THE EFFECT OF PROCUREMENT AUDITING ON PERFORMANCE OF PUBLIC INSTITUTIONS: A CASE OF UGANDA NATIONAL ROADS AUTHORITY

ABSTRACT

The study was undertaken at Uganda National Road Authority (UNRA) with the purpose of investigating the effect of procurement auditing on performance of public institutions in Uganda. The specific objectives of the study were to establish how procurement auditing is done in public institutions, to identify the measures of performance in public institutions and to establish the relationship between procurement auditing and performance in public institutions.

The literature was reviewed from 2000-2016 basing on research questions. The organization data covered a range (2012-2016) from different scholars which was extracted from journals, books and many others based on the effect of public procurement on the performance of public institutions. The research design was descriptive in nature where both qualitative and quantitative approaches of data collection were adopted. The researcher used questionnaire and interview method to collect data from 40 respondents using purposive sampling.

The study found out that procurement auditing is done to ascertain if due process was followed, to ensure fairness, transparency, accountability, due process/prevent and detect procurement fraud and irregularities, promote accountability. The activities involved in procurement auditing included auditors notifying procurement entity of an impending audit, actual performance of audit and subsequent presentation of audit report by auditors. The performance measures included ability to predict future bankruptcy, ability to meet short-term financial obligations, sales growth, and organization’s profits. And as result of procurement auditing, transparency is allowed when books are audited, number of corruption cases have reduced in public institutions, set procedures are followed which ensures transparency and improved cost efficiency.

The study recommended that Audit Service should on regular basis review its audit techniques to ascertain whether their intended purposes are being achieved effectively and efficiently. The researcher recommended that further research should assess the effect of internal control systems on procurement performance and determine other factors affecting performance in public institutions.

CHAPTER ONE

INTRODUCTION

1.0 Introduction

This chapter presents background to the study, statement of the problem, purpose of the study, objectives of the study, research questions, scope of the Study, Significance of the Study and definitions of key terms.

1.1 Background to the study

Abdol-mohammadi and Thibodeau (2007), procurement auditing can be explained as the process of gathering and evaluating sufficient evidence on procurement activities to ascertain whether specified laid down procedures have been complied with or not. Procurement audits are seen as very important to the realisation of value addition to government procurement in terms of ensuring accountability, transparency, prevention of improper procurement practices, and improving upon past procurement performance (Mapesa and Kibua, 2006).

Procurement auditing is performed to ascertain whether performance measures are up to pre-determined standards within defined parameters so that changes can be implemented to improve standards (Hart, Northmore and Gerhardt, 2009). Some specific reasons for public procurement auditing are; to prevent fraud, to provide assurance with regards to effective and efficient operations, to ensure reliable financial reporting, to comply with laws and regulations, to address corruption, and to prevent future mistakes (Wayne State University, 2014; Petrovits, Shakespeare and Shih, 2009). Moreover, public procurement is audited to verify whether there was an actual need for a given procurement; whether the procurement procedure achieved value for money, and whether public procurement regulations were adhered to (Krivinsh and Vilks, 2013).

Procurement auditing in public institutions is carried out to ensure that procurement activities are done in an effective, efficient, and economical manner within the provisions of relevant acts, regulations and guidelines (Office of the Auditor General- Nepal, 2005). A public procurement performance audit document of city of Chesapeake- Virginia indicates that the procurement audit process entails a number of activities including the following: a comprehensive review and evaluation of relevant public procurement policies, procedures, and operations, contract documents and reports as well as all relevant documents; interviewing those involved in the procurement activities; holding discussions with consultants contracted; information obtained is analysed and a report is generated (Audit Services Department; Chesapeake-Virginia, 2010).

In conducting a procurement audit, the Audit Service carries out a number of exercises among which are: understanding the procurement administration process of a procurement entity; application of audit tools to facilitate the identification of various risks to which a procurement entity is exposed; interviewing key officers involved in the entity’s procurement administration and; reviewing all relevant documents of the procurement entity (Petrovits, Shakespeare and Shih, 2009). To proactively ensure efficiency, accountability, and transparency in the management of public sector resources, Government of Uganda brought into force the Internal Audit Agency Act. And the promulgation of this Act mandated public institutions to establish internal audit units which are expected to report to the Auditor-General on the efficient and judicious utilisation of public resources (Internal Audit Agency, 2008).

A number of entities in Uganda, especially civil society advocates have expressed grave concerns about the effectiveness of public procurement audits and public audits in general. For instance the Auditor-General documents and reports on misappropriation of public funds, identical cases of such misappropriations have become perennial often within the same government departments and agencies (Ofori-Mensah and Rutherford, 2011). This is an indication that the audit activities and subsequent audit reports are not doing much to correct and prevent the weaknesses in the public sector institutions.

An audit conducted by Ssekana (2015) found that in UNRA, there was wastage of the funds, whereby, a big amount of money had been wasted due to badly implemented projects and others on abandoned projects. The report, however, did give the reasons that caused bad implementation and abandonment of those projects was through malpractices in procurement system. Millions were spent in UNRA by its committee on various projects could not be established after it failed to avail vouchers, bank statements, invoices and procurement documents.

1.2 Problem statement

Procurement auditing helps to determine whether proper procedures have been followed by a procurement entity in its procurement administration; ascertain whether activities of the entity are in accordance with relevant laws and regulations; determine whether proper records have been maintained with respect to the entity’s operations; assess the adequacy of rules and procedures applied in procurement operations with regard to the protection of public assets and property and; ensure that procurement activities of the entity are undertaken within the budgetary limits set by Parliament (Amon, 2008). UNRA has been facing several performance problems which include: wastage of the funds, whereby, a big amount of money had been wasted due to badly implemented projects and others on abandoned projects (Ssekana, 2015). All these have the ultimate effect of adversely affecting the national development efforts and the general performance of public institutions. It was upon this background that the study sought to investigate the effect of procurement auditing on performance of public institutions in Uganda specifically Uganda National Roads Authority.

1.3 Purpose of the study

To investigate the effect of procurement auditing on performance of public institutions in Uganda

1.4 Objectives of the study

1. i) To establish how procurement auditing is done in public institutions
2. ii) To identify the measures of performance in public institutions

• iii) To establish the relationship between procurement auditing and performance in public institutions

 1.5 Research questions

1. i) How is procurement auditing done in public institutions?
2. ii) What are the measures of performance in public institutions?

• iii) What is the relationship between procurement auditing and performance in public institutions?

1.6 Scope of the study

1.6.1 Content scope

The main focus of the study was put on investigating the effect of procurement auditing on performance of public institutions in Uganda. The study emphasized to establish how procurement auditing is done in public institutions, the measures of performance in public institutions and the relationship between procurement auditing and performance in public institutions.

1.6.2 Geographical scope

The study was undertaken at Uganda National Road Authority (UNRA) which is a government agency mandated to develop and maintain the national roads network, advise the government on general roads policy, contribute to the addressing of national transport concerns and perform certain other functions. It is located at plot 3-5 port Bell roads, UAP Nakawa Business Park on the road to Jinja. This institution was chosen because it is one of the institutions that use procurement auditing practices.

1.6.3 Time scope

The study focused on data from 2012-2016 in the life of UNRA and for better data comparison, the researcher used the data for 5years to get necessary information concerning the topic. The study in other wards took about 5months from May to September, 2017 of unceasing concentration and data collections as well as analysis.

1.7 Significance of the study

The thrust of this study is to find out what has been recorded in the literatures with regards to the process of public procurement audit and also to ascertain how public procurement audits are done in practice in some public institutions in Uganda. These will guide policy makers on how to improve on the procurement auditing in public institutions.

This study has potential benefits for academic purposes (i.e. those who want to know how public procurement audits are performed in public institutions in Uganda), the audit service; this will help the audit service to know whether audits are being performed as expected.

Experts in procurement audit can also use this study to offer expert opinion on the appropriate ways of performing public procurement audits.

1.8 Definition of Key terms

Procurement

Procurement refers to the acquisition of goods, services and works by a procuring entity using public funds.

Procurement audit

Procurement audit is the process of gathering and evaluating sufficient evidence on procurement activities to ascertain whether specified laid down procedures have been complied with or not.

Performance

Performance refers to the effectiveness of the organization in fulfilling its purpose.

Institution

This is commonly applied to customs and behavior patterns important to a society, as well as to particular formal organizations of government and public service

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter presents related literature and it will be presented in themes namely; how procurement auditing is done in public institutions, measures of performance in public institutions and the relationship between procurement auditing and performance in public institutions.

2.1 How procurement auditing is done in public institutions

Procurement commonly known as purchasing plays an important role in all businesses. The purchasing department is responsible for securing the resources needed by the institution. Also in charge of spending the funds, a well-run procurement department follows processes to ensure integrity each time a purchase is made. An audit reviews the procurement process to reduce fraud and offer suggestions for improvement. While audit procedures vary among institutions, there are several key procedures included in all procurement auditing (Alqam & Alrajabi, 2007).

It has been identified that though a number of developing countries have reformed their public procurement system, many of the systems remain weak and serve to squander scarce domestic and foreign resources (OECD, 2005). The need to cure this weak procurement system cannot be over stated, and one of the surest ways of doing that is by ensuring effective monitoring and auditing (Wittig, 2003).

Checking of accounting records; these records are examined to ascertain how true and fair a financial statement is and the extent to which government approved accounting practices have been complied with. To this end accounts should be verified to check if proper accounting records have been maintained and if all figures have been properly recorded. In addition, invoices issued by suppliers or contractors should be verified to ascertain if they are in agreement with the government approved format (Wittig, 2003).

According to Amos (2008), examination of files and documents; this is to establish if appropriate files have been maintained by the procurement entities, and whether these files are well documented and properly organised. Such examinations provide understanding with regards to procurement proceedings, views expressed at different levels of authorities, and duration of a procurement process. Careful examination of files and documents also helps auditors to identify risk areas of a procurement process so as to be able to plan appropriately and draw well informed conclusions;

Field observation and inspection; this entails visiting the entities‟ office or project site to acquaint oneself with actual situations at the field level. Field observation is expected to include activities such as interviews with officials, suppliers, contractors, and other stakeholders. It also requires carrying out physical verification, checking of site registers and other records, taking photograph, and conducting other appropriate checks as demanded by the prevailing situation (Armstrong, 2008).

Checking if relevant legal provisions have been complied with; the audit exercise is also used to ascertain the extent to which public procurement practices conform to the relevant legal and regulatory provisions. To this end the audit process entails checking if each action carried out is in accordance with established system, procedures and norms adopted by the procurement entity within the provision of the related laws and regulations (Office of the Auditor General- Nepal, 2005).

2.2 Measures of Performance

The organisational key performance indicators can be useful to monitor within the four walls of a company. They make it possible to monitor the development within one or more selected area in a data based way and together with the attention from management the measures often have a positive effect and be a driver in itself. GEM, (2004) defined Performance as the act of performing; of doing something successfully; using knowledge as distinguished from merely possessing it. However, performance seems to be conceptualized, operationalized and measured in different ways thus making cross-comparison difficult.

According to Halachmi & Bouckart (2005); argued that financial ratios are useful indicators of organization’s performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the organization’s financials to those of other organizations. In some cases, ratio analysis can predict future bankruptcy.

Profit is one of the most important performance indicators out there. Analyzing both gross and net profit margin to better understand how successful an organization is at generating a high return. Profits is a measure of the profitability of a venture after accounting for all costs. It is the actual profit without inclusion of working expense in the calculation of gross profit. In a survey of nearly 200 senior marketing managers, 91% responded that they found the “net profit” metric very useful. In accounting, net profit is equal to the gross profit minus overheads minus interest payable for a given time period (usually: accounting period). Profitability ratios offer several different measures of the success of the organization at generating profits. The gross profit margin is a measure of the gross profit earned on sales. The gross profit margin considers the organization’s cost of goods sold, but does not include other costs (Andersen, 2003).

Sales growth; taking accounts receivable and divide them by the number of total credit sales. The lower the number, the better the organization is doing at collecting accounts receivable. Running formula every month, quarter, or year guides to see how an organization is improving. Through analyzing which regions are meeting sales objectives, you can provide better feedback for regions that are underperforming (Andres, 2005).

Market share is the percentage of a market (defined in terms of either units or revenue) accounted for by a specific entity. In a survey of nearly 200 senior marketing managers, 67% responded that they found the “dollar market share” metric very useful, while 61% found “unit market share” very useful. Marketers need to be able to translate and incorporate sales targets into market share because this demonstrates whether forecasts are to be attained by growing with the market or by capturing share from competitors. The latter almost always are more difficult to achieve. Market share is closely monitored for signs of change in the competitive landscape, and it frequently drives strategic or tactical action. Increasing market share is one of the most important objectives of business. The main advantage of using market share as a measure of business performance is that it is less dependent upon macro environmental variables such as the state of the economy or changes in tax policy. However, increasing market share may be dangerous for makers of fungible hazardous products, particularly products sold into the United States market, where they may be subject to market share liability (Chen, 2008).

Liquidity is a measure of the extent to which an organization has cash to meet immediate and short-term obligations, or assets that can be quickly converted to do this. Liquidity ratios provide information about organization’s ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the organization. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio. The current ratio is the ratio of current assets to current liabilities (Chen, 2008).

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, it can re-invest it in the business (called retained earnings), and pay a fraction of the profit as a dividend to shareholders. Distribution to shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase Dividend policy ratios provide insight into the dividend policy of the organization and the prospects for future growth. Two commonly used ratios are the dividend yield and payout ratio. However, a high dividend yield does not necessarily translate into a high future rate of return. It is important to consider the prospects for continuing and increasing the dividend in the future. The dividend payout ratio is helpful in this regard (Singh and Davidson, 2003).

2.3 Relationship between procurement auditing and performance in public institutions.

An appropriate regulatory system is required to enhance transparency and non-discriminatory tendencies in order to achieve value for money. The law establishes the procurement methods to be applied, advertising rules and time limits, the content of tender documents and technical specifications, tender evaluation and award criteria, procedures for submission, receipt and opening of tenders, and the complaints system structure and sequence (PPOA, 2007). Ongoya (2005) points out that regulations lays the foundation for separation of powers between institutions managing public procurement and those checking on compliance. According to Manasseh (2007), auditors examine procurement transactions and documents, pursuant to the appointment terms and in compliance with relevant statutory requirements. Availability of sound legal framework offers boundaries and benchmarks against which audit is conducted objectively and effectively improves performance of public institutions.

Sound procurement auditing will play a critical role to achieve the development of public projects. Such amount is enormous to the economy and needs proper financial management to achieve the intended objectives. Key operating principle of the legal and regulatory framework is the promotion of value for money practices in public procurement and the maximization of economy, effectiveness, efficiency and compliance with regulations (Kimenyi, 2006).

The PPDA Act, 2005 stipulates that effective legal framework in itself prevents fraud (GOK, 2005). The supplies and management Practitioners Act, 2007 provides for professionalization of procurement practice which facilitates good record keeping. This facilitates timely audit and enhance cost efficiency in auditing. Sound procurement regulations are critical to effectiveness of public procurement audit. Before the PPDA (2005), there were big discrepancies and differences between the procurement practices applied in different public entities (Public Procurement Oversight Authority – PPOA, 2007).

Willes (2012) argues that the lack of a written agreement between organizations and the audit firm can contribute to substandard audits by public accountants. To foster sound and productive communication and to avoid misunderstandings, both parties should agree in writing on important audit-related matters. Make clear at the start – before bidders spend time assessing the nature of the job and estimating its costs – which an organization expects to sign a formal document as the culmination of the proposal process. Audit firms unwilling to commit to signing such a document are better avoided.

According to Manasseh (2007), auditors examine procurement transactions and documents, pursuant to the appointment terms and in compliance with relevant statutory requirements. Availability of sound legal framework offers boundaries and benchmarks against which audit is conducted objectively.

The compliance with statutory and professional requirements is vested with auditors. Auditors are not implying that financial statements are free from bias or they have been verified. The role of auditors was to examine the reasonableness of management’s justifications for its representations. Hence, auditors are required to form an opinion on whether the financial statements show a true and fair view. However, although auditors are required to form opinions, this does not necessarily mean that financial statements did show true and fair view. The concern now is whether the true and fair view is the message that auditors are trying to convey (Raghunandan, 2002).

During the course of an audit, original paper records owned by the area under review are sometimes needed as evidence to support findings. Ideally, copies should be made but on the rare occasion when original evidence is required, a copy of the record or a marker should be placed in the organization’s file and the original returned as soon as possible. In order to maintain audit trails the original records may have to remain within the internal audit records system until the audit is completed (e.g. when all actions have been agreed and completed by management). These documents need to be held securely when in the custody of internal audit. Where digital material is concerned, access to content can be given without custody and relevant metadata examined and, if necessary, the record extracted. The integrity of information and records being used by internal audit must be maintained and a clear distinction made between the records used and those created by the audit service (Willes, 2012).

According to Public Procurement Oversight Authority (PPOA, 2008), an organization’s ability to function effectively and give account of its actions will be undermined if sound records management principles are not applied. Procurement records play a significant role as evidence of purchases of goods and services. Unorganized or otherwise poorly managed records mean that an organization does not have ready access to authoritative information, to support sound decision making or delivery of programs and services. This factor contributes to difficulties in retrieval and use of procurement records efficiently and therefore inability to carry out the audit process.

Sound records management is a critical component for good governance, effective and efficient administration, transparency, accountability and delivery of quality services to the citizens. Good record keeping practices contribute to the following: creation and maintenance of accurate and reliable information; easy accessibility to information; transparency and accountability; procurement units and procuring entities performing their functions efficiently; availability of authentic, reliable and tangible records to fight corruption; and resources being matched to objectives (Mannesh, 2007).

An independent audit committee enhances the independence of external auditor, and ensures that auditor is free from management influence. The committee can conduct informal and private meetings without the presence of the company’s management to encourage the external auditor to be transparent on material issues at an early stage (Wee, 2002).

Public officials should always behave ethically and fairly in their business undertakings. Ethical behavior supports openness and accountability in a procurement process and gives suppliers confidence to participate in the Government marketplace. Ethical behavior can also reduce the cost of managing risks associated with fraud, theft, corruption, and other improper behavior; and enhance confidence in public administration (Karanja and Mugo, 2010).

A procurement audit process that conforms to the expected standards of integrity, uprightness and honesty is one in which clear procedures are consistent with Government policies and legislation are established, understood and followed from the outset. These procedures need to consider the legitimate interests of public and ensure that all suppliers are treated equitably (Wee 2002). An important and effective way to maintain ethics awareness in agencies is to provide training for employees.

Ethics training and seminars can be provided, along with training in more specific areas, such as procurement procedures, record keeping, records management, and accountability and administrative law. Regular reviews or audits of procurement processes can be done to ensure probity is being considered and achieved (Amos and Weathington, 2008).

Records form the foundation of good and accountable administration. Unorganized and poorly managed records lead to inability to access information needed to support policy formulation, implementation and delivery of programs and services. Procurement records provide the controls that document how a procurement action was undertaken, and protects essential audit trails. Disorganized records mean reviewers and auditors take an excessive amount of time to locate needed records. A well managed procurement records management system will enable the physical and logical control of records and prevent unauthorized access, tampering, loss, misplacement or destruction of documents. Proper records management is essential for ensuring transparency and probity in the procurement and financial management. Records are important for accountability and are a powerful deterrent against procurement and financial malpractices. Weak records management practices mean officials cannot be held accountable for their actions (PPOA, 2008).

Where organization have organized their performance auditing separately from financial auditing, it is quite acceptable that personnel selected for performance auditing have different backgrounds and skills than those selected for financial auditing. To meet the quality requirements specified in the Auditing Standards, the SAI should have a program to ensure that its staff maintains professional proficiency through continuous education and training. A key factor in the development process is learning through practical auditing work INTOSAI, (2001). Managerial training recognizes that demonstrated skill at auditing does not necessarily equip one to manage an ISA or supervise an audit team.

The required new skills, such as operational and strategic planning, budgeting for time and money, etc. grow more extensive as one moves to increasingly senior positions within the organization. Continuing education ensures that auditors routinely undergo training to continuously maintain and enhance their professional capabilities. A commitment to life-long learning should be encouraged (Wee, 2002).

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents the research methodology which include; research design, study area, study population, sample size, sampling method, data type and sources, data collection methods and instruments, data collection procedure, data quality control, data analysis, data presentation and limitations and possible solutions of the study

3.1 Research design

Thornhill et. al (2003) defined a research design as a general plan on how the researcher plans to answer the research question. The research design was descriptive research design. It is deemed as the best approach with regard to collection of facts as they are on the ground without any manipulation of the variables under study. It concurs with Kombo, (2006) when he argued that a descriptive study design could be used when the emphasis is determination of the extent to which a problem is influenced by the variables under study. In this case, the study will sort to investigate the effect of procurement auditing on performance of public institutions. According to Baron (2011), qualitative research design helps to capture qualitative data, based on qualitative aspects that may not be quantified. It aids in discovering the motives and desires or what people think and how they feel about a given subject or situation. This method involves an unstructured approach to inquiry and allows flexibility in all aspects of the research process. It is more appropriate to explore the nature of a problem, issue or phenomenon without quantifying it. While quantitative research is the systematic empirical investigation of observable phenomena via statistical, mathematical or computational techniques (Mugenda & Mugenda, 2003). According to Silverrman (2001), quantification gives greater confidence in the accuracy of conclusions derived from qualitative data; and it gives the reader a chance to think through the data on their own to cap on the researcher’s findings. The research used this method because it produces information only on the particular cases studied.

3.2 Study Area

The study was undertaken at Uganda National Road Authority (UNRA) which is a government agency mandated to develop and maintain the national roads network, advise the government on general roads policy, contribute to the addressing of national transport concerns and perform certain other functions. It is located at plot 3-5 port Bell roads, UAP Nakawa Business Park on the road to Jinja. This institution was chosen because it is one of the institutions that use procurement auditing practices.

3.3 Study population

The population included internal auditors, PDU, top management and other departments.

3.4 Sample size

The study used a sample size of 40 respondents including internal auditors (05), PDU (15), top managers (05) and other departments (15) because it was enough for the study to obtain reliable information. In addition, it helped the researcher to finish her study in time.

Table 3.1: Showing Sample size

3.5 Sampling method

The study also employed purposive sampling technique. It involves convenience and judgemental sampling. Under judgemental sampling, the researcher chose the sample based on who the researcher thought would be appropriate for the study while convenience sampling rose where the population elements are selected for inclusion in the sample based on the ease of access. The researcher used purposive sampling because it saves time, money and effort. It is flexible and meets multiple needs and interests. It enables researchers to select a sample based on the purpose of the study and knowledge of a population.

3.6 Data type and sources

Data was collected from both primary and secondary source.

3.6.1 Primary data

Primary data was collected by use of questionnaires and interview guide.

3.6.2 Secondary Data

Secondary data was collected from published journals, reports, text books, and company records.

3.7 Data collection methods and instruments

3.7.1 Questionnaire method

The researcher used the questioning method whereby he drafted to respondents structured questions. This method was used because some respondents may have no time to sit down and answer during interviews.

A questionnaire guide was used and this was in form of close ended in nature and this allowed the study respondents to fill the questionnaire in the study field. The questionnaire method of data collection was used because of being cheap and that the method collects responses with minimum errors and high level of confidentiality.

3.7.2 Interview method

An interview is a conversation where questions are asked and answers are given. Interview refers to a one-on-one conversation with one person acting in the role of the interviewer and the other in the role of the interviewee.

An interview guide was drafted with a set of questions that the researcher asked during an interview and this was structured (close ended) in nature. Interview guide was used by the study since the methods helps in the collection of more data as it allows the interaction of both the researcher and the respondents.

3.8 Data collection procedure

The study observed all procedures followed in research. Using the letter of introduction obtained from the Research Coordinator, School of management and Entrepreneurship, the researcher was introduced to every respondent reached at, fully explaining the purpose of research. After getting their consent, she set a program with the respondents on when the questionnaires was administered and date for the interview sessions was set. The researcher also built the confidence of the respondents by assuring them that their views were confidential and was used only for academic purposes.

3.9 Data quality control

There are no scientific principles which would guarantee a valid and reliable research instrument, but there are ways in which this can be pursued. First, the items in the research instruments should be based on prior research whenever possible. Due to this, in this study most of the questions were based on prior research. Secondly, the questionnaires were pre-tested (Malhotra & Birks 2007).

3.9.1 Validity

In order to ensure validity the questionnaire was made clear and understandable, the questionnaire was first discussed by the researcher with the supervisor; this included careful choice of words, order and structure of questions plus pre-testing was done amongst selected categories of respondents. After receiving the questionnaires, manual editing was done, followed by coding. Frequency count of different provisions was done and this gave the number of occurrences and percentages out of total occurrences for different responses. And lastly simple conclusions were drawn from the given percentages and numbers.

3.9.2 Reliability

The researcher ensured that data is only collected from the concerned and knowledgeable respondents in the field of study. When conducting research, the researcher got reliable data to minimize statistical errors.

3.10 Data analysis

3.10.1 Qualitative Data

Data processing involved editing raw data to detect errors and omissions, classifying data according to common features, and tabulation to summarize and organize it. Data analysis involved the qualitative approach of identifying the major themes arising respondents’ answers; assigning of codes to the themes: classification of the themes under the main theme; and integrating the responses into the report in a more descriptive and analytical manner.

3.10.2 Quantitative Data

Manual editing of questionnaires was done to eliminate errors. After coding, tabulation was done to clearly present various responses and the interpretation. Frequencies and percentages were used to portray statistics used to analyze and interpret the findings of the study. Data analysis was done using; correlation analysis to establish the relationships that exist between the variables. For ease of analysis, procedures within Statistical Package for Social Sciences (SPSS) were used.

3.11 Data Presentation

Presentation of data involved use of tables, pie-charts and graphs that were generated from the questions relevant to the study variables. Interpretation and discussion of the results was done as the researcher explained the strength of the study variables basing on the frequencies and percentages, charts and graphs.

3.12 Limitations and possible solutions of the Study

The study was faced with a problem of not finding all respondents in the study area especially the employees who go to field as a group. The researcher however arranged with them to fix for her an appropriate time in order to collect reliable and valid information from them for the study.

The study also was expensive in terms of stationary. However the researcher mobilized funds from her friends and family members for the study to be completed successfully in time with the help of her supervisor.

The researcher further faced a problem of some respondents not providing information for the study as information relating to the study variables, however to this, researcher explained to them that the information was only for the academic purpose while making them to understand the study variables.

CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.0 Introduction

This chapter consists of the presentation, discussion and analysis of the findings from the study. It provides results which were analyzed from raw data collected in the field. It is in two categories; the first one represents the demographic characteristics of the respondents while the other category represents the responses of the questions that were asked concerning research objectives. The analysis was done and data is represented in form of tables, graphs and pie-charts.

4.1 Overview of the Study

The study was carried out at Uganda National Roads Authority. Questionnaires and interview guides were designed to obtain data from a sample size of 40 was selected. The findings of the study were presented in accordance to the study objectives.

4.1.1 Response Rate

A sample of 40 respondents was selected using purposive sampling methods. Questionnaires, and interview guides were administered to them for data collection. Among the 40 respondents, all of them returned the questionnaires, giving a response rate of 100%.

4.2 Demographic Characteristics of the Respondents

The background characteristics compiled show the gender, age, the education level and period of work. This data was analyzed and is presented below;

4.2.1 Findings on gender of the respondents

Figure 4.1: Gender of Respondents

Source: Primary Data

From figure 4.1 above, it’s indicated, majority of respondents (52%) were males and the females were only 48% of the total respondents. This implies that men were found to be active in the study under investigation. However, both ideas were relevant for the study. This indicates that the institution employees more males than females in procurement and stores department.

4.2.2 Findings on age of respondents

Table 4.1: Age of Respondents

Source: Primary Data

Table 4.1 shows that, the majority (40%) of the respondents were predominantly between the ages of 31 and 40 years. A significant percentage (25%) of the respondents were in the age bracket of 41 and 50years. The remaining 20% of the respondents were in the age bracket of 18 and 30years and another 15% of them were in the age group of 50 and above. 31-40years had the highest number because these are the most active age group hence they are actively involved in management in the organizations, therefore they had rich experiences and could also appreciate the importance of the study.

4.2.3 Findings on level of education

Table 4.2: Level of education

Source: Primary Data

The table above shows that most of the interviewed respondents (55%) were of degree holders, 30% were of Certificate/Diploma and only 15% of the study respondents were of A’ level while none of the respondents had a postgraduate nor of O’ level therefore, provided information based on the academic knowledge, skills and experience they have gain in management. This shows that company employees are qualified and competent to execute their duties and also appreciated the study under investigation.

4.2.4 Findings on period of work   

Table 4.3: Period of work   

Source: Primary Data

Findings in table above, it was revealed that majority (45%) of respondents have worked at organization between 4years and above, followed by 1-3 years  with 30% and less than 1year with (25%). This implies that the majority of the employees are experienced in the activities of the firm and they act as the role models for the newly recruited staff members with regard to study.

4.2.5 Findings on category of the department

Table 4.4: Category of the Department

Source: Primary Data

Table 4.4 shows that majority of the respondents 16(40%) are from procurement department, 25% from store department, (12.5%) were from finance department and top management, only 10% of the respondents were from other department. This implies that the study got information from most departments which was sufficient in regards to the topic under study since these departments deal directly on procurement activities.

4.3 Findings on how procurement auditing is done

4.3.1 Why procurement auditing is carried out in public institutions

Objective one was to establish how procurement auditing is done in public institutions. Respondents were asked to show their level of agreement on why procurement auditing is carried out in public institutions. The results were obtained and are presented below;

4.3.1.1 Findings on why procurement auditing is carried out in public institutions

Table 4.5: why procurement auditing is carried out in public institutions

Source: Primary Data

Results show that majority of the respondents 31 (77.5%) strongly agree while 9 (22.5%) agreed with to ascertain if due process was followed. No respondents were not sure, disagreed or strongly disagreed. This implies that majority of the respondents agreed therefore, procurement auditing has been done to ensure that activities and procedures are done according to the rules which has improved procurement performance in UNRA.

Results in table above show that, majority of the respondents 18 (45%) strongly agree, 27% (11) of them agree while 17.5% of the study respondents strongly disagree and only 10% (4) disagree with improve internal control. No respondents were not sure. This implies that procurement auditing is carried in UNRA to improve internal control in the institution and as a result, general organizational performance has been improved.

Majority of the study respondents 20 (50%) strongly agree with promote accountability, 14 (35%) of them agree while only 15% (6) disagree. No respondents were not sure or strongly disagreed. This implies that procurement auditing is carried in UNRA to promote accountability in the operations of the institution. This has improved the performance of UNRA in terms of accountability an has minimized corruption cases.

Results show that 18 (45%) of the respondents strongly agreed with ensure that laid down procedure is followed and to ensure value for money, closed followed by 42.5% of them agreed and only 12.5% of them disagreed. The majority of the respondents were positive implying that procurement auditing is done in UNRA to ensure that laid down procedure is followed and to ensure value for money. Meaning UNRA utilizes procurement auditing to ensure value for money.

According to the table above, indicate that majority of the study respondents (55%) strongly agree, while 27.5% of them agreed, 12.5% of the respondents were not sure with it is a laid down procedure/ to ensure fairness, transparency, accountability, due process/prevent and detect procurement fraud and irregularities. 2.5% of the respondents disagreed and another 2.5% of the respondents strongly disagreed. This implies that in UNRA, procurement auditing has laid down procedure/ to ensure fairness, transparency, accountability, due process/prevent and detect procurement fraud and irregularities and as a result improved performance has been realized at UNRA.

4.3.2. Activities involved in procurement auditing in public institutions

The study also sought to identify the activities involved in procurement auditing in public institutions. Results were obtained and are presented below;

4.3.2.2 Findings on activities involved in procurement auditing in public institutions

Table 4.6: Activities involved in procurement auditing in public institutions

Source: Primary Data

Results in table above show that majority of findings (57.5%) agreed with auditors notifying procurement entity of an impending audit while 30% of them strongly agreed. 5% of the respondents were not sure, another 5% of them disagreed and only 2.5% strongly disagreed. This implies procurement auditing involves auditors notifying procurement entity of an impending au it in UNRA. Therefore, procurement auditing has several reasons why it’s carried out in UNRA.

Table 4.6 above shows that 47.5% of the respondents agreed with meeting of management and relevant stakeholders of the procurement entity with the audit team to clarify audit objectives, 17.5% of them strongly agreed and 15% of them disagreed. 10% of the respondents were not sure and another 10% strongly disagreed. The findings implied that another activity that procurement auditing involves is the meeting of management and relevant stakeholders of the procurement entity with the audit team to clarify audit objectives. This activity ensures that procurement auditing is carried out transparently.

The table above shows results on actual performance of audit and 55% of the study respondents which is the majority agree, 17.5% of them strongly agree while 15% of the respondents strongly disagree, 7.5% of them disagree and 5% of the respondents were not sure. However, majority of the respondents were on a positive side thus UNRA carries out actual audit. This means that procurement auditing is carried out at UNRA.

Study respondents (57.5%) strongly agree with exit conference, while 22.5% of them agree, 7.5% of the respondents were not sure, 5% of them disagree and another 7.5% of the respondents strongly disagreed. This implies that exit conference is carried out in UNRA and as a result as ensured proper process of procurement auditing.

Results show that majority of the respondents (52.5%) strongly agreed with subsequent presentation of audit report by auditors, 37.5% of them agree. 5% of the study respondents were not sure, 2.5% disagree and another 2.5% of the respondents strongly disagree. This implies that Subsequent presentation of audit report by auditors at UNRA. Meaning that at UNRA, actual procurement auditing is carried out and has improved performance.

One of the respondents indicated at least five main stages for the auditing activities namely: auditors notifying procurement entity of an impending audit; meeting of management and relevant stakeholders of the procurement entity with the audit team to clarify audit objectives; actual performance of audit; exit conference; and subsequent presentation of audit report by auditors.

Other responses on the main activities involved in the audit exercise as indicated by respondents include: interviews; study of relevant procurement documents; discussions with officers in charge of procurement and other related activities; and in some instances completion of questionnaires.

4.3 Measures of performance in public institutions

The study sought to examine the measures of performance in public institutions. Results were obtained and are presented below;

Table 4.7: Measures of performance in public institutions

Source: Primary Data

Results as shown in table above indicate that most of respondents (55%) strongly agree with financial ratios can be used to analyze trends, 40% of them agree. 5% were not sure, no respondents disagreed or strongly disagreed. This implies that financial ratios can be used to analyze trends and can predict future bankruptcy in public institutions. This has been used to ensure that future predicts has been made to avoid uncertainties.

Majority of the respondents (70%) strongly agree with liquidity ratios help to meet its short-term financial obligations while 30% of them agree. No respondents were not sure, disagreed or strongly disagreed. This implies that the ability to meet short-term financial obligations is an indicator of performance in public institutions.

Also, most (60%) of the respondents strongly agree with receivable turnover measures the sales growth while the 40% of them agree. No respondents were not sure, disagreed or strongly disagreed. Since all respondents were positive implies that sales growth in organization is an indicator of performance.

Table above indicates that majority of the respondents (35%) strongly agree with financial leverage ratios provide an indication of sales growth while 30% of them agree. 20% of the respondents were not sure, 10% disagreed and 5% of the respondents strongly disagreed. This implies that financial ratio is an indicator of performance in an organization.

Results also show that, majority of the respondents (40%) strongly agreed with profitability ratios offer several measures of organization’s profits while 25% strongly agree. 35% of the respondents were not sure, disagreed or strongly disagreed. Most response was positive implying that profitability ratios have been used in UNRA to measure organization’s profits.

Finally, majority (80%) of the respondents strongly agrees and 20% agree with dividend policy ratios provide insight into prospects for future growth. No respondents were not sure, disagreed or strongly disagreed. This implies that having prospects for future growth is an indicator of performance.

4.4. Relationship between procurement auditing and performance in public institutions

The study also sought to examine the relationship between procurement auditing and performance in public institutions and results show that;

Table 4.8: Relationship between procurement auditing and performance in public institutions

Source: Primary Data

Results also show that, majority of the respondents (52.5%) strongly agreed with Transparency is allowed when books are audited while 47.5% agree. No respondents were not sure, disagreed or strongly disagreed. All the responses were positive implying that transparency has been allowed in UNRA when books are audited.

Majority (80%) of the respondents strongly agrees and 20% agree with number of corruption cases have reduced in public institutions. No respondents were not sure, disagreed or strongly disagreed. This implies that the number of corruption cases have reduced in UNRA due to procurement auditing.

Table above indicate that most (60%) of the respondents strongly agree with set procedures are followed which ensures transparency, 40% of them agree. No respondents were not sure, disagreed or strongly disagreed. Majority of the respondents had a positive response implying that in UNRA set procedures have been followed which ensured transparency in the operations of the institution.

Also 85% of the respondents strongly agree with Procurement auditing has improved cost efficiency while 15% of them agree. No respondents were not sure, disagreed or strongly disagreed. This implies that in most cases, procurement auditing has improved cost efficiency in UNRA.

Lastly, majority of the respondents (95%) strongly agree with goods are procured in accordance with set rules while 40% of them agree and No respondents were not sure, disagreed or strongly disagreed.. therefore, UNRA in most has procured goods in accordance with set rules and this has improved performance.

4.5 Response from the interview guide

Study respondents were required to indicate why procurement auditing is done and results indicate that respondents lamented that procurement auditing helps to improve the internal control systems in the organization as improved transparency is enhanced. One respondent said to ensure that standards in procurement activities are followed with the set procedures. Others indicated to promote accountability in the procurement process so as to ensure organizational efficiency.

The study also sought to identify the activities involved in procurement auditing and respondents observed that actual performance of procurement audit is done.

One of the respondents said that during the process, there is meeting of management and relevant stakeholders of the procurement entity with the audit team to clarify audit objectives.

The study also sought to identify the measures of performance and study respondents observed that at the organization, financial ratios can be used to analyze trends in the future operations of the organization. Others indicated that liquidity ratios have helped to meet its short-term financial obligations in the organization.

Respondents observed that the presence of internal audit units in the institutions of this study implies that these institutions have complied with the Internal Audit Agency. This has improved performance in the institutions as a result.

CHAPTER FIVE

DISCUSSION, SUMMARY, CONCLUSION, RECOMMENDATION AND AREAS FOR FURTHER STUDIES

5.0 Introduction

This chapter presents the discussion, summary of the findings, conclusion, recommendation and areas for further studies presented in the previous chapter. The discussion focuses on the finding in relation to the objective of the study to achieve.

5.1 Discussion of major findings

5.1.1 How procurement auditing is done

Study findings in table 4.6 also indicate that the activities involved in procurement auditing included; 90% of the respondents cited with subsequent presentation of audit report by auditors. This implied that due to the need for effective procurement process, procurement auditing is carried in UNRA. This is in line with (Alqam & Alrajabi, 2007) who argued that procurement commonly known as purchasing plays an important role in all businesses. The purchasing department is responsible for securing the resources needed by the institution. Also in charge of spending the funds, a well-run procurement department follows processes to ensure integrity each time a purchase is made hence an audit reviews the procurement process to reduce fraud and offer suggestions for improvement.

Also Table 4.6 observed that 87.5% of the respondents agreed with auditors notifying procurement entity of an impending audit. This implied that the organization always gets notifications on when the process is to start.

Results in Table 4.6 indicated that 80% of the respondents cited exit conference. This implied that majority of respondents agreed that there are several activities that procurement auditing involves. These findings concur with (Wittig, 2003) who cited that checking of accounting records; these records are examined to ascertain how true and fair a financial statement is and the extent to which government approved accounting practices have been complied with. To this end accounts should be verified to check if proper accounting records have been maintained and if all figures have been properly recorded. In addition, invoices issued by suppliers or contractors should be verified to ascertain if they are in agreement with the government approved format.

From findings, 65% of the respondents agreed with meeting of management and relevant stakeholders of the procurement entity with the audit team to clarify audit objectives. This agrees with (2008) who argued that examination of files and documents; this is to establish if appropriate files have been maintained by the procurement entities, and whether these files are well documented and properly organised. Such examinations provide understanding with regards to procurement proceedings, views expressed at different levels of authorities, and duration of a procurement process. Careful examination of files and documents also helps auditors to identify risk areas of a procurement process so as to be able to plan appropriately and draw well informed conclusions;

5.1.2 Measures of Performance in Public institutions

Table 4.7 in chapter four revealed that receivable turnover measures the sales growth and this is an indicator of performance with 100% of the respondents who were in support. The finding is in agreement with Andres (2005) noted that taking accounts receivable and divide them by the number of total credit sales. The lower the number, the better the organization is doing at collecting accounts receivable. Running formula every month, quarter, or year guides to see how an organization is improving. Through analyzing which regions are meeting sales objectives, you can provide better feedback for regions that are underperforming.

Also table 4.7 in chapter four revealed that 100% of the respondents were in support with liquidity ratios provide information about organization’s ability to meet its short-term financial obligations. This is in agreement with (Chen, 2008) who noted that liquidity ratios provide information about organization’s ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the organization. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio. The current ratio is the ratio of current assets to current liabilities.

Table 4.7 in chapter four revealed that financial ratios can be used to analyze trends and can predict future bankruptcy with 95% of the respondents who were in support. This is in line with Halachmi & Bouckart (2005) who argued that financial ratios are useful indicators of an organization’s performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the organization’s financials to those of other organizations. In some cases, ratio analysis can predict future bankruptcy.

Table 4.7 in chapter four revealed that 65% of the respondents were in support with profitability ratios offer several measures of organization’s profits which is an indicator of organization performance. This is in line with Andersen (2003)analyzing both gross and net profit margin to better understand how successful an organization is at generating a high return. The gross profit margin is a measure of the gross profit earned on sales.

5.1.3. Relationship between procurement auditing and performance in public institutions

Results in table 4.8 indicated that as a result of procurement auditing, 100% of them cited transparency is allowed when books are audited, number of corruption cases have reduced in public institutions, set procedures are followed which ensures transparency, improved cost efficiency and goods are procured in accordance with set rules. This implied that as a result of procurement auditing, performance of public institutions has been realized. This is in agreement with (Kimenyi, 2006) argued that sound procurement auditing will play a critical role to achieve the development of public projects. Such amount is enormous to the economy and needs proper financial management to achieve the intended objectives. Key operating principle of the legal and regulatory framework is the promotion of value for money practices in public procurement and the maximization of economy, effectiveness, efficiency and compliance with regulations.

Results in table 4.8 revealed that 100% of the respondents cited number of corruption cases have reduced in public institutions. This implied that procurement activities are executed at the organization. This is in agreement with Ongoya (2005) who points out that regulations lays the foundation for separation of powers between institutions managing public procurement and those checking on compliance. The law establishes the procurement methods to be applied, advertising rules and time limits, the content of tender documents and technical specifications, tender evaluation and award criteria, procedures for submission, receipt and opening of tenders, and the complaints system structure and sequence (PPOA, 2007).

Findings in table 4.8 indicated that 100% of the respondents cited that procurement has led to cost efficiency. This aligns with Manasseh (2007), auditors examine procurement transactions and documents, pursuant to the appointment terms and in compliance with relevant statutory requirements. Availability of sound legal framework offers boundaries and benchmarks against which audit is conducted objectively and effectively improves performance of public institutions.

5.2 Summary

The study found out that procurement auditing is done to ascertain if due process was followed, to ensure fairness, transparency, accountability, due process/prevent and detect procurement fraud and irregularities, promote accountability, to ensure that laid down procedure is followed and to ensure value for money and to improve internal control in the institution. The activities involved in procurement auditing included auditors notifying procurement entity of an impending audit, meeting of management and relevant stakeholders of the procurement entity with the audit team to clarify audit objectives, actual performance of audit, exit conference and subsequent presentation of audit report by auditors.

The performance measures included ability to predict future bankruptcy, ability to meet short-term financial obligations, sales growth, and organization’s profits

And as result of procurement auditing, transparency is allowed when books are audited, number of corruption cases have reduced in public institutions, set procedures are followed which ensures transparency, improved cost efficiency and goods are procured in accordance with set rules.

5.3 Conclusion

The processes involved in procurement audits as identified in this study appear to be rather reactive instead of being pre-emptive and preventive. The responses provided did not indicate measures such as vetting of contracts by auditors for propriety before the contracts are awarded; periodic assessment of risks associated with procurement contract and alerting relevant agencies to prevent losses; and empowering the internal audit units to adopt creative means of detecting and preventing procurement fraud, waste, abuse, irregularities, and violations of regulations. The best way of auditing procurement is by preventing procurement irregularities rather than reporting them.

5.4 Recommendations

Based on the study findings the following recommendations are made.

The Audit Service should on regular basis review its audit techniques to ascertain whether their intended purposes are being achieved effectively and efficiently.

They should always devise means of being ahead of procurement fraudsters, bid riggers; those who engage in conflict of interest, and other corrupt procurement practices. This will enhance efficiency, economy, effectiveness in procurement, integrity and accountability, as well as ensure that taxpayers money is spent the best interest of the public.

The government should employ professional auditors to undertake public procurement audit and facilitate their continuous training to ensure they are well equipped with necessary technical skills. These will ensure effectiveness of public procurement audit.

Through legislation, the government should enact comprehensive laws to regulate procurement functions and outline clear policy and procedures to be followed by procurement entities. These will offer auditors platforms to benchmark and objectively base their audit findings and give the audit report validity which is an important ingredient of effective audit.

5.5 Areas for further studies

The study recommends the following areas for further studies;

• The effect of internal control systems on procurement performance
• To determine other factors affecting performance in public institutions

REFERENCES

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APPENDICES

APPENDIX I: QUESTIONNAIRES FOR MANAGEMENT AND STAFF

Dear respondent,

My name is Nakibirango Rebecca and as partial requirement of the award of Bachelor degree of science in Procurement and Logistics Management. I am carrying out a study on “the effect of procurement auditing on performance of public institutions, a case study of Uganda national Roads Authority”.  You have been selected to provide vital information that will facilitate the study. Your response will be treated with utmost confidentiality. Thank you very much for your valuable time.

Section A: Background information about the respondent

SECTION B: HOW PROCUREMENT AUDITING IS DONE IN PUBLIC INSTITUTIONS

5 Why is procurement auditing carried out in public institutions? In this section, tick the best option by using strongly Agree (SA), agree (A), Not Sure (NS), Disagree (D), Strongly Disagree (SD).

6. What activities are involved in procurement auditing in public institutions? In this section, tick the best option by using strongly Agree (SA), agree (A), Not Sure (NS), Disagree (D), Strongly Disagree (SD).

SECTION C: MEASURES OF PERFORMANCE IN PUBLIC INSTITUTIONS

7. In this section, please your level of agreement with statement on the measures of performance. Please tick (√) the appropriate alternative

Key; Where SA-strongly agree, A- agree, NS- Not sure, SD-strongly disagree D-disagree

SECTION D: RELATIONSHIP BETWEEN PROCUREMENT AUDITING AND PERFORMANCE IN PUBLIC INSTITUTIONS

In this section, please your level of agreement with statement on the relationship between public auditing and performance of public institutions. Please tick(√) the appropriate alternative

Key; Where SA-strongly agree, A- agree, NS- Not sure, SD-strongly disagree D-disagree

THANK YOU FOR YOUR TIME

APPENDIX II: INTERVIEW GUIDE

My name is Nakibirango Rebecca and as partial requirement of the award of Bachelor degree of science in Procurement and Logistics Management. I am carrying out a study on “the effect of procurement auditing on performance of public institutions, a case study of Uganda national Roads Authority”.  You have been selected to provide vital information that will facilitate the study. Your response will be treated with utmost confidentiality. Thank you very much for your valuable time.

QUESTIONS

1. i) How long have you worked in UNRA?
2. ii) Which department are you attached to?

• iii) Why is procurement auditing done in UNRA?

1. iv) What activities are involved in procurement auditing in UNRA?
2. v) What are the measures of performance in UNRA?
3. vi) What is the relationship between procurement auditing and performance in UNRA?

Thank you for your time