INTERNAL CONTROL SYSTEMS AND REVENUE COLLECTION:

A CASE OF UGANDA REVENUEAUTHORITY,

BUSHENYI BRANCH

AHIMBISIBWE BRUNO

BRA (Fin & Acc) MU

MRAI0003I123JDU

RESEARCH DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT

OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE

OF MASTER OF BUSINESS ADMINISTRATION

(FINANCE AND ACCOUNTING) OF

KAMPALA INTERNATIONAL

UNIVERSITY

JUNE, 2018
 DECLARATION
I Ahimbisibwe Bruno, declare that this research dissertation is my original work and has
never been submitted for the award of a diploma or degree in any other University, College
or Institution of higher learning.

Signat~~~~ Date..)?~Z~~’
 APPROVAL
This dissertation titled, “Internal Control Systems and Revenue Collection: A Case Study
of Uganda Revenue Authority, Bushenyi Branch” was done under our supervision and has
been submitted to Kampala International University with our approval as the supervisors.

Signature.. . .

Date

Mr. Byamukarna Gershorn

S~

Date

Mr. Basajjabalaba Jafari

 DEDICATION
This research is dedicated to my beloved Parents Mr. Benardo & Mrs. Evangelista for the
prayer, support and sacrifice exhibited during the study.

ill
 ACKNOWLEDGEMENTS
All kinds of assistance rendered me during my studies and during my research in particular
cannot stand unacknowledged. I would wish to extend my heartfelt gratitude to a number of
people for enabling successful completion of this research.

Firstly. special gratitude goes to God for the inspiration, strength and vision to complete the
course. I am forever grateful to him.

Secondly, my sincere gratitude goes to my supervisors Mr. Byamukama Gershorn and Mr.
Basajjabalaba Jaffari for their seniority, professionalism and parental guidance, patience and
the precious time committed to make this research a success. Their time and guidance made
me complete my dream course.

Am also grateful to my lecturers at Kampala International University in Faculty of Business

and Management for the commitment, Professionalism and love for students exhibited during
my stay at KIU. Special recognition goes to Dr. Turyahebwa Abanis, Dr. Aluonzi Burani, Dr.
Twinamatsiko Medard, Dr. Andrew Ainomugisha, Mr. Manyange Micheal and Ms.
Baineamasanyu Mary for rendering moral support in tough times during this study.

Lastly. thanks go to all respondents for their time in providing responses to the questions
raised in questionnaires.

iv
 A1!3LF OF’ CO~TE’~ i~’~
DECLARATION .1
APPROVAL
DEDICATION
ACKNOWLEDGEMENTS
LIST OF TABLES
LIST OF FIGURES
LIST OF ACRONYMS
ABSTRACT
CHAPTER ONE
GENERAL INTRODUCTION 1
I .0 Introduction
• I Background to the Study 1
1.1 I Historical perspective
.

1.1 .2 Theoretical perspective 3

1.1.3 Conceptual perspective 4
• I .4 Contextual perspective 6
1.2 Statement of the Problem 7
1.3. Purpose of the Study 7
1.4. Objectives of the Study 8
1.5. Research Hypotheses 8
1 .6. Scope of the Study 8
1.6.1 Content scope 8
l.6.2Areascope 8
1.6.3 Time scope 8
1 .7. Significance of the Study 9
1 .8 Conceptual Framework 10
CHAPTER TWO 11
LITERATURE REVIEW 11
2.0. Introduction II
2.1 Conceptual review of Internal control Systems and Revenue collection 12
2.2 Control Environment and Revenue collection 17
2.3 Risk Assessment and Revenue collection 18
2.4 Control Activities and Revenue collection 19
2.5 Synthesis of Literature 19

V
CHAPTER THREE ~21
RESEARCH METHODOLOGY 21
3.0 Introduction 21
3.1 Research Design 21
3.2 Study Population 21
3.3. Sampling and Sample Size 21
3.4 Data Sources 22
3.4.1 Primary data 23
3.4.2 Secondary data 23
3.5 Data Collection Procedures 23
3.6 Data Collection Instruments 23
3.7 Quality Control 24
3.7.1 Validity of the instrument 24
3.7.2 Reliability of the instrument 24
3.8 Data Processing and Analysis 25
3.8.1 Data editing 25
3.8.2 Data presentation and analysis 25
3.8.3 Data interpretation 25
3.9 Ethical Consideration 26
3.9.1. Informed consent 26
3.9.2. Privacy and confidentiality 26
3.9.3. Anonymity 26
3.9.4. ResearcherTh responsibility 26
3.9.5 Benefits and risks 26
3.10 Limitations and Delirnitations of the Study 26
CHAPTER~FOUR 28
DATA PRESENTATION, ANALYSIS AND INTERPRETATION 28
4.0 Introduction 28
4.1 Demographic Characteristics of Respondents 28
4.3 Descriptive Statistics on Revenue Collection 30
4.4 The Control Environment and Revenue Collection at URA, Bushenyi Branch 31
Table 4.4.1: Descriptive statistics on control environment variables and revenue collection 31
4.2.3 The relationship between Control Environment and Revenue Collection at URA, Bushenyi
Branch 35

4.3 Risk Assessment and Revenue Collection at URA, Bushenyi Branch 35

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 4.3.1 The relationship between risk assessment and revenue collection in URA, Bushenyi Branch.
40
4.4 Contr6l Activities and Revenue Collection at URA. Bushenyi Branch 40
4.4.1 The relationship between control activities and revenue collection 43
CHAPTER FIVE 45
DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS 45
5.0 Introduction 45
5.1 Discussion 45
5.1.1 Relationship between control environment and revenue collection at URA, Bushenyi
Branch. 45
5.1.2 Relationship between the Risk Assessment and Revenue Collection 47
5.1 .3 Relationship between the control activities and revenue collection 49
5.2 Conclusion 49
5.3 Recothmendations 51
5.4 Areas for further Research 51
REFERENCES 52
APPENDICES
Appendix 1: Informed Consent Form ss
Appendix II: Questionnaire for Respondents 56
Appendix Ill: Interview Guide 60

Appendix IV: Introductory Letter 62

VI
.3

LIST OF TABLES
Table 3.3.1: Target population and Sample Size Distributioii 22
Table 4.1.1 Gender aspect of Respondents 28
Table 4.1.2 Marital Status of Respondents 28
Table 4.1.3 Age Profile of Respondents 29
Table 4.1.4 Level of Education of Respondents 29
Table 4.1.5 Engagement in revenue collection 30
Table 4.2.1: Descriptive statistics on Control Environment variables and Revenue Collection

31
Table 4.2.2: The relationship between the Control Environment variables and Revenue
Collection 33
Table 4.3.1: Descriptive statistics on Risk Assessment variables 35
Table 4.3.2: The relationship between the Risk Assessment variables and Revenue Collection

Table 4,4. 1:: Descriptive statistics on Control Activities 40

Table 4.4.2: The relationship between control activities and revenue collection 42

VI I
 LIST OF FIGURES
Figure 1: The Conceptual Framework .9
Figure 2: Fitting Model 50

ix
 LIST OF ACRONYMS
APB : Audit Practices Board

APC Audit Practice Committee

BOD : Board of Directors

CE : Control Environment

CIT : Cash-in-Transit

COSO -: Committee of Sponsoring Organization of Tread way Commission

CVI : Content Validity Index

ERP : Enterprise Resource Planning

FASB : Financial Accounting Standards Board

CDP : Gross Domestic Product

ICS : Internal Control Systems

IMF : International Monetary Fund

INTOSAI: Internal Organization of Supreme Audit Institutions

LG : Local Government

MOFPED: Ministry of Finance Planning and Economic Development

SOX : Sarbanes-Oxley Act

SPSS : Statistical Package for Social Sciences

URA : Uganda Revenue Authority

VFM : Value for Money

x
 ABSTRACT
This ~tudy~ was done to establish the relationship between internal control systems and
revenue collection in Uganda, through a case study of Uganda Revenue Authority (URA)
Bushenyi Branch. The objectives of the study were; to find out the relationship between the
control environment and revenue collection at URA, Bushenyi Branch, to establish the
relationship between risk assessment and revenue collection at URA, Bushenyi Branch, and
to establish the link between control activities and revenue collection at URA Bushenyi
Branch. The researcher used cross sectional and co-relational research designs. A
representative sample of 38 respondents was selected to represent the entire study population
of 42 people. The researcher used both questionnaires and interviews to collect data. The
collected data was properly processed and analysed by using two computer packages; MS
Excel and SPSS version 17.0 to generate tables and statistics that enabled the researcher to
draw conclusions from the analysed data.

The researcher established that in the opinion of 59.5% of the study respondents, revenue at
URA, Bushenyi branch was moderate. The researcher established that there was a significant
relationship between the control environment and the level of revenue collection at URA,
Bushenyi Branch, The study also revealed that there was no significant relationship between
risk assessment and revenue collection at URA, Bushenyi Branch. Finally, the researcher
Ibund out that there was a significant relationship between the control activities and revenue
collection at URA, Bushenyi Branch. Therefore, basing on the study findings, the researcher
established that only two variables of internal control systems namely control environment
and control activities had a significant relationship with revenue collection at URA. Bushenyi
Branch.

From the study findings, the researcher recommended that URA management and BOD
should always monitor and supervise its employees since it was found out that revenue
collection depended on proper and close supervision of junior staff at URA, the ICT
depai-tment should strive to continually upgrade the systems so as to keep the systems well
updated with the growing capacity of operations and the provision of early attention to any
system challenges. The researcher further suggested that a detailed study may be done on the
effect of risk assessment on revenue collection in URA.

xi
 CHAPTER ONE

GENERAL INTRODUCTION

1 .0 Introduction

This chaj,ter covers the background to the study, the statement of the problem, the purpose of
the study, the objectives, the research questions, conceptual framework, and significance and
scope of the study.

1 Background to the Study

1.1.1 Hi~torical perspective

The concept of internal control systems developed slowly over some years although its
greatest development occurred in the early 1 940s. This concept came into existence not only
due to complexities of modern business techniques but also due to increased size of business
units that have forced the adoption of the internal control systems while increasing the
efficiency of the business, largely because the systems act as safeguard against errors and
fraud. Internal controls have existed from ancient times. Michino (2011) reported that “in
Hellenistic Egypt there was a dual administration with one set of bureaucrats charged with
collecting taxes and another with supervising them”.
Brink (2011) contends that, as a concept, internal control has existed since substantive
relationships came into existence. He adds that its origin can be traced back to civilized
communities that existed around 5000 B.C. The governments of the empires of the time
imposed a number of taxes on individuals and business. For the proper accounting and
collection of these taxes, an elaborate system of checks and counterchecks was established.
Such early internal control systems were designed primarily to minimize errors and safeguard
state propetty from dishonest tax collectors.

Brink (2009) states further that, the Mesopotamian civilizations, which existed about 3000
B.C., also utilized elaborate systems of internal controls. Summaries of the transactions were
prepared by scribers who however did not provide the original list of receipts and payments.
Documents of that period contained ticks, dots, and check-marks indicating the existence of
the auditing function during those times.

1
 The first fiscal organisation in the Ottoman Empire was established in the time of Murat the
First (1359-1389). During the reigns of Mehmet II (The Conqueror) and Suleiman I (The
Magnificent), a fiscal organisation was developed as a result of the rise in revenues and
expenditures of the empire. Until 1838 the Ottoman Empire had no Ministry of Finance. The
Ministry of Finance was officially established in the state organisation by a decree in 1838.
This ministry’s structure was formed of ‘Departments” under the leaderships of ~‘Chiefs”.
Among these departments, the “Tax per Person” department dealt with the duties collected
from provinces and districts which were called “Avariz” and “Bedeli Nuzil” respectively. In
one sense, today’s Revenue Administration’s duties were carried out by this department. That
rcvenue administration which was established as “Avariz and Bedel-i Nuzil” in 1881, was
transformed into the Directorate of Public Revenues (Vai’idat Umum MtidUrliigu) in 1936.

In 1942 the Public Directorate of Revenues was abolished and Public Directorates of Direct
Faxes and Indirect Taxes were established. In 1946 the Public Directorates of Direct Taxes
and Indirect Taxes were also abolished and the General Directorate of’ Revenues was
established. Nevertheless, as a result of the re-organisation with the Law no 5345. adopted in
2005 the General Directorate of Revenue was also abolished and the Presidency of Revenue
Administration was established under the Ministry of Finance. The Revenue Administration
was founded to implement revenue policy with justice and impartiality; to collect taxes and
other revenues with the least cost; to ensure voluntary compliance of taxpayers: to provide
high quality services by protecting taxpayers’ rights, to take necessary measures in order to
ensure that taxpayers fulfill their obligations easily and to work with respect to the main
principles of transparency, accountability, participation, productivity, effectiveness, and
customer focused organization.

The Uganda Revenue Authority (URA) was established by the Uganda Revenue Authority
Statute of 1991 and set up in September of the same year as the central body for the
assessment and collection of specified revenue to administer and enforce the laws relating to
such revenue and to provide for related matters. This statute incorporated all the laws that
were in force then regarding tax collection. The new organisation (URA) amalgamated the
three ta~ administration departments that were responsible for all taxes collected by the
Central government of Uganda. These departments were Customs & Excise, Inland Revenue
and Income Tax.

2
 The URA was created as a quasi autonomous unit with a Board of Directors appointed by and
responsible for the Minister of Finance. The URA Statute grants a considerable degree of
independence to the Board in terms of control over day-to-day operations. However, the
Ministry of Finance Planning and Economic Development (MOFPED) maintains control over
two important areas; the budget and revenue.

For budgetary purposes, URA is regarded as a department of the MOFPED and is subject to
the same financial rules and disciplines as other departments of MOFPED. Regarding
revenue,~th~ Ministry sets the revenue targets and how such targets are to be spread over
different tax heads.

Among the objectives of URA was to improve the standard of tax administration and correct
the weaknesses that characterized the old tax administration. Any entity of whichever form or
size should put in place its own system of controls in order to achieve its objectives (Mwindi,
2008). A ~system of effective internal controls is a critical component of company
management and a foundation for the safe and sound operation of organizations. However,
ineffective internal controls result in ineffective programs eventually leading to losses
(Olumbe, 2012).

1.1,2 Theoretical perspective

This study was guided by the agency theory developed by Jensen and Meckling (1976).
According to the agency theory, a firm consists of a nexus of contracts between the owners of
economic resources (the principals) and the managers (the agents) who are charged with
using and controlling those resources (Jensen and Meckling, 1976). The theory also posits
that agents have more information than principals and that this information asymmetry
adversel~’ affects the principals’ ability to monitor whether or not their interests are being
properly served by the agents. As such, the theory describes firms as necessary structures to
maintain contracts, and through firms, it is possible to exercise control which minimizes
opportunistic behavior of agents (Jensen and Meckling, 1976).

According ~to the agency theory, in order to harmonize the interests of the agent and the
principal, a comprehensive contract is written to address the interest of both the agent and the
principal. The agent-principal relationship is strengthened more by the principal employing
an expert and systems (auditors and control systems) to monitor the agent (Jussi and Petri,
2004). Further the theory recognizes that any incomplete information about the relationship,
interests or work performance of the agent could be adverse and a moral hazard. Moral

3
 hazard and adverse selection impact on the output of the agent in two ways; not possessing
the requisite knowledge about what should be done and not doing exactly what the agent is
appointed to do.

The agency theory therefore works on the assumption that principals and agents act rationally
and use contracting to maximize their wealth (Jensen and Meckling, 1976). This theory
guided the study simply because internal control is one of many mechanisms used in business
to address the agency problem by reducing agency costs that affects the overall performance
of the relationship as well as the benefits of the principal (Payne, 2003; Abdel-Khalik, 1993).
Internal control enhances the provision of additional information to the principal
(shareholder) about the behavior of the agent (management) reduces information asymmetry
and lowers investor risk.

1.1.3 Conceptual perspective

The concept of internal control systems

According to Hamed (2009), an internal control system refers to an organized amalgamation

of functions and procedures, within a complete system of controls established by the
management and whose purpose is the successful functioning of the business. An internal
control system is made up of all the methods and procedures followed by the management to
ensure, as much successful cooperation as possible with the director of the càmpany, the
insurance of the capital, the prevention and the detection of fraud, as well as the early
preparation of all the useful financial information (Keitany, 2000). Hongming and Yanan
(2012), add~that internal control system resembles the human nervous system which is spread
throughout the business carrying orders and reactions to and from the management. It is
directly linked to the organisational structure and the general rules of the business.

According to Whittington & Panny (2001), a system of internal control extends beyond those
matters which relate directly to the functions of accounting and financial statements. In
addition, they note that internal control is a systematic procedure that leads to an evaluation
of the degree of correlation between those established criteria and the real results of the
business.

Internal control, as defined from the APC (Auditing Practices Committee, 1980), is an
independent examination and certification by an inspector appointed by the business to
control the finances according to an established legal framework.

4
 From thd foregoing therefore, the objective purpose of internal control is on the one hand, to
render specific and high level services to the management.

Internal controls are measures that organizations institute with the aim of ensuring that the
objectives, goals, and mission of the organization are met (Rezaee, 2002). They refer to set of
organizational policies and procedures that ensure any transaction is processed in the appropriate
way to a~oid waste, theft and misuse of organization resources. Through internal control systems,
organizations achieve performance and organizational goals, prevent loss of resoLirces. enable
production of reliable reports and ensure compliance with laws and regulations. Thus internal
control is established by the organizational management to ensure that the business of enterprise
is carried out in an orderly and efficient manner. This further ensures adherence to management
policies safeguard the assets and secure the completeness and accuracy of the records

Organizations are constantly and extensively working to improve their internal control systems so
as to increase revenue inflow, survive in the rapidly changing economic and competitive
environments, and adapt to the shifting customer demands and priorities (Kantzos and Chondraki,
2006). Internal control consists of five interrelated components which are derived from the way
managemeift runs a business, and are integrated with the management process: control
environment; risk assessment; control activities; information and communication; and monitoring
(Carmichael. 1996). According to Liu (2005) and Rittenberg et al. (2005), under the current
operations of organizations in general, the importance of internal control can be divided into six
major categories; detecting error and fraudulence, decreasing illegal conduct, improving the
competence of the business entity, improving the quality of data, helping to create the business
infrastructure, and decreasing auditors” fee.

Internal control systems are implemented in businesses as tools that add value to the
company. In this way, we can achieve a systematic approach to the most effective operation
of the organization, as a unit (Schleifer and Greenwalt, 1996).

Finally, the COSO report defines internal control as a procedure which offers fundamental
security to the business and is concerned with the credibility of financial affairs. The report
also describes a framework for internal control, and provides criteria according to which
management can evaluate controls.

The concept of revenue collection

Awitta (2010), states that revenue is the amount of money that a company receives during a
specific period. It is the ‘top line” or “gross income” figure from which costs are subtracted to

5
 determine net income. Revenue collection can be defined as income that a company receives
from its normal business activities, usually from the sale of goods and services to customers.
Revenue is referred to as turnover. Some companies receive revenue from interest, dividends
or royalties paid to them by other companies. Revenue may also refer to business income in
general, ~r it may refer to the amount, in a monetary unit, reOeived during a given period of
time.

The Financial Accounting Standard Board (FASB) Concept Statement 6, Elements of

Financial Statements (December 1985) have defines revenue as inflows or other
enhancements of assets of an entity or settlements of its liabilities (or a combination of both)
during a period from delivery or producing goods, rendering service or other activities that
constitutes the entity’s ongoing major or central operations. In addition, Hongreen & Dattar
(2002) describe revenue as inflows of assets (almost always cash or accounts receivables)
received for products or services provided to customers. However, URA defines revenue to
mean taxes, duties, fees, levies, charges, penalties, fines or other monies collected or imposed
under th~ Written laws.

1.1.4 Contextual perspective

According to the national budgets, the government of Uganda depends on taxes, loans
(foreign and domestic) and donor aid to finance its annual budget and development agenda.
Over time, ~there has been an increase in the share of the national budget Funded with locally
generated resources from Slpercent in 2004 to 69 percent in the 2012/2013 financial year.
This further increased in the 20 13/14 financial year as donors reduced their budget support by
about 90 percent reportedly due to corruption (2012/2013 Financial Year Budget). This
means that Uganda must depend more on locally generated resources to finance its
developmept aspirations.

The Uganda tax revenue to GDP ratio is one of the lowest in Sub-Saharan Africa, standing at
13 percent compared to an average of 20 percent for Sub-Saharan Africa. This is also far
below the 30 percent average for advanced industrial economies. The low tax to GDP ratio in
Uganda is partly due to the numerous tax exemptions, harmful tax treaties, and too aggressive
tax avoidance by multi-national companies. For Uganda to be able to provide adequate and
quality public services to its citizens without being overly dependent on aid, fair policy
decisions relating to revenue generation from taxation have to be made.

6
 In addition, government needs to prioritize allocation of tax revenue to sectors that will
directly improve the well-being of its citizens. It is equally important that tax money is well
spent. This~calls for strong citizen participation in demanding for transparency, accountability
and fairness in revenue generation, allocation and utilization.

I .2 Statement of the Problem

Organizations continue to experience low levels of revenue generation in all entities in public
and private sector organisations that can be attributed to probably avoidable man-made
practices and poor internal control systems. No matter how well it is designed and operated,
an internal control system can only provide a reasonable, not an absolute assurance that the
objectives of the company’s internal control system are met in terms of revenue generation.
This heightened interest in internal controls is, in part, a result of the increased revenue
misuse in the public sector. A key issue is whether there are effective internal control systems
since such systems help in preventing or enabling early detection of the problems that lead to
losses (Rezaee, 2002).
According to (Kirsty, 2008) an internal control system creates an organization’s confidence
in its ability to perform or undertake a particular task and prevent errors and losses through
monitoring and enhancing organizational and financial reporting processes as well as
ensuring compliance with pertinent laws and regulations.

The government of Uganda has tried to enable URA increase revenue c~llection by
introducing new taxes, thereby widening the tax base, but this has yielded less (2013/2014
Financial Year Budget). Bushenyi District was one of the best districts in revenue collection
until when URA Bushenyi branch was created. As a result, the revenue tremendously shrunk
(www.bushenyi.go.ug). One wonders what the problem could be. Could it be due to poor
internal control systems employed by URA Bushenyi branch in revenue collection? It is
therefore against this unsatisfactory background that the researcher investigated the effect of
internal control systems on revenue collection at the URA Bushenyi Branch.

1.3. Purpose of the Study

The purpose of this study was to examine the effect of internal control systems on revenue
collection at Uganda Revenue Authority, Bushenyi District.

7
 1 .4. Objectives of the Study

i. To establish the relationship between control environment and revenue collection at

URA, Bushenyi Branch.
ii. To find out the relationship between risk assessment and revenue collection at URA,
Bushenyi Branch.
iii. To ~estab1ish the relationship between control activities and the level of Revenue
collection at URA Bushenyi Branch.

1.5. Research Hypotheses

HO1: There is no significant relationship between control environment and revenue collection

1102: There is no significant relationship between risk assessment and revenue collection

HO3: There is no significant relationship between control activities and revenue collection

1 .6. Scope of the Study

1.6.1 Content scope

The study was concerned with the establishment of the effect~ of internal control systems on
revenue collection at Uganda Revenue Authority, Bushenyi Branch.

1.6.2 Area scope

The study was carried out at the Uganda Revenue Authority, Bushenyi District Branch,
Bushenyi District head office is located 340 km from Kampala south western Uganda.
Bushenyi District is surrounded by four other districts of Rubirizi to the north, Buhweju and
Sheema to the north east, Sheema to the east, Mitooma to the south west and Sheema to the
South. The district covers an area of 3,949 square kilometers, lying between 910 and 2,500
meters above sea level and inhabited by people. URA Bushenyi branch was selected as a
study are because there was increasing number of tax payers in the area of operation but the
revenue collection was reducing

1.6.3 Time scope

The study covered a period of five years from 2013 to 201 7, largely because it was during
this period that the government of Uganda resorted to financing most of its budgetary
activities u~ing internally generated revenue after some of the donors withdrew the foreign
aid to Uganda (20 14/2015 Financial Year Budget). This time scope was long enough to show

•1~
the effect of internal control systems on revenue collection at Uganda Revenue Authority,
Bushenyi Branch.

1 .7. Significance of the Study

This study. may be important to URA in formulating policies and procedures for tax
collection.

The study may create awareness of the nature and level of internal controls which have been
put in place and to use the recommendations proposed to improve the existing internal control
system and its implementation. In practice therefore, the study may help managers to
understand how internal controls work and how to implement them more effectively than
before.

The findings of this research may also contribute to theories by providing additional evidence
to support the existing theories. Researchers may use information in this study as as a source
of reference while carrying out other research on the impact of internal control on revenue
collection.

9
 1.8 Conceptual Framework

This demonstrates different variables to be discussed in this study. These variables under analysis
include the independent variables and dependent variables as well as intervening variables.

Figure 1: The~ conceptual Framework

Independent Variable Dependent Variable

Internal Control System

( Control environment
Organisational ethical values
Organ isational structures
Commitment
Accountability

~Risk assessment Revenue Collection

Process-level objectives Domestic taxes

Risk identification Fines and penalties
Fraud Identification potential Fees collections

Control Activities

Risk mitigation I
~Technology support
Policies and procedures I I
________________________________________ IL__Intervening_Variables
Government policies

L Tax evasion and avoidance

Source: Adopted and Adapted from INTOSAI (2004)

The model explains the relationship amongst the variables under study. It portrays an internal
control system as the independent variable while revenue collection is the dependent variable.
Government policies now promote effective control particularly in the management of resources
while stressing the values of economy, efficiency and effectiveness (Value for Money) (Sanderson,
200 1). Effective control environment, control activities, risk assessment, information and
communication, and monitoring are a necessary to achieve the objectives (INTOSAI, 2004).

10
 CHAPTER TWO

LITERATURE REVIEW

2.0. Introduction

This research assessed the effect of internal controls on revenue collection with emphasis on
Uganda Revenue Authority, Bushenyi District. The review of the available literature
therefore attempts to establish whether there is a relationship between internal control as an
independent variable and revenue collection as a dependent variable. The review particularly
focused on; control environment, risk assessment and control activities, as the main
components of Internal Control as proposed by Committee of Sponsoring Organizations of
the Tread way Commission (COSO).
Control theory has been described as an interdisciplinary branch of engineering and
mathematics that deals with the behavior of dynamic systems with inputs. The external input
of a system is called the reference. When one or more output variables of a system need to
follow a certain reference over time, a controller manipulates the inputs to a system to obtain
the desired effect on the output of the system.

The objective of a control theory is to calculate solutions for the proper and corrective action
from the controller that result into system stabili~, that is, the system will hold the set point
and not oscillate around it. Systems have inputs and outputs to produce a product after
processing and so inputs and outputs of a control system are generally related by differential
equations.

Setting objectives. budgets, plans and other expectations establish criteria for control. Control
itself exists to keel) performance or a state of affairs within what is expected, allowed or
accepted. Control built within a process is internal in nature. It takes place with a
combination of interrelated components-such as the social environment effecting behaviour
of employees, information necessary in control, and policies and procedures. An internal
control structure is a plan determining how internal control relates with components.

11
 2.1 Conceptual review of Internal control Systems and Revenue collection

Puttick (2008), asserts that internal controls act as a set of organizational policies and
approved internal processes (internal controls) crafted by the management of an organization
to ostensibly achieve management’s primary objective of ensuring that the business operates
flawlessly. He further explains that a business is said to be running smoothly if it is able to
stick to the management policies, to protect the organization’s assets. and set up a system that
won Id stop and eradicate the manipulation of accounting information.

Internal control systems are sets of processes, effected by an entity’s Board of Directors
(Council), Management and other personnel, designed to provide reasonable assurance
regarding the achievement of organisational objectives in the effectiveness and efficiency of
operations, reliability of financial and management reporting, compliance with applicable
laws and regulations and protect the organisation’s reputation (Kaplan. 2008; Cunningham,
2004: INTOSAI, 2004; Committee of Sponsoring Organizations of the Tread way
Commission (COSO), 1992; Auditing Practices Board (APB), 1999).

According to Cunningham (2004), internal control systems begin as internal processes with
the positive goal of helping a corporation meet its set objectives. Management primarily
provides oversight: it sets the entity’s objectives and has overall responsibility over the
internal control system (ICS). Internal controls are an integral part of any organization’s
financial and business policies and procedures (Kaplan, 2008; Cunningham, 2004; INTOSAI.
2004). Internal controls consist of all the measures taken by the organisation for the purpose
of~ protecting its resources against waste, fraud and inefficiency; and ensuring accuracy and
reliability of accounting and operating data; ensuring compliance with the policies of the
organization; evaluating the level of performance in all organizational units of the
organization, (Kaplan, 2008; Cunningham, 2004; INTOSAI, 2004).

According to Cunningham (2004), ICS are applicable to each organisation in relation to key
risks and are embedded within the operations and not treated as a separate exercise. ICS
should be able to respond to changing risks within and outside the company and they are a
means to an end, not an end in themselves, further states that internal controls ar~ effected by
people not merely policy manuals and forms, but people functioning at every level of the
institution. Internal control only provides reasonable assurance to an institution’s leaders
regarding the achievement of operational, financial reporting and compliance objectives:
promoting orderly. economical, efficient and effective ope~ations; safeguarding resources

12
 against loss due to waste, abuse, mismanagement, errois and fraud, (Kaplan, 2008;
Cunningham, 2004; INTOSAI, 2004). Internal controls lead to the promotion of adherence to
laws, regulations, contracts and management directives and the development and
maintenance of reliable financial and management data, and accurately present that data in
timely reports, (Kaplan. 2008; Cunningham, 2004; INTOSAI, 2004).

According to the Combined Code on Corporate Governance, (2005); the governing council
should identify and manage all risks with in the local government (LG) and should maintain a
sound system of ICS to safeguard stakeholders’ interests and the local government’s assets.

For his part, Treba (2003) asserts that a system of internal control is a tool for ensuring that
an organisation realises its mission and objectives. He further notes that much as internal
controls are often thought to be the domain of accountants and auditors; it is actually
management that has primary responsibility for proper controls. A critical element of any
comprehensive internal control systems is regular monitoring of the effectiveness of internal
controls to determine whether they are well designed and functioning properly (Treba. 2003).

Lawson, Renzio and Umarji (2006) note that weaknesses in internal control systems (control
over the payroll, over expenditure commitments and over procurement processes) lead to
failure to ensure that resources are allocated to defined priorities, and to guarantee that value
for money is attained in public spending.

ICS in organisations consist of five interrelated components: control environment, control

activities, risk assessment, information and communication and monitoring (INTOSAI 2004).
However, the COSO Framework of internal control recommends the ICS to comprise two
substantive components; control environment and control activities (Thuy, 2007).

Kenneman (2004) describes internal control as those mechanisms that are in place to either
prevent errors from entering the process or detecting errors. He explains that, internal
controls can be defined as those processes that management relies on to make sure things
don’t get goofed up. (Mwindi, 2008)

Internal control is a process instituted by an entity’s Board of Directors, management and

other personnel. designed to provide reasonable assurance regarding the achievement of
objectives in the area of: effectiveness and efficiency of operations, reliability of financial
reporting and compliance with applicable laws and regulatiom(The Committee of Sponsoring
Organizations of the Treadway Commission of the Treadway Commission (COSO).
Expanding on the COSO definition, Financial Management Journal (2005), states that

13
internal control represents an organization’s plans, methods, and procedures used to meet its
vision, goals, and objectives and serves as the first line of defense in safeguarding assets and
preventing and detecting errors, fraud, waste, abuse, and mismanagement. (Esrnailjee, 1993).

Michino~ 201 1 reports that there are other researchers who have recognized the importance of
internal control but their researches did not bring the relationship between internal control
and revenue collection. These researchers have formed part of the related studies for the
research and include: The Sarbanes-Oxley Act of 2002 (SOX), which requires companies to
~poit on the effectiveness of their internal controls over financial reporting as part of an
overall effort to reduce fraud and restore integrity to the financial reporting process (Michino,
2011).

John (2011) asserts that software vendors that market Enterprise Resource Planning (ERP)
systems have taken advantage of this new focus on internal controls by emphasizing that a
key feature of ERP systems is the use of “built—in” controls that mirror a firm~s infrastructure.
They emphasize these features in their marketing literature, asserting that these systems will
help firms improve the effectiveness of their internal controls as required by SOX (Ongeri.
2010).

Karagiorgos et al (201 1). states that internal control is one of the many mechanisms used in
business to address the agency problem. Others include financial reporting, budgeting, audit
committees, and external audits. Karagiorgos et al (2011). Other studies have shown that
internal control reduces agency costs with some even arguing that firms have an economic
incentive to report on internal control, even without the requirements of SOX Deumes and
Knechel (2008). Their argument assumes that providing this additional information to the
principal (shareholder) about the behavior of the agent (management) reduces information
asymmetry and lowers investor risk and, therefore, the cost of equity capital. Other research
has found that weaknesses in internal controls are associated with increased levels of earnings
management Amudo et a?. (2009). Earnings management is the agency problem that
motivated SOX legislation in the first place, specifically earnings manipulation by Enron.
WorldCom (Mawanda, 2008).

In their publication on Principles of Auditing and other Assurance Services. Whittington &
Pany (2001). attempt to explain the meaning, significance of internal controls and the
components of a company’s internal controls. They also attempt to explain the relevancy of
internal controls in large scale business organizations. In their book while borrowing the

14
 In high cash volumes environment, cash-in-hand is kept to a minimum by regularly clearing
tills duri~g the day and banking the collections promptly. Again if cash is not banked until
the following day their receipts are locked in a safe overnight.

Apart from the physical controls to protect assets and or revenue, further control is indirectly
introduced by regularly counting assets and comparing quantities with those recorded. The
realization that any perceived shortages are likely to be thoroughly checked to establish the
cause of the shortage will definitely lessen or prevent misappropriation. (Puttick 2008).

Authorization; The obligation to safeguard the revenue of URA requires that transactions
are entered into the systems once they have been authorized by the appropriate individual and
that each transaction conforms to the terms of its authority. If an individual tries to enter un
authorized transactions in the system, the system would deny access due to lack of authority
to execute the transaction in question.

The use of passwords; ensures that no one has the right to enter unauthorized information
which might distort revenue generation. The use of passwords discourages individuals to
undertake corrupt activities as transactions are continuously monitored online (Matarnande,
2012).

Records controls; URA’s accounting records are such that all transactions are timely
recorded and correct values are properly accounted for in the accounting records. Where
manual accounting systems are used, accounting records consists of source documents on
which details of transactions were initially recorded. Transactions are recorded on receipts.

To enhancd control, URA also performs the following tasks; the accuracy of information and
amounts recorded on source documents are checked by independent person other than those
responsible for their preparation before recorded. These independent persons perform checks
and should sign source documents as evidence of having performed the task.

Internal Audit; There are also daily balancing and reconciliation of cash books and the bank
statemenfs ~o test the accuracy and reliability of the accounting records. (URA Audit manual.
2008). Monitoring ensures that laid-down procedures are operating as they were designed to,
and that delegated responsibilities have been properly discharged. Changes and
improvements to internal controls systems are considered where the weaknesses have been
exposed.

16
 Management supervision; Conducting surprise counts of cash at roadblocks and tollgates
comparing amounts with corresponding records. This helps minimizing revenue leakages
(Matamande, 2012).

2.2 Control Environment and Revenue collection

The control environment is the foundation of all the elements in the internal control
framework. Its designation and operation not only affect the enterprise’ overall activity, but
the other four elements. Therefore, control environment directly affects the effect of
implementation of internal control framework and the modern enterprises should establish a
suitable internal control environment. Control Environment (CE) is the philosophy, style and
supportive attitude, as well as the competence, ethical values, integrity and morale of the
people of the organisation (DiNapoli, 2007). The CE is further affected by the organization’s
structure and accountability relationships.

Control Environment provides the discipline and structure for the achievement of the primary
objectives of the system of internal control. According to INTOSAI; control environment is
the foundation of the ICS and sets the tone of an organisation, influencing the control
consciousness of its staff, (Thuy, 2007).

It provides the discipline and structure as well as the climate which influences the overall
quality of the internal control systems. Elements of the control environment are; the personal
and professional integrity and ethical values of management and staff, appropriate culture in
the organ isation, attitude towards internal control throughout the organ isation; corn m itrnent
to competence; the ‘tone at the top” (i.e. management’s philosophy and operating style); a
good organ isational structure (an independent internal audit function and segregation of
duties), set up proper authorisation limits; and human resource policies and practices (Kaplan.
2008; Thuy. 2007; INTOSAI, 2004; and Laura, 2002).

The control environment usually includes the following context:

Personnel integrity and quality; The staffs play a dual role; on one hand, they are the subjects
of internal control in the organization and control the implementation of their assignment; on
the other hand, they are the objects of internal control in the organization and supervised and
controlled by the other. Any item of internal control system shall not go beyond the staffs’
integrity and quality that creates, manages, implements and supervises the system.

17
 The management style and management idea; The manager’s management style and
management idea influence the way of managing of the enterprises, especially the manager
individual glamour and the ability to make decisions. Managers control the enterprise mainly
by designiiig the organization and management mechanism, authorizing and designing the
system.

Organisational structure; Organisational structure including organization structure settings,

responsibilities allocation, what position of the person in the organization is and what power
and responsibility he has. Organization structure is the grantee for the enterprise to achieve
overall goal and enterprises should plan, execute, supervise and control based on the structure
of the organization.

2.3 Risk Assessment and Revenue collection

Risk assessment is the process of identifying and analysing relevant risks to the achievement
of the entity~s objectives and determining the appropriate response (Di Napoli, 2007.
INTOSAI, 2004). It involves risk identification, risk evaluation (estimating the impact of a
risk, assessment of the likelihood of the risk occurrence), assessment of the risk appetite of
the organisation; and development of responses.

Risk assessment should be performed and should identify; controllable risks (risks on which
internal coi~trol procedures can be established) and uncontrollable risks (risks that are caused
by the external environment that the entity operated in).

According to the Cadbury Report (1992), risk management should be systematic and also
embedded in company procedures. And there should be a culture of risk awareness in the
organisation. As governmental, economic, industry, regulatory and operating conditions are
in constant change, risk assessment should be an on-going interactive process. Risk
assessment implies identifying and analysing altered conditions and opportunities and risks
(Risk assessment cycle) and modifying internal control to address changing risk. Value for
money (VFM) analysis needs to pay attention to total risks, which is sensitive to the choice of
service delivery mechanism (Heald, 2003).

The risk~assessment system is divided into three steps: risk identification, risk analysis and
evaluation, risk control and report.

Risk identification; It asks the enterprise to judge and analyze risks, including its nature,
types, and reasons of the occurrence, etc.

18
 Risk analysis and evaluation; Risk analysis and evaluation needs quantitative analysis of
digital information collected by a mathematical method in order to make the risk
management based on scientific basis. The result of risk analysis and risk evaluation is the
probability of occurrence and size of the risk so as to provide a dependable basis for decision
making.

Risk control and report; As to risk analysis and assessment, management should consider
how to control risk. The method of controlling risk usually is to transfer risk, adverse risk and
disperse risk.

2.4 Control Activities and Revenue collection

Control activities are intended to make management instructions as designed to be effective

in implementation of various policies and procedures. Control activities can help enterprises
to ensure that it has in place the already taken measures to reduce a loss according to
realization of goals of the enterprise. From the point of daily business activities, control
activities including authorized management. It refers to the fact that the manager
decentralizes powers to his subordinate to make them have the right to address the problem
and make a choice and share corresponding responsibility.

This refers to the definition of authority and responsibility according to the principle of
combining functions of department and its characteristics.

Once the controllable risks have been identified, specific control activities can be undertaken
to reduce those risks (Kaplan, 2008). According to Thuy, (2007); Sarbanes-Oxley Act (SOX.
2002); cpntrol activities are comprised of policies, procedures, and systems relating to the
reliability of financial reporting. They include authorisations and approvals, verifications.
reconciliations. reviews of performance, security of assets, segregation of duties, and controls
over information systems (Laura, 2002). The elements of control activities include; policies
regarding reconci I ing bank statements with cheques issued, procedures governing the
counting and valuation of inventory, the procurement and disposal systems, and codes of
conduct to guide employee behaviour (Kaplan, 2008; Thuy 2007, SOX. 2002).

2.5 Synthesis of Literature

From the literature review, several researchers seem not to have into the relationship between
internal controls and revenue collection. However this research focused on the effect of

19
internal control on revenue collection in URA, which has not been researched much,
representing a gap that the study filled.

20
 CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter focuses on the description of the procedures that were employed to realize the
objectives of the study. It specifies the research design, study population, sampling and
sample size, data sources, tools used in data collection, reliability and validity of instruments.
data processing, and analysis.

3.1 Resear~h Design

According to Kumekpor (2002), a research design is the planning, organizing and execution
of social investigation. In the view of the researcher, it is a careful planning of each stage in
order to avoid waste of time, money and other resources.

The rese~i~her used co relational design. This correlation design was used to establish the
relationship between the variables under study.

The researcher used both qualitative and quantitative research approaches to be able to collect
and analyze data from respondents using both interviews and questionnaires respectively.
This provided the researcher with a consistent bench mark in terms of objectivity, reliability
and validity (Kumekpor, 2002).

3.2 Study Population.

The target population for this study was 42 members which include 20 staffs of URA
Bushenyi, 05 staff from Office of the Auditor General, 05 staff from Ministry of~ Finance
Planning a~d Economic Development. 02 Senior Commissioners and 10 Revenue collection
Agents.

3.3. Sampling and Sample Size

In order to get better results, the researcher used purposive sampling which is a non
probabil~t~sampling technique to eliminate bias and the sample was selected from the study
population. A representative sample of 38 respondents was selected to represent the entire
study population.

21
The choice was based on Sloven’s formula as below;
n=
I +N(e)2
Where;

n: is the sample size

N: is the population

e: 0.05 confidence level 95% (margin of error=0,05)

By substitution, representative sample from the total population of 42 is 38 respondents.

= 42
1+42(0.05)2
42
1.105
= 38 respondents.

Table 3.3.1: Distribution of target population and sample size

Particular Target population Sample size Sampling technique

Staff (URA Bushenyi) 20 19 Simple random
Staff (Auditor General’s Office) 05 04 Purposive
URA Senior Commissioners 02 02 Purposive
Staff (MOFPED) 05 05 Purposive
Revenue Collection Agents 10 hue 8 Purposive
TOTAL 42 38
Source: Prirnuiy Data

3.4 Data Sources

Data in this study refers to gathering of information for research purposes. Collection of data
relied on both primary and secondary data collection methods.

22
 3.4.1 Primary data

Primary data are those which are collected for the first time and are therefore original in
character. Primary data were collected from a sample of respondents by use of a well-
designed, presented and administered questionnaire as a research instrument for data
collection.

The use of a self-administered questionnaire to collect qualitative data was justified because
it is a generally acceptable instrument for qualitative data collection.

3.4.2 Secondary data

Secondary data was collected from a variety of documents including journals, books,
Internet, reports from URA journals, World Bank/IMF reports, audit reports, Ministry of
Finance Planning and Economic Development reports, and correspondences from the
community. The researcher further used minutes, circulars, records and reports about the
Authority.

3.5 Data Collection Procedures

A letter of transmittal was obtained from the Director, Post Graduate Studies and Research,
Kampala International University and was presented to th& Assistant Tax Commissioner.
URA Bushenyi Branch. Later, the researcher introduced himself and sought permission to
carry out research.

After the permission was granted, the researcher tested the data collection instruments for
validity and reliability before actually collecting data from the chosen respondents according
to the agreed time and schedule. The researcher then analy~ed the data and compiled this
research report about internal control systems and revenue collection at URA, Bushenyi
Branch.

3.6 Data Collection Instruments

3.6.1 Questionnaire

A questionnaire, a copy of which is attached at Appendix II, was used to collect data from the
selected respondents using structured questions. The questionnaire was developed on a five
point Likert Scale, ranging from Strongly Disagree as response I to Strongly Agree as
response 5 (Sekaran, 2003).

23
3.6.2 Interview guide

The researcher carried out formal interviews to collect data from the respondents particularly.
from the commissioners and tax collection agents using the interview-guide. The questions
were planned in advance and the researcher used an interview guide to guide the interviewee.

3.7 Quality Control

Quality control mainly focused on the validity and reliability of the research instruments

3.7.1 Validity of the instrument

Validity is the extent to which an instrument measures what it is supposed to measure and
performs as it is designed to perform. The content validity of the instrument was determined
through a combination of an assessment conducted by the experts and peers as well as a pilot
study. During the pilot study, the researcher encouraged respondents to ask for clarification
about questions they did not understand. The researcher took note of the questions that
seemed to be unclear to the respondents and later readjusted such questions. This process
helped to sharpen the questionnaire and rendered the instrument valid.

For each set of questionnaires, content validity index (CVI) was calculated, using the
formula; CVI=NR/NS,
=25/31
=0.81, the instrument is valid if CVI is>=0.7
Where: — NS is the total number of items in the questionnaire and NR is the total number of
relevant items in the questionnaire.

3.7.2 Reliability of the instrument

An instrument is reliable if it measures consistently what it is supposed to measure. Even if

other researchers administer it, it should produce the same results. The tools of data collection
were pi1ôte~d twice on different occasions to the same population by different data collectors
and the results were tested for reliability using the Cronbach’s basic equation for alpha as
fol lows;

= n/(n -1) (1 — (ZVi/Vtest))

nr number of questions

Vi= variance of scores on each question

24
 V-test= total variance of overall scores (not %‘s) on the entire test

After testing the reliability, the alpha value was determined. Therefore the questionnaire is
reliable because the alpha values exceeded the 0.7 threshold as recommended by Gliem and
Gliem (2003).

The re-test method was also used to confirm the reliability of the instruments and still the
results were matched well with Cronbach’s alpha.

3.8 Data Processing and Analysis

Data processing started by checking for completeness of all the filled in questionnaires,
editing. classifying and tabulation of data in the form of frequency tables.

After data processing, the next step was analysis which deals with descriptive and inferential
statistics. Inferential statistics deals with the methods of drawing conclusion from the
collected data to predict population parameters. Since the study was mainly descriptive, the
researcher put much emphasis on descriptive statistics to establish relationship between the
variables under study.

3.8.1 Data editing

Editing involved sorting of collected data in order to get information relevant to the study
variables. At this stage, all responses were edited by the researcher while writing the useful
information provided by the respondents and ignoring the useless information.

3.8.2 Data presentation and analysis

Key findings were transformed into tables for easy analysis and presentation of data.
Narrative reasoning was used to interpret the findings. After editing the data, it was then
presented in the form of frequency tables so that it can be interpreted easily. Tables were
developed by using two computer packages namely Ms Excel and SPSS version 17.0.
However, qualitative data was analyzed by developing themes derived from the study
objectives.

3.8.3 Data interpretation

The collected data was properly processed and analyzed. The researcher first decided about
which data interpretation methods to be used and what types of tables to be used. The
purpose of tabulation is proper presentation to find out the relationship between variables.

25
The process of analyzing data included coding the responses that classify the data according
to their categories, tabulating the data and the necessary statistical computations. Continuous
supervision was emphasized for proper coding of data and therefore data from respondents
was properly presented for analysis.

3.9 Ethical Consideration

The following were the ethical considerations observed by the researcher throughout the
course of the study;

3.9.1. Informed consent: Prior to questionnaire administration and interviews, respondents

were informed of the purpose of the study and their role in it, and requested them to
participate only if they chose to do so. All respondents were given a consent form which they
signed as a proof of acceptance to participate in the study.

3.9.2. Privacy and confidentiality: It was clearly stated in the introductory paragraph of the
questionnaire that the study was for academic purposes and the respondents’ identities and
views would remain private and confidential.

3.9.3. Anonymity: The respondents were reminded that they were at liberty to disclose or not
to disclose their identities. Respondents were equally free to disclose their names or not to do
so, and this1was clearly stated at the beginning of each data collection scssion.

3.9.4. Researcher’s responsibility: The researcher always observed his responsibility to

respect the human dignity of the respondents during the course of study. Designing of
instruments, administering the questionnaires, their collection, presentation and analysis of
findings was a coordinated process where competences, integrity, professionalism, respect for
human rights and social responsibility were observed.

3.9.5 Benefits and risks

All the information that was gathered from the respondents was used for Academic purposes
only. There was no possibility that URA Bushenyi Branch was exposed to other interplays
that may result into the Authority being questioned at some time.

3.10 Limitations and Delimitations of the Study

The study was carried out in a short period of time i.e. not long enough to allow an in depth
study. Therefore data collected could be different from that which could be got if a longer

26
period was to be used. However this was overcome by the researcher through designing a
detailed research instrument to use during data collection.

The study was affected by non -~ response from some of the respondents contacted especially
those with no hands on experience or they are completely new in service and the fact that
URA staffs are always busy and engaged. This was overcome by the researcher approaching
the respondents in a friendly way so that he can tap information from them.

27
 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.0 Introduction

This chapter presents and analyses data obtained from the field. The findings are presented
and ana1~’zed within in the conceptual framework and according to the objectives of the study
beginning with the biographic characteristics of respondents. Frequency tables are used for
proper presentation and interpretation of the findings.

4.1 Demographic Characteristics of Respondents

The section presents the biographic data on the respondents in terms of gender, age. marital
status and the highest level of education.

Table 4.1.1 Gender

Table 4.1 I Distribution of Respondents by gender

.

Gender Frequency Percentage (%)

Male 20 52.7
Female 18 47.3
Total 38 100
Source: Primajy data September 2017

Regarding the gender of respondents, it is indicated that majority 20 of the respondents were
males representing (52.7%) while females accounted for only 18 (47.3%) of the respondents.

The findings represent the views of the two sex groups about internal control systems and
revenue collection in Uganda Revenue Authority. This was necessary for the study to get a
balanced picture of the respondents’ views.

Table 4.1.2 Marital Status

Table 4.1.2 Distribution of Respondents by marital status

Marital Status Frequency Percentage (%)

Single 06 15.7
Married 18 47.5
Separated 04 10.6
Divorced 03 7.8

28
 Widowed 07 18.4
Total 38 100
Source: Prinuny data September 2017

The study covered the respondents with various marital status including those who were
single, the. married, the separated, and divorced. It is shown in the table that 4.2 that
respondents 06(15.7%) were single, 18 (47.5%) were married and were the majority while 04
(10.6%) had separated, 3 (7.8%) had divorced and 7 (18.4%) were widowed. It was however
found out that the marital status of respondents did not affect their knowledge on the
variables of the study. These characteristics were very important in the study because it gave
a background of the population profile at URA because such characteristics can have effect
on the effort exerted by employees and as a result, output and therefore quality of work may
be affected.

4.1.3 Age

Table 4.1.3 Distribution of Respondents by age group

Age braèket (years) Frequency Percentage (%)

20-30 10 26.3
31-40 21 55.2
41-50 05 13.1
51 yrs&above 02 5.4
Total 38 100
Source: Primajy data September 2017

It is indicated that majority 21 (55%) of the respondents were aged between 31-40 years
followed by 10 (26%) aged between 20-30 years while 05 (13%) were aged between 41-50
years while the least 02 (5%) were aged between 5 1 years and above. Thus a reflection is that
most of the people were still strong and able to contribute productive effort that could
generate returns to the authority.

4.1.4 Highest Level of Education

Table 4.1.4 Distribution of Respondents by highest level of education

Level of Education Frequency Percentage

Certificate/Diploma 03 7.9
Bachelors’ Degree 08 21.1
Masters Degree 23 60.5

29
Doctorate 02 5.3
Others (Specify) 02 5.3
TOTAL 38 100
Source: Primary data September2017

According to the findings the majority of the workers in URA had masters with 60.5%
followed by undergraduates 21%, Diploma 8% and lastly those with PhD and others at
2°o.This clearly indicated that the organization is using qualified and competent personnel to
effect its policies and set objectives and goals.

Table 4.2.1 Engagement in revenue collection

Response Frequency Percentage

Yes 33 87%
No 0 0%
No response 5 13%
Total 38 100%
Source: Primary data September2017 -

The table above shows that 87% of the study respondents were engaged in Revenue
Collection and 13% did not respond to the question.

4.3 Descriptive Statistics on Revenue Collection

Case Processing Summary

N Marginal
Percentage
Level of Revenue Collection Low 2 5.34% -

Moderate 22 57.9%
High 13 34.2% —

Valid 37
Missing- 1 2.6
Total 38 100.0%
Source: Primary data September 2017

tt~cc~&
4.4 The Control Environment and Revenue Collection at URA, Bushenyi Branch.

Table 4.4.1: Descriptive statistics on control environment variables and revenue collection

Case_Processing_Summary
Variable Response N Marginal
Percentage
1. URA has good accounting and financial Strongly disagree 0 0%
management System in place Disagree 0 0%
~ Neutral 2 5.4%
Agree 23 62.2%
Strongly agree 12 32.4%
2. URA Board of Directors are committed to Strong disagree 3 8.1%
the Internal Control System Disagree 1 2.7%
implementation Neutral 3 8.1%
Agree 17 45.9%
Strongly Agree 13 35.1%
3. There is a well elaborate Organization Strongly disagree 1 2.7%
Structure in URA Disagree 1 2.7%
Neutral 1 2.7%
Agree 15 40.5%
Strongly agree 19 51.4%
4. Policies, Procedurcs and documentations Strongly disagree 0 0%
are well defined Disagree 1 2.7%
Neutral 3 8.1 %
Agree 20 54.1%
Strongly agree 13 35.1%
5. Organizational structure does adequately Strongly disagree 1 2.7%
reflect chain of command Disagree 3 8.1%
Neutral 2 5.4%
Agree 15 40.5%
Strongly agree 16 43.2%
6. Systems have been put in place to correct Strongly disagree 1 2.7%
and avoid errors Disagree
Neutral
Agree 22 59.5%
Strongly agree 14 37.8%
7. The management and the BOD are people Strongly disagree 1 2.7%
of high integrity Disagree 1 2.7%
Neutral
Agree 19 51.4%
Strongly agree 16 43.2%
8. The company’s culture, code of conduct, Strongly disagree 3 8.1%
human resource policies and performance Disagree 4 10.8%
reward systems support the business objectives Neutral 5 13.5%
and internal control systems Agree 18 48.6%
Strongly agree 7 18.9%
Valid 37
Missing

31
 Total 38 100.0%
Sonrce: Primaly data September2017

From table 4.4. 1, in this study; control environment was measured by eight variables rated
using a Likert-scale as shown in table 4.4.1 above and the respondents answered as follows;

As Table 4.4.1 above shows, in response to the statement that “URA has good accounting and
financial management system in place” 62.2% of those who responded to the statement
simply agreed, 32.4% strongly agreed and 5.4% were neutral. Significantly, none of the
respondents disagreed to the statement.

Responses on “URA Board of Directors is committed to the Internal Control System

implementation” were as follows; most of the respondents i.e, 45.9% agreed, 35.1% strongly
agreed, 8.1% were neutral, 8.1% strongly disagreed and 2.1% disagreed.

Reponses on “There is a well elaborate Organization Structure in URA” were as follows; -

most of the respondents i.e. 51 .4% strongly agreed, 40.5% agreed, 2.7% were neutral.
disagreed and strongly disagreed simultaneously.

Responses on ~‘Policies, Procedures and documentations are well defined” were as follows;
54.1% of the respondents agreed, 35.1% strongly agreed, 8.1% were neutral, 2.7% disagreed
and none of the respondents strongly disagreed.

Responses on “Systems have been put in place to correct and avoid errors” were as follows:
59.5% of the respondents agreed, 37.8% strongly agreed, 2.7% strongly disagreed and neither
of the respondents were neutral nor disagreed.

Responses on “The management and the BOD are people of high integrity” were as follows;
51% of the respondents agreed, 43.2% of the respondents strongly agreed, 2.7% disagreed
and 2.7°, strongly disagreed.

Finally, responses on “The organization’s culture, code of conduct, human resource policies
and performance reward systems support the business objectives and internal control
systems” were as follows; - 48.6% of the respondents agreed, 18.9% strongly agreed. 13.5%
were neutral, 10.8% disagreed and 8.1% strongly disagreed.

32
Table 4.2.2: The relationship between the control environment variables and revenue
collection

Likelihood Ratio Tests

Control Environment Model Fitting Likelihood Ratio Tests
~ Criteria
-2 Log Chi- Df Sig.
Likelihood of Square
Reduced_Model
Intercept 35.888 6.130 2 0.030
URA has good accounting and 34.782 1.758 2 0.597
financial_management_System_in_place
URA Bàard of Directors are 33.820 3.652 2 0.027
committed to the Internal Control
System_implementation
There is a well elaborate Organization 37.142 2.690 2 0.0 12
Structure in URA
Policies. Procedures and 31.425 6.012 2 0.044
documentations are well defined
Organizational structure does 31.574 6.295 2 0.004
adequately reflect chain of command
Systems have been put in place to 33.473 4.444 2 0.010
correct and avoid errors
The management and the BOD are 32.540 0.343 2 0.087
people_of high_integrity
The organization’s culture, code of 35.147 7.410 2 0.022
conduct, human resource policies and
performance reward systems support
the business objectives and internal
control_systems
Source: Primary data September 2017

Inferential statistics were conducted by way of using appropriate methods (Multinomial

logistic regression) to test the hypotheses of Control environment variables as analysis is
summarized in table 4.2.2 above;

There is no significant relationship between the level of Revenue Collection and URA having
good accouhting and financial management System in place at 5% level of significance since
the P-value (0.597)>0.05. Therefore, the researcher concluded that the level of revenue
collection does not depend on having good accounting and financial management System in
place at URA, Bushenyi Branch.

33
There is a significant relationship between the level of Revenue Collection and URA Board
of Directors being committed to the Internal Control System implementation at 5% level of
significance since the P-value (O.027)<O.05. Therefore, the researcher concluded that the
level of revenue collection depends on URA Board of Directors being committed to the
Internal Control System implementation in place at URA, Bushenyi Branch.

There is a significant relationship between the level of Revenue Collection and presence of a
well elaborate Organization Structure in URA at 5% level of significance since the P-value
(0. .012)<0.05. Therefore, the researcher concluded that the level of revenue collection
depends on presence of a well elaborate Organization Structure in URA in place at URA,
Bushenyi Branch.

There is a significant relationship between the level of Revenue Collection and Policies.
Procedures and documentations are well defined at 5% level of significance since the P-value
(0. .044)<0.05. Therefore, the researcher concluded that the level of revenue collection
depends on Policies, Procedures and documentations are well defined at URA, Bushenyi
Branch.

There is a significant relationship between the level of Revenue Collection and organizational
structur& does adequately reflect chain of command at 5% level of significance since the P
value (O.004)-<0.05. Therefore, the researcher concluded that the level of revenue collection
depends on organizational structure does adequately reflect chain of commahd at URA,
Bushenyi Branch.

There is a significant relationship between the level of Revenue Collection and Systems have
been ~ ii~ place to correct and avoid errors at 5% level of significance since the P-value
(0.0l0)<0.05. Therefore, the researcher concluded that the level of revenue collection
depends on Systems have been put in place to correct and avoid errors at URA, Bushenyi
Branch.

There is no significant relationship between the level of Revenue Collection and the integrity
of management and the BOD the at 5% level of significance since the P-value (0.087)>O.05.
Therefore, the researcher concluded that the level of revenue collection does not depend on
the integrity of management and the BOD at URA, Bushenyi Branch.

34
There is a significant relationship between the level of Revenue Collection and the
company’s~ culture, code of conduct, human resource policies and performance reward
systems support the business objectives and internal control systems at 5% level of
significance since the P-value (0.022)<0.05. Therefore, the researcher concluded that the
level of revenue collection depends on the company’s culture, code of conduct, human
resource policies and performance reward systems support the business objectives and
internal control systems at URA, Bushenyi Branch.

4.2.3 The relationship between Control Environment and Revenue Collection at URA,
Bushenyi Branch.

Model Fitting Information

Model Model Fitting ~
Criteria
-2 Log Likelihood Chi-Squate Df Sig.
Intercept Only 61.74 1
Final 31.130 30.611 16 .015

Source: Primajy data September 2017

Inferential statistics were conducted by way of using appropriate methods (Multinomial

logistic regression) to test the hypothesis null of there is no significant relationship between
Control environment and the level of revenue collection; and the analysis was summarized in
table 4.2.3~above; where by the null hypothesis was rejected since p-value (0.0 1 5) <0.05;
implying that there is a significant relationship between control environment and the level of
revenue collection. The researcher therefore, concluded that the level of revenue collection
depends on control environment.

4.3 Risk Assessment and Revenue Collection at URA, Bushenyi Branch.

Table 4.3.1: Descriptive statistics on risk assessment variables

Case_Processing_Summary
Variable Response N Marginal
~
1. URA has formulated the Strongly disagree 1 2.8%
Internal Affairs Department Disagree 2 5.6%
: Neutral 3 8.3%

35
 Agree 18 50.0%
Strongly agree 12 33.3%
2. There are sufficient staff Strongly disagree 0 0%
members who are competent Disagree 1 2.8%
and knowledgeable to manage Neutral 1 2.8%
organisational activities and Agree 22 61.1%
these have been provided with Strongly agree 12 33.3%
adequate resources
3. URA has installed software and Strongly disagree 0 0%
ICT update to help in revenue Disagree 2 5.6%
collection Neutral 0 0%
Agree 18 50.0%
Strongly agree 16 44.4%
4. The employees have knowledge Strongly disagree 2 5.6%
of revenue leakage areas Disagree 0 0%
Neutral 1 2.8%
Agree 17 47.2%
Strongly agree 16 44.4%
5. Collection procedures are well Strongly disagree 2 5.6%
documented Agree 16 44.4%
Strongly agree 18 50.0%
6. Revenue loss and risks have Strongly disagree 1 2.8%
been identified by management Disagree 3 8.3%
Neutral 0 0%
Agree 20 55.6%
Strongly agree 12 33.3%
7. Measures have been put in place Strongly disagree 0 0%
for risk identification Disagree 2 5.6%
Neutral 1 2.8%
Agree 15 41.7%
~ Strongly disagree 18 50.0%
8. There are surveillance officers Strongly disagree 1 2.8%
to identify risk areas Disagree 0 0%
Neutral 3 8.3%
Agree 19 52.8%
Strongly agree 13 36.1%
9. URA staff are adequately Strongly disagree 2 5.6%
involved in internal controls Disagree 1 2.8%
Neutral I 2.8%
Agree 18 50.0%
Strongly agree 14 3 8.9%
Valid 36
Missing 2
Total 38 100.0%

Source: PriniaI3’ data September 2017

36
 The responses on “URA has formulated the Internal Affairs department” were as follows;
most of the respondents i.e. 50% agreed, 33.3% strongly agreed, 8.3% were neutral, 5.6%
disagreed and 2.8% strongly disagreed.

The respbn~es on “There are sufficient staff members who are competent and knowledgeable
to manage company activities and these have been provided with adequate resources” were
are follows; 61.1% of the respondents agreed, 33.3% disagreed, 2.8% were neutral, 2.8%
disagreed and none of the respondents strongly disagreed.

The responses on “URA has installed software and ICT update to help in revenue collection”
were as follows; 50% of the respondents agreed, 44.4% of the respondents strongly agreed
and 5.6% of the respondents disagreed; whereas neither of the respondents was neutral nor

strongly disagreed.

Responses on “The employees have knowledge of revenue leakage areas” were as follows;
47.2% of the respondents agreed, 44.4% strongly agreed, 5.6% strongly disagreed and 2.8%
were neutral.

Responses on “Collection procedures are well documented” were as follows; 50% of the
respondents strongly agreed, 44.4% agreed and 5.6% were neutral.

Respons~s pn “Revenue loss and risks have been identified by management” were as follows:
55.6% of the respondents agreed, 33.3% strongly agreed, 8.3% disagreed and 2.8% strongly
disagreed.

Responses on “Measures have been put in place for risk identification” were as follows; 50%
of the respondents strongly agreed, 41.7% of the respondents agreed, 5.6% of the
respondent~ disagreed, 2.8% were neutral.

Responses on “There are surveillance officers to identify risk areas” were as follows; 52.8%
of the respondents agreed, 36.1% of the respondents strongly agreed, 8.3% were neutral, and
2.8% strongly agreed.

Responses on “URA staffs are adequately involved in interpal controls” were as follows:
50% of the respondents agreed, 38.9% strongly agreed, 5.6% strongly disagreed, 2.8% were
neutral and 2.8% disagreed.

37
Table 4.3.2: The relationship between the risk assessment variables and revenue
collection

Likelihood Ratio Tests

Risk assessment Model Fitting Likelihood Ratio Tests
Criteria
-2 Log Chi-Square Df Sig.
Likelihood of
Reduced_Model
Intercept 38.626 .017 2 0.992
URA has formulated the Internal 41.712 3.102 2 0.01 1
Affairs_department
There are sufficient staff members 39.186 6.576 2 0.041
who are competent and knowledgeable
to manage company activities and
these have been provided with
adequate resources
URA has installed software and ICT 39.578 6.969 2 0.046
update t6 help in revenue collection
The employees have knowledge of 38.707 0.098 2 0.597
revenue leakage areas
Collection procedures are well 38.742 2.132 2 0.001
documented
Revenue loss and risks have been 39.346 .736 2 0.692
identified_by_management
Measures have been put in place for 39.840 1.230 2 0.541
risk identification
There are surveillance officers to 38.665 0.055 2 0.973
identify risk areas
URA staff are adequately involved 111 41.3 18 1.708 2 0.258
internal controls
Source: Primary data September 2017

Inferential ~statistics was conducted by way of using appropriate methods (Multinomial

logistic regression) to test the hypotheses of risk assessment variables summarized in table
4.3.2 above and interpreted as follows;

There is a significant relationship between the level of Revenue Collection and Formulated
Internal Affairs department at 5% level of significance since the P-value (0.01 l)<0.05.
Therefore, the researcher concluded that the level of rCvenue collection depends on
Formulated Internal Affairs department at URA, Bushenyi Branch.

There is a significant relationship between the level of Revenue Collection and Competent
and Knowledgeable staff members at 5% level of significance since the P-value

38
(0.04 l)<0.05. Therefore, the researcher concluded that the level of revenue collection
depends or~Competent and Knowledgeable staff members at URA, Bushenyi Branch.

There is a significant relationship between the level of Revenue Collection and Installation
and updating ICT soft ware at 5% level of significance since the P-value (0.046)<0.05.
Therefore, the researcher concluded that the level of revenue collection depends on
Installation and updating ICT soft ware at URA, Bushenyi Branch.

There is no significant relationship between the level of Revenue Collection and Employees
Knowledge of Revenue Leakage areas at 5% level of significance since the P-value
(0.597)>0.05. Therefore, the researcher concluded that the level of revenue collection does
not depend on Employees’ Knowledge of Revenue Leakage areas at URA, Bushenyi Branch.

There is a significant relationship between the level of Revenue Collection and

Documentation of Revenue Collection Procedures at 5% level of significance since the P
value (0.00 I)<0.05. Therefore, the researcher concluded that the level of revenue collection
depends on Documentation of Revenue Collection Procedures at URA, Bushenyi Branch.

There is no significant relationship between the level of Revenue Collection and

Identific~tion of Revenue losses and Risks by Management at 5% level of significance since
the P-value (0.692)>0.05. Therefore, the researcher concluded that the level of revenue
collection does not depend on Identification of Revenue losses and Risks by Management at
URA, Bushenyi Branch.

There is no significant relationship between the level of Revenue Collection and Risk
Identification Measures at 5% level of significance since the P-value (0.54l)>0.05.
Therefore. the researcher concluded that the level of revenue collection does not depend on
Risk Identification Measures at URA, Bushenyi Branch.

There is no significant relationship between the level of Revenue Collection and Presence of
Surveillance officers to identify risk at 5% level of significance since the P-value
(0.973)>0.05. Therefore, the researcher concluded that the level of revenue collection does
not depend on Presence of Surveillance officers to identify risk at URA, Bushenyi Branch.

There is no significant relationship between the level of Revenue Collection and Involvement
of URA Staff in Internal control systems at 5% level of significance since the P-value
(0.258)>b.05. Therefore. the researcher concluded that the level of revenue collection does

39
not dep~n~ on Involvement of URA Staff in Internal control systems at URA, Bushenyi
Branch.

4.3.1 The relationship between risk assessment and revenue collection in URA, Bushenyi
Branch.

Model Fit~ing Information

Model Model Fitting Criteria Likelihood Ratio Tests
-2 Log Likelihood Chi-Square Df Sig.
Intercept Only 5 6.250
Final 38.610 17.640 18 .480

Source: Priina;y data September 2017

Inferential statistics was conducted by way of using appropriate methods (Multinomial
logistic regression) to test the hypothesis null of there is no significant relationship between
risk assessment and revenue collection; and the analysis was summarized in table 4.3.3
above; where by the null hypothesis was not rejected since p-value (0.480)>0.05; implying
that there is no significant relationship between risk assessment and revenue collection. The
researcher therefore, concluded that revenue collection did not depend on risk assessment.

4.4 Control Activities and Revenue Collection at URA, Bushenyi Branch.

Table 4.4.1: Descriptive statistics on control activities

Case Processing Summary

• N Marginal
Percentage
I. Policies and Procedures Strongly disagree 0 0%
exist to ensure critical Disagree 1 2.8%
decisio~ns are made with Neutral 0 0%
appropriate approval Agree 20 55.6%
Strongly agree 15 41.7%
2. There is proper and close Strongly disagree 0 0%
supervision ofjunior staff at Disagree 0 0%
URA Neutral 1 2.8%
~ Agree 20 55.6%
Strongly agree 15 41.7%
3. There are elaborate Strongly disagree 1 2.8%

40
 mechanisms put in place to Disagree 1 2.8%
address weakness of control Neutral 1 2.8%
Agree 19 52.8%
Strongly agree 14 3 8.9%
Sensitive information is Strongly disagree 0 0%
restricted to certain employees Disagree 2 5.6%
only Neutral 0 0%
Agree 16 44.4%
Strongly agree 18 50.0%
There is a system in place to Strongly disagree 0 0%
ensure that employees are Disagree 0 0%
rotated periodically Neutral 1 2.8%
Agree 17 47.2%
Strongly agree 18 5 0.0%
Independent reconciliation of Strongly disagree 0 0%
revenue collection on regular Disagree 0 0%
basis is done Neutral 1 2.8%
Agree 15 41.7%
~ Strong agree 20 5 5.6%
Valid 3
Missing 2
Total 38 100.0%
Source: Primary data September 2017

Response on ~Approval of Policies and Procedures in decision making” were as follows:

55% of the respondents agreed, 4 1.7% of the respondents strongly agreed, 2.8% of the
respondents disagreed and neither of the respondents was neutral nor strongly disagreed.

Responses on “There is proper and close supervision ofjunior staff at URA” were as follows;
55.6% of the respondents agreed, 41.7% strongly agreed, 2.8% of the respondents disagreed
and neither of the respondents was neither neutral nor strongly disagreed.

Responses on ‘There are elaborate mechanisms put in place to address weakness of control”
were as follows; 52.8% agreed, 38.9% strongly agreed, strongly disagree, Disagree and
neutral were all responded by 2.8% of the respondents

Responses on “Sensitive information is restricted to certain employees only” were as follows;

50% of the respondents strongly agreed, 44.4% of the respondents agreed, 5.6% of the
respondents disagreed and neither of the respondents was neutral nor strongly disagreed.

41
 Response on “There is a system in place to ensure that employees are rotated periodically”
was as follows; 50% of the respondents strongly agreed, 47.2% of the respondents agreed,
2.8% of the respondents were neutral and neither of the respondents disagreed nor strongly
disagreed.

Responses on ‘Independent reconciliation of revenue collection on regular basis is done”

were as follows; 55.6% of the respondents strongly agreed, 41.7% agreed, 2.8% of the
respondents were neutral and neither of the respondents neither disagreed nor strongly
disagreed.
Table 4.4.2: The relationship between control activities and revenue collection

Control Activities Model Fitting Likelihood Ratio Tests

Criteria
-2 Log Clii- Df Sig.
Likelihood of Square
Reduced
Model
Intercept 38.695 6.694 2 .035
Policies and Procedures exist to ensure critical 38.1 12 6.1 1 i 2 .047
decisions are made with_appropriate_approval
There is proper and close supervision of junior 32.818 6.817 2 .045
staff at URA
There are elaborate mechanisms put in place to 32.287 .286 2 .867
address weakness of control
Sensitive information is restricted to certain 33.381 1.380 2 .502
employees only
There is a system in place to ensure that 38.409 6.408 2 .041
employees_are rotated_periodically
Independent reconciliation of revenue collection 40.228 8.227 2 .016
on regular basis is done
Source: Priinaiy data September 2017

There is a significant relationship between the level of Revenue Collection and Formulated
Approval of Policies and Procedures in decision making at 5% level of significance since the
P-value (0.047)<0.05. Therefore, the researcher concluded that the level of revenue collection
depends on Approval of Policies and Procedures in decision making at URA, Bushenyi
Branch.

There is a significant relationship between the level of Revenue Collection and Proper and
Close supervision ofjunior staff at 5% level of significance since the P-value (0.045) <0.05.

42
 Therefore, the researcher concluded that the level of revenue collection depends on
Approval Proper and Close supervision ofjunior staff at URA, Bushenyi Branch.

There is no significant relationship between the level of Revenue Collection and Existence
of Elaborate Mechanisms to address weaknesses at 5% level of significance since the P
value (0.867) >0.05. Therefore, the researcher concluded that the level of revenue collection
does not depend on Existence of Elaborate Mechanisms to address weaknesses at URA,
Bushenyi Branch.

There is no significant relationship between the level of Revenue Collection and Restriction
of Sensitive information to certain staff at 5% level of significance since the P-value (0.502)
>0.05. Therefore, the researcher concluded that the level of revenue collection does not
depend on Restriction of Sensitive information to certain staff at URA, Bushenyi Branch.

There is a significant relationship between the level of Revenue Collection and Periodical
Rotation of staff at 5% level of significance since the P-value (0.04 1) <0.05. Therefore, the
researcher concluded that the level of revenue collection depends on A Periodical Rotation
of staff at URA, Bushenyi Branch.

There is a significant relationship between the level of Revenue Collection and Independent
reconciliation of Revenue collection at 5% level of significance since the P-value (0.0 16)
<0,05. Therefore, the researcher concluded that the level of~revenue collection depends on
Independent reconciliation of Revenue collection at URA, Bushenyi Branch.

4.4.1 The relationship between control activities and revenue collection

Model Fitting Information

Model Model Fitting Likelihood Ratio Tests
Criteria
-2 Log Likelihood Chi-Squa~e df Sig.
Intercept Only 54.35 1
Final 32.001 22.350 12 .034

Source: Primaiy (laki September 2017

Inferential statistics was conducted by way of using appropriate methods (Multinornial
logistic regression) to test the hypothesis null of there is no significant relationship between
Control activities and revenue collection; and the analysis was summarized in table 4.4.3

43
above; where by the null hypothesis was rejected since p-value (0.034) <0.05; implying that
there is a significant relationship between control activities and revenue collection. The
researcher therefore, concluded that revenue collection depends on control activities.

44
 CHAPTER FIVE

DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS

5.0 Introduction

This chapter presents discussion of the findings, conclusions and recommendations from the
study. These follow the sequence of the research hypotheses as developed from objectives of
the study.
Suggested areas for further research are also presented.
As the following discussion demonstrates, the study was able to establish a relationship
between internal control systems as reflected in the three internal control variables of control
environment, risk assessment, and control activities on revenue collection.

5.1 Discussion

The following is the discussion according to the research objectives;

5.1.1 Relationship between control environment and revenue collection at URA,

Bushenyi Branch.

The researcher established that URA had a good accounting and financial management
system in place. and that the URA Board of Directors was committed to the implementation
of internal control System. It was also established that URA had well-defined policies,
procedures and documentations and an elaborate organization structure that adequately
reflected chain of command. Furthermore, the management and the BOD were people of high
integrity and systems were in place to correct and avoid errors. Finally, the organizational
culture, code of conduct, human resource policies and performance reward systems supported
the business objectives and internal control systems.

The study revealed that there was no significant relationship between the level of revenue
collection and the accounting and financial management system of URA. All the staff are
aware of the URA financial and accounting management system in place and they can
fraudulently use it and make it not to operate towards its set requirements. This gap therefore,
could explain that the existence of a good accounting and financial management system in
place that does not play much significant role in revenue collection at Bushenyi Branch.

45
 This study revealed that the level of revenue collection depends on URA Board of Directors
being cornpiitted to the internal control system implementation at URA, Bushenyi branch.
This was because URA Board of Directors was committed on monitoring and improving the
internal control system and also always put effort on having it implemented which raised
Revenue Collection.

The study found out that there was a significant relationship between the level of Revenue
Collection:and presence of a well elaborate Organization Structure in URA. With a well
elaborate organization structure, the employees are aware of their hierarchies of reporting
which improves supervision and monitoring of employees hence enhancing their duty output.

The researcher found out that there was a significant relationship between the level of
Revenue Collection and Policies, Procedures and docurnentations being well defined. Having
well defined policies, procedures and documentations of an organization creates no excuse to
the poor performance of employees and gives knowledge to the employees to enhance their
performance. In this therefore, the existence of well defined policies, procedures and
docurnentations in URA, Bushenyi Branch played a significant role in its Revenue
Collection.

The researcher found out that there is a significant relationship between the level of Revenue
Collection and Systems having been put in place to correct and avoid errors. When the errors
are corrected and avoided in the system of Revenue Collection, the procedure of Revenue
Collection becomes streamlined and the Revenue Collections improve; therefore, this makes
Revenue Collection depend on putting in place Systems to correct and avoid errors during the
process of its Collection.

The researcher also found out that there was a significant relationship between the level of
Revenue Collection and the company’s culture, code of conduct, human resource policies and
performance reward systems support the business objectives and Internal Control Systems.

The study ~also revealed that there was no significant relationship between the level of
Revenue Collection and the integrity of management and the BOD. Sometimes the
management’s integrity does not influence the duties performed in the organization most
especially when it doesn’t have good relationship with other employees who physically do
the work; in relation to this therefore the integrity of management and BOD had no
significant relationship with Revenue Collection in URA Bushenyi branch.

46
 Overall, the study found out that there was a significant relationship between Control
Environment and the level of Revenue Collection; implying that the level of Revenue
Collection depended on control environment. In support to this, Thuy (2007) and Kaplan
(2008) stated that control environment provides the discipline and structure as well as the
climate which influences the overall quality of the Internal Control Systems. Elements of the
control environment are; the personal and professional integrity and ethical values of
management and staff, appropriate culture in the organisation, attitude towards internal
control throughout the organisation; commitment to competence; the “tone at the top” (i.e.
management’s philosophy and operating style); a good organisational structure (an
independent Internal Audit function and segregation of duties), set up proper authorisation
limits; and human resource policies and practices which enhance Revenue Collection.

5.1.2 Relationship between the Risk Assessment and Revenue Collection

The researcher found out that URA had formulated the Internal Affairs department, there
were sufficient staff members who were competent and knowledgeable to manage company
activities and these were provided with adequate resources. URA had installed software and
updated ICT to help in Revenue Collection, the employees had knowledge of revenue leakage
areas, Collection procedures were well documented, Revenue loss and risks were identified
by management. Measures were put in place for risk identification, there were surveillance
officers to identify risk areas and URA staff were adequately involved in internal controls at
URA Bushenyi Branch.

This researcher was able to establish the relationship of Risk Assessment and Revenue
Collection which was discussed as follows;

The researcher found out that the level of Revenue Collection depended on Formulated
Internal Affairs department at URA, Bushenyi Branch implying that there was a significant
relationship between the level of Revenue Collection and Formulated Internal Affairs
department; This was because the internal affairs department that was formulated in charge of
reducing revenue losses and risks hence influencing the Revenue Collections by URA at
Bushenyi Branch.

The researcher found out that there was a significant relationship between the level of
Revenue Collection and Competent and Knowledgeable staff members, therefore, the level of
revenue collection depended on Competent and Knowledgeable staff in URA, Bushenyi

47
 Branch. Generally. when the staff is competent and knowledgeable, their output is always
significant and they have the ability to achieve the organizational objectives like as it was
observed in the study that there was a significant relationship between the level of Revenue
Collection and Competent and Knowledgeable staff.

The researcher found out that there was a significant relationship between the level of
Revenue, Collection and Documentation of Revenue Collection Procedures. Having
documentation of Revenue Collection procedures in place brings awareness of to the staff
and also improves their performance hence the study findings that the level of Revenue
Collection depended on Documentation of Revenue Collection Procedures in URA, Bushenyi
B ranch.

The resdarèher found out that there is no significant relationship between the level of
Revenue Collection and Employees’ Knowledge of Revenue Leakage areas. It was revealed
that the employees’ knowledge of revenue leakage areas was not important in revenue
collection because it was not applied by the employees of the Authority, as some characters
were sometimes using these leakages for their own benefits and others were less concerned
about these leakage areas.

The researcher also found out that there was no significant relationship between the level of
Revenue Collection and Identification of Revenue losses and Risks by Management. This is
because it was revealed that most of the losses and risks in revenue of Bushenyi were not in
revenue collection but the destination of the revenue after collection, and therefore, this study
found out that the level of revenue collection did not depend on Identification of Revenue
losses and Risks by Management at URA, Bushenyi Branch.

The study further found out that there was no significant relationship between the level of
revenue collection and risk identification measures, presence of surveillance officers to
identify risk and involvement of URA staff in internal control systems in URA, Bushenyi
Branch.

Generally, the research found out that there was no significant relationship between risk
assessment and revenue collection. This implies that Revenue Collection depends on Risk
Assessment in URA, Bushenyi Branch.

48
 5.1.3 Relationship between the control activities and revenue collection

Objective three of the study was to establish the relationship between the Control Activities
and Revenue Collection; whereby Control Activities were ëlassified in different variables and
the study revealed that most of the variables had a significant relationship with revenue
collection.

The study found out that there was proper and close supervision of junior staff at URA.
policies and procedures existed to ensure critical decisions were made with appropriate
approval, elaborate mechanisms were put in place to address weakness of control, sensitive
information was restricted to certain employees only, a system was put in place to ensure that
employees were rotated periodically and an independent reconciliation of revenue collection
on regular basis was done at URA, Bushenyi Branch.

The researcher further found out that revenue collection at URA, Bushenyi Branch depended
on proper and close supervision ofjunior staff at URA, Policies and Procedures existence that
ensured critical decisions making with appropriate approval, putting a system in place to
ensure that employees were rotated periodically and the Independent reconciliation of
revenue collection on regular basis that was done

Finally, the study found out that that there was a significant relationship between control
activities and revenue collection. And therefore, the researcher concluded that revenue
collection depended on control activities at URA, Bushenyi Branch.

All the above is evidenced by the fact that once the controllable risks have been identified,
specific control activities can be undertaken to reduce those risks (Kaplan, 2008). According
to Thuy, (2007); Sarbanes-Oxley Act (SOX, 2002); Control Activities are comprised of
policies, procedures, and systems relating to the reliability of financial reporting. They
include authorizations and approvals, verifications, reconci I iations. reviews of performance.
security of assets, segregation of duties, and controls over information systems (Laura, 2002).
The said variables were witnessed by the researcher to be effective in the Authority’s Branch
of Bushenyi.

5.2 Conclusion

The researcher found out that in the opinion of 59.5% of the study respondents, the revenue at
URA, Bushenyi Branch was moderate.

49
 The siud~~’as aimed at establishing the relationship between internal control systems and
revenue collection. The study established a relationship between internal control systems as
reflected in the three control variables (control environment, risk assessment and control
activities) and revenue collection.
More specifically, the study established that there was a significant relationship between the
control environment and the level of revenue collection. The researcher therefore, concluded
that the level of revenue collection depended on control environment at URA, Bushenyi
Branch.

The study findings also led to the conclusion that there is no significant relationship between
risk assessment and revenue collection. The researcher therefore, concluded that revenue
collectioh did not depend on risk assessment at URA, Bushenyi Branch.

Finally, the study found out that there is a significant relationship between control activities
and revenue collection; the researcher therefore, concluded that revenue collection depended
on control activities at URA, Bushenyi Branch.

Basing on the study findings, the research concluded that only two variables of internal
control systems i.e. the control environment and control activities had a significant
relationship with revenue collection. Therefore the fitting model was;
Figure 2: Fitting model
Independent Variable Dependent Variable
Internal Control System

Control environment

L~::aar~5~ ~LDoI~esticta~eS

Technology support
Policies and procedures

Source: Primary data October, 2017

50
 5.3 Recommendations

The researcher recommended that URA management and BOD should always monitor and
supervise its employees since it was found out that revenue collection depends on proper and
close supervision ofjunior staff at URA.

The researcher recommended that the ICT department should strive to continually upgrade
the systems so as to keep the systems well updated with the growing capacity of operations
and the provision of early attention to any system challenges.

The researcher further recommended that the URA should keep on with the in-house training
schemes and staff development programs since they are very crucial in developing and
upgrading the skills and efficiency of the workforce.

The researcher further recommends that the ICT department should strive to make sure that
there is interface between the Authority’s major accounting packages. Lack of interface could
potentialjy lead to possible revenue leakages.

The research also recommended that URA should always avail documentation of its revenue
collection procedures since having documentation of reveflue collection procedures in place
brings awareness of to the staff members and also improves their performance.

5.4 Areas for further Research

> A study should be done on the effect of risk assessment on revenue collection in URA
>- The influence of ICT on the effectiveness on internal control system in URA
i’- The effect of cultural and behavioral factors on the performance of URA
> The impact of Total Quality Management on revenue collection in Uganda Revenue
Autl~ority.

51
 REFERENCES
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from Uganda”, International Research Journal of Finance and Economics, 3, 124 —

144.

Awitta, M. (201 0). Effectiveness ofRevenue Collection Strategies at Kenya Revenue

Authority in Nairobi. Unpublished Research Paper, University of Nairobi.
Brink N (2011), Theoretical Approach in an Internal Control System: A Conceptual
framework and usability of Internal Audit. International Journal ofEconomic
Sciences and Applied Research 4 (1): 19-34.
Byanguye, M (2007), The effectiveness of Internal Control System in achieving value for
money in School facilities grant; a case of Kamuli District Local Government,
Makerere University.

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Internal Control-Integrated Framework, AICPA, New York.

Committee of Sponsoring Organizations of the Tread way Commission (COSO): (1985,

1992, 2012). Internal Control over External Financial Reporting: A Compendium of
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Esmailjee A E K (1993). Internal Control: The Case ofNyayo Bus Coiporation. Unpublished
MBA Project Report, School of Business, University of Nairobi.

Hamed, A. (2009), A clear Look at Internal Control: Theory and Concept. Unpublished MBA
Research Paper, University of Nairobi.

Hongming~ C and Yanan, S. (2012). An Empirical Study on the Correlation between the
Internal Control and Enterprise Value-Based on the Information System.
Hongreen C and Datar M (2002). Cost Accounting: A managerial Emphasis.
New Delhi, Prentice Hall. 10th Edition

Jensen. M. C and Meckling, W. H. (1976), “Theory of the Firm: Managerial Behaviour.

~gency

John J.M (2011). The impact of Enterprise Resource Planning (ERP) Systems on the
Effectiveness of Internal Controls over Financial Reporting.

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 Jussi, N and Petri. S. (2004), “Does Agency Theory Provide a General Framework for Audit
Pricing?” International Journal ofAuditing, 8 (2), 253-262.

Kaplan E and Schultz Y (2007). The Effect of Social Confrontation on Individuals’

1nte~itions to internally report fraud: Behavioral Research in Accounting American
Accounting Association Vol. 22, No. 2.

Kaplan Publishing UK, (2008), Professional Accountant (PA). The Complete Text.

Local Government Act, (1997) :Ministry of Local Government. Retrieved on August

30, 2009, from http://www.molg.go.ug

Karagiorgos. T., Drogalas, G., Gotzamanis, E. and Tampakoudis, 1. (2009). “The

Contribution of Internal Auditing to Management “, International .Journal of
Management Research and Technology, 3 (2), 417-427.

Keitany. J. L. (2000). The Internal Audit Control Function and its Implication Jör Risk
Ass~ssinent by the External Auditor: A Case of Quoted Companies. Unpublished
MBA Project Report, School of Business, University of Nairobi

Matamande. et al (2012). The effectiveness ofInternal Controls in Revenue Management, a

case study ofZimbabwe Revenue Authority, University of Zimbabwe.
Mawanda, 5~ p. (2008). Effects ofInternal Control Systems on Financial Peiformance in an
Institution ofHigher Learning in Uganda: A Case of Uganda Martyrs University.

Michino, P. W. (2011). A Survey ofthe Impact ofInternal Controls on Operational Efficiency

among Non-Governmental Organizations in Nairobi. Unpublished Research Thesis,

University of Nairobi.

Mugenda, 0. M., & Mugenda, A. G. (1999). Research Methods; Quantitative and Qualitative
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Ongeri, S. N. (201 0). An Assessment ofthe Effectiveness ofInternal Audit Systems in the
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Nairobi.

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Olumbe. C.O. (2012). The relationship between Internal Controls and Corporate
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Puttick, V. E. (2008). The princi~ies andpractice ofAudit: Business and Economics.
Revised Edition. McGraw Hill High Education.

Rezaee, Z. (2002). “Financial Statement Fraud: Prevention and Detection “, New York:
Wiley.

Rittenberg, L. E and Schwieger, B. J. (2005), “Revenue Generation: Concepts for a

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54
 APPENDICES

Appendix I: Informed Consent Form

INFORMED CONSENT FORM

I Ahimbisibwe Bruno invite you to participate in the study about Internal Control Systems
and Revenue Collection; A case study of Uganda Revenue Authority, Bushenyi Branch. The
purpose of this study is to establish the relationship between Internal Control Systems and
Revenue Collection. By participating in this study, you will help to increase my
understanding of the concept or relationship between the variables. The study results will also
enable the researcher to build or come up with the necessary recommendations aiming at
improving the performance level of Uganda Revenue Authority.

Should you agree to participate in this study, there is a chance that I might contact you again
to re-interview you or follow up on the procedure. The information that you will provide
during the study will be treated with utmost confidentiality. It is only the researcher and his
assistants to have access of the information.

Your participation in this study is voluntary and therefore you have the right to refuse or
accept to participate in the study. You also have a right to ask for clarification of any question
that you may feel uncomfortable with. If you change your niinds about participating during
the course of the study, you have the right to withdraw at any time.

Declaration of the Respondent

I have read the above information and understood the purpose of the study. I consent
voluntarily to participate as a subject in this study.

Respondent Researcher

Title/Initials Name

Signature Signature

Date Tel

Tel

55
 Appendix 11: Questionnaire for Respondents

INTERNAL CONTROLS ON REVENUE COLLECTION: A CASE STUDY OF

UGANDA REVENUE AUTHORITY, BUSHENYI BRANCH

Dear Respondent,

This is a study on Internal Control Systems and Revenue Collection: A case study of Uganda
Revenue Authority, B ushenyi Branch

Kindl~ s~~e some time and circle or tick or indicate your opinion on each of the statements
given. The information obtained is strictly confidential and for academic purposes only.

Thank you in advance.

Bruno Ahimbisibwe

SECTIQN A: BACKGROUND INFORMATION

I. What is your Gender? 1. Male 2. Female

2. What is your marital status?

i) Single [j iv) Divorced [1

ii) Married [j v) Widowed [1
iii) Separated [1
What is your age?

i)20-30 [] ii)31-40 [1
iii) 41-50 [1 iv)51 and above [J
3. What is your Level of Education?
i) Certificate/Diplotha [1
ii) Undergraduate degree [J
iii) Masters degree []
iv) Doctorate [1
v) Others (specify)
4. Time spent in the authority
i) Less than 6 months [1
ii) 6 months-I year [1
iii) 1-2 years [

56
iv) 2-3 years [1
v) 3-4 years []
vi) More than 4 years []
5. What is your employment status?
i) Statutory staff! Commissioned staff []
ii) Permanent Technical staff [1
iii) Probationary Technical staff [1
iv) Cont~ac~ted staff []
6. Is your department partially or fully engaged in Revenue collection?
i)Yes [1
ii)No [J
7. how do you rate the level of revenue collection at Bushenyi branch?
i)Low [1
ii) Moderate Ii
iii) High [1
SECTIOB: INTERNAL CONTROL SYSTEMS & REVENUE COLLECTION

Please, tick in the appropriate box against the statements as defined below;

= Strongly Disagree (SD), 2 = Disagree(D), 3 Neither Agree nor Disagree~), 4 =

Agree(A) and 5 = Strongly Agree(SA).

Control Environment & Revenue Collection

SUDNASA

URA has good Accounting and Financial Management System in place

~

URA Board of Directors are committed to the Internal Control System

implementation
There is a well elaborate Organization Structure in URA — ff
Policies, procedures and documented are well defined

Organizational structure does adequately reflect chain of command —

Systems have been put in place to correct and avoid errors —

57
 The Management and the BOD are people of high Integrity —

The company’s culture, code of conduct, human resource policies and

performance reward systems support the business objectives and internal
control systems.

Risk assessment & Revenue Collection

SD D N A SA
Risk Assessment Variables

URA has formulated the Internal Affairs

Department
There are sufficient staff members who are
competent and knowledgeable to manage company
activities and these have been provided with
adequate resources.

URA has instal led ~

help in revenue collection

The employees have knowledge of revenue leakage

areas

Collection procedures are well documented

Revenue loss and risks have been identified by

iii anagernent

Measures ~
identification
There are surveillance officers to identify risk areas

URA staff are adequately involved in internal

controls

58
Control Activities & Revenue Collection

Control Activities Variables

~
~)
Policies and procedures exist to ensure critical decisions are
made with appropriate approval.
There is proper and close supervision ofjunior staff at URA

There are elaborate mechanisms put in place to address — —

weaknesses of control
Sensitive information is restricted to certain employees only

There is a system in place to ensure that employees are rotated

periodically.
Independent reconci I iations of revenue collection on regular
basis is done

Thank you for your participation

59
 Appendix III: Interview Guide

A. Background Information

1. Name (Optional)
2. Sex
3. Age
4. Marital status
5. Years of experience in URA
6. Level of education
7. Position of responsibility in URA
8. Employment status
9. Do you have knowledge on the revenue collected by URA Bushenyi branch?

10. In your view, is the level of revenue collection at URA, Bushenyi branch ~High”,
“Moderate” or ~‘Low”?

B. Control Environment and Revenue Collection

1. In your opinion, does the organization’s system of control environment sufficiently and
effectively contribute to Revenue Collection? How does your role support it?

2. Are the Systems of control environment functioning as they are intended to?

3. How would you generally rate the internal control environment in your organization in
relation to Revenue Collection?

C. Risk Assessment and Revenue Collection

Has the management put measures for risk identification?

60
 2. Do ‘o~i~ve surveillance officers to identify risk areas?

3. In your opinion, does the organization’s system of risk assessment sufficiently and
effectively contribute to Revenue Collection? How does your role support it?

4. How would you generally rate risk assessment in your organization in relation to Revenue
Collection?

1). Control Activities and Revenue Collection

1. Is there proper and close supervision ofjunior staff at URA Bushenyi branch?

2. Are all employees sensitized on Policies and procedures of the organization?

3. Is there a system in place to ensure that employees are rotated periodically?

4. In your opinion, do the organization’s control activities sufficiently and effectively

contribute to Revenue Collection? How does your role support them?

5. How would you generally rate control activities in URA Bushenyi branch in relation to
Revenue Collection?

Thanks for your participation

61
 2. Do ~o~iiave surveillance officers to identify risk areas?

3. In your opinion, does the organization’s system of risk assessment sufficiently and
effectively contribute to Revenue Collection? How does your role support it?

4. How would you generally rate risk assessment in your organization in relation to Revenue
Collection?

D. Control Activities and Revenue Collection

1. Is there proper and close supervision ofjunior staff at URA Bushenyi branch?

2. Are all employees sensitized on Policies and procedures of the organization?

3. Is there a system in place to ensure that employees are rotated periodically?

4. In your opinion, do the organization’s control activities sufficiently and effectively

contribute to Revenue Collection? How does your role support them?

5. I-low would you generally rate control activities in URA Bushenyi branch in relation to
Revenue Collection?

Thanks for your participation

61