey.

I am grateful to the staff for Management Sciences for Health (MSH) Organization who

participated in the research. Special thanks go to the Country Project Director. Dr. Stephen

Macharia and Philips Kenyi that spared their precious time in answering my Questionnaire and

responding to the Interview guide. Without your contribution, this research would not have been

possible.

I take this opportunity to thank my entire extended family and all friends for their love, care and

encouragement to me. Special thanks and tributes go to my younger brother Adhieu Satino

Ayom, my friend James Ajoung whose time was greatly, compromised during my BBA studies.

Lastly, my warm regards and blessing go to all of those who have made a positive contribution in

my life, May the Almighty God bless you all.

v

TABLE OF CONTENTS

DECLARATION ........................................................................................................................... i

APPROVAL ................................................................................................................................. ii

DEDICATION ............................................................................................................................. iii

ACKNOWLEDEMENT .............................................................................................................. iv

TABLE OF CONTENTS .............................................................................................................. v

LIST OFACRONYMS AND ABBREVIATIONS ....................................................................... ix

LIST OF FIGURES ...................................................................................................................... x

LIST OF TABLES ....................................................................................................................... xi

CHAPTER ONE .....................................................................................................................1

INTRODUCTION ..................................................................................................................1

1.0 Introduction ....................................................................................................................... 1

1.1 Background to the Study .................................................................................................... 1

1.2 Problem Statement............................................................................................................. 5

1.3 General Objective of the study ........................................................................................... 5

1.3.1 Specific objectives of the Study ......................................................................................... 6

1.4 Research Questions ........................................................................................................... 6

1.5 Scope of the Study ............................................................................................................. 6

1.5.1 Subject scope ..................................................................................................................... 6

1.5.2 Geographical scope ........................................................................................................... 7

1.5.3 Time Scope ....................................................................................................................... 7

1.6 Significance of the Study ................................................................................................... 7

CHAPTER TWO ................................................................................................................. 10

LITERATURE REVIEW .................................................................................................... 10

2.0 Introduction ...................................................................................................................... 10

2.1 Effective Payment ........................................................................................................... 10

2.2 Financial records ............................................................................................................. 13

vi

2.3 Effective Procurement policies ....................................................................................... 17

2.4 Exercising budgetary control on the expenditure .............................................................. 20

2.5 Performance .................................................................................................................... 23

CHAPTER THREE ............................................................................................................. 26

RESEARCH METHODOLOGY ......................................................................................... 26

3.0 Introduction ..................................................................................................................... 26

3.1 Research Design ............................................................................................................... 26

3.2 Study population and sample size .................................................................................... 26

3.3 Sample size ...................................................................................................................... 26

3.4 Sampling methods ........................................................................................................... 27

3.4.1 Purposive sampling ......................................................................................................... 27

3.4.2 Random sampling ............................................................................................................ 28

3.4.3 Stratified random sampling .............................................................................................. 28

3.5 Data Sources .................................................................................................................... 28

3.6 Data collection instruments ............................................................................................... 29

3.6.1 The self-administered questionnaire .................................................................................. 29

3.6.2 Interviews ....................................................................................................................... 29

3.7 Data Processing ................................................................................................................ 29

3.8 Data Analysis ................................................................................................................... 30

3.9 Ethical Consideration ...................................................................................................... 30

3.10 Limitations and problems encountered ............................................................................. 30

CHAPTER FOUR ................................................................................................................ 32

PRESENTATION, DATA ANALYSIS AND INTERPRETATION OF FINDINGS .............. 32

4.0 Introduction ..................................................................................................................... 32

4.1 Demographic characteristics of respondents..................................................................... 32

4.1.1 Age of the respondents .................................................................................................... 32

4.1.2 Gender of the Respondents .............................................................................................. 33

vii

4.1.3 Level of Education of the respondents ............................................................................ 35

4.1.4 Time spent on the job by the respondents ......................................................................... 36

4.1.5 Position held by the respondents ...................................................................................... 37

4.2 Payments procedure ......................................................................................................... 39

4.2.1 Payments are properly documented.................................................................................. 39

4.2.2 Originals of Payment vouchers are certified in fully by the responsible officer ................ 40

4.2.3 Payments supported by the vouchers in a prescribed form ............................................... 41

4.2.4 All payment vouchers are filed in numerical order ........................................................... 42

4.2.5 Payment procedures undertaken by MSH affect its performance ...................................... 42

4.3. Financial records subject to Internal Audit. ...................................................................... 43

4.3.1 MSH has an internal audit function which perform review ............................................... 44

4.3.2 Proper review over receipts are performed ....................................................................... 44

4.3.3 MSH has enough internal audit staff to make reviews ...................................................... 45

4.3.4 Auditors at MSH can easily be compromised ................................................................... 46

4.3.5 Internal auditing has led to the reduction of fraud in MSH ............................................... 47

4.4 Procurement policies and procedure................................................................................. 48

4.4.1 Procurement policies and guidelines that can be followed ................................................ 48

4.4.2 Strict adhere to procurement guidelines when undertaking procurement at MSH ............. 49

4.4.3 The procurement process followed is in accordance with MSH and Donor policies ......... 50

4.4.4 Staff who authorized purchases or expenditures does not issue the payment .................... 51

4.4.5 There is a safeguard for protection against conflicts of interest among the procurement

officers ........................................................................................................................... 52

4.5 Assessment of how MSH has exercised budgetary control on the expenditures. ............... 53

4.5.1 MSH objectives are clearly set in the budget framework .................................................. 53

4.5.2 Payment were made in accordance with the current budget .............................................. 54

4.5.3 There is a budget desk at MSH ........................................................................................ 55

4.5.4 Previous year’s budget performance reports are used for future planning ......................... 56

4.5.5 Budget conference is held every year ............................................................................... 57

4.6 Performance .................................................................................................................... 58

viii

4.6.1 Proper financial accountability has led to better services delivery .................................... 58

4.6.2 Proper procurement controls have led to financial transparency ....................................... 59

4.6.3 Budgetary control on the expenditure has led to proper utilization of funds ..................... 60

4.6.4 Internal auditing has led to compliance with rules and regulations in MSH ...................... 61

CHAPTER FIVE ................................................................................................................. 63

SUMMARY AND DISCUSSION OF FINDINGS ................................................................ 63

5.0 Introduction ..................................................................................................................... 63

5.1 Summary of Findings ...................................................................................................... 63

5.1.2 Payment Procedures ........................................................................................................ 63

5.1.3 Financial Records ............................................................................................................ 63

5.1.4 Procurement Policies ....................................................................................................... 64

5.1.5 Budgetary control ............................................................................................................ 64

5.1.6 Performance .................................................................................................................... 64

CHAPTER SIX .................................................................................................................... 65

CONCLUSION AND RECOMMENDATIONS ................................................................... 65

6.0 Introduction ........................................................................................................................ 65

6.1 Conclusion ......................................................................................................................... 65

6.2 Policy Recommendations ................................................................................................... 65

6.3 Areas for Further Research ................................................................................................. 66

REFERENCES ........................................................................................................................... 67

APPENDICES ............................................................................................................................ 71

APPENDIX A: QUESTIONNAIRE .......................................................................................... 71

APPENDIX B: ESTIMATED BUDGET ................................................................................... 76

APPENDIX C: RESEARCH WORK PLAN ............................................................................. 77

APPEXDIX D: Interviews Guides …..........................................................................................78

ix

LIST OFACRONYMS AND ABBREVIATIONS

AIDS Acquired Immune Deficiency Syndrome

CUU Cavendish University Uganda

COMU Country Operation Management Unit

CPD Corruption Prevention Department

E-Payment Electronic Payment

GPA Government Procurement Act

HIV Human Immune Virus

ICS Internal Controls System

JCC Juba City Council

MOH Ministry of Health

MSH Management Sciences for Health

MTN Mobile Telephone Network

NPA Norwegian Peoples Aid

PO Purchase Order

SAQ Self-Administered Questionnaire

SPSS Statistic Package for Social Scientists

USA United States of America

x

LIST OF FIGURES

Figure 1: Conceptual Frame Work …………………………………………………………. 8

Figure 2: Pie chart showing the distribution age of the respondents ………………………. 33

Figure 3:Pie chart showing sample size by gender of the respondents……………………… 34

Figure 4:Bar graphs showing the level of education for the respondents …………………… 36

xi

LIST OF TABLES

Table 1: Sample size of the respondents…………………………………………………… 26

Table 2: Showing distribution of age of the respondents…………………………….……32

Table 3: Showing distribution gender of the respondents………………………………..... 34

Table 4: Showing level of education of the respondents.......................................................35

Table 5: Showing time spent on job by the respondents …………………………………...37

Table 6: Shows responses on the position held by the respondents ………………………. 38

Table 7: Shows responses whether payment procedures were documented………………. 39

Table 8: Showing the responses on whether payment vouchers certified ……………….. 40

Table 9: Showing the response on whether payments were supported by the voucher.......41

Table 10: Shows responses on whether payments voucher were filed in numerical order …42

Table 11: Shows responses on whether payment procedures undertaken by MSH

staff affect its performance ………………………………………………………43

Table 12: Shows responses on whether MSH has an internal audit function which

perform review …………………………………………………………………. 44

Table 13: Showing findings on proper review over receipts performed …………………. 45

Table 14: Shows responses on whether there are enough audit staff to perform review......46

Table 15: Shows responses on whether audit staffs are easily compromised …………….. 47

Table 16: Shows responses on whether internal auditing reduced fraud in MSH ………… 48

Table 17: Shows responses on procurement policies and guidelines that can be followed...49

Table 18: Shows responses on whether there has been strict to procurement guidelines..... 50

Table 19: Shows response on whether procurement process followed MSH &

donor policies ………………………………………………………………….. 51

xii

Table 20: Shows responses on whether staff authorized purchases or expenditures do

not issued the payment ………………………………………………………… …52

Table 21: Shows responses whether there is a safeguard for protection against conflicts

of interest among the procurement officers ……………………………………….53

Table 22: Shows responses on the budgetary control exercised over the expenditures……… 54

Table 23: Shows responses on whether payment were made in accordance with the budget…55

Table 24: Shows responses on whether there is a budget desk at MSH……………………… 56

Table 25: Showing findings on whether previous year budget performance report was

used for future planning ………………………………………………………….. 57

Table 26: Showing findings on whether budget conference is held every year ……………... 58

Table 27: Showing if financial accountability has led to better services delivery ……………59

Table 28: Showing if financial accountability has led to better services delivery ………… 60

Table 29: Shows responses on whether budgetary control on the expenditure has led to

proper utilization of funds………………………………………………………… 61

Table 30: Shows responses on whether internal auditing has led to compliance with

rules and regulations in MSH …………………………………………………….. 62

xiii

ABSTRACT

The purpose of this study was to assess the impact of internal controls on performance of Non-

Governmental Organisations (NGO) case study of Management Sciences for Health (MSH) Juba

South Sudan. The study was guided by the following objectives: To examine how MSH South

Sudan has ensured effective payment to different department in the organization, to establish

how MSH South Sudan has ensured financial records are subject to internal audit, to establish

how MSH South Sudan has ensured effective Procurement policies, to assess how MSH has

exercised budgetary control on the expenditure of all departments in the organization, Self-

administered questionnaire, and interview were used to collect data of 60 respondents, the SAQ

were distributed to the respondents within the Finance and accounting department, Human

resource department, Procurement department, Administrators and field officers. Data was

analyzed using frequency tables, Pie charts computer programs such as SPSS 11, Microsoft excel

and word. The study found out that the payment procedures followed by MSH attracted a

positive response with majority acknowledging it performed well. The internal audit function

attracted a relatively fair response with some agreeing and others not meanwhile majority of

respondents gave a negative view about the procurement process indicating it was fraud, likewise

they didn’t appreciate the budgeting process. In conclusion therefore internal controls can affect

performance of an organization. It is therefore recommended that the implementation of internal

control system be reviewed especially in the area of procurement, budgetary control and internal

audit.

1

CHAPTER ONE

INTRODUCTION

1.0 Introduction

This chapter dealt with the background of the study, statement of the problem, general objectives

of the study, Specific objectives of the study, research questions, scope and Significance of the

study about the impact of internal controls and performance of Non-Governmental Organizations

a case study of management sciences for health Juba South Sudan (MSH).

1.1 Background to the Study

This study was about internal controls and performance of Non-Governmental Organisations

(NGO). It focused on Management Sciences for Health South Sudan as a case study between the

periods of 2010-2012.Management Sciences for Health (MSH) is a nonprofit international health

organization founded in 1971 by Dr. Ronald O'Connor, composed of more than 2,000 people

from 73 nations. Its mission is to save lives and improve the health of the world’s poorest and

most vulnerable people by closing the gap between knowledge and action in public health.

Together with partners, it helps managers and leaders in developing countries to create stronger

management systems that improve health services for the greatest health impact.

MSH South Sudan was established on 18 September 2007 with the country office located in

Juba.

MSH works collaboratively with health care policymakers such as Ministry of Health (MOH)

AID Commission, managers, providers, and the private sector to increase the efficacy,

efficiency, and sustainability of health services by improving management systems, promoting

access to services, and influencing public policy.

MSH is chosen for the study because of its strategic importance to the community and the public

as a whole. It deals with Health Systems Strengthening Expertise Leadership, Governance,

&Management, Health Service Delivery, Human Resources for Health, Pharmaceutical

Management, Health Care Financing and Health Information provision amongst others. MSH

workshop Audit report (2012)

2

Basoln (2002) notes that an internal control is a set of instructions, guidelines and procedures

that a company's senior leadership establishes to prevent operating losses resulting from theft,

error, technological malfunction and employee neglect or carelessness. An internal control also

helps an organization/company prevent adverse regulatory initiatives, such as fines or litigation.

Accounting principles and internal audit rules require that organizations or companies establish

adequate and functional internal controls to improve corporate governance processes. These

principles include generally accepted accounting principles and the Institute of Internal Auditors

standards.

Juheno (1999) further notes that internal controls play an important role in corporate governance

systems. Controls help an organization prepare accurate and complete financial statements at the

end of each month and quarter. A firm may also hedge, or protect against, operating risks by

implementing functional controls. These risks may relate to manufacturing activities and

technological processes. Corporate governance consists of all mechanisms, technological

processes and physical systems that department heads and segment chiefs put into place to make

sure a company operates effectively. Governance tools include human resources policies and

guidelines, as well as departmental work specifications. These tools may also include external

elements, such as laws and regulations.

Freeman (1998) conceptualizes a Non-Governmental organizationas (NGO) as an organization

that is not part of a government and is not funded by the state. NGO’s are therefore typically

independent of governments. The term is generally restricted to social, cultural, legal and

environmental advocacy groups having goals that are primary non-commercial.

According to Stevenson (2004) Performance is the outcome of an individual or group

contribution of development in any activity leading to results (positive / negative).The financial

statements users, regulators, directors and managers view internal control function as a key

component of an organization’s corporate governance.

3

According to Krishnan (2005), Proper application of internal control procedures and policies

improves on the performance of an organization.

The case study chosen is a representative sample because of the numerous service provision it

covers which include: Health Service Delivery, Human Resources for Health, Pharmaceutical

Management, Health Care Financing Health Information, HIV &AIDS, Tuberculosis, Family

Planning & Reproductive Health, Maternal, Newborn, & Child Health, Other Communicable

Diseases Chronic Diseases management among others, all of which are important to human

survival.

It is also important to undertake the case study because of the large resources of USAID donor

funds assigned to MSH South Sudan. For instance during the Financial Year 2010/2011 a total of

$1,746,2011Million USD was released while in 2011/2012 it was $1,705,000 Million USD for

both TB Care I Project and SIAPS Project

It is on this basis that one needs to find how such large amount of funds have been used hence

the controls put in place.

The study is important because of the role played by MSH South Sudan in ensuring the

population is living a health life so as to be able to be active economically which can lead to the

development of the nation.

According to the MSH Strategic Plan (2005), MSH overriding mission is to save lives and

improve the health of the world’s poorest and most vulnerable people by closing the gap between

knowledge and action in public health. Together with our partners, they are help managers and

leaders in developing countries to create stronger management systems that improve health

services for the greatest health impact.

One of the objectives to achieve the above mission is through establishment of sound financial

management systems for accountability, measurement of the financial performance and

provision of timely information and to provide sound governance and oversight of the NGO’s

activities.

4

The above objective therefore implies that the organisation should set up proper books of

account and financial management and measurement systems including the setting up of an

internal control system to ensure proper financial performance.

According to MSH internal control manual (2007:2) the following control measures and

guidelines are highlighted:

Financial responsibilities and authority are defined in employee job descriptions;

Written procedures are maintained regarding financial and accounting practices, account coding

and activity coding schemes. This includes written policies on travel, personnel and

procurement practices;

Safeguards and policies are in place to guard against conflict of interest;

Cash and expenses are segregated by donor fund or contract, if applicable financial records are

subject to internal or external audit routinely, at least once per year. All variances and issues

must be documented and reconciled promptly and disciplinary action must be taken when

warranted. Cash receipts are deposited promptly; Payments are executed only with the

appropriate approval and upon submission of the required documentation: detailed invoices,

copies of purchase orders and shipping documents, etc. Procurement policies are documented

and applied consistently to insure fair and open competition to the greatest extent possible. Best

value is considered, including price, quality, service and warranty or goods or services;

Records are maintained of any prior approval required by donor agreement. This may include

approval for international travel, purchase of equipment, or salaries; No payment is made

without proper authority being obtained and where applicable, quoted on the payment voucher.

Promotion of a high level of compliance with the corporation’s financial policies and procedures.

Maintenance of proper accounts and records of the financial transactions, exercising budgetary

control on the expenditure of all the division.

The study focused on the four of the above objectives that isensuring that no payment is made

without proper authority,proper control over cash receipts; conformity with financial and

5

operational policies; financial records being subject to internal or external audit. Procurement

policies documented and applied consistently to insure fair and open competition to the greatest

extent possible and finally exercising budgetary control on the expenditure.

1.2 Problem Statement

In spite of the above objectives that are supposed to have been achieved by the Management

Sciences for Health (MSH) Organization, a number of challenges have been reported to the

contrary. The organization has not been performing well as it was expected. For example, despite

receiving the necessary support from, USAID, MSH organization has not met its major

obligation of saving people lives and improving on health of the world’s poorest and most

vulnerable people. Most of the donated funds lack accountability.

According to audit report (2012), it is revealed that about $17,786 of donor funds given has not

been of benefit to vulnerable people of South Sudan. The report also indicates that staffs have

not been effective.

The MSH workshop report 2011-2013, indicated that, there was credible evidence of fraud

detected at MSH in form of inflated workshop expenses which in multiple cases were supported

by forged receipts; these inflated expenses were submitted by several MSH staff members.

Credible evidence was also brought out which highlighted inflated workshop expenses,

especially on accommodation of participants and hiring of venue.

It was also pointed out that MSH project directors had not carried out effective management

oversight which is expected to be one of the control measures

Therefore, it’s upon this that the researcher wants to find out why MSH continues facing such

problem despite putting in place a number of policies and internal controls.

1.3 General Objective of the study

The general objective of the study is to examine and helped to improve the internal controls and

performance for Nongovernmental organization, a case study Management Sciences for Health

(MSH)

6

1.3.1 Specific objectives of the Study

The study was guided by the following specific objectives:

i. To examine how MSH South Sudan has ensured effective payment to different

department in the organization

ii. To establish how MSH South Sudan has ensured financial records are subject to internal

audit.

iii. To establish how MSH South Sudan has ensured effective Procurement policies

iv. To assess how MSH has exercised budgetary control on the expenditure of all

departments in the organization.

1.4 Research Questions

The study was guided by the following research questions:

i. How has MSH South Sudan ensured effective payment to different department within

organization?

ii. How has MSH South Sudan ensured financial records are subject to internal or external

audit for a better performance?

iii. How has MSH South Sudan ensured the effective Procurement policies?

iv. How has MSH South Sudan ensured that budgetary control on the expenditure of all

departments has been exercised and hence Performance of the organization?

1.5 Scope of the Study

1.5.1 Subject scope

The study was about internal controls and the performance of Non-governmental organisations a

case study of Management Sciences for Health (MSH) Organization in South Sudan. The study

specifically focused on: proper control over cash receipts; financial records being subject to

internal or external audit. Procurement policies documented and applied consistently to insure

fair and open competition to the greatest extent possible, and exercising budgetary control on the

expenditure of all the divisions.

7

1.5.2 Geographical scope

The study focused on MSH headquarters in Juba Central Equatorial State, South Sudan; MSH is

located at Ministerial Complex 100 meters away from Ministry of Health. Staff in different

departments will be approached to give information about the subject matter, coordinators and

staff of the same program in other states will be approach to give a response as well, other

partners in Juba dealing with MSH will be approached to give information about internal control.

1.5.3 Time Scope

It is designed to cover the period from the year 2010-2013, the period for three years.

1.6 Significance of the Study

The study will be of great significance in the assessment of the effectiveness of the internal

control function in the performance of MSH South Sudan.

The findings and recommendations of the study will help the management of MSH South Sudan

to understand the anomalies in their operations. Upon successful completion, this study will be

of great importance to the following groups of people:

The finding will help the researcher understand why organizations perform the way they do,

despite internal controls put in place.

The findings will help the policy maker in decision making and enable them put in place policies

guiding running of NGO’s in the country

The findings will help the government and Ministry of Health in particular to learn a lot about

accountability, efficiency and effectiveness of service delivery.

The study will help the AIDs Commission and other agencies in the Country as it will act as a

guide on how to place resources carefully intended for the poor and disadvantaged.

The study will help the Ngo forum and it members to learn about the challenges that are

experienced in running NGO’s in the new country.

8

The study will help Private organizations/ institutions to know how to be accountable and

manage resources more carefully.

Figure 1: Conceptual Frame Work model between internal controls and performance

Source: Ekpo’s 1998

The conceptual framework above is adopted from Ekpo’s 1998, it describes a relationship between the

two variables the independent in this case internal control and the dependent that is performance in

Non-governmental organizations. The independent variable comprises of the objectives of internal

controls such as proper payment procedures no payment without authority, Financial records are

subjected to internal auditor, use of effective procurement policies and budgetary control on the

expenditures which when well-done can lead to better performance measure which include better

Moderators

-Qualifications

-Experience

-Ethical Practice

-Position

-Technology

Performance

-Better service delivery and

product

-Growth

-Transparency

-Proper record keeping

-Compliance with rules and

Regulations

-Proper utilization of funds

-Quality financial information

-Proper financial reporting

Internal controls

-No payment is made without

proper authority

-Financial records are subject

to internal auditor

- Use of documented

procurement policies

-budgetary control on the

expenditure

9

services and product provision change in growth, transparency, proper record keeping, compliance with

rules and regulations, proper utilization of funds, quality financial information and proper financial

reporting, never the less moderate factor such as education, political support and ethical conduct may

affect, implementation of internal controls, political interference which brings about un expected

changes like the sudden changes and government directives for political reasons affect performance of

the organization play an important role in the successful implementation internal controls and

performance of Non-governmental organizations, because if they are corrupt they may misappropriate

the funds means for services provision.

10

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter comprises of the related literature of the study research which was written by other

scholars. This was in respect to the specific objectives of the study of the related area.

2.1 Effective Payment

Gazzada (2009) asserts that a valid authorization of any payment includes a full approvable

signature; initials or "Okay to Pay" Payments without approvable signature do not represent a

proper authorization. Signatures should be legible or include the printed name below the

signature. Proper approval for any payment request should be provided using a Payment. If an

alternate form such as a note, letter, or memo is attached to a payment request, it must include:

Name of Person/Vendor to be paid, account number to be charged, amount of payment being

approved, purpose of payment being approved, and signature authorization. Some departments

that process a higher volume of regular vendor invoices make use of an approval stamp instead

of attaching a Payment Order Form for each invoice. This is a rubber stamp that is stamped

directly onto the invoice and filled in by the payment approver. Use of a stamp such as the

example below will ensure that all elements of a proper approval are present. A Post-it note stuck

onto an invoice with "okay to pay", a signature, account number, and date can inadvertently

become attached to the wrong document and does not provide adequate proof for audit purposes

that proper authorization for payment was received. This also applies to any note or slip of paper

that is clipped or stapled to an invoice that does not contain all the elements of a valid approval

of an expense.

From the researchers point of view it is correct to follow the above procedure as mentioned by

Gazzard except the biggest challenge that the NGOs and other organizations in general are facing

in South Sudan is Lack of knowledge and inability to understand the importance of some of these

internal control procedures by the people employed some of whom are employed on the basis of

technical know who but not because of qualification, many didn’t go to school to study since

11

they were affected by civil war and therefore they may not understand the repercussion of

neglecting some of these controls after all event auditing is rarely done in this new country, this

has been worsened by the government policy which is promoting employment for only Nationals

in these position for both foreign and international NGOs. The idea of employing the National

as per say is not bad except for how it is especially when people are given jobs for political and

social reasons were they do not qualify. The way forward therefore should be, to have a fair

employment policy and through training of these employees by taking them for refresher courses

and advice be given on the importance of these controls. These problem of not following the

proper payment procedure was noted in MSH South Sudan as indicated in the auditor’s report

2011-2012 earlier and as observed in the report and the Auditor’s management letter

recommendation were made and culprits were suspended and new qualified staff were employed

to do the work after the organization had lost a lot of money which affected its performance on

the ground.

Dedei (1999) states that when it comes to matters concerning payment the managing director or

deputy director (Director Finance and Administration) should be the one to authorize or approve

the payment of funds. All checks are signed by the Senior Accountant and the National

Coordinator if any. All payments should be supported by relevant documentations (Invoices,

Way Bills, etc.) The deputy Director (Finance and Administration) can certify the payment for

procurement by imprest. The process of payment starts by Accountant raising the memo through

the Deputy Coordinator (Finance and Administration) to the National Coordinator. Attached to

memo should be Invoices, Purchase Orders and other relevant documents.

The Deputy Director (Finance & Administration) then minutes on memo (certifies), Approval is

given by Director and the Accountant prepares, authorizes and forwards Payment Vouchers to

Internal Auditor. Certification by Internal Auditor (Stamping and Signing).The Accountant

prepares a cheque, signs and forwards and attaches it to the Director.

This, as observed by the researcher will depend on the size of the organization. If it is a small

organization then one may not require that long process but a mechanism is developed within

the organization were the immediate Bosses are given the Authorization and approvals

12

responsibility working hand in hand with the accountant or financial controller of the

organization. For the case MSH South Sudan this procedure is well outlined in the Financial and

accounting manual given the size and coverage of the organization in South Sudan, For small

payment transactions the long procedure is simplified by the use the petty cash/cashier

supervised by the accountant.

Wedhon (2002) argued that in order to ensure strong control over receipts, when cashier

received, it should be acknowledge by means of printed receipt which should have a counterfoil

or a carbon receipt. The receipt should be consecutively numbered. The unused receipt should be

cancelled and must not be detached from the counterfoil. No blank counterfoils should be

accepted. As soon as cash is received, it should be entered in a rough cash book or dairy. Internal

audit activities help employees abide by corporate policies and regulatory guidelines.

The Audit report (2009) for the Norwegian Peoples Aid (NPA) gives a clear view of want

happens in a number of NGOs it shows a number internal control material weaknesses observed

and the countries affected:

The report highlights Noncompliance with established sub-recipient monitoring policies (Sudan),

in regard to cash management, bank reconciliation had not been properly completed, reviewed or

approved and petty cash counts had not been properly conducted or accurate (Sudan). The

following significant deficiencies were also noted, Noncompliance with established procurement

policies (Sudan), significant journal entries which were not properly supported (Sudan),

Timesheets were incomplete, not signed, not approved and there were instances where time

charged to the awards did not correspond to hours indicated on timesheets (Sudan, Angola),

Inventory was not properly controlled (Sudan), Personnel files were incomplete (Sudan),

financial records were not properly filed and difficult to locate (Sudan), numerous instances of

payment vouchers not properly signed and dated (Sudan).

This scenario can be compared to what was happening with MSH south Sudan as stated in its

Audit report and it clearly shows that a number of NGOs are not embracing the internal controls

13

put in place as per the internal control policy manuals some that may lead to the concealing of

some of the funding by the Donors.

According to the Oxfam Audit report (2006-2007) internal control measures were found to have

been violated in Cambodiain the following ways

Internal payment vouchers were not signed and dated indicating approval. It was, again noted

that and dates were missing in addition to inconsistent use of internal payment vouchers. This

observation is similar with what was observed with NPA.

According to Mpabanga, (2005) The NGO sector in India is largely in the form of what can be

termed as an ‘unorganized sector’, with a preponderance of small outfits that have been floated

by either individuals or small groups of people. The NGOs are generally founded by people

passionate about a ‘cause’, which often results in an organizational infrastructure that is focused

on operations rather than efficiencies and management processes. One result of this is the

wastage of resources especially where unnecessary payments are paid to individuals. Limited

statistics that are available indicate that on an average 70 percent of the funds are utilized for the

administrative purposes of the NGOs. In addition, the disproportionate focus on the operations

versus management efficiencies and planning results in people with inadequate management

competencies to hold senior positions. This exposes the sector to higher degree of risk from

corruption and frauds, both intentional and consequential.

2.2 Financial records

Shandia (2004) states that internal audit is an independent, objective assurance and consulting

activity designed to add value and improve an organizations operations. It helps an organization

to accomplish its objectives by bringing a systematic disciplined approach to evaluate and

improve the effectiveness of risk management, control and governance processes. The definition

recognizes two roles for Internal auditing, namely: to provide an independent assurance service

to the board, audit committee and management, focusing on reviewing the effectiveness of the

14

governance, risk management and control processes that management has put in place; and to

provide advice to management on governance risks and controls.

Reinford (2004) states that one of the main characters of the Internal Control System is Internal

Auditing activity. Its mission states that it has to provide independent, objective assurance and

consulting services designed to add value and improve the operations of the organization. It must

also help the organization accomplish its objectives by bringing a systematic, disciplined

approach to evaluate and improve the effectiveness of risk management, control and governance

processes. The objectives of internal auditing as a measure of internal control are very clear

except that sometimes the internal auditor may be compromised especially were he/she sits in the

same organisation with management the aspect of independence diminishes with time and

therefore he may not play the oversight role well and hence you may find the NGO not following

the policies well and putting in place the recommendation, this can be sighted with the

observation from the MSH South Sudan internal audit report were a number of cases were

highlighted in the 2010-2011 audit report and recommendations given but the same issues kept

on appearing in the next financial years. For any impact to be felt the internal audit function

should be supplemented by the external audit function and stringent measures put in place for

those who undermine the recommendations.

Owenrich (2001) emphasise that the scope of Internal Auditing is to determine whether the

organization’s network of risk management, control and governance processes, as designed and

represented by Management, is adequate and functioning in a manner which ensures that risks

are appropriately identified and managed; interaction with the various governance groups occurs

as needed; significant financial, managerial and operating information is accurate, reliable and

timely; employees’ actions are in compliance with policies, standards, procedures and applicable

laws and regulations; resources are acquired economically, used efficiently and adequately

protected; programs, plans and objectives are achieved; quality and continuous improvement are

fostered in the organization’s control processes; significant legislative or regulatory issues

impacting the organization are recognized and addressed properly.

15

Groonhil (1999) suggest that the Internal Audit activity should assess and make appropriate

recommendations for improving the governance process in its accomplishment of the following

objectives: promoting appropriate ethics and values within the organization; ensuring effective

organizational performance management and accountability; effectively communicating risk and

control information to appropriate areas of the organization; and effectively coordinating the

activities of and communicating information among the board, external and Internal Auditors

and management. The Internal Audit activity should evaluate the design, implementation, and

effectiveness of the organization's ethics-related objectives, programs and activities.

A Ciokey (2005) note that it is the role of management is to ensure performance and compliance

standards prescribed in a control plan are adhered to. Internal Auditing assesses the internal

control environments by developing an internal control test plan to evaluate whether control

planning and its implementation are effective in terms of both compliance and performance

across the organization.

Shandly, (2004) states that separation of duties is a measure of good accountability and internal

control. This will ensure that one individual cannot perpetuate and conceal errors and

irregularities in the normal course of duties. Segregation of duties is not always possible due to

limited staff. Strong internal controls require the segregation of responsibilities for authorizing

transactions, physical custody of assets and the related record keeping. For example, one

individual could order, receive, approve for payment and verify charges to the monthly

accounting report. One individual should not have the ability to receive payments through the

mail, prepare the deposits, reconcile the bank statements, and post payments to the receivable

system.

Hegson (1999) noted that the internal audit function helps an organization improve operations,

detect key problems in important mechanisms or processes and correct major problems. An

internal evaluation also aids top management in ensuring that employees comply with corporate

policies, such as human resources procedures. An audit director plans testing activities at the

beginning of the year, allocates resources to specific areas and assigns tasks to staff and junior

16

auditors. Internal auditors review segment processes and issue reports to senior management.

The internal audit department evaluates specific areas throughout the year; those are "areas under

review." An audit manager allocates more resources to a segment or an area based on potential

operating or financial risks. For example, an audit specialist might focus on "high-risk" areas

within the treasury department because risks of losses exceed $10 million. An internal auditor

also may perform tests on an insurance company's premium calculation department to ensure that

calculation methodologies adhere to corporate policies.

Guenji (1998) states that internal audits play a significant role within an organization's

governance systems. A periodic (and systematic) review of an area's processes ensures that

employees comply with management instructions. Area managers receive additional help in

checking performance indicators within their departments. A company's top management learns

major risks facing a corporation by reading periodic reports. Finally, frequent audits allow

managers to use audit information as employee performance evaluation tools.

Deloitte (1998) gives the following as key to an effective internal audit function: it operates from

a clear, updated charter; it adapts its activities to the needs of the organization; it uses a risk-

based approach; it reports directly to the audit committee; it enjoys full support of management

and the audit committee; it maintains open communication with management and the audit

committee; it has clout within the executive ranks; it engenders respect and integrity throughout

the organization and it teams with other internal and external resources as appropriate; it

provides leadership on issues of internal control, fraud, financial reporting, risk management and

corporate governance and it leverages technology; and it must provide support to the company’s

anti-fraud programs.

Malbok (2003) noted that one of the key roles of internal audit is to assist the board and/or its

audit committee in discharging its governance responsibilities by delivering reviews of

operational and financial performance and make recommendations for more effective and

efficient use of resources.

17

2.3 EffectiveProcurement policies

According to Minahan, (2006) as the need to satisfy stakeholders’ demands increases,

NGOleaders today acknowledge the frontline played by the procurement department.

Procurement not only provides organizations with a competitive edge for funding, but also

makes a very big contribution to the organization’s goals achievement and success.

According to Lysons (2000), the term procurement is defined as the acquisition by purchase,

franchise, rental, lease, hire purchase, tenancy or any other contractual means of goods, services,

works or any combination of the two, which are required by an organization for use in the

production, service provision or resale.

Procurement is a very important function within an organization that accounts for the biggest

share of the expenditure in many firms.

Today, it would be difficult to find an organization, large or small that does not understand the

importance of procurement and how successful implementation of this function would have

positive impact on their overall success.

Therefore for effective decision making and attainment of value for money, every procurement

executive should follow certain essentials which are regarded as the traditional rights of

procurement, which are; Right Quality, Right Quantity, Right Time, Right price, Right source.

This is normally inscribed in the organization procurement policy/ process. Every organization

requires this policy describing the procurement processes cycle.

The procurement process cycle describes the typical stages that characterize the procurement

process.

In most countries, government entities are by law meant to adhere given standard when procuring goods,

services or works.

In South Sudan for instance, Public procurement is governed by the Interim Public Procurement and

Disposal Regulations (2006) under the ministry of Finance. This is because governments strive at

streamlining the procurement process in an attempt to reduce corruption and attain value for money in

18

each and every dollar of the tax payers’ money. In a bid to stream line procurement process in contracts

involving international boundaries, many countries are required to be members of the government

procurement Act (GPA), a body which consists of over 127 countries in the world. The World Bank also

provides the procurement laws and regulations that its entire donor funded projects are meant to adhere

too.

In Uganda, there exist the Public Procurement and Disposal of Public Assets Authority a body that was

established to stream line the procurement systems of public firms. It has therefore formulated a

standard procurement process/cycle to be used by public firms in daily purchasing and it begins with

planning and budgeting and Concludes with evaluation of the performance of contract.

According to MSH South Sudan Audit workshop report (2012), MSH has put in place

Procurement policies in line with those set by the World Bank for NGOs well documented and

expected to be applied consistently to ensure fair and open competition to the greatest extent

possible. Best value is considered, including price, quality, service and warranty or goods or

services.

Despite these procurement policies well outlined Organizations continue to record cases of

procurements guidelines being faulted. For example the Internal Audit report for MSH South

Sudan reported a number of cases of irregularities.

For example according to the Internal audit report, the procurement of workshop venues / hotels

after January 2012 was not in accordance with MSH and donor policies,

The validation of hotels was the first step in the pre-qualification process. However, the COMU

did not go a step further by making use of this data. As of November 2012 staff were still not yet

cross-checking rates on receipts submitted by staff against the list, and had not yet initiated a

formal pre-qualification process to short-list venues / hotels for negotiating fixed rate contract

agreements and direct payments.

Staffs were not given proper guidance on the acceptable hotels to use. Without appropriate

guidance staff continued the practice of discretionary selection of venues. The use of hotels

which are difficult to verify actually increased as a result. For example, workshops were being

19

held at hotels (Motherland and Naivasha) were there was no record of previous stays by other

staff members or available data from the survey. According to the Project Director, the Ministry

of health (MoH) had more influence on the regions/states and decided where TB CARE I Project

training activities was more beneficial to the target audience. While the MoH rightfully has

influence over activity locations, MSH retains responsibility for safeguarding and controlling

resources and should make decisions on the specific hotels where workshops are to be held.

Staff who deviated from frequently used hotels on the basis that they were unable to obtain

cheaper rates at ’preferred’ hotels more often submitted inflated cost receipts.

In Japan according to Parker (2007), the majority of Non-Governmental Organizations (NGOs)

receive recurrent subventions from the Government and other sponsoring organizations like the

Hong Kong Jockey Club for the provision of a wide range of social, medical and healthcare

services in the community. While NGOs, large or small, enjoy a high degree of autonomy in

their day-to-day operations, they have to meet Government/Donor funding requirements when

setting performance targets and service quality standards, and when drawing up internal controls

for major functions, such as procurement and auditing, etc.

In Japan the Corruption Prevention Department (CPD) of the Independent Commission against

Corruption has recently conducted a research into the operation of NGOs. The research shows

that most well run NGOs, no matter what types of service they provide have in place a sound

governance structure and effective internal control mechanisms. As poor management is a

breeding ground for corrupt practices; the CPD sees the need of consolidating these NGOs’ good

systems and practices into a checklist for use by all NGOs. This Best Practice Checklist provides

a user friendly directory of measures which could help NGOs foster good governance in the

organization and best practices in respect of integrity management, internal control, financial

management, procurement, staff administration, and management of maintenance works.

Without losing sight of the funding requirements, NGOs are advised to adapt and adopt the

governance structure and good practices recommended in this Checklist to suit their operational

needs and resource capabilities.

20

According Tackett and Gregory (2006) in India the past corruption cases showed that

procurement processes are prone to manipulation and malpractice, such as favoritism in the

sourcing and selection of suppliers or service providers, leakage of information and connivance

at sub-standard goods or services. However, today a Best Practice Checklist on Procurement is

available for reference at the ICAC website: (www.icac.org.hk.) to avert these tendencies.

This section provides a step-by-step guide to procurement of goods or services, with the aim of

helping NGOs to avert corrupt practices and achieve value for money in procurement;

According to the Audit report (2009) for Norwegian People Aid (NPA) Sections II and IV noted

the following internal control violations in regard to procurement.

There were material instances of non-compliance with established procurement policies

(Sudan).NPA-Sudan did not obtain the required seed certificates as required by the special

provisions contained within the grant agreement. Accordingly, such costs are not considered an

allowable expense under the U.S. Government award. In addition, by not adhering to established

procurement guidelines with respect to the procurement process, certain goods and services may

have been purchased at above prevailing market prices. This was not only unique to NPA Sudan

but is gives a reflection of what has happening all over especially in Africa and Asia were

corruption and illiteracy.

2.4 Exercising budgetary control on the expenditure

According to Anderson (2008) NGO accounting is dominated by budgeting.

A budget is plan expressed in quantitative or monetary terms aimed at pursuing specific

objectives during a defined period of time. He further states that budgeting has three main

objectives:

The first one being planning, Budgets provide a detailed plan of action for a given period of

time, the plan relates to all aspects of the organization-production, labor, sales, and expenses

among others.

21

The second one is controlling, budgetary controls help responsible officers/ accounting officers

to be focused on only certain activities. This makes a comparison between the actual achieved

results and the expected results possible.

The third one is coordination; Budgeting helps manager (accounting officers) to coordinate their

activities so as to be able to achieve the overall objectives of the organization.

Alridge and Colbert (2004) assert that budgeting is very important for NGO’s because it acts as a

control measure, they go ahead to mention that the benefits of budgeting almost always clearly

outweigh the costs and efforts required by the process.

Perhaps the foremost advantage of budgeting for the NGO’s is that it forces project managers to

think ahead. A look in to the future invariably compels top management to set goals and

objectives. Budgeting therefore tends to move an organization from a reactionary mode in which

management simply reacts to problems, to a controlled mode in which problems are anticipated

and positive action is taken.

Budgeting is useful to NGO’s because it coordinates and integrates the organizations resources.

The budgeting process requires that managers open up lines of communication within the

organization: Up and down organizational lines from subordinates to supervisors, and across

organizational lines between managers of different departments.

Coordination across organizational lines is necessary due to interdependence of activities. For

example, purchasing managers integrate their plans with production requirements; production

managers use the sales budgets to help them anticipate and plan for materials, employees and

productive facilities, and personnel must know the needs of all the departments before it can plan

for new employee needs training requirements.

In the case of MSHSouth Sudan, the powers are given to different managers to participate in the

budgeting processes as stipulated out in this could imply the centre’s capacity to resources and

the databank to make some money as stipulated in Finance &Accounting Manual. The

departmental managers expected to play their part in ensuring that this is achieved. They produce

performance reports and reports on the Master budget of the Centre are produced. The aim of

22

these reports is to enable Heads of Departments and/or Stations to avoid deviation from the

approved budgets. These reports are prepared by the Accountant and the Finance Department

from audited accounts.

Alridge, et-al goes further to state that budgeting can be useful in identifying bottlenecks for

example one service department may slow down the preceding departments either due to

absenteeism or any other reason, whatever the bottleneck budgeting helps identify it and

provides management an opportunity for planning how to solve it before it is too later to affect

the organizational performance.

Hinks, G (2005) indicates that budgeting in organizations services as a benchmark against which

actual results are measured and performance of individual managers evaluated. Significant

variations from planned results may require explanations and in some cases, corrective action by

the individuals responsible for the results. One benefit of benchmark is that managers will know

what is expected of them.

According to Pandey (2008) as a basis for judging performance, budgeted activity is generally

regarded as more appropriate than historical or industry data. The major drawback of using

historical data is that inefficiencies in the past performance may be concealed and allowed to

continue. Also, changes in economic conditions technology, competition, and personnel make

comparisons of present with past performance invalid. Budgeted data are more realistic for

performance evaluation because the benchmark minimizes the carry-over of past inefficiencies

and reflect changes pertaining to the current period.

According to Haller (1992) in the bid to control spending, the Spending authority for the signing

officers is normally provided in the annual budget of the organization. In most organizations, the

board of directors delegates authority to the signing officers for day to day purchases outlined in

the budget. This means that the treasurer does not have to wait for approval at a board meeting

every time a new pencil needs to be purchased (provided that pencils/office supplies are included

in the budget). Expenditures not included in the budget should be approved by motion at a

meeting of the board.

23

The organization may set out spending limits for the officers on major purchases. Expenditures

over a predetermined dollar level may require board approval. A sample board policy could state

that "any purchases over $500 require approval by motion at a board meeting".

For larger expenditures or for capital expenditures, the organization may have a policy that

requires a competitive bidding process. Written quotes from 2 or 3 vendors would be obtained

and presented to the board before a purchase was approved.

According to Mostashari (2005), one of the biggest problem NGO’s in Iran are facing is Lack of

managerial and leadership skills, this deprives NGOs from strategic planning. A number of

NGOs visited during the research study indicated that they did not have a strategic plan and even

annual operational plans for their routine tasks. They said they were interested in long-term

planning, but strategic planning was an ad-hoc subject who needed special knowledge and skill

and so they did not have such knowledge “stated in the focus group discussion (FGD)”. There

was a clear indication that budgeting was not being done and yet this was a very important

internal control tool an which one would expect to measure performance. This may not be unique

to the Iranian NGOs since back home in South Sudan only a few people may perform a similar

task because of lack of the necessary knowledge and skills.

2.5 Performance

Goodwin (2003) goes ahead to state that performance comprises of the actual output or results of

an organization as measured against its intended outputs or objectives.

Shapiro (2007) states that, financial performance is the measurement of the results of a firm’s

policies and operations in monetary terms. These results are reflected in the firm’s returns and

value-added. This is a subjective measure of how well a firm can use assets from its primary

mode of business and generate revenues. This term is also used as a general measure of a firm’s

overall financial health over a given period of time.

Touche (2004) notes that the traditional role of internal control is to keep the organization

focused to the desired goal, bring value, and improve operations. In this current era of the

Sarbanes-Oxley Act of 2002 (USA), it has the objective of assurance on financial control and

24

compliance. Some of the peak performance indicators are: reports issued on time, staff training

and certifications, internal audit turnover, internal audit transfers, internal audit employees

survey measuring professional staff satisfaction, internal audit staff utilization, and hours of

training. They conclude that adaptability and flexibility will stand out as key characteristics of

successful internal control functions. An optimised internal control function will tailor its

activities to areas of greatest risk and opportunities for greatest value. Such firms can then attain

the benefits of sustainable compliance and enhanced competitiveness.

According to Clark, (1991) like every other sector, one of the major drivers of efficiency is the

manner of utilization of the capital and the funds that the NGO sector accumulates through

various sources for carrying out its work. If statistics are to be taken into consideration, out of

more than 1.2 million NGOs operating in India, only 3% are being able to carry out constructive

grass-root level work (ICONGO, 2002 survey). Furthermore, NGO establishments typically tend

to have high administrative costs of nearly 60% and above. Indicatively (based on limited

statistics that are available for India), only 10-20% of the funds are utilized for effective

developmental work. More stringent management norms through internal controls and regulatory

oversight will contribute to more effective spending by NGOs.

According to Lekorwe (2007), there are numerous NGOs working in remote and challenging

regions of India. Many of the well-funded organizations have large geographically spread-out

set-ups with regional branches in such areas. Consequently, such set-ups in the remote regions

have inadequate means for internal control, further exposing to the risk of inadequate functional

and financial monitoring.

Internal control mechanisms form an integral part of any organization since it is essential that the

‘child’ outfits work in tandem with the parent organizations. It will be less beneficial if the

parent organization (often, set up in a large city) adheres to regulations and internal

policies/controls but the branches do not. The scenario is not different from what happens in

South Sudan, You find that controls are exercised at the head office in Juba but if one moves to

other states where the NGO is operating it may not be the case sometimes this is also attributed

25

to lack of qualified manner power to work in some areas and the rigidity of the rigidity of the law

that may require only local people of that area to be employed there

In order to better understand internal control; Dan Sampson asserts that one must be able to

understand the five interrelated components of an organization. The components are;

organization’s operation environment, the goals and objectives and related risk management,

controls and related policies and procedures, information systems and communication methods

and finally the activities to monitor performance (Dan Sampson, 2005)

A report from on DANIDA South Africa has a useful chapter on internal controls. It reveals how

changes in the performances of overall work will automatically introduce effective

transformation of the internal control to the latter’s advantage (DANIDA Audit Report, 2005)

An interesting dimension is introduced by a journal article which analyses effectiveness and

performance from the perspective of quality (Krishnan,2000) This author compares quality of

management in an NGO concern against the quality of corporate internal control in order to

establish a relationship between the two concepts.

Can performance in the NGO sector change to the credit of the Donor, simply because all parties

concerned are willing to put in optimal funds in the internal control system and the audit effort?

The article also projects the likely outcome of internal control following the introduction of a

new regulatory environment by the International Financial Management Standards.

There is a relationship between social issues management and Corporate Social Performance.

The articles have suggested a theory that social issues in management contribute to the success

or failure of internal control systems within an NGO. The theory states that a link exists between

the two and that slack resource availability and corporate social performance are positively

related (Waddock, 1997)

26

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter presented a detailed description of the research methods that are used to collect

relevant data to the study. It contains the research design, study population, sample size, data

collection methods, data processing, data presentation, and data analysis. It includes the

anticipated limitations and anticipated solutions.

3.1 Research Design

The study followed a descriptive research design. The qualitative and quantitative approaches

were employed based on the MSH South Sudan organization staff drawn from different

departments in Juba. The quantitative technique was used to collect and analyze data on the role

of internal controls on the performance of MSH. The qualitative approach was used to examine

the part played by internal control in nongovernmental organizations sector. This design was

used because it brought out clearly the relationship between internal control and performance.

The study was be specifically non experimental because the researcher intended to describe and

make observations of what the real results were for purposes of making decisions based on the

facts to improve the situation.

3.2 Study population and sample size

The populations of 70 respondents were selected and it comprised of MSH staff drawn from

different departments of accounting and finance (13), internal audit (06), Human resource (04),

procurement and logistic (07) and Field officers (25). The rational was that all the above

respondents were stake holders.

3.3 Sample size

A sample size of 70 respondents were expected as stated above but this was not because the

number of respondents were not able to fill the questionnaires due to a number of reasons and

only 60 respondents were able to do so. This was above the 40 mark which is said to be

27

representative enough. This was in conformity with Roscoe (2003) who contends that the sample

size larger than 30 and less than 500 respondents is appropriate for most studies. The researcher

selected respondents according to their willingness to provide information and fill in the

questionnaire as it was shown in table: 1below:

Table 1: Sample Size of the Respondents

Department Population Sample Size

Accounting and Finance 17 13

Internal Auditing 08 06

Human Resource 06 04

Field officers 25 25

Procurement and logistics 08 07

Directors 06 05

Total 70 60

Source: Primary Data

3.4 Sampling methods

The research used varieties of sampling which include: Purposive, random and stratified sampling.

3.4.1 Purposive sampling

Purposive sampling involved selecting a certain number of respondents based on the nature of

their work in relation to internal controls MSH organization. This method was appropriate

28

because the sample selected comprised of informed persons who could provide data that was

comprehensive enough to gain better insight into the problem.

3.4.2 Random sampling

Random sampling involved selecting respondents from the population listing by chance. In this

way, every member had an equal chance to be selected. The main disadvantage of this method

was with the bias which it could diminish the integrity of random selection but this was

overcome since the population listing involved only members with relevant information.

3.4.3 Stratified random sampling

Stratified random sampling was applied in consideration of the categorization of accountants,

administrators, auditors, cashiers, and support staff to compose an appropriate representative

sample. This method involved organizing the units in the population into strata using common

characteristic of activities performed.

3.5 Data Sources

Both primary and secondary data collection methods were used to collect relevant data to the study.

Data collection methods that were considered in such a way that relevant information were to be

collected as much as possible with little inconvenience to respondents.

Primary data means to first hand data. It was collected from the respondents through interviews, and self-

administered questionnaire. Primary data was important in answering questions about internal controls,

and their effects on organizational performance in non-governmental organizations. Secondary data means

to second-hand data. This was obtained from recorded documents, earlier studies and some publications

on internal controls. Other information will be obtained from the internet.

29

3.6 Data collection instruments

The researcher used the following instruments in this study, questionnaire and interview

3.6.1 The self-administered questionnaire

The questionnaires were the main primary source of data collection. The identified sample was

served with the questionnaire directly by the researcher. To obtain quantitative data, one set of

questionnaires was used for all respondents. The questionnaire was be filled in by accountants,

auditors, cashiers, administrators, procurement staffs, the human resource staff and field officers

and support staff. The questions involved the feelings of respondent groups regarding the

contribution of internal controls and performance in nongovernmental organizations. The

questionnaire also aimed at getting responses from the respondents about their views on internal

controls and how it can be improved.

3.6.2 Interviews

Interview means face to face interaction between the interviewee and the interviewer. The

interviews were held with those respondents identified purposely crucial to the provision of

explanations to the topic under study. The questions for the interview were both open-ended and

closed. The open-ended questions gave chance to more discussions, while the closed questions

asked for particular responses. The interview method helped to collect additional views from

respondents on the theme of the study. The questions were filled on spot and the respondents

were interviewed from their offices to save time. This method allowed further probing and

clarification of questions that tended to be difficult and not clear to the respondents. It also

enhanced responses for questions which were regarded as sensitive.

3.7 Data Processing

The data obtained from the questionnaire was double checked to make sure that the information

provided was complete, consistent, reliable, and accurate. Data processing involved scrutiny of the

responses given on the questionnaires by different respondents. Data was sorted, edited, and

interpreted. The coding and tabulation of the data obtained from the study then followed. To achieve

30

data quality management, the questionnaires were tested on 10 respondents. This was done to test

consistency and to ensure that instruments remain consistent over time.

3.8 Data Analysis

After data processing, it was summarized and analyzed so as to make sense of the data to ensure

completeness and consistence. To facilitate reporting and inferring meaningful conclusion, data

was edited and condensed. Frequency tables, micro soft excel and Statistic Package for Social

Scientists (SPSS 11), word and among others were used for analysis; these were used to test the

relationship between the independent variable and the dependent variable, that is, internal control

and performance of non-governmental organizations. Quantitative data was edited first and

coded before analysis. Data validation was done. Thereafter, the data was summarized in form of

tables and other statistical forms found suitable for presentation of the findings.

3.9 Ethical Consideration

The researcher got an introductory letter from Cavendish University Uganda, faculty of Business

and Management to Management Sciences for Health Non-governmental organization which

show that he is a student from Cavendish University Uganda.

3.10 Limitations and problems encountered

The study had the following limitations:

The researcher encountered the problem of language barrier in some instances respondents speak

Arabic and local languages, this was solved by getting a volunteer interpreter

The researcher encountered problems of financial difficulties, especially in areas of printing,

transportation, Library fees, internet costs and feeding among others, this constraint was averted

by seeking financial sponsorship from friends and well wishers

Some respondents were too busy with their daily schedule and were failing to spare time for the

questionnaire. In such circumstances the researcher gave ample time to those respondents. This

was made possible by serving them the questionnaires in time.

31

According to Mpaata (2004:8) the questionnaire method has got some disadvantages which

include small sample size than expected. Since in this study questionnaire method was used, it

was inevitable that small sample sizes than expected were encountered. However failure to get

the stated sample size of 70did not hinder the study to take place, as only a representative sample

of 60 respondents, which is non-redundant, was adequate.

32

CHAPTER FOUR

PRESENTATION, DATA ANALYSIS AND INTERPRETATION OF FINDINGS

4.0 Introduction In this Chapter the presentation, data analysis, tables and figures were presented and

interpretation made in accordance with the research objectives of the study. The chapter is

divided into sub-chapter namely: Demographic characteristics of respondents, payment

procedures undertaken, financial records subject to internal audit, effective Procurement policies,

budgetary control on expenditure and performance.

4.1 Demographic characteristics of respondents The respondents demographic characteristics include; Age, Gender, Level of education, Time

spent on the job and Position held.

4.1.1 Age of the respondents The distribution of the respondents by age was presented in the study as shown in table 2and

figure 2 Pie-charts below.

Table 2: showing distribution of age of the respondents

Source: Primary data

Age Frequency Percentage (%)

20-25 years 6 10.0

25-30 years 11 18.3

30-35 years 29 48.3

35-40 years 10 16.7

above 40 years 4 6.7

Total 60 100.0

33

Fig 2: Pie chart showing distribution age of the respondents

Source: Primary data

From Table 2 and Figure 2 above, the respondents were required to indicate their ages and the

study revealed that the largest numbers of respondents were in the age group of 30-35years

48.3%, these were followed by those in the range of 25-30years 18.3% who were closely

followed by those in the range of 35-40 years 16.7%, those who were in the range of 20-25 years

were 10% and the smallest number was those who were in the range of 40 years. This age trend

in the organization is an indication that the majority of the respondents working in the

organization are youthful; this reflects what was reported in the National census of South Sudan

2008 which indicated that the majority of the people were youth.

4.1.2 Gender of the Respondents The study captured gender of the respondents in order to establish the most dominant working

group of the employees with MSH Organization in the environment of South Sudan which has

just come out of civil war and some areas are still insecure. The respondents were asked to state

their sex and the distributions shown in table 3 and figure 3 pie-charts below.

6

11

29

10

4 20-25 years

25-30 years

30-35 years

35-40 years

above 40 years

34

Table 3: Gender of the Respondents

Sex Frequency Percentage (%)

Female 22 36.7

Male 38 63.3

Total 60 100.0

Source: primary data

Figure 3: Pie chart Showing sample size by gender of the Respondents

Source: Primary data

According to the results for gender of the respondents on table 3 and figure 3 above. The total

numbers of the respondents were 60 out of 70 that the researcher had targeted. The majority of

the respondents were male with the percentage of 67.3%, while the female were 37%. This

therefore implies that the most dominant working group of employees with MSH Organization

were males. The imbalance in the organization attributed to various factors existed in South

Sudan, there is a traditional culture that the women are responsible for home keeping rather than

going to school or work, some religions also encourage early marriage of girls which hinders

them from furthering their education and due to the fact that there is high illiteracy rate of girl

22

38

Frequency Female

Male

35

child education in South Sudan because of long civil war. Hence there were no many qualified

and educated females to compete with few males that got their education.

4.1.3 Level of Education of the respondents

The researcher asked the respondents to state their level of education to find out whether the

respondents could be able to interpret the questionnaires given to them by the researcher. The

findings indicated some of the respondents in the targeted group have relevant knowledge to

read, interpret and answer the questionnaires given to them by the research as presented in table

4 and figure 4 below.

Table 4: Showing level of education of the respondents

Level of Education Frequency Percentage (%)

Primary 4 6.7

Secondary 7 11.7

Tertiary 49 81.7

Total 60 100.0

Source: primary data

36

Figure 4: Bar graph for the Level of Education

The study highlighted that the majority of the respondents were found to have attained tertiary

institution level of education, with 81.7%, Secondary level of education were 11.7% and primary

level of education were only 6.7% of the respondents. This implied that the highest percentage

was picked from Tertiary education level because they were equipped with the information

concerning internal control and performance of Non-governmental Organization and they were

able to interpreted and responded accurately on the questionnaire given to them by the

researcher.

4.1.4 Time spent on the job by the respondents

The researcher asked the respondents the period they had spent on their jobs to find out their

experience about the internal control and performance of Non-governmental Organization and

the findings resulted to a high level of experience on the jobs by the respondents as captured in

table 5 below

0

10

20

30

40

50

60

Primary Secondary Tertiary

Level of education

Frequency

37

Table 5: Showing Time spent on the current job by the respondents

Period Frequency Percentage (%)

Less than 2years 8 13.3

2-3 years 19 31.7

3-4 years 27 45.0

4 years and above 6 10.0

Total 60 100.0

Source: Primary data

The findings on table 5 above indicated that out of the 60 respondents who answered the

questionnaires, majority had spent 3-4 years on their current job 45.0%, they were followed by

those who had spent 2-3 years on their current job 31.7%, those who had spent less than 2 years

were 13.3% and the least number of respondents who had spent 4 years and above on their job

were only 10%

4.1.5 Position held by the respondents

The position held by the respondents in MSH Organization, was also considered by the

researcher and the findings were shown in the table 6 below.

38

Table 6: Shows responses on the position held by the respondents

Position held Frequency Percentage (%)

Accountant & Finance Staff 20 33.33

Internal Auditors 3 5

Human Resources Staff 13 22

Field Officers 17 28.33

Procurement and Logistics

Staff

5 8.33

Directors 2 3.33

Total 60 100

Source Primary data

From table 6 above, 5% Internal Auditors, 22% human resources staff, 8.33% Procurement and

Logistics Staff, 3.33% Project Directors, 28.33 Field officers and 33.33% Finance and

accountant staffs. This indicated that the study captured different respondents in all field, though

the majority of the information was obtained from finance and accounting staffs who were

directly involved on internal control and performance of non-governmental Organization. They

were having a better and clear understanding of internal control system and that gave a

researcher an upper hand to obtained required relevant information for the study.

39

4.2 Payments procedure

In an attempt to ascertain the different major payment procedures about the internal control and

performance of Non-governmental organization, findings were based on the first objective,

relevant questions were asked and responses noted.

4.2.1 Payments are properly documented

A question was asked as to whether payments procedures in MSH Organization were properly

followed and documented? The findings in table 7 below showed that there was no proper

payment procedures followed.

Table 7: Shows responses on whether payment procedures were properly documented

Responses Frequency Percentage (%)

SA 7 12

A 14 23

N

D 25 42

SD 14 23

Total 60 100

Sources: Primary data

From table 7 above, 12% strongly agreed that payments were properly documented, 23% agreed,

42% of the respondents disagreed meanwhile 23% strongly disagreed. In summary, the majority

of the respondents 42% disagreed with the statement that proper payment procedures were

40

followed, this is in conformity with the Auditors report 2012 which indicated that some of the

controls were not used when transacting accounting business.

4.2.2 Originals of Payment vouchers are certified in fully by the responsible officer

The researcher asked the respondents whether original payment vouchers certified by the

responsible by the authorized officers in MSH Organization. The findings revealed that there was

a better improvement in certifying payment vouchers.

Table 8: showing the responses on whether payment vouchers were certified

Responses Frequency Percentage (%)

SA 9 15

A 42 70

N 4 7

D

SD 5 8

Total 60 100

Source: Primary data

From the table above, concerning whether originals of payment vouchers were certified; the

majority of the respondents 70% agreed that the payment voucher were certified, these were

followed by 15% strongly agreed, 8% strongly disagreed and 7% were neutral and not sure

whether original payment vouchers were certified by the responsible officer. This implies that

original payment vouchers were properly certified.

41

4.2.3 Payments supported by the vouchers in a prescribed form

Respondents were asked if all payments were supported by the vouchers in a prescribed form.

The findings revealed that payments were not supported by the vouchers and other supporting

documentations require for completing the payment process. This is in conformity with the

MSH Auditor reports 2012 which indicated that some of the controls are not used when

transacting accounting business.

Table 9: showing the responses on whether payments were supported by the vouchers

Responses Frequency Percentage (%)

SA 6 10

A 5 8

N 11 19

D 5 8

SD 33 55

Total 60 100

Source: Primary data

From table 9 above, 55% strongly disagreed with the statement, 8% disagreed, 10% strongly

agreed meanwhile 8% agreed and 19% were neutral. It was found that the majority of the

respondents 55% strongly disagreed that all payment vouchers were supported by vouchers in a

prescribed form. This was noticed in audit report for 2011-2012 indicated that a lot of fraud was

going on in the organization which included forging a number of documents including payment

vouchers and receipts, for example the report illustrates examples of fictitious receipts produced

42

by procurement committee members, it also shows evidenced that certain collusive arrangement

with vendors benefited employees directly.

4.2.4 All payment vouchers are filed in numerical order

Respondents were asked if all payments vouchers were filed in number order. The findings are

shown in the table below.

Table 10: shows responses on whether payments vouchers were filed in numerical order

Responses Frequency Percentage (%)

SA 44 73

A 5 9

N 11 18

D

SD

Total 60 100

Source: Primary data

According to table 10 above, 73% strongly agreed that payment vouchers were filed in numerical

order and 9% agreed meanwhile 18% were neutral.

4.2.5 Payment procedures undertaken by MSH affect its performance

The researcher asked the respondents whether payments procedures undertaken by MSH affect

its performance. The findings are shown in the table below.

43

Table 11: shows responses on whether payments procedures undertaken by MSH affect its

performance

Responses Frequency Percentage (%)

SA 6 10

A 33 55

N

D 20 33

SD 1 2

Total 60 100

Source: Primary data

From the above table, 10% of the respondents strongly agreed, 55% agreed, 33% disagreed

meanwhile 2% strongly disagreed with the statement. This therefore implies that the majority of

the respondents agreed that procedures undertaken by MSH staff affect its performance to some

extend that proper financial payments procedures were being followed especially after the

intervention by the external and internal function, were the recommendations were given to suck

all those who were found to have participated in any wrong full activities.

4.3. Financial records subject to Internal Audit.

Findings on financial records subjected to internal audit, were based on the second objective,

relevant questions were asked and responses were captured.

44

4.3.1 MSH has an internal audit function which perform review

The researcher asked the respondents whether MSH has an internal audit function which perform

review and the findings are in the table below

Table 12: shows responses on whether MSH has an internal audit function which perform

review

Responses Frequency Percentage (%)

SA 5 8

A 55 92

N

D

SD

Total 60 100

Source: Primary data

From table 12: above, 92% strongly agreed and 8% agreed. There was 100% agreement with the

statement. This is in line with MSH policy that requires an internal audit function in all MSH

organizations all over the countries where MSH operate.

4.3.2 Proper review over receipts are performed

The researcher asked the respondents whether there is an existing proper review on receipts in

MSH and the findings are in the table below

45

Table 13: showing findings on proper review over receipts performed

Responses Frequency Percentage (%)

SA

A 44 73

N

D 10 17

SD 6 10

Total 60 100

Source: Primary data

From the findings above, 73% of the respondents agreed that proper reviews on receipts are

performed this was followed by 17% who disagree and 10% strongly disagreed.

4.3.3 MSH has enough internal audit staff to make reviews

The researcher further asked the respondents whether MSH has got enough internal audit staff to

perform reviews. The results obtained are shown in the table below

46

Table 14: shows responses on whether there are enough audit staff to perform reviews

Responses Frequency Percentage (%)

SA

A

N

D 55 92

SD 5 8

Total 60 100

Source: Primary data

From the finding in table 14 above, 92% disagreed and 8% strongly disagreed. This means that

That MSH did not have enough audit staff to make reviews and to carried out spot check on

financial records

4.3.4 Auditors at MSH can easily be compromised

The researcher wants to establish, if audit staff at MSH can easily be compromise to make a dealt

and with a conflict of interests and the finding was in the table below

47

Table 15: shows responses on whether audit staffs are easily compromised

Responses Frequency Percentage (%)

SA

A 5 8

N

D 11 19

SD 44 73

Total 60 100

Source: Primary data

From the finding above, 8% of the respondents agreed with statement, 19% disagreed and the

majority 73% strongly disagreed with the statement. This implies that audit staffs at MSH are

professional ethical and they cannot easily be compromised.

4.3.5 Internal auditing has led to the reduction of fraud in MSH

The respondents were asked by the researcher whether internal auditing reduced fraud in MSH.

48

Table 16: shows responses on whether internal auditing reduced fraud in MSH

Responses Frequency Percentage (%)

SA 7 12

A 37 61

N 4 7

D 7 12

SD 5 8

Total 60 100

Source: Primary data

The table 16 above shows that, 12% of the respondents strongly agreed, 61% of the respondents

agreed, 7% of the respondents were neutral, 12% disagreed and 8% of the respondents strongly

disagreed. This means that internal auditing has reduced fraud in MSH organization.

4.4 Procurement policies and procedure.

Findings on procurement policies and procedures were based on the third objective, relevant

questions were asked and responses were noted.

4.4.1 Procurement policies and guidelines that can be followed

The researcher asked the respondents whether MSH has procurement policies and guidelines that

can be followed.

49

Table 17: shows responses on procurement policies and guidelines that can be followed

Responses Frequency Percentage (%)

SA 28 47

A 16 27

N 8 13

D 8 13

SD

Total 60 100

Source: Primary data

The findings on the above table, 47% strongly agreed, these were followed by 27% who agreed,

13% were neutral and 13% disagreed. The study revealed that MSH has procurement policies

and guidelines that can be followed.

4.4.2 Strict adhere to procurement guidelines when undertaking procurement at MSH

The researcher’s intention was to find out whether there has been strict adhere to procurement

guidelines when undertaking procurement process in MSH. Questions were asked and responses

were obtained as presented in the table below.

50

Table 18: shows responses on whether there has been strict to procurement guidelines

Responses Frequency Percentage (%)

SA 14 23

A

N 2 3

D 31 52

SD 13 22

Total 60 100

Source: Primary data

According to the results, majority of the respondents 52% disagreed with the statement, 22%

strongly disagreed, 23% agreed and 3% of the respondents were neutral. This means that there

was no strict adherence to procurement guidelines when undertaking procurement process at

MSH

4.4.3 The procurement process followed is in accordance with MSH and Donor policies

The researcher’s intention was to find out whether there procurement process followed MSH and

Donor policies. Questions were asked and responses were obtained as presented in the table

below.

51

Table 19: shows responses on whether procurement process followed MSH & Donor

polices

Responses Frequency Percentage (%)

SA 16 26

A 6 10

N 4 7

D 30 50

SD 4 7

Total 60 100

Source: Primary data

In relation to the analysis made by the researcher, 26% of the respondents strongly agreed with

the statement, 10% agreed, 7% were neutral, 50% disagreed with the statement and 7% strongly

disagreed. This implies that most of the procurement processes were not in the accordance with

MSH and donor policies and there have been violations of donor procurement policies.

On further interview of some of the senior officers and staff, the general view was that the

policies are in place but they are not followed as should be the case because staffs are doing

things differently.

4.4.4 Staff who authorized purchases or expenditures does not issue the payment

The researcher asked the respondents on whether, staff who authorized purchases or

expenditures, do not issue the payment and findings were shown on the table below

52

Table 20: shows responses on whether staff that authorized purchases or expenditures does

not issued the payment

Responses Frequency Percentage (%)

SA 30 50

A 5 8

N

D 21 35

SD 4 7

Total 60 100

Source: Primary data

Finding further revealed that, 50% of the respondents strongly agreed with the statement, 8%

agreed, 35% of the respondents disagreed and 7% strongly disagreed. This implies that there

was a fair segregation of duties for the staff that authorized purchase or expenditures and staff

that issued payments.

4.4.5 There is a safeguard for protection against conflicts of interest among the

procurement officers

A question as to whether there is a safeguard for protection against conflict of interest among the

procurement officers. Findings therefore are shown on below table.

53

Table 21: shows responses on whether there is a safeguard for protection against conflicts

of interest among the procurement officers

Responses Frequency Percentage (%)

SA

A

N 9 15

D 37 62

SD 14 23

Total 60 100

Source: Primary data

Majority of the respondents 62% disagreed that there is a safe guard for protection of conflict of

interest among the procurement officers, 23% of the respondents strongly disagreed and only

15% were neutral.

4.5 Assessment of how MSH has exercised budgetary control on the expenditures.

Findings on budgetary control over the expenditures were based on the fourth objective for the

study, relevant questions were asked and responses were noted

4.5.1 MSH objectives are clearly set in the budget framework

The researcher asked the respondents whether organizational objectives were clearly set in the

budget, the intention of researcher want to know if the objectives were achieved.

54

Table 22: shows responses on the budgetary control exercised over the expenditures

Responses Frequency Percentage (%)

SA 40 67

A 8 14

N 8 14

D 3 5

SD

Total 60 100

Source: Primary data

From the table above the majority of the respondents 67% strongly agreed, 14% agreed, those of

neutral were 14% and those who disagreed were 5%. The study revealed that the largest

numbers of respondents were strongly agreed with the statement that MSH objectives were

clearly set in the budget framework and the budgetary control over expenditures was

implemented.

4.5.2 Payment were made in accordance with the current budget

The researcher asked the respondents whether payments and expenditures were made in

accordance with the current budget. The results obtained are shown in the table below

55

Table 23: shows responses on whether payment were made in accordance with the budget

Responses Frequency Percentage (%)

SA 10 17

A 3 5

N 4 7

D 38 63

SD 5 8

Total 60 100

Source: Primary data

From table 23 above, 17% of the respondents strongly agreed with the statement, 5% agreed, 7%

were neutral while 63% were the majority who disagreed and 8% strongly disagreed.

4.5.3 There is a budget desk at MSH

The researcher asked the respondents whether there is a budget desk at MSH organization. The

results obtained are shown in the table below

56

Table 24: shows responses on whether there is a budget desk at MSH

Responses Frequency Percentage (%)

SA 6 10

A

N

D 54 90

SD

Total 60 100

Source: Primary data

From the findings in table 24 above, majority of the respondents 90% disagreed and 10%

strongly agreed. This implies that budget desk does not exist at MSH.

4.5.4 Previous year’s budget performance reports are used for future planning

The researcher asked the respondents if the previous year budget performance was used for

future planning. The results obtained are shown in the table below

57

Table 25: showing findings on whether previous year budget performance report was used

for future planning

Responses Frequency Percentage (%)

SA 30 50

A 5 8

N 3 5

D 20 34

SD 2 3

Total 60 100

Source: Primary data

From table 25 above, 50% of the respondents strongly agreed with the statement, 8% agreed, 5%

were neutral and 34% disagreed, only 3% of the respondents strongly disagreed.

4.5.5 Budget conference is held every year

The researcher asked the respondents to ascertain whether budget conference is held every year

in MSH Organization. The distribution of the finding result is shown on the below table

58

Table 26: showing findings on whether budget conference is held every

Responses Frequency Percentage (%)

SA 15 25

A 4 7

N 8 13

D 29 48

SD 4 7

Total 60 100

Source: Primary data

From the table above, 25% of the respondents strongly agreed, 7% of the respondents agreed,

13% were neutral, 48% of the respondents disagreed, and 7% of the respondents strongly

disagreed.

4.6 Performance

Findings on performance of internal control for Non-governmental organizations were

considered since it was one of the variables in the study.

4.6.1 Proper financial accountability has led to better services delivery

The researcher asked the respondents to ascertain whether MSH financial accountability has held

to better services delivery. The distribution of the finding result is shown on the below table

59

Table 27: showing if financial accountability has led to better services delivery

Responses Frequency Percentage (%)

SA 44 73

A

N

D 16 27

SD

Total 60 100

Source: Primary data

From table 27 above, 44% of the respondents strongly agreed that proper financial accountability

has led to a better services delivery and 27% of the respondents disagreed. Employ tends to

comply with the internal control regulations leading to proper financial accountability and

performance.

4.6.2 Proper procurement controls have led to financial transparency

The researcher asked the respondents on whether, proper procurement controls has led to proper

financial accountability to better services delivery. The findings are shown in the table below.

60

Table 28: showing if financial accountability has led to better services delivery

Responses Frequency Percentage (%)

SA 17 28

A 5 9

N

D 35 58

SD 3 5

Total 60 100

Source: Primary data

From the table above, 58% majority of the respondents disagreed with the statement that, proper

procurement controls have led to financial transparency, 5% strongly disagreed, 28% of the

respondents strongly agreed and 9% agreed. This means that the organization needs to keep

management oversight on the procurement control.

4.6.3 Budgetary control on the expenditure has led to proper utilization of funds

This statement was considered and the findings are shown in the table below

61

Table 29: shows responses on whether budgetary control on the expenditure has led to

proper utilization of funds

Responses Frequency Percentage (%)

SA 12 20

A 12 20

N 3 5

D 29 48

SD 4 7

Total 60 100

Source: Primary data

From table 29 above, 48% of the respondents disagreed that budgetary control on the

expenditure did not led to proper utilization of donor funding, 7% strongly disagreed, 20%

strongly agreed and 20% equally disagreed, whereas 5% were neutral and having no idea

whether budgetary control on the expenditure has led to proper utilization funds

4.6.4 Internal auditing has led to compliance with rules and regulations in MSH

The researcher asked the respondents on whether internal auditing has led compliance with rules

and regulations in MSH operation and the findings are shown in the table below

62

Table 30: shows responses on whether internal auditing has led to compliance with rules

and regulations in MSH

Responses Frequency Percentage (%)

SA 50 84

A

N 5 8

D 5 8

SD

Total 60 100

Source: Primary data

The above table 30 shows that 84% strongly agreed that internal auditing has led to compliance

with rules and regulations in MSH operation, 5% disagreed and equally 5% were neutral

63

CHAPTER FIVE

SUMMARY AND DISCUSSION OF FINDINGS

5.0 Introduction

This chapter is a summary of findings, related to internal control and performance of Non-

governmental Organization. It has been arranged following the study objectives that guided this

research.

5.1 Summary of Findings

The summary of the findings is based on the four study objectives that included: examining how

MSH South Sudan has ensured effective payment to different department in the organization,

establish how MSH South Sudan has ensured financial records are subject to internal audit,

establishing how MSH South Sudan has ensured effective Procurement policies, assessing how

MSH has exercised budgetary control on the expenditure of all departments in the organization.

5.1.2 Payment Procedures

The study established that proper financial payments procedures were being followed. In

summary and basing on the findings from the respondents the majority agreed that to some

extend proper financial payments procedures were being followed especially after the

intervention by the external and internal audit function were recommendations were given to lay

off all those who were found to have participated in any wrong full activities. It can then be

concluded that payment procedures when undertaken well affect performance positively of

MSH.

5.1.3 Financial Records

As pertaining to the research question of whether financial records being subject to internal audit

that can affect performance of MSH organization. The findings indicated that the majority of the

respondents agreed that MSH had performed well in ensuring that financial records are subjected

to internal audit this is reflected by the positive response to the questions answered in the

questionnaire by the selected respondents, it is only on the issue of adequacy of the number of

staff, where all the respondents disagreed that there wasn’t enough audit staff. They also

64

disagreed that financial control systems are reviewed at MSH all the time. This therefore

indicated that internal auditing had a positive impact on the performance MSH.

5.1.4 Procurement Policies

The third objective was intended to find out how MSH South Sudan has ensured effective

procurement policies hence the development of the organization. The findings clearly indicated

that this area had a number of problems which impacted on the performance of the organization,

other than the questions that gave appositive response, the rest were negative respectively. The

implication here is that MSH lost a lot of funds under dubious procurement undertakings.

5.1.5 Budgetary control

This objective was based on establishing on how MSH had exercised budgetary control on the

expenditure of all departments in the organization. A summary review indicates that the

majority of the respondents gave a fair response though a slightly bigger percentage of the

respondents gave a negative view about budgetary control implying that again there was failure

in the use of the budgets. The budgetary control as an internal control method put in place by the

NGO and as highlighted in MSH policy did not perform as expected and therefore affected its

performance. The findings were supported by the questions which were asked directly to the

respondents in line with the stated objectives and the performance indicators of the organization

to which the majority indicated that there was an improper application of the objectives set.

Other than proper financial accountability that led to better service delivery.

5.1.6 Performance

Based on the findings, there was an indication that proper financial accountability has led to a

better services delivery and internal auditing has led to compliance with rules and regulations in

MSH operation and performance, though procurement control did not led to proper financial

accountability and budgetary control on the expenditure did not led to proper utilization of donor

funding.

65

CHAPTER SIX

CONCLUSION AND RECOMMENDATIONS

6.0 Introduction

This chapter deals with the conclusion and presents recommendations of the study. Conclusions

are made on the internal control and performance of Non-governmental organization. It also

suggested areas for further research.

6.1 Conclusion

The study assessed the relationship between internal control and performance of

nongovernmental organization a case study of MSH Organization. It answered four study

objectives that included: examining how MSH South Sudan had ensured effective payment to

different department in the organization, establishing how MSH South Sudan had ensured

financial records are subject to internal audit, establishing how MSH South Sudan had ensured

effective Procurement policies, assessing how MSH has exercised budgetary control on the

expenditure of all departments in the organization.

The conclusion therefore was that internal controls affect the performance of an organization this

could be positively or negatively depending on how it has been done.

It was established that internal controls were in place but there was need for more follow-up by

management to ensure the implementation takes place

6.2 Policy Recommendations

The financial and accounting and reporting procedures need to be enhanced this can be made

possible by allowing further training for the staff in the accounts sections and close supervision

of the audit department on the activities of accounts and finance through regular audits and

checkup.

66

There is need for improvement in the procurement process and emphasis should be made on

procurement procedures already in place this requires the active involvement of both the internal

Auditors and the procurement manager.

There is need to emphasize the budgetary control measures to enable proper financial reporting

at MSH.

6.3 Areas for Further Research

• The role of Internal controls on the performance of Public organisations.

• The impact of internal Auditing on financial management in an organisation.

67

REFERENCES

Alridge, R and Colbert.J(2004) Management’s Report on Internal Control and the Accountants’

response. In: “Managerial Auditing Journal. Volume 9.Number 7.2004.” Washington Dc.

Anderson .M (2008) Managerial Accounting, 7th edition South western Publishing Company

west Chicago

Armstrong ,M.(1999) A Handbook of Human Resource Management Practice, London: Kogan

Page Ltd.

Audit report (2009) of Norwegian people Aid under Department of state and US agency for

international development multiple agreements for the year ended December 31 2009, United

States department of state and broadcasting board of governors’ office of the inspector general.

Basoln T. (2002) Internal Control Journal of Management and Training Vol. 1 April 2001 –

March 2002.

Ciokey R. (2005) Auditing and Assurance services: An integrated Approach: Global Edition 13th

Edition

Clark, J.1991. Democratizing Development: The Role of Voluntary Organizations. West

Clarke, R. (1991) Public Expenditure Management and Control, Macmillan, London.

Commission.

DANIDA International Audit Report 2005: For various projects in Africa

Dedi .G(1999) The Audit Process: principles , practice and cases. 4th ed. London: South-

Western-Cengage Learning

Deloitte G. (1998) Optimising the role of Internal Audit in the Sarbanes-Oxley Era

Garen H (2005) Managing the Internal Auditing Function. Research Opportunities in Internal

Auditing. Altamonte Springs, The Institute of Internal Auditors Research Foundation.

68

Gazzada .S. (2009) (Smart) metering and improved billing: findings from the 1st National

Energy Efficiency Action Plans, JRC European

Ghillyer, A.W., (2010) Business Ethics: A Real World Approach. International student edition.

New York: McGraw-Hill Companies, Inc.

Goodwin B. (2003) The Relationship Between the Audit Committee and the Internal Audit

Function: Evidence from Australia and New Zealand. The International Journal of

Auditing.Volume 7, Number, 3, (November).

Groonhil B. (1999)A Balanced Scorecard Framework for Internal Auditing Departments.

Altamonte Springs, FL: The Institute of Internal Auditors Research Foundation.

Guenji K.L (1998)Financial Management: Internal Control and Audit: Participants’ Handbook

for Higher Local Governments

Haller .L. (1992)Financial Resource Management For Nonprofit Organizations, Prentice Hall

Newyork.

Henenman .M. (1998) Human and Personnel Management, London. Prentice.

Hinks, G(2005) Accountancy Age Management Briefing: unlock their potential. London:

Internal Briefings; Internal Control,

Hussein Mohammed El-Nafabi.( 2009). Public Financial Management in Sudan, a thesis

presented at College of Technology, AlmadinaAlmunawara, Saudi Arabia.

Juheno W.F (1999) Financial Systems and Development in Africa World Bank EDI Seminor.

Krishnan (2005), Jayanthi. Audit Committee Quality and Internal Control: an empirical analysis.

In: “The Accounting Review. Volume 80, Number 2

Lekorwe, M (2007) The Innovation Journal: The Public Sector Innovation Journal, Volume

14(2), 2007, Article 9.

69

Lyson,.K. (2000). Protecting the Financial Interests of the State and the European Union.

Public Management Forum, Vol. V, No. 6.

Malbok P. (2003) Auditing Today sixth edition, Pearson education

Minahan, S. (2006) “Stakeholders and strategic planning: experiences of an Australian

nonprofit organization ML Publihersquebec

Mostashari A (2005). "An Introduction to Non-Governmental Organizations (NGO)

Management," Iranian Studies Group, MIT

Mpabanga, .D. (2005) The Innovation Journal: The Public Sector Innovation Journal, Volume

12(3), 2005, Article 10.

MSH (2007) Internal Control Manual

MSH Strategic Plan (2005)

Owenrich E. (2001) Public Sector Financial Control and Accounting.2nd Edition. France:

OECD.

Oxfam Audit report (2006-2007) For Cambodia, External Audit department Washington DC

Pandey.I (2005) Financial Management New Dehelpretince Hall publisher

Park,S(2007) Governance and Internal controls in Non-Governmental organizations, ICAC Java

Road North Point Hong Kong

Public Procurement and Disposal Regulations Act (2006) Ministry Finance Sudan

Risen M. (2004) “Public Sector Growth: A real Perspective” Journal of Public Finance

November Newyork.

SefanaH(2009). Understanding Internal Control-a reference guide for Managing Organizational

Business Practices. New York,

70

Shangin G.K (2004) Financial Management: Internal Control and Audit: 6th Edition Prentice

Hall.

Shapiro Z.Y (2007) Internal Auditing: An International Approach, Pearson Education

Stevenson (2004) Research by example, London Pitman Publisher

Stoner Freeman (1998) Management pretence Hall Publisher Newyork’

Tackett, J and Gregory A (2006). Internal Control: a critical examination. In: “Managerial

Auditing Journal. Volume 21. Oxley, Newdelh

Touche M.(2004)Financial Management: Internal Control and Audit: 6th Edition Prentice Hall.

Wedhon R. (2002) Performance Measurement in Internal Audit. Volume 16, Number 4.

Weihrich. H.and Koontz.H. (2004) Management: A Global perspective. McGraw-Hill

International edition

www.iac.org.uk

71

APPENDICES

APPENDIX A: QUESTIONNAIRE

CAVENDISH UNIVERSITY UGANDA

QUESTIONNAIRE FOR THE RESPONDENTS

Dear respondent,

I am Abraham Ayom a student at Cavendish University Uganda, carrying out a research study

entitled “Internal Controls and performance for Non-governmental Organization (NGO)”. You

are among the respondent randomly selected to answer the questions. The information given

will be treated with at most confidence & for academic purpose only. Please tick or make a brief

writing where necessary.

Section A: Personal Information of the respondents

1. Age

a 25-30 years

b 30-35 years

c 35-40 years

d Above 40 years

2. Sex

a Male

b Female

72

3. Level of Education

a Primary

b Secondary

c Tertiary

4. Time spent on the current job

a Less than 2 years

b 2-3 years

c 3-4 years

d 4 years and above

5. Position held by the respondents

a Finance and Accounting

b Internal Auditor

c Human Resource

d Field Officer

e Procurement & Logistics

f Director

73

Section B: Payment Procedures, Financial Records, Procurement Policies, Budgetary

Control and Performance.

For each of the following statements in section B below, indicate your level of ranking by ticking

one of the given statements using the following 5 points Likert scale (1-5) where necessary.

1=Strongly Agree (SA)

2= Agree (A)

3= Neutral (N)

4= Disagree (D)

5= Strongly Disagree (SD)

S/NO 1. Payment Procedures 1 2 3 4 5

a Payments are properly documented

b Originals of payment vouchers are certified in fully by the

responsible officer

c All payments are supported by vouchers in a prescribed form

d All payment vouchers are filed in numerical order

e Payment procedures undertaken by MSH affect its performance

Ensuring financial records are subjected to internal audit

S/NO 2. Financial Records 1 2 3 4 5

a MSH has an internal audit function which performs review

b Proper review over receipts are performed

74

c MSH has enough internal audit staff to make reviews

d MSH Audit staff is easily compromised

e Internal auditing has led to the reduction of fraud in MSH

Procurement policies documented and are applied consistently

S/NO 3. Procurement Policies 1 2 3 4 5

a MSH has procurement policies and guidelines that can be

followed

b There has been strict adherence to procurement guidelines when

undertaking procurement at MSH

c The procurement process follow is in accordance with MSH

policies and Donor policies

d Staff who authorized purchases or expenditures do not issue the

payment

e There is a safeguard for protection against conflicts of interest

among the procurement officers

Assessment of how MSH has exercised budgetary control

S/NO 4. Budgetary Control 1 2 3 4 5

a MSH objectives are clearly set in the budget framework

b Payment are made in accordance with the current budget

c There is a budget desk at MSH

d Previous year’s budget performance reports are used for future

planning

75

e Budget conference is held every year

S/NO 5. Performance 1 2 3 4 5

a Proper financial accountability has led to better services delivery

b Proper procurement controls have led to financial transparency

c Budgetary control on the expenditure has led to proper utilization

of funds

d Internal auditing has led to compliance with rules and regulations

in MSH operations

a. what are some of the problems associated with internal control at MSH?

b. what do you think can be done to improve on internal controls in MSH?

Thank you for your co-operation

76

APPENDIX B: ESTIMATED BUDGET

Activity Cost Estimated amount in South

Sudanese Pound(SSP)

Stationary 700

Secretarial work 1,000

Transport 1,400

Feeding and other logistics 2,500

Internet costs 400

Total 6,000

77

APPENDIX C: RESEARCH WORK PLAN

Topic

Formulation

2 weeks

Objective

Formulation

1 day

Literature

Review

1 week

Methodology

3 days

Proposal Formulation

Data

Collection

3 week

Data Analysis

& Interpretation

1 week

Summary

& Conclusion

3 days

78

APPENDIX D: Interview Guide

1. Do you think Proper financial accountability has led to better services delivery?

2. Have Proper procurement controls led to financial transparency at MHS/

3. Has budgetary control on the expenditure led to proper utilization of funds?

4. Do you believe internal auditing has led to compliance with rules and regulations in MSH

operation?

5. What are some of the problems associated with internal control at MSH?

6. What do you think can be done to improve on internal controls in MSH?