IDDA!r' - ir.kiu.ac.ug

INTERNAL AUDIT AND CASH MANAGEMENT IN NON GOVERNMENTAL

ORGANIZATIONS: A CASE OF COMPASSION

INTERNATIONAL RWANDA

Uwimana Pascasie

Reg No: MBA/29158/82/DF-KBL

BBAIULK

A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF

THE REQUIREMENTS FOR THE A WARD OF THE DEGREE

OF MASTER OF BUSINESS ADMINISTRATION OF

KAMPALA INTERNATIONAL UNIVERSITY

OCTOBER, 2012

KAMPALA I N T '=M~P:· UNIVERSITY- W · CP·. ~."-

1_ <T ECHNIC AL Sr~ '; ~'II; ! IDDA!' -~~-#~~ r.

DECLARATION

I, Uwimana Pascasie, do declare that this dissertation is my original work. It has not been

presented for any award in any University, college or other institution of higher learning.

SignedH ~%fj:0c Date: .. H~Hzfi. 1 'Z.C{L

Uwimana Pascasie

ii

APPROVAL

my approval as the Supervisor.

Signed: ..... ............................ ... .. .... ..... .............. Date : . .f .~~.~~··· Dr Turyahebwa Abanis

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DEDICATION

This dissertation is dedicated to the researcher's husband and children for their time,

encouragement, patience, prayers and wealth without counting. May God bless you.

iv

ACKNOWLEDGEMENTS

First and foremost the researcher would like to thank God the creator who has given her all the life

and protected her during this particular time passing in the MBA studies at Kampala International

University. She also acknowledges the tireless efforts of her beloved late parents during her

childhood.

Secondly, she thanks the management of Kampala International University that gave her the

required knowledge and skills that she has acquired throughout the MBA program.

Her special thanks are addressed to Dr. Turyahebwa Abanis who supervised her throughout this

dissertation. She appreciates the communication and sharing of ideas she had with him concerning

this dissertation and admit that he did a great work towards her success in this dissertation.

She also thanks Compassion International Rwanda office team for the great encouragement and

support that she received from them.

Last but not least she thanks her fellow students who they shared all the good and bad moments

both academically and socially in Kampala International University. Without them she would not

have completed the course successfully.

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TABLE OF CONTENTS

DECLARATION .............................................................................................................................................. ii

ACKNOWLEDGEMENT .................................................................................................................................. v

LIST OF TABLES ........................................................................................................................................ ix

LIST OF FIGURES ...................................................................................................................................... xi

LIST OF ABBREVIATIONS ......................................................................................................................... xii

ABSTRACT ............................................................................................................................................... xiii

CHAPTER ONE .............................................................................................................................................. 1

1.0. INTRODUCTION ..................................................................................................................................... 1

1.1. Background of the Study .................................................................................................................... 1

1.1.1. Historical perspective .................................................................................................................. 1

1.1.2. Theoretical perspective ............................................................................................................... 2

1.1.3. Conceptual perspective ............................................................................................................... 3

1.1.4. Contextual perspective ................................................................................................................ 4

1.2. Statement of the Problem .................................................................................................................. 5

1.3. Purpose of the Study .......................................................................................................................... 5

1.4. Specific Objectives ............................................................................................................................. 5

1.5. Research Question ............................................................................................................................. 5

1.6. Scope ................................................................................................................................................. 6

1.7. Significance of the Study .................................................................................................................... 6

2.0. LITERATURE REVIEW .............................................................................................................................. 7

.2.1. Internal Auditing ................................................................................................................................ 7

2.1.1. Definitions and origins of audit .................................................................................................... 7

2.1.2. History of internal auditing .......................................................................................................... 8

2.1.3. Internal audit functions ............................................................................................................. 12

2.1.4. Internal Auditing Principles ....................................................................................................... 13

2.1.5. Types of Internal audits ............................................................................................................. 14

2.1.7.1nternal controls ........................................................................................................................ 17

2.1.8. Internal Controls- Myths & Facts ............................................................................................. 18

2.2. Cash management ........................................................................................................................... 20

2.2.1. Definitions ................................................................................................................................ 20

2.2.2. Cash management models ............................................................................................................ 21

vi

2.2.3. Objectives and importance of cash management ...................................................................... 22

2.2.4. Cash management policies and procedures ............................................................................... 23

2. 2.5. Techniques of cash management .............................................................................................. 24

2.2. 6. Type of risks associated with cash management process ........................................................... 25

2.2. 7. The Goa Is of Cash Man age me nt ................................................................................................ 2 6

2.2.8. Elements of an Effective Cash Management Program ................................................................ 27

2. 2. 9. Rules of Effective Cash Management.. ....................................................................................... 29

2.2.11. Accountability ............................................................................................................................. 35

CHAPTER THREE ......................................................................................................................................... 36

3.0. METHODOLOGY ................................................................................................................................... 36

3.1. Introduction ..................................................................................................................................... 36

3. 2. Study Design .................................................................................................................................... 3 6

3 .3. Study Population ............................................................................................................................. 36

3.4. Sample Size ...................................................................................................................................... 36

3.5. Sampling Strategies .......................................................................................................................... 36

3. 6. Data collection process .................................................................................................................... 3 7

3. 7. Data collection i nstru me nts ............................................................................................................. 3 7

3 .8. Data qua I ity control ......................................................................................................................... 38

3.9.Procedure ......................................................................................................................................... 39

3 .10. Data processing and ana lysis ........................................................................................................... 39

3 .11. Ethi ca I considerations .................................................................................................................... 39

3 .13. Limitations of the Study ................................................................................................................. 39

4.0. DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS ................................................. 40

4.1. lntroduction ..................................................................................................................................... 40

4.2. Data ana lysis and presentation ........................................................................................................ 40

4.2.1. Background of respondents ....................................................................................................... 40

4.2.2. Current situation in regards to project cash management ......................................................... 42

4.2.3. The impact of internal audit on cash management.. .................................................................. 48

CHAPTER FIVE ............................................................................................................................................. 54

5.0. SUM MARY, CONCLUSION AND RECOMMENDATIONS ...................................................................... 54

5.1. Summary ......................................................................................................................................... 54

5.2. Conclusion ............................ , .......................................................................................................... 55

5.3. Recommendations ........................................................................................................................... S6

vii

5.4. Suggestion for further studies .......................................................................................................... 57

Bibliography ........................................................................................................................................... 58

APPENDIX 1 ................................................................................................................................................. 61

Questionnaire ............................................................................................................................................ 61

APPENDICE II .......................................................................................................................................... 66

Project suspension form ......................................................................................................................... 66

APPENDICE Ill ......................................................................................................................................... 67

Partnership termination form ................................................................................................................. 67

APPENDICE IV ......................................................................................................................................... 68

Project management and leadership structure ....................................................................................... 68

APPENDICE V .......................................................................................................................................... 69

Table of determining sample size from a given population ...................................................................... 69

viii

LIST OF TABLES

Table 1.1 Funds disbursed by Compassion International to the projects (2010)......... ...... 4

Table 2.1 Difference between Internal and External Auditing................................... 16

Table 2.2 Internal Controls- Myths & Facts....................................................... 19

Table 4.1 Showing the educational levels of respondents......................................... 40

Table 4.2 Showing the categories of employees serving Compassion International

Rwanda ....................................................................................... . 41

Table 4.3 Showing the working experience ofrespondents............... ... ..................... 42

Table 4.4 The relationship between internal audit, accountability and value for 42

money ...................................................................................... .

Table 4.5 Showing the measures of internal audit to limit misappropriation in Project . . . . 43

Table 4.6 Showing the project cash management written policies and procedures

manual ...................................................................................... . 44

Table 4.7 Showing the person who has the authority to sign payment vouchers ........... . 44

Table 4.8 Showing if the project has the policies/procedures of competitive bidding for its

purchases ................................................................................... . 45

Table 4.9 Showing if Project respects the accounting principles in recording cash 45

transactions .................................................................................................... .

Table 4.10 Showing the amount that the project cashier is authorized to handling . . . . . . . . . 46

Table 4.11 Showing if the Compassion project keeps books of accounts . . . . . . . . . . . . . . . . . . 46

Table 4.12 The rank of the efficiency of the financial statement................................. 47

Table 4.13 Showing the accounting system is computerized....................................... 47

Table 4.14 Showing the effectiveness and efficiency of internal audit in contributing to

projects performance within the organization ........................................ .

Table 4.15 Showing the importance of internal audit in the project effective .................... .

Table 4.16 The main object of internal audit ........................................................ .

Table 4.17 Showing the frequency of the internal auditors to project .......................... .

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48

48

49

49

Table 4.18 Showing if the recommendations are implemented................................... 50

Table 4.19 Showing the constraints facing by the internal auditors.............................. 50

Table 4.20 Showing if internal audit is helpful to achieve project's performance.............. 51

Table 4.21 The extend attributed to the project's performance to internal audit............ 51

Table 4.22 Showing to whom internal auditors report to....................................... 52

Table 4.23 Showing if compassion project calls for external auditor services.............. 52

X

LIST OF FIGURES

Figure 2.1.: A basic diagram of an effective cash management.................................. 20

Figure 2.2.: Value of Money........................................................................... 32

xi

LIST OF ABBREVIATIONS

AIDS : Acquired Immunodeficiency Syndrome

CAS : Corporate Audit Services

CDSP : Child Development through Sponsorship

CI : Compassion International

CIA : Cetiified Internal Auditor

C!Vs : Complementary Interventions

CMT : Country Management Team

CSP : Child Survival Program

GMC : Global Ministry Center

HIV : Human Immunodeficiency Virus

!CPs : Implementers Church Partners

IIA : Institute of Internal Auditor

!SA : International Standard on Auditing

KIU : Kampala International University

LDP : Leadership Development Program

MBA :Master of Business Administration

NGOs :Non-Governmental Organizations

NPOs : Non Profit Making Organizations

P A : Partnership Auditor

PF : Partnership Facilitator

USA : United States of America

VfV : Value for Money

xii

ABSTRACT

The study was about the relationship between internal audit and cash management in NGOs a case

of Compassion International Rwanda. Cash management is the one of important areas that a project

should focus on, if it has to achieve its goals and objectives. In the problem statement, it was found

out that Compassion International Rwanda Office assists 196 projects and some of them are faced

with difficulties in meeting required professional standards in cash management. They have poor

performance. Consequently some of them are suspended or completely closed.

Therefore, the main objective of this research was to find out how internal audit should be carried

out to impact positively the cash management in order to improve the project performance.

In this study, the research design used was descriptive survey and cross sectional register with

correlational design target population was the staff of projects located in Northern Province plus

sta!T from head office who are involved in Compassion Project cash management. The sample size

was been 86 employees. Purposive sampling method was been applied whereby questionnaire and

unstructured interviews were used to collect data from the selected persons.

The study concluded that internal audit plays a vital role in the prevention of errors and frauds as it

instigates internal control measures and internal checks to be followed in a project so that errors and

frauds can be mitigated. Internal audit has an impact on effective cash management in Non­

Governmental Organizations.

The researcher recommends that to overcome the constraints facing by the internal auditors, the

purchases policies, cash disbursement procedures and accounting system must be in written

document manual, be uniform and be available for all projects. The results from internal audit

should be trusted and respected and their recommendations have to be implemented without delay.

The internal auditors should organize professional courses related to cash management for

Compassion projects managers. And, the accounting operations have to be computerized.

xiii

CHAPTER ONE

1.0. INTRODUCTION

This chapter covers the background, problem statement, purpose, specific objectives, research

questions, sub-research questions, hypothesis, scope, and significance of this study.

1.1. Background ofthe Study

1.1.1. Historical perspective

Compassion International is a Christ centered non-governmental organization committed to the

church and exists as an advocate for children, to release them from their spiritual, economic, social,

and physical poverty and enable them to become responsible and fulfilled Christian adults in Jesus

name. As such, Compassion International (CI) values are: Integrity, Excellence, Stewardship and

Dignity. In order to be effective, Compassion International has partnership with local churches and

the partnership must be based upon a common vision, goals and understanding. (Compassion

International, reports 2009-201 0)

The main objective of project control was to review the efficiency and effectiveness of programs

and provide information that will help to in develop and maintain financial and administrative

processes. It also conducts control examinations on financial information in facilitative, consistent,

and professional manner, to express an objective opinion on the quality and integrity of that

information. Therefore, the research was generally about "internal audit and cash management in

non-governmental organization: a case study of Compassion international Rwanda".

In particular, this research dealt with the relationship of internal audit and cash management within

the projects assisted by Compassion International Rwanda office in order to rectify the weak points

and reinforce the strong points, as well as giving possible recommendations to improve the work in

the area of internal audit.

In addition, internal audit will be created early by recognizing its contribution in the realization of

the general objective in an effective way.

Internal Auditing profession evolved steadily with the progress of management science after World

War II. Internal auditing has consisted primary of the audit of compliance with internal financial

procedures. Today, it extends to the appraisal of efficiency and effectiveness in non-financial as

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well as financial matters. In the modern business environment internal auditing is critical to the

success of the business as it is regarded "the eyes and ears of management". (IIA 2005)

According to Helberg (1997), in the modern business environment, internal audit promotes the

effectiveness of goods and material supply, the efficiency of productive organization, technological

effectiveness of resource utilization and cost benefit, (Helberg, 1997). It is a fact that, todays,

internal audit is taking on increased importance in today's businesses by assisting management in

evaluating controls and operations. The challenge is to identify and meet management expectations.

Internal audit is a therefore a vehicle to survival and success, (Compassion International Rwanda

Vision casting training for ICPS, 2010).

1.1.2. Theoretical perspective

The study was about the relationship between internal audit and cash management in NGOs a case

of Compassion International Rwanda. According to Lawrence (1979), cash management is a broad

area having to do with the collection, concentration, and disbursement of cash including measuring

the level of liquidity, managing the cash balance, and shmt term investments. Cash management is

the one of important areas that a project should focus on, if it has to achieve its goals and objectives

(Ramamoorti, 1998). The object of auditing is to assess the relationship between internal audit,

accountability, and value of money in cash management, to found out the truth and fairness of the

earnings and the project financial position and also to prevent and detect errors. (Ratliff &Reding,

1995)

Internal audit is a system of methods and procedures designed to safeguard asset, ensure reliable

accounting records, promote efficiency and encourage adherence to company policies, internal

control includes administrative controls and accounting controls. (ISA, 2005)

Lowe, (1995) defines cash management as broad term that refers to the collection, concentration,

and disbursement of cash which encompasses a company's level of liquidity, its management of

cash balance, and its short-term investment strategies. (Bradford,1995)

Using audit resources effectively depends on a standardized, consistent approach to audit, and

understanding the roles, relationships, and responsibilities to the different positions responsible for

the audit function. Compassion hereby uses local staff in country offices to conduct these audits,

due to the large numbers of partners, their graphic dispersion around the world, and cultural and

linguistic barriers. (Jagdish, 2005)

2

It is recognized that country office management teams are also the primary users of the information

provided by the audit function. Training and capacity building will be the responsibility of the

Administrative and Finance Manager in each country office.

Compassion international ensures the highest integrity in all their programs through internal

auditing in both projects and field offices. There are two reasons of audit. The first is to provide

information and consulting expertise to management on all levels. The second is to ensure sponsors

and donors that funds are expended properly. (Compassion International Rwanda, Annual reports

2009 and 2010)

1.1.3. Conceptual perspective

The dependent variable in the study is effective cash management. The Effective cash management,

in simple terms, may be defined as a management tool to ensure that sufficient cash is available to

meet current and future liabilities, with any surplus being safety invested to generate the maximum

income. (Texas State Auditor's Office. 1993)

The independent variable is internal auditing. Internal audit refers to an independent, objective

assurance and consulting activity that adds value to and improves an organization's operations. It

helps an organization to accomplish its objectives by bringing a systematic, disciplined approach to

evaluate and improve the effectiveness of risk management, control, and governance processes.

(Bradford, 1995)

Providing accurate and timely communication makes internal auditors a valuable resource to

executive management in accomplishing overall goals and objectives, as well as strengthening

internal control and governance. Project Auditing contribute to the quality of management by the

provision of an independent, objective and ongoing review of procedures at the project level.

The main objectives of project auditing are to: review the efficiency and effectiveness of programs;

assist in developing and maintaining financial and administrative processes; and conduct audit

examinations on financial information in a facilitative, consistent, and professional manner to

express an objective opinion on the quality and integrity of that information.

3

1.1.4. Contextual perspective

The research was conducted in project financed by Compassion international Rwanda and CI has

established its activities in all parts of the country and works very closely with the local church in

the community. The reason for this children Development Program approach is to enhance

sustainability and program ownership by the community, but it also serves as a tool for ensuring

that we reach out to the poorest of the poor by involving the local Church to identify the real target

groups, vulnerable children. The research was about internal audit and cash management in non­

organizational in Rwanda

Today, Compassion International Rwanda is operating in 28 countries in the whole world and

sponsors more than one million children including 52,790 children in Rwanda through 196 projects

in the whole country. The sponsor of all our activities is Compassion International which

Headquarter is in Colorado Springs, USA. (Compassion Corporate Audit Services. 2005)

According to the table below, last fiscal year from July 2009 to June 2010, Compassion

international Rwanda throughout six programs have disbursed to the projects funds equal to

7,554,267,631 Rwandans francs (about Americans Dollars 12,590,446) (Compassion International

Rwanda, Annual reports 2009 and 2010.)

Table 1.1: Funds disbursed by Compassion International to the projects

N Area of intervention Number of Number of Transferred funds to

Projects Beneficiaries) projects (RWF)

1 Northern Province 20 6,353 713,388,226

2 Southern Province 51 15,799 2,058,296,977

3 Western Province 34 7,383 1,274,044,407

4 Eastern Province 66 16,270 2,517,712,682

5 Kigali City 25 6,971 990,825,339

5 Provinces 196 52,776 7,554,267,631

Source: Funds disbursed by Compassion International to the projects (2010)

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1.2. Statement of the Problem

Currently Compassion international finances 196 projects in Rwanda and forty (40) among them are

faced with difficulties in meeting required professional standards in cash management; the books of

accounts are incorrect and the cash transactions are not recorded according to accounting

requirements standards. The funds are not used according to budget lines and the utilization of

resources is not efficient and effective. Consequently, they have poor performance. (Compassion

International Rwanda Vision casting training for ICPS, 2010). The reason why, Compassion

International Rwanda has completely closed the partnership with 3 projects (a sample of terminated

form in attachment) and has suspended the partnership with I 0 during a period from 2009 to 20 I 0.

This was a result of poor cash management practices and the need for this study on internal audit

and cash management in NGOs in Rwanda.

1.3. Purpose of the Study

The purpose of this study was to:

Establish the relationship between internal audit and cash management in NGOs.

1.4. Specific Objectives

1. To assess the relationship between internal audit, accountability and value for money in cash

management,

ii. To identify the causes of misuse of projects funds and poor performance within some

Compassion projects,

iii. To find out how internal audit may be effective and efficient in contributing to the projects

performance.

1.5. Research Question

The following research question was been used to accomplish the objective of this study:

1. Is there a relationship between internal audit, accountability and value for money in cash

management?

5

n. What are the causes of misuse of projects funds and poor performance within some

Compassion projects?

l!I. How can internal audit be effective and efficient in contributing to the projects performance?

1.6. Scope

This study focused on internal audit and cash management in NGOs and covered 20 projects

financed by Compassion International Rwanda, located in Northern Province for the period 2009-

2010. The study was conducted at Compassion International in Rwanda.

1.7. Significance of the Study

This study contributed to identify the impact of internal audit on effective cash management in

NGOs like Compassion International Rwanda.

This study will be useful for the organization, the projects, church partners, community and all

beneficiaries.

This study have to show how project should conduct periodic reviews of its cash management

process, to ensure its integrity, accuracy and reasonableness and likely provide an impmtant

independent control mechanism for detecting deficiencies and minimizing risks in the management

process.

It will help on collecting evidence that all documentation and accountability for cash management

are reliable and in accordance with local and international laws and procedural requirements.

6

CHAPTER TWO

2.0. LITERATURE REVIEW

KAMPALA INTERNATIONAL UNIVERSITY- W ·CAMPUS

<TECHNICAL SECliOW>

J!LIBR.ARY. ~~~·

In this study, the researcher intended to establish the relationship between internal audit and cash

management in NGOs like Compassion International Rwanda.

2.1. Internal Auditing

2.1.1. Definitions and origins of audit

According to Ratliff & Reding,(1995) an audit is a systematic process of objectively obtaining and

evaluating evidence regarding assertions about economic actions and events to ascertain the degree

of correspondence between these assertions and established criteria and communicating the results

to interested users. An audit is a systematic approach as the audit follows a structured, documented

audit plan. An audit is objectively conducted because an audit is an independent, objective and

expert examination and evaluation of evidence.

For him again, audit started in the Middle Ages, when big land and business owners in Europe

engaged agents or stewards to run their businesses. This led to loss of control due to Agency

Theory/Stewardship and geographic spread. Consequently, the owners engaged independent third

parties to certify stewards' reports. Feedback was given verbally while owners listened. Hence audit

comes from "audere" a Latin word for hear or listen (Ratliff& Reding, 1995).

Internal audit is a system of methods and procedures designed to safeguard asset, ensure reliable

accounting records, promote efficiency and encourage adherence to company policies, internal

control includes administrative controls and accounting controls.(ISA, 2005)

Institute of Internal Auditors (IIA) introduced new definition of internal audit in June 1999, on the

recommendation of the IIA Guidance Task Force (GTF) is as follows: " it is an independent,

objective assurance and consulting activity designed to add value and improve an organization's

operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined

approach to evaluate and improve the effectiveness of risk management, control, and governance

processes.'' (IIA, 2005)

The Institute of Internal Auditor, USA, has defined internal auditing as " an independent appraisal

act ivity within an organization for the review of accounting, financial and other operations as a

7

basis for service to management. It is a managerial control, which functions by measuring and

evaluating the effectiveness of other controls." (ISA 2005)

According to Ash ish, (20 1 0), internal auditor has now assumed several important functions; it

ensures the effective application of established policies, rules, procedures, and internal check. It also

has to make constant review of internal control procedure and suggests necessary changes for the

same. It makes constant efforts to find out weaknesses and defects in the procedures and methods

followed and suggest improvements. The internal audit is expected to keep a watch over the income

and expenditure of the concern and should conserve its resources as far as possible. Besides, it has

to verify the accounts and to examine all the records made in the account books to ensure that they

are accurate and reliable.

2.1.2. History of internal auditing

The Internal Auditing profession evolved steadily with the progress of management science after

World War II. It is conceptually similar in many ways to financial auditing by public accounting

firms, quality assurance and banking compliance activities. Much of the theory underlying internal

auditing is derived from management consulting and public accounting professions. With the

implementation in the United States of the Sarbanes-Oxley Act of 2002, the profession's growth

accelerated, as many internal auditors possess the skills required to help companies meet the

requirements of the law. (IIA, 2005)

According to Ramamoorti (2003), the presence of auditing has been inferred from records of a

Mesopotamian civilization going back as early as 3500 BC.

These records, involving financial transactions displayed various markings, which may be construed

as a system of verification. Internal controls and separation of duties probably arose at the same

time. Records of other early civilizations, including early Egyptian, Greek, Chinese, Persian and

Hebrew, display similar systems.

Ancient Rome employed the "hearing of accounts", where one official would compare his records

with those of another, an application of both separation of duties and verification. It is this practice,

of hearing of accounts, which probably gave rise to the term "audit", from the Latin "auditus".

8

With the fall of the Roman Empire many of the financial systems, including verification,

disappeared. However, they reappeared as the volume of financial activity recovered towards the

end of the dark ages.

According to Ramamoorti (2003), internal audit was not until the Industrial Revolution in Europe

that auditing with characteristics similar to current auditing that went beyond the hearing of

accounts to include verification of accounting records and associated supporting documentation,

came into being. The Europeans then brought over these practices to the north-American colonies.

More Recent Antecedents of the Practice of Modern Internal Auditing

The proliferation of large, dispersed, complex corporations, starting early in the twentieth century,

spurred the accelerated development of the internal audit function. The Institute oflnternal Auditors

(ITA) was founded, in 1941, largely in response to this development and modern internal auditing

owes much of its early progress to the IIA. This includes the gradual expansion of the scope of

internal audit activities and of the professionalization of the practice of internal auditing.

The development of professional underpinnings for the profession, however, did not come all at

once. It was not until 1947 that the IIA issued its first Statement of Responsibilities. The Code of

Ethics was issued in 1968 and the Standards in 1979. The first Certified Internal Auditor (CIA)

exams were written in 1974, indicating that there was, that time, deemed to be a recognized body of

knowledge available for internal audit professionals.

The Beginnings of the Practice of Internal Auditing in the Federal Government

Recognition of the potential value of the internal audit function came later to the public sector than

to the private sector, but with similar motivation. The US Congress first recognized the potential

contribution of internal audit in 1950 in requiring, by statute, that each executive agency include

internal audit in the agency's system of internal controls. In Canada, the Report of the Royal

Commission on Government Organizations (the GLASSCO Report), in 1962, recommended that

departmental management be responsible for the establishment of proper systems of internal audit,

rather than relying exclusively on the Auditor General to identify inadequate financial control.

The Treasury Board's Guide on Financial Management, issued in 1966, stated that "as the process of

decentralizing control to department's proceeds, the need emerges for audits specifically designed

9

to inform both the department and the executive branch of government whether resources are being

used legally and effectively". It went on to say that the audit function "has an important place in all

depmiments to review and appraise the soundness, adequacy and application of all accounting,

financial and operating controls".

In 1973, the Treasury Board made it mandatory for all departments and agencies to have internal

audits performed on their systems of financial administration. Directive 9.1 of the policy stated:

Departments shall have financial audits performed, which include: Reviewing and appraising the

effectiveness and efficiency of departmental systems of financial administration, including the

safeguarding of assets, and ascertaining the extent of compliance of departmental systems and

procedures with financial policies, regulations and other instructions of Parliament, Treasury Board

and the department or agency.

According to Flesher& Mcintosh (2002), the practice of internal audit in federal government

departments and agencies in the 60s and 70s was not by any means restricted to financial audit,

Treasury Board pronouncements notwithstanding. During this period the scope of the practice

varied from narrowly based, financial auditing to Operational Auditing, with vitiually unlimited

scope.

As would be expected, the rigor of internal audit practice varied considerably as well, remembering

that when you moved any distance from the financial auditing domain, methodology and standards

were sparse.

Evolution of the Internal Audit Function Since 1978

By the seventies, internal audit practice had been expanding in scope in many parts of the world for

some time, in many guises. In the U.S., financial auditing was being stretched to the review of all

areas where money was being spent, which led the auditors, inevitably, into the examination of

operations; in the U.K., the thrust was value-for-money auditing; in Canada and elsewhere, the

practice of Operational Auditing was gaining a following, while the Auditor General coined the

term "Comprehensive Auditing", with characteristics similar to Operational Auditing. (Flesher&

Mcintosh, 2002)

10

The Controller General of Canada came to the conclusion, in the early 1980s, that it was time for

the federal government to follow suit, for two reasons. First, it seemed to make sense to provide the

same, independent review service to all managers that was being provided to financial managers.

Second, there seemed to be a need to provide more rigor, in the form of standards, for such an

expanded internal audit practice.

The result was the "Standards for Internal Audit in the Government of Canada", published in 1982.

This Policy and Standards, however, coexisted with the "Principles for the Evaluation of Programs"

and its companion "Guide for the Program Evaluation Function", which effectively limited the

scope of internal audit to the examination of all things within the boundaries of the host

organization, while the evaluation function took on the role of evaluation program effects, beyond

the borders of the host organization.

There was some overlap, in that evaluation was also to examine the efficacy of the program delivery

platform. At this time, the frequency of audits of all major components was lengthened form within

three years to every three to five years.

The impetus for the next change in the review regime in the federal government came, at least in

part, from the 1993 Auditor General's audits of the internal audit and evaluation functions in

departments and agencies.

The Auditor General's Report concluded the internal audit and evaluation functions were,

generally, not meeting expectations and that the information for decision-making and for reporting

results, provided by the internal audit and evaluation functions, could be better integrated with that

provided by management.

Parenthetically, the downsizing years resulted in a reduction of, between two-thirds and three­

quarters of the federal government audit and evaluation population, a development which, no doubt,

contributed considerably to its deteriorating performance during this time period.

According to Birlett & Leithhead (1999), the Treasury Board's response was the Review Policy,

issued in I 994. This policy brought together various, Treasury Board performance and review

requirements. It was intended to support the principles of managing for results through:

11

Emphasizing the responsibility line managers have for demonstrating performance and acting on

performance information, and creating a productive alliance between managers and review

professionals that will link review more visibly to management decision-making and innovation, as

well as accountability practices.

The new policy promoted the use of review to help introduce and credibly assess innovative uses of

management reforms and incentives, such as single-window service delivery; strategic use of new

information technologies; Special Operating Agencies; quality management; delayering,

decentralization and empowerment; forming service delivery alliances with third parties; new

approaches to manage risks better; and flexible operating budgets.

The Internal Audit Policy component of the Review Policy made no substantive changes to the

scope of internal audit but bolstered the professional underpinnings of the practice by integrating

Treasury Board and IIA Standards and Ethics provisions. Also, in this policy, frequency

requirements were dropped and the concept of risk-based audit planning was introduced.

For Flesher &Mcintosh, (2002) , in many respects, the evolution of internal audit practice over the

last forty to fifty years is a case of "back to the future", in that "assurance" auditing draws heavily

on the methodology and standards of private sector, external auditing, which is the genesis of the

early practice of internal auditing. The differences, however, are significant. The early internal audit

practice was established, in no small way, as much for the support of external audit activities (in

order to minimize growing external audit costs) as for the benefit of management. On the other

hand, the current version of assurance retains the broad scope of previous versions, while adding the

rigor typically associated with the private sector external audit practice.

2.1.3. Internal audit functions

According to William D.S.(l830) internal audit's primary function is to review and evaluate the

adequacy, reliability and effectiveness of internal controls within the systems. To achieve this, the

following specific objectives should be fulfilled:

Reviewing and appraising the soundness, adequacy, and application of accounting, financial, and

operational controls, ascertaining the extent of compliance with established policies, plans, and

procedures, ascertaining the extent to which organizational assets are accounted for and safe-

12

guarded from losses of all kinds, ascertaining the reliability of accounting and other data developed

within the organization, appraising the quality of performance in carrying out assigned

responsibilities

Ensuring the reliability and integrity of financial and operating information issued to management

for purposes of decision-making, ensuring compliance with Financial Instructions and Procedures,

Supplies Regulations and Procedures, General Orders, directives and relevant circulars issued from

time to time, safeguarding government assets from losses of all kinds, including those arising from

fraud, misappropriation, irregularity or corrupt practices.

Ensuring economy, efficiency and effectiveness in the utilization of scarce government resources in

carrying out operations, making constructive and practical recommendations to management, that

which should result in the movement towards change and improvement.

2.1.4. Internal Auditing Principles

According to Moeller, (2009) there are five important principles implicit in the definition,

objectives, and scope of internal auditing: Integrity, Independence, competence, confidentiality and

objectivity.

Integrity: Internal Auditor established trust and thus provide the basis for the reliance on their

judgment.

Independence: internal auditors have to be independent from the activities they audit so that they

can evaluate them objectively. Internal auditing is an advisory function, not an operational one.

Therefore, internal auditors should not be given responsibility or authority over any activities they

audit. Independence and objectivity of internal auditors must exist in both appearance and in fact;

otherwise the credibility of the internal auditing work product is jeopardized.

Competence: a business's internal auditors have to be people who possess the necessary education,

experience, and proficiency to complete their work competently, in accordance with accepted

internal auditing standards. An understanding of good business practices is essential for internal

auditors. They must have the capability to apply broad knowledge to new situations, to recognize

and evaluate the impact of actual or potential problems, and to perform adequate research as a basis

for judgments. They must also be skilled communicators and be able to deal with people at various

levels throughout the organization. 13

Confidentiality: evaluations and conclusions contained in internal auditing reports are directed

internally to management and the board, not to stockholders, regulators, or the public. Presumably,

management and the board can resolve issues that have surfaced through internal auditing and

implement solutions privately, before problems get out of hand.

Management is expected to acknowledge facts as stated in reports, but has no obligation to agree

with an internal auditor's evaluations, conclusions, or recommendations.

Objectivity: Internal auditor Exhibits the highest level of professional objectivity in gathering,

evaluating and communicating information about the activity or process being examined. Internal

auditor makes a balanced assessment of all the relevant circumstances and are not unduly

influenced by their own interest or by others forming judgment.

2.1.5. Types oflnternal audits

According to !SA (2005) various types of audits are used to achieve particular objectives. The types

of audits briefly described below illustrate a few approaches internal auditing may take.

Operational audit: an operational audit is a systematic review and evaluation of an organizational

unit to determine whether it is functioning effectively and efficiently, whether it is accomplishing

established objectives and goals, and whether it is using all of its resources appropriately. Resources

in this context include funds, personnel, property, equipment, materials, information, space, and

whatever else may be used by that unit.

System audit: a system analysis and internal control review is an analysis of systems and procedures

for an entire function such as information services or purchasing. Ethical practices audit: an ethical

business practices audit assesses the extent to which a company and its employees follow

established codes of conduct, policies, and standards of ethical practices. Policies that may fall

within the scope of such an audit include adherence to specified guidelines in such areas as

procurement, conflicts of interest, gifts and gratuities, entertainment, political lobbying, ownership

of patents and licenses, use of organization name, speaking engagements, fair trade practices, and

environmentally sensitive practices.

Compliance audit: a compliance audit determines whether the organizational unit or function is

following particular rules or directives. Such rules or directives can originate internally or externally

and can include one or more of the following: organizational policies; performance plans;

14

established procedures; required authorizations; applicable external regulations; relevant contractual

provisions; and federal, state, and local laws.

Financial audit: a financial audit is an examination of the financial planning and reporting process,

the conduct of financial operations, the reliability and integrity of financial records, and the

preparation of financial statements. Such a review includes an appraisal of the system of internal

controls related to financial functions.

Information systems audit: a systems development and life cycle review 1s a unique type of

information systems audit conducted in partnership with operating personnel who are designing and

installing new information systems.

Program audit: a program audit evaluates whether the stated goals or objectives of a certain program

or project have been achieved. It may include an appraisal of whether an alternative approach can

achieve the desired results at a lower cost. These types of audits are also called performance audits,

project audits, or management audits.

Fraud audit: a fraud audit investigates whether the organization has suffered a loss through

misappropriation of assets, manipulation of data, omission of information, or any illegal or irregular

acts. It assumes that intentional deception has occurred.

Pmiicipative audit: a participative audit enlists the audit to perform a self-assessment and otherwise

assist in the audit process. In effect this becomes a problem-solving partnership between the internal

auditor and audit.

2.1.6. Differences and similarities between internal audit and external audit

There are, however, many key differences between internal and external audit and these are matters

of basic principle that should be fully recognized:

The External Auditor: The external auditor is an external contractor and not an employee of the

organization as is the internal auditor. The external auditor seeks to test the underlying transactions

that form the basis of the financial statements.

The internal Auditor: The internal auditor, on the other hand, seeks to advise management on

whether its major operations have sound systems of risk management and internal controls.

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Table 2.1: Difference between Internal and External Auditing

In regard to : Internal Auditing External Auditing

Focus Provide financial, operational, assurance, Primarily attests to

consultative, governance, computer and financial statements and

fraud internal control.

Management Reports to executive management Primarily reports to the

administrative. Builds relationship audit committee on

throughout the organization to ensure financials and internal

concerns are identified and resolved in a control

timely manner

Standards Follows the IrA's International Standards for Is governed by appropriate

the Professional Practice of Internal Auditing accounting and audit

standards

Independence Demonstrates organizational independence Is independent of

and objectivity in the work approach, but is organization.

not independent of the organization.

Results Identifies problems, makes recommendations Meets statutory

and helps facilitate resolution. requirements and provides

necessary adjustments to

meet financial accuracy

-Source: IIA, 200;:,

The Main Similarities

The main similarities between internal and external audit are as follows: both the external and

internal auditor carry out testing routines and this may involve examining and analyzing many

transactions, both the internal auditor and the external auditor will be worried if procedures were

very poor and/or there was a basic ignorance of the importance of adhering to them, both tend to be

deeply involved in information systems since this is a major element of managerial control as well

as being fundamental to the financial reporting process, both are based in a professional discipline

and operate to professional standards, both are concerned with the occurrence and effect of errors

16

and misstatement that affect the final accounts, both produce formal audit reports on their activities.

(Jagdish, 2005).

2.1. 7. Internal controls

Definitions of internal control: internal controls are the plans of the organization and all the

methods and procedures adopted by the management of an entity to assist in the achieving

management objective of ensuring, as far as possible, the orderly and efficient conduct of its

business, including adherence to management policies , the safeguarding of assets, prevention and

detection of fraud and error, the accuracy and completeness of the accounting records and timely

preparation of reliable financial information. The system of internal control extends beyond those

matters which relate to functions of accounting system, for example a gateman who looks after

whether asset of an entity are safeguarded. Internal control is a prescription and practice of a system

by management. The system encompasses plan, methods and procedures prescribed for and

practiced by internal constituents. (IIA, 2005)

Importance of Internal control: the aim prescription and practice of such a system is to control

over accounting and other administrative areas in order to bring forth efficiency and orderliness.

This aim reached through different types of controls. Both internal audit and internal checks are

important constituents of the overall system of internal control. On one hand, internal check system

is that system instituting checks on the day to day transactions. The main objective of internal

checks is prevention and detection of fraud by division of responsibilities. An auditor can put

greater reliance on the financial data generated in the system with test checking of selected items, if

good accounting control exists in the accounting systems. On the other hand, internal audit is a

critical appraisal of functioning of the system internal check. Expectations from normal functioning

of internal check system are exposed in internal audit. Accuracy, completeness, reliability and

timeliness of accounting information are tested and reported for remedial action. (IIA, 2005)

Types of Internal controls: According to ISA (2005) various types of audits are used to achieve

particular objectives and can be categorized into four main types that are detective, directive,

preventive and corrective.

Detective: these controls identify undesirable outcomes that have occurred and function after the

event has happened. This means that they are suited when it is possible to accept the loss or damage

incurred. An example of this type of detected after they have occurred.

17

Directive: These controls direct an activity towards a desired outcome. For example to train staff to

work towards achieving particular objectives for the organization or the existence of strategy that

informs organization staff towards specific aim.

Preventive: These controls limit or stop the possibility of an undesirable events happening.

Examples include separations of duty controls or authorization limits and levels.

Corrective: These correct undesirable outcomes after they have happened and an example of this

might be the terms and conditions of a contract to recover an overpayment.

2.1.8. Internal Controls- Myths & Facts

Because there are many misconceptions about internal controls, knowledge sharing is vitally

important to an effective control system. Part of the educational process is to dispel the myths about

internal controls. Here are a few myths and the corresponding facts. (!SA, 2005)

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Table 2.2: Internal Controls- Myths & Facts

Myth Fact

Internal controls are based on a strong control

Internal controls result from a strong set of environment and solid business practices that,

policies and procedures (i.e., "If a policy doesn't in most cases, will be supported by policies;

exist, we don't have to do it"). however, lack of formal policies does not

preclude good business practices.

Internal controls? That's why we have internal Management and departmental personnel are

auditors. the owners of internal controls.

Internal controls are all about finance and

accounting. We do what the Office of Financial Internal controls are integral to every aspect of

Affairs or the Department of Finance tells us to business.

do.

Internal controls are essentially negative Internal controls make the right thing happen

the first time.

Internal controls are a necessary evil. They take Internal controls should be built into, not onto,

time away from our core activities and

responsibilities. business processes.

If controls are strong enough, we can be sure Internal controls provide reasonable, but not

that errors and irregularities will always be absolute, assurance that the organization's

detected. objectives will be achieved.

Source: ISA (2005)

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2.2. Cash management

2.2.1. Definitions

Cash Management can be defined broadly as the optimization of cash balances, cash flow, and short

term investments. In simplest terms (see diagram), an effective cash management system will

consist of optimized billings/collection practices and optimized payables/disbursements practices,

as well as ensuring the company's information system is optimized to facilitate these efforts.

(Lawrence and White, 1979)

Optimized Billings &

Collectwns

Optimized Information

System

Effective Cas/7

Optimized Payables/

Disbursements

Figure 2.1: A basic diagmm of an effective cash management system

Cash management is a broad term that refers to the collection, concentration, and disbursement of

cash. It encompasses a company's level of liquidity, its management of cash balance, and its short­

term investment strategies. In some ways, managing cash flow is the most important job of business

managers. If at any time a company fails to pay an obligation when it is due because of the lack of

cash, the company is insolvent. According to Keynes there are three motives for holding cash: the

transactions motive, the precautionary motive, and the speculative motive. The most useful

technique of cash management is the cash budget.

20

Good cash management means; knowing when, where, and how your cash needs will occur,

Knowing what the best sources are for meeting additional cash needs; and, being prepared to meet

these needs when they occur, by keeping good relationships with bankers and other creditors.

2.2.2. Cash management models

To help manage cash on a day-to-day basis in actual dollars and cents, there are a number of cash

management models. These include the Baumol Model, Miller-Orr Model, and the Stone Model.

Lowe and Pany.(l995)

Baumol model.

The Baumol Model is similar to the Economic Order Quantity (EOQ) Model. Mathematically it is:

where C = the optimal amount of cash to be acquired when reaching a threshold balance,

F =the fixed cost of acquiring the cash C amount,

S = the amount of cash spent during a time interval,

i = the interest rate expressed in the same time interval as S

One shmicoming of this model is that it accommodates only a net cash outflow situation as opposed

to both inflows and outflows. Also, the cash outflow is at a constant rate, with no variation.

Miller-or model.

The Miller-Orr Model rectifies some of the deficiencies of the Baumol Model by accommodating a

fluctuating cash flow stream that can be either inflow or outflow. The Miller-Orr Model has an

upper limit U and lower limit L

When there is too much cash and U is reached, cash is taken out (to buy short-term securities to

earn interest) such that the cash balance goes to a return (R) point. Otherwise, if there is too little

cash and Lis reached, cash is deposited (from the short-term investments) to replenish the balance

toR. The equations of the Miller-Orr Model are:

where R =the return point,

f =the fixed cost for each transaction to withdraw or deposit cash,

s 2 = the variance of the cash flows,

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i =the interest rate per same time period ass 2 ,

U =the upper limit

L is determined by other means, for example, compensating balance requirement, minimum balance

to avoid bank service charges on checking account, or zero.

Stone model.

The Stone Model is somewhat similar to the Miller-Orr Model insofar as it uses control limits. It

incorporates, however, a look-ahead forecast of cash flows when an upper or lower limit is hit to

take into account the possibility that the surplus or deficit of cash may naturally correct itself. If the

upper control limit is reached, but is to be followed by cash outflow days that would bring the cash

balance down to an acceptable level, then nothing is done. If instead the surplus cash would

substantially remain that way, then cash is withdrawn to get the cash balance to a predetermined

return point. Of course, if cash were in short supply and the lower control limit was reached, the

opposite would apply. In this way the Stone Model takes into consideration the cash flow forecast.

The goals of these models are to ensure adequate amounts of cash on hand for bill payments, to

minimize transaction costs in acquiring cash when deficiencies exist, and to dispose of cash when a

surplus arises. These models assume some cash flow pattern as a given, leaving the task of cash

collection, concentration, and disbursement to other methods.

2.2.3. Objectives and importance of cash management

The primary objective of cash management is to utilize cash as efficiently as possible in a manner

consistent with a company's overall strategic objectives.

include:

Major objectives of cash management

Maintaining Liquidity; Liquidity refers to a company's ability to meet upcoming obligations in a

timely and cost effective manner,

Optimizing Cash Resources; Cash managers establish systems that reduce holdings of non-earning

cash balances to minimum levels while still providing adequate liquidity. Any excess cash balances

are either invested to generate additional income or used to reduce interest expense through the

repayment of debt.

Financing; Cash managers assist in obtaining both short- and long-term borrowed funds in a timely

22

manner and at an acceptable cost. These credit facilities are used to fund a company's cash

shortages.

Managing Risk; Cash managers help in the monitoring and controlling of a company's exposure to

interest rate, foreign exchange, and other risks.

Coordinating Financial Functions; Cash managers help ensure that managers in other areas of the

company understand and implement policies that are consistent with cash management objectives.

Company understands and implements policies that are consistent with cash management

objectives.

2.2.4. Cash management policies and procedures

According to Texas State Auditor's Office (1993) proper cash management policies and procedures

are critical to implementing any sound cash management process. Institutions should have the

board-approved policies that define its philosophy on cash management and procedures to

implement the policy parameters.

The purpose of cash management policies and procedures is to ensure the use of the most

economical and effective cash flow techniques in financing Federal programs. This is achieved

through a commitment to certain basic cash management principles, such as those stated in the

following examples:

Billings to organizations outside the Government shall be prepared and sent promptly after the

goods or services have been rendered. To ensure that funds are received promptly, these billings

shall clearly indicate the requirement for timely payment; Charges for late payments in the form of

interest, penalties, and administrative costs shall be levied on delinquent receivables to offset the

cost of funds to the Government and administrative costs incurred in collecting delinquent debts;

collection systems shall be designed with explicit consideration to the volume and character of the

collections and the most expeditious availability of cash to Treasury; collection systems shall

include procedures, which provide for prompt and continuing action to collect outstanding

receivables, with patticular attention to delinquent receivables;

The aggregate total of uncollected receivables shall be kept to the minimum amount possible;

contracts or agreements which govern the sale of goods or services to an organization outside the

Government shall include a payment schedule, provide notice of late charges for delinquency, and

23

whenever possible, provide for the receipt of payment in advance or acceptance of individual credit

cards (approved by Treasury) for the sale of Government goods or services;

Deposit processing, both for United States dollars and foreign currencies, shall be completed

promptly and include a separation of the flow of collections from the flow of related documents at

the earliest possible processing point, i.e., separation of duties; payment on an invoice shall not be

made before receiving the related goods or services, except as specifically authorized by law;

As a result, institutions should have policies and procedures in place to direct and control the flow

of cash from the time it is received, through the various stages of use and custody, to its final

disbursement.

2.2.5. Techniques of cash management

Cash is money that is either in the bank or money that is in the business. Knowing what cash

management techniques to use depending on your business situation could be the difference

between thriving as a business and going out of business. This section will look at various cash

management techniques. (Shulman, Joel S. 1985)

Budgeting; a budget is the cornerstone of any sound financial plan. Budgeting is simply the process

of tracking your monthly expenses to determine how you're really spending your money. By making

a list of monthly expenses you can discover areas where you can reduce or even eliminate spending

and expenses. By preparing a budget, there's a good chance you will free up extra cash to use for

other purposes, like investing.

Investing; speaking of investing, there is no shortage of places where you can put that extra cash

you uncovered by budgeting. An effective way to manage your investment dollars is to start a

systematic program that allows you to invest with little pain and effort. If you have a plan at work,

for example, you can set it up so that money is automatically deducted from each paycheck and

invested into the plan. You'll get used to the "missing" income and you'll be ensuring that you're

saving for the future.

Credit; Credit can help you in times where you're a little short on cash or facing a financial

emergency. Credit cards are probably the most common and easily accessible form of credit, but

they must be used judiciously to avoid falling into debt.

24

If you own a home, and have built up some equity, you can borrow against it in the form of an

equity loan or line of credit to obtain needed cash at a relatively low interest rate.

Generating Income; do not overlook the option of generating additional income as an effective

cash management technique. There are many ways you can bring in more dollars, such as getting a

second job, selling unwanted stuff on eBay or adjusting your tax withholding on your W-4 form to

reduce the amount deducted from your paycheck. If you have a set of unique skills, you could put

them to use by starting a small side business online or out of your home.

2.2.6. Type of risks associated with cash management process

According to Bradford, (1995) risks are inherent in all operational areas, including cash

management. While cash has always been an area of high risk because of its liquidity, the risks have

changed dramatically as a result of electronic media. Traditional currency is no longer the focal

point of most institutions. Instead, electronic commerce moves incredible amounts of electronic

money from one point to another almost instantaneously. Consequently, material losses could occur

through error, inadequate controls, or fraud in electronic funds transfer systems. The following

briefly identifies several types of risks associated with the cash management process. These risks

are not all-encompassing or exhaustive by any means.

Payment System Risk; Payment system risk is the exposure to the uncertainty that settlement will

occur. The failure of one participant to settle deprives other institutions of expected funds and

prevents those institutions from settling in turn.

Fraud Risk; Fraud risk arises when a payment transaction is initiated or altered in an attempt to

misdirect or misappropriate funds

Operational Risk; Operational risk arises from the potential for loss because of significant

deficiencies in system reliability or integrity. Security considerations are paramount, as institutions

may be subject to external or internal attacks on their systems or products. Operational risks can

also arise from customer misuse and from inadequately designed or implemented electronic

banking.

Credit Risk; Credit risk is the risk that counterparty will not settle an obligation for full value.

Banks engaging in electronic banking activities may extend credit via nontraditional channels and

expand their market beyond traditional geographic boundaries. Institutions engaged in electronic

payment programs may face credit risk if a third-party intermediary fails to carry out its obligations

with respect to payment.

25

In addition, the institution must ensure that it has adequate controls to ensure that electronic fund

transactions are conducted in accordance with loan conditions and that funds are not disbursed in

excess of undisbursed commitments.

Liquidity Risk; Liquidity risk arises from an institution's inability to meet its obligations when they

come due without incurring unacceptable losses. Liquidity risk may be significant for institutions

that transact significant amounts of electronic fund transfers if they are unable to ensure that funds

are adequate to cover liquidity needs.

Legal Risk; Legal risk arises from violations of or nonconformance with laws, rules, regulations, or

prescribed practices. Legal risk may also arise when the legal rights and obligations of parties to a

transaction are not well established. Institutions can face legal risks with respect to customer

disclosure and privacy protection. Many aspects of electronic transactions are relatively new and

have not yet been established with court precedence .

Rcputational Risk; Reputational risk is the risk of significant negative public opinion that results

in a critical loss of funding or customers. Reputational risk may involve actions that create a lasting

negative public image of overall institution operations, such that the institution's ability to establish

and maintain customer relationships is significantly impaired. Service or product problems,

mistakes, malfeasance, or fraud may cause reputational risk. Reputational risk may be affected by

not only the institution itself but its affiliation with other institutions.

Foreign Risk; Foreign risk might exist for institutions dealing with other countries. Institutions

dealing with foreign participants are subject to country risk to the extent that foreign parties become

unable or unwilling to fulfill their obligations because of economic, social, or political factors. In

addition, institutions accepting foreign currency for electronic payment may be subject to risk from

the market because of movements in foreign exchange rates.

2.2.7. The Goals of Cash Management

According to Lowe and Pany. (1995), the primary goals of a good cash management system are:

To maintain adequate monies at hand to meet the daily cash requirements of the municipality while

maximizing the amount available for investment and to obtain the maximum earnings on invested

funds while ensuring their safety. In order to reach these primary goals, a treasurer should strive to:

Develop strong internal control of cash receipts and disbursements, establish improved procedures

for collecting outstanding taxes, establish clear lines of communication between the treasurer and

26

department heads, and develop solid professional relationships with local bankers and other

members of the investment community.

2.2.8. Elements of an Effective Cash Management Program

Bank Relations; the treasurer should strive to be constantly aware of the range of services available

from area banks. Since banks' service charges and investment rates vary, the treasurer should

regularly evaluate the charges and rates of the banks used by the municipality to make certain that

continuing to utilize these banks best serves the interests of the municipality. When selling bonds

or notes, the treasurer should endeavor to receive a sufficient number of bids to ensure competitive

rates for the borrowed funds. Whether borrowing or investing monies, the treasurer should solicit

bids from at least 3 area banks. The treasurer should critically review bank statements for treasury

checking accounts and should funnel all activity into one account when possible. Also, the treasurer

should utilize a uniform system of forms and procedures for all collection, deposit, and

disbursement activities. ( Jagdish, 2005).

Cash Flow Statements; as a component of implementing an effective cash management program,

the treasurer must prepare a cash flow statement, also called a cash budget. Cash budgeting

involves the estimation of cash receipts and cash disbursements to determine cash availability. A

treasurer can best identify the municipality's major cash items by examining an annual budget,

payment and collection records and past cash flow patterns.

Estimating Collection Receipts: local taxes and state and federal grants constitute the primary

sources of municipal funds. By reviewing a municipality's treasury and accounting records, a

treasurer can determine the pattern of receipts of that municipality. To assist in determining this

pattern, the treasurer should develop a table that displays: (I) the type of each receipt, (2) the total

amount of the receipt and (3) the month when each portion of the receipt was received. If the

treasurer traces the cash flow back 2 or 3 years, a recognizable pattern should become apparent.

The treasurer should assess the historical patterns of these cash flows in light of current estimates

and events. Although making adjustments for changing time environments is uncertain business,

attempting to make such adjustments should improve a collections forecast.

Forecasting Disbursements; municipal payrolls account for approximately 70% of the

expenditures of most cities and towns. These expenditures tend to be relatively constant;

27

accordingly, they can be reliably predicted. A treasurer should use prior payroll records, together

with the next fiscal year's budget, to calculate the amount of the annual payroll.

The gross payroll, however, is not the amount disbursed. Rather, the amount disbursed is the gross

payroll amount less deductions for federal and state income taxes and for fringe benefits, such as

workers compensation and retirement. The payroll disbursement forecast should also include

adjustments for seasonal or temporary workers and for seasonal payments, such as vacation

advances in the summer months. If a municipality offers a lump sum payment option for teachers,

the payments are disbursed at the end of the school year.

Disbursement of monies previously withheld for income taxes and for employee benefits constitutes

a significant payment by a municipality. To forecast the amount of this disbursement for some

discrete period, such as from July 1 through January 1, the treasurer must add all of the deductions

from a weekly or biweekly payroll and multiply the sum by the number of pay periods falling

within the designated time period.

As part of forecasting disbursements for personnel costs, the treasurer should attempt to estimate the

actual cash disbursement if that disbursement deviates from the budgeted or authorized amount.

Budgeted amounts can change only with supplemental appropriations, while authorized amounts

can change with the increase or decrease of actual employees.

After completing the payroll disbursement forecast, the treasurer should develop forecasts for other

kinds of payments. The treasurer might begin by analyzing each departmental budget for non­

payroll items and then focusing on the more expensive items first. For each item, the treasurer

should converse with the depmtmental officials familiar with expenditures to discover the pattern of

past cash disbursements with respect to that item and the anticipated pattern and amount of

expenditure for the item for the upcoming year. The treasurer, based upon a greater familiarity with

the timing and volume of cash outflows, should ensure that these patterns and expenditure

projections are reasonable.

Analyzing Cash Flow and Preparing a Budget; at a minimum, a treasurer should prepare cash

flow data on a monthly basis for the current year. In larger communities, the treasurer should

compile cash flow information more frequently, on a daily, weekly, or biweekly basis, depending

on the size of the community.

28

The treasurer should prepare cash flow summaries using two basic categories of inflows and out­

llows of cash, recurring and extraordinary. Recurring payments and receipts, such as payroll

expenses and propetty taxes payments, can be anticipated regularly, month after month;

extraordinary payments and receipts, on the other hand, result from nonrecurring programs or items,

such as federal grants or capital expenditures.

The treasurer should use the history of major collections and disbursements for the previous 3 to 5

years to identify recurring expense and disbursement patterns. The treasurer should then extrapolate

these past trends into the future, being careful, at the same time, to make adjustments for anticipated

changes in timing and payment patterns and to recognize when particular historical data is not

representative.

Analyzing the municipality's current operating budget, looking particularly for the percentage

increase in payroll and in other expenditures, for changes in seasonal spending patterns and for

adjustments caused by the addition or deletion of programs, will provide crucial information for

preparing a cash flow analysis. Also, examining the capital budget and communicating with

department heads will assist in making projections concerning special cash !low items. Of course,

analyzing historical information is of little assistance in projecting special revenues and

expenditures in a cash flow analysis.

Because cash availability is the fundamental concern of cash management, some treasurers are very

conservative in estimating receipts of funds and liberal in estimating disbursements when they

prepare a cash budget. For instance, they might budget a receipt expected to be taken in at the end

of a month as being received the following month. Certainly, it is better to err on the conservative

side. Notwithstanding, accuracy is critical in estimating and managing a municipality's cash.

2.2.9. Rules of Effective Cash Management

In the business world, cash is king, and you should treat it appropriately. How you handle your cash

says a lot about the stability of your business in general. When dealing with cash flow, keep a few

important rules in mind so that you can maximize the amount of cash on hand at all times. Jagdish

(2005).

Always Have a Cushion; when managing cash flow for your business, you should always strive to

keep some cushion on hand. This does not necessarily mean that you need to have a large amount of

cash sitting in a drawer somewhere, but you should have some cash on hand to meet unexpected

29

expenses. In the business world, unexpected items always tend to creep up. If you have some

cushion to work with, you will not have to borrow money to meet these expenses.

Discuss Payment Early On; when working with a new customer, it can be easy to focus on getting

the new business and forget about the payment aspect of things. When taking on a customer, you

should always discuss the payment arrangements on the front end of the transaction. This way, the

payment stays in the front of the mind of the customer, and he knows he will need to make payment

as soon as the terms of the agreement are met.

Track Cash; when handling cash in a business setting, you will need a detailed tracking system. By

implementing a tracking system for your cash, you can help keep employees accountable for the

cash that they bring in. This way, it will discourage employees from pilfering, and it will help you

know exactly how much cash you have on hand at all times. The system you implement should

involve tracking cash receipts as soon as they are taken from the customer.

Delay Payments; when trying to maximize cash flow; it typically makes sense to delay payments as

long as possible. Some businesses get in the habit of paying bills as soon as they are received.

While there is nothing wrong with this, it does not maximize your cash flow.

If possible, wait until the bills are actually almost due to pay them so that you can keep the cash in

your account longer. You could potentially earn interest on the money longer and keep some

cushion in case of emergency.

The New Rules of Finance; today's business environment doesn't allow for any weaknesses in your

financial management systems. Entrepreneurs must be on top of their game to make, and grow,

profits. You need to know where your money is coming from, collect it on time and stay ahead of

the curve on any shortfalls - all while keeping an eye on the future. These tips can help you to

identify areas to improve your profitability.

Think cash flow; one of the differences between business owners who continually stay in the black

and those who don't is a laser focus on cash flow management. Ask any highly successful business

owner about his or her tricks, and the majority will be about managing cash flow and maximizing

profit. The current economy mandates that you focus your attention on keeping more cash on hand.

Better cash flow management can help you meet payroll, reduce dependence on quick collections,

absorb price increases, and take advantage of opportunities to increase funds, such as offering

discounts for faster payment.

30

Use new tools; the demands on business owners have never been greater. Businesses have to

promote themselves aggressively, satisfy customers, keep employees productive and review

finances like clockwork. The good news is that an abundance of software tools are available for

managing finances, from invoicing through tax filing. Smart business owners are taking advantage

of these tools to improve accuracy, record-keeping, reporting and analysis, collection timing and

many other financial tasks.

Avoid risky prospects; a customer who pays late can jeopardize your company's finances. Current

financial times don't allow for any slow or non-paying customers. Check credit reports on every

prospect with which you are considering doing any significant amount of business.

If you have any doubts, talk with their references about their payment histories. Walking away

from a potential non-paying customer can be far better than taking the loss.

Talk money upfront, at the outset of a new customer relationship, it's easy to focus on the

excitement of a new project. However, this is the time to discuss payment terms so you can help

avoid potential pitfalls. Explain when you will invoice, for what portion of the total and when you

expect payment. Consider staggering your invoicing for example 1/3 of the total up front, 1/3 on a

project milestone and 1/3 on project completion so you don't have to carry the entire expense of a

project for its duration. And be sure to send invoices as soon as you can; don't wait, for example,

until the end of the month to send out all your invoices.

Have a cushion; sales go up and down, prices change and unanticipated expenses occur that's

business. The way to survive these fluctuations is to have a cash reserve at all times. Most usefully,

a cash cushion lets you ride out sudden price spikes or prolonged sales slowdowns. More

strategically, a reserve enables you to seize growth opportunities for example, a good price on

inventory, equipment, real estate, or even a competitive business. The amount you should keep in

your reserve fund varies by business and industry, but you may want to strive for at least twice what

you normally keep because companies are taking much longer to pay. You also may want to have a

line of credit open with your financial institution.

Plan ahead; effective cash management requires planning ahead to determine how much money is

coming in for each time period and what your expenses will be. That way, you can project potential

cash shortfalls. This advance planning will provide you with the necessary time to tap financial

resources or take steps to free up cash.

31

Check your pricing; the new economic era requires businesses to be creative about pricing. It's

not a great time to raise prices, but it is a good time to consider if they are set correctly. If you are

getting price pushback from customers, this can actually be a good thing it can mean you are not

setting your prices too low. Be sure to check your competitors' pricing to see if you are in the right

ballpark.

2.2.10. Value for Money

Put simply, value for money (Vfl'v1) is about obtaining the maximum benefit with the resources

available. Decisions about Vfl'v1 are a daily reality in all our lives. We are constantly choosing

which items or services to buy, and judging the right balance for us between quality and cost.

(Texas State Auditor's Office. 1993)

Public services are no different. Vfl'v1 is about achieving the right local balance between economy,

efficiency and effectiveness, the 3Es - spending less, spending well and spending wisely.

This means that Vfl'v1not only measures the cost of goods and services but also takes account of the

mix of cost with quality, resource use, and fitness for purpose and timeliness to judge whether or

not, together, they constitute good value. (Texas State Auditor's Office. 1993)

Figure2.2: Value for Money

Economy is what goes into providing a service, such as the cost per hour of care workers or the rent

per square meter of accommodation.

Efficiency is a measure of productivity, how much you get out in relation to what is put in. For

example, the number of people visited per home care worker per week or the amount of refuse

collected per refuse-lorry.

32

Effectiveness is a measure of the impact that has been achieved, which can be either quantitative or

qualitative. Examples include how many people were prevented from needing residential care

through using home care services (quantitative), and feedback from different sections of the

community with arrangements for tenant participation (qualitative). Outcomes should be equitable

across communities, so effectiveness measures should include aspects of equity, as well as quality.

Sustainability is also an increasingly important aspect of effectiveness. (Texas State Auditor's

Office, 1993)

ViM is high when there is an optimum balance between all three elements - when costs are

relatively low, productivity is high and successful outcomes have been achieved.

ViM is not about cuts. It can be achieved in different ways including: reducing costs (eg, labour

costs, better procurement and commissioning) for the same outputs, reducing inputs ( eg, people,

assets, energy, materials) for the same outputs, getting greater outputs with improved quality (eg,

extra service or productivity) for the same inputs, getting proportionally more outputs or improved

quality in return for an increase in resources.

ViM is not an optional add-on, nor something that can be achieved as a one-off. It is a way of doing

things that needs to underpin everything an organization does, from performance management to

procurement, from business planning to consultation.

The emphasis of ViM has changed through the years, from a focus on competition through

Competitive Compulsory Tendering, to encompassing issues of quality and service improvement

through best value, to achieving efficiencies and, most recently, to ensuring that issues of equity and

sustainability are addressed. These are all different ways of looking at the same topic. (Texas State

Auditor's Office, 1993)

Assessing and measuring ViM can, however, still be a challenge. Some elements, such as quality

and sustainability, may be subjective, difficult to measure, intangible and misunderstood.

Value can often take many years to materialize, for example in long-term contracts. It is also

specific to different contexts. What is ViM for one organization, or locality, may not be the same

for another. What is ViM at one point time may not be a year later. A strong element of good,

informed, judgment is therefore required when considering whether ViM has been satisfactorily

achieved or not.

33

Value for money audit

Value for money audit is an examination into the economy, efficiency and effectiveness with which

the audited body has discharged its functions; carried out under a set of guidelines, agreed between

the Public Accounts Committee and the Director of Audit and accepted by the Administration. The

guidelines were tabled in the Provisional Legislative Council by the Chairman of the Public

Accounts Committee on II February I 998; conducted in accordance with a program of work

determined annually by the Director of Audit; and performed using a structured approach. (!SA,

2005)

Audited organization shall include: any person, body corporate or other body whose accounts the

Director of Audit is empowered under any Ordinance to audit; any organization which receives

more than half its income from public moneys (this should not preclude the Director from carrying

out similar examinations in any organization which receives less than half its income from public

moneys by virtue of an agreement made as a condition of subvention);and any organization the

accounts and records of which the Director is authorized in writing to audit by the Chief Executive

in the public interest under section 15 of the Audit Ordinance.

A summary of the guidelines tabled in the Provisional Legislative Council by the Chairman of the

Public Accounts Committee on II February 1998 is as follows:

The Director of Audit: has great freedom in presenting his reports but he will not comment on

policy decisions of the Executive and Legislative Councils except their effect on the public purse;

may investigate and report to the Legislative Council on whether there was a lack of sufficient,

relevant and reliable financial and other data available and whether critical underlying assumptions

were made explicit when the policy objectives or decisions were made, for further inquiry by the

Public Accounts Committee.

The Director of Audit may also: consider the authority upon which the policy objectives have been

determined, and policy decisions taken; consider whether there are satisfactory arrangements for

considering alternative options in the implementation of policy; consider as to whether established

policy aims and objectives have been properly implemented; consider as to whether there is a

conflict between different policy aims or objectives, or between the means chosen to implement

them; consider how far policy aims and objectives have been translated into operational targets and

measures of performance and whether the costs of alternative levels of service and other relevant

34

factors have been considered, and are reviewed as costs change; and be entitled to exercise the

powers given to him under section 9 of the Audit Ordinance. (Ratliff and Reding, 2002).

Structured approach: basically, the audit consists of three stages; the planning stage, the

investigation stage and the reporting stage. At the end of the review, we aim to produce a report to

the audited body for comment. This report is subject to stringent quality checks to ensure as far as

possible that the report contents are accurate, complete, balanced, fair and constructive.

2.2.11. Accountability

Accountability for financial control purposes is the delegation of authority to qualified persons to

initiate, approve, process and review cash transactions and the holding of those persons responsible

for the validity, correctness, and appropriateness of their actions. Managers are accountable for

negative results attributable to their failure to maintain reasonable internal control activities.

(Ash ish, 20 I 0)

Internal audit and accountability; the audit and accountability function is an underutilized

resource that is well positioned to support the pursuit of performance excellence. (Ash ish ,20 I 0)

35

3.1. Introduction

CHAPTER THREE

3.0. METHODOLOGY

The topics comprises of research methodology are: design, population, sample size, strategies,

research instrument , data collection process, data collection instruments, data quality control,

procedure, data processing and analysis and limitations of the study.

3.2. Study Design

The study used a descriptive survey design in order to obtain information on profile of respondents.

The study also used cross sectional design since data was obtained at once. The study used

correlational design in order to establish the relationship between variables.

3.3. Study Population

In this study, the target population was the staff of projects located in Northern Province plus staff

from head office who are involved in Compassion Project cash management. These are II 0

members of staff.

3.4. Sample Size

Using Krejcie and Morgan table (1970), a sample size of86 respondents was used out of 110

employees. (table of Krejcie and Morgan, in attachment)

3.5. Sampling Strategies

Purposive sampling method was been applied and employees of different levels with differences

responsibilities were been chosen in order to give to the researcher a complete image of the project

cash management decisions and they are expected to provide accurate responses to the

administrative questionnaires. The type of sampling used to obtain respondents in this study was

purposeful sampling whereby 80 employees representative of 20 projects staff and 30 from head

office had the right of filling out the questionnaires.

36

More to that, eighty six (86) employees and all of them were considered in the sample size in order

to obtain sufficient reliable and up-to-date data for the research. Similarly simple random sampling

was used to arrive at the desired sample size.

3.6. Data collection process

The questionnaire was written in a simple and clear language for the respondent to feel free while

he/she is answering. The questionnaire had multi choice and open ended question such that the

space for comments could be reserved to be answered fully and freely.

The reason for choosing the questionnaire was that some of respondents could not answer

immediately because oflimited time of failure to get a convenient time and place. The questionnaire

was considered vital to research since it provides accurate information regarding the study. Again,

the respondents felt free when they were alone filling the questionnaire.

The use of questionnaire therefore aims at securing opinions, judgments, preferences, or expression

of the attitudes of the respondent.

3.7. Data collection instruments

In this research, a self-administered questionnaire was the research instrument used to collect data

for all respondents selected in their sample. The questionnaire was developed based on the research

questions. The instructed interview and documentation were also been used to gather the

information for this study.

The documentary method uses a very large sample size (variety of books) and the advantage is that

the researcher can have a higher level of trust in her/his results. The documentary method is

relatively less expensive. Documentation includes both primary and secondary data.

According to Wealey and Bailey (1987), primary data are eyewitness account written by people

who experienced a pmticular event or behavior.

3.7.1. Primary data

Primary data is the data obtained directly from the field. Primary data was collected with use of

questionnaires, each of the (86) selected staff was given a questionnaire to fill.

37

Primary data is the basic data or the first hand data aimed at, fresh data that has not been interpreted

or passed in the hands of many people. So, the primary data are straight from employees being

researched and therefore the most direct kind of information were collected

The interview was conducted with the rest of staff as another technique of data collection.

3.7.2. Secondary data

A secondary data on the other hand is obtained by consulting existing literature on the problem

under study. These were books from known writers, journals, dissertations of other researchers on

related topics and annual reports.

Secondary data sources are the foundation on which the theoretical and conceptual framework of

the research is built. Relevant literature from existing empirical studies, internet sources and reports

related to internal auditing and cash management has been reviewed.

3.8. Data quality control

Validity

The researcher used the Content Valid Index which is a scale developed by computing or rating the

relevant items in the instrument or questionnaire by checking their clarity, their meaningfulness in

line with all objectives stated dividing by the total number of items. Since the result found was

above 0.6 the instrument was considered valid for the study.

CVI = Relevant Items Total number of Items

Reliability

=20 = 0.83 24

Secondly in handing reliability, it ensures the degree of consistency/stability; hence it involved

examining several times, as the researcher checked for reliability in relevance, clarity and ambiguity

of items in the instrument. In achieving this, a pilot study was done in a different institution so as to

detect any major challenge likely to result from the research instrument to be applied. A total

number of 20 respondents from a different area were used for pretesting, the collected data was

entered in SPSS (Statistical Package for Social Scientist) to check the reliability. Since the

38

Cronbach's Alpha coefficient was above 0.8 (0.83), the instrument was considered reliable for the

study. Cronbach' Alpha=0.83 while Number of Items= 24

3.9. Procedure

The procedure of data collection started by receiving an introductory letter from the Directorate of

post graduate which explained who the researcher was and the purpose of his/ her research. The

research explained the structure of questionnaire and was ensured confidentiality of all information

which was been provided. At the end of data collection, the researcher was thanking people who

provided information. The major tool used by the researcher to gather data from the respondents

was self-administered questionnaire. The researcher supplied the questionnaire to the respondents

who filled and returned them after completion.

3.10. Data processing and analysis

Analysis is an ongoing process in participating observation research method. After data was

corrected, it was edited and checked for accuracy and later entered into Microsoft excel in order to

obtain frequencies and percentages.

3.11. Ethical considerations

The researcher explained that all information collected shall remain confidential and anonym and be

used only for the academic purposes. Moreover, dignity value, trust, and confidentiality were

respected in this friendly environment.

3.13. Limitations of the Study

There was low retrieval of the questionnaires. Not all questionnaires that were taken to the field

were brought back. The retrieval rate was 75 questionnaires out of 86 questionnaires representing

87%.

39

CHAPTER FOUR

4.0. DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.1. Introduction

This chapter is concerned with the data on the current situation in regards to internal audit on cash

management in NGOs a case study Compassion International Rwanda. The questionnaire was used

to collect data from project staff and employees of Compassion International and also other

secondary data relating to the internal audit and cash management was consulted for more data

collection about the research. The data analysis and findings are discussed and presented in the

form of tables.

4.2. Data analysis and presentation

The research involved eighty six (86) respondents, seventy five (75) were able to fill the

questionnaires and return them to the researcher whereas eleven (II) employees never returned the

questionnaire.

The data analyzed below were collected by the use of primary data. The methods used were

questionnaire and personal observation.

4.2.1. Background of respondents

4.2.1. 1. Educational background of respondents

Compassion International Rwanda has got employees who possess certain educational qualification

ranging from Diploma level, Bachelor's Degree level, Master's Degree level and PhD level. The

table below shows the distribution of the educational level backgrounds of the employees in

Compassion International Rwanda.

Table 4.1: showing the educational levels of respondents

NO Employees responses Number of employees Percentage(%)

I. Diploma level 35 46.67

2. Bachelor's degree level 37 49.33

3. Master's degree level 2 2.67

4. PhD level I 1.33

Total 75 100

Source: Primary data

40

From table 4.1, it can be observed that the biggest number of employees have an educational

background of Bachelor's degree level (49.33%) and Diploma degree (46.67%).

This is so because most employees should be of a high qualification up to Bachelor's degree level.

The impottant number of Compassion project employees was recruited with Diploma level and the

Master's Degree level 2.67% and PhD level 1.33% work in Country Management Team. Majority

of the employees are qualified since they have Bachelor's degree.

4.2.1.2. Categories of employees serving Compassion International Rwanda

Table 4.2: showing the categories of employees serving Compassion International Rwanda

The table below shows the categories of respondents according to their position in Compassion

International.

No Employees responses Number of employees Percentage

(%)

]. Country management team member 3 4.00

2. Pattnership facilitator 10 13.33

" Partnership auditor 2 2.66 ~.

4 Parish Pastor 20 26.67

5. Project Director 20 26.67

6. Project Accountant 20 26.67

Total 75 100

Source: Pnmary data

The table 4.2. shows that the bigger number of respondents 80.01% serving Compassion at Project

level Parish Pastor 26.67%, Project Director 26.67% and Project Accountant 26.67%. While only

19.99% represents the respondents from the Compassion Head office.

The majority of respondents are from the project level as they are well familiar with the day to day

operations of cash management of Compassion Project. Thus, the information provided concerning

the impact of internal auditing on cash management in Compassion project is objective and

accurate.

41

4.2.1.3. Working experience in Compassion International Rwanda

The table below shows the working experience of Compassion International employees and project

staff.

Table 4.3: showing the working experience of respondents

NO Employees responses Number of employees Percentage(%)

I. Less than I year 8 10.67

2. One to three years 10 13.33

3. Three to five years 13 17.33

4. Five to ten years 40 53.33

5. Above ten years 4 4.33

Total 75 100

Source: Pnmary data

From table 4.3, it can be observed that 10.67% working experience is less than I year, 13.33%

one to three years, 17.33% three to five years, 53.33% five to ten years and 4.33 %above ten years.

More than half of employees have got a working experience of between five to ten year, which

implies that the bigger number of employees have got a good working experience with Compassion

International. Thus, this experience helps them to perform well their assigned duties as they know

well their tasks.

4.2.2. Current situation in regards to project cash management

4.2.2.1. Is there any relationship between internal audit, accountability, and value for money

in cash management?

Table 4.4: showing if there is relationship between internal audit, accountability, and value for money in petty cash management.

NO Employees responses Number of employees Percentage(%)

I. Yes 71

2. No 4

Total 75

Source: Pnmary data

42

95

5

100

As shown in the above table, majority of the respondents 95% said that there is relationship between

internal audit, accountability, and value for money in petty cash management.

4.2.2.2. Is your internal audit taking any measures to identify and to limit canses of misuse of

projects funds and poor performance within some Compassion projects?

Table 4.5: showing the measures taken by internal audit to limit misappropriation in Project

N Employees responses Number of employees Percentage (%)

1. Yes 62 83

2. No 13 17

Total 75 100

Source: Primary data

The table 4.5 shows that 83% of respondents answered that internal audit limits misappropriation in

the project while 17% gave a negative answer.

According to findings from the study, the following measures guided internal audit to limit

misappropriation in project are; internal audit controls that are strong enough, cash and fixed assets

are safe guarded, cash counts are done on daily basis, stock in and out are regularly maintained,

utilization of resources are efficient and effective , policies and procedures in place are respected.

While 5% answered negatively.

Findings from the research indicates that the measures of control include: daily and monthly

physical count, review petty cash documents compared to cash available before replenishment,

review and approval of payment before effecting petty cash payment, paying cash to allow

accountability and proper recording of cash in and cash out and banking money received from

employees as balance remained with after accomplishment of activities.

43

4.2.2.3. Project cash management written policies and procedures manual

Table 4.6: showing the project cash management written policies and procedures manual

NO Employees responses Number of employees Percentage

(%)

I. Yes 20 26.67

2. No 55 73.33

Total 75 100

Source: Pnmary data

This table shows that 73.33% of respondents revealed that cash management don't have the written

policies and procedures manual. While 26.67% of respondents indicated that there are the project

cash management written policies and procedures manual.

According to the findings, the project cash management written policies and procedures manual

plays a vital role in the prevention of errors and frauds. It is very important for all Compassion

project to have the project cash management written policies and procedures manual.

4.2.2.4. Who has the authority to sign payment vouchers?

Table 4.7: showing the person who has the authority to sign payment vouchers

NO Employees responses Number of employees Percentage (%)

I. Partnership facilitator 23 30.67

2. Partnership auditor 5 6.67

0 Parish Pastor 15 20.00 ~.

4. Project director 18 24.00

5. Project Accountant 2 2.67

6. Other 12 16

Total 75 100

Source: Pnmary data

From the table 4. 7 it can be observed that all the respondents have different view on who are the

persons authorized to review and approve the project expenditures; 30.67% confirmed that

partnership facilitator has the authority to sign payment vouchers, 6.67% for partnership auditor,

20% parish pastor, 24% projector director, 2.67% for projector accountant and 16% for others

members of projects. This implies that more effort is needed to clarify the person authorized to

44

review and approve the project expenditures. Also according to the questionnaire, the respondents

have been asked to indicate the other persons who are not on list, 16% revealed that the persons

authorized to review and to approve the project expenditures are the members of Project committee.

4.2.2.5. Projects policies and procedures manual of competitive bidding for its purchases?

Table 4.8: showing if the project has the policies/procedures of competitive bidding for its

purchases

N Employees responses Number of employees Percentage

('Vo)

I. Yes 71 95

2. No 4 5

Total 75 100

Source: Pnmary data

From table 4.8, it can be observed that 95% confirmed that the project has the policies and

procedures of competitive bidding for project purchases and only 5% said no. The higher

percentage of employees confirm the existence of the project policies and procedures manual of

competitive bidding for project purchases. This implies that the purchase system is very clear and

the project is able to run its activities through verification and in respect of procedures and rules

which are in place.

4.2.2.6. Respect of accounting principles in recording accounting transactions

Table 4.9: showing if Project respects the accounting principles in recording cash transactions.

No Employees responses Number of employees Percentage (%)

I. Yes 75 100

2. No 0 0

Total 75 100

Source: Pnmary data

From table 4.9, it can be observed that I 00% of respondents were of the view that the organization's

accounting is based on accounting principles.

Therefore, this shows that proper books of accounts have kept and financial statements drawn from

them portray a true and fair view of the financial position of the project. 45

4.2.2.7. The amount in Rwandan francs that the project cashier is authorized to handle

Table 4.10: showing the amount that the project cashier is authorized to handling

NO Employees responses Number of employees Percentage

(%)

!. < 50,000 73

2. 50,000-l 00,000 2

3. > 100,000 0

Total 75

Source: Pnmary data

97

" J

0

100

The above table shows that a higher percentage of employees (97%) answered that the authorized

amount kept by project cashier is under 50,000 Rwandan francs. Only 3% of respondents answered

that the authorized amount kept by project cashier is between 50,000 and I 00,000 Rwandan francs.

To keep a small amount in project petty cash is one of some measures taken to prevent fraud being

carried out on petty cash control.

4.2.2.8. Does the Compassion Project keeps books of accounts

Table 4.11: showing if the Compassion Project keeps books of accounts

No Employees responses Number of employees Percentage

('Yo)

I. Yes 75 100

2. No 0 0

Total 75 100

Source: Pnmary data

The above table shows that all respondents (100%) confirmed that the organization keeps proper

books of accounts. That is the whole process of accounting from the ledger to the final preparation

of Monthly financial report applied. The findings from these respondents revealed that Compassion

Project mostly records receipts and expenditures as they affect the cash position of the project.

46

4.2.2.9. Rank of the efficiency of the financial statement

Table 4.12: showing the efficiency of the financial statement

No Employees responses Number of employees

I. Excellent 14

2. Very Good 52

~ Good 9 J.

4. Fair 0

Total 75

Source: Pnmary data

Percentage (%)

19

69

12

0

100

From table above, it can be observed that 69% of respondents said that the efficiency in recording

books of accounts was very good, 19 % of respondents said that the efficiency in recording books of

accounts was excellent while 12% are of the view that the efficiency in recording books of accounts

was poor.

Findings from research show that errors and fraud are kept to the minimum. One can conclude that

there is efficient preparation of financial statements. This lead the researcher to the conclusion that

Compassion project keeps proper books of accounts, which is the basis for assessing the

organization's performance and utilization of resources to meet its mission and objectives.

4.2.2.10. Is your accounting system computerized?

Table 4.13: showing if the accounting system is computerized

No Employees responses Number of employees Percentage

(%)

I. Yes 75 100%

2. No 0 0

Total 75 100

Source: Pnmary data

The above table shows that all respondents I 00% answered that project do not use the accounting

software. The researcher recommends that the accounting operations have to be computerized. The

project have to select the software which integrate finance ledger that combines the functionality of

the nominal ledger, receivable and payables ledgers, project ledger, cashbook, and user-defined

47

ledgers. This financial management software provides a powerful, real time financial transaction

processing engine that lets you see the immediate impact of any financial posting.

4.2.3. The impact of internal audit on cash management

4.2.3.1. Do you find out the effectiveness and efficiency of internal audit in contributing to

projects performance within the organization?

Table 4.14: showing the importance of internal audit in the project performance

No Employees responses Number of employees Percentage (%)

I. Yes 65

2. No 10

Total 75

Source: Pnmary data

87

13

100

From table above, it can be observed that 87% of respondents appreciate the importance of internal

audit in the project effective. While 9% of respondents answered negatively.

This is due to the fact that internal audit carries out internal control, internal check. The implication

is that employees are motivated by internal audit impact in effective cash management towards the

achievement of the organization's objectives.

4.2.3.2. The impact that internal audit have on performance of project cash management

Table 4.15: showing the impact of internal audit to the performance of project cash management

No Employees responses Number of employees Percentage(%)

I. Positive impact 70 93

2. Negative impact 4 5

3. No change I 2

Total 75 100

Source: Pnmary data

This table shows that 93% of respondents said that internal audit has a positive impact while 5% of

respondents were of the view that internal audit has a negative impact and the remaining 2% of

respondents do not see any impact of the internal audit into the performance of project cash

management. The findings from the research indicate that internal auditing has a significant impact

48

on the project effective cash management. The remaining part of respondents who see the negative

impact or do not see the change could be due the fact that these employees consider internal

auditors as investigators and they tend to be uncooperative with them. KA~PALA INTeRNATIONAL UNJVER~ITY- W· CAMPUS

4.2.3.3. The main object of internal audit .. ~'' O'ECHNICAL SECTION)

k/~~ liBRARY Table 4.16: showing the main object of internal audit ~r .• --._...,t:~ .; .... ·~·- A::::t'

No Employees responses Number of employees Percentage(%)

1. To prevent errors and fraud 5 7

2. To detect errors and frauds 2 3

3. To improve financial control 8 10

4. All of the above 60 80

Total 75 100

Source: Primary data

According to the findings; 7% confirmed that the main object of internal audit is to prevent errors

and fraud, 3% confirmed for detecting errors and frauds, 10% for improving financial control and

80% confirmed that the main object of internal audit is to prevent, detect errors, frauds and to

improve financial control. Thus, the internal audit in Compassion International plays a vital role in

the prevention of errors and frauds as it investigates internal control measures and internal checks to

be followed in an organization so that errors and frauds can be mitigated. They also asserted that

this cannot be achieved without auditing the project's books of accounts and check compliance with

policies, procedures, and regulations of the organizations by its employees.

4.2.3.4. The frequency the internal audit visits each project?

Table 4.17: showing the frequencies the internal audit visits each project

No Employees responses Number of employees Percentage(%)

1. After six months 1

2. Once year 15

3. After two years 54

4. When is needed 5

1

20

72

7

Total 75 100

Source: Primary data

49

The table 4.17 shows that 72% of respondents said that the internal auditors visit the project twice a

year, 20% of respondents indicated that they visits project after one year, 7% of respondents

indicated that they visits the project when is needed while the remaining l% emphasized that the

internal auditors visit the project after six months.

4.2.3.5 .. Are the recommendations given by the internal auditors been implemented?

Table 4.18: showing if the recommendations given by the internal auditors been implemented

NO Employees responses Number of employees Percentage(%)

I. Yes 4

2. No 65

3. Sometimes 6

Total 75

Source: Pnmary data

5

87

8

100

From table above, it can be observed that 5% of respondents indicated that the recommendations

given by internal auditor are implemented, while 87% of respondents answered negatively and 8%

of respondents indicated that the recommendations given by the internal audit are sometimes

implemented.This implies that the failure to follow-up those recommendations may lead to

inefficiency of project cash management.

4.2.3.6. Do internal auditors face constraints in their work?

Table 4.19: showing the constraints facing by the internal auditors

NO Employees responses Number of employees

l. Yes 75

2. No 0

Total 75

Source: Pnmary data

Percentage

(%)

100

0

100

The table 4.19 shows that all respondents were of view that internal auditors face constraints in their

work.

Concerning the major constraints faced by internal auditors, findings revealed among other lack of

support from fellow staff, too many projects to be audited within a short time of audit,

50

misunderstanding of internal audit by audited, management implanting recommendations,

management accepting audit findings and lack of middle management suppOtt. To overcome these

constraints, the following measures have been proposed such as increasing the number of auditors,

attending professional courses related to internal audit; organizations pay for their capacity

building/training, involving senior leadership team to address lack of suppOtt from middle level and

facilitate audit processes.

4.2.3.7. Do you agree that internal audit can be helpful to achieve the project's objectives

Table 4.20: showing that internal audit can be helpful to achieve the project's objectives

NO Employees responses Number of employees Percentage(%)

1. Yes 71 95

2. No 4 5

Total 75 100

Source: Pnmary data

The above table shows that 96% of respondents were of the view that financial statements give a

true financial position of the organization while 5% of respondents gave a negative response .This

implies that project's resources are managed efficiently. This assertion could be of highly qualified

staff that are willing to meet Compassion's objectives and in recording financial transactions

according to accounting standard and principles. The internal auditors also play a vital role in

detection of errors and frauds, revising books of accounts, suggesting recommendation, and

corrections of their efficient presentation and procedures to follow.

4.2.3.8. To what extent do you attribute the project's performance to internal audit

Table 4.21: showing the extend attributed to the project's performance to internal audit

No Employees responses Number of employees Percentage ('Yo)

1. 20%-50% 18

2. 50%-80% 45

3. Above 80% 12

Total 75

Source: Pnmary data

51

24

60

16

100

The above table shows that 60% of respondents said that the internal audit contributes to the

performance of the project at the extent that is between 50%-80% .While 16%ofrespondents agreed

that the internal audit contribute to its performance at the extent of more than 80% and 24% of

respondents said that the internal audit contributes to the performance of the organization which is

between 20-50%.

This implies that the majority of respondents between 50% and 80% know the contribution of

internal audit to the performance of project. This will help the accomplishment of internal audit's

duties.

4.2.3.9. To whom do the internal auditors report to

Table 4.22: showing to whom the internal auditors repoti to

No Employees responses Number of employees Percentage (%)

I. Ministry Services Manager 15 20

2. Country Director 40 53

" East Africa office 18 24 ~.

4. Headquarter 2 3

Total 75 100

Source: Primary data

The table 4.22 shows that 53% of respondents said that the internal auditor reports to the Country

Director, 24% of respondents indicated that they report to the East Africa Office, 20% of

respondents indicated that they report to the East Africa Office while the remaining 3% emphasized

that they repoti to the Headquarter in Colorado -USA.

4.2.3.10. Does Compassion Project call calls for external auditor services?

Table 4.23: showing if Compassion Projects call for external auditor services?

No Employees responses Number of employees Percentage (%)

I. Yes 75

2. No 0

Total 75

Source: Pnmary data

52

100

0

100

This table shows that all the respondents (100%) agreed that Compassion projects do not call for

external auditors.

4.2.3.11. List of suggested recommendations from respondents on how internal audit should

be carried out on effective cash management to improve project performance

The internal Partnership auditors should be increased in number and should work as a team other

than an individual and Partnership Facilitator should not be part of the team, Implementers Church

Partners need to reach a level of having their own auditors for better decision making, Partnership

Auditors should behave friendly and not like policemen, give remedial recommendations

immediately to the people concerned to help them improve on their performance gaps, results from

internal audit should be trusted and respected as well as recommendations.

Internal audit reports should be sent back to projects for audit response before making any

conclusion, the findings should be reported straight to Headquarters to avoid any influence of

somebody, the auditors should be fully independent in their recommendations and not the

management team to decide what to do, auditors should give enough time to !CPs for audit

preparation, internal auditors should be independent.

Give more impotiance and be careful on recommendations and advices of internal audits, auditing

the projects must be done at least twice a year, give the internal audit report copy to the PF in

charge of the Compassion project, petty cash management should be approved by at least two

people and done consistently.

Audit should take more than a day, before internal audit, the beneficiaries should fill a form of

project assessment, the internal auditor must have enough skills in auditing and a good adviser.

53

CHAPTER FIVE

5.0. SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1. Summary

After presentation of the findings and carrying out a thorough analysis of the research on; the

impact of internal audit on effective cash management in non-government organization: A case

study of Compassion International Rwanda office, the researcher has come up with summary on

each objective; the majority of employees at Compassion International have bachelor's degrees

representative of 49, 33%. There is only one PhD holder representing 1.33%.

The majority of the respondents 95% said that there is a relationship between internal audit,

accountability, and value for money in petty cash management.

According to the findings, 83% of respondents answered that the internal audit has took measures

to limit misappropriate of funds in project; strong internal controls, cash and fixed assets are safe

guarded, cash counts are done on daily basis, review petty cash documents compared to cash

available before replenishment approval of payment before effecting petty cash payment, value for

money, accountability and proper recording of cash transactions, utilization of resources are

efficient and effective , policies and procedures in place are respected.

Regarding the effectiveness and efficiency of internal audit in contributing to projects performance

within the organization; it can be observed that 87% of respondents appreciate the importance of

internal audit in the project effective. While 9% of respondents answered negatively. The internal

audit carries out internal control; internal checking and the employees are motivated by internal

audit impact in effective cash management towards the achievement of the organization's

objectives.

54

5.2. Conclusion

After presentation of findings and carrying out a thorough analysis of the research on internal audit

and cash management a case study of Compassion International, the researcher has come up with

relevant conclusions. The conclusions are about the general view on the finding and analysis from

the researcher.

The objectives of this study were to know the relationship between internal audit and cash

management, internal audit and accountability and to analyze the causes of misuse of funds and

poor performance in some projects and to identify how internal audit should be carried out to limit

misappropriation or misuse of projects funds in projects assisted by Compassion.

The research questions for this study were:

Is there any relationship between internal audit, accountability, and value for money m cash

management?

What are the causes of misuse of projects funds and poor performance within some Compassion

projects?

How can internal audit be effective and efficient in contributing to the projects performance?

lntemal audit in project assisted by Compassion International plays a vital role in the prevention of

errors and frauds as it instigates internal control measures and internal checks to be followed in a

project so that errors and frauds can be mitigated.

They also asserted that this cannot be achieved without auditing the project's books of accounts and

check compliance with policies, procedures and regulations of the project by its employees.

As to the question that regarding if the purchases policies and cash disbursement procedures are so

adequate that the organization is able to realize its goals and objectives effectively and efficiently,

findings from the research showed that 87% of respondents felt the importance of internal audit in

effective and efficient of project's operations while 13% have disapproved. This is due to the fact

that internal audit carries out internal control, internal check and internal audit governs the

operations of other activities.

55

It also gives recommendations to the management to improve the project's operations so that it

could be possible to correct errors and prevent frauds before they occur. The project is also able to

run its activities through verification and in respect of procedures and rules which are in place. The

implication is that staffs are motivated by internal audit role towards the achievement of the project

objectives.

Concerning the question on the impact of the internal auditing to avoid the misuse of funds and poor

performance at projects level, the result from the study showed that the majority of respondents

93% said that internal audit has a positive impact, 5% of respondents were of the view that internal

audit has a negative impact while 2% of respondents stood for no change. The findings from the

research indicate that internal auditing has insignificant impact to avoid the misuse of funds and

poor performance at projects level. The remaining patt of respondents who do not see the change

this could be due the fact that these employees consider internal auditors as investigators and they

tend to be uncooperative with them.

Therefore it can be concluded that the internal audit have an impact on effective cash management

in non-government organization like compassion international. And the purchases policies and cash

disbursement procedures are so adequate that the organization is able to realize its goals and

objectives effectively and efficiently.

5.3. Recommendations

After arriving at certain conclusions about the research done on the relation between internal audit

and cash management a case of Compassion International, the researcher has come up with relevant

recommendations elaborated below:

The purchases policies, cash disbursement procedures and accounting system must be in written

document manual, be uniform, and be available for all projects. The results from internal audit

should be trusted and respected and their recommendations have to be implemented without delay.

Auditors should give enough time to ICPs for audit preparation and before internal audit; the

beneficiaries should fill a form of project assessment.

In order to play a vital role in the prevention of errors and frauds, auditing the projects must be done

more than once a year and should take more time than a day.

56

To overcome the constraints facing by the internal auditors, the researcher recommends that the

internal auditors should organize professional courses related to cash management for Compassion

projects managers. And, the accounting operations have to be computerized.

5.4. Suggestion for further studies

The following proposed topics could interest other researchers: internal control and non­

governmental organizational performance in Rwanda.

57

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Delhi January 11, 2010, 0:24 IST

Barlow.P. Helberg, S. ,Large, N. & LeRoux, K. (!997). The Business Approach to Internal

Auditing. Second Auditing.

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Competency Framework for Internal Auditing (CFIA). Three volumes. (Altamonte Springs,

FL: The Institute oflnternal Auditors Research Foundation).

Bradford C. Else, MIM CPA, (1995) Internal Control and Cash Management Manual and

Questionnaires, November 1995, Submitted by the Zdrav Reform Program.June 1995.

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resource guide, Corlado Springs, July 2005.

Compassion International Rwanda, Annual reports 2009 and 2010. Kigali-Rwanda

Compassion International, Vision casting training reports for !CPS, 2010, Kigali-Rwanda

Flesher, D.L., and E.R. Mcintosh, 60 Years of Progress Through Sharing. 10-Year

Supplement to 50 Years of Progress Through Sharing, 1991-2001 (Altamonte Springs, FL:

The Instituteoflnternal Auditors, 2002).

Jagdish Prakash (2005). Auditing principles and problems, Kalyani Publishers,New Delly,

February ,2005

James, M. L. (1994). Outsourcing from the public accountants' perspective. Internal

Auditing (Summer): 55-58.

King, J., R. Welker, and G. Keller. (1994). The effects of independence allegation on peer

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Krejcie, R. V., & Morgan, D. W. (1970). Determining sample size for research activities.

Educational and Psychological Measurement, 30, 607-610.

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Kusel, J., R. Schull, and T. H. Oxner. (1997). What audit directors disclose about

outsourcing. Unpublished report prepared for the Institute ofinternal Auditors.

Lawrence J.Gitman, Edward A.Moses and I. Thomas White (1979), An Assessment of

C01porate Cash Management Practices. Vol.8, No 1 ( Spring, 1979),pp.32-41. Published

by: Wiley-Blackwell.

Levitt, A. (2000). Renewing the covenant with investors. Text of speech delivered at the

New York University Center for Law and Business, May 10.

Lincoln Guba, E. G., &Lincoln, Y. S. (1994).Competing Paradigms in Qualitative

Research.

Naturialistic inquiry. Newbury Park CA: Sage Publication.Inc.

Lowe, D. J., and K. Pany. (1995). CPA performance of consulting engagements with audit

clients: Effect on financial statement users' perceptions and decisions. Auditing: A Journal

of Practice & Theory (Fall): 35-53.

Moeller, R., and H.N. Witt, (1999). Brink's Modern Internal Auditing, 5th Ed. (New York:

John Wiley& Sons, Inc.

Previts, G.J., and B.D. Merino, A History of Accountancy in the United States: The Cultural

Ramamoorti, S., and R.O. Traver, (1998). Using Neural Networks for Risk Assessment in

InternalAuditing: A Feasibility Study (Altamonte Springs: The Institute of Internal

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Ratliff, R.L., and K.F. Reding, (2002) . .Introduction to Auditing: Logic, Principles, and

Techniques (Altamonte Springs, FL: The Institute ofinternal Auditors.

Texas State Auditor's Office. ( 1993) Cash Balances. In State wide Audit Manual.

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Shulman, Joel S., and Raymond A. K. Cox.( 1985) An Integrative Approach to Working

Capital Management. Journal of Cash Management 5 (November/December 1985): 64-67.

Wealey and Bailey, K.D. (1987). Methods of social research. New York: Free Press.

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William D. S. (1830) Corporate, Governance, Auditing and Origin of Information Rights.

http://www.datawatch.com/whitepapers/Cash_Management_RMS_whitepaper.pdf)

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Institute oflnternal Auditors Research Foundation, 1999).

60

APPENDIX I

Questionnaire

Dear respondents,

My name is Pascasie Uwimana, a student in final year, Department of Finance and Banking in

Katupala International University (KIU).

This is a research questionnaire designed for collection of data concerning the internal audit and

cash management in NGOs, a case of Compassion International Rwanda office. The data collected

will assist me in my MBA thesis writing. This questionnaire is divided in three sections:

background of responding, current situation in regards to project cash management, and the

relationship between internal audit and cash management in NGOs. The questionnaire is only

designed for the projects staff and the employees of Compassion International Rwanda. All

information collected shall remain confidential and be used only for the academic purposes.

Please tick[;] the right answer in the corresponding box

Section A: Background of Responding

I. What is your level of education?

• Diploma level

• Bachelor's degree level

• Master's degree level

• PhD level

c:=J c:=J c:=J c:=J

• Others (specify) ............................................................................. .

2. In which level are you serving Compassion International Rwanda?

0 Country Management team c:=J • Partnership Faciltator c:=J • Partnership Auditor c:=J • Parish Pastor c:=J • Project Director c:=J • Project Accountant c:=J

3. How long have you been serving project or Compassion International Rwanda?

• Less than I year

• 1-3 years

61

c:=J c:=J c:=J

• 3-5 years

• 5-10 years

• Above 10 years

Section B: Current situation in regards to project cash management

4. Is there any relationship between internal audit, accountability, and value for money in cash

management?

• Yes

• No

c::::::J c::::::J

5. Is your internal audit taking any measures to identify and to limit causes of misuse of

projects funds and poor performance within some Compassion projects?

• Yes

• No

If yes, please list any 3 measures

c::::::J c::::::J

6. Does the project have the cash management written policies and procedures manual?

• Yes

• No

7. Who has the authority to sign payment vouchers?

• Pminership Facilitator

• Partnership Auditor

• Parish Pastor

• Project Director

• Project Accountant

CJ CJ

CJ CJ CJ CJ CJ CJ

• Other( specify) ................................................................................ .

8. Does the Project have competitive bidding policies manual for its purchases?

• Yes

• No 62

CJ CJ

9. Does project respects accounting principles while recording cash transactions?

• Yes

• No

I 0. Identify the amount offunds (in RWF) that are handled by the project cashier

0 < 50,000

0 50,000-100,000

• > 100,000

11. Does the Compassion Project keeps of accounts

• Yes

• No

c::=J c::=J c::=J

c::=J c::=J

12. Rank of the efficiency with which financial statements give a true financial position to alert

the project managers to significant misuse of funds or lack of integrity in cash management?

• Excellent

• Very Good

• Good

• Fair

• Poor

13. Is your accounting system computerized?

o Yes

• No

If yes, which accounting Software do you use?

63

c::=J c::=J c::::J c::::J c::=J

c::=J c::::J

Section C: Impact oflnternal Audit on effective cash management

14. Do you find out the effectiveness and efficiency of internal audit in contributing to projects

performance within the organization?

• Yes

• No

CJ CJ

If yes, what is the importance of internal audit in the effective and efficient project's

operations?

15. Does the internal audit have an impact on the performance of project cash management?

• Positive impact

• Negative Impact

• No change

16. What is the main object of internal audit at project level?

• To prevent errors and fraud

• To detect errors and frauds

• To improve financial control

• All

17. How often the internal auditor visits each project?

• After six months

• Once a year

• After two years

• When is needed

18. Are recommendations given by the internal auditors implemented?

• Yes

• No

• Sometimes

19. Do internal auditors face constraints in their work?

• Yes

• No

If yes, list any 3 constraints and how auditors overcoming them?

64

CJ CJ CJ

CJ CJ CJ CJ

CJ

CJ CJ CJ

CJ CJ CJ

CJ CJ

20. Do you agree that internal audit can be helpful to achieve the project's objectives

• Yes

• No

21. To what extent do you attribute the project's performance to internal audit?

• 20%-50%

• 50%-80%

• Above 80%

22. To whom do the internal auditors report to

• Ministry Services Manager

• Country Director

• Regional office

• Headquarter

23. Does the Compassion project call for external auditors services?

• Yes

• No

If yes, specify ..................................................................................................... .

24. Please suggest at least 3 recommendations on how should internal audit be carried out on

effective cash management in projects assisted by Compassion International to improve

project's performance

Thank you and be blessed for your participation in my thesis research questionnaire.

END

65

APPENDICE II

Project suspension form

(Note: please use day/month/year format for all dates)

I. CDSP Project#: RW 725 UWINKOMO Date: 27/04/2010

(Fill out both project numbers if this partner has both)

2. Why does (do) this partner's project(s) need to be placed on SUSPENSION?

In reference to Program Field Manual, Project status changes suspension section (PFM, 2008 P.26) there are several reasons to put project on Suspensions. It is in this regard that Compassion Rwanda decided to put on suspension RW 725 Uwinkomo because of the following reasons:

1. Poor performance in the programmatic aspects of the project RW 725 Uwinkomo that have not been resolved after serious effmts on the patt of Compassion Rwanda.

2. Financial integrity issues leading to the misuse of children's funds have been identified but not adequately addressed after a serious effort on the part of Compassion.

3. Problem should be resolved by (date, required): 29th July, 2010 Note: an updated form must be sent if not resolved by this date.

(Please explain if longer than 90 days)

4. Should funds be WITHHELD from the project(s)? Yes D.

lf"yes", when were funds last disbursed to the project(s)? (date) Apri12010

If funds are withheld, can gifts be distributed? Yes 0

Approved by: REV Dr. Samuel Rugambage Date 28-April 20 I 0

Approved by: Dawit HAILU (EAA Director) Date 28th April 010

*Country Director (If sent electronically from CD's mailbox, actual signature not required.)

*Area Office (Area office approval required only when funds are being withheld)

66

APPENDICE III

Partnership termination form

Prqiect# RW921 Date 30/412009

Why is this patinership being terminated? (Note: a Phase-Out is the same as a Termination, but is scheduled for a future date) _______________________ _

The partnership is being terminated due to mass misuse of funds and poor program management and implementation

What has been done in the past to try to save this partnership?-------------

The partner has been trained in program management and implementation. There has been a dialog with Compassion Rwanda senior staff but this partner could not adhere.

Tire Partnership Facilitator in charge has also had several visits to this partner which yielded 110

results.

What can be done during the next three months to try to save this partnership? ______ _

There is nothing that can be done. All possible options have been exhausted.

What will happen to the departed children? The children will not be departed. A new partner clr urch nearby has been identified and all the children will be transferred there: ................ ..

What is the effective termination date? 8/5/2009. ________________ _

Do you want Colorado Springs to withhold funds from this patinership? Yes. Tlwse funds will be transferred to the new church partner which is RW 379.

lf funds are held, can gifts still be distributed? No the distribution can be done through the new church partner as well. Total Number of Children in the Project 227 How many to transfer? All. How many to depati? None.

Can final letters be forwarded to the children? No. Because they will be transferred to another project. Final gifts? No.

If "No," why not? Because they are still in the program since they will be transferred to a new project. ________________________________ _

Approved by: Area Director ___________________________ _

Ren Dr. Samuel Rugambage Country Director ___________________ _

67

APPENDICE IV

Project management and leadership structure

Country office Parish Pastor

Project Committee

Parents Committee

Project Director

I I I I

Project Accountant Health Social Communication Social Worker Worker

Source: Compassion International, Vision casting training reports for !CPS, 2010, Kigali-Rwanda

68

APPENDICE V

Table of determining sample size from a given population

N s s 10 10

15 14 20 19 25 24 30 28 35 32 40 36 45 40 50 44 55 48 60 52 65 56 70 59 75 63 80 66 85 70 90 73 95 76 100 80 110 86 120 92

130 97 140 103 150 108 160 113 170 118 180 123 190 127 200 132 210 136

Note.-N IS populatiOn size. S is sample size.

220

230 240 250 260 270 280 290 300 320 340 360 380 400 420 440 460 480 500 550 600 650 700 750 800 850 900 950 1000 1100

Source: Krejcie and Morgan (1970)

N s

140 144 148 152 155 159 162 165 169 175 181 186 191 196 201 205 210 214 217 226 234 242 248 254 260 265 269 274 278 285

69

N

1200 291 1300 297 1400 302 1500 306 1600 310 1700 313 1800 317 1900 320 2000 322 2200 327 2400 331 2600 335 2800 338 3000 341 3500 346 4000 351 4500 354 5000 357 6000 361 7000 364 8000 367 9000 368 10000 370 15000 375 20000 377 30000 379 40000 380 50000 381 75000 382 1000000 384