The Effectiveness of Internal Control Systems in Achieving Value For Money in School Facilities Grant

MAKERERE UNIVERSITY
THE EFFECTIVENESS OF INTERNAL CONTROL SYSTEMS IN ACHIEVING VALUE FOR MONEY IN SCHOOL FACILITIES GRANT THE CASE OF KAMULI DISTRICT LOCAL GOVERNMENT
MOSES BYANGUYE 2007/HD10/11224U
A DISSERTATION SUBMITTED TO SCHOOL OF GRADUATE STUDIES IN PARTIAL FULFILLMENT FOR THE REQUIREMENT FOR THE AWARD OF DEGREE OF MASTER OF SCIENCE IN ACCOUNTING AND FINANCE OF MAKERERE UNIVERSITY
August, 2011
Declaration This research work is original and has not been submitted for any other degree award to any Institution before.
SIGNATURE:_____________________
DATE:______________________
NAME: REG. No:
MOSES BYANGUYE 2007/HD10/11224U
APPROVAL
This is to certify that this thesis has been submitted with our approval as University Supervisors.
SIGNATURE:_____________________ DR. ISAAC NKOTE NABETA
DATE:______________________
SIGNATURE:_____________________ MR. FRED LUGANDA
DATE:______________________
Dedication This work is dedicated to my dear mother Ms Proscovia Wotali Isabirye with whom our father left us and she tirelessly sought and gave us the education so needed by the six of us.
Acknowledgement I would like to extend my sincere gratitude to all those who helped me through this period. I would like to thank my supervisors Dr. Isaac Nkote Nabeta and Mr. Fred Luganda for guiding me through this ordeal. I wish also to thank Mr. Wilfred Magambo for the technical support especially in data analysis.
I would like to thank my employers and fellow employees of Kamuli District Local Government (KDLG) and special thanks go to my sponsors; the Belgian Technical Cooperation (BTC) for the financial support extended to me through the Ministry of Local Government.
Last but not least my gratitude goes to my family without whose support I would not have done this Masters degree. Needless to mention are my children (with whom I have been competing for reading space); Ivan, Rhona, Rodney and Rowena and above all my dear wife Sarah. Thank you all for bearing with my absence from you in quest for completing these studies.
For all the above various people, I owe this achievement and I will forever remain sincerely indebted.
Abstract The purpose of this study was to examine the effectiveness of Internal Control Systems in achieving Value for Money in SFG projects in Local Governments. A cross sectional survey design was used. Data was gathered using a self administered structured questionnaire. Respondents who directly and indirectly incharge of implementing the SFG projects in Kamuli District Local Government filled the questionnaire. The respondents were drawn from the elected and appointed staff, staff from the Office of the Auditor General, members of the District Public Accounts Committee and the School Managers for the schools that received SFG project by the Financial Year (FY) 2007/08. The data was analyzed using SPSS.
The findings revealed that Internal Control Systems have a significant positive effect in achieving Value for Money. The study further reveals that there a significant positive relationship between the Control Environment, Control Activities, Risk Assessment, Information and Communication and Monitoring and Value for Money in Local Governments.
The findings revealed that Internal Control Systems have a significant positive effect in achieving Value for Money. All the constructs of Internal Control Systems (Control Environment, Control Activities, Risk Assessment, Information and Communication and Monitoring) have a significant positive relationship with Value for Money in Local Governments. This implies that the more sound the ICS, the more the ICS are adhered too, the high the chances that LGs will achieve Value for Money. Having known the significance of Internal Controls, LGs need to ensure that they continuously review them and ensure that they are operational.
TABLE OF CONTENTS
PAGE
Declaration ...................................................................................................................... 2 Dedication ....................................................................................................................... 4 Acknowledgement ........................................................................................................... 5 Abstract6 List of Tables and Figures ............................................................................................... 9 List of Acronyms ..10 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8 2.0. 2.2. Background........................................................................................................ 12 Statement of the Problem ................................................................................. 133 Purpose of the Study .......................................................................................... 14 Objectives ........................................................................................................ 144 Research Questions ............................................................................................ 15 Scope of the Study ............................................................................................. 15 Significance of the study .................................................................................... 16 Conceptual Framework .17 Literature Review .............................................................................................. 18 Internal Control Systems (ICS) .......................................................................... 18 2.2.1 Control Environment ................................................................................. 21 2.2.2 Risk Assessment ....................................................................................... 22 2.2.3 Control Activities .................................................................................... 233 2.2.4 Information and Communication ............................................................... 23 2.2.5 Monitoring ................................................................................................ 24 2.3. 2.4. Value for Money.............................................................................................. 255 Conclusion ........................................................................................................ 26
Research Methodology .................................................................................................. 28 3.2. 3.3. 3.4. 3.5. Research Design ................................................................................................ 28 Study Population .............................................................................................. 28 Sampling and Sample Size ................................................................................ 29 Data Sources ..................................................................................................... 30 7
3.6. 3.7. 3.8. 3.9. 3.10. 4.0 4.2 4.3. 4. 4.
Data Collecton Instruments ............................................................................... 30 Measurement of Variables ................................................................................ 31 Validity and Reliability of Instruments ............................................................. 31 Data Processing and Analysis ........................................................................... 32 Limitations of the Study .................................................................................... 32 Data Presentation, Analysis and Interpretation .................................................. 34 Sample Characteristics ...................................................................................... 34 To examine Internal Control Systems in Local Governments...37 4.3.1 Rotated Component Factor Analysis for Internal Control Systems ..40 To examine Value for Money in Local Governments...............42
4.4.1 Rotated Component Factor Analysis for Value for Money ..44 4.5. Correlation Analysis..46 4.5.1 Internal Control Systems and Value for Money in Local Government.46 Relationship between Control Environment and Value for Money in Local Governments ..47 4.5.3 Relationship between Control Activities and Value for Money in Local Governments47 4.5.4 Risk Assessment helps attain Value for Money48 4.5.5 The impact of Information and Communication on attainment of Value for Money in Local Governments..48 4.5.6 The impact of Monitoring on the attainment of Value for Money in Local Governments ...49 4.6 Regression Analysis...49 5.0 5.1 5.2 Summary of Findings, Discussion, Conclusions and Recommendations..52 Introduction52 Discussion of Findings ..52 5.2.1 Internal Control Systems in Kamuli District Local Government .52 5.2.2 Value for Money in Kamuli District Local Government...54 5.2.3 Relationship between Control Environment and Value for Money...54 5.2.4 Relationship between Control Activities and Value for Money55 5.2.5 Relationship between Risk Assessment and Value for Money.55 5.2.6 Relationship between Information and Communication and Value for Money56 5.2.7 Relationship between Monitoring and Value for Money .56 5.3 Conclusion.56 5.4. 5.5. Recommendations .............................................................................................. 58 Areas for further research ................................................................................... 58 4.5.2
Appendixes ................................................................................................................... 63 Appendix I: Questionnaire ............................................................................................. 63
LIST OF TABLES AND FIGURES PAGES Figure 1 Conceptual Frame Work .... 17 Table 3.1 Population and Sample Composition ... 29 Table 3.2 Reliability Statistics .. 31 Table 4.1 Gender of the Respondents ... 34 Table 4.2 Employment Status of Respondents . 35 Table 4.3 Duration of Employment with Organisation 36 Table 4.4 Age bracket of Respondents . 37 Table 4.5 Internal Control Systems in Local Governments .. 38 Table 4.6 Rotated Component Matrixa for Internal Control System ..... 40 Table 4.7 Value for Money in Local Governments 43 Table 4.8 Rotated Component Matrixa for Value for Money 45 Table 4.9 Zero Order Correlation Analysis .... 46 Table 4.10 Multiple Regression Analysis .. 50
LIST OF ACRONYMS AGAR APB CAIIP CE COSO DEC DPAC GoU IAR ICS IMF INTOSAI KDLG LGDP LGFAR LGIAM LGs MoFPED MoLG NAADS OECD PAF PEAP PERP Auditor General Annual Reports Auditing Practices Board Community Agriculture Infrastructural Improvement Programme Control Environment Committee of Sponsoring Organisations District Executive Committee District Public Accounts Committee Government of Uganda Internal Audit Reports Internal Control Systems International Monetary Fund International Organization of Supreme Audit Institutions Kamuli District Local Government Local Government Development Programme Local Government Financial and Accounting Regulations Local Government Internal Audit Manual Local Governments Ministry of Finance Planning and Economic Development Ministry of Local Government National Agriculture and Advisory Services Organisation for Economic Co-operation and Development Poverty Action Fund Poverty Eradication Action Plan Primary Education Reform Program
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SFG SMC TPC UPE VFM
Schools Facilities Grant School Management Committee Technical Planning Committee Universal Primary Education Value for Money
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CHAPTER ONE INTRODUCTION 1.1. Background Local Governments (LGs) in Uganda have for many years been required to develop and adhere to effective Internal Control Systems (ICS) in order to attain Value for Money (VFM) from their development expenditures. These Internal Control requirements have increased significantly since the implementation of the Decentralization programme in 1993, the enactment of the 1995 Constitution of Uganda and the implementation of the Local Government Act, (1997). Decentralisation mandates LG councils to set up effective Internal Control Systems (ICS) that ensure the reliability and integrity of information, compliance with policies, plans, procedures, laws and regulations, safeguard of assets, check on the misappropriation of their resources, as well as proper authorization of expenditure and regular update of books of accounts in order to attain Value for Money (Lubabah, 2009; Asiimwe & Nakanyike, 2007; LG Act 1997; Committee of Sponsoring Organisations (COSO), 2009; Organisation for Economic Cooperation and Development (OECD), 2005).
According to Davies, (2007), VFM is the assessment whether or not an organisation is obtaining the maximum benefit from the goods and services it acquires and/or provides, within the resources available to it. VFM demands for effective use of government assets; which includes financial sustainability and the economic, efficient and effective management of resources, (Davies, 2007).
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Primary education is one of the key sectors identified under the governments Poverty Eradication Action Plan (PEAP) to benefit from the Poverty Action Fund (PAF). PAF has guaranteed the success of the Primary Education Reform
Program (PERP) by providing resources (funds) to support Schools Facilities Grant (SFG), (Mukunya, 1987). Under SFG, the Government of Uganda (GoU) has funded the construction of classroom blocks, school toilets, teachers houses and the provision of furniture in atleast every Universal Primary Education (UPE) aided school in the LGs. But there several complaints that apart from these buildings being of poor quality, some are incomplete and poorly built, yet the furniture is of poor quality hence generally not meeting the desired quality (Auditor General Annual Reports (AGAR), 2007).
According to the Technical VFM audit report on Kamuli District LG (2004), 49% had good VFM, 38% had fair VFM and 13% achieved no VFM in all the projects sampled. There are cases of incomplete/abandoned buildings, some payments lack accountabilities, absence of monitoring and activity reports and some funds are not signed for by the intended recipients; (quarterly Internal Audit Reports (IAR), 2007). Similarly the AGAR, (2007), highlights a case where UGX 3,758,999 was drawn from an SFG Account without proper authorization and it remained un accounted for and this left one to suspect that this was fraudulently spent.
1.2.
Statement of the Problem In spite of the Government of Uganda investing large sums of money under the School Facilitation Grants (SFG), the output in terms of quality of classroom blocks do not in most cases match with such development expenditures and are
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not up to the desired levels. The Auditor Generals reports highlight cases of weak and / or ineffective Internal Control Systems in Kamuli District LG; where expenditures lack receipts, supporting documents, activity reports and some funds are not signed for by the intended recipients. There are cases of incomplete and shoddily built classroom blocks and the furniture is of poor quality rendering these SFG projects not to be used to the maximum benefit of the intended users. This makes one doubt whether the various Internal Controls set up in LGs are effective to achieve Value for Money in most of the SFG projects undertaken.
1.3.
Purpose of the Study The purpose of this study was to examine the effectiveness of Internal Control Systems in achieving Value for Money in SFG projects in Local Governments.
1.4.
Objectives i. To examine Internal Control Systems in Kamuli District Local Government. ii. iii. To examine Value for Money in Kamuli District Local Government. To examine the relationship between Control Environment and Value for Money in Kamuli District Local Government. iv. To examine the relationship between Control Activities and Value for Money in Kamuli District Local Government. v. To examine the impact between Risk Assessment to Value for Money in Kamuli District Local Government.
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vi.
To examine the impact of Information and Communication to Value for Money in Kamuli District Local Government.
vii.
To examine the impact of Monitoring to Value for Money in Kamuli District Local Government.
1.5.
Research Questions i. ii. iii. What are the Internal Control Systems in Kamuli? What is Value for Money in Kamuli? What is the relationship between Control Environment and Value for Money in Kamuli District Local Government? iv. What is the relationship between Control Activities and Value for Money in Kamuli District Local Government? v. What is the impact between Risk Assessment to Value for Money in Kamuli District Local Government? vi. What is the impact of Information and Communication to Value for Money in Kamuli District Local Government? vii. What is the impact of Monitoring to Value for Money in Kamuli District Local Government?
1.6.
Scope of the Study Subject Scope The study focused on the Effectiveness of Internal Control Systems in achieving Value for Money of SFG projects in the Education sub-sector in Kamuli District LG. Internal Control Systems consist of Control Environment, Control Activities,
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Risk Assessment, Information and Communication and Monitoring while Value for Money constructs are Economy, Efficiency and Effectiveness.
Geographical Scope The study was based on the Ugandas LG and took Kamuli District LG.
1.7.
Significance of the study The study will help the policy makers realize the need to have and implement effective ICS in the implementation of development grants which in turn will help achieve VFM to the intended users of these development programmes.
The study will generate knowledge to link Internal Control Systems and Value for Money which will guide Policy makers in the planning for the public resources.
The study will be helpful to all academicians in finance and accounting, management, legal and other fields in the furtherance of their studies in form of future research and in the operations at their work places.
The study will help the researcher to acquire knowledge and understand the techniques of doing research.
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1.8.
Conceptual framework The model explains the relationship amongst the variables under study; it explains Internal Control Systems as the Independent variable while Value for Money as the dependent variable. Government policies now promote effective control particularly in the management of resources while stressing the values of economy, efficiency and effectiveness (Value for Money) (Sanderson, 2001). Effective; Control Environment, Control Activities, Risk Assessment, Information and Communication, and Monitoring are a necessary to achieve the LG objectives and should achieve Value for Money (INTOSAI 2004). Internal Control Systems were studied under the constructs of Control Environment, Control Activities, risk assessment, information and communication and monitoring while Value for Money constructs were Economy, Efficiency and Effectiveness. The model shows that effective Internal Control Systems influence the achievement of Value for Money.
Figure 1: Conceptual Frame Work Internal Control Systems Control Environment Value for Money Control Activities Risk Assessment Information and Communication Monitoring Economy Efficiency Effectiveness
Source: Developed from INTOSAI (2004)
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CHAPTER TWO LITERATURE REVIEW 2.1. Introduction This chapter focused on the effectiveness of Internal Control Systems (ICS) in achieving Value for Money (VFM) and their constructs in view of what other scholars have studied.
2.2.
Internal Control Systems (ICS) Internal control is a process, effected by an entity's board of directors (Council), management and other personnel, designed to provide reasonable assurance regarding the achievement of LG objectives in the effectiveness and efficiency of operations, reliability of financial and management reporting, compliance with applicable laws and regulations and protect the organisations reputation (Kaplan, 2008; Cunningham, 2004; INTOSAI, 2004; Committee of Sponsoring Organizations (COSO), 1992; Auditing Practices Board (APB), 1999). According to Cunningham (2004), Internal Control Systems begin as internal processes with the positive goal of helping a corporation meet its set objectives. Management primarily provides oversight activity; it sets the entity's objectives and has overall responsibility over the ICS. Internal controls are an integral part of any organizations financial and business policies and procedures (Kaplan, 2008; Cunningham, 2004; INTOSAI, 2004). Internal controls consist of all the measures taken by the organization for the purpose of; protecting its resources against waste, fraud and inefficiency; ensuring accuracy and reliability of accounting and operating data; ensuring compliance with the policies of the organization;
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evaluating the level of performance in all organizational units of the organization, (Kaplan, 2008; Cunningham, 2004; INTOSAI, 2004).
ICS are applicable to each organisation in relation to key risks and are embedded within the operations and not treated as a separate exercise. ICS should be able to respond to changing risks within and outside the company and they are a means to an end, not an end itself, (Cunningham, 2004). He further states that Internal controls are effected by people not merely policy manuals and forms, but people functioning at every level of the institution. Internal control only provides reasonable assurance to an institutions leaders regarding achievement of operational, financial reporting and compliance objectives; promoting orderly, economical, efficient and effective operations; safeguarding resources against loss due to waste, abuse, mismanagement, errors and fraud, (Kaplan, 2008; Cunningham, 2004; INTOSAI, 2004). Internal controls lead to the promotion of adherence to laws, regulations, contracts and management directives and the development and maintenance of reliable financial and management data, and accurately present that data in timely reports, (Kaplan, 2008; Cunningham, 2004; INTOSAI, 2004). According to the Combined Code on Corporate Governance, (2005); Council should identify and manage all risks with in the LG and should maintain a sound system of ICs to safeguard stakeholders interests and the council assets.
According to Treba (2003), a system of internal control is a tool for ensuring that an organization realizes its mission and objectives. He further notes that much as internal controls are often thought to be the domain of accountants and auditors; it
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is actually management that has primary responsibility for proper controls. A critical element of any comprehensive Internal Control Systems is regular monitoring of the effectiveness of internal controls to determine whether they are well designed and functioning properly, Treba (2003).
Lawson A., De Renzio P. and Umarji M. (2006) noted that weaknesses in internal control systems (control over the payroll, over expenditure commitments and over procurement processes) lead to failure to ensure that resources are allocated to defined priorities and to guarantee that there is value for money will be attained in public spending.
ICS in organisations consist of five interrelated components; control environment, control activities, risk assessment, information and communication and monitoring (INTOSAI 2004). However, the COSO Framework of Internal Control recommends the ICS to comprise two substantive components; control environment and control activities (Thuy 2007).
LGs should have well-designed ICS that can give reasonable assurance that irregularities can be detected, (Schaeffer, 2005). Internal control is not one event or circumstance, but a series of actions that permeate an entity's activities and these actions occur throughout an entitys operations on an ongoing basis (INTOSAI, 2004). INTOSAI observes that an ICS is intertwined within an entity's activities and is most effective when it is built into the entity's infrastructure and is an integral part of the LG system. INTOSAI further holds that public servants should serve the public interest with fairness and manage public resources
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properly in that citizens receive Value for Money. Weak, non-compliance, nonexistent or absent public financial management functions (Internal Control Systems) are likely to negate any benefits that are inherent in bringing services closer to the people (Value for Money), (Schaeffer & Yilmaz, 2008).
2.2.1. Control Environment Control Environment (CE) is the philosophy, style and supportive attitude, as well as the competence, ethical values, integrity and morale of the people of the organization (DiNapoli, 2007). The CE is further affected by the organizations structure and accountability relationships. Control Environment (CE) is the attitude and actions of Council and Management regarding the significance of control within the LG (DiNapoli, 2007).
Control Environment provides the discipline and structure for the achievement of the primary objectives of the System of Internal Control. According to INTOSAI; control environment is the foundation of the ICS and sets the tone of an organisation, influencing the control consciousness of its staff. This is the overall LG attitudes, values, and philosophy of senior political and management executives and the culture throughout the LG relating to the timeliness, integrity, and accuracy of financial reporting, (Thuy 2007).
It provides the discipline and structure as well as the climate which influences the overall quality of the Internal Control Systems. Elements of the control environment are; the personal and professional integrity and ethical values of management and staff, appropriate culture in the organisation, attitude towards
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internal control throughout the organisation; commitment to competence; the tone at the top (i.e. managements philosophy and operating style); a good organisational structure (an independent Internal Audit function and segregation of duties), set up proper authorisation limits; and human resource policies and practices (Kaplan, 2008; Thuy, 2007; INTOSAI, 2004; and Laura, 2002).
2.2.2. Risk Assessment Risk assessment is the process of identifying and analysing relevant risks to the achievement of the entitys objectives and determining the appropriate response (DiNapoli, 2007, INTOSAI, 2004). It involves risk identification; risk evaluation (estimating the Impact of a risk; assessing the likelihood of the risk occurrence); assessment of the risk appetite of the organisation; and development of responses. Risk assessment should be performed and should identify; controllable risks (risks on which Internal Control procedures can be established) and uncontrollable risks (risks that are caused by the external environment that the entity operated in). According to the Cadbury Report (1992), risk management should be systematic and also embedded in company procedures. And there should be a culture of risk awareness in the organisation. As governmental, economic, industry, regulatory and operating conditions are in constant change, risk assessment should be an ongoing iterative process. Risk Assessment implies identifying and analysing altered conditions and opportunities and risks (risk assessment cycle) and modifying internal control to address changing risk. VFM analysis needs to pay attention to total risks, which is sensitive to the choice of service delivery mechanism (Heald, 2003).
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2.2.3. Control Activities: Once the controllable risks have been identified, specific control activities can be undertaken to reduce those risks (Kaplan, 2008). According to Thuy, (2007); Sarbanes-Oxley Act (SOX, 2002); Control Activities are comprised of policies, procedures, and systems relating to the reliability of financial reporting. They include authorizations and approvals, verifications, reconciliations, reviews of performance, security of assets, segregation of duties, and controls over information systems (Laura, 2002). The elements of Control Activities include; policies regarding reconciling bank statements with cheques issued, procedures governing the counting and valuation of inventory, the procurement and disposal systems, and codes of conduct to guide employee behavior (Kaplan, 2008; Thuy 2007, SOX, 2002). Control activities can be preventive and/or detective. Corrective actions are a necessary complement to internal control activities in order to achieve the organisations objectives hence realizing Value for Money.
2.2.4. Information and Communication Information should be communicated to all stakeholders such as management, council, line ministries, employees, e.t.c. who need it in the form and within a time frame that helps them to carry out their responsibilities (DiNapoli, 2007; INTOSAI, 2004). Information should be appropriate, timely, current, accurate and accessible as such reliable and relevant therefore transactions should be promptly recorded and proper classified (INTOSAI, 2004). The feedback from this communication helps management and council to evaluate how well the systems of internal control are working (DiNapoli, 2007). Information and
Communication (IC) are essential to realising the LG internal control objectives 23
i.e. Value for Money. If all personnel understand their own role in the ICS and they as well know how their individual activities relate to the work of others, a clear message received from top management that control responsibilities, will be taken seriously (DiNapoli, 2007).
2.2.5. Monitoring Monitoring is the process that assesses the quality of the system's performance over time, which includes ongoing monitoring activities, separate evaluations or a combination of the two (INTOSAI, 2004; DiNapoli, 2007). Management should focus monitoring efforts on internal controls and the achievement of the organizations mission. For monitoring to be most effective, all employees need to understand the organization's mission, objectives, risk tolerance levels and their own responsibilities (DiNapoli, 2007). Monitoring is the review of an organization's activities and transactions i.e. the ICS to assess the quality of performance over time and to determine whether controls are effective (DiNapoli, 2007). Ongoing monitoring of internal control is built into the normal, recurring operating activities of an entity it involves actions against irregular, unethical, uneconomical, inefficient and ineffective Internal Control Systems (DiNapoli, 2007; INTOSAI, 2004). According to the LG Financial and Accounting Regulations (2007); Council, DEC, standing committees and management are supposed to monitor and review the performance of their respective sectors. Monitoring involves separate evaluations which cover the evaluation of the effectiveness of the ICS in achieving set objectives and any deficiencies should be reported to the DEC for Councils action (INTOSAI, 2004).
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According to Kaplan (2008), failure to monitor risk correctly could lead to financial collapse of an organisation. The Internal Audit function is often the key monitor of the ICS, they examine the controls and control system, identify where controls have failed so that these failures can be rectified and also make recommendations to management for new and improved systems.
2.3.
Value for Money Value for Money (VFM) can be achieved by eradicating waste in benefits services processes and systems. The critical success factor for a public sector organisation is the degree to which it fulfills its set objectives and mission in terms of being efficient, effective and economical. The Internal Control Systems are key in achieving the organisational set mission and objectives; hence Value for Money. The main approach to VFM is the LGs control over the use of resources in order to achieve its set objectives, LGIAM, (2007). Regulation 106 of the LGFAR, (2007) requires the Head of Internal Audit to carry out regular reviews to ascertain whether council receives VFM in all its activities. Heads of Departments should establish sound arrangements for planning, appraising, authorising and controlling operations in order to achieve Value for Money LGFAR, (2007). Davies, (2007) holds that the public sector applies no consistency in defining Value for Money (VFM), and the decision making strategies of LGs are poorly defined and applied irregularly hence LGs are able to exploit the definition of VFM to justify their actions.
However, many authors hold that Value for Money is a term used to assess whether or not an organisation has obtained the maximum benefit from the goods
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and services it acquires and / or provides, within the resources available to it. Value for Money is not paying more for a good or service than its quality or availability justifies as well public spending implies a concern with economy (cost minimisation), efficiency (output maximisation) and effectiveness (full attainment of the intended results) (Glendinning, 1998; Davies, 2007; Deakin 1998 and LGIAM, 2007). The most effective way to improve Value for Money is by reducing the level of irregularity and fraud through improvements in the Government's systems of internal financial control (Kaplan, 2009; LGFAR, 2007). Communities need to be assured that their resources are being used efficiently and effectively in providing the right service at the least cost. However, Kerr (2005) observed that the will to provide Value for Money in Government spending is weak because accountability to taxpayers and the public is generally weak.
According to Heald (2003), VFM analysis needs to pay attention to total risks and VFM is related to concepts of efficiency and effectiveness. Fryer, Jiju, & Ogden, (2009) hold that despite a long period of implementing performance management within the public sector, improvements in performance, accountability, transparency, quality of service and Value for Money have not yet been achieved.
2.4.
Conclusion From the literature reviews done it has been found out that realisation of Value for Money depends on whether LGs have Internal Controls. Non compliance to the Internal Controls is one of the major hindrances to the attainment of VFM in LGs as noted by most authors and academic researchers. Whereas a lot has been
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done on control environment and control activities there is little done about internal audit in relation to VFM; what is greatly studied is Value for Money audits. Weak, non-compliance, non-existent or absent public financial management functions (Internal Control Systems) are likely to negate any advantages that might be inherent in bringing public services closer to people (Value for Money). Therefore there is need to establish the relationship between the Internal Control Systems and Value for Money in LGs in Uganda. Therefore, it can be concluded from the literature that Control Environment, Control Activities, Risk Assessment, Information and Communication and Monitoring are significant predictors of VFM.
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CHAPTER THREE RESEARCH METHODOLOGY 3.1. Introduction This chapter focuses on the description of the procedures that were employed in the study. Mugenda and Mugenda, (1999) state that this chapter should specify the research design, study population, sampling and sample size, data sources, tools used in data collection, measurement of variables, reliability and validity of instruments, data processing, analysis and presentation of findings.
3.2.
Research Design A cross-sectional design, quantitative and qualitative approaches were used to collect data. Therefore this design is considered appropriate for generalizing the findings over the LG population in Uganda (Sekaran, 2003).
3.3.
Study Population The study population was 184 employees, statutory organs and political leaders which comprised of; 42 District Technical Planning Committee (TPC) members, 04 Internal Audit Staff, 02 Auditor Generals Staff, 05 members of the District Executive Council (DEC), 05 members of the District Public Accounts Committee (DPAC), 03 members of the Schools Management Committees (SMC) per school that received an SFG project by the Financial Year (FY) 2007/08. A total of 42 schools had received at least an SFG project giving a population size of 126 (i.e. 3 per each school) members, from which a sample was selected. 28
The study was carried out using purposive sampling as these respondents were viewed as those involved directly in the management and use of SFG projects and these were stratified depending on the responsibilities they carry out in the SFG management (Sekaran, 2003; and Mugenda and Mugenda, 1999).
3.4.
Sampling and Sample Size Sekaran (2003), recommends that for research activities, educational and psychological measurement, the sample size of respondents should be determined using Krejcie and Morgan (1970) tables. According to the tables, the appropriate sample size of a target population of 184 is 127 respondents.
Table 3.1: Category
Population and Sample Composition Population No. Expected Sample (No.) 42 04 02 05 05 126 184 29 04 02 03 03 86 127
Technical Planning Committee Internal Audit Staff Auditor General Staff District Executive Council Public Accounts Committee School Management Committee TOTAL
The study was carried out using simple random sampling where a list of all the schools that had received an SFG project was generated. It was then the Head Teachers and one member of the Schools Management Committee (who had a 29
hands-on experience of running SFG projects) that was given a questionnaire to fill in.
3.5.
Data Sources 3.5.1. Primary Data By use of self administered questionnaires, primary data was collected from a selected sample of respondents in the TPC, Internal Auditors, Auditor Generals, District Executive Committee members, District Public Accounts Committee members and members of the Schools Management Committee. However, because some of the targeted respondents (SMC members) were found to have difficulty in filling the questionnaire, the researcher interviewed the respondents.
3.5.2. Secondary Data Secondary data was collected from journals, books, internet libraries, documents and reports from Ministry of Education and Sports, World Bank/IMF, Audit Reports, Ministry of Planning and Economic Development Uganda, and any other published literature i.e. financial and management reports on top of correspondences from the community. The researcher further used minutes, circulars, records and reports about the SFG projects.
3.6.
Data Collection Instruments Questionnaires were used to collect data from the selected respondents using structured questions. The questionnaire was developed on a five point Likert scales measuring from Strongly Disagree as response 1 to Strongly Agree as
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response 5 (Sekaran, 2003). All questions were arranged in one direction and all the constructs were operationally defined.
3.7.
Measurement of Variables
The Internal Control Systems (as the independent variable) was measured by its constructs of Control Environment, Control Activities, Risk Assessment, Information and Communication, and Monitoring, (DiNapoli, 2007; INTOSAI, 2004).
Value for Money (as the dependent variable) was measured using Economy (was measured by doing less with fewer resources), Efficiency (by doing the same as before, but with fewer resources) and Effectiveness (by doing more than before with the same resources as now or less), (Heald (2003), Fryer, Jiju, & Ogden, (2009), Kerr (2005)).
These were measured using an instrument developed on a five point Likert scales measuring from strongly disagree as response 1 to strongly agree as response 5.
3.8.
Validity and Reliability of Instruments To ensure accuracy, consistency and completeness, reliability of the instrument was established using Cronbachs coefficient Alpha test and a coefficient of 0.6 and above was accepted as shown below;
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Table 3.2: Reliability Statistics

Variable Control Environment Control Activities Risk Assessment Information and Communication Monitoring Value for Money Anchor 5 point 5 point 5 point 5 point 5 point 5 point Cronbach Alpha
0.6531 0.8239 0.7041

0.8412 0.8924 0.7160
From table above all the reliability statistics measured well above the threshold 0.6 as recommended by Sekaran (2003).
3.9.
Data Processing and Analysis Data was collected, edited and was analyzed using Statistical Package for Social Scientists (SPSS). Analysis output included; Descriptive statistics (means, standard deviation, frequencies, percentages and factor analysis), and inferential statistics (correlations, and regressions).
3.10. Limitations of the Study The study was carried out in a short period of time i.e. not long enough to allow an in depth study. Therefore data collected could be different from that which could be got if a longer period was to be used.
The study was affected by non response from some of the respondents contacted most especially the Head Teachers and School Management members who were
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either new in the Schools they headed (hence no hands on experience in SFG project management) or they were completely new in service. Hence they could not comprehensively give data on SFG.
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CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND INTERPRETATION 4.1 Introduction This Chapter presents and interprets the data collected and analysed in Chapter Three. The presentation is guided by the objectives of the study. 4.2 Sample Characteristics In the beginning of the chapter are the sample characteristics of the respondents such as their age bracket, gender, level of education and duration in employment of the respondents. Statistical tools such as, frequencies and percentages are presented in Tables 4.1 4.4.
4.2.1 Gender of the respondents Table 4.1: Gender of the Respondents Frequency Male Female Total Source: Primary Data 76 19 95 Percent 80.0 20.0 100.0
The results in Table 4.1 above reveal that the majority of the respondents were male representing 80.0% and the females constituting 20.0%. This shows that the views of the respondents were from both genders of civil service in LGs in Uganda.
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4.2.2 Employment status of the respondents Table 4.2: Employment status of the respondents Category Political Leaders Statutory/Commissioned/School Mgt Staff Permanent Technical Staff Probationary Technical Staff Pensioned Staff Total Frequency (F) 5 19 55 5 11 95 Percent (%) 5.3 20.0 57.8 5.3 11.6 100.0
Source: Primary Data
According to Table 4.2 above; a majority of the respondents covered by the study were Permanent Technical Staff forming a total of 57.8%, with the least being the Political Leaders and Probationary Staff who each had a total of 5.3%. This shows that the views of results of this study are representative of the Permanent Technical Staff who are the direct implementers of SFG projects in LGs in Uganda.
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4.2.3. Duration of Employment with organization Table 4.3: Duration of Employment with organization Frequency (F) Below 2 years 2-5 years 5-10 years 10-15 years Above 15 years Total 7 15 38 25 10 95 Percentage (%) 3.4 22.1 42.5 20.2 11.8 100
According to Table 4.3 above; a majority of the respondents (42.5) covered by the study had been in employment with the district between 5-10 years, followed by those between 2-5 years constituting 22.1%, 10-15 years with 20.2% and the least having been in employment for less than 2 years at 3.4%. This shows that the views of results of this study are representative of the Staff who had experience in running the affairs of projects in LGs in Uganda. Therefore they were in a good position to assess the effectiveness of ICS to achieve Value for Money in SFG projects in LGs.
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4.2.4 Age bracket of the respondents Table 4.4: Age bracket of the respondents Years 0-20 years 21-40 years 41-60 years Above 60 years Total Frequency 0 38 57 0 95 Percent 0.0 40.0 60.0 0.0 100.0
Results in Table 4.4 reveal that the majority of the respondents between 41 - 60 years of age with a percentage of 60.0% with those between 21 - 40 years being 40.0% years. There were no respondents below 20 years and above 60 years. The results show that the respondents were in the good age bracket to make informed decisions.
4.3.
To examine Internal Control Systems in Local Governments
Descriptive statistics were used to examine Internal Control Systems in Local Governments. The results were analyzed and interpreted basing on the anchor of the instrument scale which was ordered such that a mean close to 5 represents Strong agreement, 4- agreement, and 3-Undecided, 2disagreement and 1-Strong disagreement. The findings are presented in Table 4.5 below;
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Table 4.5: Internal Control Systems in Local Governments Internal Control Systems
The reporting structure is clearly stipulated. All staff in charge of the SFG programme perform their responsibilities as per the regulations and guidelines. School Management Committee members are trained in their roles and responsibilities in SFG management. Compliance to SFG guidelines can lead to reliable financial reporting. There is an enabling control environment at Kamuli District Local Government. The control environment in KDLG is enough to attain the SFG set objectives. Accounting procedures of SFG are clearly segregated. SFG expenditures are duly approved in advance by appropriately authorized persons. Authorization, processing, cheque signing and accounting functions are clearly segregated under the SFG programme. All SFG invoices or requests for disbursements are backed by appropriate supporting documents. All SFG cheque payments are confirmed at the bank. There is an up-to-date SFG asset register at KDLG. SFG Asset movement is always recorded. Firms that poorly carry out SFG contracts are blacklisted. SFG cash releases are published to the public. The SFG committee has designed an appropriate strategy of identifying risks in SFG. The SFG Committee designed a system to offer appropriate response to risks. Involvement of the Internal Audit staff during SFG implementation reduces the occurrence of risk. Information received on SFG projects helps stakeholders to carry out their responsibilities well. Monitoring is important if the SFG program is to achieve its set objectives For monitoring to be effective, all stakeholders need to understand the SFG guidelines. Monitoring of the SFG projects is built into the normal operating activities. DEC handles deficiencies identified during SFG monitoring Min 1 2 1 1 1 1 2 1 1 2 2 1 1 1 1 1 1 2 2 2 4 2 1 Max 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 Mean 4.03 3.67 2.83 4.17 3.74 3.52 3.78 3.96 3.87 4.08 4.35 3.42 3.49 3.07 3.27 3.02 3.16 4.20 4.28 4.55 4.58 3.78 3.75 Std. Deviation .764 .893 1.098 .846 .866 1.061 .671 .910 .948 .794 .809 .974 .836 1.013 1.056 .911 .854 .738 .781 .615 .496 .746 1.000
Results from Table 4.5 above revealed that for monitoring to be effective, all stakeholders need to understand the SFG guidelines (Mean = 4.58), monitoring is
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important if the SFG program is to achieve its set objectives (Mean = 4.55), all SFG cheque payments are confirmed at the bank (Mean = 4.35). Respondents further agreed that involvement of the Internal Audit staff during SFG implementation reduces the occurrence of risk (Mean = 4.20) and compliance to SFG guidelines can lead to reliable financial reporting (Mean = 4.17). All SFG invoices or requests for disbursements are backed by appropriate supporting documents (Mean = 4.08).
Results further revealed that SFG expenditures are duly approved in advance by appropriately authorized persons (Mean = 3.96), authorization, processing, cheque signing and accounting functions are clearly segregated under the SFG programme (Mean = 3.87). Monitoring of the SFG projects is built into the normal operating activities (Mean = 3.78), accounting procedures of SFG are clearly segregated (Mean = 3.78) and DEC handles deficiencies identified during SFG monitoring (Mean = 3.75). The respondents also agreed that there is an enabling control environment at Kamuli District Local Government (Mean 3.74) and all staff in charge of the SFG programme perform their responsibilities as per the regulations and guidelines (Mean = 3.67).
However, respondents reported uncertainty as to whether the School Management Committee members are trained in their roles and responsibilities in SFG management (Mean = 2.83). Uncertainty was further observed as to whether the SFG committees have designed an appropriate strategy of identifying risks in SFG (Mean = 3.02) and the SFG Committee designed a system to offer appropriate response to risks (Mean = 3.16).
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Uncertainty was further observed as to whether Firms that poorly carry out SFG contracts are blacklisted (Mean = 3.07), there is an up-to-date SFG asset register at KDLG (Mean = 3.42) and SFG Asset movement is always recorded (Mean = 3.49). Respondents further doubted whether SFG cash releases are published to the public (Mean = 3.27).
4.3.1 Rotated Component Factor Analysis for Internal Control Systems Factor analysis was used to extract factors that measure Internal Control Systems using the principal Component Analysis and Varimax Rotation Methods as shown in Table 4.7 below;
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Table 4.6: Rotated Component Matrixa for Internal Control Systems

Rotated Component Matrixa Component All SFG invoices or requests for disbursements are backed by appropriate supporting documents. All SFG cheque payments are confirmed at the bank. The Accounting Officer notifies the bank with changes in signatories to the SFG account. Authorization, processing, cheque signing and accounting functions are clearly segregated under the SFG programme. SFG expenditures are duly approved in advance by appropriately authorized persons. The signatory to the SFG account reviews and initials the supporting documents for payments. SFG Asset movement is always recorded. There is an up-to-date SFG asset register at KDLG. The SFG Committee designed a system to offer appropriate response to risks. SFG cash releases are published to the public. The SFG committee has designed an appropriate strategy of identifying risks in SFG. The Accounting Officer publicises the funds received under SFG Firms that poorly carry out SFG contracts are blacklisted. The reporting system on SFG projects spells out the responsibilities of each personnel in that project. Information received on SFG projects helps stakeholders to carry out their responsibilities well. Compliance to SFG guidelines can lead to reliable financial reporting. The reporting structure is clearly stipulated. There is a positive attitude by Council towards implementing the SFG guidelines. Involvement of the Internal Audit staff during SFG implementation reduces the occurrence of risk. Monitoring helps to assess the quality of performance of SFG over time. SFG policies and procedures can lead to producing reliable financial reports. Monitoring is important if the SFG program is to achieve its set objectives SFG cash receipts are directly transferred to the SFG account intact. School Management Committee members are trained in their roles and responsibilities in SFG management. Eigen Values % of Variance Cumulative % Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 13 iterations. Source: Primary Data 5.591 5.031 9.318 8.396 4.711 7.852 4.603 7.671 1 .650 .636 .631 .544 .518 .506 .687 .679 .666 .636 .628 .603 .522 .656 .580 .579 .577 .518 .722 .624 .597 .544 .681 .617 3.401 5.669 2 3 4 5
9.318 17.714 25.566 33.237 38.906
Key
1- Control Activities 3- Control Environment 5- Monitoring 2- Risk Assessment 4- Information & Communication
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From the table above results revealed that factor analysis yielded five components which were interpreted as Control Activities (9.318%), Risk Assessment (8.396%), Control Environment (7.852%), Information and Communication (7.671%) and Monitoring (5.669%), and explaining 38.906% of the variance in Internal Control Systems.
4.4
To examine Value for Money in Local Governments
Descriptive statistics were used to examine Value for Money in Local Governments. The results were analyzed and interpreted basing on the anchor of the instrument scale which was ordered such that a mean close to 5 represents Strong agreement, 4- agreement, and 3-Undecided, 2disagreement and 1-Strong disagreement. The findings are presented in Table 4.6 below;
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Table 4.7: Value for Money in Local Governments Value for Money in Local Governments The success of the SFG programme is the degree to which it attains its set objectives. The responsibility of SFG investment lies with the TPC and Council. The attainment of VFM is based on the use of SFG resources in order to achieve its set objectives Internal Audit staff carry out regular reviews to ascertain whether council receives VFM in all its SFG activities TPC plan and appraise SFG projects in order to achieve VFM Council authorise SFG work plans in order to achieve VFM DEC carries out Monitoring and Evaluation and control operations in order to achieve VFM. VFM is improved by reducing the level of irregularity and fraud under the SFG programme. The quality of SFG projects assures the community that SFG funds are well utilised. Communities get assured of VFM if costs incurred under SFG projects are reasonable. The quality of class room blocks and furniture is good. Min 2 1 2 Max 5 5 5 Mean 4.23 3.69 4.02 Std. Deviation .721 .923 .729
3.89
.722
2 2 2 1
5 5 5 5
3.81 4.06 4.09 3.95
.657 .580 .701 .642
1 1 1
5 5 5
3.98 3.72 3.31
.911 .821 1.030
Results in Table 4.6 above revealed that the success of the SFG programme is the degree to which it attains its set objectives (Mean = 4.23), DEC carries out
Monitoring and Evaluation and control operations in order to achieve VFM (Mean = 4.09). Respondents also agreed that Council authorise SFG work plans in order to achieve VFM (Mean = 4.06), the attainment of VFM is based on the use of SFG resources in order to achieve its set objectives (Mean = 4.02), the quality of SFG projects assures the community that SFG funds are well utilised
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(Mean = 3.98) and VFM is improved by reducing the level of irregularity and fraud under the SFG programme (Mean = 3. 95).
It was further observed that Internal Audit staff carry out regular reviews to ascertain whether council receives VFM in all its SFG activities (Mean = 3.89), TPC plan and appraise SFG projects in order to achieve VFM (Mean = 3.81), and the responsibility of SFG investment lies with the TPC and Council (3.69). VFM is improved by reducing the level of irregularity and fraud under the SFG programme (Mean = 3.59) and Communities get assured of VFM if costs incurred under SFG projects are reasonable (3.72). However, respondents reported uncertainty as to whether the quality of class room blocks and furniture is good (Mean = 3.31).
4.4.1 Rotated Component Factor Analysis for Value for Money Factor analysis was used to extract factors that measure Value for Money in Local Governments using Principal Component Analysis and Varimax Rotation Method as shown in Table 4.8 below;
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Table 4.8: Rotated Component Matrixa for Value for Money Rotated Component Matrixa for Value for Money Component /Dimensions 1 2 TPC plan and appraise SFG projects in order to achieve VFM .766 The quality of class room blocks and furniture is good. .722 The quality of SFG projects assures the community that SFG funds .713 are well utilised. Council authorise SFG work plans in order to achieve VFM .592 Communities get assured of VFM if costs incurred under SFG .736 projects are reasonable. VFM is improved by reducing the level of irregularity and fraud .708 under the SFG programme. The responsibility of SFG investment lies with the TPC and .686 Council. The success of the SFG programme is the degree to which it attains its set objectives. The attainment of VFM is based on the use of SFG resources in order to achieve its set objectives DEC carries out Monitoring and Evaluation and control operations in order to achieve VFM. Eigen Values 2.395 1.998 % of Variance 21.769 18.166 Cumulative % 21.769 39.935 Source: Primary Data Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 6 iterations. Key
1- Economy 2- Efficiency 3- Effectiveness
.764 .687 .501 1.650 14.997 54.532
From the table above results revealed that factor analysis yielded three components which were interpreted as Economy (21.769%), Efficiency (18.166%) and Effectiveness (14.997%) explaining 54.5% of the variance in Value for Money.
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4.5.
Correlation Analysis The zero order correlations were used to establish the relationship between the Independent and Dependent variables. The Pearson correlation test was employed to execute this as shown in Table 4.9 below;
Table 4.9:
Zero-order Correlation Analysis 1 2 3 4 5 6 7
Control Environment (1) Control Activities (2) Risk Assessment (3) Information & Communication (4) Monitoring (5) Value for Money (6) Internal Control Systems (7)
1.000 .531** 1.000 .330** .377** 1.000 .416** .384** .283** 1.000 .395** .470** .426** .429** 1.000 .482** .339** .447** .317** .482** 1.000 .512** .393** .300** .423** .460** .489** 1.000
**. Correlation is significant at the 0.01 level (2-tailed).
4.5.1 Internal Control Systems and Value for Money in Local Government
The findings revealed a significant positive relationship between Internal Control Systems and Value for Money (r = 0.489, P< 0.01). This means that when Internal Control Systems improve, it may result into improvement in Value for Money in Local Governments.
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The study further revealed that good Internal Control Systems only contribute 48.9% to Value for Money leaving 51.1% to other factors not included in this study and need further studies to reveal them and their contributions.
4.5.2
Relationship between the Control Environment and Value for Money
in Local Governments From Table 4.9, it is revealed that there is a statistically significant positive relationship between the Control Environment and Value for Money in Local Governments, (r = 0.482, P<0.01) was found. This implies that Local Governments should establish a sound and clean Control Environment if Value for Money is to be attained. The top management and Councils should ensure that the tone from above is good for all staff that implement development programmes in Local Government.
The study further revealed that Control Environment only contribute 48.2% to Value for Money leaving 51.8% to other factors not included in this study and need further studies to reveal them and their contributions.
4.5.3
Relationship between Control Activities and Value for Money in Local
Governments A statistically significant positive relationship between Control Activities and Value for Money in Local Governments (r = 0.339, P<0.01) was found. This means that if Control Activities are adhered too, Local Governments will definitely attain Value for Money.
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The study further revealed that Control Activities only contribute 33.9% to Value for Money leaving 66.1% to other factors not included in this study and need further studies to reveal them and their contributions.
4.5.4
Risk Assessment helps attain Value for Money in Local Governments
There is a statistically significant positive relationship between the Risk Assessment and Value for Money in Local Governments (r = 0.447, P<0.05) was found. This implies that Local Governments should carry out regular Risk Assessment to be able to identify risks that will expose them to failure to attain their set objectives hence failure to attain Value for Money.
The study further revealed that Risk Assessment only contribute 44.7% to Value for Money leaving 55.3% to other factors not included in this study and need further studies to reveal them and their contributions.
4.5.5
The impact of Information and Communication on the attainment of
Value for Money in Local Governments Findings further reveals that there is statistically significant relationship between Information and Communication and Value for Money in Local Governments (r = 0.317, P<0.01) was found. This means that the more information is communicated in the right time and accurately the more the chance that Local Governments will achieve Value for Money. Information must be communicated in the right time and it should be accurate and necessary for meaning full decisions to be made.
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The study further revealed that good Information and Communication Systems only contribute 31.7% to Value for Money leaving 68.3% to other factors not included in this study and need further studies to reveal them and their contributions.
4.5.6
The impact of Monitoring on the attainment of Value for Money in
Local Governments Findings further reveals that there is statistically significant relationship between Monitoring and Value for Money in Local Governments (r = 0.482, P<0.01) was found. This means that the more Local Governments carry out monitoring of its projects the more Value for Money will be attained.
The study further revealed that good Monitoring Systems contribute 48.2% to Value for Money leaving 51.8% to other factors not included in this study and need further studies to reveal them and their contributions.
4.6
Regression Analysis
Regression was used to determine the level of prediction of the independent variable (Risk Assessment, Control Environment, Control Activities, Information and Communication and Monitoring,) for Internal Control Systems, by the dependent variable for Value for Money.
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Table 4.10: Coefficientsa
Multiple Regression Analysis
Unstandardized Standardized Coefficients Coefficients Model B Std. Error Beta t 1 (Constant) .488 .443 1.100 Internal Control Systems .254 .115 .226 2.197 Control Environment .232 .102 .243 2.274 Control Activities -.076 .125 -.064 -.608 Risk Assessment .200 .080 .234 2.504 Information & Communication -.012 .080 .015 -.151 Monitoring .210 .100 .218 2.094 a R = .641 R Square = .411 Adjusted R Square = .371 Std. Error of the Estimate = .31108 Sig = 0.000a F = 10.233 a. Dependent Variable: Value for Money Source: Primary Data
Sig. .274 .031 .025 .545 .014 .880 .039
The regression analysis revealed the extent to which Internal Control Systems predict Value for Money. Results from Table 4.10, show that the combination of Control Environment, Control Activities, Risk Assessment, Information and Communication, and Monitoring significantly predicated up to 37.1% of Value for Money. However, only Control Environment, Risk Assessment and Monitoring are a significant predicator of Value for Money. It implies that a change in Control Environment leads to (Beta = 0.243), Risk Assessment leads to (Beta = 0.234) and Monitoring leads to (Beta = 0.218) positive change in Value for Money. The overall model was significant at Sig = 0.000.
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The study further reveals that there a significant positive relationship between the Control Environment, Risk Assessment and Monitoring and Value for Money in Local Governments.
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CHAPTER FIVE SUMMARY OF FINDINGS, DISCUSSION, CONCLUSION AND RECOMMENDATIONS
5.1
Introduction This study was designed and carried out to establish the effectiveness of Internal Control Systems (ICS) in achieving Value for Money (VFM) in School Facilities Grant (SFG). Attaining VFM was assumed to depend on the effectiveness of the ICS. This chapter gives the discussions, conclusions and recommendation of the research findings presented and interpreted in chapter four. Also suggested areas for further research are also presented. All of which are presented in accordance to the research objectives.
5.2
Discussion of Findings 5.2.1 Internal Control Systems in Kamuli District Local Government Results revealed that the reporting structure is clearly stipulated in Kamuli District Local Government. Results further revealed that Control Environment, Control Activities, Risk Assessment, Information and Communication, and Monitoring are the constructs of ICS. This is in line with the findings of INTOSAI, 2004. It was further revealed that there are cheque confirmations, supporting documents (such as invoices or requests for disbursements) to back up payment requests, all payments are by bank, expenditures are duly approved in advance; authorization, processing, cheque signing and accounting functions are clearly segregated, all staff in charge of the SFG programme perform their responsibilities as per the regulations and guidelines.
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The respondents also agreed that there is an enabling control environment at Kamuli District Local Government and it is enough to attain the SFG set objectives.
Information received and effective monitoring helps all stakeholders to understand the SFG guidelines and carry out their responsibilities well. Monitoring of the SFG projects is built into the normal operating activities and it is important if the SFG program is to achieve its set objectives, (Kaplan, 2008; Cunningham, 2004; INTOSAI, 2004). The District Executive Committee handles deficiencies identified during SFG monitoring.
Respondents further agreed that involvement of the Internal Audit staff during SFG implementation reduces the occurrence of risk; and compliance to SFG guidelines can lead to reliable financial reporting and all SFG.
However, respondents reported uncertainty as to whether the School Management Committee members are trained in their roles and responsibilities in SFG management. Results further doubted whether the Works (SFG) Committee has designed an appropriate strategy of identifying risks in SFG with appropriate response to risks. SFG cash releases are not published to the public as per the LGFAR (2003) requirements. Uncertainty was further observed as to whether Firms that poorly carry out SFG contracts are blacklisted, of the existence of an up-to-date SFG asset register at KDLG and whether SFG Asset movement is always recorded.
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However, audit functions are primarily aimed at re - enforcing existing systems of Internal Control and at re - enforcing the incentives to achieve Value for Money Lawson A., De Renzio P., Umarji M. (2006) and Treba (2006).
5.2.2 Value for Money in Kamuli District Local Government The study revealed that the success of the SFG programme is the degree to which it attains its set objectives by utilization of resources economically, efficiently and effectively. It is further revealed that Value for Money is improved by reducing the level of irregularity and fraud under the SFG programme. The quality of SFG projects assures the community that SFG funds are well utilised. The District Executive Committee carries out Monitoring and Evaluation and control operations in order to achieve VFM. It was further reveled that TPC plan and appraise SFG projects and Council authorises SFG work plans in order to achieve VFM. It was further observed that Internal Audit staff carry out regular reviews to ascertain whether council receives VFM in all its SFG activities. These findings are in line with the findings of Glendinning, (1998); Davies, (2007) and Deakin, (1998).
5.2.3 Relationship between Control Environment and Value for Money Findings revealed that there is an enabling control environment at Kamuli District Local Government and that the control environment in KDLG is enough to attain the SFG set objectives. This is in line with the findings of Thuy, 2007; Laura, 2002; Kaplan, 2008; and INTOSAI, 2004.
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5.2.4 Relationship between Control Activities and Value for Money Just in line with the findings of Kaplan, (2008); Thuy, (2007), Sarbanes-Oxley Act (SOX, 2002) and Laura, (2002), the findings of the study revealed that SFG expenditures are duly approved in advance by appropriately authorized persons. Cheque authorization, processing, and signing and the accounting functions are clearly segregated under the SFG programme. All staff in charge of the SFG programme perform their responsibilities as per the regulations and guidelines.
It was further observed that Internal Audit staff carry out regular reviews to ascertain whether council receives VFM in all its SFG activities, in line with the findings of Thuy, (2007); INTOSAI, (2004); and Laura, (2002). TPC plan and appraises SFG projects in order to achieve VFM, and the responsibility of SFG investment lies with the TPC and Council. VFM is improved by reducing the level of irregularity and fraud under the SFG programme. And Communities get assured of VFM if costs incurred under SFG projects are reasonable. However, respondents reported uncertainty as to whether the quality of class room blocks and furniture is good.
5.2.5 Relationship between Risk Assessment and Value for Money From the results it is found out that there is a statistically significant positive relationship between Risk Assessment and Value for Money in Local Governments. This is in line with; Heald, (2003), the Cadbury Report (1992), DiNapoli, (2007) and INTOSAI, (2004).
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5.2.6 Relationship between Information and Communication and Value for Money Findings further reveals that there is statistically significant relationship between Information and Communication and Value for Money in local Governments. This is in line with the findings of DiNapoli, (2007) and INTOSAI, (2004). Information and Communication were revealed to have more significant predicator on Value for Money.
5.2.7 Relationship between Monitoring and Value for Money Findings further reveals that there is statistically significant relationship between Monitoring and Value for Money in local Governments. This is in line with the findings of DiNapoli, (2007) and INTOSAI, (2004). The results further reveal that Monitoring of the SFG projects is built into the normal operating activities and DEC handles deficiencies identified during SFG monitoring just like the findings of DiNapoli, (2007) and INTOSAI, (2004).
5.5
Conclusion Generally, this research examined the effectiveness of Internal Control Systems in achieving Value for Money in SFG projects in Local Governments. The findings revealed that Internal Control Systems have a significant positive effect in achieving Value for Money. This means that when Internal Control Systems improve, there will be attainment of Value for Money in Local Governments. The study further reveals that there a significant positive relationship between the Control Environment, Control Activities, Risk Assessment, Information and
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Communication, and Monitoring and Value for Money in Local Governments. Though Control Environment, Risk Assessment and Monitoring were revealed to have more significant predicator on Value for Money. This implies that the more sound the Internal Control Systems and the more the Internal Control Systems are adhered too, the higher the chances that Local Governments will achieve Value for Money. The reporting structure is clearly stipulated in Kamuli District Local Government. Information received and effective monitoring helps all stakeholders to understand the SFG guidelines and carry out their responsibilities well. Respondents further agreed that involvement of the Internal Audit staff during SFG implementation reduces the occurrence of risk; and compliance to SFG guidelines can lead to reliable financial reporting and all SFG. The study revealed that the success of the SFG programme is the degree to which it attains its set objectives. The attainment of VFM is based on the use of SFG resources in order to achieve its set objectives, the quality of SFG projects assures the community that SFG funds are well utilised and VFM is improved by reducing the level of irregularity and fraud.
There is an enabling control environment at Kamuli District Local Government and the control environment in KDLG is enough to attain the SFG set objectives. The study revealed that SFG expenditures are duly approved in advance by appropriately authorized persons. Control Activities such as cheque authorization, processing, and signing and the accounting functions are clearly segregated in Kamuli District Local Government and all staff in charge of the SFG programme perform their responsibilities as per the regulations and guidelines. It was further
57
observed that Internal Audit staff carry out regular reviews to ascertain whether council receives VFM in all its SFG activities. The study found out that Value for Money is improved by reducing the level of irregularity and fraud under the SFG programme. It was further found out that communities get assured of Value for Money if costs incurred on projects are reasonable. The study revealed that there is a statistically significant positive relationship between Risk Assessment and Value for Money in Local Governments. Just in line with DiNapoli, (2007) and INTOSAI, (2004), there is statistically significant relationship between Information and Communication and Value for Money in local Governments. There is a statistically significant relationship between Monitoring and Value for Money in local Governments and monitoring should be built into the normal operating activities of the Local Government.
5.6.
Recommendations Having known the significance of Internal Control Systems, Local Governments need to ensure that they continuously review these Internal Control Systems and ensure that they are operational.
5.7.
Areas for further research The results from the study point out a number of opportunities for further research into tax competencies, compliance costs and tax compliance. Future research should attempt to collect data from other Local Governments in Uganda to find out whether the effectiveness of Internal Control Systems in achieving Value for
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Money in SFG projects in Local Governments takes the same trend as that in Kamuli.
This research concentrated on projects in LGs, yet further research could be carried out among the projects in the Central Government Ministries to establish the effectiveness of Internal Control Systems in achieving Value for Money.
In addition, further study should concentrate on the examination of other factors that contribute to attainment of Value for Money not included in this study other than Internal Controls.
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References: Asiimwe, D., & Nakanyike, B. M. (2007). Decentralisation and transformation of Governance in Uganda Cunningham, L. A. (2004). The Appeal and Limits of Internal Controls to Fight Fraud, Terrorism, Other Ills. Davies, J. (2007). Alliances, Public Sector Governance and Value for Money. Deakin, M. (1998). The financial instruments of capital accounting in local authorities Department for Communities and Local Government, (2007). Delivering Value for Money in Local Government: Meeting the challenge of CSR07. DiNapoli, T. P. (2007). Standards for Internal Control; In New York State Government Eckhart, K. S., Widener S. K., & Laurence, E. J. (2001). Governance and Local Government. Fryer, K., Jiju, A., & Ogden, S. (2009). Performance management in the public sector; International Journal of Public Sector Management. Vol. 22 No. 6, pp. 478-498
Glendinning, R. (1998); The Concept of Value for Money, Vol. 1 Pg 42 50
Government of Ireland, (2006). Department of the Environment, Heritage and Local Government; Value for Money Unit Local Government Audit Service; Follow-up report on the Development of Internal Audit in Local Authorities.
Heald, D. (2003). Value for Money tests and accounting treatment in PFI schemes. Internal Control, (2005). Revised Guidance for Directors on the Combined Code. International Organization of Supreme Audit Institutions (INTOSAI) General Secretariat; Guidelines for Internal Control Standards for the Public Sector. Retrieved on February 26, 2009, from http://www.intosai.org Kaplan Publishing UK, (2008). Professional Accountant (PA). The Complete Text.
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Kerr, R. (2005). Getting Better Value for Money in Public Spending. Laura, F. S. (2002). Risk Management the re-invention of Internal Control and the Changing role of Internal Audit. Lawson A., De Renzio P. and Umarji M. (2006). Assessment of Public Finance Management in Mozambique, 2004/05 based on PEFA Methodology. Local Government Act, (1997). Ministry of Local Government. Retrieved on August 30, 2009, from http://www.molg.go.ug Local Government Financial and Accounting Regulations (LGFAR), (2007). Statutory Instrument No. 25. Ministry of Local Government. Retrieved on August 30, 2009, from http://www.molg.go.ug Lubabah, M. K. (2009). Internal Control and the Issues of Independence & Confidentiality in Nigerian Local Government Auditing. Ministry of Local Government, (2004). Technical and Value for Money Audit of Kamuli District Local Government. Mugenda, O. M., & Mugenda, A. G. (1999). Research Methods; Quantitative and Qualitative Approaches Mukunya, F. (1987). The Decentralisation of Ugandas Primary Education. National Association of Local Government Auditors (U.S. and Canada), & National Association of State Auditors, Comptrollers, and Treasurers (U.S.), (2006). The Role of Auditing in Public Sector Governance. National Audit Office, (2007). Value for Money in public sector corporate services; A joint project by the UK Public Sector Audit Agencies. Organisation for Economic Co-operation and Development (OECD), (2005). Public Sector Modernisation: Modernizing Accountability and Control.
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Sanderson Ian, (2001). Performance management, evaluation and learning in modern Local Government. Vol. 79 No. 2, (297313). Schaeffer, M. (2005). Local Government Accountability: Challenges and Strategies. Sekaran, U. (2003). Research methods for Business; Fourth Edition The Combined Code on Corporate Governance, (2005). Internal Control: Guidance for Directors, Published by the Institute of Chartered Accountants in England and Wales. Thuy, V. (2007). Lifting the Curse of the SOX through employee assessments of the Internal Control Environment. Treba L. M. (2003). Evaluating internal controls: control self-assessment in government. Uganda Local Governments Association, (2004). Joint Annual Review of
Decentralisation; Accountability in Local Governments.
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Appendixes Appendix I: Questionnaire QUESTIONAIRE FOR THE EFFECTIVENESS OF INTERNAL CONTROL SYSTEMSS IN ACHIEVING VALUE FOR MONEY IN SCHOOL FACILITIES GRANT; THE CASE OF KAMULI DISTRICT LOCAL GOVERNMENT Dear Respondent; This is a study on the determinants of the effectiveness of Internal Control Systems in achieving Value for Money in School Facilities Grant; the case of Kamuli District Local Government. Kindly spare some time and circle or tick or indicate your opinion on each of the statements given. The information obtained will be strictly confidential and for academic purposes only. Thank you in advance. Moses Byanguye
SECTION A: BACKGROUND INFORMATION 1. What is your Sex? 1. Male 2. Female 2. What is your highest level of education? 1. PHD 2. Masters Degree 3. Postgraduate 4. Bachelors Degree 5. Diploma 6. Certificate 7. Others (Specify) 3. What is your employment status? 1. Political Staff 2. Statutory Staff / Commissioned Staff / School Management Staff 3. Permanent Technical Staff 4. Probationary Technical Staff 5. Contracted Technical Staff 6. Pensioned Staff 4. Age bracket 1. below 20 years 2. 21 40 years 3. 41 60 years 4. Above 60 years 5. Duration of employment with the organization; 1. below 2 years 2. 3 5 years 3. 6 - 10 years 4. Above 10 years
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ACRONYMS DEC District Executive Committee; KDLG Kamuli District Local government; SFG School Facilities Grant; VFM Value for Money SECTIOB B: INTERNAL CONTROL SYSTEMSS (ICS) IN Kamuli District Local Government (KDLG) Please, tick in the appropriate box against the statements as defined below; 1 = Strongly Disagree, 2 = Disagree, 3 = Undecided, 4 = Agree and 5 = Strongly Agree.
Undecided
Strongly Disagree
Disagree
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Control Environment In Kamuli District Local Government there is clear separation of roles and responsibilities. The SFG policies, procedures and guidelines are documented. The district has a clear organisational structure. The reporting structure is clearly stipulated. All employees in charge of the SFG programme are aware of the guidelines of the programme. SFG guidelines are effectively followed by the District Council. All staff incharge of the SFG programme perform their responsibilities as per the regulations and guidelines. All managers of SFG carry out their duties faithfully Segregation / separation of roles can lead to attainment of set SFG objectives. Segregation / separation of roles can lead minimizing of costs. All stakeholders are given a copy of the SFG guidelines. School Management Committee members are trained in their roles and responsibilities in SFG management. Compliance to SFG guidelines can lead to reliable financial reporting. Staff in charge of SFG programme are responsible of implementing the SFG guidelines in the district. There is a positive attitude by Council towards implementing the SFG guidelines. District Management looks at the SFG guidelines as a burden that can be done away with. The SFG guidelines are able to detect irregularities. There is an enabling control environment at Kamuli District Local Government. The control environment in KDLG is enough to attain
64
Strongly Agree
Agree
the SFG set objectives. Control Activities SFG policies and procedures can lead to producing reliable financial reports. The roles of stakeholders are well spelt out in the SFG guidelines. Accounting procedures of SFG are clearly segregated. SFG expenditures are duly approved in advance by appropriately authorized persons. Authorization, processing, cheque signing and accounting functions are clearly segregated under the SFG programme. The Accounting Officer notifies the bank with changes in signatories to the SFG account. All SFG invoices or requests for disbursements are backed by appropriate supporting documents. All SFG cheque payments are confirmed at the bank. The signatory to the SFG account reviews and initials the supporting documents for payments. SFG unpaid requisitions/invoices are kept in a file of unpaid vouchers. There is an up-to-date SFG asset register at KDLG. SFG Asset movement is always recorded. The procurement and disposal of assets procedure is strictly followed under the SFG programme. There is no influence peddling in the procurement and disposal of SFG projects. Most of the SFG contracts are given to contractors who are well placed and known to the staff of KDLG. Contractors that are politically backed always win SFG contracts. Firms that poorly carry out SFG contracts are blacklisted. SFG cash release papers are received by someone independent of the accounting function. SFG cash releases are published to the public. SFG cash receipts are directly transferred to the SFG account intact. Numerically controlled receipt books for all SFG cash receipts are used. SFG bank reconciliations are prepared by someone independent of the cash receiving, processing and recording activities. Someone other than the preparer reviews and approves bank reconciliations. Risk Assessment The SFG committee has designed an appropriate strategy of identifying risks in SFG.
1 2 3 4 5
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
23
65
2 3 4 5 6
The SFG Committee designed a system to offer appropriate response to risks. It is managements role to identify, evaluate and respond to risk in SFG projects. Council is concerned with the identification, monitoring & evaluation. Council is concerned with the development of responses to risks. Involvement of the Internal Audit staff during SFG implementation reduces the occurrence of risk. Information and Communication Information should be communicated to all stakeholders. Information received on SFG projects helps stakeholders to carry out their responsibilities well. The reporting system on SFG projects spells out the responsibilities of each personnel in that project. SFG transactions are promptly recorded and classified to provide reliable information. Communication helps to evaluate how well the guidelines of SFG are working. The Accounting Officer publicises the funds received under SFG Monitoring Monitoring is important if the SFG program is to achieve its set objectives For monitoring to be effective, all stakeholders need to understand the SFG guidelines. Monitoring helps to assess the quality of performance of SFG over time Monitoring helps to determine whether controls under SFG are effective Monitoring of the SFG projects is built into the normal operating activities. Monitoring covers the evaluation of the effectiveness of the SFG in achieving set objectives DEC handles deficiencies identified during SFG monitoring Council considers audit findings and recommendations and takes adequate actions The public cannot monitor SFG projects due to lack of information SECTIOB C: VALUE FOR MONEY IN KDLG The success of the SFG programme is the degree to which it attains its set objectives. The responsibility of SFG investment lies with the TPC and Council.
1 2 3 4 5 6
1 2 3 4 5 6 7 8 9
1 2
66
3 4 5 6 7 8 9 10 11 12
The attainment of VFM is based on the use of SFG resources in order to achieve its set objectives Internal Audit staff carry out regular reviews to ascertain whether council receives VFM in all its SFG activities TPC plan and appraise SFG projects in order to achieve VFM Council authorise SFG work plans in order to achieve VFM DEC carries out Monitoring and Evaluation and control operations in order to achieve VFM. VFM is improved by reducing the level of irregularity and fraud under the SFG programme. The quality of SFG projects assures the community that SFG funds are well utilised. Communities get assured of VFM if costs incurred under SFG projects are reasonable. The commitment by the managers of SFG program in providing VFM in SFG programmes is weak. The quality of class room blocks and furniture is good.
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The Effectiveness of Internal Control Systems in Achieving Value For Money in School Facilities Grant

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MAKERERE UNIVERSITY

MOSES BYANGUYE 2007/HD10/11224U

NAME: REG. No:

MOSES BYANGUYE 2007/HD10/11224U

SIGNATURE:_____________________ DR. ISAAC NKOTE NABETA

SIGNATURE:_____________________ MR. FRED LUGANDA

3.6. 3.7. 3.8. 3.9. 3.10. 4.0 4.2 4.3. 4. 4.

Appendixes ................................................................................................................... 63 Appendix I: Questionnaire ............................................................................................. 63

SFG SMC TPC UPE VFM

Source: Developed from INTOSAI (2004)

Communication (IC) are essential to realising the LG internal control objectives 23

Table 3.1: Category

Table 3.2: Reliability Statistics

0.6531 0.8239 0.7041

Source: Primary Data

Source: Primary Data

Source: Primary Data

To examine Internal Control Systems in Local Governments

Source: Primary Data

Table 4.6: Rotated Component Matrixa for Internal Control Systems

9.318 17.714 25.566 33.237 38.906

To examine Value for Money in Local Governments

3.81 4.06 4.09 3.95

.657 .580 .701 .642

3.98 3.72 3.31

.911 .821 1.030

Source: Primary Data

.764 .687 .501 1.650 14.997 54.532

Zero-order Correlation Analysis 1 2 3 4 5 6 7

**. Correlation is significant at the 0.01 level (2-tailed).

Source: Primary Data

Relationship between the Control Environment and Value for Money

Relationship between Control Activities and Value for Money in Local

Risk Assessment helps attain Value for Money in Local Governments

The impact of Information and Communication on the attainment of

The impact of Monitoring on the attainment of Value for Money in

Table 4.10: Coefficientsa

Multiple Regression Analysis

Sig. .274 .031 .025 .545 .014 .880 .039

CHAPTER FIVE SUMMARY OF FINDINGS, DISCUSSION, CONCLUSION AND RECOMMENDATIONS

Glendinning, R. (1998); The Concept of Value for Money, Vol. 1 Pg 42 50

Decentralisation; Accountability in Local Governments.

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