Research proposal sample
EFFECT OF FINANCIAL CONTROL SYSTEMS ON THE PERFORMANCE OF ORGANIZATION
A CASE OF KIRUHURA DISTRICT LOCAL GOVERNMENT
CHAPTER ONE
INTRODUTION
1.0 Introduction
This chapter will cover the background of the study, purpose of the study, research questions, and scope of the study, significance of the study and definition of terms.
1.1 Background
1.1.1 HISTORICAL VIEW
According to Downes, J., & Goodman, J. (2014), financial control refers to financial activities which may be exemplified by controls over company’s cash receipts and payments, financing operations and company’s management of receipts and payments. A sound financial control system helps an organization to prevent frauds, errors and minimize wastage of the company’s money, custody of assets is strengthened; it provides assurance to the management on the dependability of accounting data eliminates unnecessary suspicion and helps in maintenance of adequate and reliable accounting records.
Bohlin, I., et al (2016), states that “there is a general perception that Organization and enforcement of properfinancial control systemswill always lead to improved organization performance”. It is also a general belief that properly instituted systems of financial control improve the reporting process and also give rise to reliable financial reports which enhances the accountability function of management of organizations. Preparing reliable financial information is a key responsibility of the management of every organization. The ability to effectively manage the firm’s business requires access to timely and accurate financial information.
Haselip, J., (2015), further states thatdevelopment in organizations is a viable means of promoting self-reliance in economic development as well as accelerating the pace of industrial and technological progress through the promotion of small and medium enterprises and encouraging entrepreneurial spirit and skills in these business. Small and Medium Enterprises (SMEs) development has generally been discussed from the perspective of poverty, under-employment, diversification in economy, rural/urban imbalance, regional dispersion of industrial growth and long term contribution which entrepreneurship in small and medium enterprises can make in resolving and eliminating some of these problems (Chang et.al, 2012).
In today’s highly fluid and intense competitive environment, running a small business professionally is not just a good idea; it is a requirement for survival. (Banabo and Koroye, 2011). There is evidence that the small business subsector is characterized by high rate of failure that could be reduced if the businesses finances were properly managed. A frequently mentioned specific shortcoming of many small business managers is the failure to put in place effective financial control tools that guarantee meaningful organization performance (Nwanko et al, 2012).
Moreover, investors of SMEs must be able to place confidence in the organizations financial reports if the firm wants to raise capital and expand in the public securities markets. Management’s ability to fulfill its financial reporting responsibilities depends in part on the design and effectiveness of the processes and safeguards it has put in place over accounting and financial reporting. Without such controls, it would be extremely difficult for most SMEs especially those with numerous locations, operations, and processes to prepare timely and reliable financial reports for management, investors, lenders, and other users. While no practical control system can absolutely assure that financial reports will never contain material errors or misstatements, an effective system of internal control over financial reporting can substantially reduce the risk of such misstatements and inaccuracies in a company’s financial statements (Finkler, S. A., Smet al 2016).
Osadchy, E. A., (2015), states that financial control systems begin as internal processes with the positive goal of helping an organization meet its set financial objectives. Management primarily provides oversight activity; it sets the entity’s objectives and has overall responsibility over the financial Control Systems. Financial controls are an integral part of any organization’s financial and business policies and procedures. Financial controls consist of all the measures taken by the organization for the purpose of; protecting its finances against waste, fraud and inefficiency; ensuring accuracy and reliability of accounting and operating data; ensuring compliance with the policies of the organization; evaluating the level of performance in all organizational financial units.
Financial controls at Global Paints Company is quite sloppy and leaves a lot to be desired. From initial results obtained by the researcher, most of the financial controls systems installed at Global Paints Company were not adequately functioning and the few policies that are functioning were inconsistent and irrelevant for proper financial accountability at the Company. There is delayed issuing of receipts, those that are issued, cannot be adequately retrieved for proper auditing. Therefore this study intends to look into the effect of financial control systems on the performance of an organization with a case study of global paints company ltd.
1.1.2 THEORETICAL VIEW
Diffusion of innovation theory
This theory suits the study of financial control systems. The diffusion of innovation theory adds that diffusion is governed by four main interacting elements, the innovation itself, communication channels, time and social systems. These four components, explain the process of change as determined by individuals and the whole organization, (Haung $ kapur, 2007).
Rogers asserts that there are different forms of adopters who require organization support as they with new innovations. These different adopters include: innovators who are adventure some and are educated, have multiple sources of information and show greater propensity to take risks, early adopters who are social leaders and educated.
They are visionaries who appreciate technology in order to take competitive advantage over other firms’ early majority who are deliberate and have informal social contacts, late majority who are skeptical, traditional and of low economic social economic status. Literature further reveals that all these categories of adopters are with in the different organizational support systems include for management and the peers, they also have varying perceptions towards information systems automation due to their different levels of adoption.
Rogers (2003), asserts that there are different levels of adopters who require organizational support as they interact with new innovations to be able to change their different perceptions, according to Rogers (2003), a social systems denotes the bound community in which the innovation diffuses, it involves bad group of interrelated units with a common goal.
Rogers ,(2003), as cited by Ahummuza , (2003), describes as innovation as an idea practice or object that is perceived as new by an individual or other unit of adoption. In specific reference to technological innovation, Financial Control systems is a systems that has kept on envolving financial control systems has control through numerous changes because of the developments in technology which has had on a unimaginable changes in organizational performance (Abirim, 2006).
The diffusion of innovation theory predicts that media as well as interpersonal contacts provide information and influence opinions in judgment. The communication channels and the roles of opinion leaders play in them, will determine the likelihood that the innovation will be adopted, (Catwright $ Hummond, 2007).
Strengths of diffusion theory
The theory attempts assert that innovation is important in the organization, this is specifically important as the availability of innovation is essential in an organization. When financial control systems apply the latest innovation in the organization they are able to achieve the best organizational performance.
The theory also indicates that communication channels are important in the organization; this is also true because through better communication channels the organization is able to have better performance.
The theory also further recognizes the importance of time in the organization, this further illustrates that when an organization is to achieve better performance in the time management of resources is imperative.
Weakness
The theory does not specify the type of innovation in the organization, these days there are numerous types of innovation.
1.1.3 Conceptual view
Financial control is defined as the procedures designed to protect assets and ensure that all financial transactions are recorded to prevent and reduce errors and fraud (Block & Geoffrey, 2008). The aim of financial controls is to provide an overall guiding framework for a sound and efficient management of resources in all institutions. The goal of having a strong system of financial control is to promote the institution’s ability to reach its objectives, providing reliable financial data, safeguarding assets and records, evaluating operational efficiency through budget, organizational control and encouraging adherence to prescribed policies and regulations. An institutions system of financial control has a key role in the management of risks that are significant to the fulfillment of its operational objectives. A sound system of financial control contributes towards safeguarding the stakeholders’ investment and the institution’s assets. Financial controls facilitate effectiveness and efficiency of operations, thus helping to ensure the reliability of internal and external financial reporting and assist in compliance with laws and regulations (Hayles, 2005).
According to Prowle (2010) public sector organizations deal with large amounts of public funds and operate in a largely political environment, thereby necessitating a need for a high degree of confidence in the way in which their financial affairs are being conducted. Furthermore, all other aspects of finance management in the public sector should be done prudently. According to Rosen and Gayer (2010) these feelings towards government are inextricably bound up with its taxing and spending activities.
Organizational performance comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives).
According to Richard et al. (2009) organizational performance encompasses three specific areas of firm outcomes: (a) financial performance (profits, return on assets, return on investment, etc.); (b) product market performance (sales, market share, etc.); and (c) shareholder return (total shareholder return, economic value added, etc.).
Organizational performance refers to how well an organization is doing to reach its vision, mission, and goals. Assessing organizational performance is a vital aspect of strategic management. Executives must know how well their organizations are performing to figure out what strategic changes, if any, to make. Performance is a very complex concept, however, and a lot of attention needs to be paid to how it is assessed
1.1.4 Contextual View
Kiruhura district local government financial department is governed by the Local Government Act (2006) which requires that resources are utilized economically and efficiently and that there is sound management of resources and sufficient service delivery to the population.
Kiruhura district local government council started its operations in 2005 after the area was granted district status by the central government. It is headed by an LC 5 chairperson as the political head and chief administrative officer as the chief executive. The council is a procurement and disposal entity responsible for, among other duties, district finance department through structures that include personnel, policies and laws. The challenge for finance personnel in the council is to practice non-fraudulent financial management systems as spelt out by the on the government ethical code of conduct against country wide reports that district councils do shoddy procurements by using suppliers that have business links with council employees, their relatives and inflating supplier prices. There is also concern that some services are paid for but are never delivered, apart from the district faces numerous challenges in management of its financial resources.
1.2 Problem statement
Kiruhura is a relatively new district that came into existence in 2005. Kiruhura district local government has a well established finance department which has the mandate of managing the resources of the local government; however the Annual Assessment of Minimum Conditions and Performance Measures for Kiruhura district reported that overall performance status attracted penalties (assessment reports 2007-2008). The penalties meant the district council got 20% less of expected grants from central government to support financial management capacity and performance.
The reports showed that departments like procurement even had a big challenges controlling their finances, the report indicates that procurement requirements by user departments should always be forwarded to contracts committee at the beginning of the financial year to avoid delays in procurement process. The assessment report 2008 revealed that there was no evidence that dates of meetings and closing dates for submission of requests were publicized. Besides, there was no evidence of below threshold procurements remitted to the contracts committee. In some sub counties, some procurement was above threshold. This implies that the district council’s foundation and experience in financial control and, consequently, detection of fraud is weak. Sufficient awareness of financial control is associated with the conduct of councilors to achieve desired objectives, including fair, transparent and value for money procurement. However, if it is insufficient it can lead to unfair advantage, vested interest and insider deals and hence poor financial control.
Local Governments have recently been reported as corrupt institutions, with its senior and low rank cadres cited in embezzlement, misappropriation and falsification of transactions (Onyango Obbo 2007). Besides, the Auditor General, the Public Accounts Committee and The Inspectorate of Government have raised allegations of mismanagement in district finances. This is in spite of the fact that the IGG and the auditor general office is in place as. The accusations by the central government and the media suggest that District Local Governments conduct in the management of financial affairs is questionable. The test for integrity in the conduct of Kiruhura District Local Government officials lies with compliance or non compliance with proper financial control systems. It is also not clear whether proper financial control systems could steer kiruhura district local government to perform better. It’s against this Backdrop that this study intends to investigate into the effect of financial control systems on the performance of organization, a case study of kiruhura district local government.
1.3 Purpose of the study
The purpose of this study will be to assess the effect of financial control systems on the performance of an organization.
1.4 Objectives
- To establish the benefits of utilizing financial controls systems in an organization.
- To identify the challenges in utilizing financial control systems in an organization.
- To find out the relationship between effective financial control systems and organizational performance.
1.4 Research questions
- What are the benefits of utilizing financial controls systems in an organization?
- What challenges do organizations face in utilizing financial control systems?
- What is the relationship between financial control systems and organizational performance?
1.5 Scope of the study
The study scope will cover the following aspects;
1.5.1 Content scope
This study will generally cover the effect of financial control systems on the performance of an organization, but the study will specifically cover, the benefits of utilizing financial controls systems in an organization, the challenges in utilizing financial control systemsand the relationship between effective financial control systems and organizational performance
1.5.2 Geographical scope
The study will be conducted at Kiruhura district in western Uganda.
1.5.3 Time scope
The period of data to be considered in the organization will be from 2012-2018 and period of body of knowledge in reviewing literature will be from 2009-2018, while the study will be carried out from February to July 31st 2018.
1.6 Significance of the study
The study will enable future researchers to assess the benefits of utilizing financial controls systems in an organization.
The study will also enable academicians to explore the challenges in utilizing financial control systems in an organization.
The study will help researchers to analyze the relationship between financial control systems and organizational performance.
REFERENCES
Downes, J., & Goodman, J. (2014). Dictionary of finance and investment terms.Barron’s educational series.
Bohlin, I., & Wiebe, J. (2016). Does it Pay for SMEs to be Good and Green?: Evidence on the impact of CSR on Financial Performance in the contextual setting of European and Asian SMEs.
Haselip, J., Desgain, D., & Mackenzie, G. (2015). Non-financial constraints to scaling-up small and medium-sized energy enterprises: findings from field research in Ghana, Senegal, Tanzania and Zambia. Energy Research & Social Science, 5, 78-89.
Bryce, H. J. (2017). Financial and strategic management for nonprofit organizations. Walter de Gruyter GmbH & Co KG.
Osadchy, E. A., &Akhmetshin, E. M. (2015).Development of the financial control system in the company in crisis. Mediterranean Journal of Social Sciences, 6(5), 390.
Finkler, S. A., Smith, D. L., Calabrese, T. D., &Purtell, R. M. (2016). Financial management for public, health, and not-for-profit organizations.CQ Press.
