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

vi

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

vii

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

39

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?

………………………………………………………………………………………………

42

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……………………………………………………………………………………

43

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?

46

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