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INTERNAL CONTROLS AND NON-GOVERNMENTAL ORGANISATION FUNDING

A CASE OF SEND A COW UGANDA

Contents

INTERNAL CONTROLS AND NON-GOVERNMENTAL ORGANISATION FUNDING.. 1

A CASE OF SEND A COW UGANDA.. 1

BY.. 1

DECLARATION.. 2

APPROVAL. 3

DEDICATION.. 4

ACKNOWLEDGEMENTS. 5

CHAPTER ONE. 8

INTRODUCTION.. 8

1.0 Introduction. 8

1.2 Background to the study. 8

1.2.1 Historical Background. 8

1.2.3 Conceptual Background. 12

1.2.4 Contextual Background. 12

1.3 Statement of the problem.. 13

1.4 General objective. 14

1.4.1 Specific objectives. 14

1.5 Research questions. 15

1.6 Hypotheses of the study. 15

1.7 Conceptual framework. 15

Source: Adapted and modified from Folger (2020) and COSO (2009) by the researcher. 16

1.8 Significance of the Study. 17

1.9 Justification of the study. 17

1.10 Scope of the study. 18

1.11 Key operational terms and definitions. 18

CHAPTER TWO.. 19

LITERATURE REVIEW… 19

2.0 Introduction. 19

2.1 Theoretical review.. 19

2.2 Review of related literature. 21

2.3 Summary of the literature. 26

CHAPTER THREE.. 27

RESEARCH METHODOLOGY.. 27

3.0 Introduction. 27

3.1 Research design. 27

3.2 Target population. 27

3.3        Sample size and selection. 28

3.4 Sampling techniques and procedures. 29

3.4.1 Probability sampling. 29

3.5.1         Questionnaire Survey. 30

3.5.2         Interviews. 30

3.6        Data Collection Instruments. 31

3.6.1         Questionnaire. 31

3.6.2         Interview Guide. 31

3.7        Quality Control of Data collection. 32

3.7.1 Validity. 32

3.7.2 Reliability. 32

3.8        Procedure of Data Collection. 33

3.9        Data Analysis Techniques. 33

3.10.1      Quantitative Data Analysis. 34

3.11     Measurement of study variables. 34

APPENDIX I:   QUESTIONNAIRE.. 39

CHAPTER ONE

INTRODUCTION

1.0 Introduction

This will cover the background of the study, the problem statement, the purpose and objectives, the research questions and hypotheses, conceptual framework, significance, scope, justification, and the operational definition of terms.

This will examine the relationship between Internal Controls on NGO funding in Uganda: A case of Send-A-Cow. Internal Control is the independent variable while funding is the
dependent variable. Internal control is a dynamic integral process that is constantly adapted by organizations to realize performance; therefore, individuals are engaged in the internal control process to address the issue of activities, risk, and information systems among others thereby offering reasonable assurance of better performance

1.2 Background to the study

1.2.1 Historical Background

The emergence of the NGOs world over has been brought by the deficiencies in government’s role in providing utmost resource and services to the people. Recent years have seen a rising involvement of non-governmental organizations (NGOs) in the development process (MUITHYA, 2021) This phenomenon is partly a consequence of dissatisfaction with government performance in the delivery of public services. As a result, (Wandera et al, 2017) stated that international NGOs as well as bilateral and multilateral donors increasingly seek to channel development funding through local NGOs. Consequently, the NGO sector has grown rapidly in developing countries. Sub-Saharan Africa has continuously battled a lack of funding, resources, unqualified teachers, outdated instruction methods, and inadequate infrastructure.

In Africa, NGO establishments were majorly attributed to the alleviation of poverty, fighting political insurgence, and supporting many more vulnerable groups justifying the fact that most if not all NGOs rely on money from a variety of sources, including individual donors, foundations, corporations, and governments and often what these can and cannot do is tied to where the money comes from.

However, their increase was attributed to the existence of several donors and other well-wishers from the developed countries including multi-national agencies. Evidence suggests that the strong growth and delivery of services by NGOs are attributed to the existence of controls to manage their resources (Wallace, et al, 2007). (Rafindadi et al, 2019) (“The Impact of Internal Control System on the Financial Accountability of Non-Governmental organisations in Nigeria: Evidence from the Structural Equation Modelling,” 2019). Several NGOs in developing countries including Uganda, Kenya, Nigeria, and Zimbabwe have recently implemented new NGO monitoring or regulatory frameworks.  NGOs have been seen to be organizations that are more charitable where they tend to operate with a philanthropic purpose shared among members and promoters.  Most of the financial support or funding to such NGOs was done to ensure that services were provided to the beneficiaries (Muli et al, 2022)

The NGOs in Uganda have been operating since the 1970s with the intension of delivering services to the people. The NGOs in Northern Uganda whose major intention was to deliver the people from the Lords’ Resistance Army rebels continue to perform poor with characteristics of failure to deliver services effectively, poor work man ship, low levels of client recruitment and failure to attain the set goals and objectives ( NGO Forum, 2013). This poor performance has been attributed to finding where some NGOs report that poor funding account for the low levels of NGOs performance in Northern Uganda, the African youth network and War child Canada whose major objectives are to recover the people previously affected with war are not an exception (Mohammed et al, 2017) The purpose of this research is to conduct an inquiry and establish whether and how donor funding in Northern Uganda affects performance of NGOS.

Send a Cow as the study organization is a grass root livelihood development NGO in Uganda, which, was started in the early 1930s as a response to deter malnutrition and poverty. The period after Uganda’s independence (1962) saw several NGOs set up operations and provide support however, the period of national turmoil of the late 1970s and early 80s saw several NGOs terminate their operations and it was until the 90s that Uganda realized a surgeon in the existence of NGOs and to-date several are standing. The Ugandan government, however, has been willing to support NGO surveys.  Uganda is a good example of a growing and dynamic African NGO sector; its insight has helped guide policy across the continent. Most NGO funding in Uganda comes from international donors (Barr, et al, 2005) so understanding fundraising by local NGOs requires understanding what motivates international donors to channel development assistance through local NGOs. To date in Uganda, there are over thousands of registered NGOs including humanitarian, which have fully benefited from funding both internally and externally for their operations(Etengu et al, 2016)

The origin of internal controls has been linked to the Hindu Kings somewhere around the 12th century. The Kings gave instructions on accounting and auditing state revenue and expenditure. However, other records link the issue of internal controls to the period of 1100-1135 A.D somewhere in the United Kingdom during the reign of King Henry.  (Li et al, 2021) It was during this period that the Kingdom regularly emphasized a regular system of accounting and auditing of the Kingdom transactions specifically on how resources including taxes were collected and how their expenditure was closely monitored.

Further evidence by (TWAGIRAYEZU, 2022) suggests that it was during the period of the industrial revolution of the 18^th Century that many businesses expanded in size and operations because many were able to use internal controls to manage resources. (Jensen, 2010)  As a result, more and more transactions between these companies necessitated that business owners put in place regulations/controls for tax conformity and autonomous auditing commenced (Carney, et al, 2011)

1.2.2 Theoretical Background

This study will be hinged on perspectives from Resource Dependency Theory to piece together the research of how NGOs in Uganda are responding to the changing aid landscape. Postulated by (Pfeiffer, 2003) resource dependency theory has become a useful framework for examining the relationship between an organization and its external environment. Factors such as resource criticality (a measure of an organization’s ability to function in the absence of a resource) and concentration (availability of alternative sources for the same resource) as well as ability of external powers to determine resource allocation are central to understanding the external environment of organizations (Cho et al, 2006) . Research on resource dependency theory has advanced the view that actors who have control of resources exert power especially when there is a high dependency. In this regard, the relationship between NGOs and donors is mostly applied which reflects a type of relationship where donors set the goals of programs because of NGOs’ high dependence for funding (AbouAssi, 2013). This relationship also reflects the situation that makes NGOs closer to their donors rather than the communities they claim to support (Banks, et al, 2015). This follows that, because many NGOs in Uganda have for a long time, depended significantly on foreign donors, the reported reduction in the aid funds and the associated withdrawal, decline and re-prioritization of foreign aid could have a threatening effect on their continued existence and programs.

Studies on resource dependency further show how organizations do not passively comply with conditions in their external environment; instead, they try to manage their dependence by adopting several strategies in order to influence their demand for resources with the aim of becoming independent (Lusardi et al, 2014) Resource dependency theory, therefore, aligns with a range of perspectives on how NGOs obtain resources from their external environment and the exercise of control by donors over NGOs because of their resource dependence. Dependency on an actor creates power especially when there are asymmetrical exchange relationships. Resource dependency theory, therefore, sheds light on the effect of power on NGOs behavior and how they adopt strategies to safeguard organizational autonomy. Interestingly, (Pfeiffer, 2003) highlight that although resource dependence results in the exertion of power and control, the role of organizational management is to devise strategies for managing such dependence in order to ensure resource stability, organizational autonomy and interest.

This study shall employ this theory in trying to explain the various strategies and controls NGOs have put in place in relation to funding, and how this is affected by the various strategies employed to control the resources received from the funders by NGOs in Uganda given the changing aid conditions by donors (Mawdsley, et al, 2014).

1.2.3 Conceptual Background

The study carries within itself several concepts such as “NGO funding” and “Internal controls”. The concepts mentioned thereby inform the independent and the dependent variables against which this study is predicated.

The concept of NGO funding which is the dependent variable in this study denotes aid availed to a non-governmental organization to ease its operations and ultimately contribute to the realization of the latter’s goals. Folger (2020) defines NGO funding as reliance by non-profitable organizations on a series of sources for funding for their survival. Folger identifies government support, membership dues, donations, and grants from other non-profits among others as the common sources of funding. The study will be guided by internal controls (IV) and NGO funding (DV). The general objective of the study will be to examine the effect of internal controls on NGO funding in Uganda: A case of Send-a-Cow.

On the other hand, the concept of internal controls, which is also the independent variable (IV) in this study, has over time attracted great scholarly attention. By definition, one would be right to think of the latter as an organization’s plan and procedures concerned with safeguarding the assets and reliability of financial records. Several scholars for instance point out that internal control is a  (Mohammed , 2014) general term used to refer to processes and procedures that management put to work for the protection of assets and make sure all business activities are in line with those policies and procedures. More still.(Otoo, et al, 2021) define internal controls as measures deployed by organizations to strengthen resource use and deter their misuse. The measures provide an assessment by majorly internal audit and staff to realize performance. Another scholar Nakayiza (2013) defines internal control as tools put in place through which potential resource risks and threats are mitigated to a lower extent than less affects the internal processes of an organization. The scholar adds that such tools may support an entity to accomplish a set of objectives and perform its tasks.

1.2.4 Contextual Background

This study will be carried out in the field of non-governmental organizations but specifically in regards to how these entities streamline their performance. Regardless of their size of funding and operations, they are most faced with risks in various areas of operation just like commercial companies. It is known that to score on the accountability and performance front, especially because these entities largely thrive on funding, most of these uses internal control systems. To that end, this study delves into the nitty-grittiest of how these internal control systems affect the funding of these organizations.

Contextually, to be exact “SACU” is a development organization that has over half a century of participatory, integrated, and people-centered development in the continents of Africa and Europe.

Send-a-Cow Financial Reports (2017/2018) review recommends that to realize the vision and mission of Send-a-Cow, several internal controls are to be in place and emphasized to support key strategic operations. These operations are overseen by self-resilience in its staff and development partners who work closely to ensure clarity of roles, so all accept responsibility for their actions, decisions, and policies.

Furthermore, the 2019/2020 Financial Year SACU Annual-Review, reported that Send-a-Cow operates on the principle of organizing vulnerable groups including women, youth, subsistence farmers, and households emphasizing the extension service delivery model knowledge and instilling skills in them.

However, despite the efforts like proper financial reporting, auditing, and periodic accountability in FY 2019/20, Send a Cow’s expected funding declined from for example £8.3 million to £7.2 million in 2018-19 attributed to partly grants. Furthermore, in the just concluded SACU 2020/2021 annual review, Income declined by 7.5%. The Report further notes that £3.54m Grants (2019-20 £3.82m) were from public and private institutions, corporate donors, trusts, and foundations accounting for 53% of total income. Hence, the purpose of this studies that is, to seek the effect of the relationship between internal controls and funding in SACU. The statistical information about SACU here in above explains the urgency and relevance of the area of internal controls in studying the performance of any organization.

1.3 Statement of the problem

The existence of NGOs is essential, particularly in a developing nation like Uganda. They support the society by providing community development, disaster relief, social movements and sustainable system development, among others (Madawaki, et al, 2022).

These NGOs obtain funding in form of financial grants and membership fees from both local and international funders and volunteers and they are exempted from filing tax returns and only donors monitor their financial activities through financial reports and if satisfied, they continue funding them (Dang, et al, 2021)

To achieve this, NGOs have put in place various measures to improve their financial reporting such as internal controls both finacial and non financial.

However, despite the various internal controls measures in place, financial management remains a concern, evident through inefficient budget utilization, organization’s assets misuse, misappropriation of donor funds and late financial reporting  (Muli et al, 2022) SACU as one of these NGOs has not been spared and has faced the same challenges which has resulted in the closure of its regional offices in Mbale and Lira respectively because of a funding cut that was caused mainly by not accounting for funds advanced within the stipulated time after completing the assignment as required by the accountability policy . (Moses et al, 2022) This failure to account for funds on time and follow grant-reporting guidelines has resulted in a reduction in grant funding that greatly affects the work of SACU and their much-needed contribution to development.

The problems are evident not only in SACU but in several other organizations in the region and this has largely justified the problem at hand.

Many past scholars such as (Muli et al, 2022)  have attempted to solve the problem with their studies however, the problem has persisted. This  therefore necesitates a study to find out the effect of internal control systems and NGO funding un Uganda, a case of sending a cow to Uganda.

1.4 General objective

The general objective of the study will be to examine the effect of internal controls on NGO funding in Uganda: A case of Send-a-Cow

1.4.1 Specific objectives

The study will be guided by the following specific objectives namely;

1. To examine the relationship between controls environment and NGO funding in Uganda
2. To find out the relationship between controls activities and NGO funding in Uganda.

• To determine the relationship between monitoring and evaluation and NGO funding in Uganda.

1.5 Research questions

The following research questions will be answered namely:

1. What is the relationship between controls environment and NGO funding?
2. What is the relationship between internal controls activities and NGO funding?
3. What is the relationship between monitoring and evaluation and NGO funding in Uganda?

1.6 Hypotheses of the study

The hypotheses statements below will be tested to achieve the study’s objective

1. Internal Control environment has a positive relationship with NGO funding in Uganda.
2. Internal controls activities have no positive relationship with NGO funding in Uganda

• Internal control Monitoring and evaluation are positively correlated with NGO funding in Uganda

1.7 Conceptual framework

The study will be to examine the effect of internal controls and NGO funding. The problem is diagrammatically represented in the framework below.

A conceptual framework is a theoretical structure of assumptions, principles, and rules that holds together the ideas comprising a broad concept(Miles et al, 1994) A conceptual framework is a basic structure that consists of certain abstract blocks, which represent the observational, experiential, and analytical aspects of a process or system conceived. It is a set of broad ideas and principles taken from relevant fields of inquiry and used to structure subsequent presentations. The interconnection of independent and dependent variables completes the framework expected outcomes

Source Adopted and modified from Folger (2020) and COSO (2009) by the researcher

The framework presents internal controls as the independent variable (IV) and NGO funding as the dependent variable (DV). The IV is presented to include; control environment defined to mean: Rules & Regulation, procedures, Law and Measures, Control Activities defined to mean: Authorization and approval, Reconciliation and Review, Job description, as well as Monitoring and Evaluation defined to mean Supervision, Financial Reporting, and Auditing. The framework postulates that the combination of the three IV indicators has a direct influence on NGO funding defined as internal funding (volunteer work, fundraising, and charitable activities) and external funding (donations and networking). The framework is supported by the COSO model, which states that a reliable internal control structure is designed to address objectives of operations where there is effective and reliable use of resources.

1.8 Significance of the Study

The following statements will answer this subsection namely the research findings will contribute to the current debate on accountability in the NGO sector.

In addition, the study will support the donors to appreciate issues that surround NGO funding and internal controls in developing countries including Uganda. “It is hoped that the study will be used to develop more comprehensive NGO funding strategies in developing countries. The study will give the researcher a more practical analytical insight relating theory to practice”.

In this regard, the study will broaden the researcher’s knowledge on internal controls in the NGO sector.

The study will act as a reference point for researchers who will pursue further research on internal controls and funding in the NGOs.

It is forecasted that the study will contribute more information to existing literature on internal controls funding of NGOs.

The research, it is believed that the study will enhance the researchers’ knowledge, abilities, capabilities, and skills and will be helpful in the fulfillment for the requirement for the award of Executive Master of Business administration of Uganda Technology and Management University.

1.9 Justification of the study

As the time comes and goes, NGOs have toiled to sustain themselves with efforts made to fund them, thus the call for timely research and recommendation to address financial problems. Authors have documented internal control but few of these have been written concerning internal controls and NGO funding with a case of a send-a-cow. Nonetheless, the effect of internal controls on NGO funding is a new phenomenon hence attracting mixed reactions about the subject of the study. Given the growing gaps in NGO funding, a research gap makes this study urgent.

1.10 Scope of the study

1.10.1 Geographical Scope

Geographically, the study will be largely carried out at the headquarters where most operations of send a cow Uganda are overseen, send a cow Uganda is deemed appropriate for this study given the fact that it is one of the longest-serving NGOs whose sustainability has depended on funding. In addition, Send-a-Cow will provide critical information necessary for this study.

1.10.2 Time Scope

In terms of time, the study will point toward the dynamics in the NGO parameters in Uganda for a period of six years from the period of 2016 to 2021. The field study period will be between 2021 to Date (2023).

1.10.3 Content Scope

As stated in the preceding segments of this study, internal controls will be the independent variable (IV) and NGO funding will be the dependent variable (DV). All information about NGO funding and performance that can be traced and shall be deemed important for this study.

1.11 Key operational terms and definitions

In the study, key concepts and terms will be construed to have meanings and interpretations. These will include:

NGO funding: The concept in the study will refer to the financial support (either local or foreign) that certain NGOs receive to support their day-to-day operations. This variable will be the DV and will be classified using internal funding (volunteer work, fundraising, and charitable activities) and external funding (donations and networking) as its indicators.

Internal Controls: This concept will refer to the approaches/mechanisms/systems that have been deployed to ensure the timely control of resources within an organization. The controls will provide reasonable assurance that set objectives will be realized. This variable will be the IV and will be classified using Control Environment (Rules & Regulation, procedures, Law and Measures); Control Activities (Authorization and approval, Reconciliation and Review, Job description), and monitoring and evaluation (Supervision, Financial Reporting, Auditing). As its indicators.

NGO: This is an acronym for non-governmental organizations. A non-profit locally or internationally based entity operates independently of government for among others developmental or social missions.

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter provides a review of literature on Internal controls systems and financial performance. The presentation of this chapter begins with the theoretical review, review of related literature and the summary of the literature reviewed. The literature is presented in relation to the objectives of the study. This chapter further presents the identified research gap, which the study seeks to address.

2.1 Theoretical review

This study shall be hinged on perspectives from Resource Dependency Theory to piece together the research of how NGOs in Uganda are responding to the changing aid landscape. Postulated by (Pfeiffer, 2003) , resource dependency theory has become a useful framework for examining the relationship between an organization and its external environment. Factors such as resource criticality (a measure of an organization’s ability to function in the absence of a resource) and concentration (availability of alternative sources for the same resource), as well as ability of external powers to determine resource allocation are central to understanding the external environment of organizations (Cho et al, 2006). Research on resource dependency theory has advanced the view that, actors who have control of resources exert power especially when there is a high dependency. In this regard, the relationship between NGOs and donors is mostly applied which reflects a type of relationship where donors set the goals of programs because of NGOs’ high dependence for funding (AbouAssi, 2013). This relationship also reflects the situation that makes NGOs closer to their donors rather than the communities they claim to support  (Banks et al., 2015). This follows that, because many NGOs in Uganda have for a long time, depended significantly on foreign donors, the reported reduction in the aid funds and the associated withdrawal, decline and re-prioritization of foreign aid could have a threatening effect on their continued existence and programs.

Studies on resource dependency further show how organizations do not passively comply with conditions in their external environment; instead, they try to manage their dependence by adopting several strategies in order to influence their demand for resources with the aim of becoming independent. Resource dependency theory, therefore, aligns with a range of perspectives on how NGOs obtain resources from their external environment and the exercise of control by donors over NGOs because of their resource dependence. Dependency as an actor creates power especially when there are asymmetrical exchange relationships. Resource dependency theory, therefore, sheds light on the effect of power on NGOs behavior and how they adopt strategies to safeguard organizational autonomy. Interestingly, (Pfeiffer, 2003) highlight that although resource dependence results in the exertion of power and control, the role of organizational management is to devise strategies for managing such dependence in order to ensure resource stability, organizational autonomy and interest.

According to (Pfeiffer, 2003), organizations employ strategies of avoidance and adaptation in order to absorb, diffuse and co-opt external pressures and influences in their operating environment. The specific strategies include resource diversification, formation of alliances through mergers and acquisition, co-option and compliance to the demands of resource actors. Several authors have used insights from resource dependency theory to explain strategic organizational responses and behavior (Kumi, 2017) . This study will employ this theory in trying to explain the various strategies and controls NGOs have put in place in relation to funding, and how this is affected by the various strategies employed to control the resources received from the funders by NGOs in Uganda given the changing aid conditions by donors (Mawdsley et al., 2014)

2.2 Review of related literature

This section presents the detailed literature reviewed based on the study objectives: control environment, risk assessment and control activities and financial performance.

2.2.1 The relationship between internal control environment and NGO funding

The Committee of Sponsoring Organizations of the Tread Way Commission (2013) defined the control environment as the basis of all the other mechanisms of internal control and sets the tone of an organization, inducing the control consciousness of its people. Control environment helps to regulate the risk level and the type of organizational structure in place with clearly defined roles. It therefore provides the framework within which the other mechanisms are built (Rafindadi et al, 2019)

(Umar et al, 2019) carried out the effect of internal control on the performance of commercial banks in Nigeria. The study’s findings demonstrated a positive and significant association between control environment because manufacturing firms prioritizes the adoption of internal control systems since they influence personnel performance and, ultimately, organizational performance (Adedeji et al, 2018). However, a similar study conducted in Nigeria reveals that the control environment, and control activities, have a considerable favorable impact on deposit money institutions’ liquidity and solvency (Segun, et al, 2020) These findings both agree that internal control environment has a positive influence on the financial performance of an organization however, these studies were both conducted from the Nigerian context and not in Uganda, and they were also not conducted from the NGOs like Send A-Cow. This creates a literature gap that this study shall fill.

(Masanja et al, 2020) investigated how well internal control system affected the effectiveness of financial management at a few training institutes. The study revealed that control environment has significant and beneficial impact on financial management. Similarly, Mulyati et al. (2020) analyzed how the Serdang Bedagai Regency government’s internal control system components affect the accuracy of its financial accounts. According to the study’s findings, the control environment has beneficial influence on the accuracy of the Serdang Bedagai district government’s financial statements. In line with these, (Maulida et al, 2021) contend that if a controlled environment is absent, it is most likely to increase higher chances of fraudulent practices in local government. A favorable control environment characterizes management’s knowledge about internal controls, management’s commitment to maintaining controls, and management’s communication and support for internal controls to all staff. Though these findings agree that control environment has a positive influence on the financial performance of an organization, these studies were both conducted from the government institutions context and not in Uganda. This creates a literature gap that this study shall fill.

(El et al, 2021) show that audit and nomination committees significantly affect financial performance. They further established a significant correlation between control environment and revenue collection. He observes that increasing environmental controls translates into high revenue collection. Earlier on, (Nugraha et al, 2020) in their study on the influence of internal control on fraud prevention in the Banking sector had found that that internal control environment significantly prevents fraud.

Chowdhury (2021) assessed the impact of internal control on the financial performance of Bangladeshi commercial banks. According to this study, control environment and control activities have a negative impact. However, (Lagat et al, 2016) found that control environment is not significant in predicting changes in financial management. This study, which was conducted in hospitals in Kenya, reveals that the hospital sets unrealistic revenue targets that are unachievable. While public hospitals and local governments might have similar goals (service provision), their revenue targets are far different. Similarly, this study was based on a census, which might be impossible in the current study, given the aspect of time and resources

Much as the available studies revealed the outcome of Internal Control environment on the financial performance, they tend to have concentrated on the effect and impact and not the relationship between the two variables of which they carried out on profit making institutions and government institutions, thus little attention is given to nonprofit making institutions. This study however covers this gap and it intended to examine the relationship between internal control environment and funding of NGOs in Uganda, particularly Send A-Cow.

2.2.2 The relationship between Internal controls activities and NGO funding

(Etengu et al, 2016)  In his study on control, activities and performance of organizations
established a positive relationship between control activities and performance. In similar version, Kalemeera, (2018) stated that to ensure financial performance, there should also be appropriate physical security measures to protect institutional property, which are designed to safeguard the custody of equipment such as portable high value goods, fixed machinery and liquid cash. The physical control aspects include among others, one exit or entrance to the premises where a security guard can be placed, Storerooms have locking facilities with adequate control over keys. In line with that, (Kemboi, 2019) analyzed the effect of internal control systems on the financial performance of sugarcane out grower companies in Kenya and control activities were found to have a statistically positive effect on performance of sugarcane out grower companies.

(HANOON, et al, 2021) carried out a study on the Impact of Internal Control Components on the Financial Performance, in the Iraqi Banking Sector. The results of the study showed that banks that successfully incorporated internal control activities had comparatively improved financial efficiency. An important positive association between internal controls and the financial performance of the banking sector in Iraq has been established from the regression study, and the lack of internal control activities results in negative financial performance

(Ewool et al, 2021) state that control policies and procedures must be established and executed, to help ensure that actions necessary to achieve the institution’s financial obligations are effectively carried out. It is further argued that control activities are the policies and procedures that help in ensuring that management directives are carried out, and controlled activities occur as diverse as approving, authorizing, verifying, reconciling, and reviewing of operating performance, security of assets and segregation of duties. This implies that if control activities are well implemented, they improve the performance of an organization. However, this study was not carried out from the context of Ugandan and not specifically at Send A-Cow, which creates a gap.

In Uganda, (Mukyala, et al, 2017) examined the roles of internal controls and managerial competencies on the accountability of Local Governments in Uganda and found out that internal controls and managerial competencies are significant in predicting accountability in local governments. In a related study, (Eton, et al, 2018) examine the contributions of internal control systems in supporting financial accountability in selected districts in western Uganda. They established a weak relationship between the internal control system and financial accountability, linking it to the system’s inadequacy in accounting in the staff gaps in local governments and the release of financial reports was untimely.

(Ejoh et al, 2014) investigated the association between internal control activities on financial performance. The study results revealed that there is no significant association between internal control activities and Cross River State College of Education’s financial performance. The study result further shows that there is no significant relationship between internal control activities and financial performance of Cross River State College of Education. This study was conducted in the tertiary institutions in Nigeria was not conducted from Uganda and not from an NGO and this creates a gap.

In review of the above literature, a number of empirical studies including (Etengu et al, 2016)  (HANOON et al., 2021, 2019), (Ewool et al, 2021), and (Magu et al, 2016) showed that there exists a positive significant relationship between control activities and financial performance. Nonetheless, most of these studies are not conclusive in their findings. (Alawattegama, 2018) found an insignificant relationship between control activities and financial performance. This is similar to the findings of (Ejoh et al, 2014) who also established that there is an insignificant relationship between control activities and financial performance. Thus, and from this, it is not possible to accurately ascertain the effect of internal control activities on the funding of NGOs which leaves a gap to be filled and also the studies were not carried out in the Ugandan context and not at Send A-Cow.

2.2.3 The relationship between internal control, monitoring and evaluation and NGO funding

According to Adamu, (2020), monitoring is the evaluation of an organization’s events and transactions to gauge the quality of performance throughout the period and to decide whether controls are effective or not. Monitoring incorporates all management oversight of the organization’s systems of internal controls.

(Kinyua, et al, 2015) studied the Effect of Internal Control monitoring and evaluation on the Financial Performance of Companies quoted in the Nairobi Securities Exchange. The study findings indicated that there is a positive significant relationship between internal control environment and financial performance. Similarly, (Afiah et al, 2015) in their study on Local governments in Nigeria show that monitoring and evaluation gives a significant and positive influence on good governance. In the same vein, (Afiah et al, 2015) sought a deeper understanding of the effectiveness of internal control systems on good financial accountability at local governments in Nigeria. Their results show a positive and significant relationship between monitoring and evaluation and good financial accountability. Much as these findings agree that monitoring has a positive influence on the financial performance of an organization, these studies were not conducted from the context of Uganda and not from NGOs. This creates a literature gap that this study shall fill.

(Idan, et al, 2021) investigated the effect of internal controls on the financial performance of manufacturing firms in Kenya. The findings revealed that most manufacturing firms had monitoring and evaluation as one of the functionalities of internal controls of the organization that greatly affects the financial performance of the firms. The statistical result from the regression analysis shows that there is a positive relationship between monitoring and evaluation and financial performance of manufacturing firms in Kenya. In a related study,(Eton et al., 2018) in their study on internal controls and financial accountability in Uganda concluded that internal control monitoring and evaluation and accountant competency significantly affect financial reporting quality. While these findings are consistent with previous studies, they were not conducted at Send A-Cow Uganda. This discrepancy creates a gap that this study seeks to fill.

(Bett et al, 2017) assessed the effects of internal control systems on the financial performance of Menengai Oil Company, Kenya. The study confirmed that monitoring and evaluation has a significant influence on financial performance. In the same vein, (Laallam, et al, 2020) in his study on the contribution of ICS to the financial performance of financial institutions evidenced a strong correlation between control environment and financial performance of organizations. The reviewed studies above have been carried out from profit making organizations and have used a survey method however, the case is different for this study in question which shall be conducted at Send A-Cow which is a non-profit making organization and use cross-sectional design hence there is a gap.

Evidence from Uganda’s public sector showed that standard procedures and effective accountability systems are necessary for promoting good governance (Ojok et al, 2016) In particular, monitoring and evaluation provide supportive information in decision-making, improves organizational skills and knowledge, and good governance. (Okello et al, 2017) establishes a positive significant relationship between monitoring the compliance by taxpayers and local revenue performance in Lira District Local Government. However, all these studies have been carried out from the government institutions as opposed to this one that shall be carried out from the NGO setting. This makes it interesting to study and creates a gap that this study seeks to fill.

Contrary to all the above studies reviewed, (Etengu et al, 2016) conducted a study to examine whether ICSs affects the financial performance of an enterprise and the results revealed that there is no positive relationship between monitoring and financial performance which impacts on organizational performance. This means that control environment does not affect the financial performance of an organization. A study conducted in Ghana by (Ofori, 2011) shows monitoring as an effective internal control element in Ghana Post Company Limited. However, the staff appears to be failing in reporting weaknesses promptly. The research also indicates some gaps in effective follow-up procedures that would ensure the right change of action.

The above empirical studies relate to the effect of monitoring on funding of NGOs. However, their findings are mixed. On one hand (Eton et al., 2018) (Bett et al, 2017) (Ojok et al, 2016)  found that financial risk management practices, had a positive correlation between monitoring and evaluation and financial performance. On the other hand, (Etengu et al, 2016) and (Ofori, 2011) found an insignificant relationship between monitoring and financial performance of banks and micro finance institutions respectively. Thus, there is need for more empirical studies to reconcile these mixed findings from previous studies on monitoring and funding of NGOs.

2.3 Summary of the literature

The reviewed literate showed mixed results on the relationship between the internal control systems and financial performance of organizations. Most of the researches done on internal controls are case studies and focus on specific institutions/companies that exhibit particular characteristics or material weakness in the internal control systems. Since most of the studies failed to show the contribution of control activities, control environment and monitoring, therefore this research address to fill those gaps.

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

Methodology refers to the detailed procedures to be followed to achieve the research objectives. Methodology is important because it presents and describes the approaches and techniques the researcher will use to collect data and investigate the research problem. They include the research design, study population, sample size and selection, sampling techniques and procedure, data collection methods, data collection instruments, data quality control (validity and reliability), procedure of data collection, data analysis and measurement of variables.

3.1 Research design

According to (Kothari, et al, 2005) the research design constitutes the blue print for the collection, measurement and analysis of data. The study shall employ a Correlation research design. A correlation is a survey design that enables the researcher to find out the relationship between the variables under study (Sekaran et al, 2019).  Quantitative method of data collection will be employed in order to avoid restriction to only statistical results and this helps the researcher to take into account human behavior. Quantitative approach will help to describe the current conditions and investigate the established relationships between the identified variables (Olver, et al, 2011)

3.2 Target population

(Amin-Hanjani, et al, 2005) states that population is the aggregate or totality of object or individuals having one or more characteristics in common that are of interest to the researcher and where inferences are to be made. The study will be conducted at Send A-Cow head offices in Uganda. The population shall be categorized into the key and non-key respondents for the study, the key respondents shall entail; top management and the middle management and the none-key respondents shall comprise of; the technical team, implementation team and some beneficiaries. The total population shall be 100 respondents carefully selected with the guidance from the HR office. The above respondents are selected because they are part of Send A-Cow and are affected by the funding of the organization.

• Sample size and selection

A sample is a selected group of elements from the totality of a population. It is a part of the population that represents it completely (Shukla, 2020) The sample size will be selected using Krejcie and Morgan tables (Krejcie et al, 1970) and using the appropriate sampling technique from a population of 100 a sample of 80 shall be selected and distributed according to the knowledge and experience of the respondents as well as the researcher’s intuition as detailed in the table below.

Table 3.1: Population, sample size sampling techniques

Source: primary data with the guidance of Morgan and krejcie table (1970)

3.4 Sampling techniques and procedures

The study shall employ probability and non-probability sampling techniques while selecting the respondents to participate in the study. This will further be scaled down to simple random sampling and purposive sampling as explained below.

3.4.1 Probability sampling

Probability sampling or random sampling is a sampling technique in which the probability of getting any sample may be calculated (Ragin et al, 2011) These include; Simple random sampling, cluster sampling and stratified sampling. The advantage of probability sampling is its lower cost compared to non-probability sampling.

3.4.1.1 Simple random sampling

Simple random sampling is a technique where each unit of population is given an equal chance of being selected (Shukla, 2020). This technique will be employed because according to (Palinkas et al., 2015), it ensures that every member has an equal chance of being recruited into the sample and it is free from subjectivity and free from personal error. Simple random sampling will be adopted in selecting the participants from the non-key respondents including the technical team, implementation team.

3.4.2 Purposive sampling

Purposive sampling is a technique where the researcher relies on his/her own judgment while choosing members from a population to participate in the study (Etikan et al, 2017) This study will use purposive sampling to select participants from the key respondents who seem knowledgeable and well informed on the subject matter. This sampling method will be used to select participants from the top management and middle management.

3.5 Data Collection Methods

Data collection is the process of gathering and measuring information on variables of interest in an established systematic fashion that enables one to answer stated questions, test hypothesis and evaluate outcomes Both primary and secondary data will be obtained. In this study, data will be collected using the questionnaire survey method, interview method and documentary review.

• Questionnaire Survey

A questionnaire is a research instrument consisting of a series of questions and other prompts for the purpose of gathering information from respondents (Kabir, et al 2018)The researcher will use the questionnaire survey because it is practical in collecting large amounts of information. A questionnaire survey is practical, large amounts of information can be collected, questionnaires data can easily be quantified, it is also a cheap way of collecting data, a large group of respondents is covered within a short time, it also allows in-depth research, to gain firsthand information and more experience over a short period of time. The questionnaire will be used to collect data from the non-key respondents.

• Close Ended Interviews

According to (Kothari et al., 2005) interviews describe the life events and experiences of the respondents with respect to analysis of the significance of the portrayed phenomena. It is an organized conversation aimed at gathering data about a particular topic (Musinguzi, 2016) Interviews will be face-to-face and will be structured questions with the key respondents. Interviews will be used because they have the advantage of ensuring probing for more information, clarification and capturing facial expression of the interviewees (McCain, 2015) In addition they also give an opportunity to the researcher to revisit some of the issues that have been an over-sight in other instruments and yet they are considered vital for the study.

3.5.3 Documentary Review

Secondary data is obtained through the use of published and unpunished documents (Musinguzi, 2016) Various publication magazines, journal articles, reports, newspapers report and other source of published information on leadership styles and employee turnover will be reviewed by the researcher. According to (Somekh & Lewin, 2005) documents, can be helpful in the research design of subsequent primary research and can provide a baseline with which the collected primary data results can be compared to other methods. The issues that will be explored will be as indicated in the study objective or as laid down in the independent and dependent variables of the study.

• Data Collection Instruments.

The key data collection instruments to be used are the questionnaires, interview guide and document review checklist.

• Close ended Questionnaire

A questionnaire is a formulated written set of questions to which respondents record their answers, usually within rather closely defined alternatives (Kothari et al., 2005)  He further states that, the questionnaire will be used because it is practical in collecting large amounts of information and the data can easily be quantified, it is also a cheap way of collecting data, a large group of respondents is covered within a short time, it also allows in depth research to gain first-hand information and more experience over a short period of time. The researcher will choose the questionnaire as an instrument because the study is virtually relational and the tool is an easy method of data collection. The questionnaire consists of closed ended questions purely structured in nature whose variables will be measured on a 5 point Likert scale(5 Strongly Agree, 4 Agree, 3 Not sure, 2 Disagree and 1 Strongly Disagree). The 5 point Likert scale is the most appropriate way to formulate the different questions for measuring different items from different variables. Each variable will have a set of questions drawn based on the indicators as illustrated in the conceptual framework in chapter one. The questionnaire will be self-administered to the technical team, implementation team and the beneficiaries.

• Interview Guide

The researcher will also conduct key informant close ended interviews. An interview is a dialogue between an interviewer and interviewee. It is an organized conversation aimed at gathering data about a particular topic (Musinguzi, 2016) The interview guide will be structured and made up of questions on each variable. The interview guide will be used because it has the advantage of ensuring probing for more information, clarification and capturing facial expression of the interviewees (Ragin, 2018) about the various internal control systems and funding at Send A-Cow Uganda. Interviews will be used to collect data from the top and middle management.

3.6.3 Document Review Check list

A document review checklist is a document that contains a list of documents that the researcher will use during  the data collection exercise (Olsen, 2011)The document review list shall be used for purposes of reviewing documentary data. Documentary data will be obtained using published and unpublished documents. The researcher will review documents such as journal articles, annual school reports, publications on internal control systems and NGO funding. According to (Groves, Fowler, Couper, Lepkowski, & Singer, 2010) documents can be helpful in the research design of subsequent primary research and can provide a baseline with which the collected primary data results can be compared to other methods.

• Quality Control of Data collection

Data control techniques will ensure that data collected is valid and reliable; the instruments will be first tested to ensure validity and reliability.

3.7.1 Validity

The validity of the instrument measures the relevance of the questionnaire items in measuring what they are supposed to measure (Lub, 2015) Validity refers to the truthfulness of findings or the extent to which the instrument is relevant in measuring what it is supposed to measure (Babbie, 2020) The validity of the instruments will be tested using the Content Validity Index (CVI) using expert judgment, taking only variables scoring above 0.7 as accepted for social sciences (Amin-Hanjani et al., 2005) The researcher will first pre-test the instruments to some respondents who shall not be part of the study. The researcher shall also present the questionnaires to the expert in the field to get an opinion, the data collection tools will also be tested for completeness before data is analyzed. The researcher will use the Content Validity Index calculated as follows;

CVI = Number of relevant items

Total Number of items

3.7.2 Reliability

Reliability refers to the consistency, stability and repeatability of results (Hair et al (2007). Quantitatively, the reliability of the instruments will be established through a pilot test of the questionnaire to ensure consistency and dependability and its ability to tap data that would answer the objectives of the study. The results of the findings will then be subjected to a reliability analysis. Reliability will be established using the Cronbach’s Alpha Reliability Coefficient test applying the formula below.

The formula of Cronbach’s Alpha Coefficient (K) is

K                  ∑ SD²i

K -1                          SD²t

α       = Alpha coefficient

K      = Number of items in the instrument

∑      = Sum

SD²i = Individual item variance

SD²t = Variance of total score

Upon performing the test, if the values attained is 0.7 and above, the items in the instrument will be regarded as reliable and the instruments will be applied to collect data.

• Procedure of Data Collection

Upon presenting the proposal before a panel to defend it, a cover letter will be obtained from Uganda Technology and Management University to permit the researcher to collect data. The covering letter from Uganda Technology and Management University will be used during data collection. Participants will be given time to respond and after the researcher will collect the surveys the next day. The researcher will not offer them any incentives for participating in the research.

• Data Analysis Techniques

According to (Creswell, et at, 2011) data analysis is the process of inspecting, cleansing, transforming and modelling data with the goal of discovering useful information, informing conclusions and supporting decision-making. He further states that statistical analyses are to describe an account for the observed variability in the behavioral data. Data will be collected, coded and edited during and after the study to ensure completeness, consistency, accuracy, and removal of errors and omissions. It also involves identifying patterns, consistencies and relationships in the questionnaire and interview guide (Qualitative data). Data analysis therefore involves qualitative and quantitative analysis.

• Quantitative Data Analysis

Data will be sorted using the Statistical Package for Social Sciences (SPSS) method. Both Excel and SPSS have a similar feel, with pull-down menus, a host of built-in statistical functions and a spreadsheet format for easy data entry. SPSS has faster and easier basic function access, it has a wider variety of graphs and charts and it is easier to find statistical tests (Musinguzi, 2016)  Pearson correlation and regression analysis techniques will be used in analyzing data.

Quantitative data got from the questionnaires will be computed into frequency counts and percentage. The descriptive statistics shall include use of frequency tables, mean, and standard deviation. The researcher  shall adopt Univariate analysis techniques in analyzing data. Univariate analysis is the simplest form of quantitative (statistical) analysis. In addition to frequency distribution, tables, mean, standard deviation and other measures of central tendency will be used in data analysis.

• Measurement of study variables

The independent variables and the dependent variable will be measured on a five-point Likert scale 1- disagree, strongly disagree 2-Disagree, 3-Not sure, 4- Agree and 5- Strongly agree. The choice of this measurement is that each point on the scale carries a numerical score, which is used to measure the respondent’s attitudes, and it is the most frequently used summated scale in the study of social attitude. According to Bill (2011), the Likert scale is able to measure perception attitudes, values and behaviors of individuals towards a given phenomenon.

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APPENDIX I:   QUESTIONNAIRE

Dear respondent,

My name is Apio Josephine Brendah, a student at Uganda Technology and Management University carrying out a study on the effect of internal controls on Non-Governmental Organisation (NGO) funding in Uganda: A case of Send-a-Cow. The purpose of this research is purely academic. You have been selected to participate in this research because you are a key stakeholder in your position; you have useful information to contribute to the success of the research. Participation in this study is voluntary and refusal to participate does not affect your position in the organisation in any way. Before you agree to participate in this study, I will provide you with an opportunity to ask questions on areas that are unclear to you. If you agree to participate in this study, I will ask you to respond to a few questions.  I will ask the questions in the English language.  All information given will be treated with the utmost confidentiality and will be used purely for academic purposes. You will not get any monetary benefit for answering this questionnaire; however, the answers you give may help make better finance controls in this organization. Please do not tell me your name at any time during the course of your answers to this questionnaire.

Thank you for your cooperation.

SECTION A: RESPONDENTS’ BACKGROUND

Please tick the option that you think is the most appropriate to you.

1. Gender:

Male             Female

2. Age group:
3. a) 20 – 29        b) 30– 39                  c) 40 – 49             d) 50– 59          e) 60+
4. Highest education qualification:
5. a) Certificate        b) Bachelor’s degree         c) Master’s degree        d) PhD          e) other
6. Job position:
7. a) Manager b) Officer                  c) other

Instructions for questions of section B-C tick (√) the number that best indicates your opinion on the questions using the following scale.

Statements on control environment

Statements on control activities 

Statements on monitoring and evaluation

Statements on NGO funding in Uganda

Thank you for your responses!