The Effectiveness of Internal Control Systems in Achieving Value for Money in School Facilities...

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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



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Declaration

This research work is original and has not been submitted for any other degree award to

any Institution before.

SIGNATURE:_____________________ DATE:______________________

NAME: MOSES BYANGUYE

REG. No: 2007/HD10/11224U



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APPROVAL

This is to certify that this thesis has been submitted with our approval as University

Supervisors.

SIGNATURE:_____________________ DATE:______________________

DR. ISAAC NKOTE NABETA

SIGNATURE:_____________________ DATE:______________________

MR. FRED LUGANDA



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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.



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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.



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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.



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TABLE OF CONTENTS PAGE

Declaration ...................................................................................................................... 2

Dedication ....................................................................................................................... 4

Acknowledgement ........................................................................................................... 5

Abstract6

List of Tables and Figures ............................................................................................... 9

List of Acronyms ..10

1.1. Background........................................................................................................ 12

1.2. Statement of the Problem ................................................................................. 133

1.3. Purpose of the Study .......................................................................................... 14

1.4. Objectives ........................................................................................................ 144

1.5. Research Questions ............................................................................................ 15

1.6. Scope of the Study ............................................................................................. 15

1.7. Significance of the study .................................................................................... 16

1.8 Conceptual Framework .17

2.0. Literature Review .............................................................................................. 18

2.2. Internal Control Systems(ICS) .......................................................................... 18

2.2.1Control Environment ................................................................................. 21

2.2.2Risk Assessment ....................................................................................... 22

2.2.3Control Activities .................................................................................... 233

2.2.4Information and Communication ............................................................... 23

2.2.5Monitoring ................................................................................................ 24

2.3. Value for Money.............................................................................................. 255

2.4. Conclusion ........................................................................................................ 26

Research Methodology .................................................................................................. 28

3.2. Research Design ................................................................................................ 28

3.3. Study Population .............................................................................................. 28

3.4. Sampling and Sample Size ................................................................................ 29

3.5. Data Sources ..................................................................................................... 30


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3.6. Data Collecton Instruments ............................................................................... 30

3.7. Measurement of Variables ................................................................................ 31

3.8. Validity and Reliability of Instruments ............................................................. 31

3.9. Data Processing and Analysis ........................................................................... 32

3.10. Limitations of the Study .................................................................................... 32

4.0 Data Presentation, Analysis and Interpretation .................................................. 34

4.2 Sample Characteristics ...................................................................................... 34

4.3. To examine Internal Control Systems in Local Governments...374.3.1 Rotated Component Factor Analysis for Internal Control Systems ..40

4. 4. To examine Value for Money in Local Governments...............42

4.4.1 Rotated Component Factor Analysis for Value for Money ..444.5. Correlation Analysis..46

4.5.1 Internal Control Systems and Value for Money in Local Government.46

4.5.2 Relationship between Control Environment and Value for Money in

Local Governments ..47

4.5.3 Relationship between Control Activities and Value for Money inLocal Governments47

4.5.4 Risk Assessment helps attain Value for Money484.5.5 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...495.0 Summary of Findings, Discussion, Conclusions and Recommendations..52

5.1 Introduction52

5.2 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...545.2.3 Relationship between Control Environment and Value for Money...54

5.2.4 Relationship between Control Activities and Value for Money555.2.5 Relationship between Risk Assessment and Value for Money.55

5.2.6 Relationship between Information and Communication and Value forMoney56

5.2.7 Relationship between Monitoring and Value for Money .56

5.3 Conclusion.56

5.4. Recommendations .............................................................................................. 58

5.5. Areas for further research ................................................................................... 58

Appendixes ................................................................................................................... 63

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


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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 Matrixafor Internal Control System ..... 40

Table 4.7 Value for Money in Local Governments 43

Table 4.8 Rotated Component Matrixafor Value for Money 45

Table 4.9 Zero Order Correlation Analysis .... 46

Table 4.10 Multiple Regression Analysis .. 50



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LIST OF ACRONYMS

AGAR - Auditor General Annual Reports

APB - Auditing Practices Board

CAIIP - Community Agriculture Infrastructural Improvement Programme

CE - Control Environment

COSO - Committee of Sponsoring Organisations

DEC - District Executive Committee

DPAC - District Public Accounts Committee

GoU - Government of Uganda

IAR - Internal Audit Reports

ICS - Internal Control Systems

IMF - International Monetary Fund

INTOSAI - International Organization of Supreme Audit Institutions

KDLG - Kamuli District Local Government

LGDP - Local Government Development Programme

LGFAR - Local Government Financial and Accounting Regulations

LGIAM - Local Government Internal Audit Manual

LGs - Local Governments

MoFPED - Ministry of Finance Planning and Economic Development

MoLG - Ministry of Local Government

NAADS - National Agriculture and Advisory Services

OECD - Organisation for Economic Co-operation and Development

PAF - Poverty Action Fund

PEAP - Poverty Eradication Action Plan

PERP - Primary Education Reform Program



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SFG - Schools Facilities Grant

SMC - School Management Committee

TPC - Technical Planning Committee

UPE - Universal Primary Education

VFM - 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 Co-

operation 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 LocalGovernment.

ii. To examine Value for Money in Kamuli District Local Government.iii. 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 forMoney in Kamuli District Local Government.

v. To examine the impact between Risk Assessment to Value for Money inKamuli District Local Government.



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vi. To examine the impact of Information and Communication to Value forMoney in Kamuli District Local Government.

vii. To examine the impact of Monitoring to Value for Money in KamuliDistrict Local Government.

1.5. Research Questions

i. What are the Internal Control Systems in Kamuli?ii. What is Value for Money in Kamuli?

iii. What is the relationship between Control Environment and Value forMoney in Kamuli District Local Government?

iv. What is the relationship between Control Activities and Value for Moneyin Kamuli District Local Government?

v. What is the impact between Risk Assessment to Value for Money inKamuli District Local Government?

vi. What is the impact of Information and Communication to Value forMoney in Kamuli District Local Government?

vii. What is the impact of Monitoring to Value for Money in Kamuli DistrictLocal 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

Source:Developed from INTOSAI (2004)

Internal Control Systems

Value for Money

-

Economy- Efficiency- Effectiveness

Control Environment

Control Activities

Risk Assessment

Information and

Communication

Monitoring



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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, butpeople

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, non-

existent 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



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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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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: Population and Sample Composition

Category Population No. Expected Sample (No.)

Technical Planning Committee 42 29

Internal Audit Staff 04 04

Auditor General Staff 02 02

District Executive Council 05 03

Public Accounts Committee 05 03

School Management Committee 126 86

TOTAL 184 127

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



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hands-on experience of running SFG projects) that was given a questionnaire to

fill in.

3.5. Data Sources

3.5.1. Primary DataBy 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 DataSecondary 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



31

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;



32

Table 3.2: Reliability Statistics

Variable Anchor Cronbach Alpha

Control Environment 5 point 0.6531

Control Activities 5 point 0.8239

Risk Assessment 5 point 0.7041

Information andCommunication

5 point0.8412

Monitoring 5 point 0.8924

Value for Money 5 point 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



33

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.



34

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 Percent

Male 76 80.0

Female 19 20.0

Total 95 100.0

Source: Primary Data

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.



35

4.2.2 Employment status of the respondents

Table 4.2: Employment status of the respondents

Category Frequency (F) Percent (%)

Political Leaders 5 5.3

Statutory/Commissioned/School

Mgt Staff

19 20.0

Permanent Technical Staff 55 57.8

Probationary Technical Staff 5 5.3

Pensioned Staff 11 11.6

Total 95 100.0


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.



36

4.2.3. Duration of Employment with organization

Table 4.3: Duration of Employment with organization

Frequency (F) Percentage (%)

Below 2 years 7 3.4

2-5 years 15 22.1

5-10 years 38 42.5

10-15 years 25 20.2

Above 15 years 10 11.8

Total 95 100


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.



37

4.2.4 Age bracket of the respondents

Table 4.4: Age bracket of the respondents

Years Frequency Percent

0-20 years 0 0.0

21-40 years 38 40.0

41-60 years 57 60.0

Above 60 years 0 0.0

Total 95 100.0


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;



38

Table 4.5: Internal Control Systems in Local Governments

Internal Control Systems Min Max Mean Std.Deviation

The reporting structure is clearly stipulated. 1 5 4.03 .764

All staff in charge of the SFG programme perform theirresponsibilities as per the regulations and guidelines.

2 5 3.67 .893

School Management Committee members are trained in their rolesand responsibilities in SFG management.

1 5 2.83 1.098

Compliance to SFG guidelines can lead to reliable financialreporting.

1 5 4.17 .846

There is an enabling control environment at Kamuli District LocalGovernment.

1 5 3.74 .866

The control environment in KDLG is enough to attain the SFG set

objectives.

1 5 3.52 1.061

Accounting procedures of SFG are clearly segregated. 2 5 3.78 .671

SFG expenditures are duly approved in advance by appropriatelyauthorized persons.

1 5 3.96 .910

Authorization, processing, cheque signing and accounting functionsare clearly segregated under the SFG programme.

1 5 3.87 .948

All SFG invoices or requests for disbursements are backed byappropriate supporting documents.

2 5 4.08 .794

All SFG cheque payments are confirmed at the bank. 2 5 4.35 .809

There is an up-to-date SFG asset register at KDLG. 1 5 3.42 .974

SFG Asset movement is always recorded. 1 5 3.49 .836

Firms that poorly carry out SFG contracts are blacklisted. 1 5 3.07 1.013

SFG cash releases are published to the public. 1 5 3.27 1.056The SFG committee has designed an appropriate strategy of

identifying risks in SFG.

1 5 3.02 .911

The SFG Committee designed a system to offer appropriateresponse to risks.

1 5 3.16 .854

Involvement of the Internal Audit staff during SFG implementationreduces the occurrence of risk.

2 5 4.20 .738

Information received on SFG projects helps stakeholders to carry

out their responsibilities well.

2 5 4.28 .781

Monitoring is important if the SFG program is to achieve its setobjectives

2 5 4.55 .615

For monitoring to be effective, all stakeholders need to understandthe SFG guidelines.

4 5 4.58 .496

Monitoring of the SFG projects is built into the normal operating

activities.

2 5 3.78 .746

DEC handles deficiencies identified during SFG monitoring 1 5 3.75 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



39

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).



40

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 Analysisfor 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;



41

Table 4.6: Rotated Component Matrixafor Internal Control Systems

Rotated Component Matrixa

Component

1 2 3 4 5

All SFG invoices or requests for disbursements are backed by appropriate supportingdocuments.

.650

All SFG cheque payments are confirmed at the bank. .636

The Accounting Officer notifies the bank with changes in signatories to the SFG account. .631

Authorization, processing, cheque signing and accounting functions are clearly segregated

under the SFG programme..544

SFG expenditures are duly approved in advance by appropriately authorized persons. .518

The signatory to the SFG account reviews and initials the supporting documents forpayments.

.506

SFG Asset movement is always recorded. .687There is an up-to-date SFG asset register at KDLG. .679

The SFG Committee designed a system to offer appropriate response to risks. .666

SFG cash releases are published to the public. .636

The SFG committee has designed an appropriate strategy of identifying risks in SFG. .628

The Accounting Officer publicises the funds received under SFG .603

Firms that poorly carry out SFG contracts are blacklisted. .522

The reporting system on SFG projects spells out the responsibilities of each personnel in

that project..656

Information received on SFG projects helps stakeholders to carry out their responsibilities

well..580

Compliance to SFG guidelines can lead to reliable financial reporting. .579

The reporting structure is clearly stipulated. .577

There is a positive attitude by Council towards implementing the SFG guidelines. .518

Involvement of the Internal Audit staff during SFG implementation reduces the occurrenceof risk.

.722

Monitoring helps to assess the quality of performance of SFG over time. .624

SFG policies and procedures can lead to producing reliable financial reports. .597

Monitoring is important if the SFG program is to achieve its set objectives .544

SFG cash receipts are directly transferred to the SFG account intact. .681

School Management Committee members are trained in their roles and responsibilities inSFG management.

.617

Eigen Values 5.591 5.031 4.711 4.603 3.401

% of Variance 9.318 8.396 7.852 7.671 5.669

Cumulative % 9.318 17.714 25.566 33.237 38.906

Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.a. Rotation converged in 13 iterations.


Key1- Control Activities 2- Risk Assessment

3- Control Environment 4- Information & Communication

5- Monitoring



42

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;



43

Table 4.7: Value for Money in Local Governments

Value for Money in Local Governments Min Max Mean Std.

Deviation

The success of the SFG programme is the

degree to which it attains its set objectives.

2 5 4.23 .721

The responsibility of SFG investment lies with

the TPC and Council.

1 5 3.69 .923

The attainment of VFM is based on the use of

SFG resources in order to achieve its set

objectives

2 5 4.02 .729

Internal Audit staff carry out regular reviews to

ascertain whether council receives VFM in all

its SFG activities

2 5 3.89 .722

TPC plan and appraise SFG projects in order to

achieve VFM

2 5 3.81 .657

Council authorise SFG work plans in order toachieve VFM

2 5 4.06 .580

DEC carries out Monitoring and Evaluation andcontrol operations in order to achieve VFM.

2 5 4.09 .701

VFM is improved by reducing the level of

irregularity and fraud under the SFG

programme.

1 5 3.95 .642

The quality of SFG projects assures the

community that SFG funds are well utilised.

1 5 3.98 .911

Communities get assured of VFM if costsincurred under SFG projects are reasonable. 1 5 3.72 .821

The quality of class room blocks and furnitureis good.

1 5 3.31 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



44

(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;



45

Table 4.8: Rotated Component Matrixafor Value for Money

Rotated Component Matrixa

for Value for Money

Component

/Dimensions

1 2 3TPC 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 fundsare well utilised.

.713

Council authorise SFG work plans in order to achieve VFM .592

Communities get assured of VFM if costs incurred under SFG

projects are reasonable..736

VFM is improved by reducing the level of irregularity and fraud

under the SFG programme.

.708

The responsibility of SFG investment lies with the TPC andCouncil.

.686

The success of the SFG programme is the degree to which it attains

its set objectives.

.764

The attainment of VFM is based on the use of SFG resources in

order to achieve its set objectives

.687

DEC carries out Monitoring and Evaluation and control operations

in order to achieve VFM..501

Eigen Values 2.395 1.998 1.650

% of Variance 21.769 18.166 14.997

Cumulative % 21.769 39.935 54.532


Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 6 iterations.

Key1- Economy

2- Efficiency

3- Effectiveness

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.



46

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) 1.000

Control Activities (2) .531**

1.000

Risk Assessment (3) .330**

.377**

1.000

Information & Communication (4) .416**

.384**

.283**

1.000

Monitoring (5) .395**

.470**

.426**

.429**

1.000

Value for Money (6) .482** .339** .447** .317** .482** 1.000

Internal Control Systems (7) .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.



47

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



48

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 andValue for Money in Local Governments (r = 0.447, P



49

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



50

Table 4.10: Multiple Regression Analysis

Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig.B Std. Error Beta

1 (Constant) .488 .443 1.100 .274

Internal Control Systems .254 .115 .226 2.197 .031

Control Environment .232 .102 .243 2.274 .025

Control Activities -.076 .125 -.064 -.608 .545

Risk Assessment .200 .080 .234 2.504 .014

Information & Communication -.012 .080 .015 -.151 .880

Monitoring .210 .100 .218 2.094 .039

R = .641a

R Square = .411

Adjusted R Square = .371

Std. Error of the Estimate = .31108

Sig = 0.000a

F = 10.233

a. Dependent Variable: Value for MoneySource: Primary Data

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.



51

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.



52

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 GovernmentResults 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.



53

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.


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.



54

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 GovernmentThe 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 MoneyFindings 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.



55

5.2.4 Relationship between Control Activities and Value for MoneyJust 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 MoneyFrom 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).



56

5.2.6 Relationship between Information and Communication and Value forMoney

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 MoneyFindings 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



57

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.


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



58

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

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