makerere university college of business and …
TRANSCRIPT
MAKERERE UNIVERSITY
COLLEGE OF BUSINESS AND MANAGEMENT SCIENCE
INTERNAL CONTROLS AND INVENTORY MANAGEMENT
IN BUSINESS ORGANIZATION
CASE STUDY: UGANDA TELECOMMUNICATIONS LIMITED (UTL)
Presented
BY
NAME: ATUHAIRE SAMUEL
REG NO: 07/U/6973/EXT
Supervised by
Ms victioria B Nakku
A RESEARCH REPORT SUBMITTED TO COLLEGE OF BUSINESS AND
MANAGEMENT SCIENCES IN PARTIAL FULFILLMENT
OF THE REQUIREMENT OF THE AWARD OF DEGREE
OF BACHELOR OF COMMERCE OF
MAKERERE UNIVERSITY
July 2011
i
DEDICATION
This dissertation is dedicated to my beloved father Mr Baribumpe Godfrey and mother
Mrs Alice Baribumpe , Brothers Alex ,Paul, Collins and Sisters Mercy , Brendah ,My
beloved grand parents (R.I.P)
ii
DECLARATION
I Atuhaire Samuel do here by declare that the contents of this research report are a result of
my own findings to the best of my knowledge it has never been submitted to any university
or institution for any academic award
Signed …………………………………………………………
Atuhaire Samuel 07/u/6973/ext
Date ………………………………………
iii
APPROVAL
This is to certify that the following research report / work on INTERNAL CONTROLS AND
INVENTORY MANAGEMENT IN BUSINESS ORGANIZATION was carried out under
my supervision and is now ready for submission for marking
Signed ……………………
Ms VICTORIA. B. NAKKU (MBA ACCA)
Supervisor
Date …………………
iv
ACKNOWLEDGEMENT
I am greatly indebted to all persons who have helped me in one way or the other in all the
stages I went through up the final point of this dissertation
It may not be possible to thank all of them individually but special thanks go to my dearest
parents, DAD and MUM MR Baribumpe Godtrey and Mrs Alice Baribumpe
I also appreciate the support accorded to me in finance and other ways from my dearest
Brother MR Byonanabye Alex Bruce, sister mercy and MR Tumwebaze mike and family.
May the almighty lord bless the works of your hand?
Special thanks also to my dearest aunt Kyomugisha provia and late grand pa late Ezra Kamu
who formed a back ground of education to my dad for which it has been a stepping stone to
us. May his soul rest in peace. Greatest thanks to my dearest brothers Alex, Paul Collins and
sisters Mercy, Brenda, Catherine for their patience with me
Last but not least are my dearest friend Ariganyira P. and those who labored to help me in
different ways possible Buye, Benson, Benja, Philip and victoria ,Maryvian, Immaculate,
Brenda Humprey ,Octaviah and so many others who helped me to produce my work in
different ways and all the moral support and encouragement through out the course .They
have been very patient with me
Great thanks go my supervisor Miss Victoria Brenda for being patient with me. Thanks also
go to management of Uganda telecom for accepting me to undertake my research study
May the almighty GOD reward all of you abundantly?
v
TABLE OF CONTENTS
DEDICATION ...................................................................................................................... 1
DECLARATION .................................................................................................................. ii
APPROVAL ........................................................................................................................ iii
ACKNOWLEDGEMENT .................................................................................................... iv
TABLE OF CONTENTS ...................................................................................................... v
LIST OF TABLES ............................................................................................................. viii
LIST OF ABBREVIATIONS............................................................................................... ix
ABSTRACT ......................................................................................................................... x
CHAPTER ONE ................................................................................................................... 1
1.0 Back ground of the study ................................................................................................. 1
1.1 Statement of the problem ................................................................................................. 2
1.2 Purpose of the study ........................................................................................................ 2
1.3 Research objectives ....................................................................................................... 2
1.4 Research questions ........................................................................................................ 3
1.5 Scope of the study ......................................................................................................... 3
1.6 Geographical scope ..................................................................................................... 3
1.7 Time scope ...................................................................................................................... 3
1.8 Conceptual frame work ................................................................................................... 3
1.9 Significance of the study ................................................................................................. 4
CHAPTER TWO .................................................................................................................. 5
LITERATURE REVIEW ...................................................................................................... 5
2.1 Introduction ..................................................................................................................... 5
2.2.1 Internal control ............................................................................................................. 5
2.2.2Types of internal control ................................................................................................ 6
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2.2.3Characteristics of an effective system of internal control ............................................... 7
2.2.4. Importance of internal controls .................................................................................... 9
2.3.1 Inventory management ................................................................................................. 9
2.3.2 There are mainly two inventory systems periodic and perpetual inventory systems ....... 9
2.3.3Reasons for holding inventory ..................................................................................... 10
2.3.4 Aspects of inventory management .............................................................................. 11
2.3.5 Inventory management models ................................................................................... 12
2.4 The relationship between internal control and inventory management ........................... 13
2.5 Conclusion .................................................................................................................... 15
CHAPTER THREE ............................................................................................................. 16
3.1 Introduction ................................................................................................................... 16
3.2 Research design ........................................................................................................... 16
3.3 Study population ........................................................................................................... 16
3.4 Sample size ................................................................................................................... 16
3.5 Sampling design and procedure ..................................................................................... 17
3.6 Source of data ............................................................................................................... 17
3.7 Data collection methods and instruments ....................................................................... 17
3.9 Data processing and analysis ......................................................................................... 18
3.9 Limitation of the study .................................................................................................. 19
CHAPTER FOUR ............................................................................................................... 20
4.0 Data presentation, analysis and interpretation of findings .............................................. 20
4.1General characteristics of the respondents ...................................................................... 20
4.3 Response regarding type of stock held at utl .................................................................. 22
4.4 Suppliers of stock ......................................................................................................... 22
4.5 Order levels ................................................................................................................. 23
4.6 Inventory management techniques ................................................................................. 23
4.7 Initiation of stock procurement ...................................................................................... 24
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4.8 Existance of internal controls........................................................................................ 25
4.8.2 Response regarding existence segregation of duties .................................................... 26
4.8.3 Close supervision of staff ......................................................................................... 26
4.8.4 Internal checks ........................................................................................................... 27
4.8.5 Budgetary control ....................................................................................................... 27
4.9 Effectiveness of internal control .................................................................................... 28
4.10 Physical stock taking ................................................................................................... 28
4.11 Recording of stock....................................................................................................... 29
4.12 Adhernce to management decisions ............................................................................. 30
4.13 Authorization and approval ......................................................................................... 30
4.14 Review and reconciliation ........................................................................................... 31
4.15 Relationship between internal controls and inventory management .............................. 32
4.15 Discussion of findings ................................................................................................. 33
CHAPTER FIVE ................................................................................................................ 35
5. 0 Summary of findings, conculusions and recommendations ........................................... 35
5.1 Introductions ................................................................................................................. 35
5.1 Summary of the findings ............................................................................................... 35
5.2 Conclusions ................................................................................................................... 36
5.3 Recommendations ......................................................................................................... 36
5.4 Areas of further study .................................................................................................... 37
Appendix one ...................................................................................................................... 38
Appendix two...................................................................................................................... 45
An interview guide .............................................................................................................. 45
Appendix three .................................................................................................................... 46
Reference ............................................................................................................................ 46
viii
LIST OF TABLES
Table 3.3.1 showing the study population according to departments ................................ 16
Table 3.4.1 showing the sample size and selected departments ........................................ 17
Table 4.2.1 Age of the respondents .................................................................................. 20
Table 4.2.2 sex of the respondents ................................................................................... 20
Table 4.2.3 education background of respondents ............................................................ 21
Table 4.3.1 showing stock held ........................................................................................ 22
Table 4.4.1: showing response regarding the suppliers of stock at UTL ........................... 22
Table 4.5.1 : showing response regarding order level at Uganda telecom ......................... 23
Table4.6.1 :showing inventory management techniques ................................................... 24
Table 4.7.1 showing initiation of stock ............................................................................ 25
Table 4.8.1showing authorisation of purchase .................................................................. 25
Table 4.8.2 showing segregation of duties........................................................................ 26
Table 4.8.3: close supervision of staff .............................................................................. 26
Table 4.8.4: existence of internal checks .......................................................................... 27
Table 4.8.5 budgetary control .......................................................................................... 27
Table 4.9.1 showing the effectiveness of internal control ................................................. 28
Table 4.10.1 physical stock taking ................................................................................... 29
Table 4.11.1: recording of stock ....................................................................................... 29
Table 4.12.1 showing adherence to management decision ................................................ 30
Table 4.13.1: auhorisation and approval ........................................................................... 31
Table 4.14.1 review and reconciliation............................................................................. 31
Table 4.15.1: Relationship between internal controls and inventory ................................. 32
ix
LIST OF ABBREVIATIONS
JIT - Just in time
EOQ - Economic order quantity
ABC - Abc and pareto analysis
UTL - Uganda telecommunication limited
x
ABSTRACT
The internal control system is one of the critical areas that the internal audit department
need to asses its performance so as to reduces the costs and likewise failure or non operation
of policies that can lead to poor inventory management, the study was conducted under the
topic internal controls and inventory management with, conceptual frame work that reflected
the variable whose relation ship was studied was developed, the following were specific
objectives to the study to assess internal control tools employed by UTL To indentify
inventory management techniques used at UTL and o establish the relationship between
internal controls and inventory management
A combination of analytical and cross sectional research design was used applying both
qualitative and quantitative techniques the study population was 40 being total population in
four department but out of theses 30 respondents were selected using simple random
sampling
The study revealed that the inventory management technique used was EOQ and that there
existed a positive relation ship between the variable as conceptualized, correlation coefficient
was used to establish the relationship between internal controls and inventory management.
Pearson correlation showed a very strong positive relationship of 0.026* between internal
control and inventory management
From the summary of the findings the following recommendation were made by the
researcher like ensuring that internal controls and inventory management are strictly
monitored and followed, to educate continuously in various internal controls technique
relating to inventory
To formalize the organizational structure with emphasis on segregation of duties, stock
taking and reconciliation should be on regular basis not in given period of the time stock
records should be correct and accurate and stock record s should always be reconciled with
physical count figures regularly
1
CHAPTER ONE
1.0 Back ground of the study
Internal controls refers to the overall attitude a awareness and action of directors and
managers in regard to the achievement of the organizations objectives (control
environment)and it is also includes the policies and the procedures which are established to
achieve the entities specific objectives (control procedure)(Meigs 1989). According to Woolf
(1994)and Faulk lynch defines internal control system as the control of financial and
otherwise established by management in order to carry on the business in an orderly and
efficient way , ensure adherence to management policies, safe guard the assets and secure as
far as possible the completeness and accuracy of records
According to Bradford and Elsemin(1995) it is a management responsibility to establish and
maintain an adequate internal control structure .inventories are stocks of products a company
holds to further its product and sales, Pandy (2003).They appear in the form of raw materials,
work in progress ,finished products and supplies maintained by firms to smoothly conduct
their business
Inventory management is a system which ensures that right qualities of materials are
available in right quantities at the right place with right amount of investment (Jain and Narag
1986 ) while kakuru (1998) defines inventory management as the system concerned with
acquisition and recording inspection handling storage issuing and control of supplies .These
could be finished goods or raw materials
Successful inventory management policy balances the costs with the benefits of inventory,
many business owners fail to appreciate fully the costs of carrying inventory, which include
not only direct costs of storage, insurance and taxes but the cost of money tied in inventory
but with good policies of inventory management all these costs will be controlled thus
increasing the profitability of a company
Internal control system if properly utilized will reduce the costs and likewise failure or non
operation of such policies that can lead to poor inventory management, mishandling of
inventory and more so increased inventory costs ( Wamy 1994) . For management to attain a
2
desired out put the controls in place must be effectively utilized and even improve up on as
need arises for better control of organization resources Van Horn (2002)
Uganda telecommunication limited (UTL) was at one time acting as a monopoly firm in the
telecommunication industry of Uganda but later the industry was liberalized attracting other
players such as MTN, Air Tel, Warid Uganda. UTL has wide coverage in Uganda operating
in all most 80 % of this country with branch offices in all districts with the main offices at
Rwenzori courts Nakasero plot 2/4A, it offers services such as telecommunication, internet
among others. According to management of Uganda telecommunications limited the
company would control stock losses, fraud and error if a strong internal control is effectively
implemented as evidenced from the stock taking report
Although inventories are paramount in any organization‟s operations, the dilemma is on how
much inventories should be maintained, The reason is that excessive inventories have been
associated with the problem of causing holding cost and obsolescence risks while in adequate
inventories have been associated with interruptions and losses of sales .This calls for efficient
and effective inventory management
1.1 Statement of the problem
Despite a number of internal controls that have been employed by Uganda
telecommunications limited in trying to handle organizational stock so as to minimize losses,
internal records at Uganda telecommunications limited from management report (January
2009-october 2009 )indicate that inventory losses have been persistent hence having an
impact on customer satisfaction ,therefore the researcher finds it imperative to investigate the
internal controls employed by Uganda telecommunications limited in improving inventory
management
1.2 Purpose of the study
The purpose of the study was aimed at ascertaining the effect of internal control policies on
the management of inventory of service provider firm
1.3 Research objectives
In order to evaluate the impact of internal controls on the management of inventory the
researcher formulates the following objectives
To assess the control tools in inventory management by Uganda telecom limited
3
To identify inventory management techniques used at Uganda telecom limited
To establish the relation ship between internal controls and inventory management
1.4 Research questions
1. What are the control tools employed by Uganda telecom to manage inventory?
2. What is inventory management techniques used at Uganda telecom?
3. What is the relationship between internal control and inventory management?
1.5 Scope of the study
The study focused on internal controls like stock register, errors in tock taking purchase
ledgers, control accounts and then inventory management like perpetual inventory control
methods that should be adopted to avoid excess quantity and maintain minimum quantity
1.6 Geographical scope
The study was carried out at Uganda telecommunication limited head office Rwenzori courts
plot 2/4A Nakasero Kampala because it is the head quarters of supervision, authority and
information of all country wide activities
1.7 Time scope
The study will look at records for a period from January 1st 2009-october 31
st 2009 because
of the continuous un favorable variations of stock records
1.8 Conceptual frame work
This explains the relationship between the independent variable and the dependent variable
Independent variabla
(internal control)
Segregation of
duties
Authorization
control
supervision
recruiting
correct staff
stock taking
exercise
arithmetic and
accounting
records
Dependent variable
(inventory
management)
fraud
Theft
Misappropriatio
ns
Pilferage
Errors of
omission
Cash planning
4
According to the conceptual frame work when the independent variable (internal controls) are
in place the management of inventory will be at required levels ,where as if the independent
variable is not implemented there will inventory short falls
1.9 Significance of the study
The study would be of great importance in the following areas
1. Uganda telecommunications limited store and accounting departments may use the
study of the findings to identify the policies and procedures that need to be reveiwed
in the management and control system of inventory
2. The study will also help existing and potential investors to know the importance of
internal control and inventory management as far as the success of business is
concerned
3. Scholars and academicians may use the findings of this study as a practical approach
for the future references in the conduct of inventory control and management studies
5
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter is to critically review the existing literature on the internal controls and
inventory management. This will analyze what has been done and what has been left out.
The literature review answers the question that other researchers have said about the internal
control and inventory management their relationships and interrelationships.
2.2.1 Internal control
According to Woolf 1994 and Foulks lynch, internal control is a system of controls, financial
and other wise established by management in order to carry on the business in an orderly and
efficient way ,ensure adherence to management policies ,safe guard the assets and secure as
far as possible the completeness and accuracy of records.
Internal control system is also defined as a system comprising of the control environment
and control procedures. However a good internal control system must have policies and
procedures adopted by management of an entity to assist in achieving the set objectives
ACCA Foulks lych (2004)
According to Ramasway (1994) the objectives of an internal control system are as follows
To ensure that all transactions are carried out in specific sanction and authorization of
management
To ensure that transactions are accounted for, in the related books of accounts regularly,
correctly and systematically following the accounting policies and procedures stated as below
To ensure complete accountability and proper usage of all assets
To ensure that the use and access to assets are made only with proper authorization
To have periodical verification of assets in existence with accounting records ,and
appropriate action taken in case of discrepancy
To ensure that adequate accounting system suitable to the organization are in place
6
2.2.2Types of internal control
Internal controls are of three types (Foulk lych 2004)
a) Preventive controls .Theses prevent risk from occurring
b) Defective controls . Detect fraud or error that have not been prevented
c) Corrective controls These ensure that detected problems are rectified
All these types can be are explained below
Segregation of duties .No one should be responsible for initiation and processing a complete
transaction, the involvement of several people reduces the risk of intentional manipulation or
accidental errors and increases the element of independent checking of work . functions
which for a given operation should be separated include initiation, authorization execution
,recording and custody Horf (1984)
Recruiting of correct staff . The effectiveness of internal control depends on the integrity of
a person implementing them there fore procedures should be designed to ensure that
personnel operating the control system have competence, integrity and are motivated to carry
out the tasks assigned to them, Theses measures may include appropriate remuneration
promotion career characteristics and academic qualification s and assignment to the tasks of
right levels
Authorization control .These prevent fraudulent and erroneous transactions from taking
place All transactions should be authorized and approved by appropriate authorities , the
authorization limits should be specified for example stock taking purchase procedure, custody
and recording Emile(1994)
Reconciliation . It involves comparing balance in accounting records with what is in another
source .Theses are arithmetic and accounting control in the recording function which check
that all transactions have been dully authorized number in the accounts sections may and
reconcile the stock card stock figures with the actual stock in the ware house warmy (1994)
Supervision .All sections by all levels of staff should be supervised the responsibility for
supervision should be clearly laid down and communication to the supervisor and the person
being supervised
7
Internal checks These are management controls that are outside and above the day to day
routine of control system they can be staff rotation ,abrupt review of management accounts
,abrupt stock taking, internal audits, supervisory control and review procedures and
exceptional reports that reveal situations where controls have been circumvented fore
example large amounts of stock being issued with out proper authorization Barners (1999)
Physical access This concerns physical custody of assets and involves procedures designed
to limit access to only authorized staff .authorized personnel alone should enter a store
especially where there are valuable portable items, limiting access to the computer room by
keeping it locked when not in use and allowing keys only to specified people preventing
smocking in computer environment adequate fire precaution
Acknowledgement of performance. The staff performing data operations should
acknowledge their activities by means of signature, initials or rubber stamps. This allows
blame to be ascribed and also has a powerful psychological effect
Budgeting control This is quantitative plan of action it is a common technique used in
business having been agreed up on, budgets can be compared with actual out put and
difference investigated . Budgeting as internal control is to a positive act of planning
coordination of activities such as services with incomes ,authority to act delegated and
management can concentrate on exceptions. It is also informational and motivational Drury
(1999)
2.2.3Characteristics of an effective system of internal control
Horngen and Harrison (1992) found out that an organization, its system of internal control is
to be effective has the following note worthy characteristics
Competent and reliable personnel employees should be competent and reliable paying to
salaries to attract top quality employees training them to do their jobs well and supervising
their work all help to build a competent staff. a service organization add flexibility and
reliability to its staffing by rotating employees through various jobs competent human power
is required to implement management policies and procedures to effect internal controls
8
Assignment of responsibilities with effective internal control system no important duty is
over looked in sum all duties should be clearly defined and assigned to individuals who bear
responsibility for carrying them out
Proper authorization. An organization generally has written set of rules that outlines
approved procedures. Any deviation from standard policy requires proper authorization for
example manager or assistant manager of retail stores must approve customer checks for
amounts‟ above the stores usual limit
Separation of duties smart management divides the responsibilities for transition between
two or more people or departments. Separation of duties limits the chances for fraud and also
promotes the accuracy of the accounting records .this is crucial and often neglected
components of internal control system may be subscribed into four
Separation of operation from accounting
Separation of custody of assets from accounting
Separation of authorization of transaction from the custody of related assets
Separation of duties within the accounting function
Millchamp 1986 includes the following to the list
Independence of internal and external control auditors. Independence relieve auditors of
political or management pressure, this helps auditors to perform duties with out bias fear or
favor and diligently
Supportive management both internal and external cannot perform duties in an organization
with out support from other management functions hence for effective internal control
management needs to be supportive to the internal control system
Committed internal audit department which must be highly capable of providing timely
reports indentifying deviations, frauds, omission and other forms of mismanagement
9
2.2.4. Importance of internal controls
Internal controls are incorporated in an organizations accounting system to ensure
a) transactions are carried out in accordance with appropriate authority that is to measure
compliance with the company‟s policies
b) all transactions‟ are recorded at the correct amount in the correct account at the proper
period so as to enable management prepare financial statements this helps in the
detection of fraud and error with in an organization
c) recorded assets are compared with existing assets periodically and corrective action
taken in case of a difference This helps in safe guarding the organizations resources
promoting accuracy dependability of accounting records and reports
d) access to assets and records is authorized
e) evaluate the operational efficiency
2.3.1 Inventory management
Inventory management is the supervision of supplies, storage and accessibility of items in
order to enforce an adequate supply .Efficient inventory management requires an inventory
policy that will promote efficiency or safe guards assets (Taylor 1999). In the sense,
inventory refers to stocks of anything necessary .these stocks represent a large portion of the
business investments and must be well managed in order to maximize profits ( Barker ,2000)
Inventory refers to stocks of necessary items in service production it is a list of all items in
stocks (Alarcom,1999) or a collection of resources (Hall 2000) .While Kakuru (1998) defines
inventory management as the system concerned with acquisition , recording ,inspection,
handling , storage issuing and control of supplies
According to Arora (1994) inventory management is a system used in the firm to control the
investment stock
2.3.2 There are mainly two inventory systems periodic and perpetual inventory systems
Periodic inventory system under this system stock taking is undertaken at the end of the
accounting year .as the stock taking involves verifying the physical quantities of store in hand
some firms temporarily suspend plant operations when this done this is because it is rarely
feasible to take stocks while production continues thus annual stock taking should be
organized well in advance to minimize production hold ups Arora(1994)
10
Perpetual inventory system. The periodic inventory system has certain serious
disadvantages which the perpetual inventory system overcomes. A perpetual inventory
system is defined as a method of recording stores balances after each receipt and issue to
facilitate regular checking and obviate closing down for stock taking (wheldons cost
accounting and cost methods ) thus under this system current balance of stores is always
shown in records any receipts being added to and any issue being deducted from the balance
after each transaction ,the records used for perpetual inventory are bin cabins cards and stores
ledger the balance in stock is calculated after each entry of receipts or issue columns Arora
(1994)
Perpetual inventory system is operated by taking the following steps
Reconciliation of bin cards and store ledger accounts .The records of each item of store
are kept simultaneously at two places such as bin cards and store ledger which are perpetual
inventory records
Continuous stock taking .In any perpetual inventory system the book balance as shown by
bin cards and store ledger should agree with actual physical balance in store, This is best
done by continuous stock taking which is an integral part of the perpetual inventory system
The primary objectives of continuous stock taking are to confirm that perpetual inventory
system is functioning properly. Arora (1994)
2.3.3Reasons for holding inventory
Stocking resources some resources such as agricultural products are seasonal in contrary to
demand which in most cases are constant thorough out the year here such resources are stored
as inventories to ensure consumers production and meet consumer demand Kakuru(2000)
Hedging against inflation. Investment in inventory is one of the ways how we can hedge
against inflation and this is commonly appropriate when the inflationary rate is higher than
the rate of return from the bank s
Quantity discount. In some companies inventory is held as result of need to take advantage
of the quantity discounts give to those who buy in bulky or large quantities
11
Expectations. Some companies purchase raw materials in large quantities when ever they
speculate that there will be scarcity of such raw materials that will in the end lead to
increased prices Drury(1994)
2.3.4 Aspects of inventory management
Store keeping. It is usually a responsibility of the store department to receive inventory and
hold inventory until they are required this requires keeping of store of inventory and also
ensuring accurate recording, saleemi(1990)
Assurance of raw materials. The production department is responsible for scheduling and
maintaining of production according to the planned stock level and production budget ,the
production control department will therefore determine the quantity of inventory necessary to
fill the production order ,the required inventories are obtained from storekeeper when an
authorized material requisition form is presented. Arora (1995)
Stock control requirement. Stock control is normally required to ensure that the
organization has the right quantity of inventory in the right place and at the right time ,
inventory must be kept in such a way that it is neither too high nor too low because of the
costs associated when too much inventory is held ,carrying costs also increase in terms of
storage charge ,lighting ,security and more importantly management on the other hand if a
very low level of inventory is held stock out costs are likely to be incurred like failure to meet
the production demand which would result in loss of sales and hence reduced profits Narag
(1986)
Buffer stock This is the stock available to cover error in fore casting the lead time or demand
Lead or procurement time this is the period of time between ordering and replenishment ,it
is the time between when raw materials are ordered for and when they are available for use
Kakuru (2000)
Maximum level this is the required level beyond which stock held should not be allowed to
exceed. This is stock level beyond which a particular company will be said to have too high
levels of stock T. Lucey(2002)
Minimum level .This is a level of inventory below which inventory should not go this the
lowest level of inventory that should be maintained Hall(2000)
12
Re- order level this is the level of inventory at which a further replenishment order should
be placed the re-order level normally depends on lead time and the rate of demand during the
lead-time
2.3.5 Inventory management models
ABC and PARETO analysis
In the application of the Pareto analysis principle which states that “there are critical few and
a trivial many” Hence management should focus resources on these critical few and not the
trivial many. The method divides inventories into three groups on the basis of their monitory
value. Group A the vital few, has large monitory value but a small portion of the total
inventory , Group C the trivial many , has items of small monetary but a big percentage of
the total inventory . Group B is between is A and C .it is common to find that 20% of the
items account for 80% ,the next 30% account for 15% and the final account for 5% of the
monetary value .Although Pareto analysis directs control effort judgment is needed on critical
inventory items that Pareto analysis in itself does not reveal pandey (1994)
The model is criticized basing on the following
the model assumes that items of inventory are held in similar or comparable units, this
is misleading as some items will be in cartoons ,tones and kilogram,
the model seems to suggest that high value items are always few this is wrong
because if high items are highly remanded larger quantities will be held in stock
Just in time (JIT) This approach seeks to reduce the company‟s operating cycle and
associated costs JIT based on the idea that all required inventory items should be supplied to
the production process at exactly the time and in the right quantity .The approach focuses on
redesigning the production system to stream line the ordering process and to eliminate waste
and production errors. Gitman (1997)
Economic order quantity
This model assumes that there are two basic inventory decisions to make such
a) how much to order
b) when to order
The cost that influence this decision are the ordering costs and the carrying costs. pandey
(1995)
13
This model assumes that
a) the lead time is known and constant
b) the demand is known and constant
c) quantity discounts are not possible
d) receipt of inventory is instantaneous that is the inventory from an order arrives in one
at one point in time
e) if order are placed or made at the right levels stock outs are avoided. lucey (1994)
f) the only variables costs are the of placing and order and holding costs
Critique of the model
ordering costs and carrying costs can be constant and known all the time
the demand of product keeps changing depending on factors like product price and
stability
the lead time keeps changing depending on the supplier and the efficiency of the
purchasing department
the model uses assumptions which are un realistic it is just an approximation model
Kakuru (1998)
The computerized system approach.this is mainly employed by companies because of the
dynamic nature of their operations. In computerized approach the computer automatically
updates the inventory count and requisition are made and the re- order levels reached the
computer automatically places an order and the receipt of stock is updated. A computerized
system would use a soft ware that are arranged into distinct functional modules covering the
typical functions in the telecom industry the most modules that soft ware would have are
sales and distribution ,controlling module stock management module and production module
2.4 The relationship between internal control and inventory management
Control procedures over inventories should ensure that inventories held are adequately
protected against loss or misuse and are properly applied in operations of the business and
duly accounted for ( Bailey 1992)
According to service auditing standards ( SAS70) in assessing internal control of a services
organization description of controls that have been put in place in operation have to be
suitable in design in order to achieve specific control objectives.
14
It is necessary to have adequate control of stock in order to minimize stock and increase
benefits. These include:
Separation of duties, a reasonable separation of duties should be established after
considering the association costs, benefits and available resources. Under optional conditions,
no employee should have complete control over more than any of the following duties
Receiving ,maintaining or issuing items
Preparatory and maintaining up to dates records of the location ,transfer ,damage
disposal or loss of inventory
Performing annual physical counts or inspection ( 0‟ Brein, 1995)
Authorization and approval requisition and approved by department employees or required
prior to inventorial equipment supplies .Any adjustment to inventory records (for returned
missing, damage, obsolete or stolen items) should be approved by department large
adjustment should be supported by written explanations (Barners,1999) according to Warmy
(1994) approval and control of documents to ensure that issues from inventory are made only
on properly authorized requisitions.
Custodial and security arrangements, security arrangements should be put in place to safe
guard inventory against loss through damage, theft or misappropriation. The fewest number
of authorized employees should have access to inventories; the fewest number of authorized
employees should maintain lock keys and or combination securing movable inventories or
supplies (Tommeleim1999)
Review and reconciliation , Review of damages and obsolete inventories should be carried
out and any write offs should be authorized (warmy 1994), items should be inspected for
general conditions ,possible damage and completeness prior to their inclusion in that
inventory .An employee with responsibility of items should be removed from inventory in
accordance with the established procedures . A physical count should be taken annually;
management should be advised of significance of inventory discrepancies
Checking the arithmetic accuracy of any records to ensure that the records on inventory are
correct .All the receipts and issues should be recorded on inventory record cards and crossed
to the appropriate requisition document (Warmy 1994)
The inventory level should be periodically checked against the records by a person
independent of the store personnel and material variances investigated
15
2.5 Conclusion
From the foregoing it can be articulated that internal controls have a bearing on the inventory
management of an entity. However ,the effectiveness and the efficiency of internal control
depend on the out standing and extent to which the entity‟s operation and objectives are being
achieved, stock records and stock reconciliation are being prepared as well as complying with
applicable laws and regulations if good inventory management is to be achieved
16
CHAPTER THREE
3.1 Introduction
This chapter describes the method used in collecting the necessary data and the way it was
analyzed this chapter is composed of research designs ,study area and population, sample
size, data collection methods and instruments ,data processing and analysis and limitation of
the study
3.2 Research design
The study used an analytical and cross sectional survey .The researcher chose this design
because of the time duration of this research which is required in short time. In cross
sectional survey a cross section of the population at point in time and data collection is done
at once, and in the analytical survey involved computation of certain measures and finding
relationships supporting or conflicting with original. The measure and the relationships help
make conclusion and generalization about the population from which the sample was drawn
3.3 Study population
The study population included the members of accounts, marketing, sales and store
departments totaling to 40 as given in the table 3.4.1 below
Table 3.3.1 showing the study population according to departments
Departments Size of the respondents
Accounts 8
Sales 12
Marketing 10
Stores 10
Total 40
3.4 Sample size
The sample size was determined using simple random sampling. This is a process in which a
smaller set is chosen from the total population where each member of the population has the
probability of being chosen, simple random sampling facilitates unbiased representation of
the group. a total of 30 employees were selected from the four departments accounts, sales,
marketing stores departments so that they provide specific views on the internal controls and
17
inventory management .purposive sampling was used to get to specific heads of department
this is because of their knowledge to the area of study
Table 3.4.1 showing the sample size and selected departments
Departments Sample size
Accounts 8
Sales 6
Marketing 8
Stores 8
Total 30
3.5 Sampling design and procedure
From the four departments, the targeted population was divided into smaller subsets . This
was to ensure proper representation and there after a proportional number was selected
3.6 Source of data
Data was collected from both primary and secondary
Primary data
This is first hand information and row data obtained directly from the field by use of data
collection method relating to the research problems under study
Secondary data
Some data was obtained from text books of related topics such as literature reviewed by
others writers, journals publications magazines and annual reports
3.7 Data collection methods and instruments
There was use of questionnaires and recording of data as described below;
Questionnaires
The dominant method that was used in the study was use of questionnaires. Comprehensive
questionnaire covering all the areas under study were designed , the questionnaire were self
administered and also research administered, the questions were both opened ended and close
ended questionnaires were designed in such away as to generate information about the
respondents, to establish the exercise of inventory control policies
18
Recording
The data that was collected was recorded down s that it can be analyzed and value attached
3.9 Data processing and analysis
This included editing, coding, and tabulating data from the questionnaires response
Editing was done to detect and eliminate errors and indentifying vital information that was
relevant in coding and tabulation
Tabulation involved mainly the use of simple statistical techniques like use percentages to
test the significance of the data from which meaningful interpretation was drawn
Data analysis was done using excel which an electronic spread sheet program that can be
used storing, organizing and manipulating data.
A spread sheet involves a table used to store various types‟ data .This data is arranged in rows
and columns to make it easier to store, organize and analyze the information
Excel has a number of functions under the insert in the menu bar of excel computer program
soft ware. The functions are categorized in form of financial math and trig, logical and
statistical
In the statistical, a number of functions are displayed and one of them is PEARSON product
–moment correlation coefficient. In the Pearson product moment correlation coefficient
(sometimes referred as (PMCC ) (r) is common measure of the correlation between two
variables X and Y . When measured in population the Pearson product moment correlation is
designed by a Greek letter (p). When computed in a sample, it is designed by the letter r
and the and is sometimes called „Pearson‟s r „. Pearson‟s correlation reflects the degree of
linear relationship between two variables .it ranges from +1 to -1 a correlation of +1 means
that there is perfective positive linear relationship between variables. A correlation of -1
means that there is a perfect negative linear relationship between variables. A correlation of 0
means that there is no linear relationship between two variable
19
3.9 Limitation of the study
The researcher encountered the following limitations
The study involved a lot financial expenditure much more than the budgeted cost. This
delayed the completion of the study; the researcher was able to raise more funds from the
relatives
Limited time to carry out the investigations however the researcher concentrated on little key
study (sample)
Difficulty in accessing secondary data however, the researcher paid more attention to the
problems under study and considered only information deemed relevant to the study
The schedule of the staff was such that some staff could be working at night and could not
be available
20
CHAPTER FOUR
4.0 Data presentation, analysis and interpretation of findings
This chapter represents the major findings of the study about the assessment of internal
control and inventory management at Uganda telecom limited, it further gives the
interpretation of views from the respondents
4.1General characteristics of the respondents
The general characteristics of particular employees in form of age and sex give a view of the
respondents experience period and strength and gender sensitiveness in the company .The
researcher was made to know that a particular age and sex are the majority as indicated both
in the table 4.2.1and 4.2.2
Table 4.2.1 Age of the respondents
AGE FREQUENCY PERCENTANGE
Below 20 O 0%
21-30 14 47%
31-40 14 47%
41-51 6 6%
Above 50 0 0%
Total 30 100
source primary data 2011
From the table above 47% of the respondents were aged between 21-30 years , 47% were
aged between 31-40 and 7% were aged between 41 -50
The findings implies that UTL employees most active age or the productive age which is
efficient in service delivery
Table 4.2.2 sex of the respondents
SEX FREQUENCY PERCENTANGE
Male 16 53%
Female 14 47%
Total 30 100%
Source primary data 2011
21
From the table 53% of the respondents were males while 47% were females
The findings show that the responses received were fairly balanced meaning that there
gender equality in employment policies of UTL
Table 4.2.3 education background of respondents
QUALIFICATION FREQUENCY PERCENTANGE
Certificate 2 7
Diploma 6 20
Degree 22 73
Others 0 0
Total 30 100
Source primary data 2011
From the above table, out 30 respondents 73% were qualified with degrees 20% with
diplomas, and 7% with certificates. These findings imply that UTL is composed of more
skilled man power who can clearly understand and interpret the questions hence giving
appropriate responses and reliable information to the study
22
4.3 RESPONSE REGARDING TYPE OF STOCK HELD AT UTL
Table 4.3.1 showing stock held
Response Strongly
agree
agree Not sure Disagree Strongly disagree
Stock Fre % Fre % Fre % Fre % Fre %
Handset 20 66.7 10 33.3 0 0 0 0 0 0
Scratch
cards
15 50 15 50 0 0 0 0 0 0
Sim cards 10 33.3 20 66.7 0 0 0 0 0 0
All 25 83 5 17 0 0 0 0 0 0
Source primary data 20011
From the above table, 66.7% ,50%,33.3%,83% of the respondents strongly agree
,33.3%,50%,66.7%,17% agree ,while the responses of not sure ,disagree strongly disagree
were invalid .this means that a number of stock is kept at UTL, this implies that stock order
levels, minimum and maximum levels are easily determined hence good inventory
management
4.4 SUPPLIERS OF STOCK
Table 4.4.1: showing response regarding the suppliers of stock at UTL
Response Strongly
agree
Agree Not sure Disagree Strongly
disagree
Supplier FRE % Fre % FRE % FRe % FRE %
Local 10 33.3 15 50 5 17 0 0 0 0
Imported 20 66.7 8 26.6 2 6.6 0 0 0 0
Both 15 50 10 33.5 3 10 2 6.6 0 0
Source primary data 2011
From the table, 33% ,66.7%,50% of respondents strongly agree with local, importers and
both respectively,50%,26.6%,33.5% agree,17%,6.6%,10%, were not sure and 6.6% of
23
respondents disagreed with both as suppliers of stock at UTL. This implies that stock at utl is
obtained through both local and imports so the internal controls must be put in place to avoid
stock out especially on imported stock, lead time is determined to maintain inventory levels
4.5 ORDER LEVELS
The general findings regarding to ordering of stock are based on the various stock levels
which a purchasing order can be prepared .The researcher was made to know that a particular
order for stock is placed on various levels of stock as indicated in table 4.5.1.
Table 4.5.1 : showing response regarding order level at Uganda telecom
Response Strongly
agree
Agree Not sure Disagree Strongly
agree
Order levels FRE % FRE % FRE % FRE % FRE %
When all is
used
0 0 0 0 0 0 10 33.3 20 66.7
When half
is used
10 33.3 10 33.3 5 16.6 5 16.6 0 0
When its
convenient
10 33.3 15 50 0 0 5 16.6 0 0
When
operation
stops
0 0 0 0 0 0 10 33.3 20 66.7
Source primary 2011
From the table 66.6%, 66.7% of the respondents strongly disagree that orders a placed when
all stock is used and when operation stops respectively ,and 33.3 %,of the respondents
strongly agree ,33.3%,50% agree that orders a placed when half is used and when it is
convenient respectively. This implies that utl places an order when half is used or when its
convenient in order to take advantage of the market situations or to ensure continuous
operation and customer satisfaction
4.6 INVENTORY MANAGEMENT TECHNIQUES
The respondents were asked to give response towards the use of inventory management
techniques which included ABC approach, just in time (JIT), economic Order quantity(EOQ)
and computerized approach
24
Table 4.6.1 :showing inventory management techniques
Model FREQUENCY PERCENTANGE
Just in time (JIT) 0 0%
ABC approach 0 0%
Economic order quantity
(EOQ)
24 80%
Computerized approach 6 20%
Total 30 100%
Source primary data 2011
From the table 80% of the respondents strongly agree with the use of economic order
quantity (EOQ), 20% agree with the use of computerized approach according to the
findings 80% agreed that UTL uses economic order quantity (EOQ) in inventory
management, this implies that the company strives to minimize the ordering costs and
carrying costs by determining how much to order and when
From the interview guide the mostly commonly used technique is EOQ economic order
quantity and computerized approach , there other methods are a not used by UTL this
indicates that UTL always strive to minimize the ordering and carrying costs by determining
how much to order and when
From the interview UTL uses the combination of EOQ and computerized approach, the store
manager informed the researcher that they have introduced the element of computerization in
EOQ in order to minimize carrying cost and ordering cost and even shorten the lead time
This implies that with the combination the two techniques the company manages investment
stock that is required hence good inventory management
4.7 INITIATION OF STOCK PROCUREMENT
From the responses regarding to the stock procurement initiated through purchases
requisitions the researcher was made to know that the purchase requisition are received from
certain authorized persons as indicated in the table 4.7.1.below
25
Table 4.7.1 showing initiation of stock
RESPONSE FREQUENCY PERCENTANGE
Store manager 20 67%
Store keeper 6 20%
Accountant 2 7%
Managing director 2 7%
Total 30 100%
Source primary data 2011
The table shows that 67% of the respondents indicated that the procurement is initiated by
the store manager 20% by store keeper 7% indicated the accountant and managing director
respectively this implies that UTL ,the store manager initiates the procurement of stock in
most occasions therefore the store manager is always be updated with the information from
different departments to ensure continuous operation this implies that there adherence to
procurement policies and order levels are known leading to good inventory management
4.8 EXISTANCE OF INTERNAL CONTROLS
Table 4.8.1showing authorisation of purchase
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 22 73%
Agree 6 20%
Not sure 0 0%
Disagree 2 7%
Strongly Disagree 0 0%
Total 30 100%
Source primary data 2011
The table shows that 20% of respondents strongly agree, 73% agree, 7% of the respondents
disagree with the authorization of purchase at UTL .The findings revealed that 73% agreed
with authorization of purchase at UTL ,this implies that all transactions are authorized and
approved by appropriate authorities to prevent fraudulent and erroneous transaction
26
4.8.2 RESPONSE REGARDING EXISTENCE SEGREGATION OF DUTIES
The general findings regarding segregation of duties which involves different responsibilities
being performed and by different officers
Table 4.8.2 showing segregation of duties
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 16 53%
Agree 12 40%
Not sure 1 7%
Disagree 0 0%
Strongly Disagree 0 0%
Total 30 100%
Source primary data 2011
From the table above the findings show 53 % of respondents strongly agree 40% agree and
7% were not sure with the existence of segregation of duties the findings revealed 53% and
40% agreed with segregation of duties, This implies that there is segregation of duties as such
no one can be responsible for initiation and processing a complete transaction this reduces
intentional manipulation of records hence making inventory management good
4.8.3 CLOSE SUPERVISION OF STAFF
Supervision involves overseeing staff to ensure that the right activity is performed at right
time and by officer responsible
Table 4.8.3: close supervision of staff
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 20 67%
Agree 6 20%
Not sure 2 6.6%
Disagree 2 6.6%
Strongly Disagree 0 0%
Total 30 100%
Source primary data 2011
27
From the table, 67% of the respondents strongly agree 20% agree and 7% of the respondents
were not sure and disagreed respectively with the existence of close supervision of staff ,this
implies that staff at all levels are supervised and responsibility of supervision is well laid
down and there is communication to the supervisor and person being supervised hence
emphasizes the strict adherence to internal controls
4.8.4 INTERNAL CHECKS
Table 4.8.4: existence of internal checks
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 6 20%
Agree 6 20%
Not sure 4 13%
Disagree 12 40%
Strongly Disagree 2 7%
Total 30 100%
Source primary data 2011
As shown in the table 40% of the respondents disagree with internal checks 20% of the
respondents agree and disagree respectively ,13% not sure and 7% strongly disagree
,according to the findings 40% disagree with internal checks ,this implies that at UTL internal
checks such as abrupt staff rotation ,abrupt review of management accounts are weak thus
this leads ,fraud misappropriation in inventory management
4.8.5 BUDGETARY CONTROL
Table 4.8.5 budgetary control
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 12 53%
Agree 16 40%
Not sure 1 3.3%
Disagree 1 3.3%
Strongly Disagree 0 0%
Total 30 100%
Source primary data 2011
28
The findings in table above, 53% of the respondents indicated that they strongly agree ,40%
agree ,3.3% are not sure and disagree respectively with the budgetary controls , This implies
that budgetary exercise is carried out at utl, this means that UTL can compare actual out put
with desired out and differences investigated hence there is deviations from the planned
objectives leading to good inventory management
4.9 EFFECTIVENESS OF INTERNAL CONTROL
Table 4.9.1 showing the effectiveness of internal control
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 0 0%
Agree 5 63%
Not sure 6 20%
Disagree 17 17%
Strongly Disagree 0 0%
Total 30 100%
Source primary data 2011
From the above table the findings show that 63% 0f the respondents agree ,20% not sure and
17 % 0f the respondents disagree with the effectiveness of the internal controls this implies
that internal controls are in effective in achieving set targets ,thus internal controls such as
supervision, segregation of duties , are effective in eliminating fraud ,misappropriation hence
good inventory management
4.10 PHYSICAL STOCK TAKING
The response regarding the existence of physical counts or measure of inventory from a
sample of 30 employees is shown in table 4.10.
29
Table 4.10.1 physical stock taking
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 14 47%
Agree 8 27%
Not sure 8 27%
Disagree 0 0%
Strongly Disagree 0 0%
Total 30 100%
Source primary data 2011
According the table 47% of the respondents indicated that they strongly agree the stock
taking was done while 27% agree,27% had no opinion on whether the exercise is done, this
implies that physical stocktaking takes place as away of ensuring that inventory record
reconcile with physical counts to facilitate decision making meaning that the internal controls
set for physical count are effectitively adhered to leading to good inventory management
4.11 RECORDING OF STOCK
The general findings regarding the stock recording policy which involves recording of items
received and issued so as to carry out reconciliation process is as shown in table 4.11.1
Table 4.11.1: recording of stock
FREQUENCY PERCENTANGE
Store ledger 11 37%
Independent control accounts 6 20%
Bin cards 5 17%
All the above 8 26%
Total 30 100%
Source primary data 2011
From the table above 37% of the respondents indicated that there was use of stock ledger,
20% bin cards 17% independent control accounts for recording stock as well as 26% who
indicated that all the above were used. The findings show that all the above arrangements are
used in stock recording but in different occasions and by different officers for different
purpose; this implies that stock at UTL is recorded under different arrangement meaning the
30
emphasis is on recoding policy to ensure that all stock is properly recorded thus there is
EOQ technique of inventory management
4.12 ADHERNCE TO MANAGEMENT DECISIONS
According to the research study carried out the research findings regarding management
decision on inventory which include recording of stock, processing records complete and
accurate on timely basis
Table 4.12.1 showing adherence to management decision
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 2 10%
Agree 10 30%
Not sure 2 5%
Disagree 16 55%
Strongly Disagree 0 0%
Total 30 100%
Source primary data 2011
From table the findings show that 10% of the respondents strongly agree 30% agree, 5% not
sure and 55% disagree with the adherence of to management decisions on inventory
management, the findings show that the policies that a put in place for inventory management
are in most cases not followed thus implying that adherence to management decisions is
weak leading to errors and theft in inventory
4.13 AUTHORIZATION AND APPROVAL
Investigation into this yielded a negative response towards authorization and approval of
requisitions and transaction
31
Table 4.13.1: auhorisation and approval
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 8 26%
Agree 4 14%
Not sure 2 5%
Disagree 16 55%
Strongly Disagree 0 0%
Total 30 100%
Source primary data 2011
From table the findings show that 53 % of the respondents disagree 7% not sure 14% agree
and 20% strongly agree with authorization and approval of requisition and transactions,
according to findings majority disagreed that authorization and approval, this implies that
authorisation and approval on inventory is weak hence misappropriation ,shortfalls and
fraud in inventory management
4.14 REVIEW AND RECONCILIATION
Table 4.14.1 review and reconciliation
RESPONSE FREQUENCY PERCENTANGE
Strongly agree 4 13%
Agree 6 20%
Not sure 6 20%
Disagree 10 34%
Strongly Disagree 4 13%
Total 30 100%
Source primary data
From table above 13% of the respondents indicated that they strongly agree 20% agree 20%
not sure ,34% disagree and 13% disagree with review and reconciliation process, the
findings reveled that the exercise is weak which leads to inventory to continue missing hence
poor inventory management in the organization
32
4.15 RELATIONSHIP BETWEEN INTERNAL CONTROLS AND INVENTORY
MANAGEMENT
The Pearson correlation was used to establish the relationship between internal control and
inventory management. The results revealed a significant positive relationship between
internal control and inventory management. (r=0.0026) this is showed in the table 4.15.1
Table 4.15.1: Relationship between internal controls and inventory
R = n∑xy-∑x∑y
√(n∑x2-(∑x)
2) (n∑y
2- (∑y)
2
R = 4*15313- 246*247
(4*15436-246) (4*14646-247)
= 490
181548*183027
490
182286
= 0.026
Percentage
response of
majority
respondents
in respective
response
Internal
controls (X)
Inventory
management
(Y)
XY X2 Y2
73 74 5402 5329 5476
67 53 3551 4489 2809
53 67 3551 2809 3551
53 53 2809 2809 2809
∑X=246 ∑Y=247 ∑XY=15313 ∑X2=15436 ∑Y2=14646
33
There fore there is a positive relation between internal controls and inventory management,
this implies that the more efforts that Uganda telecom channels towards internal controls
better the inventory management in the industry
There is a positive relation of 0.026* between internal control and inventory management, it
implies that the poor inventory management is due to the weak internal control systems like
the stock taking system .This requires strengthening the internal control system before runs
out of hand from the fore going it can be articulated that internal controls have a bearing on
inventory management of an entity. However the effectiveness and efficiency of internal
controls depend on the out standing and extent to which eth entities operations and objectives
are being achieved.
4.15 Discussion of findings
The findings show that employees of Uganda telecom have relevant qualifications to effect
co-cooperativeness of internal controls policies to the management of inventory fore example
segregation of duties could be carried out effectively
The findings revealed that suppliers of stock at Uganda telecom are both local and which
means that the lead time and order levels should be determined well in advance to avoid stock
out especially for the stock that is imported
The findings show that Uganda telecom places new order for the stock when half is used and
when its convenient for purposes taking advantages fore example being offered a discount
when you purchase in bulk , hedging against inflation among others
The findings show that the most commonly method of inventory management is economic
order quantity which indicates that Uganda telecom always strive to minimize ordering and
carrying costs by determining how much to order and when. More to the above tries to
minimize inventory held such that they make orders from suppliers when demand is high but
does not categorize the stock according to the values
The findings revealed that initiation of stock procurement is done by store manager as he
keeps all the records of various stock that are with in the store, he is also the central authority
of information from different departments to the procurement section
34
The findings revealed that the internal controls policies work hand in hand to ensure an
official and orderly way of carrying various business tasks in an efficient and orderly manner
to realize the objectives of set policies in particular and objectives of the company in general
The findings indicate that a formal system of recoding inventory items is ineffective making
it difficult to trace records relating to a number of material transactions
The findings regarding physical stock taking indicated that physical stock counts was done
but the percentages of response should be improved regarding its importance such as it
ensures that stock figures are free from either over statements or under statements
The findings revealed that management cannot make meaning full decision s regarding
inventory basing on results from stock taking exercise which were not sufficiently done due
to abuse of the exercise by personnel responsible adhering to managements decisions
The survey findings further revealed that to ascertain reliability of the control the inventory
figures shown by the records should agree with physical count figures to discover whether
there is discrepancy that calls for corrective action
From study the findings revealed that internal control policies in inventory management and
this was reached at using Pearson correlation coefficient which showed positive results
35
CHAPTER FIVE
5. 0 SUMMARY OF FINDINGS, CONCULUSIONS AND RECOMMENDATIONS
5.1 INTRODUCTIONS
The main objective of this chapter is to, summarize, make conclusions and recommendation
on how internal control and inventory management .The researcher is therefore to make
conclusions and recommendations on findings regarding the implementation of internal
controls on management of inventory in relation to the research objectives
5.1 SUMMARY OF THE FINDINGS
Inventory describes an extra amount of supplies a business keeps on hand to meet demands
of its customers .all organization keep inventory some trivial while others in significant
amount .
The purpose of the study was to ascertain the effect of internal controls policies on inventory
management of a telecommunication firm the major objectives of the study were: To assess
internal control tools employed by UTL, to identify inventory management technique used
at UTL and to establish the relationship between internal controls and inventory management
The study also revealed that for effective implementation of internal controls on inventory
management stocking should be carried out on regular basis, stock records should be correct
and accurate and stock records should be reconciled with the physical count figures
The findings showed that the most used technique in inventory management is EOQ,
economic order quantity which indicates that the company always strive to minimize
ordering costs by determining how much to order and when more so findings revealed that a
combination of EOQ and computerization is used
The findings revealed that internal controls contributes significantly to inventory
management and this was reached at using Pearson correlation where the coefficient was
positive.
36
5.2 CONCLUSIONS
The study focused on finding techniques of inventory management, internal controls
employed and the relationship between internal controls and inventory management the
stronger and efficient the internal control the better inventory is managed
From the findings some of the internal controls in UTL included authorization, segregation of
duties, supervision and budgetary controls
From the findings some of the techniques of inventory include economic order quantity, and
computerization
The study further reveled that as internal controls are in place their adequacy depends on
regular and accurate stock records and inventory reconciliation
The study also show that internal control system and inventory management positively relate
as showed by positive Pearson correlation coefficient thus good inventory management
depend on the internal controls present in firm
5.3 RECOMMENDATIONS
The research highlighted the daunting complexity of inventory management in carrying out
this in carrying out this research the researcher was guided By the research objectives
hence based on the findings and analysis and in light of other who have written on same
research. The researcher made the following recommendations
UTL Needs educate the staff continuously, on and off the job training about various changing
internal control policies and techniques such as internal checks, stock taking and physical
reconciliation arithmetic and accounting in relation to cost accounting this would increase on
the effectiveness of internal controls
To formalize the organizational structure by critically emphasizing segregation of du4ier of
which management can separate the responsibility of initiation and processing of a
transaction, this reduces the risk of intentional manipulation or accidental and increases the
element of independent checking of work
37
To review and implement internal checks as management controls, 40% of the respondents
disagreed with its existence. Internal checks can be in form of abrupt staff rotation internal
audits, abrupt review of management accounts among others, with the implementation of this
control UTL will be in position to detect large amounts of stock being issued with out proper
authorization
Effectiveness and efficiency of internal controls should be specifically targeted to enable the
company benefit from the internal controls (cost and benefit considerations ) this calls for
UTL to seek expertise from qualified specialist to design a policy that can ensure
achievement of the set targets at minimum cost
5.4 AREAS OF FURTHER STUDY
Further study should be carried on the use of computerized approach to inventory
management and use of Codes for information of stock
The study was limited to internal controls and inventory management as the subject scope. So
readers and others researchers should expand their research to areas which have not been
fully covered in this study
Further studies should be carried out on the other variables other than internal controls
towards inventory management in business organizations readers should also carry out a
comparative study of combination of variables in respect to inventory management
38
APPENDIX ONE
QUESTIONNAIRE TO THE MANAGEMENT OF UGANDA TELECOM LIMITED
Dear sir /madam
I‟m a student intending to carry out an academic research in your organization your kindly
requested to provide answers to these questions .The answers you provide will only be used
for academic purpose. Confidentiality to your responses will be highly observed
General characteristics
Please use the space to fill in or tick (more than one answer is possible)
1 AGE
I 20-30
Ii 31-40
Iii 41-50
Iv 50 – above
2 Sex
i male
ii Female
3 what is your highest level of education
i certificate
ii Diploma
iii Degree
iv others , specify …………………………………….
4 Department ……………………………………………………………………………..
5 Title …………………………………………………………………………………..
6. The following are types of stock held in your company in UTL. Circle
appropriately to show the you strongly Agree (SA), Agree (AG), Not sure (NS),
Disagree (D) and Strongly Disagree
Scale: SA= 5, AG=4, NS=3, D=2, SD=1
SA AG NS D SD
(i) Handset
(ii) Scratch cards
(iii) Sim cards
(iv) All
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7. (a) The following are suppliers of stock at UTL circle appropriately to show whether you
strongly agree, Agree, Not sure, Disagree, Strongly disagree
Scale: SA= 5, AG=4, NS=3, D=2, SD=1
Supplier SA A NS D SD
(i) Local
(ii) Imported
(iii) Both
8. b) What are challenges encountered in the acquisition of stock?
………………………………………………………………………………………………
9. Circle appropriately to show whether you Strongly Agree (SA), Disagree (D) Strongly
Disagree (SD) with different order level which with new order for stock is placed.
Scale SA= 5, AG=4, NS=3, D=2, SD=
Order level SA A NS D SD
When all is used
When half is used
When it is convenient
When operation stops
a) Do you think that the level at which a new order for stock is placed contributes to
continuous operations.
a) yes
b) No.
If yes support your answer…………………………………………………………………..
9. The following are the methods of inventory management used at UTL. Show whether you
Strongly Agree (SA), Agree (A), Not sure (NS) Disagree D Strongly Disagree (SD) SA=5,
AG=4, NS= 3, D=2, SD = 1
40
Methods SA A NS D SD
There use of ABC approach
There is use economic order
quantity(EOQ)
There is use of just in
time(JIT) system
There is use of Computerized
based approach
c) Are there other methods of inventory management system not mentioned above
a) Yes
b) No
If yes specify that method…………………………………………………………………….
c) What are the problems associated with any of the system used a(a) above
…………………………………………………………………………………………………
10 There are a number of reasons for holding inventory. show whether you strongly agree,
agree, not sure, disagree, strongly disagree
REASONS SA A NS D SD
There is hedging against inflation
There is stocking of resources
There is a factor of offering
discount
There is expectations
41
Internal control.
10 a) The procurement of stock at Uganda Telecom is initiated by the following. show
whether you agree strongly agree, not sure , disagree ,strongly disagree scale SA= 5, AG=4,
NS= 3, D = 2, SD=
SA A NS D SD
Store manager
Accountant
Managing Director
Store keeper
b) Do you think there is any other personnel responsible for procurement of stock.
a) Yes
b) No
c) If yes specify…………………………………………………………………………………
11a) Circle appropriately to show whether you Strongly Agree (SA), Agree (Ag), Not sure
(NS), Disagree (D), Strongly Disagree (SD) with the existence of internal control at UTL
scale SA=5, AG=4, NS=3, D=2, SD=1.
Internal Controls SA AG NS D SD
There is authorization of purchase
There is segregation of duties
There is use of internal checks
There is budgetary control
There is close supervision of staff
b) Do you think there is any internal control method not mentioned above?
a) Yes
b) No
c)If yes specify………………………………………………………………………………….
d) What is the most effective internal control tool employed at UTL in your opinion?
……………………………………………………………………………………..
e) What is the importance of internal control over inventory in your opinion?
………………………………………………………………………………………………
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12. The following arrangements are made for recording stock. Show whether you; Strongly
Agree (SA), Agree (Ag), Not sure (NS), Disagree.
Scale: SA=5, AG=4, NS=3, D=2, SD=1.
NS AG NS D SD
There is use of store ledger
There is use of independent control
accounts
There is use of bin cards
All the of the above
14. Show whether Uganda Telecom carry out physical stock taking arrangement.
i. Strongly Agree
ii. Agree
iii. Not sure
iv. Disagree
v. Strongly disagree
15. Do you think the physical stock taking arrangement is effective in 13
above………………………………………………………………………………………..
15. The following are the personnel responsible for confirmation/approval of physical stock
count of inventory show whether you Strongly Agree (SA), Agree (Ag) Not sure (NS)
Disagree (D), Strongly Disagree (SA)
Scale SA = 5, AG = 4, NS = 3, D = 2, SA = 1
NS AG NS D SD
Store manager
Store keeper
Accountant
Managing Director
b) Do you think there is any other personnel responsible for confirmation of physical stock
a) yes
b) No
if yes specify……………………………………………………………………………………
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Internal control and inventory management
16. The stock records are maintained and reconciled to physical counts. Show whether you
Strongly Agree (SA), Agree (AG), Not sure (NS) Disagree (D) Strongly Agree
Scale SA =5, Ag = 4, NS = 3, D = 2, SD = 1
SA AG NS D SD
Always
Sometimes
Never
b) What is minimum period of when these physical counts are reconciled?
a) Monthly
b) Quarterly
c) Half a year
d) Yearly.
c) If there is any discrepancy are there any measure taken to rectify the
situation………………………………………………………………………………………
17 a) Tick appropriately to show whether you strongly Agree (SA), Agree (A), Not sure
(NS), Disagree (D), Strongly Disagree (SD).
SA = 5, A = 4, NS = 3, D = 2, SD = 1
Statement/question SA AG NS D SD
The adherence to management decision
regarding inventory control
There are adequate procedures to ensure that all
management decision on stock control systems
are implemented.
Are new employees trained on inventory
management techniques?
There is authorization and approval of
requisition by departments
There is review and reconciliation of stock and
physical counts
44
b) In your own opinion what is your suggestion about ways of improving the effectiveness of
internal control system of inventory in your company.
…………………………………………………………………………………………………
Thank you Sir/Madam for your cooperation
45
APPENDIX TWO
AN INTERVIEW GUIDE
1 How long have you been an employee of Uganda telecom?
2 is there an established system of internal controls here in UTL?
3 How effective is the above said internal controls?
4 Which of the inventory managements technique do you apply here in UTL?
5 Do know any advantages of your technique against other techniques known to you?
6 What recommendations and suggestions can you make for UTL?
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APPENDIX THREE
REFERENCE
ACCA (2004/2005) audit and internal review FTC, Foulks Lynch
Arora MN (1999) costing accounting: theory and problems 2nd
edition
Bradfold and Elsm,(Nov 1995) technical report (CPA)
Collins Drury (1992) management and cost accounting
Dury C (1992) management and cost accounting Elbs imprint
Holmes and Burns (1997) Auditing standards and procedures, Illinois Richard
Horn van j (2002) financial management and policy 11th Edition: London prentice hall Inc
Horngen and Harrison (1992) Accounting Engelwoodcliff N.J publishing
http://www.inventory management .com
Kakuru J (1998) Basic finance management (MUBS)
Lewis C D (1970) scientific inventory control 3rd
Edition Butter worths
MN ARORA(1994) cost and management accounting 8Th
Edition
Maheshwan and Gupta (1997) Co temporally auditing 3r$
Edition
Meigs and Meigs (1989) prInciples ob auditing 8th Edition :Ikwn
Pandey IM (1995) Financial and inventory management1stedition
47
Pandey IM (1996) Financial Management 7th Edition: Vikas publishing house
T lucey (1993) costing DP publication London
T lucey (1994) costing 4th edition
UTL management accounts records 2009
Williams hakka bettnner meigs (2002) financial and management accounting
Woolf (1994) auditing today 5th
edition prentice hall international (UK) Tokyo