Internal Control System and Financial Management in Selected Local Non-Government Organizations in Mogadishu, Somalia

ABSTRACT 

This study aimed at assessing the impact of internal control systems on financial management in selected local NGOs in Mogadishu, Somalia, five specific objectives guided this study and these were; (i) to determine the effect of controlling environment on financial management in selected local NGOs in Mogadishu, Somalia, (ii) to establish the impact of risk assessment on financial management in selected local NGOs in Mogadishu, Somalia, (iii) to explore the relationship between operational control activities and financial management in selected local NGOs in Mogadishu, Somalia, (iv) to identify the effect of information & communication system on financial management in selected local NGOs in Mogadishu, Somalia and (v) examining the examine the impact of monitoring & evaluation system on financial management in selected local NGOs in Mogadishu, Somalia. This research employed descriptive survey research design to describe the relationship between variables. Regression model and person’s linear correlation coefficients were used in the analysis. The findings revealed the following: controlling environment significantly affects financial management in selected local NGOs in Mogadishu, Somalia, risk assessment has a significant effect on financial management in selected local NGOs in Mogadishu, Somalia, operational control activities have a significant relationship on financial management in selected local NGOs in Mogadishu, Somalia additionally, findings indicated that a improvement in internal control system improves financial management among in selected local NGOs and infective internal control system leads to poor financial management, the findings indicated a significant impact between monitoring & evaluation system and financial management in selected local NGOs, the researcher concluded that effective controlling environment it increases financial management in selected local NGOs in Mogadishu, Somalia, an improvement in risk assessment highly increases financial management in selected local NGOs in Mogadishu, Somalia, an improvement in operational control activities increases financial management in selected local NGOs improvement in internal control system improves financial management among in selected local NGOs in Mogadishu, Somalia and infective internal control system leads to poor financial management, and lastly, improving the monitoring & evaluation system increases financial management in selected local NGOs. The researcher recommended that; the selected local NGOs in Mogadishu Somalia to make sure that both management and employees are assigned appropriate levels of authority and responsibility to facilitate effective internal control, local NGOs in Mogadishu Somalia to should put in place an effective information system to capture and process data in a meaningful way, the local NGOs in Mogadishu, Somalia should make sure that human resource policies and practices are designed and implemented to facilitate effective internal control, the local NGOs should make sure that all stakeholders have the right to know how their funds being used, and the local NGOs to make sure that all financial information are recorded accurately and presented clearly. In this case therefore, this research work has brought a new knowledge if taken into account, international NGOs will move out from issues basing on internal control system basing on the weaknesses found in the operations that may result a negative effect on financial management in terms of managing scarce resources, financial control, accountability, transparency and internal controls in developing countries.

TABLE OF CONTENT

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

APPROVAL ................................................................................................................................. iii

DEDICATION.............................................................................................................................. iv

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

ABSTRACT.................................................................................................................................. vi

TABLE OF CONTENT.............................................................................................................. vii

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

INTRODUCTION......................................................................................................................... 1

1.0 Introduction ...................................................................................................................... 1

1.1 Background to the Study....................................................................................................... 1

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

1.1.2 Theoretical Perspective ...................................................................................................... 4

1.1.3 Conceptual perspective ...................................................................................................... 5

1.1.4 Contextual Perspective....................................................................................................... 6

1.2 Statement of the Problem...................................................................................................... 7

1.3 Purpose of the Study ............................................................................................................. 7

1.4 Research Objectives.............................................................................................................. 7

1.5 Research Question................................................................................................................. 8

1.6 Hypotheses........................................................................................................................ 8

1.7 Scope of the Study ................................................................................................................ 9

1.7.1 Content Scope .................................................................................................................... 9

1.7.2 Geographical Scope ........................................................................................................... 9

1.7.3 Time Scope ........................................................................................................................ 9

1.8 Significance of the Study ...................................................................................................... 9

1.9 Operational Definitions of Key Terms ............................................................................... 10

CHAPTER TWO ........................................................................................................................ 12

RELATED LITERATURE........................................................................................................ 12

2.0 Introduction......................................................................................................................... 12

2.1 Theoretical framework ........................................................................................................ 12

2.2 Conceptual Framework ....................................................................................................... 14

2.3 Review of Related Literature .............................................................................................. 14

2.3.1 Internal control system..................................................................................................... 14

2.3.1.1 Control Environment .................................................................................................... 15

2.3.1.2 Risk assessment ............................................................................................................ 16

2.3.1.3 Operational and control activities ................................................................................. 16

2.3.1.4 Information and Communication Systems.................................................................... 18

2.3.1.5 Monitoring and evaluation System ............................................................................... 18

2.3.1.5.1 Accountability............................................................................................................ 19

2.3.1.5.2 Transparency............................................................................................................... 20

2.3.1.5.3 Controlling .................................................................................................................. 20

2.3.1.5.4 Monitoring .................................................................................................................. 20

2.3.1.5.5 Keeping Records......................................................................................................... 21

2.3.2 Internal Control................................................................................................................ 21

2.3.2.1 Budgeting ...................................................................................................................... 22

2.3.2.2 Accounting Records...................................................................................................... 23

2.3.2.3 Financial Control .......................................................................................................... 23

2.3.2.4 Efficient Financial Management Process...................................................................... 23

2.3.2.5 Managing scarce resources ............................................................................................ 24

2.4 Related studies ..................................................................................................................... 24

2.4.1 Internal controls and financial management .................................................................... 24

2.5 Research Gap ...................................................................................................................... 27

CHAPTER THREE.................................................................................................................... 28

METHODOLOGY ..................................................................................................................... 28

3.0 Introduction......................................................................................................................... 28

3.1 Research design................................................................................................................... 28

3.2 Research Population............................................................................................................ 28

3.2.1 Sample Size...................................................................................................................... 29

3.4 Sampling technique............................................................................................................. 29

3.5 Research instruments .......................................................................................................... 29

3.6 Validity and reliability of the instrument............................................................................ 30

3.6.1 Testing the validity of the research instrument ................................................................ 30

3.6.2 Reliability of the instrument ............................................................................................ 30

3.7 Data gathering procedures .................................................................................................. 30

3.8 Data analysis....................................................................................................................... 31

3.9 Ethical considerations......................................................................................................... 32

3.10 Limitations of the study .................................................................................................... 32

CHAPTER FOUR....................................................................................................................... 34

DATA PRESENTATION, ANALYSIS AND INTERPRETATION ..................................... 34

4.0 Introduction......................................................................................................................... 34

4.1 Profile of Respondents........................................................................................................ 34

4.2 Internal control system........................................................................................................ 36

4.3 Financial management ........................................................................................................ 39

4.4 Effect of control environment on financial management in selected local NGOs in Mogadishu Somalia ................. 42

4.5 Effect of risk assessment on financial management in selected local NGOs in Mogadishu Somalia................. 44

4.6 Effect of information & communication system on financial management in selected local NGOs in Mogadishu Somalia .......... 46

4.7 Effect of monitoring & evaluation system on Financial management in selected local NGOs in Mogadishu Somalia .................... 48

4.8 Relationship between operational control activities and financial management in selected local NGOs in Mogadishu Somalia .............. 50

CHAPTER FIVE ........................................................................................................................ 52

DISCUSSIONS, CONLUSIONS AND RECOMMENDATIONS.......................................... 52

5.0 Introduction......................................................................................................................... 52

5.1 Discussion of findings......................................................................................................... 52

5.2 Conclusions......................................................................................................................... 56

5.3 Recommendation ................................................................................................................ 57

5.4 Contribution toknowledge ................................................................................................. 57

5.5 Areas for further research ................................................................................................... 58

REFERENCES............................................................................................................................ 59

APPENDIX I: RESEARCH QUESTIONNAIRE..................................................................... 62

APPENDIX II: QUESTIONNAIRE ......................................................................................... 63

APPENDIX III: MAP OF STUDY AREA ............................................................................... 68