Research Report Internal Control & Performance of Non-governmental Organization

1. INTERNAL CONTROLS AND PERFORMANCE IN NON-GOVERNMENTAL
ORGANIZATIONS: A CASE STUDY OF MANAGEMENT SCIENCES FOR HEALTH
SOUTH SUDAN
BY
ABRAHAM AYOM AYOM
002/0315/12352
A RESEARCH REPORT SUBMITTED TO THE FACULTY OF BUSINESS
MANAGEMENT IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF
BACHELOR’S DEGREE IN BUSINESS
ADMINISTRATION OF CAVENDISH
UNIVERSITY UGANDA
OCTOBER, 2013

2. DECLARATION
I Abraham Ayom Ayom hereby declare that this is my original work and has never been
presented by any academic award in any University.
Signed……………………………………………….
Abraham Ayom Ayom
002/0315/12352
i
Date…………………………

3. APPROVAL
This to certify that this Research Reportentitled “Internal Controls and Performance of
Non-Governmental Organizations” has been written under my supervision and is hereby
approved for submission for a Bachelor’s Degree of Business Administration of Cavendish
University Uganda.
Approved by………………………………….
Date…………………………
Bamuswankwire Charles
Supervisor
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4. DEDICATION
I dedicate this book to my children; Ayom Junior and Achai Abraham, my wife Susan and my
younger brothers& Sisters; Santino Adhieu Ayom, William Wol Ayom, Mary Aluel Mawien
Abuk Mayom and Peter Ayom Makoldit.
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5. ACKNOWLEDEMENT
I take this opportunity to thank all people who made a contribution in my academic life so far.
I would like to express heartfelt gratitude to my supervisor, Bamuswankwire Charles whose
tireless efforts have made this dream a reality. Charles you restored hope in me when I felt
hopeless, you invoked the hitherto hidden abilities in me; a reason I will always walk with my
head high. No amount of words can express my sincere gratitude for your unending support
during the research period. May the Lord reward your efforts.
I am greatly indebted to my colleagues and workmate; the lecturers in the faculty of Business
Administration and Management, and the entire staff of Cavendish University Uganda and to my
many student colleagues (BBA 2012) for your unending support in this journey.
I am grateful to the staff for Management Sciences for Health (MSH) Organization who
participated in the research. Special thanks go to the Country Project Director. Dr. Stephen
Macharia and Philips Kenyi that spared their precious time in answering my Questionnaire and
responding to the Interview guide. Without your contribution, this research would not have been
possible.
I take this opportunity to thank my entire extended family and all friends for their love, care and
encouragement to me.
Special thanks and tributes go to my younger brother Adhieu Satino
Ayom, my friend James Ajoung whose time was greatly, compromised during my BBA studies.
Lastly, my warm regards and blessing go to all of those who have made a positive contribution in
my life, May the Almighty God bless you all.
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6. TABLE OF CONTENTS
DECLARATION ........................................................................................................................... i
APPROVAL ................................................................................................................................. ii
DEDICATION ............................................................................................................................. iii
ACKNOWLEDEMENT .............................................................................................................. iv
TABLE OF CONTENTS .............................................................................................................. v
LIST OFACRONYMS AND ABBREVIATIONS ....................................................................... ix
LIST OF FIGURES ...................................................................................................................... x
LIST OF TABLES ....................................................................................................................... xi
CHAPTER ONE .....................................................................................................................1
INTRODUCTION..................................................................................................................1
1.0
Introduction ....................................................................................................................... 1
1.1
Background to the Study.................................................................................................... 1
1.2
Problem Statement............................................................................................................. 5
1.3
General Objective of the study........................................................................................... 5
1.3.1
Specific objectives of the Study ......................................................................................... 6
1.4
Research Questions ........................................................................................................... 6
1.5
Scope of the Study ............................................................................................................. 6
1.5.1
Subject scope ..................................................................................................................... 6
1.5.2
Geographical scope ........................................................................................................... 7
1.5.3
Time Scope ....................................................................................................................... 7
1.6
Significance of the Study ................................................................................................... 7
CHAPTER TWO ................................................................................................................. 10
LITERATURE REVIEW .................................................................................................... 10
2.0
Introduction ......................................................................................................................10
2.1
Effective Payment ...........................................................................................................10
2.2
Financial records .............................................................................................................13
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7. 2.3
Effective Procurement policies .......................................................................................17
2.4
Exercising budgetary control on the expenditure ..............................................................20
2.5
Performance ....................................................................................................................23
CHAPTER THREE ............................................................................................................. 26
RESEARCH METHODOLOGY ......................................................................................... 26
3.0
Introduction .....................................................................................................................26
3.1
Research Design...............................................................................................................26
3.2
Study population and sample size ....................................................................................26
3.3
Sample size ......................................................................................................................26
3.4
Sampling methods ...........................................................................................................27
3.4.1
Purposive sampling .........................................................................................................27
3.4.2
Random sampling ............................................................................................................28
3.4.3
Stratified random sampling ..............................................................................................28
3.5
Data Sources ....................................................................................................................28
3.6
Data collection instruments ...............................................................................................29
3.6.1
The self-administered questionnaire ..................................................................................29
3.6.2
Interviews .......................................................................................................................29
3.7
Data Processing................................................................................................................29
3.8
Data Analysis ...................................................................................................................30
3.9
Ethical Consideration ......................................................................................................30
3.10
Limitations and problems encountered .............................................................................30
CHAPTER FOUR ................................................................................................................ 32
PRESENTATION, DATA ANALYSIS AND INTERPRETATION OF FINDINGS .............. 32
4.0
Introduction .....................................................................................................................32
4.1
Demographic characteristics of respondents.....................................................................32
4.1.1
Age of the respondents ....................................................................................................32
4.1.2
Gender of the Respondents ..............................................................................................33
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8. 4.1.3
Level of Education of the respondents ............................................................................35
4.1.4
Time spent on the job by the respondents.........................................................................36
4.1.5
Position held by the respondents ......................................................................................37
4.2
Payments procedure.........................................................................................................39
4.2.1
Payments are properly documented..................................................................................39
4.2.2
Originals of Payment vouchers are certified in fully by the responsible officer ................40
4.2.3
Payments supported by the vouchers in a prescribed form ...............................................41
4.2.4
All payment vouchers are filed in numerical order ...........................................................42
4.2.5
Payment procedures undertaken by MSH affect its performance ......................................42
4.3.
Financial records subject to Internal Audit. ......................................................................43
4.3.1
MSH has an internal audit function which perform review...............................................44
4.3.2
Proper review over receipts are performed .......................................................................44
4.3.3
MSH has enough internal audit staff to make reviews ......................................................45
4.3.4
Auditors at MSH can easily be compromised ...................................................................46
4.3.5
Internal auditing has led to the reduction of fraud in MSH ...............................................47
4.4
Procurement policies and procedure.................................................................................48
4.4.1
Procurement policies and guidelines that can be followed ................................................48
4.4.2
Strict adhere to procurement guidelines when undertaking procurement at MSH .............49
4.4.3
The procurement process followed is in accordance with MSH and Donor policies .........50
4.4.4
Staff who authorized purchases or expenditures does not issue the payment ....................51
4.4.5
There is a safeguard for protection against conflicts of interest among the procurement
officers ...........................................................................................................................52
4.5
Assessment of how MSH has exercised budgetary control on the expenditures. ...............53
4.5.1
MSH objectives are clearly set in the budget framework ..................................................53
4.5.2
Payment were made in accordance with the current budget ..............................................54
4.5.3
There is a budget desk at MSH ........................................................................................55
4.5.4
Previous year’s budget performance reports are used for future planning .........................56
4.5.5
Budget conference is held every year ...............................................................................57
4.6
Performance ....................................................................................................................58
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9. 4.6.1
Proper financial accountability has led to better services delivery ....................................58
4.6.2
Proper procurement controls have led to financial transparency .......................................59
4.6.3
Budgetary control on the expenditure has led to proper utilization of funds .....................60
4.6.4
Internal auditing has led to compliance with rules and regulations in MSH ......................61
CHAPTER FIVE ................................................................................................................. 63
SUMMARY AND DISCUSSION OF FINDINGS ................................................................ 63
5.0
Introduction .....................................................................................................................63
5.1
Summary of Findings ......................................................................................................63
5.1.2
Payment Procedures ........................................................................................................63
5.1.3
Financial Records ............................................................................................................63
5.1.4
Procurement Policies .......................................................................................................64
5.1.5
Budgetary control ............................................................................................................64
5.1.6
Performance ....................................................................................................................64
CHAPTER SIX .................................................................................................................... 65
CONCLUSION AND RECOMMENDATIONS................................................................... 65
6.0
Introduction ........................................................................................................................65
6.1
Conclusion .........................................................................................................................65
6.2
Policy Recommendations ...................................................................................................65
6.3
Areas for Further Research .................................................................................................66
REFERENCES ...........................................................................................................................67
APPENDICES ............................................................................................................................71
APPENDIX A: QUESTIONNAIRE ..........................................................................................71
APPENDIX B: ESTIMATED BUDGET...................................................................................76
APPENDIX C: RESEARCH WORK PLAN .............................................................................77
APPEXDIX D: Interviews Guides …..........................................................................................78
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10. LIST OFACRONYMS AND ABBREVIATIONS
AIDS
Acquired Immune Deficiency Syndrome
CUU
Cavendish University Uganda
COMU
Country Operation Management Unit
CPD
Corruption Prevention Department
E-Payment
Electronic Payment
GPA
Government Procurement Act
HIV
Human Immune Virus
ICS
Internal Controls System
JCC
Juba City Council
MOH
Ministry of Health
MSH
Management Sciences for Health
MTN
Mobile Telephone Network
NPA
Norwegian Peoples Aid
PO
Purchase Order
SAQ
Self-Administered Questionnaire
SPSS
Statistic Package for Social Scientists
USA
United States of America
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11. LIST OF FIGURES
Figure 1: Conceptual Frame Work …………………………………………………………. 8
Figure 2: Pie chart showing the distribution age of the respondents ………………………. 33
Figure 3:Pie chart showing sample size by gender of the respondents……………………… 34
Figure 4:Bar graphs showing the level of education for the respondents …………………… 36
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12. LIST OF TABLES
Table 1:
Sample size of the respondents…………………………………………………… 26
Table 2:
Showing distribution of age of the respondents…………………………….……32
Table 3:
Showing distribution gender of the respondents………………………………..... 34
Table 4:
Showing level of education of the respondents.......................................................35
Table 5:
Showing time spent on job by the respondents …………………………………...37
Table 6:
Shows responses on the position held by the respondents ………………………. 38
Table 7:
Shows responses whether payment procedures were documented………………. 39
Table 8:
Showing the responses on whether payment vouchers certified ……………….. 40
Table 9:
Showing the response on whether payments were supported by the voucher.......41
Table 10:
Shows responses on whether payments voucher were filed in numerical order …42
Table 11:
Shows responses on whether payment procedures undertaken by MSH
staff affect its performance ………………………………………………………43
Table 12:
Shows responses on whether MSH has an internal audit function which
perform review …………………………………………………………………. 44
Table 13:
Showing findings on proper review over receipts performed …………………. 45
Table 14:
Shows responses on whether there are enough audit staff to perform review......46
Table 15:
Shows responses on whether audit staffs are easily compromised …………….. 47
Table 16:
Shows responses on whether internal auditing reduced fraud in MSH ………… 48
Table 17:
Shows responses on procurement policies and guidelines that can be followed...49
Table 18:
Shows responses on whether there has been strict to procurement guidelines..... 50
Table 19:
Shows response on whether procurement process followed MSH &
donor policies ………………………………………………………………….. 51
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13. Table 20:
Shows responses on whether staff authorized purchases or expenditures do
not issued the payment ………………………………………………………… …52
Table 21:
Shows responses whether there is a safeguard for protection against conflicts
of interest among the procurement officers ……………………………………….53
Table 22:
Shows responses on the budgetary control exercised over the expenditures……… 54
Table 23:
Shows responses on whether payment were made in accordance with the budget…55
Table 24:
Shows responses on whether there is a budget desk at MSH……………………… 56
Table 25:
Showing findings on whether previous year budget performance report was
used for future planning ………………………………………………………….. 57
Table 26:
Showing findings on whether budget conference is held every year ……………... 58
Table 27:
Showing if financial accountability has led to better services delivery ……………59
Table 28:
Showing if financial accountability has led to better services delivery ………… 60
Table 29:
Shows responses on whether budgetary control on the expenditure has led to
proper utilization of funds………………………………………………………… 61
Table 30:
Shows responses on whether internal auditing has led to compliance with
rules and regulations in MSH …………………………………………………….. 62
xii

14. ABSTRACT
The purpose of this study was to assess the impact of internal controls on performance of NonGovernmental Organisations (NGO) case study of Management Sciences for Health (MSH) Juba
South Sudan. The study was guided by the following objectives: To examine how MSH South
Sudan has ensured effective payment to different department in the organization, to establish
how MSH South Sudan has ensured financial records are subject to internal audit, to establish
how MSH South Sudan has ensured effective Procurement policies, to assess how MSH has
exercised budgetary control on the expenditure of all departments in the organization, Selfadministered questionnaire, and interview were used to collect data of 60 respondents, the SAQ
were distributed to the respondents within the Finance and accounting department, Human
resource department, Procurement department, Administrators and field officers. Data was
analyzed using frequency tables, Pie charts computer programs such as SPSS 11, Microsoft excel
and word. The study found out that the payment procedures followed by MSH attracted a
positive response with majority acknowledging it performed well. The internal audit function
attracted a relatively fair response with some agreeing and others not meanwhile majority of
respondents gave a negative view about the procurement process indicating it was fraud, likewise
they didn’t appreciate the budgeting process. In conclusion therefore internal controls can affect
performance of an organization. It is therefore recommended that the implementation of internal
control system be reviewed especially in the area of procurement, budgetary control and internal
audit.
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15. CHAPTER ONE
INTRODUCTION
1.0
Introduction
This chapter dealt with the background of the study, statement of the problem, general objectives
of the study, Specific objectives of the study, research questions, scope and Significance of the
study about the impact of internal controls and performance of Non-Governmental Organizations
a case study of management sciences for health Juba South Sudan (MSH).
1.1
Background to the Study
This study was about internal controls and performance of Non-Governmental Organisations
(NGO). It focused on Management Sciences for Health South Sudan as a case study between the
periods of 2010-2012.Management Sciences for Health (MSH) is a nonprofit international health
organization founded in 1971 by Dr. Ronald O'Connor, composed of more than 2,000 people
from 73 nations. Its mission is to save lives and improve the health of the world’s poorest and
most vulnerable people by closing the gap between knowledge and action in public health.
Together with partners, it helps managers and leaders in developing countries to create stronger
management systems that improve health services for the greatest health impact.
MSH South Sudan was established on 18 September 2007 with the country office located in
Juba.
MSH works collaboratively with health care policymakers such as Ministry of Health (MOH)
AID Commission, managers, providers, and the private sector to increase the efficacy,
efficiency, and sustainability of health services by improving management systems, promoting
access to services, and influencing public policy.
MSH is chosen for the study because of its strategic importance to the community and the public
as a whole. It deals with Health Systems Strengthening Expertise Leadership, Governance,
&Management, Health Service Delivery, Human Resources for Health, Pharmaceutical
Management, Health Care Financing and Health Information provision amongst others. MSH
workshop Audit report (2012)
1

16. Basoln (2002) notes that an internal control is a set of instructions, guidelines and procedures
that a company's senior leadership establishes to prevent operating losses resulting from theft,
error, technological malfunction and employee neglect or carelessness. An internal control also
helps an organization/company prevent adverse regulatory initiatives, such as fines or litigation.
Accounting principles and internal audit rules require that organizations or companies establish
adequate and functional internal controls to improve corporate governance processes. These
principles include generally accepted accounting principles and the Institute of Internal Auditors
standards.
Juheno (1999) further notes that internal controls play an important role in corporate governance
systems. Controls help an organization prepare accurate and complete financial statements at the
end of each month and quarter. A firm may also hedge, or protect against, operating risks by
implementing functional controls. These risks may relate to manufacturing activities and
technological processes. Corporate governance consists of all mechanisms, technological
processes and physical systems that department heads and segment chiefs put into place to make
sure a company operates effectively. Governance tools include human resources policies and
guidelines, as well as departmental work specifications. These tools may also include external
elements, such as laws and regulations.
Freeman (1998) conceptualizes a Non-Governmental organizationas (NGO) as an organization
that is not part of a government and is not funded by the state. NGO’s are therefore typically
independent of governments. The term is generally restricted to social, cultural, legal and
environmental advocacy groups having goals that are primary non-commercial.
According to Stevenson (2004) Performance is the outcome of an individual or group
contribution of development in any activity leading to results (positive / negative).The financial
statements users, regulators, directors and managers view internal control function as a key
component of an organization’s corporate governance.
2

17. According to Krishnan (2005), Proper application of internal control procedures and policies
improves on the performance of an organization.
The case study chosen is a representative sample because of the numerous service provision it
covers which include: Health Service Delivery, Human Resources for Health, Pharmaceutical
Management, Health Care Financing Health Information, HIV &AIDS, Tuberculosis, Family
Planning & Reproductive Health, Maternal, Newborn, & Child Health, Other Communicable
Diseases Chronic Diseases management among others, all of which are important to human
survival.
It is also important to undertake the case study because of the large resources of USAID donor
funds assigned to MSH South Sudan. For instance during the Financial Year 2010/2011 a total of
$1,746,2011Million USD was released while in 2011/2012 it was $1,705,000 Million USD for
both TB Care I Project and SIAPS Project
It is on this basis that one needs to find how such large amount of funds have been used hence
the controls put in place.
The study is important because of the role played by MSH South Sudan in ensuring the
population is living a health life so as to be able to be active economically which can lead to the
development of the nation.
According to the MSH Strategic Plan (2005), MSH overriding mission
is to save lives and
improve the health of the world’s poorest and most vulnerable people by closing the gap between
knowledge and action in public health. Together with our partners, they are help managers and
leaders in developing countries to create stronger management systems that improve health
services for the greatest health impact.
One of the objectives to achieve the above mission is through establishment of sound financial
management systems for accountability, measurement of the financial performance and
provision of timely information and to provide sound governance and oversight of the NGO’s
activities.
3

18. The above objective therefore implies that the organisation should set up proper books of
account and financial management and measurement systems including the setting up of an
internal control system to ensure proper financial performance.
According to MSH internal control manual (2007:2) the following control measures and
guidelines are highlighted:
Financial responsibilities and authority are defined in employee job descriptions;
Written procedures are maintained regarding financial and accounting practices, account coding
and activity coding schemes.
This includes written policies on travel, personnel and
procurement practices;
Safeguards and policies are in place to guard against conflict of interest;
Cash and expenses are segregated by donor fund or contract, if applicable financial records are
subject to internal or external audit routinely, at least once per year. All variances and issues
must be documented and reconciled promptly and disciplinary action must be taken when
warranted. Cash receipts are deposited promptly; Payments are executed only with the
appropriate approval and upon submission of the required documentation: detailed invoices,
copies of purchase orders and shipping documents, etc. Procurement policies are documented
and applied consistently to insure fair and open competition to the greatest extent possible. Best
value is considered, including price, quality, service and warranty or goods or services;
Records are maintained of any prior approval required by donor agreement. This may include
approval for international travel, purchase of equipment, or salaries; No payment is made
without proper authority being obtained and where applicable, quoted on the payment voucher.
Promotion of a high level of compliance with the corporation’s financial policies and procedures.
Maintenance of proper accounts and records of the financial transactions, exercising budgetary
control on the expenditure of all the division.
The study focused on the four of the above objectives that isensuring that no payment is made
without proper authority,proper control over cash receipts; conformity with financial and
4

19. operational policies; financial records being subject to internal or external audit. Procurement
policies documented and applied consistently to insure fair and open competition to the greatest
extent possible and finally exercising budgetary control on the expenditure.
1.2
Problem Statement
In spite of the above objectives that are supposed to have been achieved by the Management
Sciences for Health (MSH) Organization, a number of challenges have been reported to the
contrary. The organization has not been performing well as it was expected. For example, despite
receiving the necessary support from, USAID, MSH organization has not met its major
obligation of saving people lives and improving on health of the world’s poorest and most
vulnerable people. Most of the donated funds lack accountability.
According to audit report (2012), it is revealed that about $17,786 of donor funds given has not
been of benefit to vulnerable people of South Sudan. The report also indicates that staffs have
not been effective.
The MSH workshop report 2011-2013, indicated that, there was credible evidence of fraud
detected at MSH in form of inflated workshop expenses which in multiple cases were supported
by forged receipts; these inflated expenses were submitted by several MSH staff members.
Credible evidence was also brought out which highlighted inflated workshop expenses,
especially on accommodation of participants and hiring of venue.
It was also pointed out that MSH project directors had not carried out effective management
oversight which is expected to be one of the control measures
Therefore, it’s upon this that the researcher wants to find out why MSH continues facing such
problem despite putting in place a number of policies and internal controls.
1.3
General Objective of the study
The general objective of the study is to examine and helped to improve the internal controls and
performance for Nongovernmental organization, a case study Management Sciences for Health
(MSH)
5

20. 1.3.1
Specific objectives of the Study
The study was guided by the following specific objectives:
i.
To examine how MSH South Sudan has ensured effective payment to different
department in the organization
ii.
To establish how MSH South Sudan has ensured financial records are subject to internal
audit.
iii.
To establish how MSH South Sudan has ensured effective Procurement policies
iv.
To assess how MSH has exercised budgetary control on the expenditure of all
departments in the organization.
1.4
Research Questions
The study was guided by the following research questions:
i.
How has MSH South Sudan ensured effective payment to different department within
organization?
ii.
How has MSH South Sudan ensured financial records are subject to internal or external
audit for a better performance?
iii.
How has MSH South Sudan ensured the effective Procurement policies?
iv.
How has MSH South Sudan ensured that budgetary control on the expenditure of all
departments has been exercised and hence Performance of the organization?
1.5
Scope of the Study
1.5.1
Subject scope
The study was about internal controls and the performance of Non-governmental organisations a
case study of Management Sciences for Health (MSH) Organization in South Sudan. The study
specifically focused on: proper control over cash receipts; financial records being subject to
internal or external audit. Procurement policies documented and applied consistently to insure
fair and open competition to the greatest extent possible, and exercising budgetary control on the
expenditure of all the divisions.
6

21. 1.5.2
Geographical scope
The study focused on MSH headquarters in Juba Central Equatorial State, South Sudan; MSH is
located at Ministerial Complex 100 meters away from Ministry of Health. Staff in different
departments will be approached to give information about the subject matter, coordinators and
staff of the same program in other states will be approach to give a response as well, other
partners in Juba dealing with MSH will be approached to give information about internal control.
1.5.3
Time Scope
It is designed to cover the period from the year 2010-2013, the period for three years.
1.6
Significance of the Study
The study will be of great significance in the assessment of the effectiveness of the internal
control function in the performance of MSH South Sudan.
The findings and recommendations of the study will help the management of MSH South Sudan
to understand the anomalies in their operations. Upon successful completion, this study will be
of great importance to the following groups of people:
The finding will help the researcher understand why organizations perform the way they do,
despite internal controls put in place.
The findings will help the policy maker in decision making and enable them put in place policies
guiding running of NGO’s in the country
The findings will help the government and Ministry of Health in particular to learn a lot about
accountability, efficiency and effectiveness of service delivery.
The study will help the AIDs Commission and other agencies in the Country as it will act as a
guide on how to place resources carefully intended for the poor and disadvantaged.
The study will help the Ngo forum and it members to learn about the challenges that are
experienced in running NGO’s in the new country.
7

22. The study will help Private organizations/ institutions to know how to be accountable and
manage resources more carefully.
Figure 1: Conceptual Frame Work model between internal controls and performance
Performance
Internal controls
-Better
service delivery and
-No payment is made without
product
proper authority
-Growth
-Financial records are subject
-Transparency
to internal auditor
-Proper record keeping
-
-Compliance with rules and
Use
of
documented
procurement policies
-budgetary
control
Regulations
on
the
-Proper utilization of funds
expenditure
-Quality financial information
-Proper financial reporting
Moderators
-Qualifications
-Experience
-Ethical Practice
-Position
-Technology
Source: Ekpo’s 1998
The conceptual framework above is adopted from Ekpo’s 1998, it describes a relationship between the
two variables the independent in this case internal control and the dependent that is performance in
Non-governmental organizations. The independent variable comprises of the objectives of internal
controls such as proper payment procedures no payment without authority, Financial records are
subjected to internal auditor, use of effective procurement policies and budgetary control on the
expenditures which when well-done can lead to better performance measure which include better
8

23. services and product provision change in growth, transparency, proper record keeping, compliance with
rules and regulations, proper utilization of funds, quality financial information and proper financial
reporting, never the less moderate factor such as education, political support and ethical conduct may
affect, implementation of internal controls, political interference which brings about un expected
changes like the sudden changes and government directives for political reasons affect performance of
the organization play an important role in the successful implementation internal controls and
performance of Non-governmental organizations, because if they are corrupt they may misappropriate
the funds means for services provision.
9

24. CHAPTER TWO
LITERATURE REVIEW
2.0
Introduction
This chapter comprises of the related literature of the study research which was written by other
scholars. This was in respect to the specific objectives of the study of the related area.
2.1
Effective Payment
Gazzada (2009) asserts that a valid authorization of any payment includes a full approvable
signature; initials or "Okay to Pay" Payments without approvable signature do not represent a
proper authorization. Signatures should be legible or include the printed name below the
signature. Proper approval for any payment request should be provided using a Payment. If an
alternate form such as a note, letter, or memo is attached to a payment request, it must include:
Name of Person/Vendor to be paid, account number to be charged, amount of payment being
approved, purpose of payment being approved, and signature authorization. Some departments
that process a higher volume of regular vendor invoices make use of an approval stamp instead
of attaching a Payment Order Form for each invoice. This is a rubber stamp that is stamped
directly onto the invoice and filled in by the payment approver. Use of a stamp such as the
example below will ensure that all elements of a proper approval are present. A Post-it note stuck
onto an invoice with "okay to pay", a signature, account number, and date can inadvertently
become attached to the wrong document and does not provide adequate proof for audit purposes
that proper authorization for payment was received. This also applies to any note or slip of paper
that is clipped or stapled to an invoice that does not contain all the elements of a valid approval
of an expense.
From the researchers point of view it is correct to follow the above procedure as mentioned by
Gazzard except the biggest challenge that the NGOs and other organizations in general are facing
in South Sudan is Lack of knowledge and inability to understand the importance of some of these
internal control procedures by the people employed some of whom are employed on the basis of
technical know who but not because of qualification, many didn’t go to school to study since
10

25. they were affected by civil war and therefore they may not understand the repercussion of
neglecting some of these controls after all event auditing is rarely done in this new country, this
has been worsened by the government policy which is promoting employment for only Nationals
in these position for both foreign and international NGOs. The idea of employing the National
as per say is not bad except for how it is especially when people are given jobs for political and
social reasons were they do not qualify. The way forward therefore should be, to have a fair
employment policy and through training of these employees by taking them for refresher courses
and advice be given on the importance of these controls. These problem of not following the
proper payment procedure was noted in MSH South Sudan as indicated in the auditor’s report
2011-2012 earlier and as observed in the report and the Auditor’s management letter
recommendation were made and culprits were suspended and new qualified staff were employed
to do the work after the organization had lost a lot of money which affected its performance on
the ground.
Dedei (1999) states that when it comes to matters concerning payment the managing director or
deputy director (Director Finance and Administration) should be the one to authorize or approve
the payment of funds.
All checks are signed by the Senior Accountant and the National
Coordinator if any. All payments should be supported by relevant documentations (Invoices,
Way Bills, etc.) The deputy Director (Finance and Administration) can certify the payment for
procurement by imprest. The process of payment starts by Accountant raising the memo through
the Deputy Coordinator (Finance and Administration) to the National Coordinator. Attached to
memo should be Invoices, Purchase Orders and other relevant documents.
The Deputy Director (Finance & Administration) then minutes on memo (certifies), Approval is
given by Director and the Accountant prepares, authorizes and forwards Payment Vouchers to
Internal Auditor. Certification by Internal Auditor (Stamping and Signing).The Accountant
prepares a cheque, signs and forwards and attaches it to the Director.
This, as observed by the researcher will depend on the size of the organization. If it is a small
organization then one may not require that long process but a mechanism is developed within
the organization were the immediate Bosses are given the Authorization and approvals
11

26. responsibility working hand in hand with the accountant or financial controller of the
organization. For the case MSH South Sudan this procedure is well outlined in the Financial and
accounting manual given the size and coverage of the organization in South Sudan, For small
payment transactions the long procedure is simplified by the use the petty cash/cashier
supervised by the accountant.
Wedhon (2002) argued that in order to ensure strong control over receipts, when cashier
received, it should be acknowledge by means of printed receipt which should have a counterfoil
or a carbon receipt. The receipt should be consecutively numbered. The unused receipt should be
cancelled and must not be detached from the counterfoil. No blank counterfoils should be
accepted. As soon as cash is received, it should be entered in a rough cash book or dairy. Internal
audit activities help employees abide by corporate policies and regulatory guidelines.
The Audit report (2009) for the Norwegian Peoples Aid (NPA) gives a clear view of want
happens in a number of NGOs it shows a number internal control material weaknesses observed
and the countries affected:
The report highlights Noncompliance with established sub-recipient monitoring policies (Sudan),
in regard to cash management, bank reconciliation had not been properly completed, reviewed or
approved and petty cash counts had not been properly conducted or accurate (Sudan). The
following significant deficiencies were also noted, Noncompliance with established procurement
policies (Sudan), significant journal entries which were not properly supported (Sudan),
Timesheets were incomplete, not signed, not approved and there were instances where time
charged to the awards did not correspond to hours indicated on timesheets (Sudan, Angola),
Inventory was not properly controlled (Sudan), Personnel files were incomplete (Sudan),
financial records were not properly filed and difficult to locate (Sudan), numerous instances of
payment vouchers not properly signed and dated (Sudan).
This scenario can be compared to what was happening with MSH south Sudan as stated in its
Audit report and it clearly shows that a number of NGOs are not embracing the internal controls
12

27. put in place as per the internal control policy manuals some that may lead to the concealing of
some of the funding by the Donors.
According to the Oxfam Audit report (2006-2007) internal control measures were found to have
been violated in Cambodiain the following ways
Internal payment vouchers were not signed and dated indicating approval. It was, again noted
that and dates were missing in addition to inconsistent use of internal payment vouchers. This
observation is similar with what was observed with NPA.
According to Mpabanga, (2005) The NGO sector in India is largely in the form of what can be
termed as an ‘unorganized sector’, with a preponderance of small outfits that have been floated
by either individuals or small groups of people. The NGOs are generally founded by people
passionate about a ‘cause’, which often results in an organizational infrastructure that is focused
on operations rather than efficiencies and management processes. One result of this is the
wastage of resources especially where unnecessary payments are paid to individuals. Limited
statistics that are available indicate that on an average 70 percent of the funds are utilized for the
administrative purposes of the NGOs. In addition, the disproportionate focus on the operations
versus management efficiencies and planning results in people with inadequate management
competencies to hold senior positions. This exposes the sector to higher degree of risk from
corruption and frauds, both intentional and consequential.
2.2
Financial records
Shandia (2004) states that internal audit is an independent, objective assurance and consulting
activity designed to add value and improve an organizations operations. It helps an organization
to accomplish its objectives by bringing a systematic disciplined approach to evaluate and
improve the effectiveness of risk management, control and governance processes. The definition
recognizes two roles for Internal auditing, namely: to provide an independent assurance service
to the board, audit committee and management, focusing on reviewing the effectiveness of the
13

28. governance, risk management and control processes that management has put in place; and to
provide advice to management on governance risks and controls.
Reinford (2004) states that one of the main characters of the Internal Control System is Internal
Auditing activity. Its mission states that it has to provide independent, objective assurance and
consulting services designed to add value and improve the operations of the organization. It must
also help the organization accomplish its objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk management, control and governance
processes. The objectives of internal auditing as a measure of internal control are very clear
except that sometimes the internal auditor may be compromised especially were he/she sits in the
same organisation with management the aspect of independence diminishes with time and
therefore he may not play the oversight role well and hence you may find the NGO not following
the policies well and putting in place the recommendation, this can be sighted with the
observation from the MSH South Sudan internal audit report were a number of cases were
highlighted in the 2010-2011 audit report and recommendations given but the same issues kept
on appearing in the next financial years. For any impact to be felt the internal audit function
should be supplemented by the external audit function and stringent measures put in place for
those who undermine the recommendations.
Owenrich (2001) emphasise that the scope of Internal Auditing is to determine whether the
organization’s network of risk management, control and governance processes, as designed and
represented by Management, is adequate and functioning in a manner which ensures that risks
are appropriately identified and managed; interaction with the various governance groups occurs
as needed; significant financial, managerial and operating information is accurate, reliable and
timely; employees’ actions are in compliance with policies, standards, procedures and applicable
laws and regulations; resources are acquired economically, used efficiently and adequately
protected; programs, plans and objectives are achieved; quality and continuous improvement are
fostered in the organization’s control processes; significant legislative or regulatory issues
impacting the organization are recognized and addressed properly.
14

29. Groonhil (1999) suggest that the Internal Audit activity should assess and make appropriate
recommendations for improving the governance process in its accomplishment of the following
objectives: promoting appropriate ethics and values within the organization; ensuring effective
organizational performance management and accountability; effectively communicating risk and
control information to appropriate areas of the organization; and effectively coordinating the
activities of and communicating information among the board, external and Internal Auditors
and management. The Internal Audit activity should evaluate the design, implementation, and
effectiveness of the organization's ethics-related objectives, programs and activities.
A Ciokey (2005) note that it is the role of management is to ensure performance and compliance
standards prescribed in a control plan are adhered to. Internal Auditing assesses the internal
control environments by developing an internal control test plan to evaluate whether control
planning and its implementation are effective in terms of both compliance and performance
across the organization.
Shandly, (2004) states that separation of duties is a measure of good accountability and internal
control. This will ensure that one individual cannot perpetuate and conceal errors and
irregularities in the normal course of duties. Segregation of duties is not always possible due to
limited staff. Strong internal controls require the segregation of responsibilities for authorizing
transactions, physical custody of assets and the related record keeping. For example, one
individual could order, receive, approve for payment and verify charges to the monthly
accounting report. One individual should not have the ability to receive payments through the
mail, prepare the deposits, reconcile the bank statements, and post payments to the receivable
system.
Hegson (1999) noted that the internal audit function helps an organization improve operations,
detect key problems in important mechanisms or processes and correct major problems. An
internal evaluation also aids top management in ensuring that employees comply with corporate
policies, such as human resources procedures. An audit director plans testing activities at the
beginning of the year, allocates resources to specific areas and assigns tasks to staff and junior
15

30. auditors. Internal auditors review segment processes and issue reports to senior management.
The internal audit department evaluates specific areas throughout the year; those are "areas under
review." An audit manager allocates more resources to a segment or an area based on potential
operating or financial risks. For example, an audit specialist might focus on "high-risk" areas
within the treasury department because risks of losses exceed $10 million. An internal auditor
also may perform tests on an insurance company's premium calculation department to ensure that
calculation methodologies adhere to corporate policies.
Guenji (1998) states that internal audits play a significant role within an organization's
governance systems. A periodic (and systematic) review of an area's processes ensures that
employees comply with management instructions. Area managers receive additional help in
checking performance indicators within their departments. A company's top management learns
major risks facing a corporation by reading periodic reports. Finally, frequent audits allow
managers to use audit information as employee performance evaluation tools.
Deloitte (1998) gives the following as key to an effective internal audit function: it operates from
a clear, updated charter; it adapts its activities to the needs of the organization; it uses a riskbased approach; it reports directly to the audit committee; it enjoys full support of management
and the audit committee; it maintains open communication with management and the audit
committee; it has clout within the executive ranks; it engenders respect and integrity throughout
the organization and it teams with other internal and external resources as appropriate; it
provides leadership on issues of internal control, fraud, financial reporting, risk management and
corporate governance and it leverages technology; and it must provide support to the company’s
anti-fraud programs.
Malbok (2003) noted that one of the key roles of internal audit is to assist the board and/or its
audit committee in discharging its governance responsibilities by delivering reviews of
operational and financial performance and make recommendations for more effective and
efficient use of resources.
16

31. 2.3
EffectiveProcurement policies
According to Minahan, (2006) as the need to satisfy stakeholders’ demands increases,
NGOleaders today acknowledge the frontline played by the procurement department.
Procurement not only provides organizations with a competitive edge for funding, but also
makes a very big contribution to the organization’s goals achievement and success.
According to Lysons (2000), the term procurement is defined as the acquisition by purchase,
franchise, rental, lease, hire purchase, tenancy or any other contractual means of goods, services,
works or any combination of the two, which are required by an organization for use in the
production, service provision or resale.
Procurement is a very important function within an organization that accounts for the biggest
share of the expenditure in many firms.
Today, it would be difficult to find an organization, large or small that does not understand the
importance of procurement and how successful implementation of this function would have
positive impact on their overall success.
Therefore for effective decision making and attainment of value for money, every procurement
executive should follow certain essentials which are regarded as the traditional rights of
procurement, which are; Right Quality, Right Quantity, Right Time, Right price, Right source.
This is normally inscribed in the organization procurement policy/ process. Every organization
requires this policy describing the procurement processes cycle.
The procurement process cycle describes the typical stages that characterize the procurement
process.
In most countries, government entities are by law meant to adhere given standard when procuring goods,
services or works.
In South Sudan for instance, Public procurement is governed by the Interim Public Procurement and
Disposal Regulations (2006) under the ministry of Finance. This is because governments strive at
streamlining the procurement process in an attempt to reduce corruption and attain value for money in
17

32. each and every dollar of the tax payers’ money. In a bid to stream line procurement process in contracts
involving international boundaries, many countries are required to be members of the government
procurement Act (GPA), a body which consists of over 127 countries in the world. The World Bank also
provides the procurement laws and regulations that its entire donor funded projects are meant to adhere
too.
In Uganda, there exist the Public Procurement and Disposal of Public Assets Authority a body that was
established to stream line the procurement systems of public firms. It has therefore formulated a
standard procurement process/cycle to be used by public firms in daily purchasing and it begins with
planning and budgeting and Concludes with evaluation of the performance of contract.
According to MSH South Sudan Audit workshop report (2012), MSH has put in place
Procurement policies in line with those set by the World Bank for NGOs well documented and
expected to be applied consistently to ensure fair and open competition to the greatest extent
possible. Best value is considered, including price, quality, service and warranty or goods or
services.
Despite these procurement policies well outlined Organizations continue to record cases of
procurements guidelines being faulted. For example the Internal Audit report for MSH South
Sudan reported a number of cases of irregularities.
For example according to the Internal audit report, the procurement of workshop venues / hotels
after January 2012 was not in accordance with MSH and donor policies,
The validation of hotels was the first step in the pre-qualification process. However, the COMU
did not go a step further by making use of this data. As of November 2012 staff were still not yet
cross-checking rates on receipts submitted by staff against the list, and had not yet initiated a
formal pre-qualification process to short-list venues / hotels for negotiating fixed rate contract
agreements and direct payments.
Staffs were not given proper guidance on the acceptable hotels to use. Without appropriate
guidance staff continued the practice of discretionary selection of venues. The use of hotels
which are difficult to verify actually increased as a result. For example, workshops were being
18

33. held at hotels (Motherland and Naivasha) were there was no record of previous stays by other
staff members or available data from the survey. According to the Project Director, the Ministry
of health (MoH) had more influence on the regions/states and decided where TB CARE I Project
training activities was more beneficial to the target audience. While the MoH rightfully has
influence over activity locations, MSH retains responsibility for safeguarding and controlling
resources and should make decisions on the specific hotels where workshops are to be held.
Staff who deviated from frequently used hotels on the basis that they were unable to obtain
cheaper rates at ’preferred’ hotels more often submitted inflated cost receipts.
In Japan according to Parker (2007), the majority of Non-Governmental Organizations (NGOs)
receive recurrent subventions from the Government and other sponsoring organizations like the
Hong Kong Jockey Club for the provision of a wide range of social, medical and healthcare
services in the community. While NGOs, large or small, enjoy a high degree of autonomy in
their day-to-day operations, they have to meet Government/Donor funding requirements when
setting performance targets and service quality standards, and when drawing up internal controls
for major functions, such as procurement and auditing, etc.
In Japan the Corruption Prevention Department (CPD) of the Independent Commission against
Corruption has recently conducted a research into the operation of NGOs. The research shows
that most well run NGOs, no matter what types of service they provide have in place a sound
governance structure and effective internal control mechanisms. As poor management is a
breeding ground for corrupt practices; the CPD sees the need of consolidating these NGOs’ good
systems and practices into a checklist for use by all NGOs. This Best Practice Checklist provides
a user friendly directory of measures which could help NGOs foster good governance in the
organization and best practices in respect of integrity management, internal control, financial
management, procurement, staff administration, and management of maintenance works.
Without losing sight of the funding requirements, NGOs are advised to adapt and adopt the
governance structure and good practices recommended in this Checklist to suit their operational
needs and resource capabilities.
19

34. According Tackett and Gregory (2006) in India the past corruption cases showed that
procurement processes are prone to manipulation and malpractice, such as favoritism in the
sourcing and selection of suppliers or service providers, leakage of information and connivance
at sub-standard goods or services. However, today a Best Practice Checklist on Procurement is
available for reference at the ICAC website: (www.icac.org.hk.) to avert these tendencies.
This section provides a step-by-step guide to procurement of goods or services, with the aim of
helping NGOs to avert corrupt practices and achieve value for money in procurement;
According to the Audit report (2009) for Norwegian People Aid (NPA) Sections II and IV noted
the following internal control violations in regard to procurement.
There were material instances of non-compliance with established procurement policies
(Sudan).NPA-Sudan did not obtain the required seed certificates as required by the special
provisions contained within the grant agreement. Accordingly, such costs are not considered an
allowable expense under the U.S. Government award. In addition, by not adhering to established
procurement guidelines with respect to the procurement process, certain goods and services may
have been purchased at above prevailing market prices. This was not only unique to NPA Sudan
but is gives a reflection of what has happening all over especially in Africa and Asia were
corruption and illiteracy.
2.4
Exercising budgetary control on the expenditure
According to Anderson (2008) NGO accounting is dominated by budgeting.
A budget is plan expressed in quantitative or monetary terms aimed at pursuing specific
objectives during a defined period of time. He further states that budgeting has three main
objectives:
The first one being planning, Budgets provide a detailed plan of action for a given period of
time, the plan relates to all aspects of the organization-production, labor, sales, and expenses
among others.
20

35. The second one is controlling, budgetary controls help responsible officers/ accounting officers
to be focused on only certain activities. This makes a comparison between the actual achieved
results and the expected results possible.
The third one is coordination; Budgeting helps manager (accounting officers) to coordinate their
activities so as to be able to achieve the overall objectives of the organization.
Alridge and Colbert (2004) assert that budgeting is very important for NGO’s because it acts as a
control measure, they go ahead to mention that the benefits of budgeting almost always clearly
outweigh the costs and efforts required by the process.
Perhaps the foremost advantage of budgeting for the NGO’s is that it forces project managers to
think ahead. A look in to the future invariably compels top management to set goals and
objectives. Budgeting therefore tends to move an organization from a reactionary mode in which
management simply reacts to problems, to a controlled mode in which problems are anticipated
and positive action is taken.
Budgeting is useful to NGO’s because it coordinates and integrates the organizations resources.
The budgeting process requires that managers open up lines of communication within the
organization: Up and down organizational lines from subordinates to supervisors, and across
organizational lines between managers of different departments.
Coordination across organizational lines is necessary due to interdependence of activities. For
example, purchasing managers integrate their plans with production requirements; production
managers use the sales budgets to help them anticipate and plan for materials, employees and
productive facilities, and personnel must know the needs of all the departments before it can plan
for new employee needs training requirements.
In the case of MSHSouth Sudan, the powers are given to different managers to participate in the
budgeting processes as stipulated out in this could imply the centre’s capacity to resources and
the databank to make some money as stipulated in Finance &Accounting Manual. The
departmental managers expected to play their part in ensuring that this is achieved. They produce
performance reports and reports on the Master budget of the Centre are produced. The aim of
21

36. these reports is to enable Heads of Departments and/or Stations to avoid deviation from the
approved budgets. These reports are prepared by the Accountant and the Finance Department
from audited accounts.
Alridge, et-al goes further to state that budgeting can be useful in identifying bottlenecks for
example one service department may slow down the preceding departments either due to
absenteeism or any other reason, whatever the bottleneck budgeting helps identify it and
provides management an opportunity for planning how to solve it before it is too later to affect
the organizational performance.
Hinks, G (2005) indicates that budgeting in organizations services as a benchmark against which
actual results are measured and performance of individual managers evaluated. Significant
variations from planned results may require explanations and in some cases, corrective action by
the individuals responsible for the results. One benefit of benchmark is that managers will know
what is expected of them.
According to Pandey (2008) as a basis for judging performance, budgeted activity is generally
regarded as more appropriate than historical or industry data. The major drawback of using
historical data is that inefficiencies in the past performance may be concealed and allowed to
continue. Also, changes in economic conditions technology, competition, and personnel make
comparisons of present with past performance invalid. Budgeted data are more realistic for
performance evaluation because the benchmark minimizes the carry-over of past inefficiencies
and reflect changes pertaining to the current period.
According to Haller (1992) in the bid to control spending, the Spending authority for the signing
officers is normally provided in the annual budget of the organization. In most organizations, the
board of directors delegates authority to the signing officers for day to day purchases outlined in
the budget. This means that the treasurer does not have to wait for approval at a board meeting
every time a new pencil needs to be purchased (provided that pencils/office supplies are included
in the budget). Expenditures not included in the budget should be approved by motion at a
meeting of the board.
22

37. The organization may set out spending limits for the officers on major purchases. Expenditures
over a predetermined dollar level may require board approval. A sample board policy could state
that "any purchases over $500 require approval by motion at a board meeting".
For larger expenditures or for capital expenditures, the organization may have a policy that
requires a competitive bidding process. Written quotes from 2 or 3 vendors would be obtained
and presented to the board before a purchase was approved.
According to Mostashari (2005), one of the biggest problem NGO’s in Iran are facing is Lack of
managerial and leadership skills, this deprives NGOs from strategic planning. A number of
NGOs visited during the research study indicated that they did not have a strategic plan and even
annual operational plans for their routine tasks. They said they were interested in long-term
planning, but strategic planning was an ad-hoc subject who needed special knowledge and skill
and so they did not have such knowledge “stated in the focus group discussion (FGD)”. There
was a clear indication that budgeting was not being done and yet this was a very important
internal control tool an which one would expect to measure performance. This may not be unique
to the Iranian NGOs since back home in South Sudan only a few people may perform a similar
task because of lack of the necessary knowledge and skills.
2.5
Performance
Goodwin (2003) goes ahead to state that performance comprises of the actual output or results of
an organization as measured against its intended outputs or objectives.
Shapiro (2007) states that, financial performance is the measurement of the results of a firm’s
policies and operations in monetary terms. These results are reflected in the firm’s returns and
value-added. This is a subjective measure of how well a firm can use assets from its primary
mode of business and generate revenues. This term is also used as a general measure of a firm’s
overall financial health over a given period of time.
Touche (2004) notes that the traditional role of internal control is to keep the organization
focused to the desired goal, bring value, and improve operations. In this current era of the
Sarbanes-Oxley Act of 2002 (USA), it has the objective of assurance on financial control and
23

38. compliance. Some of the peak performance indicators are: reports issued on time, staff training
and certifications, internal audit turnover, internal audit transfers, internal audit employees
survey measuring professional staff satisfaction, internal audit staff utilization, and hours of
training. They conclude that adaptability and flexibility will stand out as key characteristics of
successful internal control functions. An optimised internal control function will tailor its
activities to areas of greatest risk and opportunities for greatest value. Such firms can then attain
the benefits of sustainable compliance and enhanced competitiveness.
According to Clark, (1991) like every other sector, one of the major drivers of efficiency is the
manner of utilization of the capital and the funds that the NGO sector accumulates through
various sources for carrying out its work. If statistics are to be taken into consideration, out of
more than 1.2 million NGOs operating in India, only 3% are being able to carry out constructive
grass-root level work (ICONGO, 2002 survey). Furthermore, NGO establishments typically tend
to have high administrative costs of nearly 60% and above. Indicatively (based on limited
statistics that are available for India), only 10-20% of the funds are utilized for effective
developmental work. More stringent management norms through internal controls and regulatory
oversight will contribute to more effective spending by NGOs.
According to Lekorwe (2007), there are numerous NGOs working in remote and challenging
regions of India. Many of the well-funded organizations have large geographically spread-out
set-ups with regional branches in such areas. Consequently, such set-ups in the remote regions
have inadequate means for internal control, further exposing to the risk of inadequate functional
and financial monitoring.
Internal control mechanisms form an integral part of any organization since it is essential that the
‘child’ outfits work in tandem with the parent organizations. It will be less beneficial if the
parent organization (often, set up in a large city) adheres to regulations and internal
policies/controls but the branches do not. The scenario is not different from what happens in
South Sudan, You find that controls are exercised at the head office in Juba but if one moves to
other states where the NGO is operating it may not be the case sometimes this is also attributed
24

39. to lack of qualified manner power to work in some areas and the rigidity of the rigidity of the law
that may require only local people of that area to be employed there
In order to better understand internal control; Dan Sampson asserts that one must be able to
understand the five interrelated components of an organization. The components are;
organization’s operation environment, the goals and objectives and related risk management,
controls and related policies and procedures, information systems and communication methods
and finally the activities to monitor performance (Dan Sampson, 2005)
A report from on DANIDA South Africa has a useful chapter on internal controls. It reveals how
changes in the performances of overall work will automatically introduce effective
transformation of the internal control to the latter’s advantage (DANIDA Audit Report, 2005)
An interesting dimension is introduced by a journal article which analyses effectiveness and
performance from the perspective of quality (Krishnan,2000) This author compares quality of
management in an NGO concern against the quality of corporate internal control in order to
establish a relationship between the two concepts.
Can performance in the NGO sector change to the credit of the Donor, simply because all parties
concerned are willing to put in optimal funds in the internal control system and the audit effort?
The article also projects the likely outcome of internal control following the introduction of a
new regulatory environment by the International Financial Management Standards.
There is a relationship between social issues management and Corporate Social Performance.
The articles have suggested a theory that social issues in management contribute to the success
or failure of internal control systems within an NGO. The theory states that a link exists between
the two and that slack resource availability and corporate social performance are positively
related (Waddock, 1997)
25

40. CHAPTER THREE
RESEARCH METHODOLOGY
3.0
Introduction
This chapter presented a detailed description of the research methods that are used to collect
relevant data to the study. It contains the research design, study population, sample size, data
collection methods, data processing, data presentation, and data analysis.
It includes the
anticipated limitations and anticipated solutions.
3.1
Research Design
The study followed a descriptive research design. The qualitative and quantitative approaches
were employed based on the MSH South Sudan organization staff drawn from different
departments in Juba. The quantitative technique was used to collect and analyze data on the role
of internal controls on the performance of MSH. The qualitative approach was used to examine
the part played by internal control in nongovernmental organizations sector. This design was
used because it brought out clearly the relationship between internal control and performance.
The study was be specifically non experimental because the researcher intended to describe and
make observations of what the real results were for purposes of making decisions based on the
facts to improve the situation.
3.2
Study population and sample size
The populations of 70 respondents were selected and it comprised of MSH staff drawn from
different departments of accounting and finance (13), internal audit (06), Human resource (04),
procurement and logistic (07) and Field officers (25). The rational was that all the above
respondents were stake holders.
3.3
Sample size
A sample size of 70 respondents were expected as stated above but this was not because the
number of respondents were not able to fill the questionnaires due to a number of reasons and
only 60 respondents were able to do so. This was above the 40 mark which is said to be
26

41. representative enough. This was in conformity with Roscoe (2003) who contends that the sample
size larger than 30 and less than 500 respondents is appropriate for most studies. The researcher
selected respondents according to their willingness to provide information and fill in the
questionnaire as it was shown in table: 1below:
Table 1: Sample Size of the Respondents
Department
Population
Sample Size
Accounting and Finance
17
13
Internal Auditing
08
06
Human Resource
06
04
Field officers
25
25
Procurement and logistics
08
07
Directors
06
05
Total
70
60
Source: Primary Data
3.4
Sampling methods
The research used varieties of sampling which include: Purposive, random and stratified sampling.
3.4.1
Purposive sampling
Purposive sampling involved selecting a certain number of respondents based on the nature of
their work in relation to internal controls MSH organization. This method was appropriate
27

42. because the sample selected comprised of informed persons who could provide data that was
comprehensive enough to gain better insight into the problem.
3.4.2
Random sampling
Random sampling involved selecting respondents from the population listing by chance. In this
way, every member had an equal chance to be selected. The main disadvantage of this method
was with the bias which it could diminish the integrity of random selection but this was
overcome since the population listing involved only members with relevant information.
3.4.3
Stratified random sampling
Stratified random sampling was applied in consideration of the categorization of accountants,
administrators, auditors, cashiers, and support staff to compose an appropriate representative
sample. This method involved organizing the units in the population into strata using common
characteristic of activities performed.
3.5
Data Sources
Both primary and secondary data collection methods were used to collect relevant data to the study.
Data collection methods that were considered in such a way that relevant information were to be
collected as much as possible with little inconvenience to respondents.
Primary data means to first hand data. It was collected from the respondents through interviews, and selfadministered questionnaire. Primary data was important in answering questions about internal controls,
and their effects on organizational performance in non-governmental organizations. Secondary data means
to second-hand data. This was obtained from recorded documents, earlier studies and some publications
on internal controls. Other information will be obtained from the internet.
28

43. 3.6
Data collection instruments
The researcher used the following instruments in this study, questionnaire and interview
3.6.1
The self-administered questionnaire
The questionnaires were the main primary source of data collection. The identified sample was
served with the questionnaire directly by the researcher. To obtain quantitative data, one set of
questionnaires was used for all respondents. The questionnaire was be filled in by accountants,
auditors, cashiers, administrators, procurement staffs, the human resource staff and field officers
and support staff. The questions involved the feelings of respondent groups regarding the
contribution of internal controls and performance in nongovernmental organizations. The
questionnaire also aimed at getting responses from the respondents about their views on internal
controls and how it can be improved.
3.6.2
Interviews
Interview means face to face interaction between the interviewee and the interviewer. The
interviews were held with those respondents identified purposely crucial to the provision of
explanations to the topic under study. The questions for the interview were both open-ended and
closed. The open-ended questions gave chance to more discussions, while the closed questions
asked for particular responses. The interview method helped to collect additional views from
respondents on the theme of the study. The questions were filled on spot and the respondents
were interviewed from their offices to save time. This method allowed further probing and
clarification of questions that tended to be difficult and not clear to the respondents. It also
enhanced responses for questions which were regarded as sensitive.
3.7
Data Processing
The data obtained from the questionnaire was double checked to make sure that the information
provided was complete, consistent, reliable, and accurate. Data processing involved scrutiny of the
responses given on the questionnaires by different respondents. Data was sorted, edited, and
interpreted. The coding and tabulation of the data obtained from the study then followed. To achieve
29

44. data quality management, the questionnaires were tested on 10 respondents. This was done to test
consistency and to ensure that instruments remain consistent over time.
3.8
Data Analysis
After data processing, it was summarized and analyzed so as to make sense of the data to ensure
completeness and consistence. To facilitate reporting and inferring meaningful conclusion, data
was edited and condensed. Frequency tables, micro soft excel and Statistic Package for Social
Scientists (SPSS 11), word and among others were used for analysis; these were used to test the
relationship between the independent variable and the dependent variable, that is, internal control
and performance of non-governmental organizations. Quantitative data was edited first and
coded before analysis. Data validation was done. Thereafter, the data was summarized in form of
tables and other statistical forms found suitable for presentation of the findings.
3.9 Ethical Consideration
The researcher got an introductory letter from Cavendish University Uganda, faculty of Business
and Management to Management Sciences for Health Non-governmental organization which
show that he is a student from Cavendish University Uganda.
3.10 Limitations and problems encountered
The study had the following limitations:
The researcher encountered the problem of language barrier in some instances respondents speak
Arabic and local languages, this was solved by getting a volunteer interpreter
The researcher encountered problems of financial difficulties, especially in areas of printing,
transportation, Library fees, internet costs and feeding among others, this constraint was averted
by seeking financial sponsorship from friends and well wishers
Some respondents were too busy with their daily schedule and were failing to spare time for the
questionnaire. In such circumstances the researcher gave ample time to those respondents. This
was made possible by serving them the questionnaires in time.
30

45. According to Mpaata (2004:8) the questionnaire method has got some disadvantages which
include small sample size than expected. Since in this study questionnaire method was used, it
was inevitable that small sample sizes than expected were encountered. However failure to get
the stated sample size of 70did not hinder the study to take place, as only a representative sample
of 60 respondents, which is non-redundant, was adequate.
31

46. CHAPTER FOUR
PRESENTATION, DATA ANALYSIS AND INTERPRETATION OF FINDINGS
4.0 Introduction
In this Chapter the presentation, data analysis, tables and figures were presented and
interpretation made in accordance with the research objectives of the study. The chapter is
divided into sub-chapter namely: Demographic characteristics of respondents, payment
procedures undertaken, financial records subject to internal audit, effective Procurement policies,
budgetary control on expenditure and performance.
4.1
Demographic characteristics of respondents
The respondents demographic characteristics include; Age, Gender, Level of education, Time
spent on the job and Position held.
4.1.1
Age of the respondents
The distribution of the respondents by age was presented in the study as shown in table 2and
figure 2 Pie-charts below.
Table 2: showing distribution of age of the respondents
Age
Frequency
Percentage (%)
20-25 years
6
10.0
25-30 years
11
18.3
30-35 years
29
48.3
35-40 years
10
16.7
above 40 years
4
6.7
Total
60
100.0
Source: Primary data
32

47. Fig 2: Pie chart showing distribution age of the respondents
4
10
6
20-25 years
25-30 years
11
30-35 years
35-40 years
above 40 years
29
Source: Primary data
From Table 2 and Figure 2 above, the respondents were required to indicate their ages and the
study revealed that the largest numbers of respondents were in the age group of 30-35years
48.3%, these were followed by those in the range of 25-30years 18.3% who were closely
followed by those in the range of 35-40 years 16.7%, those who were in the range of 20-25 years
were 10% and the smallest number was those who were in the range of 40 years. This age trend
in the organization is an indication that the majority of the respondents working in the
organization are youthful; this reflects what was reported in the National census of South Sudan
2008 which indicated that the majority of the people were youth.
4.1.2 Gender of the Respondents
The study captured gender of the respondents in order to establish the most dominant working
group of the employees with MSH Organization in the environment of South Sudan which has
just come out of civil war and some areas are still insecure. The respondents were asked to state
their sex and the distributions shown in table 3 and figure 3 pie-charts below.
33

48. Table 3: Gender of the Respondents
Sex
Frequency
Percentage (%)
Female
22
36.7
Male
38
63.3
Total
60
100.0
Source: primary data
Figure 3: Pie chart Showing sample size by gender of the Respondents
Frequency
Female
22
Male
38
Source: Primary data
According to the results for gender of the respondents on table 3 and figure 3 above. The total
numbers of the respondents were 60 out of 70 that the researcher had targeted. The majority of
the respondents were male with the percentage of 67.3%, while the female were 37%. This
therefore implies that the most dominant working group of employees with MSH Organization
were males. The imbalance in the organization attributed to various factors existed in South
Sudan, there is a traditional culture that the women are responsible for home keeping rather than
going to school or work, some religions also encourage early marriage of girls which hinders
them from furthering their education and due to the fact that there is high illiteracy rate of girl
34

49. child education in South Sudan because of long civil war. Hence there were no many qualified
and educated females to compete with few males that got their education.
4.1.3
Level of Education of the respondents
The researcher asked the respondents to state their level of education to find out whether the
respondents could be able to interpret the questionnaires given to them by the researcher. The
findings indicated some of the respondents in the targeted group have relevant knowledge to
read, interpret and answer the questionnaires given to them by the research as presented in table
4 and figure 4 below.
Table 4: Showing level of education of the respondents
Level of Education
Frequency
Percentage (%)
Primary
4
6.7
Secondary
7
11.7
Tertiary
49
81.7
Total
60
100.0
Source: primary data
35

50. Figure 4: Bar graph for the Level of Education
Level of education
60
50
40
30
Frequency
20
10
0
Primary
Secondary
Tertiary
The study highlighted that the majority of the respondents were found to have attained tertiary
institution level of education, with 81.7%, Secondary level of education were 11.7% and primary
level of education were only 6.7% of the respondents. This implied that the highest percentage
was picked from Tertiary education level because they were equipped with the information
concerning internal control and performance of Non-governmental Organization and they were
able to interpreted and responded accurately on the questionnaire given to them by the
researcher.
4.1.4
Time spent on the job by the respondents
The researcher asked the respondents the period they had spent on their jobs to find out their
experience about the internal control and performance of Non-governmental Organization and
the findings resulted to a high level of experience on the jobs by the respondents as captured in
table 5 below
36

51. Table 5: Showing Time spent on the current job by the respondents
Period
Frequency
Percentage (%)
Less than 2years
8
13.3
2-3 years
19
31.7
3-4 years
27
45.0
4 years and above
6
10.0
Total
60
100.0
Source: Primary data
The findings on table 5 above indicated that out of the 60 respondents who answered the
questionnaires, majority had spent 3-4 years on their current job 45.0%, they were followed by
those who had spent 2-3 years on their current job 31.7%, those who had spent less than 2 years
were 13.3% and the least number of respondents who had spent 4 years and above on their job
were only 10%
4.1.5
Position held by the respondents
The position held by the respondents in MSH Organization, was also considered by the
researcher and the findings were shown in the table 6 below.
37

52. Table 6: Shows responses on the position held by the respondents
Position held
Frequency
Percentage (%)
Accountant & Finance Staff
20
33.33
Internal Auditors
3
5
Human Resources Staff
13
22
Field Officers
17
28.33
Procurement and Logistics
5
8.33
Directors
2
3.33
Total
60
100
Staff
Source Primary data
From table 6 above, 5% Internal Auditors, 22% human resources staff, 8.33% Procurement and
Logistics Staff, 3.33% Project Directors, 28.33 Field officers and 33.33% Finance and
accountant staffs. This indicated that the study captured different respondents in all field, though
the majority of the information was obtained from finance and accounting staffs who were
directly involved on internal control and performance of non-governmental Organization. They
were having a better and clear understanding of internal control system and that gave a
researcher an upper hand to obtained required relevant information for the study.
38

53. 4.2 Payments procedure
In an attempt to ascertain the different major payment procedures about the internal control and
performance of Non-governmental organization, findings were based on the first objective,
relevant questions were asked and responses noted.
4.2.1
Payments are properly documented
A question was asked as to whether payments procedures in MSH Organization were properly
followed and documented? The findings in table 7 below showed that there was no proper
payment procedures followed.
Table 7: Shows responses on whether payment procedures were properly documented
Responses
Frequency
Percentage (%)
SA
7
12
A
14
23
D
25
42
SD
14
23
Total
60
100
N
Sources: Primary data
From table 7 above, 12% strongly agreed that payments were properly documented, 23% agreed,
42% of the respondents disagreed meanwhile 23% strongly disagreed. In summary, the majority
of the respondents 42% disagreed with the statement that proper payment procedures were
39

54. followed, this is in conformity with the Auditors report 2012 which indicated that some of the
controls were not used when transacting accounting business.
4.2.2
Originals of Payment vouchers are certified in fully by the responsible officer
The researcher asked the respondents whether original payment vouchers certified by the
responsible by the authorized officers in MSH Organization. The findings revealed that there was
a better improvement in certifying payment vouchers.
Table 8: showing the responses on whether payment vouchers were certified
Responses
Frequency
Percentage (%)
SA
9
15
A
42
70
N
4
7
SD
5
8
Total
60
100
D
Source: Primary data
From the table above, concerning whether originals of payment vouchers were certified; the
majority of the respondents 70% agreed that the payment voucher were certified, these were
followed by 15% strongly agreed, 8% strongly disagreed and 7% were neutral and not sure
whether original payment vouchers were certified by the responsible officer. This implies that
original payment vouchers were properly certified.
40

55. 4.2.3
Payments supported by the vouchers in a prescribed form
Respondents were asked if all payments were supported by the vouchers in a prescribed form.
The findings revealed that payments were not supported by the vouchers and other supporting
documentations require for completing the payment process. This is in conformity with the
MSH Auditor reports 2012 which indicated that some of the controls are not used when
transacting accounting business.
Table 9: showing the responses on whether payments were supported by the vouchers
Responses
Frequency
Percentage (%)
SA
6
10
A
5
8
N
11
19
D
5
8
SD
33
55
Total
60
100
Source: Primary data
From table 9 above, 55% strongly disagreed with the statement, 8% disagreed, 10% strongly
agreed meanwhile 8% agreed and 19% were neutral. It was found that the majority of the
respondents 55% strongly disagreed that all payment vouchers were supported by vouchers in a
prescribed form. This was noticed in audit report for 2011-2012 indicated that a lot of fraud was
going on in the organization which included forging a number of documents including payment
vouchers and receipts, for example the report illustrates examples of fictitious receipts produced
41

56. by procurement committee members, it also shows evidenced that certain collusive arrangement
with vendors benefited employees directly.
4.2.4
All payment vouchers are filed in numerical order
Respondents were asked if all payments vouchers were filed in number order. The findings are
shown in the table below.
Table 10: shows responses on whether payments vouchers were filed in numerical order
Responses
Frequency
Percentage (%)
SA
44
73
A
5
9
N
11
18
60
100
D
SD
Total
Source: Primary data
According to table 10 above, 73% strongly agreed that payment vouchers were filed in numerical
order and 9% agreed meanwhile 18% were neutral.
4.2.5
Payment procedures undertaken by MSH affect its performance
The researcher asked the respondents whether payments procedures undertaken by MSH affect
its performance. The findings are shown in the table below.
42

57. Table 11: shows responses on whether payments procedures undertaken by MSH affect its
performance
Responses
Frequency
Percentage (%)
SA
6
10
A
33
55
D
20
33
SD
1
2
Total
60
100
N
Source: Primary data
From the above table, 10% of the respondents strongly agreed, 55% agreed, 33% disagreed
meanwhile 2% strongly disagreed with the statement. This therefore implies that the majority of
the respondents agreed that procedures undertaken by MSH staff affect its performance to some
extend that proper financial payments procedures were being followed especially after the
intervention by the external and internal function, were the recommendations were given to suck
all those who were found to have participated in any wrong full activities.
4.3.
Financial records subject to Internal Audit.
Findings on financial records subjected to internal audit, were based on the second objective,
relevant questions were asked and responses were captured.
43

58. 4.3.1
MSH has an internal audit function which perform review
The researcher asked the respondents whether MSH has an internal audit function which perform
review and the findings are in the table below
Table 12: shows responses on whether MSH has an internal audit function which perform
review
Responses
Frequency
Percentage (%)
SA
5
8
A
55
92
60
100
N
D
SD
Total
Source: Primary data
From table 12: above, 92% strongly agreed and 8% agreed. There was 100% agreement with the
statement. This is in line with MSH policy that requires an internal audit function in all MSH
organizations all over the countries where MSH operate.
4.3.2
Proper review over receipts are performed
The researcher asked the respondents whether there is an existing proper review on receipts in
MSH and the findings are in the table below
44

59. Table 13: showing findings on proper review over receipts performed
Responses
Frequency
Percentage (%)
44
73
D
10
17
SD
6
10
Total
60
100
SA
A
N
Source: Primary data
From the findings above, 73% of the respondents agreed that proper reviews on receipts are
performed this was followed by 17% who disagree and 10% strongly disagreed.
4.3.3
MSH has enough internal audit staff to make reviews
The researcher further asked the respondents whether MSH has got enough internal audit staff to
perform reviews. The results obtained are shown in the table below
45

60. Table 14: shows responses on whether there are enough audit staff to perform reviews
Responses
Frequency
Percentage (%)
D
55
92
SD
5
8
Total
60
100
SA
A
N
Source: Primary data
From the finding in table 14 above, 92% disagreed and 8% strongly disagreed. This means that
That MSH did not have enough audit staff to make reviews and to carried out spot check on
financial records
4.3.4
Auditors at MSH can easily be compromised
The researcher wants to establish, if audit staff at MSH can easily be compromise to make a dealt
and with a conflict of interests and the finding was in the table below
46

61. Table 15: shows responses on whether audit staffs are easily compromised
Responses
Frequency
Percentage (%)
5
8
D
11
19
SD
44
73
Total
60
100
SA
A
N
Source: Primary data
From the finding above, 8% of the respondents agreed with statement, 19% disagreed and the
majority 73% strongly disagreed with the statement. This implies that audit staffs at MSH are
professional ethical and they cannot easily be compromised.
4.3.5
Internal auditing has led to the reduction of fraud in MSH
The respondents were asked by the researcher whether internal auditing reduced fraud in MSH.
47

62. Table 16: shows responses on whether internal auditing reduced fraud in MSH
Responses
Frequency
Percentage (%)
SA
7
12
A
37
61
N
4
7
D
7
12
SD
5
8
Total
60
100
Source: Primary data
The table 16 above shows that, 12% of the respondents strongly agreed, 61% of the respondents
agreed, 7% of the respondents were neutral, 12% disagreed and 8% of the respondents strongly
disagreed. This means that internal auditing has reduced fraud in MSH organization.
4.4
Procurement policies and procedure.
Findings on procurement policies and procedures were based on the third objective, relevant
questions were asked and responses were noted.
4.4.1
Procurement policies and guidelines that can be followed
The researcher asked the respondents whether MSH has procurement policies and guidelines that
can be followed.
48

63. Table 17: shows responses on procurement policies and guidelines that can be followed
Responses
Frequency
Percentage (%)
SA
28
47
A
16
27
N
8
13
D
8
13
60
100
SD
Total
Source: Primary data
The findings on the above table, 47% strongly agreed, these were followed by 27% who agreed,
13% were neutral and 13% disagreed. The study revealed that MSH has procurement policies
and guidelines that can be followed.
4.4.2
Strict adhere to procurement guidelines when undertaking procurement at MSH
The researcher’s intention was to find out whether there has been strict adhere to procurement
guidelines when undertaking procurement process in MSH. Questions were asked and responses
were obtained as presented in the table below.
49