ASSESSMENT OF INTERNAL CONTROL SYSTEMS PERFORMANCE IN REVENUE COLLECTION IN TANZANIA A CASE STUDY OF ZANZIBAR MUNICIPAL COUNCIL (ZMC) By MOH’D HANAU VUAI A dissertation submitted in Partial Fulfillment of the Requirements for Award of the Degree of Master of MSc. Accounting and Finance (MSc A&F) of Mzumbe University. 2014
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ASSESSMENT OF INTERNAL CONTROL SYSTEMS PERFORMANCE
IN REVENUE COLLECTION IN TANZANIA
A CASE STUDY OF ZANZIBAR MUNICIPAL COUNCIL (ZMC)
By
MOH’D HANAU VUAI
A dissertation submitted in Partial Fulfillment of the Requirements for Award of
the Degree of Master of MSc. Accounting and Finance (MSc A&F) of Mzumbe
University.
2014
i
CERTIFICATIONWe, the undersigned, certify that we have read and hereby recommend for acceptance by
the Mzumbe University, a dissertation entitled, Assessment of internal control systems
toward revenue collection in Tanzania. A case study of Zanzibar Municipal Council
(ZMC), in partial/fulfillment of the requirements for award of the degree of Masters of
Science in Accounting and Finance (MSc A&F) of Mzumbe University.
Signature
-------------------------------------
Major Supervisor
Signature
--------------------------------------
Internal Examiner
Accepted for the Board of School of Business
……………………………………………..…
Signature
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DEAN/SCHOOL BOARD
ii
DECLARATIONAND
COPYRIGHT
I, Moh’d Hanau Vuai, declare that dissertation is my own original work and that it has
not been presented and will not be presented to any other University for a similar or any
other degree award.
Signature ----------------------------------------
Date ----------------------------------------------
©
This dissertation is a copyright material protected under the Berne Convention, the
copyright Act 1999 and other international and national enactments, in that behalf, on
intellectual property. It may not be reproduced by any means in full or part, except for
short extracts in fair dealings, for research or private study, critical scholarly review or
discourse with an acknowledgement, without the written permission of Mzumbe
University, on behalf of the author.
iii
ACKNOWLEDGEMENT
My first and foremost thanks go to the Almighty God for giving me the health, strength
and courage to pursue my studies and conducting this research study.
I am deeply indebted to the Office of the Zanzibar Municipal Council (ZMC) offering
me a chance to have higher education during this particular time. Special thanks should
go to ZMC staff staffs in which their assistances have enabled me to finish this study.
I also thank my parents for supporting me morally and spiritually during the whole
period of my studies and during the research study. Their encouragement, advice and
support enabled me to put in effort which enabled me to conclude the study successfully.
My sincere gratitude goes to my Supervisor, Dr. Makorere Robert who guided me from
proposal writing to the final report. His criticism, invaluable patience, intellectual
guidance and support helped me not only to accomplish this study, but also to come up
with the expected standards. Sincerely, he deserves all kinds of credits.
It is completely impossible for me to acknowledge individuals on the help that I have
received in articulating the ideas presented here. My lecturers, my professional
colleagues – past and present, and many close friends in Mzumbe who have encouraged,
criticized, and inspired me to reach where I am now. However, I cannot hold them
responsible for what is in this volume, but they taught me most of what I now believe I
know about Accounting and Finance the relevance of the former to the latter. Further
my special thanks go to PhD. Sri Nivas Madishet Professor of Accounting and Finance,
Dr. DML Kasilo lecturer of Corporate Finance.
I also sincerely thank all Presidents’ Office-State House Zanzibar actors who took part
in this study, as well as the research assistants who assisted me during the fieldwork.
iv
DEDICATION
I dedicate this Dissertation to my beloved parent, Fatma Omar Ali; my brothers
Mshenga, Omar, Vuai, Khamis Hafidh, and Yussuf; my sister Halima Hanau Vuai;
Without forget my best friends Hamad O Rubea, for their moral support, patience and
encouragement for the whole period of my study.
v
LIST OF ACRONYMS
AICPA American Institute of Certified Public Accountants
(BAFIA) Banking and Financial Institutions Act 2006
(COSO) The Committee of Sponsoring Organizations
(FCPA) Foreign Corrupt Practices Act
FY Financial Year
(GAAP). Generally Accepted Accounting Principles
(GAO) Government Accountability Office
(GASB Governmental Accounting Standards Board)
(INTOSAI), According to the International Organization of Supreme Audit
Institutions
MoFEA Ministry of Finance and Economic Affairs
ZSGROP Zanzibar Strategy for Growth and Reduction of Poverty.
PPP Contractual arrangement between government and private sectors.
RGoZ Revolutionary Government of Zanzibar
SPSS Statistical Package for Social Science
ZMC Zanzibar Municipal Council
vi
ABSTRACT
Developing a strong system of internal control enables management to deal with rapidly
changing economic and competitive environment, priorities and restructuring for future
growth. However, the performance of Internal Control systems in organization improves
the revenue collection. Specifically, the study was set in order to meet three objectives,
namely; to evaluate the current institutional factors affecting revenue collection in ZMC,
to study various internal control mechanisms employed by the ZMC to improve revenue
collection, and to evaluate the effectiveness of internal control systems employed by
ZMC.
To achieve these objectives, therefore the study employed a case study as Research
Design. The study interviewed 50 respondents using questionnaire and interview guide.
To arrive at such respondents, the study employed purposive and convenience sampling
methods. In addition, data were analyzed using descriptive Statistics.
The findings show that internal controls were available in the organization, and
management is committed to the control system performance, and actively segregation
of duties, job rotation and supervision of the activities by senior staff are available. Also
the study revealed that systems are good enough for the efficiency of revenue collection.
In addition to that, it was found that there was compliance of internal controls in relation
to the revenue collection through public/private partnership and having responsible
parties to monitor the compliance.
However it revealed that the internal audit department is not efficient, is understaffed,
doesn’t conduct regular audit activities and doesn’t produce regular audit reports
although the few reports produced by the internal audit department address weaknesses
in the system. It was further revealed that there is continuous shortfall in revenue
collection compared to the budget target.
vii
Following these results, the study conclusion was that; the employed the effective
internal control systems enough for it to collect targeted amount of revenue as supported
by the study findings of clear separation of roles, supervision, and commitment of
management in managing its institutional factors.
viii
TABLE OF CONTENTS
CERTIFICATION ..............................................................................................................i
DECLARATION .............................................................................................................. ii
ACKNOWLEDGEMENT ............................................................................................... iii
DEDICATION ..................................................................................................................iv
LIST OF ACRONYMS .....................................................................................................v
ABSTRACT......................................................................................................................vi
LIST OF TABLES .......................................................................................................... xii
LIST OF FIGURES ....................................................................................................... xiii
CHAPTER ONE ..............................................................................................................1
1.0 Introduction ..................................................................................................................1
1. 1 Back ground of study ..................................................................................................1
1.2 Statement of the problem .............................................................................................3
1.3 Objectives of the study.................................................................................................4
1.4 Research Questions ......................................................................................................5
1.5 Significance of the Study .............................................................................................5
1.6 Scope of the study ........................................................................................................5
1.7 Limitation of Study .....................................................................................................5
CHAPTER TWO .............................................................................................................7
LITERATURE REVIEW................................................................................................7
2.0 Introduction ..................................................................................................................7
ix
2.1 Definition of key terms and concepts...........................................................................7
2.1.1 Internal control system..............................................................................................7
2.1.2 Revenue.....................................................................................................................8
2.2 Over view of Internal control systems .........................................................................9
2.2.1 Internal Control System ............................................................................................9
2.2.2 Purposes of internal control system ........................................................................12
2.2.3 Components of effective internal control system....................................................13
2.3 Revenue collection .....................................................................................................14
2.3.1 Strategies of revenue generation .............................................................................16
2.3.2 Factors Influence Efficiency on the Revenue Collections ......................................16
2.4 Internal Control over Revenue Collection .................................................................18
2.5 Empirical Literature Review......................................................................................19
2.6 Conceptual Frame work .............................................................................................21
CHAPTER THREE .......................................................................................................23
RESEARCH METHODOLOGY .................................................................................23
3.0 Introduction ................................................................................................................23
3.1 Study Area..................................................................................................................23
3.2 Research design..........................................................................................................23
3.3. Population of the Study.............................................................................................24
3.4 Unity of inquiry..........................................................................................................24
3.5.1 Sample size..............................................................................................................24
3.5.2 Sampling Techniques ..............................................................................................24
3.5.2.1 Purposive Sampling Technique............................................................................25
3.5.2.2 Convenience sampling technique.........................................................................25
3.6 Data Collection Methods ...........................................................................................25
3.6.1 Primary Data collection Methods............................................................................25
3.6.2 Secondary Data Collection Method .......................................................................26
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3.7 Data Analysis Methods ..............................................................................................27
3.7.1 Preliminary Data Analysis Methods .......................................................................27
3.7.2 Quantitative Data Analysis Methods ......................................................................27
3.7.3 Qualitative Data Analysis Methods ........................................................................27
3.8 Validity and Reliability measurement methods .........................................................28
3.9. Variables and their measurements ............................................................................28
CHAPTER FOUR..........................................................................................................30
FINDINGS AND DISCUSSION...................................................................................30
4.0 Introduction ................................................................................................................30
4.1 Characteristics of respondents....................................................................................30
4.1.2 Education Level Profile...........................................................................................32
4.1.3 Job types of respondents .........................................................................................32
4.1.4 Working Experience Profile....................................................................................32
4.2 Internal control mechanisms employed by the ZMC in revenue collection ..............33
4.2.1 Strengthening Job rotation between Revenue collectors ........................................33
4.2.2 Strengthening Revenue Collection Supervision .....................................................33
4.2.3 Adhered to Internal Audit time dimension..............................................................34
4.2.4 Implementing strong Segregation of duties among Revenue Collectors ................35
4.2.5 System adopted by ZMC on revenue collection .....................................................36
4.3 Description of the effectiveness of internal control system in ZMC .........................36
4.4 Descriptive of the Effectiveness of revenue collection in ZMC ................................38
4.5.1 Mechanisms taken to improve revenue collection in ZMC ....................................38
4.5.2: Re enforcement of Law or regulation governing revenue collection.....................39
4.5.3 Re enforce quarterly preparation of revenue reports...............................................40
4.6 Description of current institutional factors influence effective revenue collection inZMC .................................................................................................................................44
4.6.1 Existing of contractual agreement...........................................................................44
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4.6.2 Profitability of employed revenue contract.............................................................45
CHAPTER FIVE............................................................................................................47
SUMMARY, CONCLUSIONS AND RECOMMENDATION..................................47
5.0 Introduction ................................................................................................................47
5.1 Summary of the Study................................................................................................47
5.1.1 Internal controls mechanisms over revenue collection at ZMC..............................47
5.1.2 Revenue collection mechanisms .............................................................................47
5.1.3 Institutional factors influence effective revenue collection in ZMC ......................48
5.2 Conclusion .................................................................................................................48
5.3 Recommendations ......................................................................................................49
5.3.1 Internal control system mechanisms .......................................................................49
5.3.2 Revenue Collection mechanisms ............................................................................49
5.3.3 Contractual agreements...........................................................................................50
5.4 Areas for Further Research ........................................................................................50
APPENDIX I: QUESTIONAIRE .................................................................................55
APPENDEX II: INTERVIEW GUIDE........................................................................61
xii
LIST OF TABLES
Table 3.1: Sample size distributions ................................................................................24
Table 4.1: General characteristics of respondents............................................................31
Table 4.2: Job rotation......................................................................................................33
Table 4.3 Internal audit over of revenue collection .........................................................35
Table 4.4 Segregation of duties........................................................................................35
Table 4.5 System adopted by ZMC on revenue collection .............................................36
Table 4.6 Internal checks within the Organization ..........................................................37
Table 4.7 Action taken to address weaknesses ................................................................37
Table 4.8 Law or regulation governing revenue collection .............................................40
Table 4.9 Budgeted figure from 2007/2008 – 2011/2012 Amount in “Tshs” ...............42
Table 4.10 Actual figures from 2008/2009 – 2012/2013 Amount in “Tshs’’..................42
Table 4.11 Type of contractual agreement.......................................................................45
Table 4.12 Profitability of employed revenue contract....................................................45
xiii
LIST OF FIGURES
Figure 2.1: The conceptual Frame work. ..................................................................................... 22
Figure 4.2 Supervision to the collection of revenue .................................................................... 34
Figure 4.3: Actions taken by the Municipal to improve revenue collection ....................39
Figure 4.4: preparation of revenue reports .......................................................................41
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1
CHAPTER ONE
1.0 Introduction
The study assessed the internal control system performance toward revenue collection in
Tanzania. The chapter is organized in different sub-sections, namely; Introduction part,
background of the study, statement of the problem, research objectives, research
questions, scope of the study and significant of the study.
1. 1 Back ground of study
Internal control activities are normally designed (established) by the management of the
entity and being practiced by the employees of that entity including management itself.
Sometimes it happens that internal control activities are recommended (suggested) by
practitioners, primarily auditors and being followed by the management of the entity
(ministry) (Barra and Roberta 2010; Ashton1974; Hornik and Ruf 1997; Simon 1974
and Curtis1998).
Developing a strong system of internal control enables management to deal with rapidly
changing economic and competitive environment, priorities and restructuring for future
growth. Internal controls promote efficiency, reduce risks of asset loss and help to
ensure the reliability of financial statements and compliance with laws and regulations
(Coso, 1992). Internal control systems can help an organization to achieve its desired
performance and profitability targets, better service delivery and also prevent loss of
resources. It can help to obtain a better performance on revenue collection. Internal
control systems help an organization to achieve its objectives and also avoid pitfalls
(Brown, 1996).
In worldwide, especially the developed countries like United State the response to
financial scandals such as Enron or World com, has resulted in bringing into the “Public
Company Accounting Reform and investor Protecting Act 2002”, commonly known as
the “Sarbaneys – Oxley Act”. Sarbaneys – Oxley act requires management to take full
2
responsibility for internal control system over financial reporting within the company
and provide assessment of its effectiveness. It also requires auditors to provide
independent attestation regarding the assessment by management. In Europe, no
regulation can be considered equivalent to Surbaneys – Oxley. In the EU, the European
Commission is proposing new requirements for listed companies and other public
interest entities, active discussion over the necessity and forms of regulating the
management’s responsibility to maintain and report on the effectiveness of internal
control system are ongoing (Coates, 2002). So it believed that there is a need for the
State through its local government agencies make sure that they build strong and
effective internal control systems (Mwindi, 2008).
Tanzania as a developing nation tries to strengthen the internal control system, through
their agencies such as the Central Bank. The Ministry for finance encourages the
revenue agencies and financial institutions to emphases on implementation of effective
internal control system. The board of directors of every the revenue agencies and
financial institutions shall approve proper policies and procedures, and adequate overall
internal control systems, for monitoring and controlling the risks for each line of
business and ensure compliances (BAFIA, 2006).
Central government cannot perform all the activities of the rural areas by themselves,
but this can only be done by the people elected in that, does not prevent or stop the
Central government from implementing their roles by providing all the social amenities.
All these social amenities are made available from the revenue generated from the
people. Even though the ability of the Councils to funds its operation using internal
sources of revenues is hampered by inadequate internal controls over revenues
collection1
1 (Annual General Report of the CAG on the Financial Statements of the LGAs for the Financial Year
ended 30th June 2010; p. 105).
3
However, lack of institution and enforcement of proper internal control systems will
always lead to inadequate and buoyant local revenues that are critical to ensuring the
viability and sustainability of local authorities and the quality of services they provide.
Thus there are increasing calls for better internal control systems; internal control is
looked upon more and more as a solution to a variety of potential problems (Coso,
1992). Example, majority of the Tanzanian Councils demonstrate major flaws in the
administration of their own revenues. The two years’ research conducted by the author
within the four LGAs in Mainland Tanzania revealed substantial inadequate controls
related to the Councils’ revenue. In all of the Councils visited, virtually all of the
revenue related functions such as follow-up, recording, and maintenance of the cash
collected, were done by few individuals. The shortage of competent staff existed at the
Councils in general, and revenue section in particular, did not allow sufficient
segregation of duties which is potential for the efficient monitoring of the Councils’
revenues (Mzenzi, 2013).
In this regard, this study is believed that still there is a need for the government through
their agencies to make sure that they build a strong and effective internal control system,
which will be well equipped better knowledge on how to detect and handle as well as to
improve revenue collection system.
1.2 Statement of the problem
Zanzibar Municipal Council (ZMC) has been in operation since its inception in 1995
with the aim to control Zanzibar economy through its mandatory capacity in revenue
collection. For a long period it was reported that, there are increments in revenue
collection, consequently the Zanzibar economy has been relying greatly on revenue
gained from ZMC related activities. (ZMC Financial reports 2003 to 2006).
For example, in recent years 2007 to 2013 ZMC actual revenue collections decreased
compare to estimations. In Financial Year 2010/2011 there was a shortage of 32.78%,
17.60% for Financial Year (2011/2012) while 20.25% for the Financial Year
4
(2012/2013) compared the estimates of revenue collection for the organization. This
trend indicating that ZMC has experienced an extremely decreasing in revenue
collection which constrains its ability to meet the increasing demand of public services.
However various systems have evolved over time and all the departments and units of
the institution have undergone positive transformations including reviewing of its
outsourcing arrangements and general revenue administration issues to raise sizeable
amount from its own sources. Internal controls also have been put in place to ensure safe
custody of all cash collected (revenue), and to discourage collusion, fraud,
embezzlements, and loss of cash (revenue), deliberate mistakes and corruption. Despite
all the above efforts, the municipal still struggles with Liquidity problems and a number
of decisions made have not yielded the expected results (Annual Report, 2012/2013).
This research therefore aimed at assessing the effect of internal control system on
improving revenue collection in Zanzibar Municipal Council (ZMC) in Zanzibar.
1.3 Objectives of the study
1.3.1 General objective
The general objective of study was to assess performance of internal control system
toward revenue collection in Zanzibar Municipal Council in Zanzibar Island, Tanzania.
1.3.2 Specific objective
The study specifically intended to achieve the following objectives.
i. To evaluate the current institutional factors affecting revenue collection in ZMC.
ii. To study various internal control mechanisms employed by the ZMC to improve
revenue collection,
iii. To evaluate the effectiveness of internal control system employed by ZMC.
5
1.4 Research Questions
i. To what extent is institutional factors applied for improving revenue collection?
ii. What are the employed internal control mechanisms over revenue collection at
ZMC?
iii. How effective is the employed internal control system?
1.5 Significance of the Study
i. The study is significant to both academicians, policy makers, and to the
researcher himself in the ground that it will add new knowledge about the
problems facing ZMC concerning with Internal control on revenue collection.
ii. Also it will provide information for the Government to improve the managerial
controls that will improve the performance of Municipal councils and local
government Authorities at all.
iii. The study will also provide the general public with relevant information on
internal controls activities relation to revenue collection in Zanzibar and as well
as adding to available literature in the area of internal control in Tanzania. From
this study, those institutions which are seeking better ways of collecting and
managing the revenue collected have the opportunity to acquire such knowledge.
iv. The study will enable the researcher to come up with the master thesis (i.e.
report), which will be submitted to the Mzumbe University as a partial
fulfillment for the award of Master Degree of Accounting and Financing.
1.6 Scope of the study
This study has been carried out in Zanzibar Urban district with the case study in ZMC
which is only one Municipal Council in Zanzibar. This is mainly due to the fact that all
reports are finalized here and the easier of obtaining data.
1.7 Limitation of t he Study
The major limitations associated with the dissertation were:
6
Data accessibilityResearcher faced with difficult in data gathering (Data accessibility). This is because
some information was not being obtained immediately upon requested.
Resource constrains
Due to resource constrains the study was limited to respondents located in Zanzibar
Municipal Council town areas due to financial and logistics constraints. Future research
is necessary to extend the scope of the study to cover the Zanzibar nation.
7
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter consists of four sub-sections. One sub-section is; introduction part, two, the
theoretical literature review, followed by empirical literature review and conceptual
framework of this study. Literatures have been written on the subject of internal control,
its effects, the way the internal control activities practiced and factors that influence
adequately revenue collection. Therefore to understand that factors a researcher has to
find the general phenomenon of the same by reviewing other scholars’-works from
different angles of the world. And finally, the conceptual frame- work will be
established the cause-effect relationship of indicators variables of the study.
2.1 Definition of key terms and concepts
2.1.1 Internal control system
Internal control is defined as the whole system of control, financial and otherwise
established by the management in order to carry on the business of the enterprise in an
orderly and efficient manner to ensure adherence to management policies safeguard the
assets and secure as far as possible the completeness and accuracy of the records
(Millichamp, 1992).
Oshisami (1993) defines internal control system as “the managerial functions of defining
and allocating responsibilities and identifying line of reporting that encompass all
aspects of operations for the attainment of corporate objectives of an organization”.
Price Water House Coopers (2011) defined an Internal Control System as a set of
procedures, methods and control measures designed by the Board of Directors and
executive management to ensure achievement of the organization’s objectives.
The American Institute of Certified Public Accountants (1997) defined Internal control
as “It comprises the plan of organization and all of the coordinate methods and measures
8
adopted within a business to safeguard its assets, check the adequacy and reliability of
its accounting data, promote operational efficiency, and encourage adherence to
prescribed managerial policies."
Ray and Kurt (2001) defined an Internal control systems as“ a process effected by the
entity’s board of directors, management and other personnel, designed to provide
reasonable assurance regarding the achievement of objectives in the categories;
reliability of financial reporting, effectiveness and efficiency of operations, and
compliance with applicable laws and regulations.”
Zanzibar Municipal Council (ZMC) is a corporate body responsible for the management
of urban space (control of streets including numbering and lighting, market
management, parks and open spaces including vehicle parking thereon) and its powers to
enter into contracts, conduct of business, post of director and other officers of the
council to ensure economic health.
For purposes of the study researcher adopted Ray and Kurt’s (2001) definition of
internal control systems. In as much as Internal control Systems are wide and numerous,
for the sake of this study, Internal control systems was limited to; Segregation of duties
for authorization, Timely deposit of funds, Supervision, Adherence of internal revenue
polices, Rotation of jobs and assignments, whereas Effectiveness in Revenue Collection
will looked at basically from the three perspectives of Amount of revenue collected,
Compliancy with applicable laws, regulation, policies and procedures and Accurate and
reliable amount of revenue collected.
2.1.2 Revenue
The term revenue has been defined by various authors in different ways. Adam (2006)
defined revenue as the fund required by the government to finance its activities. These
funds are generated from different sources such as taxes, borrowing, fine, fees.
9
It is also defined as the total amount of income that accrues to an organization (public or
private) within a specified period of time (Hamid, 2008). Public revenue is concerned
with various ways in which the government raises revenue (Stephen and Osagie (1985).
While, Heald and McLeod (2002) define public money as all money received by a
public body from whatever source.
From the above definitions, the study will use Tanzania definition (of internal control
and public revenue collection) in undertaking this study as the milestone.
2.2 Over view of Internal control systems
In the modern business world, the term “Internal Control” is being used to refer to two
basic concepts: the Internal Control System and the Internal Control itself.
2.2.1 Internal Control SystemInternal control systems comprise five components; the control environment, the entity’s
risk assessment process, the information and communication systems, control activities
and the monitoring of controls. (Hayes et al., 2005). However, for purposes of this
study, the research narrowed down to only control activities of the internal control
system. The other components of the internal control systems will be held constant.
Control activities are policies and procedures that help ensure management directives are
carried out. They help ensure that necessary actions are taken to address risks to
achievement of the entity’s objectives. Control activities occur throughout the
organization, at all levels and in all functions. They include a range of activities as
diverse as approvals, verifications, reconciliations, reviews of operating performance,
security of assets and segregation of duties. (COSO, 2010).
2.2.2 Internal Control
Anglo-Saxons (“Internal Auditing”) said that the term “Internal Control” refers to the
unit of Internal Control which aims at the evaluation of the sufficient functioning of the
Internal Control System, that is the secondary functions (Controls) and suggests that
10
there is room for improvements in cases where weaknesses are being discovered
(Financial Postman magazine, 2004). What is indicative of the importance of Internal
Control is the sum of the definitions that have been given for this term. According to the
AICPA, (1963) a system of internal control extends beyond those matters which relate
directly to the functions of accounting and the financial statements. In addition, based on
the ASOBAC (Committee on Basic Auditing Concepts, 1973), internal control is a
systematic procedure which evaluates the degree of correlation between those
established criteria and the real results of the business.
Internal Control, as defined from the APC (Auditing Practices Committee, 1980), is an
independent examination and certification from an inspector appointed by the business
to control the finances according to the legal framework established each time.
Controls have unique characteristics, for example, they can be automated or manual;
reconciliations; segregation of duties; review and approval authorizations; safeguarding
and accountability of assets; preventing or detecting error or fraud. Controls within a
process may consist of financial reporting controls and operational controls (that is,
those designed to achieve operational objectives). (Amudo and Inanga 2009:126).
In government Internal control is characterized by pre-audit & post audit
responsibilities, the pre audit occurs before the government commits itself, to a
purchase, it is used to verify that there is sufficient fund and that there is authority to
incur the expenditure at the state and local levels.
Gupta (2001) also acknowledges that internal controls can only provide reasonable
assurance that management objectives will be achieved.
At the organizational level, internal control objectives relate to the reliability of financial
reporting, timely feedback on the achievement of operational or strategic goals, and
compliance with laws and regulations. At the specific transaction level, internal control
refers to the actions taken to achieve a specific objective (e.g., how to ensure the
organization's payments to third parties are for valid services rendered.) internal control
11
procedures reduce process variation, leading to more predictable outcomes. Internal
control is a key element of the Foreign Corrupt Practices Act (FCPA) of 1977 and the
Sarbanes-Oxley Act of 2002, which required improvements in internal control in United
States public corporations. Internal controls within business entities are also referred to
as operational controls (Mawanda, 2008).
In relation to the pursued objectives, for a proper implementation of the internal control,
there emerged a number of models, consisting generally of defining control, control
criteria and grouping them in accordance to certain rationalities. In the literature, in
regulations on internal control and in audit, the most known international practice
internal control models are: COSO, CoCo (recommendations on internal control - The
new statement of internal control practice), the model outlined by the International
Standard on Auditing (ISA) 315.
From the premise that, in state revenues management, the internal control is essential in
achieving the objectives of an efficient collection of revenue, which is based on
considerations identified in the literature and in regulations, and also in the research
performed in several entities, there was developed a public model adapted to the specific
internal control in this area (Danescu et al, 2011).
Vodafone Annual Report (2009) indicates that an organization’s internal control over
financial reporting is meant for reliable financial reporting and preparation of financial
statements as sited by Generally Accepted Accounting Principles (GAAP). Whereas
many authors like price water house coopers (2011) urge that internal controls are
designed for the achievement of company objectives, other authors like Flick (2010),
indicates that internal controls ensures proper organizational processes functioning,
financial information reliability and applicable regulation compliance. He going father
by saying that, once internal control become effective, they assist a department in
running its own day to day operations effectively and department is also to clear
accounting operations and comply with legislative frame work. Internal control is about
12
establishing a system where all actions are monitored proactively, irregularities are
corrected, and deficiencies are reported to the top management.
According to the International Organization of Supreme Audit Institutions (INTOSAI),
internal control system is not about “one event or circumstance, but a series of actions
that permeate an entity’s activities. These actions occur throughout an entity’s
operations on an ongoing basis. The lack of these organizational policies and procedures
namely ‘’internal controls’’ may result in such problems as: (1) unethical, uneconomic,
inefficient, and ineffective operations; (2) weak accountability links; (3) unlawful
actions; and (4) lack of safeguarding measures against waste, abuse, mismanagement,
errors, fraud and irregularities (CIMA, 2006).
Until recently, “control” has been viewed as a system of ex ante financial and
compliance controls that generally are operated by a central government agency, usually
the Ministry of Finance (MoF). Lately, the control paradigm in the public sector has
witnessed a conspicuous shift from classic ex ante expenditure checks to contemporary
financial and non-financial internal controls. The contemporary definition of internal
control includes a broader context, which not only refers to the traditional role of
financial expenditure controls, but also provides management with the capability to
supervise service delivery effectiveness (Schaefer and Peluchette, 2010).
Therefore, internal control is a management tool to ensure that an institution’s leadership
is (1) functioning in accordance with stated policies and procedures; (2) delivering
services efficiently and effectively; (3) protecting assets and properties from improper
use; (4) keeping timely and precise accounts; and (5) producing fiscal and non-fiscal
information accurately (Safia,2010; Johnson,2007).
2.2.3 Purposes of internal control system
The objective of internal control system can be deduced from the definition of internal
control system. However, the public sector internal control standard (1998) and Okwoli
(2004) identify the following objective of internal control system;
13
i. To ensure that correct procedures are established, maintained and followed so
that the financial and management data disclose through timely report,
ii. To safeguard the organization’s asset against obsolescence and deterioration,
iii. To improve the organization’s efficiency in line with stated objectives,
iv. To ensure that everybody in the organization follows the relevant laws,
regulations, policies and stated directives,
v. To ensure the completeness, accuracy and reliability of all records.
Moreover (Elder et al., 2010) explains the three broad objectives of maintaining an
internal control system as; (i) to have reliable financial reporting; (i) to run operations
efficiently and effectively and, (iii) to ensure compliance with laws and regulations.
While Flick (2010) states that the purposes of internal control system is to ensure proper
organizational processes functioning, financial information reliability and applicable
regulation compliance. Organizations implement internal controls to check fraud and
abuse as indicated by the Institute of Internal Auditors. And Wenjun and Shanshan
(2008) state that internal control system in any working organization is the basic
safeguard to a regular and reliable accounting information system operation.
2.2.4 Components of effective internal control system
Effective control requires a range of control elements and to this end COSO (1994)
identifies five basic control components: (i) Control environment, (ii) Control activities,
(iii) Risk assessment,(iv) Information and communication, and (v) Monitoring.
According to Hayes et al, (2005) internal control comprises five components; the control
environment, the entity’s risk assessment process, the information and communication
systems, control activities and the monitoring of controls.
Uncredit (2009) states 3 layers of internal control system which are
organization/operations – business lines, risk management and compliance and internal
audit. Organization/operations – business line is to affirm proper carrying on
transactions.
14
Risk management and compliance is responsible for compliance with the regulatory
frame work. Internal audit screens the adequacy, completeness and functionality of the
internal control system. Schaefer and Peluchette (2010) indicate that fraudulent financial
statements are often avoided by an effective internal control system.
Some internal control frameworks place unnecessary emphasis on detailed explanation
of the different components of the system and methods for their design. They ignore
details on how each of the components can be measured to assess their effectiveness.
This causes a dilemma. For example, where two managers use different methods to
measure the same subject and arrive at different conclusions. A challenge arises in
ascertaining who is right or wrong. When a common benchmark for evaluation of
measured results is missing, knowing the right approach becomes difficult (UCB, 2007).
Other internal control frameworks ignore where one or more components are missing
within a given structure, but are compensated for with other controls in other
components. For example, in small companies’ segregation of duties is not possible, but
is compensated by management’s involvement in the day-to-day supervision,
verification and review of records and processes, to ensure controls function effectively.
Under the situation, all components of an effective internal control system may not be
present but the system could still function effectively. The challenge is ascertainment of
the effectiveness of the system. When such management styles extend to large
organizations unscrupulous managers of these organization’s can manipulate the
organizations to meet their personal goals (African Development Bank Strategic Plan
2003-2007).
2.3 Revenue collection
States revenue comprises of receipt from various sources such as taxation as well as
those which are not the proceeds of taxation, but of either the realization from the sale of
government properties or other interests and returns from loans and investment earning.
Bhatia (2001) contends that revenue receipt include “routine” and “earned” income. For
15
these reasons, according to him, revenue do not include borrowing and recovery of loans
from other parties, but it includes tax receipts, donations, grants, fees and fines and so
on. Similarly,
Pearce (1986) defined government revenue as all the money received other than from
issue of and debt, liquidation of investments. Government revenue includes tax
collections, charges and miscellaneous revenues, utility and insurance trust revenue for
all funds and agencies of a government. Holzer and Kimes (2002) define revenue
management as a method of selling a product to the right customer at the appropriate
time and at an acceptable price. This he said would ensure that profits are maximized.
According to Stephen and Osagie (1985) public revenue is concerned with various ways
in which the government raises revenue. From the above definitions, it can be said that
revenue is the total amount of income accruing to a state from various sources within a
specified period of time. Government has sources and uses of revenue. Osisami (1994)
states that there are basically two types of revenue that accrues to state governments.
These are internally generally generated revenue and revenue allocated from the
Federation Account. Internally generated revenue are those revenues that are derived
within the state from various sources such as taxes (pay as you earn, direct assessment,
capital gain taxes, etc), and motor vehicle license, among others. While the statutory
allocation from Federation Account, Value Added Tax constitute the external source.
Most states of the federation get the bulk of their revenue in form of statutory allocation
from the federation account to finance their expenditure programmes (Mukhtar, 1996;
Isyaku, 1997; Abdulkadir, 1998; Ibrahim, 2002; Ishaq, 2002 and Hamid, 2008).
However, it should be noted that sources of revenue are by no means uniform among the
states. States derive their revenue depending on the resources available to them; (Anyafo
et al., 1996) defined public money as all money received by a public body from
whatever source.
16
2.3.1 Strategies of revenue generation
Hofer and Schedal (1978) described strategy as a game plan through which aims and
objectives of an organization is achieved. They also defined strategy of revenue
generation as the fundamental pattern of present and planned resource department, and
environmental interaction that indicate how the organization will achieve its aims and
objectives. However, for effective revenue generation, Hofer and Schedal (1978),
suggests the following strategies: (1) Introduction of additional sources of revenue, (1)
Providing an incentive for extra efforts of the revenue generation staffs, (3) Periodic
raiding by officer of the revenue generation, (4) Efficient and effective collection of
existing taxes and Public enlighment and (5) campaign that will educate the tax payer on
the importance of prompt. Revenues should be received in a timely manner, credited to
the proper fund, and deposited into the correct bank account as quickly as possible.
In addition, governments should struggle for high collection rates for all revenues owed
and keep the payment-making process simple and easy for tax payers. The objectives of
a collection system are to accelerate the receipt of available funds, safeguard the
government’s cash while it is in the government’s possession, and keep banking costs to
a minimum by having an appropriate account structure and restricting the number of
bank accounts managed by outlying locations. To set up an effective collection system,
governments should understand the concept of float and how float affects the availability
of funds, and should produce timely and accurate reports.
2.3.2 Factors Influence Efficiency on the Revenue Collections
Gibson et al., (1994) describes the factors caused the effectiveness in relation to task
performance of an individual. It is more or less determined by his/her ability, skills and
knowledge, attitude motivation and stress. The individual were arranged to identify
through intellectual capabilities possessed workforce which enable them to perform their
duties accordingly. The organization must have a strong team of intellectuals who
possess high academic educations.
17
Ahmed (1998) argue that, efficiency and effectiveness of operational performance are
dependent on many factors, only some of which are directly linked to institutional
arrangements associated that include; the legitimacy given to policies through the
decision making process, which is central to their efficient and effective implementation;
the predictability of funding to approved policies – both within the budget year and from
one year to the next and the increased delegation to line managers of the authority to
make financial decisions commensurate with the responsibility for producing outputs
and achieving outcomes.
Also, Watana (1998) argues that leadership style, human resource development,
technology and strategic planning are the primary factors for organizational
effectiveness and pointed as environment, management control, structural design and
culture.
On other hand, supporting factors provide the capability for the revenue management to
operate and critical to its performance and effectiveness are:
(a) Information Technology: The solutions effectively process large amounts of data for
the systems and processes of each core function. Staff capabilities (human resources):
The maintenance and building of a diverse range of human skills and knowledge
necessary to operate the revenue systems.
(b) Communications: Effective communications to stakeholders and the broader
Community encourages community confidence in the revenue office.
(c) Internal Audit: Protects the integrity of the organization.
(d) Reporting: Revenue Administrations needs to be accountable through having
measures and reporting mechanisms in place for Government to ensure that revenue
administration, resources are used effectively and non compliance is effectively
managed.
The main revenue sources may be affected by population and inflation growth rates and
the rate of economic growth. In additions, Statutory or legal changes, an increase in local
18
tax rates, user charges, licenses and permits, fees and penalties may affect the
performance of revenue collections.
All these factors which influence organizational performance may have some impact to
the effectiveness on revenue collection for the Zanzibar Municipal
2.4 Internal Control over Revenue Collection
Based on the, different literatures cited on the interdependence between internal control,
revenue collection and revenue distribution as;
Mismanagement of public funds is a common phenomenon in developing countries (El-
Nafabi, 2011). According to Kabiru (2009), embezzlement and mismanagement of
public funds is the biggest obstacle to achieving the millennium development goals in
developing countries.
Webber (2004) indicates that managing public funds should focus on public
expectations. The public is concerned about the purpose for what money is allocated, the
way it is spent and the benefits realized. According to Miller (2003), poor internal
controls lead to asset misappropriations, corruption, organizational fraud and fraudulent
financial statements. Watana (1998) define internal controls as a process affected by the
organization’s board members, administration and staff designed to effectively and
efficiently achieve operational, financial and compliance objectives.
Osmond (2011) indicates that organizations implement internal controls basing on the
nature of their business and regularly audit them (internal controls) to ensure their
adequacy. He (Osmond (2011)) further relates safety of financial transactions and
information to an organization’s internal controls.
Amudo and Inanga (2009) states internal control system is usually responsible for
organizations’ failure to achieve efficiency and effectiveness, reliability of financial
reporting and compliance with relevant laws and regulations. Jay (2007) defines
competent management as an approach to managing people for full utilization of
19
available resources for the continuous achievement of organizational objectives. Ojo et
al, (2007) indicates that training and specific skills sets are essential for human capacity
development
Similarly Jong-Hag et al., (2009) indicate that the muscle of an organization’s internal
control system is determined by human capacity to handle internal control functions.
Proper controls over revenue are important to ensure strong financial management
practices. This policy applies to all revenue collected, except where state or federal laws
supersede.
Cristina (2005) states ‘‘in the analyzed entities based on the state revenues`
management, the internal control could be noticed under several forms: self control,
control and hierarchical control chain’’. Thus, internal controls implement the following
internal control activities: observation, verification, examination, review, analysis,
comparison, authorization, approval, reporting, coordination, supervision, segregation of
duties, supervision, monitoring.
Based on the these different literatures cited on the interdependence between internal
control, revenue collection and revenue distribution, all aspects of cash receipts and
accounts receivable shall be subject to proper internal controls. Management of each
department shall be familiar with the Revenue Policy and establish standard internal
controls that are properly documented and followed by staff members to ensure
compliance with the policy.
2.5 Empirical Literature Review
Dănescul (2005) who did a research on internal control activities in the state’s revenues
administration”, The researcher used inferential statistical method using Statistical
Package for Social Sciences (SPSS) computer soft ware to analyze the relationship
between the variables under study. And concluded that ‘The existence of an adequate
internal control system in the state revenues administration is a key elements of the
accomplishment of the set objectives, and attainment of efficient and effective the
revenues administration.
20
Ofozie (2010) who assessed the impact of Internal control system on Revenue
generation control at local government level. The data analysis is through descriptive
and inferential statistical methods. The descriptive analysis involves the use of simple
percentage, tabulation and counts ware as chi-square inferential statistical method. The
main finding of the study include among other; concluded that internal control system
plays a major role in prudently managing the resources and funds entrusted to public
sector managers.
Adepeju (2013) The study purposely was intended to provide evidence on the perception
about the effectiveness of internal control system on financial accountability in the
Nigerian public sector. The data was analyzed through the use of quantitative descriptive
statistics in the form of frequency distribution and percentages (%). Findings from this
study show that there is significant correlation both in the perception of respondents that
internal control system in the Nigerian public sector affects financial accountability and
in the fact that application of penalty for breach of ethical conduct affects compliance
with internal control.
Ochoge (2011) study sought to establish a relationship between internal control and
organizational performance of Limited Industries. The researcher used percentage,
tabulation and counts techniques for the descriptive analysis method while inferential
statistical method employs chi-square.
The study findings indicated that there is a significant positive relationship between
internal control system and management of public funds, thus ‘an ineffective control
system promotes fraud in organizations’.
Baltaci and Yilmaz (2006) ‘keeping an eye on sub national governments: internal
control and audit at local levels. The data were presented and analyzed using the
statistical package for Social Science (SPSS). ‘they said that; Local governments in
many developing countries need to highlight the necessity of transparent financial
systems with effective internal control and audit structures in local governments. Thus
21
internal control and audit as key components of public financial management (PFM)
systems for increasing efficiency and effectiveness in local government operations.
A research gap; inspite of increasing the number of research relating to the internal
control systems, there is still a gap in relation to this topic (Jing and Avery, 2008).
Example, Salawu and Agbeja (2007) who examined auditing and accountability
mechanism in the public sector provided a significant contribution towards the need for
a strong internal control. Templeman, (2013) also provided evidence on the need
internal control in the public sector. But their studies focused on internal control system,
they are not linked with internal control mechanisms such as the supervision, rotation of
jobs and assignments, segregation of duties and adherence of internal revenue polices
with the improving of revenue collection. Hence, this study has considered the internal
control systems employed by municipal council level that have a great influence on the
organizational revenue collection.
2.6 Conceptual Frame work
Conceptual framework is a model of how one theory makes logical sense of the
relationship among the several factors that have been identified as important to the
problem (Adam and Kamuzora, 2008).
It is a narrative outline presentation of variables to be studied and hypothetical
relationships between and among the variables. It aims at indicating the most important
areas to be covered by the study. As we can’t construct a house without foundation, a
research work also needs foundation (Adam and Kamuzora, 2008). The study focused
on two main variables that formed the conceptual frame work (Independent and
dependent variable). The model variables interrelationship can be conceptualized as
shown in Figure 2.1.
22
Figure 2.1: The conceptual Frame work.
Sources: Researcher (2014).
The above model conceptualized that internal controls comprised of Segregation of
duties for authorization, supervision, and job rotation among the revenue collectors has
an influence in improvement of revenue collection.
However, there also other institutional factors like Policies, rules laws regulations,
procedures and Contractual arrangement between government and private sectors (PPP).
Institutional factors
Compliancy withapplicable laws,regulations, policeand procedures
Coordination (PPP)
Revenue Collection
Amount ofRevenueCollected (Tshs)
Internal Control systems
Separation of duties
Supervision Rotation of jobs and
assignment
23
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter presents the methodology that used by the study. The chapter presents sub-
sections namely; introduction, study area, research design, population of the study, unit
of inquiry, sample size and sampling procedures, variable and their measurement, data
collection methods, data analysis methods, and validity and reliability measurement
methods.
3.1 Study Area
The study purposively carried out in the Island particularly at ZMC Office. The study
selected this case study because ZMC is the only Municipal Council operating in
Zanzibar and is a responsible for revenue collection so that the good source for data
collection. Also a researcher is familiar with this area so that easily collected required
data it budget constraints.
3.2 Research design
A case study research design was employed in this study. A case study is “an intensive
descriptive and holistic analysis of a single entity or a bounded case” ( Oso and Onen,
2008). Moreover case study has been used since ZMC is chosen as a corporate body
responsible for the management of urban space (control of streets including numbering
and lighting, market management, parks and open spaces including vehicle parking
thereon) and its powers to enter into contracts, conduct of business, post of director and
other officers of the council to ensure economic health, where results of the study can be
replicated and applied to other councils. Second, a case study is also chosen because the
study is focusing in the head office as a representative of other council where it
involving the collection of empirical data particular from only one or a small number of
cases. Creswell, (2003) and Babbie (1998) support choice of case study method in
opposition to others, like survey study.
24
3.3. Population of the Study
The definition of population in this study was based on two parts such as employees of
ZMC ( Managing Director, Managers from Departments, heads of Sections and staff
from Accounting and Revenue section) and fees/revenue payers for ZMC.
3.4 Unity of inquiry
The units of inquiry concentrated on various section in organization including; the
accounting section, Auditing section, Human resource section and other staffs working
in different departments was chosen for analysis in this study. On the other hand,
Tax/fees payers were looking at their working areas.
3.5.1 Sample size
The sample size was made up of 50 respondents. Table 1 indicating the sample
distribution, based on the selection creteria (according to the nature of the study). The
study selected the Managing Director, Managers, head of sections and other permanent
and temporary staffs from different departments and Tax/fees payers.
Table 3.1: Sample size distributionsSample size category Frequency Percentage
Managing Directors 1 2
Managers from departments 4 8
Head of Sections 7 14
Staffs from different department 28 56
Tax/fees payers 10 20
TOTAL 50 100
Source: Researcher, (2014).
3.5.2 Sampling TechniquesThe research used non probability sampling which include: Purposive, and conveniencesampling.
25
3.5.2.1 Purposive Sampling TechniqueThe study used purposive sampling techniques in selecting respondents. The study
consciously selected Directors and managers of ZMC to be interviewed. It is conducted
since it helped to reach targeted samples quickly and the opinions of the targeted
population were easily captured. It is less expensive and quick for selecting a sample,
(Adam and Kamuzora 2008).
3.5.2.2 Convenience sampling technique
The technique is employed in this study so as simply to get an interviewee from the
above mentioned unity of inquiry. In this study a respondents picked at fast and
convenient in ZMC revenue Departments, Accounting Section and fee payers at
Darajani Fish Market. Convenience sampling is one of the most commonly used
sampling procedures in the studies, (Dörnyei, 2007). This non-random sampling
procedure on which groups chosen by convenience sampling are conducive to self-
selection, administrative decision, time of the class, number of the years of exposure and
many other polluting influences, (Muijs, 2004).
3.6 Data Collection Methods
Both primary and secondary data collection methods were employed. Primary data
collection method consists of questionnaire and interview methods. The secondary
method consists of references into previous scholarly works on internal control, public
sector accounting, textbooks, reports and journals.
3.6.1 Primary Data collection Methods
3.6.1.1 Questionnaires Method
The study used questionnare to different people having the knowledge and experience
concerning internal controls and payroll (particularly ordinary employees) and related
deductions in general. Both open ended and close-ended questions were able to be asked
to collect primary data, (Hornby 2001). Thus, the study used questionnaires as the data
26
collection instrument, so as to allow respondents to express their ideas / knowledge
independently.
Before the questionnaires being supplied they were piloted (tested) to the respondents to
ensure clarity as to remove sensitive and non response questions and redrafting
ambiguous questions. Questionnaires used to obtain information from head of sections,
staffs from different department and fees payers.
3.6.1.2 Interview Method
The researcher was able to interview head of Financial and Economic Department, head
of account section, head of revenue section, and head of audit section using interview
guide. But the intended top officials were, Managing director of ZMC, head of Financial
and Economic Department, head of account section, head of revenue section, and head
of audit section. The reasons for such a limitation were explained in the limitation of the
study.
3.6.2 Secondary Data Collection Method
3.6.2.1 Documentary Review Method
Documentary reviews is the source of information which contained in the published and
un published documents, reports, statistics, manuscript, letters or diaries possessed by
individuals, institutions and organizations.
The study reviewed ZMC documents produced internally and other instructive
documents and manuals received from different authorities. The relevant documents
included policy statements, financial reports, budgets, and guidelines, Monthly,
Quarterly and annual reports of revenues, Audit reports, Studies conducted by other
researchers, Report of Tourism Sector Survey and Zanzibar economic Bulletin.
This technique contained information concerned with secondary data such as level of
education of the staffs, effectiveness of revenue collection performance that contain data
of revenue budget and actual revenue collections from ZMC, financial management
controls that included data from the report of Auditor, financial reports and staffs
27
reports. The study used ZMC library and other Ministerial libraries. There for one
advantage of using this method is that it is available more cheaply, quicker and less cost
(Kombo and Trompt, 2006).
3.7 Data Analysis Methods
The study used both qualitative and quantitative methods of data analysis. However, at
first place the study deployed preliminary data analysis method before starting actual
analysis. These were:
3.7.1 Preliminary Data Analysis Methods
It involved scrutiny of the responses given on the questionnaires by different
respondents. Data were sorted, edited, coded, cleaned and entered in computer using
SPSS software program.
3.7.2 Quantitative Data Analysis Methods
Quantitative data descriptively analyzed using Statistical Package for Social Science
(SPSS) software to compute frequencies and percentages. In this study, the quantitative
analysis techniques adopted are the means, standard deviation, frequencies, and
percentages.
The collected Data were fed into computer programs (using particularly the Statistical
Package for Social Scientist (SPSS) with the help of an Expert) for easy analysis and
interpretation of results.
3.7.3 Qualitative Data Analysis Methods
The qualitative analysis technique adopted is descriptive way using words interpretation
or content analysis. Narrative analysis used to explain the qualitative results of the
interview.
28
3.8 Validity and Reliability measurement methods
Validity: Validity may refer to the instrument's ability to measure exactly what concepts,
it is supposed to measure for the particular study. The following procedures below used
to indicate the validity of the instruments in this study. The study was able to ask an
expert and group of experts among the respondents to comment on the
representativeness and suitability of the questionnaires and the interview guide for data
collection.
Besides, the study allowed suggestions to be made to the structure and ability of the
questionnaires. That would help the study to establish content validity (Mitchell, 1996)
of the tools for the data collection in the study. Validity was also concerned with the
questionnaires’ consistency of responses to the questions asked in repeated
measurements (Carmines & Zeller, 1979). The instruments were also being further
expected to be presented to the researchers’ supervisor for intellectual comments and
suggestions so as to obtain accurate, correct and meaningful data.
As reliability is the accuracy or precision logging in data without making errors, then
reliability was concerned with data collected from the selected sample of ZMC
employees which was careful logged in the computer by the researcher himself to avoid
any possibility of coding wrong information. After that, the so collected data were
verified and recorded precisely for a reliable analysis. For such a case triangulation of
instruments were used to obtain reliable data. The reliability was rested by using factors
analysis. i.e. by ensuring that situational factors are not interfering. This was enabled by
using two aspects known as stability and equivalence in which the former was concerned
with securing consistent results with repeated measurements of the same person and
with the same instrument. The latter was about considering how much errors were got
introduced by different investigators or different samples of the items being studied.
3.9. Variables and their measurements
In this part of the study, there is a need to specify the measurement parameters of the
variables which enable to show the exactly data needed of the research (Nivas, 2012).
29
The fundamental idea of measurement scale is the contention that when you are talking
about and express it in numbers, you know something about it (Ndunguru, 2007).
In this study, the variables for analysis based on the internal control mechanisms as
illustrated in conceptual framework. The facets of the model are Segregation of duties
for authorization, Timely deposit of funds, Supervision and job rotation among the
staffs, factors that influence internal control system and the improvement on Revenue
Collection is a dependent variable which is measured by Amount of revenue collected,
Compliancy with applicable laws, regulation, policies and procedures, Accurate and
reliable amount of revenue collected.
As there are no acceptable scales for measuring these variables in the literature, scales
are designed specifically for this study.
This has been achieved by denoting either "yes" or "no" indicators for each respondent
to each of the above-mentioned facets based on the responses to the questions asked in
the questionnaire. All the "yes" indicators were added up to form an overall score for
each respondent. In this way it was possible to provide a scale for the underlying
concept.
The location of the respondents on the scale determined by setting a benchmark score.
All missing responses ignored for the purposes of analysis. The variables has been
measured on a 4-point Likert-style scale (monthly, quarterly, annually and whenever
needed " and scored "yes" if their business "always" sets target time the rotation of job
among staff has take pace.
The opened ended question, "How the supervision of revenue collectors does is
exercised at ZMC? In the questionnaire sought to obtain data to score whether the
respondents monitor factors that influence supervision on revenue collection as an
internal control mechanism. If the respondents provided the way the supervision is
undertaken, then this variable scored "yes". The extent to which factors are monitored
required input from the respondents, which they did by providing actual examples.
30
CHAPTER FOUR
FINDINGS AND DISCUSSION
4.0 Introduction
This chapter provides analysis and discussion of research findings arising from the
research study. It describes the response rate from the case study research, respondents’
profile and finally the research findings were presented and discussed focusing the
research objectives of this study.
4.1 Characteristics of respondentsThe background information of respondents was deemed necessary because the ability
of the respondents to give satisfactory information on the study variables greatly
depends on their background. The background information of respondents solicited data
on the samples and this has been presented below categorized into; education levels,
position held, age and length of service in the organization. With a questionnaire as the
main research tool to gather data from the respondents, the first section was intended to
gather data on the background of the respondents. The Table 4.1 below shows general
characteristics of respondents as follow;
31
Table 4.1: General characteristics of respondents
Characteristics Category Frequency Percentages
Gender distribution Male 28 56
Female 22 44
Education level Primary level 14 28
Secondary level 9 18
Certificate level 10 20
Diploma level 6 12
Bachelor Degree level 7 14
Above Bachelor Degree level 4 8
Job type of respondents: Accountants 7 14
Auditors 5 10
Revenue collectors 31 62
Economist 1 2
Businessman 5 10
Lawyer 1 2
Working Experience: 1-10years 6 17
11-20 years 13 37
21-30 years 15 42
31 and above 1 2
Source: Field data, (2014)
32
4.1.1: Gender distribution
Table: 4.1 above reveals that 28 (56%) of the respondents were males and 22 (44%)
were female. This could indicate that there are still low levels of employment of females
in Government institutions in Zanzibar. The findings represent the views of the two sex
groups about internal control systems in revenue collection in ZMC. This was necessary
for the study to get a balanced picture of the respondents’ views.
4.1.2 Education Level Profile
The level of education of these respondents as demonstrated in Table 4 shows that about
4 respondents (8%) are post graduates and 7 respondents (14 %) are Undergraduates and
many of the respondents were non university graduates, those with Primary level 14
(28%) of the responses, Secondary level 9 (18%) ,Certificates 10 (20%), and diploma 6
(12%). It is clearly from the findings that most of the respondents have not good
academic qualification in their designation, (especially in revenue collection.
4.1.3 Job types of respondents
Table 4.1 shows the position of the respondents who completed the questionnaire. Job
type respondents interviewed including, 31 (62%) were Revenue Officer, 7 (14%) were
Financial Accountant, 5 (10%) were Internal Auditors, 5 (10%) were Businessman 1
(2%) were Economist and 1 (2%) were Lawyer. From the above description, it can be
revealed that the majority of the respondents in this study are those directly responsible
for or directly involved the implementation of the Internal Control System. Therefore,
their responses are deemed to reflect what actually takes place in the institution.
4.1.4 Working Experience Profile
The number of years work experience ranged from 1-10 years was 6 (17%), 11-20 years
was 13 (37%) and 21-30years was 15 (42%) while 31years and above was 1 (2%). In
this case, the study revealed that majority of the respondents has experience between
11years and 40years, while the shortest experience was those with 31years and above,
33
indicating that ZMC is managed by experienced staff and are reasonable assuming that
retiring age for RevG Zanzibar is 55 years.
4.2 Internal control mechanisms employed by the ZMC in revenue collection
The study examined various internal control mechanisms employed by the study area in
ZMC particularly in revenue collection. Therefore, the following findings were
experienced;
4.2.1 Strengthening Job rotation between Revenue collectorsThe study found that the respondents seem to agree that the Institution practices job
rotation in place with 72%. Table 4.2 shows.
Table 4.2: Job rotation
ResponsesFrequency Percent
Job rotation exist 36 72.0
Job rotation not exist 14 28.0
Total 50 100.0
Source: Field data (2014)
The findings as shown in Table 4.2 shows that 36 (72%) of respondents interviewed said
that there is a job rotation among revenue collectors while 14 (28%) stated that there is
no job rotation in the organization. Having depicted that there is possibility of effective
internal control in the Organization as no employees or group of employees were in a
position in long time enough for him/her to make fraud in the normal course of their
duties particularly in duties revenue collection activities.
4.2.2 Strengthening Revenue Collection Supervision
Findings reveal that respondents agree that there is appropriate supervision of junior
staff by their seniors. This is revealed by 49 respondents (98) % percent, it is
34
significantly higher position. The lack of supervision by senior staff is an indication of
deficiencies in strategic controls as advocated for by Hitt, and Moesel (1996) which if
not addressed may lead to material internal control weaknesses. Figure 4.2 elaborating it
graphically frequency and percent by respondent about supervision on revenue
collection at ZMC.
Figure 4.2 Supervision to the collection of revenue
Source; Filed data (2014)
The large percentage (98%) of the respondents confirmed the ZMC supervises its
revenue collection to check how efficient revenue is. The supervision on revenue
collection brings many impacts to the better position to evaluate the system and be able
to find out any errors, frauds and weakness resulting from collection activities.
4.2.3 Adhered to Internal Audit time dimension
The results in Table 4.3 indicates that 48 (96%) of the respondents show that at quarterly
time the internal audit by the ZMC is applicable within the organization; the other group
2 (4%) of the respondents stated that internal audit review does applicable some times
(half yearly) in the organization. From these data it has been revealed that internal audit
35
achieved and gives details as to how ZMC internal control measured or assesses the
effectiveness of revenue collection in ZMC.
Table 4.3 Internal audit over of revenue collection
Responses Frequency Percent
Quarterly Audited 48 96.0
Half yearly Audited 2 4.0
Total 50 100.0
Source: Field data, (2014)
As evidenced above, it implying that internal audit department is adequate to cover the
entire ZMC set up, thus there is a good internal control performance to ward revenue
collection at ZMC.
4.2.4 Implementing strong Segregation of duties among Revenue Collectors
The Table 4.4 shows that 19 (38%) of respondents stated that all activities concerning
revenue administration done by the same people and the majority of them i.e. 30 (60%)
stated that there is segregation of duties in the organization and that all the activities
concerning revenue administration are not done by the same people. Having depicted
that there is possibility of effective internal control in ZMC as no employees or group of
employees will be in a position both to collect and to deposit them in the normal course
of their duties.
Table 4.4 Segregation of duties
Responses Frequency Percent
Segregation of duties practiced 19 38.0
Segregation of duties not practiced 31 62.0
Total 50 100.0
Source: Field data, (2014)
36
It implying that, the institution has an effective internal control system as supported by
the study findings of clear separation of roles. Thus management of the institution is
committed to the controls fraud toward revenue collection.
4.2.5 System adopted by ZMC on revenue collection
Table 4.5 presents the frequencies and percentages of which revenue collection system
achieved by ZMC. The results show that majority of the respondents 45 people equal to
90% that completed this question indicated that there is no any system adopted in
revenue collection by ZMC, and only 5 respondent (10%) show that there is a revenue
system adopted by the ZMC.
Table 4.5 System adopted by ZMC on revenue collection
Responses Frequency Percent
Revenue system Exist 5 10.0
Revenue system not Exist 45 90.0
Total 50 100.0
Source; Field data, (2014)
From these data it has been revealed that no system adopted on revenue and gives details
as to how they measured or assess performance in terms of liquidity.
4.3 Description of the effectiveness of internal control system in ZMCThe study critically analyzed the performance of Internal Control Systems of the
Institution and details are presented in the descriptive statistics has shown under the
following headings.
4.3.1 Internal checks within the Organization
The study tested for effective internal control by checking internal checks as an control
environment using the instrument of strongly agree to strongly disagree and findings
presented in Table 4.8 below;
37
Table 4.6 Internal checks within the Organization
Responses Frequency Percent
Strongly dis agree 3 6.0
Dis agree 17 34.0
Agree 22 44.0
Strongly agree 8 16.0
Total 50 100.0
Source; Field data (2014)
From the Table 4.8 above, 60% of the respondents who were agreeing on work checking
on the other compare with 40% who are not agreed. This ensures accuracy and
completeness of information about revenue collection being processed.
4.3.2 Action taken to address weaknesses
The results in Table 4.9 below reveal that respondents agree that corrective action is
normally taken to address weaknesses as shown by frequency and percentages. Action
being taken to address weaknesses in the system is an indication of the commitment to
system.
Table 4.7 Action taken to address weaknesses
Responses Frequency Percent
strongly disagree 3 6.0
disagree 21 42.0
agree 19 38.0
strongly agree 7 14.0
Total 50 100.0
Source: Field data (2014)
From the Table 4.9 above many staffs (52%) have agreed that corrective action is taken
to address weaknesses while 48% not agreed. These results indicating that the various
actions has been take by the organization to improve revenue collection because most of
respondent mentioned action taken by the management in improving revenue collection.
38
Therefore the process of due to the mentioned reasons or scenarios will enhance the
efficiency of revenue activities in the organization.
4.4 Descriptive of the Effectiveness of revenue collection in ZMC
The effectiveness of revenue collection is the capability of producing a desired result.
The study used mechanisms taken to improve revenue collection by ZMC like Law or
regulation governing revenue collection and preparation of revenue reports and amount
showing the trend in Total revenues collection for five years from 2008/2009 to
2012/2013.
4.5.1 Mechanisms taken to improve revenue collection in ZMCThe study results portrayed that, 32%) of the respondents indicated that, there is action
taken is to expand revenue sources 28% said that the action is taken was to review law
and regulation while 26% said training for staff and tax payers has been taken and lastly
14% of the respondents said the review of revenue rate, the results are shown in figure
4.3.
39
Figure 4.3: Actions taken by the Municipal to improve revenue collection
Source: Field data, (2014).
The above results indicating that the various actions has been take by the organization to
improve revenue collection because most of respondent mentioned action taken by the
management in improving revenue collection. Therefore the process of due to the
mentioned reasons or scenarios will enhance the efficiency of revenue activities in the
organization.
4.5.2: Re enforcement of Law or regulation governing revenue collectionThe finding portrayed that, 76%) of the respondents indicated that there are laws and
regulation governing the revenue collection and only 24% said not , the results are
shown in table 4.10 below.
40
Table 4.8 Law or regulation governing revenue collection
Responses Frequency Percent
Yes 38 76.0
No 12 24.0
Total 50 100.0
Source: Filed data 2014
The findings shown in the table and figure above show that laws and regulation are
applied hence prove its good performance in terms of collection.
Interview respondents on whether a company had taken any action on any one who
avoided to pay tax/fee, the respondents reported the fines are take and cases are filed for
the offences in monitoring collections.
4.5.3 Re enforce quarterly preparation of revenue reports
Figure 4.4 illustrating the results of the number and percentages of a sample of 50
respondents that confirm on how the organization prepares its revenue reports. If the
responses were "YES" the organization is efficient enough in managing revenue through
reports," and "NO “for not preparation.
41
Figure 4.4: preparation of revenue reports
Source: Researcher (2014).
It is clear from the results that the organization is efficient enough in managing the
preparation of revenue reports. Mostly report prepared includes quarterly, and
annually report for revenue collection.
The levels of revenue collection at ZMC From 2009 – 2013 also used to measure the
effectiveness of the revenue collection findings presented by, Table 4.11 with Table 4.12
below.
42
Table 4.9 Budgeted figure from 2007/2008 – 2011/2012 Amount in “Tshs”Revenuesources
2008/09 2009/10 2010/11 2011/12 2012/2013
Townvehiclesrevenue
59,006,000 96,500,000 123,000,000 205,772,200 225,772,200
Traderevenues
125,612,000 130,200,000 191,200,000 211,500,000 236,500,000
Servicesrevenue
289,355,200 316,150,000 387,000,000 408,000,000 445,500,000
Permitrevenue
51,370,200 53,300,000 59,000,000 83,000,000 110,000,000
Municipallevy
0 0 0 52,000,000 46,000,000
Otherrevenue
5,680,000 7,000,000 49,800,000 44,700,000 31,100,000
Totalrevenuebudget
531,023,400 603,150,000 810,000,000 1,004,972,200 1,094,872,200
Source: Financial Reports, (2007-2013)
The above Table (4.9) shows the budgeted figures for revenue collection at ZMC from
year 2008 -2013. This indicate that management does develop revenue plan that used to
forecast income for the whole financial year with minimal reasons which explainable.
Table 4.10 Actual figures from 2008/2009 – 2012/2013 Amount in “Tshs’’Revenuesources
2008/2009 2009/2010 2010/2011 2011/2012 2012/2013
Town vehiclesrevenue
41,002,708 46,829,130 111,896,986 186,933,150 191,861,850
Trade revenue 100,596,000 100,303,500 117,684,000 207,520,000 234,695,000Servicesrevenue
200,899,056 205,028,935 232,376,866 301,061,123 300,079,510
Permit revenue 33,669,484 39,251,232 53,319,734 93,905,609 104,928,649Municipal levy 0 0 6,700,851 23,228,568 14,528,474Other revenue 4,495,000 11,256,500 22,525,200 15,545,500 27,140,900Total revenuecollection
380,662,248 402,669,297 544,503,637 828,193,950 873,234,383
Source: Financial Reports (2008-2013)
The Table (4.10) shows the actual revenue collection figure at ZMC from year 2008 -
2013. The findings experienced the down trend of revenue collection during the five
years in ZMC. The discussion for the findings is as below.
43
The study revealed that during the financial year of 2008/2009 the total revenues
collected were 71.68% that is below the target of Tshs. 531,023,400/= is equal to
28.32% less. While during 2009/2010 findings proved that revenue collected was at
66.76% which is below the targeted amount of Tshs 603150000/= this decreased by
33.23% compared with the estimated revenue and is less by 4.91% compared to
2008/2009.
In other hand, the effectiveness of revenues collection was observed in the financial year
of 2010/2011 because of the increment of business license by 0.46% which was caused
to push the total actual collection of income to 67.22% for this organization. But total
revenue collected still below the targeted amount of Tsh 810,000,000/=.
The study also found that, in the financial year 2011/2012, the effectiveness of revenue
collections was seen because there is increment of revenue collection by 15.18%
comparing to the percentage (67.22% ) of collection for the year 2009/2010 this made
the total collection to be 82.40% which also is below the targeted amount of Tsh
1,004,972,200. Lastly it observed that, in the financial year 2012/2013, the effectiveness
of revenue collection reduced by 2.65% compared actual percentage of collection
(82.40%) for 2011/2012 and also below budgeted amount of Tsh 1,094,872,200/= by
20.25%.
Furthermore, Table 4.11shows that in the period of five years from financial year
2008/2009 up to the financial year 2012/2013, ZMC estimated to collect a total of Tshs
4,044,017,800/=. Out of this amount, a total of Tshs 3,029,263,515/= have been
successfully collected by the Organization. This makes 75% of the total estimated
amount of revenue. Table 5.2 shows the trend in Total revenues collection for five years
from 2008/2009 to 2012/2013. According to the ≥ 90% decision criteria, the overall
revenue collection performance was ineffective.
In another side, the question rose by the researcher on what criteria are used to measure
and analyzes the efficiency in revenue collection. Out of 11 respondents who were
interviewed 60% of them responded that, revenue collection is taken seriously, by
44
examining the employed internal control mechanism to assess whether the Organization
has adequate internal controls, is able to meet current commitments, is appropriate
influencer of revenue collection.
The effectiveness of revenue collection is measured by the following measures and
indicators: Revenue collection targets, To what extent targets are met.
The amount collected is expressed as a percentage (%) of the amount estimated to be
collected.
4.6 Description of current institutional factors influence effective revenue collection
in ZMC
In examining this objective, the contractual agreements existing with Private agents,
internal sources outsourced by Organization to improve revenue collection. Frequency
tables are used in analyzing the data gathered from the respondents, to achieve this
below important issues (variables) were discussed.
4.6.1 Existing of contractual agreement
The question intended to identify the existence of contractual agreement between
organization and any private sector (s) in revenue collection, and the findings show that
majority of respondents 86% have agreed that there is contractual agreement on revenue
collection and 7% respondent said has not. It revealed that contractual agreement exist
are Community group and Police Jamii Malindi Zanzibar. The Table 4.14 shows these
data.
45
Table 4.11 Type of contractual agreement
Responses Frequency Percent
Community group and Police Jamii MalindiZNZ
43 86.0
Individual collectors agreements 7 14.0
Total 50 100.0
Source: Field data ( 2014)
Findings revealed that, functionally Community Group is daily paid agreement on which
60% of total collections should be surrendered to ZMC Office daily and remaining 40%
is a Groups benefit. In case of Policy jamii Malindi Agreement 70% should be
surrendered to ZMC office every month. The agreements are well enforced by
management and offence may lead to breach of agreement.
4.6.2 Profitability of employed revenue contract
The results from the study indicate that the revenue contracts exist benefiting more
council than collecting agents, ZARR (2013). Also 72% (36) of respondents stated that
28% (14) of the respondents showed that the applicability of the contractual agreement
in revenue collection within the organization is less cost and benefit more council than
an agent. Table 4.16.6 supports the above sayings.
Table 4.12 Profitability of employed revenue contract
Responses Frequency Percent
Benefiting council 36 72.0
Benefiting agents 14 28.0
Total 50 100.0
Source: Field data 2014
46
Interview were also conducted by the researcher concerning about the criteria used to
measure and analyze the effective revenue collection at ZMC.
However, in order to acquire more information on that question, through interview, the
researcher asked senior officials from ZMC which were 40% out of 11 respondents, they
replied that: “……. normally on the collection side budgets play a role to assess
whether the organization concerned is effective in collection to achieve its goals even if
in our institution the target not achieved well.”.
Respondents maintained that they tested for effective collection by out sourcing some of
its internal source instead only two sources practiced now and mentioned them as
”Parking services at Malindi Fish market” and “cleaning services at Saateni Market and
in street level”. The respondents tested for them reliance on cash received at reasonable
time and amount at saved time and running cost.
47
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATION
5.0 IntroductionThis chapter presents the summary, conclusion, recommendation and limitations for the
study, as well as the areas for future study. The chapter starts by presenting summary of
the study on the main findings, followed by conclusion and finally recommendations.
5.1 Summary of the StudyThis study was set to assess the performance of internal control systems in revenue
collection. With this regard, the study came up with three objectives, namely; to evaluate
the current institutional factors affecting revenue collection in ZMC, to study various
internal control mechanisms employed by the ZMC to improve revenue collection, and
to evaluate the effectiveness of internal control system employed by ZMC. The
summary on the findings of the study are as discussed below.
5.1.1 Internal controls mechanisms over revenue collection at ZMCBased on the findings of the study, it revealed that the organization has an effective
internal control system as supported by the study findings of clear separation of roles,
supervision, job rotation, and audit functioning. However, there are challenges in the
implementation of controls especially considering that the audit function is not well
extended to the upcountry centers which clearly has affected their efficiency as revealed
by this study. The internal controls seemed also very efficient by comparing the inputs
incurred and the outputs achieved.
5.1.2 Revenue collection mechanismsThe research revealed that there are much effort given on assesses effectiveness of
revenue collection at ZMC. Majority of the respondents said that ZMC was good in
revenue collection for given internal sources due to the enforced internal control
employed. On this 32% of the respondents said that action for offences are taken,76 %
of the respondents said that laws and regulation on revenue collection are exist and
applied for , for the case of preparation of revenue report, 80% of the respondents said
48
that quarterly report are prepared and only 20% said only annual report are prepared. But
the study revealed that the trend of the revenue collected for each financial year
compared with the targeted collection for each financial year in the past periods is in
efficiency as illustrated in Table and Figure 4.9 in chapter four above. This is because of
two reasons: One Over estimates and Transfers of some internal sources to other revenue
authorities as ZRB driving services fees like road licenses, vehicles insurance and ZCT
for Tourism services fees like tourism levy and other tourism business licenses.
5.1.3 Institutional factors influence effective revenue collection in ZMC
The research revealed that there are much effort given to evaluate the effect of
institutional factors at ZMC. Majority of the respondents said that ZMC was very
administrative and closely with laws and regulation governing the revenue collection,
especially those out sourced sources. This is because of the fact that 76% of the
respondents said there is a contractual agreement, for the case of benefiting 72% of the
respondents said that the contracts benefit more the council than collecting agents,
Moreover ZMC was very fair in ranking the benefit achieved due to proper management
of the contracts. In general there is good administration of laws and regulations include
Public Private Partnership at ZMC.
5.2 Conclusion
The study assessed the internal control systems performance on improving revenue
collection in Tanzania a case study ZMC. It answered three study objectives that
included: To evaluate the current institutional factors affecting revenue collection in
ZMC, to study various internal control mechanisms employed by the ZMC to improve
revenue collection, to evaluate the effectiveness of employed internal control system in
ZMC.
The findings from this study showed that there were internal controls over revenue
collection at ZMC which are most of the time applicable. Regarding control activities,
the study found that, there is a clear separation of roles, supervision of activities by
49
senior staff, job rotation among staff and weaknesses that are realized are addressed
accordingly in Organization.
The conclusion therefore was that internal controls affect the revenue collection of an
organization this could be positively or negatively depending on how it has been done.
On other hand study found that ZMC has employed the effective internal control
systems enough for it to collect targeted amount of revenue as supported by the study
findings of clear separation of roles, supervision, and commitment of management in
managing its institutional factors basing on the criteria of being “more benefiting council than
privatized agents in revenue collected. However the findings confirmed that ZMC is in
efficient in revenue collection since its revenue collection targets was no met.
5.3 RecommendationsBased on the findings of the study, some recommendations are hereby put forward.
5.3.1 Internal control system mechanisms
Having known the significance of Internal Control Systems, ZMC need to ensure that
they continuously review these Internal Control Systems and ensure that they are
operational.
ZMC should improving its internal audit department, this is because it is not efficient, is
understaffed, doesn’t conduct regular audit activities and doesn’t produce regular audit
reports although the few reports produced by the internal audit department address
weaknesses in the system.
5.3.2 Revenue Collection mechanisms
The Acts, rule and Regulations concerned with the revenue collection must be reviewed
by the Central Government so as to have only one Institution (i.e. ZMC) who will be
responsible to collect all revenue for the town services delivery activities. As shown in
the findings, there are other institution such as Zanzibar Commission for Tourism (ZCT)
and Zanzibar Revenue Board (ZRB) collect revenue of tourism levy and other tourism
50
business licenses; this was caused under collection for the total revenue budgeted in the
Central Government as a whole.
5.3.3 Contractual agreements
Zanzibar Municipal Council (ZMC) should improve the process of collecting to its
sources to ensure that fees are paid timely and to the right person. To meet its objectives,
the system of outsourced revenue collection needs to establish criteria that ensure that
private agents accomplish a reasonable return to ZMC. Hence, it is important for the
council to install a system for more realistic assessment of the revenue potential before
outsourcing takes place or is expanded, and to update the assessments regularly. One
option for consideration is to move the responsibility for revenue assessment out of
council administrations by establishing an independent body responsible for such
assessments, but such a body should be accountable to the council.
In case of money retained by agent from collection, management should establish the
appropriate gross margin retained to the agent to cover costs and profits. It is likely that
the official margins understate the actual margins, since the revenue potential reflected
in the contracts in many cases is underestimated. For instance, a recent study from
Uganda shows that the actual gross margins realized by private agents caused by the
undervaluation of market yields varied between 71% and 970%, (Iversen, et al 2006).
5.4 Areas for Further Research
The comparative study of the research should be conducted in order to assess the
internal controls systems performance in effectiveness of revenue collection to various
revenue authorities operated in Tanzania. As part of this study a further area for research
should be empirical investigations into the relationship between internal control systems
and Revenue collections performance in ZMC.
51
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55
APPENDIX I: QUESTIONAIRE
Dear Respondent, My name is Moh’d Hanau Vuai. I am currently carrying out a study
for the purpose of writing a dissertation as a requirement for the award of Master of
Accounting and Finance of Mzumbe University. The topic of study is ASSESSMENT
OF INTERNAL CONTROL SYSTEMS PERFORMANCE TOWARD REVENUE
COLLECTION IN TANZANIA. You have been selected to participate in this study due
to the importance of your information in the study. The information you provide will
only be used for the purpose of this study and will be treated with utmost confidentiality.
Please feel free and answer all the questions truthfully.
PART 1: Personal information.
(1) Name of the Organization…………………………
(2) Job Title: --------------------------------------------------------------------
(3) Sex: Male Female
(4) Number of years of working experience on revenue collection…………...
1-2 yrs 2-5 yrs 5-10 yrs 10-20yrs20
and above
(5) How many people in your organization are directly involved in managing
revenue section? ……………….
(6) Formal qualifications (e.g. certificates, diplomas, degrees)…………………..
56
PART 2: Internal controls and revenue collection
Objective A: To study various internal control mechanisms employed by the ZMC
to improve revenue collection.
(7) What is the type of internal controls available?
…………………………………
…………………………………
…………………………………
…………………………………
(8) Is there rotation of job to the Revenue collectors?
(a) Yes (b) No
(9) Is there any supervision to the collection of revenue?
(a) Yes (b) No
(10) How many times internal audit is conducted to check the performance of
revenue collection?
(a) Monthly (b) Quarterly (c) Half yearly
(d) when ever needed
(11) Are all activities concerning administration revenue collection done by the same
staff?
(a) Yes (b) No
(12) Is there any system adopted by ZMC on revenue collection?
(a) Yes (b) No
57
(13) If the above question is yes. Explain briefly.
……………………………………………
………………………………....................
……………………………………………
Objective B: To evaluate the effectiveness of internal control system employed by
ZMC.
(14) To what extent does the segregation of duty for authorization applied to
the ZMC? Please Tick
a) Little extent ( )
b) Moderate extent ( )
c) Large extent ( )
d) Very large extent ( )
15. How frequency does staff rotation
for revenue collectors take place in ZM
a) Monthly ( )
b) Quarterly ( )
c) Annually ( )
d) Never ( )
16. How long does it take to deposit the collected revenue in ZMC?
a) Daily ( )
b) One day lading ( )
58
c) Weekly ( )
d) Monthly ( )
(17) How the supervision of revenue collectors does is exercised at ZMC?
…………………………………………………
…………………………………………………
(18) Please rank the following statement on likert scale ranging from strongly disagree
to strongly agree
Where;
1 = strongly disagree2 = disagree3 = agree4 = strongly agree
Internal controls 1 2 3 4Our institution has clear separation of rolesEvery employee’s work check on the othersThere is appropriate supervision by senior staff onthe work of their juniorsCorrective action is taken to address weaknessesStaff are trained to implement the revenuecollection systemOur Institution has a well developed Chart ofAccountIt is impossible for one staff to have access to allvaluable information without the consent of seniorstaffControls are in place to improve revenue collectionDepartments have budget reviews where actualrevenue collected is compared with budgetedrevenue collection and explanations for thevariances givenOur security system identifies and safeguardInstitutional Assets
59
(19) What are the actions taken by the Municipal to improve revenue collection?
………………………………………….
………………………………………….
………………………………………….
(20) Are there any law or regulation governing revenue collection at in your department
Yes (b) No
(21) If the answer is yes, please identify them
…………………………………………
…………………………………………
…………………………………………
(22) Have you ever prepare any revenue report in your section?
(a) Yes (b) No
(23) If yes please mention them?
…………………………………………..
…………………………………………..
Objective C: To evaluate the current institutional factors affecting revenue collection in
ZMC.
(24) In your opinion, what do you consider to be the best measures for collecting fees for
the service delivered by ZMC?
………………………………………………………………………..
………………………………………………………………………..
………………………………………………………………………..
60
(25) Is there any contractual agreement exist between government and private sector?
Yes No
(26) If yes, Pease mention it………………………………………..
………………………………………
(27) Does the Council outsource any of its internal revenue sources to the private
collecting agents?
Yes No
(28) If yes, please mention them.
………………………………………..
………………………………………..
………………………………………..
(29) In your opinion do you think that most of the revenue contracts are benefiting
collecting agents more than the Council.
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APPENDEX II: INTERVIEW GUIDE
A: Personal Particulars:
Name of Respondent……………………………………………………………….
Age ………………………………………………………………………………….
Education……………………………………………………………………………
Position………………………………………………………………………………
Duration……………………………………………………………………………..
Interview Questions
1) How does your organization measures/ assess the effectiveness of internal
control in terms of revenue collection.
2) Does ZMC effective enough in revenue collection?
Please explain how.
3) Are there any variance between budget and actual revenue collections for
previous years?
4) If there are variances, what actions were taken by the Management?
5) Is there any revenue reports that are produced in your department?
Are they produced on time? If No, please explain the reasons to be late.
6) Have you any queries from the Auditor’s concerned with revenue collection in
your department?
What measures to be taken to avoid these queries?
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7) Any other measures to be taken in order to improve the effectiveness of revenue
collections at ZMC?
8) What are major challenges facing privatized revenue collection in local
government authorities?
9) In your opinion, do you think your institution has adequate liquidity to meet its
obligations as and when they fall due? Any reasons to explain the situation.
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