INTERNAL CONTROL SYSTEMS AND CASH MANAGEMENT

POLICIES IN NON GOVERNMENTAL ORGANISATIONS:

A CASE STUDY OF INSTITUTE FOR INTERNATIONAL

CO-OPERATION AND DEVELOPMENT (C&D)

LUGOGO KAMPALA- UGANDA

BY

PERINGA BEATRICE

BBA/44404/143/DU

A RESEARCH REPORT SUBMITTED TO THE COLLEGE OF ECONOMICS

AND MANAGEMENT IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR THE AWARD OF BACHELORS

DEGREE IN BUSINESS ADMINISTRATION OF

KAMPALA INTERNATIONAL UNIVERSITY

MAY 2017

DECLARATION

I Peringa Beatrice, hereby declare that this research report is my original piece of work

and has never been submitted to any university or institution for any award

Signed ................ ~~': .................. .... . .

Date .. . ... .... . . ~!:: . .f.C?§./..~ .1.:t ...... . PERJNGA BEATRICE

BBA/44404/143/DU

APPROVAL

This research report has been made under my supervision and is now ready for

submission.

Signed.............. . ......... .

Dr. !Grabo K.B Joseph

ii

DEDICATION

I dedicate this research report to my beloved mother Miss. Agness, my father Mr. Owinja

Remigio, my manager Mr. Odaga James, sister Alice, my brothers Fred and

Vascodagama and my friends Nabulwala Mwasiti, Francis Xavier and unmentioned

relatives for care and support they rendered throughout my education. May God Bless

You all Abundantly.

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ACKNOWLEDGEMENT

Work of this nature can only be completed with external support and guidance, its

therefore under this note that I wish to extend my sincere gratitude and appreciation to

the following people.

I greatly acknowledge thanks to my supervisor Dr. Kirabo K.B Joseph for his guidance

and advice during the research preparation and report writing. Special thanks go to staff

members of Kampala International University especially the lecturers in the department

of Accounting and Finance for their various suppo1i and contribution towards my stay at

Kampala International University.

I cannot forget my mother Miss. Agness who has been there for me all through my

education life time. I am also highly thankful to my manager Mr. Owinja James who has

helped me in the ups and downs. Your contributions are highly appreciated. A vote of

thanks goes to my father Mr. Owinja Remigeo who showed me the right way.

God thanks for the wisdom and strength you have given me to write this report without

you I would not have managed.

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TABLE OF CONTENTS DECLARATION ........................................................................................................................................... i

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

DEDICA T!ON ............................................................................................................................................. iii

ACKNOWLEDGEMENT ........................................................................................................................... iv

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

ABBREVIA T!ONS AND ACRONYMS .................................................................................................. viii

ABSTRACT ................................................................................................................................................. ix

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

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

I. I Background to the study .............................................................................................................. 1

1.1.1 1-1 istorical Perspective .................................................................................................................. 1

1.1.2 Conceptual Perspective ................................................................................................................ 2

1.1.3 Theoretical Perspective ................................................................................................................ 3

1.1.4 Contextual perspective ................................................................................................................ 4

1.2 Problen1 stnte111ent ....................................................................................................................... 4

1.3 Purpose of the study .................................................................................................................... 5

1.4 Objectives of the study ................................................................................................................ 5

1.5 Research questions ...................................................................................................................... 5

1.6 l·Iypothesis ................................................................................................................................... 5

1.7 Scope of the study ....................................................................................................................... 5

1.7.1 Conceptual scope ......................................................................................................................... 5

1.7.2 Geographical scope ...................................................................................................................... 6

1.8 Significance of the study ............................................................................................................. 6

1.9 Delinition of key terms ................................................................................................................ 6

CHAPTER TWO .......................................................................................................................................... 8

LITERATURE REVIEW ............................................................................................................................. 8

2.0 Introduction ................................................................................................................................. 8

2.1 Theorcticnl Review of internal control systems and Cash Management ................................................. 8

2.2 Conceptual Review Internal control and Cash Management ................................................................ 10

2.2.1 Personnel ............................................................................................................................................ 10

2.2.2 Authorization and approval ................................................................................................................ 11

2.2.3 Segregation of Duties ......................................................................................................................... 11

2.2.4 Physical Restrictions .......................................................................................................................... 12

2.2.5 Sup~rvision ........................................................................................................................................ 12

2.2.6 Arithn1etical and accounting .............................................................................................................. 12

2.2.7 Budg.eting ........................................................................................................................................... 13

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2.2.8 Organizational plan ............................................................................................................................ 13

2.2.9 Managen1ent controls ......................................................................................................................... 14

2.3 Definition of cash 1nanage1nent ............................................................................................................ 14

2.4 Con1ponents of cash inanagement ......................................................................................................... 15

2.5. l rv1anagement of receipts and disbursements .............................................................................. 15

2.5.2 Cash planning ..................................................................................................................................... 15

2.5.3 Maintenance of optin1un1 cash levels ... ; ............................................................................................. 16

2.6 Empirical Review of internal controls and cash management systems ................................................. 16

2.6.1 Personnel and cash 1nanage111ent ........................................................................................................ l6

2.6.2 Segregation of duties and cash management systems ........................................................................ 17

2.6.3 Supervision and cash n1anagen1ent .................................................................................................... 17

CHAPTER THREE ..................................................................................................................................... 18

RESEARCII METHODOLOGY ................................................................................................................ 18

3.0 lntrnduction ............................................................................................................................... 18

3.1 Research dcsign ......................................................................................................................... 18

3.2 San1pling design ........................................................................................................................ 18

3.2.1 Study population ........................................................................................................................ 18

3.2.2 Sample size and sample selection method ................................................................................. 18

3.3 Data Collection Instruments/Methods ....................................................................................... 18

3.3.1 Questionnaires ........................................................................................................................... 18

3.3.2 Docun1ent revie\v ....................................................................................................................... 19

3.4 Validity and reliability ............................................................................................................... 19

3.5 Data processing and analysis ..................................................................................................... 20

3.5. l Dntn nnnlysis ...................................................................................................................................... 20

3.6 ethical considerations ................................................................................................................ 20

3.7 Limitation of'the study .......................................................................................................................... 21

CHAPTER FOUR ....................................................................................................................................... 22

PRESENTATION, INTERPRETATION AND DISCUSSION OF RESULTS ......................................... 22

4.0 \ntroduclion .................................................................................................................................... 22

4.1 Findings about gender of the respondents ............................................................................................. 22

4.1.2 Findings about the age of respondents ............................................................................................... 22

4.1.3 Findings about the marital status of respondents ............................................................................... 23

4.1.4 Findings about highest qualifications acquired by respondents ......................................................... 23

4.1.5 Findings about the period worked with Co-operation and Development.. ......................................... 24

4.2 Findings on objective one which is to assess the effectiveness of internal controls used in institute for international Co-operation and Development. ............................................................................................ 24

4.2.1 Findings as to whether management has high professional moral standards and makes efforts to establish awareness of the importance of internal controls among employees ........................................... 24

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4.2.2 Findings as to whether management is aware of the different types and degrees ofrisk exposure inherent in these factors .............................................................................................................................. 25

4.2.3 Findings as to whether management sets limits to the acceptable amount or degree of risk inherent in the organization .......... ~ ................................................................................................................................ 25

4.2.4 Findings as to whether management regularly checks the effectiveness of its risk management system ......................................................................................................................................................... 26

4.2.5 Findings on whether C&D has in place a system for close monitoring of activities of various deparln1ents ................................................................................................................................................. 27

4.2.6 Findings as to whether management ofC&D prepares budgets to control costs ............................... 27

4.2. 7 Findings on whether C&D recruits staff with appropriate experience, knowledge/ skill level, and degree of expertise to undertake specialized operations ............................................................................. 28

4.2.8 Findings on whether C&D revises training programs in accordance with changes in operation and sophistication of risk n1anage1nent. ...................................................................................................... 29

4.2.9 Findings on whether internal audit section I department have auditors with expertise in each area, and can effectively audit C&D's overall operations ................................................................................... 29

4.2. IO Findings as to whether internal audit section/ department take initiative in directing improvement nieasures ...................................................................................................................................................... 30

4.2.11 lindings as to whether C&D has a means of effective communication system ................................ 30

4.2. 12 findings on whether there are fraud detection mechanisms in accounting system ........................... 31

4.3 Findings on objective two which was to find out cash management policies used in C&D ................. 32

4.3. I Findings on whether management ofC&D sets a maximum limit for cash withdrawal .................... 32

4.3.1 Findings on whether management ofC&D carries out cash planning ............................................... 33

4.3.3 Findings on whether there is collusion of people who are responsible of handling cash ................... 33

4 .4 Findings on objective three which was to establish the relationship between internal controls and cash n1anagen1ent ................................................................................................................................................ 34

4.4.1 Respundents were asked to ascertain whether safeguards in place can guarantee security ................ 34

4 .4.2 Respondents were asked to ascertain whether all accounting entries are supported by appropriate docun1entntio11 ................................................... : ......................................................................................... 34

4.4.3 Respondents were asked to ascertain whether there is separation ofresponsibility in the receipt, payn1e11t, and recording of cash .................................................................................................................. 35

4.4.4 The correlation between internal controls and cash management. ..................................................... 36

CHAPTER FIVE ........................................................................................................................................ 37

SUMMARY OF FINDINGS, CONCLUSSlON AND RECOMMENDATIONS ...................................... 37

5.0 1 nlrocluction .................................................................................................................................... 37

5.1 Sun11nary of findings ...................................................................................................................... 37

5.2 Conclusion ..................................................................................................................................... 38

5.3 Rccon1n1endations .......................................................................................................................... 39

5.4 Areas for further research .............................................................................................................. 39

REFERENCES ........................................................................................................................................... 40

Appendix I .................................................................................................................................................. 44

Appendix IJ ..... , ........................................................................................................................................... 45

vii

ACCA

AICPA

C&D

C.I.M.A

CoCo

coso CVI

IICD

ISA

NGO

SPSS

ABBREVIATIONS AND ACRONYMS

Association of Chartered Certified Accountants

American Institute of Certified Public Accountants

Institute for International Co-operation and Development

Chartered Institute of Management Accountants

Criteria of control

Committee of Sponsoring Organizations of the Tread way Commission

Content Validity Index

Institute for International Co1voration and Development

International Standards on Auditing

Non-Governmental Organization C

Statistical Packages for Social Sciences

e.g. = For example

i.e.= That is to say

0

viii

ABSTRACT

The study was about internal control systems and cash management policies in

Non-Governmental Organizations. Institute for International Co-operation and

Development (C&D) was taken for a case study and it was aimed at establishing

the effect of internal control systems on cash management. The objectives of the

study were; to assess the effectiveness of internal control systems used in Institute

for international co-operation and development, establish cash management

policies used in C&D, and to establish the relationship between internal control

systems and cash management policies in C&D. The research designs employed

were descriptive and analytical research designs. A sample of thirty (30)

respondents was taken for a study form which the research was canied out. The

main instrument for collecting primary data was questionnaire, while secondary

data was collected by reviewing files, documents, published books, articles and

journals.

The findings from the study revealed that there are no internal auditors in C&D,

C&D irregularly revises training programs in accordance with changes in operations

and sophistication of risk management, there is no proper means of communication

with entities operating payment systems and supervisory authorities. Also, that there

is laxity ol' management in setting limits to the acceptable degree of risks inherent to

the organization, and that those handling money collude to circumvent controls and

misappropriate cash. Findings further revealed that there is a significant positive

relationship between internal control systems and cash management policies. It was

recommended that sample checks be instituted to ensure efficiency of cash . management and overall financial performance of the organization, separate

responsibilities/duties to avoid any conflict of choice or interest, employ internal

auditors with experience, and monitoring employees closely to ensure that they do

not circumvent certain controls, thereby weakening the established system.

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1.0 Introduction

CHAPTER ONE

INTRODUCTION

This chapter presents the background to the study, the problem statement, the rationale

of the study, the objectives of the study, the research questions to be used in the study,

the scope of the study, and the significance of the study.

1.1 Background to the study.

1.1.1 Historical Perspective

Historical development of internal control as individual enterprise system is not as broad

as other management spheres in science directions. The definition of internal control

was presented for the first time in 1949 by the American Institute of Certificated

Accountants (AI CPA). It defined internal control as a plan and other coordinated means

and ways by the enterprise to keep safe its assets, check the covertness and reliability of

data, to increase its effectiveness and to ensure the settled management politics.

However, the presented definition of control concept has been constantly improved, and

nowadays there is quite an extensive set of conceptions that indicates the system of

internal control as one of the means of leadership to ensure safety of enterprise assets

and its regular development. In 1992, the COSO model appeared; its analysis

distinguished the concepts of risk and internal control.

Now, the concept of internal control involved not only accounting mistakes and

implementing means of their prevention, but also a modern attitude that might identify

the spheres of control management and processes, and also a motivated development of

their detailed analysis. A comparative analysis of the introduced concepts of internal

control shows that the usage of the concept of internal control is quite broad as it is

supposed to involve the performance not only of the state, but also of the private sector.

Although the conception of internal control is defined in different ways emphasizing its

different aspects, the essential term still remains the same in all authors' definitions:

internal control is the inspection, observation, maintenance and regulation of the

enterprise's work (Barnabas, (2011).

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It should be also be mentioned that the system of internal control may be defined in

different ways every time. For example, Yeh (2007) pay attention to the fact that usually

such values as honesty, trust, respect, opermess, skills, courage, economy, initiative, etc.

are not pointed out, although they definitely can influence not only the understanding of

the concept of internal control, but also its definition, because in different periods of

time and in different situations it can obtain slightly different shades of meaning.

Control and people, and values produced by people or their performance are tightly

connected; consequently, internal control must be also oriented to the enterprise's

values, mission and vision; it does not matter how differently authors define the

conception assessment limits: significant attention must be paid not to internal control

itself, but to the identification of its fonctions and evaluation (Drury. (2012).

1.1.2 Conceptual Perspective

Internal controls and cash management in non-governmental organizations (NGO"s) in

U gancla have been conceptualized as a concern for this research because effective

internal control mechanisms are meant to be a risk measure to prevent the organization

from any potential loss. Internal controls therefore refer to the whole system of controls,

financial and otherwise, established by the management to carry out the tasks of an

organization in an orderly manner, ensuring adherence to organizations policies,

safeguard its assets and secure as far as possible the accuracy and reliability of its

records (Gupta, 2003).

Cash management on the other hand is also conceptualized as a broad term that refers to

the collection, concentration, and disbursement of cash. The goal is to manage the cash

balances of an enterprise/organization in such a way as to maximize the availability of

cash not invested in fixed assets or inventories and to do so in such away as to avoid the

risk of insolvency Drury, (2012).

2

1.1.3 Theoretical Perspective

According to Chung, Lee Chong, Jung (2005), control may be divided into two types -

internal and external controls those might help to equalize authority or concerned party's

attitudes to some certain organization control. So Internal control involves the supreme

enterprise control apparatus and enterprise shareholders, whereas external control might

be defined as the power in the market or branch, competitive environment or state

business regulation. Such analytical division is essential when analysing industrial or

other enterprises, because this attitude to control makes it more specific and properly

clefinecl.

Criteria of control (CoCo) theory describe internal controls as actions that foster the best

result for an organization. It indicates that control comprises:

"those elements of an organization (including its resources, systems, processes, culture,

structure and task:,) that, taken together, support people in the achievement of the

organization's objectives." Factors monitored as a pmt of cash management include a

company"s level of liquidity, its management of cash balances, and its short-term

investment strategies.

The key to successful cash management, therefore, lies in tabulating realistic

projections, monitoring collections and disbursements, establishing effective billing and

collection measures, and adhering to budgetary restrictions.

However, the internal control measures of institute for international co-operation and

development over cash management have suffered fatal challenges. Accountability from

its field base office in Moroto has become a nightmare in that many a time, cash is being

misused by the Italian volunteers on their personal leisure, carried in the cash box to the

office, and receipts for expenditures are not always available. This makes it difficult for

C&D to achie\'e its goals and objective (Dinapoli, (2007).

3

I

1.1.4 Contextual perspective

The researcher shall in this context seek to understand the disparities surrounding the

internal controls systems thus internal controls is the whole system that controls

financial and otherwise established by management in order to carry on business of an

organization in an orderly manner to ensure adherence to management policies,

safeguard the assets and secure as possible the completeness and accuracy of records

and on the other hand, cash management policies as a corporate process of collecting

and managing cash, as well as using it for (sho1t-term) investing. It is a key component

of ensuring a company's financial stability and solvency in relation to the institute for

international co-operation and development-C&D (Neldon, 2013).

The study is about an analysis of the effect of internal control on the Cash Management

in C&D. The assessment of internal control underpins the fact that the internal control is

becoming very impo1tant in achieving the objectives of organizations. "Internal control"

and "internal control" are close and commonly inte1twined terms, often used

interchangeably. However, there are fonctional and operational distinctions between

internal control and internal control. Internal controls are the systems adopted and put in

place by the organization owners to ensure sound financial management and service

delivery, whereas internal control is the check of those systems. Internal control

processes arc intended to provide generic assurances to mitigate the probable risks via

ex ante expenditure checks.

1.2 Problem statement

Every organization needs strong internal control mechanisms such as authorization of

access to assets and accounting records, regular independent verifications, a system of

internal checks (segregation of duties), suitable documents to capture transactions,

proper procedures for processing transactions, employment of honest and capable

employees. Despite the fact that such control measures have been put in place by

management, finances have continued being mismanaged in C&D. This is probably

being caused by weak internal controls. E.g. staff colluding internally or with outsiders

to circumvent the controls, internal controls covering only routine transactions, abuse of

controls by those with authority (Dinapoli, (2007).

4

If this continues, it will lead to poor service delivery, donors refusing to fund C&D

projects, and probably closure by government for failing to deliver to their expectation.

1.3 Purpose of the study

The pmvose of the study was to establish the relationship between internal controls and

cash management i.e. the effect of internal controls on cash management.

1.4 Objectives of the study

1. To establish the internal control systems 111 institute for international co­

operation and development.

11. To determine cash management policies used in institute for international co­

operation and development.

IIL Establish the relationship between internal control systems and cash management

policies in institute for international co-operation and development

1.5 Research questions

The following research questions shall be asked by the researcher;

1. Are internal control systems in institute for international co-operation and

development effective?

ii. What cash management policies are used by institute for international co­

operation and development?

u1. What is the relationship between internal control systems and cash management

policies employee! by C&D?

1.6 Hypothesis

Ho; There is no significant relationship between internal control systems and cash management policies.

1.7 Scope of the study

1.7.1 Conceptual scope

The study defined internal controls, cash management, and establishing the relationship

between internal controls and cash management.

5

1. 7.2 Geographical scope

The study was carried out at the institute for international co-operation and development

(C&D) located at P.o.Box 7205, Kampala Lugogo By-Pass, Kampala, Uganda. Institute

for International Cooperation and Development (IICD), is a private nonprofit

organization in the United States with their stated purpose is to train volunteers for

humanitarian projects In South and Central America and sub-Saharan Africa Uganda

inclusive. They are affiliated with Tvind, a network of schools, aid agencies and

commercial businesses based in Denmark, as part of Tvind's "DRH Movement"

(Ambrosia 2013)

1.8 Significance of the study

1. The research will help non-governmental organizations to formulate and design

pmper intemal control mechanisms.

11. The study will help improve on cash management in institute for international

co-operation and development.

n1. Academicians and researchers will find this work useful for further research by

identifying various areas covered and knowledge gaps, thus using it for literature

revie,:ving.

iv. The study will extend the frontier knowledge in the field of accounting and

finance to the public and assist the researcher improve on his knowledge of

doing research

1.9 Definition of key terms

Internal control, as defined in accounting and auditing, is a process for assming

achievement or an organization's objectives in operational effectiveness and efficiency,

reliable linancial reporting, and compliance with laws, regulations and policies.

Cash management is the corporate process of collecting and managing cash, as well as

using it for (short-term) investing. It is a key component of ensuring a company's

financial stability and solvency.

6

A non-governmental organization (NGO) is a not-for-profit organization that is

independent from states and international governmental organizations. They are usually

funded by donations but some avoid formal funding altogether and are run primarily by

volunteers. NGOs are highly diverse groups of organizations engaged in a wide range of

activities. and take different forms in different parts of the world. Some may have

charitable status. while others may be registered for tax exemption based on recognition

of social purposes. Others may be fronts for political, religious, or other interests.

A policy is a deliberate system of principles to guide decisions and achieve rational

outcomes. A policy is a statement of intent, and is implemented as a procedure or

protocol.

7

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2.0 Introduction

CHAPTER TWO

LITERATURE REVIEW

This chapter endeavored to define internal controls, cash management, and established

the relationship between internal controls and cash management. It will cover what

scholars wrote about internal controls and cash management from selected journals, text

and internet.

2.1 Theoretical Review of internal control systems and Cash Management

Internal controls is the whole system of controls financial and otherwise established by

management in order to carry on business of an organization in an orderly manner to

ensure adherence to management policies, safeguard the assets and secure as possible

the completeness and accmacy of records (Arora 2010). The Internal Control System

refers to an organized amalgamation of functions and procedures, within a complete

system of controls established by the management and whose purpose is the successful

function of the business. The Internal Control System is all the methods and procedures

followed by the management in order to ensure, to a great extent, as much successful

cooperation as possible with the director of the company, the insurance of the capital,

the prevention and the detection of fraud, as well as the early preparation of all the

useful financial information. According to Bishop (2009), the Internal Control System

resembles the human nervous system which is spread throughout the business carrying

orders and reactions to and from the management. It is directly linked to the

organizational structure and the general rules of the business.

2. I. I Internal Control

The term was adopted by the Anglo-Saxons ("Internal Auditing") and refers to the unit

of Internal Control which aims at the evaluation of the sufficient functioning of the

Internal Control System, that is the secondary functions (Controls) and suggests that

there is room for improvements in cases where weaknesses are being discovered (Arora

2010).

8

According to the AICP A, a system of internal control extends beyond those matters

which relate directly to the functions of accounting and the financial statements. In

addition, based on the ASOBAC (Committee on Basic Auditing Concepts), internal

control is a systematic procedure which will lead to evaluate the degree of correlation

between those established criteria and the real results of the business. Internal Control,

as defined from the APC (Auditing Practices Committee), is an independent

examination and certification from an inspector appointed by the business to control the

finances according to the legal framework established each time.

Furthermore, according to Huslid (2013), internal control is a systematic review and a

subjective investigation of one element and encompasses the verification of the specific

information as these are determined from the general practice. The internal control helps

the company to achieve its goals using a systematic approach of assessing the

effectiveness of handling dangers. Internal control, as defined from the Hellenic Institute

of Internal Auditors (I-I.I.I.A) is an independent, objective, adequately designed and

organized procedure, which through the technical and the scientific approaches, assess

how adequately the system of internal control functions. From the above definitions, it is

clear thar the internal control is not just an one-sided tool for controlling the order and

rightness of cerrain situations, but it is a method of detecting the value added up to a

company, achieving the index of effectiveness and profitability of the company Drucker

(2004). Besides. the purpose of this control is the intentional, the programmed and

focused effect of the company on the current situation, so as this situation to be

reformed in the future and become the one that ought to exist. The deviation between the

already achieved and the programmed situation can also become possible through

controlling the parameter of correct handling of danger situations.

Co bit (2007), claimed that the objective purpose of Internal Control is, on the one hand,

the allowance of specific and high level of services offered towards the management,

and on the other hand, the allowance of assistance towards the members of the

organization for the most effective practicing of their duties. The Internal Control

Systems are being implemented in businesses as tools that add up value to the company.

9

In this way, we can achieve a systematic approach towards the most effective operation

of the organization, as a unity.

ISA315 Jdent!fying and Assessing the tasks of Material Misstatement Through

understanding the Entity and its Environment defines the internal control system as the

process designed and effected by those charged with governance, management and other

personnel to provide reasonable assurance about the achievement of the entity"s

objectives, with regard to reliability of financial reporting, effectiveness and efficiency

of operations and compliance with applicable laws and regulations. Put simply, the

internal controls are all means that are designed to check the activities to ensure that the

objectives of the enterprise are met.

Bishop (2009), remarks that individual components of an internal control system are

known as ,,controls" or ,,internal controls". This definition is all embracing; it includes

internal checks, internal control, and all the other controls established by management.

From the above, internal controls can be defined as a set or course of action and

procedures set by management of an organization to protect its assets from theft, ensure

optimum but authorized use of company resources, and evaluate the performance of

personnel and organization as a whole so as to ensure achievement of goals.

Finally. as mentioned by the COSO report (Committee of Sponsoring Organizations of

the Treadway Commission), Internal control is defined as a procedure which offers

fundamental security to the business concerning the credibility of financial affairs. The

report defines internal control and describes a framework for internal control. But the

difference of this report is that it also provides criteria for the management to utilize so

as to evaluate controls, Bishop (2009).

2.2 Conceptual Review Internal control and Cash Management

2.2.1 Personnel

Crowhurst (2008), asserts that there should be some procedures to ensure that personnel

have capabilities commensurate with their responsibilities. Personnel need to be

competent and trustworthy, with clearly established lines of authority and responsibility

10

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j

documented in written job descriptions and procedures manuals. Inevitably, the proper

functioning of any system depends on the competence and integrity of those operating it.

The qualification, selection, training, as well as the innate personnel characteristics are

impo1iant features to be considered in setting up any control system. Crowhurst (2008),

maintained that staff assigned to conduct any activity should possess adequate

professional proficiency for the task required.

2.2.2 Authorization and approval

According to Drucker 2004), all transactions should be authorized and approved by an

appropriate responsible person though the limits for these anthorizations should be

specified to ensure adherence to internal controls and mitigate any potential loss.

Drucker (2004), said that authorization to initiate or approve transactions should be

limited to specific personnel.

2.2.3 Segregation of Duties

According to Robert (2008), one of the prime means of control is the separation of those

who are responsible or have duties which, if combined, enable one individual to record

and process a complete transaction. When the work of one employee is checked by

another, and when the responsibility for custody for assets is separate from the

responsibility for maintaining the records relating to those assets, there is appropriate

segregation or duties.

However, actual job titles and organization structure may vary greatly from one

organization to another, depending on the size and nature of the business. With

segregation or duties, critical duties can be categorized into, authorization, custody,

record keeping and reconciliation.

In a perfect system according to Cobit (2007), an individual is not to have responsibility

for more than one of the three transaction components: authorization, custody, and

record keeping.

11

2.2.4 Physical Restrictions

According to I-Iuslid (2013), physical restriction is concerned mainly with the safe

custody of assets and procedures involved in accessing them. This control measure is

designed to safeguard assets, processes and data and ensure access is limited to

authorized personnel. i.e. both direct and indirect access via documentation. It should be

noted that both assets and records must be secured against theft, manipulation, fire and

destruction. However, Robert (2008), remarks that; assets should be physically secured,

and access to them be limited, and that reconciliation of assets to accounting records be

prepared periodically, and reconciling items be resolved timely.

2.2.5 Supervision

Robert (2008). asserts that any system of internal controls should include the supervision

by responsible officials of the day-to-day transactions and the recording thereof.

Physical assets should be counted periodically and the results compared with accounting

records. Discrepancies should be reported to administrators and investigated. However,

supervision involves directing the effo1is of assistants who are involved in

accomplishing the objective of the review/audit and determining whether those

objectives were accomplished. The work completed by assistants should evidence that a

supervisory review was performed which determined the adequacy of the work and

evaluated the result. Monitoring Operations is essential to verify that controls are

operating properly. Reconciliations, confirmations, and exception repo1is can provide

this type of information.

2.2.6 Arithmetical and accounting

According to Bishop (2009), these are controls within the recording function which

checks that the transactions to be recorded and processed have been authorized. This

internal control ensures that information and transactions are accurately recorded and

processed. Such controls include checking arithmetic accuracy of records, maintenance

and checking totals. reconciliation, control accounts and trial balance.

Holmes (2006), remarks that accounting policies and procedures for handling financial

transactions should be recorded in an accounting procedures manual, describing the

12

administrative task and who is responsible for each. The manual should be a formal

document, but rather a simple description of how functions such as paying bills,

transferring funds, depositing cash are handled. Writing or revising accounting

procedures manual is a good opportunity to see whether adequate controls are in place.

2.2.7 Budgeting

The chartered institute of management accountants (C.I.M.A), London, defined a budget

as "a financial and/or quantitative statement, prepared prior to a defined period of time,

of the policy to be pursued during that period for the pwpose of attaining a given

objective. "

Budgetary control is a system of controlling costs through preparation of budgets.

C.I.M.A. London defines it as "the establishment of budgets relating to the

responsibilities of executives of a policy and the continuous comparison of actual with

budgeted results, either to secure by individual action the objectives of that policy or to

provide a basisfi)l· its revision."

The following are therefore involved in budgetary control:

1.

11.

111.

iv.

Establishment of budgets for each function

Measurement of actual performance.

Comparison of actual performance with budgeted performance to find

out variations. if any.

Ascertainment of the reasons for such variations and taking suitable remedial

action.

According to this, organizations should therefore prepare budgets to control costs.

2.2.8 Organizational plan

According to Dinapoli, (2007), an organization or enterprises should have a plan of

action for a given period, designed to achieve its goals. An institution"s organization

structure should provide the overall framework for internal controls needed to ensure

effective planning, directing, and controlling of operations. According to Meigs and

!Vleighs (2007), the institution's size, diversity, and complexity of operations all affect

the level of control required.

13

' ' ' I i

I I I ' t I I 1 ' I !

2.2.9 Management controls

Drucker (2004) found that management controls are controls exercised by management

outside the day-to-day routine of the system. They include the overall supervisory

controls, review of management accounts and comparison thereof. Transactions should

be properly documented and the records retained in an organized ma1111er. Management

philosophy and operating style can significantly affect the internal control environment

of an organization. This philosophy further encompasses a broad range of characteristics

applicable to both the board and executive management. Such may include the approach

to taking and monitoring risks, attitudes and actions towards financial repo1iing, use of

policies and procedures, and emphasis on planning and meeting budget and other

financial and operating goals. Meigs (2007) ascertains that these characteristics have a

significant influence on the control environment.

2.3 Definition of cash management

Cash management is defined as "having the right amount of money in the right place

at the right time to meet the organization"s obligations in the most cost effective

way."

According to Crowlrnrst (2008), cash consists of legal tender i.e. paper money and

coins, cheques, bank drafts, money orders and demand deposits in banks. With

Crowhurst (2008 ). cash is money which a firm can disburse immediately without

any restriction. The term to him includes coins, currency, cheques held by the firm,

and cash balances in its bank account.

In banking, cash management, or treasury management, is a marketing term for

certain services related to cash flow offered primarily to larger business customers. It

may be used to describe all bank accounts (such as checking accounts) provided to

businesses of a certain size, but it is more often used to describe specific services such as

cash concentration. zero balance accounting, and automated clearing house facilities.

Sometimes, priv8te banking customers are given cash management services. Financial

instruments involved in cash management include money market funds, treasury bills,

and certificates of deposit (Drury, (2009).

14

2.4 Components of cash management

This addresses the various elements under cash management. Successful cash

management involves not only avoiding insolvency, but also reducing the length of

account receivables (AR), increasing collection rates, selecting appropriate short-term

investment vehicles, and increasing cash on hand to improve a company's cash position

and profitability. Successfully managing cash is an essential skill for small business

developers, because they typically have less access to affordable credit and have a

significant amount of upfront costs to manage while waiting for receivables. Wisely

managing cash enables a company to meet unexpected expenses, and to handle regularly

occurring events such as payroll distribution. Crowhurst (2008)

2.5.1 Management of receipts and disbursements

Gupta (2003) observes that cash needs to be jealously controlled for a business or

an organization to thrive. According to Gupta, (2010), all invoices should be

authorized and that all cheque payments are made by an authorized person, to

prevent fraud and fictitious payments. According to Drury, (2012), supervision over

cheque payments are as follows; Cheques should be in sequential order, unused

cheques should be held in a secure place, and the person preparing cheques should

have no responsibility over purchases. An employee of an organization handling

cash responsibilities should ensure that all funds receipted for have been properly

deposited and recorded (Nobanee, Haitham; Abraham, Jaya (2015).

2.5.2 Cash planning

According to (Boker, Jvlalcolm Wurgler, Jejfj,ey (2002)., cash planning are techniques

used to plan and control the use of cash. An organization needs cash to invest in

inventory, receivables, and fixed assets and to make payment for operating expenses in

order to maintain growth. Cash poor" position of the firm can be corrected if its cash

needs are planned in advance, remarks. Collins, (2000) agree that cash planning is a

prerequisite of cash management because the information helps financial managers to

determine the future needs of an organization. It also helps to exercise control over the

cash and liquidity of the organization. Cash budget is the most significant device in

planning for and control over cash receipts and payments.

15

2.5.3 Maintenance of optimum cash levels

Farris & Hutchison, (2002) saw possible negative consequences if the organization does

not maintain minimum cash levels for each unit. This develops from mangers" failure to

truly manage cash and keep on hoping that things will work out well as they usually did

in the past. It is comparatively easy to make short-term forecasts. The important

functions of carefully developed forecasts are; to determine operating cash requirements

and to anticipate short-term financing; However, Collins, (2000) remarks that short-run

cash forecasts serve many other purposes, e.g. multidivisional organizations use them as

a tool to coordinate the flow of funds between their various divisions as well as to make

financing arrangements for these operations. These forecasts may also be useful 111

detennina!ion of the margins or minimum balances to be maintained with the banks.

Other uses of these forecasts include planning reductions of short and long-term

debts, scheduling payments in connection with capital expenditure programmes.

Drury, (2012) said that cash management policies should include measures that

prevent losses arising from fraud, and provide accurate accounting for cash receipts,

cash payments and cash balances.

However, Collins (2000) made the following recommendations; Ensure that

payments are promptly and accurately recorded, and that all sums of money received

must be subsequently accounted for. (Collins, (2000) remarks that planning of cash

involves the formation of cash policies to handle normal and abnormal cash

requirements, the normal cash requirements are policies that result from or which are

predictable and occur as a result of routine operations and include cash for suppliers,

salaries and \Vages.

2.6 Empirical Review of internal controls and cash management systems

2.6.1 Personnel nnd cnsh management

Deloof. (2003), said that all organizations should at all-time have trained staff to handle

cash. This will provide checks and balances. An employee of an organization with cash

handling responsibilities should ensure that all funds are receipted for and have been

properly deposited and recorded. King, (2011), agrees with Boudreau and asse11s that

any financial institution to thrive, management must regularly provide timely feedback

16

I

to rectify any linancial challenges at hand. Drever, (2005) remarked that timely

feedback is of most importance for effective cash management of most organizations.

2.6.2 Segregation of duties and cash management systems

According to Ekanem, (2010), that one of the prime means of control is separation of

those responsible for duties which if combined, would enable one individual to record

and process a complete transaction. Crowhurst (2008) holds that different personnel

should handle different parts of a transaction, so as to avoid any conflict of choice and

collusion in cash management.

2.6.3 Supervision and cash management

According to Soenen, (2011 ), management of organizations should regularly supervise

any cash transfers or any financial product to ensure that cash is safely and accurately

transferred from one place or branch to another. Schilling, (2013), asserts that cash

balancing should be performed for each transfer and proper reconciliation done

immediately. Differences detected in the reconciliation process are always indicators of

errors or irregularities which should be formally documented and corrective action

taken. Performing cash reconciliation is an important and integral part of any financial

management system. If respective reconciliation is not being performed properly, it

creates a significm1t financial risk.

Ekanem, (2010). recommends regular sample checks for effectiveness of cash

management in all organizations. These prompt checks reveal any weakness in cash

management system (internal controls). Summer, & Wilson (2000), holds that regular

sample checks ensure efficiency of cash management which ultimately increases overall

Cash Management of organizations. For any effective cash management system to

prevail in any organization there must be strong internal controls which must be adhered

to al all times. However, much as internal controls are necessary, they are not full

guarantee. They only try to mitigate the level of risk exposed to organizations in

handling cash. In addition, some controls cannot be implemented because the costs may

exceed their polenlial benefit. Basing on the above arguments therefore, a relationship

occurs between internal controls and cash management systems.

17

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter constituted among others, the research design, sampling design, data

collection methods, data processing, data analysis and limitations of the study.

3.1 Research design

The researcher used descriptive and analytical research designs. Descriptive research

design to describe the phenomena as it exists, while analytical research design was

appropriate because the study was sought to analyze cash management in institute for

international co-operation and development, and assisted the researcher in reaching at an

appropriate cone I usion.

3.2 Sampling design

3.2.1 Study population

The study considered the coordinator, the financial administrator, the human resource

manager, departmental managers and other employees ofC&D.

3.2.2 Sample size and sample selection method

The researcher used a sample size of 30 respondents from C&D. Respondents were

chosen using purposive and convenience sampling. The researcher chose readily

available respondents who were relevant for the study purpose. The planned respondents

consist of; coordinator, finance administrator, internal controlor, human resource

manager, logistician, departmental managers and other employees of C&D.

3.3 Data Collection Instruments/Methods Data was primary and collected using self-administered questionnaires. The questionnaire

was in two forms; written and oral. The former was structured questions which were

given lo respondents to fill, and the latter respondents were asked for answers.

3.3.l Questionnaires

Much of the datn collection was done using questionnaires method. This is a method that

requires the use of a questionnaire to collect primary data. A questionnaire is a research

18

instrument that contains a set of questions on defined issues under study that are put to

respondents for answering on a self-administered basis Gummesson, (2005). This study

used a questionnaire containing both open-ended/ unstructured questions.

The questionnaire was applied to literate respondents snch as members of Institute for

International Co-corporation and Development. The questionnaire was selected for use in

this study because it is less costly and easy to apply since it targets the respondents that

are well educated and could easily interpret written questions, hence saving time by

filling in the responses with little guidance. The questionnaires was guided and answered

on a 51ikert scale of a 1-5 range where !(strongly disagree), 2(Disagree), 3(Not Sure),

4(Agree), 5(Strongly agree).

3.3.2 Document review

This method involves delivering information by carefully studying written documents or

visual information from sources called documents Flick (2009). Review of relevant

documents was done throughout the study to generate secondary data. The researcher

reviewed performance appraisal reports for the selected respondents from 2013 to 2015.

The information obtained by this method helped in the review of the Impact of Family

Background on Guidance and Counseling Profession in Nigeria. The researcher also

consulted written materials like books, journals, repotis, manuals, Bulletins, laws and

regulations, encyclopedias, magazines the internet and any other relevant records that

could help to answer some of the key research questions and thus enrich the study.

3.4 Validity and reliability

The validity of an instrument is defined as the ability of an instrument to measure what it

is intended to measure. The validity of the instruments was established through a pilot

test of 15 respondents, who were requested to carry out a careful and critical assessment

of each item in the instruments to ensure the instrument was measuring up to the

expectations. In this respect, a Content Validity Index (CVI) was used. Corrections were

made after the exercise to remove the vague and ambiguous questions, and final

instruments was made. The reliability of an instrument was defined as the consistence of

the instrument in picking the needed information. Reliability was computed using the

19

Inter-Rater Reliability (IRR) test. Two expe1is (raters) was used to rate the consistence of

the instruments to measure the attributes they are designed to measure.

3.5 Data processing and analysis

Data processing was clone through editing of the data to check for accuracy, consistency,

legibility and comprehensiveness. Then data was coded for fmiher analysis. After data

processing, quantitative data analysis was carried out using single frequency tabulation.

Data was presented using single frequency tables. This is because data presentation

required clear portrayal of the trends in the findings being presented. On the other hand,

qualitative data gathered from open- ended questions in the questionnaire and interview

guide was summm-ized. A technique called content analysis was used to test the validity

and authenticity. Then, this data was narrated according to the sub-themes identified

earlier.

3.5.1 Data analysis

Edited responses were coded in numerical terms for easy analysis and tabulated in

appropriate table format in order to carry out analysis easier and correctly. The data

was analyzed using percentages, frequencies, tables and pie-chaiis to present it in a

summarized form.

The study analyzed quantitative data descriptively using XL START and the findings

were presented using table's charts and figures. Qualitative data was analyzed using

content analysis lo describe the phenomenon or themes

3.6 Ethical ('()nsiderations

It was important during the process of research for the researcher to make respondents to

understand that participation is voluntai·y and that participai1ts are free to refuse to answer

any question and to with draw from paiiicipation any time they are chosen. Another

important consi,kration, involves getting the informed consent of those going to be met

during the rese,1rch process, which involved interviews and observations on issues that

may be delicate to some respondents. The researcher undertakes to bear this seriously in

mind. Accuracy and honesty during the research process is very impo1iant for academic

research to proceed. A researcher will treat a research project with utmost care, in that

there should be no temptation to cheat and generate research results, since it jeopardizes 20

the conception of the research. Personal confidentiality and privacy are very important

since the thesis was public. If private information has been accessed then confidentiality

has to be maintained Gummesson, (2000). All respondents were therefore, be re-assured

of this before being involved.

3.7 Limitation of the study.

The study was limited by the following;

Concealment of the information by some respondents due to the sensitivity of

cash management issues.

Since the research was carried out during study time, the researcheJT did not have

enough time as there was need to concentrate on other course units too.

The resenrcher was faced with financial constraints to pay for all expenses like

transport. meals and printing.

Despite such limitations however, the researcher devoted all necessary efforts towards the

success of the st11cly.

21

CHAPTER FOUR PRESENTATION, INTERPRETATION AND DISCUSSION OF RESULTS

4.0 Introduction This chapter presents the results of the study.

4.1 Findings about gender of the respondents.

In order to establish the gender distribution of the employees and be able to determine its

role, employees were asked to provide their gender. Table 2 provides the results.

Table 2: Gender of respondents ..

Cumulative Val!cl Frequency Percent Valid Percent

Percent 1Yla1e 12 40.0 40.0 40.0 Female 18 60.0 60.0 100.0 Total 30 100.0 100.0

Source: Prima1:1· data

From table 2, majority of employee respondents were females (60%) and males were

only 40%. This implies that females are taken to be more honest than males.

4.1.2 Findings about the age of respondents. The researcher here was interested in finding out respondents" age. The following

responses were obtained and tabulated as bellow

Table 3: Age of respondents

Valid

21-30 ears 31-40 years 41-50 years

Source: Primm:1· data.

•requency

3 15 9

30

ercent

From table 3, 50% of the respondents fall under age group 31-40 years, 30% between 41

and 50 years, while 21-30 and 50 and above brackets had each 10%. This implies that the

22

respondents between the age brackets 31-40 years are considered to be mature and

productive.

4.1.3 Findings about the marital status of respondents.

Information was sought from the respondents on their marital status and results obtained

were tabulated as follows;

Table 4: Marital status of respondents

Cumulative Valid FrcQucncv Percent Valid Percent Percent smgte 9 30.0 30.0 30.0

married 12 40.0 40.0 70.0 divorced 0 10.0 10.0 80.0 J

widowed 6 20.0 20.0 100.0 Total 30 100.0 100.0

Source: Primm)' data

Findings indicated that 30% were single, 40% married, 10% divorced and 20% widowed. Most respondents were married, implying that most of them are stable at work

4.1.4 Findings about highest qualifications acquired by respondents.

The researcher was interested in knowing the educational level of respondents and the

following results were obtained and tabulated as below;

Table 5: Educational level of respondents

cumulative

Valid Frequency Percent valid Percent Percent Masters and above 4 13.3 13.3 13.3 Bachelor's degree 12 40.0 40.0 53.3 Diploma 6 20.0 20.0 73.3 Certificate 8 26.7 26.7 100.0 Total 30 100.0 100.0

Source: Pri111a1:v data

Findings indicated that most respondents are degree holders with 40%, 26.7% being

certificate holders, 20% Diploma holders and 13.3% being masters" degree holders. This

implies that most respondents are learned and therefore the study can be relied on.

23

4.1.5 Findings about the period worked with Co-operation and Development. Information on the work experience of respondents was sought and determined by the

duration respondents have spent in C&D

Table 6: Period respondents have worked at C&D

Valid ·requency

1-~ ears 4 1 >

5 years 3

3

Source: PrimmJ' data

From the findings. 60% of the respondents had worked for a period between 3-4 years,

16.7% between 5-6 years, 13.3% between 1-2 years and 10% above 6 years. This implies

that most respondents had experience and therefore findings can be relied on.

4.2 Findings on objective one which is to assess the effectiveness of internal controls used in institute for international Co-operation and Development.

The researcher sought to assess the effectiveness of internal control mechanisms used in C&D.

4.2.1 Findings as to whether management has high professional moral standards and makes efforts to establish awareness of the importance of internal controls among employees.

This was sought from respondents because it is one of the key variables of internal

controls in any organization. The results were tabulated as below

Table 7: Management creates awareness

Cumulative

Valid Frequency Percent V aha Percent Percent strongly agree IO 33.3 33.3 33.3 agree 6 20.U 20.U 53.3 not sure 5 16.7 16.7 70.U disagree 6 ,'.V.0 20.U '1V.0 strongly msagree 0 ]U.U 10.U 100.U ~

Total 30 100.u lUU.U

Source: Pri111a1:J1 data 24

Findings indicate that 33.3% of the respondents strongly agreed, those that agreed and disagreed are 20% each, while 16. 7% are not sure and 10% strongly disagreed. Majority of the respondents having agreed implied that management has high

professional moral standards and this is in conformity with Crowhust (1984) who asserts

that proper functioning of any internal control system depends on the integrity of those

operating it.

4.2.2 Findings as to whether management is aware of the different types and degrees of risk exposure inherent in these factors. This was important to ascertain from respondents since every internal control system has

inherent weaknesses. Results are tabulated as below

Table 8: Management is aw are of different types and degrees of risk exposure in here factors

::::umulative Valid

Frequency Percent Percent Percent Valid strong I y agree 3 10.0 10.0 10.0

agree 9 GO.O 130.0 40.0 not sure 12 0.0 40.0 80.0 disagree G 10.0 10.0 90.0 stroncrly

• 0.

10.0 10.0 100.0 disagree ' Total 10 100.0 100.0

Source: PrimmJ' data

Results indicate that 10% of the respondents strongly agreed, 30% agreed, 40% not sure,

l 0% disagreed and l 0% strongly disagreed. Since a majority of the respondents were not

sure, it implied that they are uncertain as to whether C&D management can recognize

internal and external factors constituting potential risks to the organization and this if not

attended to may affect the attainment of organizations core objectives.

4.2.3 Findings as to whether management sets limits to the acceptable amount or degree of risk inherent in the organization.

This was asked from respondents in order to ascertain appropriateness of supervision in relevant sections/departments

25

Table 9: Management sets limits to acceptable amount of risk

::::umulative Valid

"'reauencv Percent Percent Percent Valid strongly agree 7 '3.3 23.3 ~3.3

agree 6 20.0 20.0 43.3 not sure 8 26.7 26.7 70.0 disagree 4 13.3 13.3 83.3 strongly

5 16.7 disagree 16.7 100.0 Total 10 100.0 100.0

Source: Prima1:J1 data

The results show that 23.3% of the respondents strongly agreed, 20% agreed, 26.7% were

not sure, 13.3% disagreed and those that strongly disagreed were 16.7%. A majority of

the respondents having not been sure implies that there is laxity of management in setting

limits to the acceptable degree of risks inherent to the organization. This is contrary with

Waller (I 987), who maintains that management should adequately instruct relevant

departments/sections for effectiveness of internal control system in place.

4.2.4 Findings as 10 whether management regularly checks the effectiveness of its risk management system.

The researcher sought to know whether there 1s continuous evaluation of risk

management systems in place.

Table 10: Management regularly checks effectiveness of its risk management system

.::::umulative Valid

Frequency Percent Percent Percent Valid strongly agree 4 13.3 13.3 13.3

agree " 20.0 20.0 33.3 not sure 12 40.0 40.0 73.3 disagree ) 20.0 20.0 93.3 strongly disagree ,2 6.7 6.7 100.0 Total 130 100.0 100.0

Source: Primm:J' data

Research findings indicated that 13.3% strongly agreed, 20% agreed, 40% are not sure,

20% disagreed and 6. 7% strongly disagreed. For the majority of the respondents to be not

26

sure creates uncertainty as to whether management regularly checks the effectiveness of

its risk management system. This is contrary with Hingorani (1984) who holds that

management should continuously evaluate risk management systems in place.

4.2.5 Findings on whether C&D has in place a system for close monitoring of activities of various departments.

The researcher sought to know whether there is appropriate supervision in Institute for

international Co-operation and Development (C&D).

Table 11: C&D has in place a system of close monitoring of activities

2umulative !Valid

Frequency Percent Percent Percent Valid strongly agree 8 (26.7 26.7 26.7

agree Q 0.0 30.0 )6.7 not sure q 13.3 13.3 70.0 disagree 'l 10.0 10.0 80.0 strongly clisagrec 6 20.0 20.0 100.0 Total 30 100.0 100.0

Source: Prima1J1 data

Most of the respondents (30%) agreed, 26.7% strongly agreed, 13.3% were not sure, 10%

disagreed and 20% strongly disagreed. This implies that C&D has in place a system for

close monitoring but not adequate. This is contrary with Johnson (1965) who asse1is that

there should be appropriate supervision by responsible officials of the clay-to-day

activities

4.2.6 Findings as to whether management of C&D prepares budgets to control costs.

The researcher sought to know if management regularly prepares budgets to control

costs.

27

Table 12: Management pre pares budgets to control costs

:::umulative Valid

Valid Frequency Percent Percent 'ercent strongly agree ) 30.0 30.0 ,O.O

agree 15 iO.O 50.0 l0.0 not sure 3 10.0 10.0 JO.O :lisagree G 10.0 10.0 100.0 ~otal GO 100.0 100.0

Source: Pri111111J! data

Results show that 30% of the respondents strongly agreed, 50% agreed, while those not

sure and disagreed were each 10%. No respondent strongly disagreed. For the majority

agreeing and strongly agreeing shows implies that management prepares budgets so as to

control costs.

4.2. 7 Findings on whether C&D recruits staff with appropriate experience, knowledge/ skill level, and degree of expertise to undertake

specialized operations.

Researcher sought to know whether employees have experience, skill level, and degree of expertise Table 13: C&D recruits staff with appropriate experience, skill level and expertise

Cumulative Valid

Frequency Percent Percent Percent Valid strongly ngree 6 20.0 20.0 20.0

agree 6 20.0 20.0 40.0 not s urs: 9 30.0 30.0 70.0 disagree 8 26.7 26.7 96.7 stronalv "-'·

3.3 disagree I 3 ~ 100.0 _., Total GO 100.0 100.0

Source: Prima1:v data

Results indicated that 20% of the respondents strongly agreed, 20% agreed, 30% were

not sure, 26.7% disagreed and 3.3% s_trongly disagreed. Majority of the respondents were

not sure, implying that some recruited staff may not be having appropriate experience,

skill level and expertise to undertake specialized operations.

28

4.2.8 Findings on whether C&D revises training programs in accordance with changes in operation and sophistication of risk management. This was asked from respondents in order to ascertain appropriateness of training programs.

Table 14: Accounting staff are properly trained

2umulative Valid

Frequency Percent Percent Percent Valid strongly agree 3 10.0 10.0 10.0

agree 4 13.3 13.3 23.3 not sure 9 30.0 30.0 53.3 disagree 9 30.0 30.0 83.3 strongly disagree 5 16.7 16.7 100.0 Total 30 100.0 100.0

Source: Pril1u11:1· data

Findings reveal that 10% of the respondents agreed, 13.3% strongly agreed, 30% were

not sure, 30% disagreed and 16.7% strongly disagreed. The majority of the respondents

having disagreed and not sure imply that C&D irregularly revises training programs. This

is contrary with crowlmst (I 984) who confirms that training is an important feature in

setting up control systems.

4.2.9 Findings on whether internal audit section/ department have auditors with expertise in each area, and can effectively audit C&D's overall operations. The researcher sought to know whether auditors of C&D have enough expertise.

Table 15: Internal audit section/department has auditors with expertise in each are ll

2umulative Valid

Valid Frequency Percent Percent Percent agree 1 3.3 3.3 3.3

not sure 9 30.0 30.0 33.3 disagree 15 )0.0 )0.0 83.3 strongly disagree 5 16.7 16.7 100.0 Total 30 100.0 100.0

Source: Primm:1• data

29

The results in the table indicate that 3.3% agreed 30% not sure, 50% disagreed, and

16. 7% strongly disagreed. Majority of the respondents not being sure and disagreeing

implies that audit section does not have auditors, or has auditors without expertise, which

may result into significant internal control and financial system weakness.

4.2.10 Findings as to whether internal audit section/ department take initiative in directing improvement measnres.

The researcher sought to know whether departments take the initiative 111 directing

improvement measures

Table 16: Internal audit section/department takes initiative in directing improvement measures

Cumulative Valid

Freouencv Percent Percent Percent Valid strongly agree 9 30.0 30.0 30.0

agree 6 20.0 20.0 50.0 not sure- 5 16.7 16.7 66.7 disagree 7 23.3 23.3 90.0 stronol\• disag~e·c 3 10.0 10.0 100.0 Total 30 100.0 100.0

Source: Prinw1:i1 data

Findings as in the iable indicate that 30% strongly agreed, 20% agreed, 16. 7% are not

sure, 23.3% disagreed, while 10% strongly disagreed, Audit section therefore takes the

initiative in directing improvement measures such as the revision of internal rules in

order to prevent tile re-occurrence of problems.

4.2.1 I findings as to whether C&D has a means of effective communication system.

The researcher sought to know effectiveness of entities operating payment systems and

supervisory authorities in case of an emergency.

30

Table 17: C&D has a means of effective communication

Cumulative Valid

Frequency Percent Percent Percent Valid strong! y agree 3 10.0 10.0 10.0

agree 8 26.7 26.7 36.7 not sure 9 30.0 30.0 66.7 disagree 7 23.3 23.3 90.0 strongly disagree ~ 10.0 10.0 100.0 .)

Total 30 100.0 100.0

Source: Prim(tJ:i• data

Research findings indicated that 10% strongly agreed, 26.7% agreed, 30% not sure,

23.3% disagreed, mid 10% strongly disagreed. The majority of the respondents were not

sure, which creates uncertainty as to whether C&D has a means of communication with

entities operating payment systems and supervisory authorities, incase of emergency.

4.2.12 findings on whether there are fraud detection mechanisms in accounting system.

The researcher sought to know the effectiveness of fraud detection mechanisms in C&D.

Chart I: Findings on whether there are fraud detection mechanisms in accounting system of C&D.

The pie chart showing responses about fraud detection mechanisms in accounti g system

10%

30%

11.:.:;J yes @ii no □ not sme

Source: Prill1(tJ'.)' data

31

Findings as per above pie chart indicates that most of the respondents ( 60%) were on a

view that there are fraud detection mechanisms in place, 30% disagreed that there are

no fraud detection mechanisms in place, while 10% were not sure if fraud detection

mechanisms were in place or not. Majority agreement implies that fraud detection

mechanisms in accounting system are in place. This is in compliance with Howard

(1998) who asserts that there should be an effective mechanism for detection of an

intended fraud or any errors that may occur within an organization.

4.3 Findings on objective two which was to find out cash management policies used in C&D.

The researcher sought to know cash management policies used in C&D.

4.3.1 Findings o,i whether management of C&D sets a maximum limit for cash withdrawal.

The researcher sought to know if management sets maximum limit for cash withdrawal.

Table 18: Management sets minimum limit beyond which cash is transferred

Cumulative Valid

Valid Frequency Percent Percent Percent strong!:: agree 7 23.3 23.3 23.3 agree 12 40.0 40.0 63.3 not sure 2 6.7 6.7 70.0 disagree 4 13.3 13.3 83.3 stronolv " . disagree 5 16.7 16.7 100.0 Total 30 100.0 100.0

Source: Primm:1· data

lvlost of respondents (30%} agreed, 23.3% strongly agreed, 6.7% were not sure, 13.3%

disagreed, while 16.7% strongly disagreed. This implies that C&D sets limits beyond

which cash is transferred to the field office. This is in agreement with Fachaber (1995)

who detects possible negative consequences with any organization that does not

maintain minirnu!ll cash levels

32

4.3.2 Findings on whether management of C&D carries out cash planning.

The researcher sought to !mow whether cash planning is always carried out.

Table 19: Management carries out cash planning

Cumulative Valid

Frequency Percent Percent Percent Valid strongly agree 9 30.0 30.0 30.0

agree 7 23.3 23.3 53.3 not sure 6 20.0 20.0 73.3 disagree 5 16.7 16.7 90.0 strongly disagree 3 10.0 10.0 100.0 Total 30 100.0 100.0

Source: Primm)' data

Findings indicate that 30% of the respondents strongly agreed, 23.3% agreed, 20% were

not sure, 16.7% disagreed, while only 10% strongly disagreed. This implies that there is

cash planning in pl,1ce, which is in agreement with Pandey (1988) who asserts that cash

planning should k taken as a pre-requisite of cash management.

4.3.3 Findings on whether there is collusion of people who are responsible of

handling cnsh.

Researcher sought lo know whether there is any conspiracy clone by those who handle money

Table 20: There is collusion of people who nre responsible of handling cash

Cumulative Valid

Frequency Percent Percent Percent Valid strong! y agree 7 23.3 23.3 23.3

agree 9 30.0 30.0 53.3 nol sur,· 6 20.0 20.0 73.3 disagree " 10.0 10.0 83.3 ~

strong! v clisagre·c 5 16.7 16.7 100.0 Total 30 100.0 100.0

Source: Primfll'.J' data

33

Most of the respondents (30%) agreed, 23.3% strongly agreed, 20% were not sure, 10%

disagreed, and 16. 7% strongly disagreed. This implies that those handling money collide

to misappropriate cash, which is contrary to Gupta (1989).

4.4 Findings on objective three which was to establish the relationship between internal controls and cash management.

4.4.1 Respondents were asked to ascertain whether safeguards in place can guarantee security.

Table 21: Safe g,iards in place can guarantee security

Cumulative Valid

Valid Frequency Percent Percent Percent

strongly agree 6 20.0 20.0 20.0 agree 4 13.3 13.3 33.3 not sure 9 30.0 30.0 63.3 disagree 8 26.7 26.7 90.0 strongly disagree 3 10.0 10.0 100.0 Total 30 100.0 100.0

Source: primal'.)' data

Findings indicated that most of the respondents (30%) were not sure, 26.7% disagreed,

20% strongly agreed, 13.3% agreed, and only 10% strongly disagreed. These findings

imply that safegtmrds in place do not guarantee security. This is contrary with Walter

(I 984) who holds that cash should be secure at any given time either in company

premises or in trnnsit.

4.4.2 Rcsponden(s were asked to ascertain whether all accounting entries are supported hy appropriate documentation.

Researcher sought to know whether accounting entries are supported by appropriate documentation.

34

Table 22: All accounting entries are supported by appropriate documentation .

Cumulative Valid

Frequency Percent Percent Percent

Valid strong! y agree 9 30.0 30.0 30.0 agree 7 23.3 23.3 53.3 not sure " 10.0 10.0 63.3 ~

disagree 5 16.7 16.7 80.0 strongly disagree 6 20.0 20.0 100.0 Total 30 100.0 100.0

Source: Pri111m:1• data

Findings indicated that 30% of the respondents strongly agreed, 23.3% agreed, 20%

strongly disagreed. 16.7% disagreed, while 10% were not sure. This implies that most of

accounting entries me supported by appropriate documents

4.4.3 Rcspondcn ts were asked to ascertain whether there is separation of responsibility in the receipt, payment, and recording of cash.

The researcher t;<iught to know whether there is separation of responsibilities in

cash transactions.

Table 23: Responsibilities are separated while handling cash transactions

Cumulative

Valid strong! y agree agree not sure disagree strongly disagree Total

Source: Pri111a1:1· data

Frequency Percent 9 30.0 10 33.3 2 6.7 4 13.3

5 16.7 30 I 00.0

Valid Percent

30.0 33.3 6.7 13.3

16.7 100.0

Percent 30.0 63.3 70.0 83.3

100.0

Findings indicakd that 33.3% of the respondents agreed, 30% strongly agreed,

16.7% strongly disagreed, 13.3% disagreed, while only 6.7% were not sure. These

35

findings imply that there is separation of duties in the receipt, payment, and recording

of cash, thus mitigating risk.

4.4.4 The correlation between internal controls and cash management.

The researcher calculated the Pearson correlation coefficient using statistical packages for

social scientists (SPSS) to measure the strength of linear association between internal

controls and cash management.

Table 24: The correlation between internal controls and cash management.

Internal Cash controls manaf2:ement

Pearson Internal controls Correlation I .376*

Sig. (2-tailed) .041 N 30 30

Cash Pearson n1anagen1ei1t Correlation .376* I

Sig. (2-tailed) .041 N 30 30

*. Correlation is significant at the 0.05 level (2-tailed).

Findings inclica!L' that there is a significant weak positive relationship between internal

controls and cash management (r = 0.376*, p<0.05), which means that internal are not a

full guarantee and that they only try to mitigate the level of risk exposed to the

organization in handling cash. In addition, some controls cannot be implemented because

the costs may exceed their potential benefit.

36

CHAPTER FIVE SUMMARY OF FINDINGS, CONCLUSSION AND RECOMMENDATIONS

5.0 Introduction This chapter gives the summary of major findings, conclusions drawn from findings

discussed, recommendations, and the areas for fmiher research.

5.1 Summary of findings

Respondents are uncertain as to whether C&D management can recognize internal and

external factors constituting potential risk to the organization and this if not attended to

may affect the auninment of organizations core objectives.

There is laxity or management in setting limits to the acceptable degree of risks inherent

to the organization.

There is uncertainly as to whether management regularly checks the effectiveness of its

risk management system.

C&D has in place a system for close monitoring of activities but not adequate.

Findings reveal eel that some recruited staff may not be having appropriate experience,

skill level and expertise to undetiake specialized operations.

C&D irregularly revises training programs in accordance with changes in operations and

sophistication of risk management.

C&D"s audit section does not have auditors, or has auditors without expetiise, which

may result into significant internal control and financial system weakness

There is uncertainty as to whether C&D has a means of communication with entities

operating payment systems and supervisory authorities.

Findings reveal that those handling money collude to circumvent controls and

misappropriate c:1,h.

37

5.2 Conclusion The general objective for this study was to establish the relationship between internal

controls and cash management i.e. the effect of internal controls on cash management and

with three specilic objectives which were to establish the internal control systems in

institute for international co-operation, to determine cash management policies used in

institute for international co-operation and development, and to establish the relationship

between internal control systems and cash management policies in institute for

international co-operation and development.

In this study it was revealed that to some extent there was ineffectiveness on the

operation system,; of internal control over cash management clue to poor operations or

fund mismanagement and delayed of financial report to the donors. Also it was found that

to some extent th,,re was a lack of professional abilities to catTy out the assigned duties as

there was fa i ltm' to keep account books and failure to conform the procurement

procedures. Then.: is a problem of accountants and auditors not adhering to professional

standards hence use' improper accounting books. The program field manual which guides

the running activi,ies in compassion centres has remained to be an organization culture as

accountants tend to stick to organization culture instead of dealing with financial

standards acceptable. However, the study has revealed some challenges over cash

management including leadership interference to cash control particularly pastors who

were found to the employers of the workers in the Compassion Centers and delayed funds

from ClT which was found to be associated with failure to send the finat1cial reports to

the accountants. Worse enough, the funds utilized are not reimbursed on time. Cash

management has :1 challenge in compassion centres as sometimes activities not budgeted

in the use unbudgeted funds. Worse enough, the funds utilized are not reimbursed on time

Lastly, there is " weak positive relationship of (r = 0.376*) between internal control

systems and cash management policies, which means that internal controls are not a full

guarantee and tlwt they only try to mitigate the level of risk exposed to the organization

in handling cash. In addition, some controls cannot be implemented because the costs

may exceed their potential benefit.

38

5.3 Recommendations

► Institute sample checks to ensure efficiency of cash management, and overall

financial performance of the organization.

► For C&D to thrive, management should regularly provide timely feedback to

rectify an,· financial challenges at hand.

► Separate r\;sponsibilities/duties to avoid any conflict of choice or interest.

► Employe,·s should be monitored closely to ensure that they do not circumvent

certain controls, thereby weakening the established system.

► Motivate employee to enable them carry out their duties diligently and

honestly ,,,,ithout thinking of ways to steal the organization because they are

given low remuneration

► Employ internal auditors with experience in instituting internal controls and

monitorin!! on their effectiveness and adherence by employees.

5.4 Areas for further research

► Credit munugement systems and firms profitability.

► Style and management attitude and the quality of budgets.

► Impact of -:ash management and service delivery.

► Internal cuntrols and credit management

39

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43

Appendix I

Kampala International University

Questionnaire on internal controls and cash

management, a case of institute for international co-operation and development

Dear respondents,

I am Peringa Beatrice a student of Kampala International University: College of

Business and management, pursuing a Bachelor's degree of Business Administration

(Accounting and Finance).

This questionnaire is intended to investigate internal controls and cash management

systems used in C&D. The results are purely meant for academic purposes and was

treated with utmost confidentiality. You are hereby requested to feel free to give the most

appropriate answer.

Thank You

44

Appendix II

Background

1. Gender (tick only one)

i) Male □

2. Age bracket (tick only one).

i) 21 - 30 years □

iii) 41 - 50 years □

3. Marital status (tick only one)

i) Single □

iii) Divorced □

SECTION A:

ii) Female □

ii) 31 - 40 years □

iv) 50 and above □

ii) Married □

iv) Widowed □

4. Highest qualification acquired (tick only one)

i) Certificate □ ii) Diploma □

iii) Bachelor's degree □ iv) Master's degree □

5. For how long have you worked with C&D?

i) I - 2years □ ii) 3 - 4years □

iii) 5 - 6years □ iv) Over 6years □

45

SECTIONB:

NATURE OF INTERNAL CONTROLS

No Question Strongly Agree Not Disagree Strongly

agree sure disagree

1. Management of C&D creates

awareness of the importance of

internal controls among

employees.

2. Management recognizes

internal and external factors Constituting potential

risks and is aware of the

different types or degrees

bf risks and risk exposure

inherent to these factors.

Management sets limits to the

!acceptable amount/degree of risk

inherent to the organization and

adequately instruct relevant

sections

46

Management regularly checks

the effectiveness of its risk

management system

4. The organization has in place a

system for close monitoring of

various depaiiments

5. Management prepai·es budgets

to control costs.

6. The organization recruits staff

with appropriate expenence,

skill levels and degree of

expertise to unde1iake

specialized operations

7. The organization revises

training programs 111

accordance with changes 111

operations and sophistication

of risk management

8. The internal control section has

Auditors with expertise in each

area and are able to effectively

audit organizations operations

47

10. Internal control section takes the

initiative in directing improvement

measures such as revision of

internal rules in order to prevent the

reoccurrence of problems

11. The organization has a means

of communication with departments

operating payment and supervisory

authorities

• 12. Is there a mechanism for detection of fraud and etTor in the accounting system?

Yes o No o not sure o

13. Ifno, how do you ensure that cash is effectively and efficiently managed to avoid fraud?

············································································································

············································································································

············································································································

·············································································································

48

SECTIONC:

CASH MANAGEMENT

No Question Strongly Agree Not Disagree Strongly

agree sure disagree

I. Management of C&D ci11Ties

on cash planning

The staff responsible of cash

collude internally and externally

with the outsiders to embezzle

2. funds

3 There is a set maximum for cash withdraw

4 Cash is carried in a cash box

49

SECTIOND:

RELATIONSHIP BETWEEN INTERNAL

MANAGEMENT

No Question Strongly

agree

1. Internal controls affect cash

management

2. All accounting entries are

supported by appropriate

documentation e.g . receipts, .

vouchers.

1 Safeguards 111 place guarantee ~-adequate internal controls in the

organization.

4. There IS separation 0

responsibility ll1 the receipt,

payment and recording of cash.

CONTROLS AND CASH

Agree Not Disagree Strongly

sure disagree

111auk you for being a cooperative respondent. Your co11tributio11 to this study is higftly appreciated.

so