INTERNAL AUDIT FUNCTIONS AND FINANCIAL PERFORMANCE IN NGOs, A

CASE OF STRAIGHT TALK FOUNDATION UGANDA

AMUGE DORCAS ARAYO

Reg number: 19/MMSFM/KLA/AUG/0232

Supervisors: Mr. S. Kasozi Mulindwa and Mr. Joseph Kampumure

A PROPOSAL SUBMITTED TO THE SCHOOL OF MANAGEMENT SCIENCES

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD
OF A MASTER’S DEGREE OF MANAGEMENT SCIENCES (FINANCIAL
MANAGEMENT) OF
UGANDA MANAGEMENT INSTITUTE
JUNE, 2023

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 TABLE OF CONTENTS

TABLE OF CONTENTS...............................................................................................................i

LIST OF ABBREVIATIONS AND ACRONYMS....................................................................iii

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

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

1.1 Introduction................................................................................................................................1

1.2 Background to the study............................................................................................................1

1.2.1 Historical background.............................................................................................................1

1.2.2 Theoretical background..........................................................................................................3

1.2.3 Conceptual background..........................................................................................................5

1.3 Statement of the Problem...........................................................................................................8

1.4 Purpose of the study...................................................................................................................8

1.5 Specific objectives.....................................................................................................................9

1.6 Research Questions....................................................................................................................9

1.7 Hypotheses.................................................................................................................................9

1.8 Conceptual framework...............................................................................................................9

1.11 Scope of the Study.................................................................................................................11

1.11.1 Geographical Scope............................................................................................................11

1.11.2 Content Scope.....................................................................................................................11

1.11.3 Time Scope.........................................................................................................................12

1.12 Operational definitions...........................................................................................................12

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

LITERATURE REVIEW...........................................................................................................12

2.1 Introduction..............................................................................................................................12

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2.2 Theoretical Review..................................................................................................................13

2.3 Review of related literature.....................................................................................................14

2.3.1 Financial audit and financial performance...........................................................................14

2.3.2 Compliance audit and financial performance.......................................................................16

2.3.3 Operational audit and financial performance.......................................................................18

2.4 Summary of Literature Review...............................................................................................20

CHAPTER THREE.....................................................................................................................21

METHODOLOGY......................................................................................................................21

3.0 Introduction..............................................................................................................................21

3.1. Research Design.....................................................................................................................21

3.2 Study Population......................................................................................................................22

3.3 Determination of the Sample Size...........................................................................................22

3.4 Sample techniques and procedures..........................................................................................23

3.5 Data collection methods..........................................................................................................24

3.5.2 Interview method..................................................................................................................24

3.6 Data Collection Instruments....................................................................................................25

3.6.1 Questionnaire guide..............................................................................................................25

3.6.2 Interview Guide....................................................................................................................25

3.7 Data Quality Control................................................................................................................26

3.7.1 Validity of instruments.........................................................................................................26

3.7.2 Reliability of instruments.....................................................................................................27

3.8 Procedure of Data Collection...................................................................................................27

3.9 Data analysis............................................................................................................................28

3.9.1 Quantitative analysis.............................................................................................................28

3.9.2 Qualitative analysis...............................................................................................................28

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3.10 Measurement of variables......................................................................................................29

3.11 Ethical consideration.............................................................................................................30

REFERENCES............................................................................................................................30

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 LIST OF ABBREVIATIONS AND ACRONYMS
CIAC: Commissioner Internal Audit& Compliance
CIIA: Chartered Institute of Internal Auditors
IAC: Internal Audit and Compliance
IAPS: International Auditing Practice Statement
ICS: Internal Control System
IIA: Institute of Internal Auditors
IIARF: The Institute of Financial Audit Research Foundation
INTOSAI: International Organization of Supreme Audit Institutions
IPPF: International Professional Practices Framework
ISSAI: International Standards of Supreme Audit Institutions
STF: Straight Talk Foundation
NGOs: Non-Governmental Organizations
RBV: Resource-Based View Theory
ROA: Return on Assets

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 CHAPTER ONE
INTRODUCTION
1.1 Introduction
It is no longer in dispute that financial management practices play a critical and very significant
role in the financial performance in both private and public organizations globally. Accordingly,
financial management practices are one of the factors taking center stage in enhancing or
retarding the organization (Saunders and Cornett, 2017). Ahmed, Babar and Kashif (2017) added
that, as seen in the Resource-Based View Theory (RBV), companies are under constant pressure
to develop, introduce and quickly revise their financial management practices to boost financial
efficiency and capabilities. This has contributed to a financial crisis in industries, thereby
impacting financial results and internal audit functions (Li, 2020).

Many organizations who have established an internal audit function benefit not only from
process improvements (including strengthened internal controls), but also an enhanced ability to
respond to internal and external risk. Robust internal audit programs offer the added benefit of
helping the organization’s leadership to develop and implement effective strategic plans
(Okolocha, 2020). Who wouldn’t want a crystal ball? Internal audits are no longer the exclusive
domain of large nonprofit organizations. Nonprofits of all sizes are establishing internal audit
functions to protect the future of their organizations (Tessar, 2016). The study will examine the
contributions of internal audit function in financial performance in non-profit in Straight Talk
Foundation Uganda.
This chapter presents the background to the study, the statement of the problem, the objectives of
the study, research questions, research hypothesis, significance of the study, justification of the
study, conceptual framework of the study, scope of the study and definition of key terms and
concepts.
1.2 Background to the study
This section presents the background of the study that is; the Historical Background, Theoretical
Background, and Conceptual Background as follows;
1.2.1 Historical background
The evolution of financial performance can be traced back as long to the middle of the 1800s
when the theorist Lysander Spooner was writing over the benefits from small credits to
entrepreneurs and farmers as a way getting the people out of poverty. But it was at the end of

1
World War II with the Marshall plan the concept had a big impact (Yunus, 2018). In United
States of America (USA), financial accounting practice of the American Institute of Certified
Accountants (AICPA) in 1949 can be traced from the global viewpoint of the United States
(Dawson, 2013). This was followed by further "clarifications of internal controls in the mid-20 th
Century before publicly held companies in the United States were required by law to implement
financial management practices adequately to protect publicly held companies in the United
States. Therefore, the United States America is the first country to offer professional advice on
financial management practices to boost financial performance (Mushafiq et al., 2021).

In Africa, financial performance can be traced from' Hellenistic Egypt' on financial management
activities where there were two forms of administration with one group of tax collectors and
another supervising them to ensure financial efficiency in predominantly private institutions
(Mbogo, 2011; Akelof, 2011). In countries such as South Africa (Waddell, 2013), development
in national economies, including schools, has not been exempt from private institutions because
of the established effect it has on improved financial efficiency (Ngugi & Bwisa, 2013).

In Uganda, in the early 2000s, financial management in private firms came to light (Musabe,
2015). According to UNCTAD (2012), Uganda organized a conference in 2002 at the
International Conference Centre in Kampala, Uganda, attended by over 260 participants, to train
private institutions in financial management. The key concern was how the shareholders, the
Board of Management (BOM), Head of Departments (HODs) and policy makers have seen
financial success in their various organizations (Minister of Finance, Planning and Economic
Development, 2020). Yet there is little convergence of views on how to assess such results.
Analysts apply such criteria to determine the financial performance of the company, with ratios
being the most commonly used. Apart from the financial factor, however, recent emphasis has
moved to other performance metrics such as return on income, return on investment and added
economic value.
"Internal Audit Practices goes back to the Mesopotamian human advancement in around 4000-
3500 B.C. (Ramamoorti, 2003; Sawyer, 1996; Badara, (2012)." "Formal record-keeping
frameworks were started by trading units and governments, to mollify their fears about wrong
bookkeeping of receipts and distributions, and in gathering fees (Ramamoorti, 2003; Badara,
2012)." "Internal Audit Practices can likewise be followed back to, among others, public fund

2
frameworks in Babylonia, Greece, the Roman Empire and the City States of Italy, all of which
built up an itemized arrangement of checks and to forestall accounting blunders and errors, and
also accounting misrepresentation or deception by 3500 B.C. (Ramamoorti, 2003; Office of
Management and Budget, 2011).”
"In Africa, the new idea of internal audit practices can be followed back to the time of provincial
governments in the 1960s." "This is the period when the imperial powers were making
investigations of their commitment to their colonies being overseen by their delegates." "In
Uganda, Functional Internal Audit Practices are followed back to the year 1963; the year Uganda
had accomplished autonomy from the Colonial Powers (Kaziba, et al., 2015) as it was amid this
period that Uganda, as a young Independent State was setting up projects to rebuild the general
public Administration with a specific end goal to improve responsibility, straightforwardness and
corporate administration." Most internal audit professionals argue that an effective internal audit
function correlates with improved financial performance. According to Beyanga (2011), an
effective internal audit service can, in particular, help reduce overhead, identify ways to improve
efficiency and maximize exposure to possible losses from inadequately safeguarded company
assets all of which can have a significant effect on the financial performance of an organization.
He also stated that internal audit is an invaluable tool of management for improving
performance.
1.2.2 Theoretical background
The study will adopt the Agency theory by Spence and Zeckhauser, 1971; Ross, 1973; Jensen
and Meckling, 1976; Harris and Raviv 1976, 1978; Holmstrom, 1979). Basic agency paradigm
was developed in the economics literature during 1960s and 1970s in order to determine the
optimal amount of the risk- sharing among different individuals.
Assumptions of the theory
The theory assumes that Management voluntarily seeks external auditing to provide independent
assurance on financial reports prepared by management for shareholder’s use. Nonetheless, from
an internal audit research perspective, this theory suffers from a key epistemological
shortcoming emanating from the limitations of the theory’s neoclassical economic foundation
(Mihret et al., 2010). That is, the arguments of the theory are based on the notion that
competitive markets underpin the contracts underlying the agency relationship.

3
This assumption is problematic from internal audit research perspective, because the demand for
internal auditing is not market-driven. Unlike external audit reports which serve to address the
information asymmetry problem in the context of the firm’s relationships with external parties
(Healy & Palepu, 2001), internal audit reports are available neither to the market nor
shareholders. Thus, an alternative perspective is needed that enables understanding the role of
internal auditing by considering a holistic view of the firm’s internal and external accountability
relations.

According to agency theory, the demand for internal auditing arises due to the contractual
principal-agent relationship between owners and management of the firm. Each party in this
relationship takes steps to protect its interests and to signal that the other party’s interests are
promoted. The theory explains that internal auditing (and other internal control mechanisms) as
voluntarily introduced by management to signal to shareholders that the former is properly
discharging the goal of maximizing shareholders’ wealth (Jensen & Meckling, 1976).

Agency problems could occur when the board or its audit committee is inefficient, and hence, the
senior management is likely to be a powerful influence over the internal audit. This complex web
creates an inherent dilemma for the internal audit: how can it carry out their monitoring role over
management if it is ineffective itself? Financial audit often are employed by senior management,
but at the same time, they are also agents of the board and audit committee who trust in the
Financial audit’ ability to evaluate senior management’s works. However, financial audit may
have varying motives to act against the board of directors’ interests and its audit committee and
these motives include financial rewards from managers, personal relationships with them, and
the power of senior management in shaping the future position of financial audit and their
salaries. In such a work environment, Financial audit as agents may have an incentive to be bias
of information flows, which leads to new concerns of the board and audit committee about their
trust on the Financial audit’ objectivity.
In addition, an agency operates under the condition of risk and uncertainty. In effect, the basic
agency theory usually assumes that both individuals are risk averse. Under this circumstances,
the amount and content of the produced accounting information and other information sources
would become a significant issue in risk sharing and controlling the agent's actions (Namazi,
1985; Baiman, 1982, 1990).

4
The preceding basic agency model, however, has also been extended to cases in which there are
multiple agents (Holmstrom, 1979; Antle, 1982; Radner, 1981), private information (Penno,
1984), multiple period performance (Radner, 1981), and multi-objective models (Namazi, 1983).
In addition, the effect of various cultures on the assumptions of the agency theory has also been
investigated (Osterman, 2006; Kren and Tyson, 2009).

Given the agency theory paradigm, and following Alchian and Demsetz (1972), Jensen and
Meckling (1972), and Kaplan (1984), among others, a firm can be characterized as a nexuses of
contractual agreements among different individuals. In this view, contracts are considered as an
appropriate means for resource allocation and revealing the scope of the firm's activities. In
addition, they can be expended as a powerful framework for effective management accounting
control mechanisms. In this context, performance measures, appropriate control variables, and
exogenous and endogenous parameters affecting the control process, can be captured and
specified quantitatively by adapting the "agency theory" framework. Hence, this study draws in
the agency paradigms to investigate the role of the agency theory in establishing management's
control.
1.2.3 Conceptual background
In this section, internal audit functions and financial performance variables will be defined and
their dimensions.
Financial audit is the analysis and verification of a company’s financial statements and records.
The auditor verifies the records and statements of the company to see if they are accurate and a
fair representation of the company’s financial situation and transactions (Uddin et al., 2022). The
accounts are also checked to see if they follow the acceptable accounting norms and if there is
any misstatement or malpractice in the calculation and generation of the financial statements. In
addition to the financial records and statements, an audit checks the company’s internal controls
for effectiveness. An audit examines the accounting processes and helps identify ways to
streamline and improve them. It provides an expert opinion on whether processes can be
improved. Financial audits are important for all companies and even small businesses ( Ahmeti,
2022). They can help a business operate better, benefiting the business owners, board
members, and shareholders. Depending on the category of a company, an audit of the financial
statements can be a requirement of the concerned governing body.

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Compliance audit means conforming to a rule, such as a specification, policy, standard or law,
(Peursem, 2020). Regulatory compliance describes the goal that organizations aspire to achieve
in their efforts to ensure that they are aware of and take steps to comply with relevant laws and
regulations. Due to the increasing number of regulations and need for operational transparency,
organizations are increasingly adopting the use of consolidated and harmonized sets of
compliance controls. This approach is used to ensure that all necessary governance requirements
can be met without the unnecessary duplication of effort and activity from resources (Harahap et
al., 2020).
Operational audit is an examination of the manner in which an organization conducts
business, with the objective of pointing out improvements that will increase its efficiency
and effectiveness (Anderson, 2022). This type of audit is substantially different from a
normal audit, where the objective is to examine the adequacy of controls and to evaluate the
fairness of presentation of the financial statements. Operational audits are usually conducted
by the internal audit staff, though specialists can be hired to conduct reviews in their areas
of expertise. The primary users of the audit recommendations are the management team, and
especially the managers of those areas that have been reviewed (Ondieki, 2021). An
operational audit refers to the process of evaluating a company's operating activities both on a
day-to-day level and a broader scale. While other types of audits might look solely at a single
department or the company's finances, an operational audit delves deeper. It serves as a detailed
look at all of the internal departments and processes that make up a business's operations.
Whereas a regular audit evaluates financial statements, an operational audit examines how a
company conducts its business, with the aim of increasing overall effectiveness (Bouteina,
2021).
Financial performance is the process of measuring the results of an organization’s, business
firm's policies and operations in monetary terms. It is used to measure firm's overall financial
health over a given period of time and can also be used to compare similar firms across the same
industry or to compare industries or sectors in aggregation. Elements of Financial performance
are: liquidity, solvency, profitability and financial efficiency (Endri et al., 2020).Financial
Performance in broader sense refers to the degree to which financial objectives being or has been
accomplished and is an important aspect of finance risk management. It is the process of
measuring the results of a firm's policies and operations in monetary terms. It is used to measure

6
firm's overall financial health over a given period of time and can also be used to compare
similar firms across the same industry or to compare industries or sectors in aggregation (Endri
et al., 2020). Financial statements provide a formal record of a business' financial activities and
position. Financial information is presented in an understandable and structured manner.
1.2.4 Contextual background
Straight Talk Foundation (STF) is a leading Ugandan communication for development non-
government organization promoting the health and wellbeing of young people, vulnerable and
marginalized communities, women and girls with special emphasis to adolescents. Since
establishment in 1993 as a newspaper, Straight Talk, STF has had immense experience working
on various development programs contributing to improving the health and wellbeing of
adolescents in Uganda. Since attaining NGO status in 1997, the organization has positioned itself
as a leader providing youth friendly Sexual and Reproductive Health services including
important aspects that impact adolescent health and wellbeing such as education, gender based
violence prevention, climate change, peace building, youth empowerment and livelihoods. STF
uses integrated approaches in the delivery of its programs and services. STF has physical
locations in Kampala (Central) and has regional offices located in Moroto, (Northeast), Kitgum
and Gulu (Northern) where it has ongoing programs and operations. STF distributes its materials
to over 15,000 Schools, 1870 Health Centers, 1040 Churches and Mosques, 500 CBOs and
NGOs. Internal auditing is an activity of strategic importance in what concerns the control and
management processes at the level of the economic entities. Using different procedures and
working instruments, internal auditing offers an analysis and a complete image of the pursued
activities, through the working methods used in the organization, the method of organizing the
entity and the operations undertaken (Ulan Dewi, & Sudiartha, 2019). In this sense, it is
considered that internal auditing brings a plus value and offers assurance on the internal control
system of the entity, also viewed in the light of the principles of corporate governance. The
primary objective of an internal audit is to provide leadership (including the board of directors
and the organization’s executive team) with the highest level of independent assurance and
recommendations related to the effectiveness of internal controls, governance and risk
management processes. The primary differences between internal audit and an external financial
statement audit is the concept of materiality and scope. External audit focuses on providing
assurance that financial statements are free from material misstatement (Rahman et al., 2021). In

7
the context of non-profit organizations in Uganda, the growth in size, influence and operations
and the increasing use of information technologies has brought complexity of business
transactions and concealed emerging risks, the role of internal audit function is becoming
increasingly important and the range of tasks performed by Financial audit is growing.
1.3 Statement of the Problem
Non-profit organizations today have a wide reach and impact on communities and with
substantial global growth; these organizations provide a variety of activities that enhance the
lives of many people. In order to successfully fulfill their role in society, Non-profit
organizations require resilient organizational structures and policies supported by ongoing
training to ensure that responsibility is shared by executives, board members, employees and
volunteers (Panigrahi, 2021). Straight Talk Foundation Uganda has put in place various policies
to enhance her financial performance through continuous follow-up on the resource mobilization
initiatives being conducted by SMT, engagements with different potential partners or reaching
out to corporate companies for fundraising, responding to the donors’ calls for proposals,
reaching different partners and consortium for potential partnerships among others (Internal
Audit Report, 2022).

Notwithstanding this, there is low donations due to ineffective donation mechanisms, ineffective
resource mobilization process, absence of financial back up in case of a major donor exit due to
high donor dependency, failure to attain set financial targets due to ineffective monitoring of the
initiatives, low funding due to limited number of partners (Internal Audit Report, 2022). The
problem persists because no risk appetite and key risk indicators for the organization to predict a
risk manifesting, un updated risk management policy, undocumented risk response, no clarity on
STF’s risk responses in the risk register and ineffective reporting on risk to the board (Internal
Audit Report, 2022). It’s the job of the internal audit to uncover financial risk in form of fraud,
waste and abuse in nonprofit organizations, but often they are set up for failure. Due to lack of
communication between functional and program units within organizations, increased use of
third parties, outdated systems, and increased regulations, the opportunity to exploit the control
systems established in nonprofit organizations is growing at a time when internal audit resources
are shrinking, and financial risk is at a worrying rise (Straight Talk Foundation Uganda Annual
Performance Reports, 2022; Wilson, 2018). It is against this background, that the study will

8
explore the contributions of internal audit towards effective financial performance in non-profit
organizations.

1.4 Purpose of the study

To examine the effect of internal audit functions on financial performance in NGOs, a case of
Straight Talk Foundation Uganda
1.5 Specific objectives
i. To examine the contribution of financial audit on financial performance at Straight Talk
Foundation Uganda.
ii. To establish the contribution of compliance audit on financial performance at Straight
Talk Foundation Uganda.
iii. To explore the contributions of operational audit on financial performance at Straight
Talk Foundation Uganda.
1.6 Research Questions
i. What is the contribution of financial audit to financial performance at Straight Talk
Foundation Uganda?
ii. How does compliance audit contribute to financial performance at Straight Talk
Foundation Uganda?
iii. What is the contribution of operational audit to financial performance at Straight Talk
Foundation Uganda?
1.7 Hypotheses
H1: There is a measurable contribution of financial audit to financial performance at Straight
Talk Foundation Uganda.
H2: There is a significant contribution of compliance audit to financial performance at Straight
Talk Foundation Uganda.
H3: There is a measurable contribution of operational audit to financial performance at Straight
Talk Foundation Uganda.
1.8 Conceptual framework
According to Swaen and George (2022), conceptual framework illustrates the expected
relationship between study variables. It defines the relevant objectives for your research
process and maps out how they come together to draw coherent conclusions. In this case the

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independent variable is internal audit functions and the dependent variable is financial
performance of NGOs
Internal Audit Functions (IV)
Financial Audit
 Expense approvals
 Accrual accounts
 Separation of duties
Financial Performance (DV)
Compliance Audit
 Standards & Regulations  Efficiency
 Policy Controls  Effectiveness
 Independence
 Management of donations

Operational Audit  Change in the living standards

 Resource allocation of beneficiaries
 Asset Security
 Streamline Operations

Source: (Adopted from Bazin, 2017; and Hillson (2020) and modified by the researcher, 2023).
Figure 1.1: Showing a relationship between internal audit functions and financial
performance of NGOs
From the figure 1 above, the independent variable is internal audit functions is measured in terms
financial audit with subthemes of expense approvals, accrual accounts and separation of duties,
compliance audit with subthemes of standards & regulations, policy controls and independence
and operational audit with subthemes of resource allocation, asset security and streamline
operations. The dependent variable is financial performance measured in terms efficiency,
effectiveness, management of donations and change in the living standards of beneficiaries.
Analysis will be applied to assessment and performance in the organization. It is hypothesized
that any changes in the independent variable will bring a change in the dependent variable by the
same magnitude.
1.9 Justification of the study
A properly organized internal audit function can play a vital role in non-profit organizations, by
assessing the system of internal controls, effectiveness of key controls, governance and risk
management processes. In today’s world as processes and operations have become more
complex and new risks emerged, organizations are now paying more attention to risk

10
management (Uddin et al., 2022). This research will help the stakeholders appreciate the role of
the internal audit function as one of the most important managerial control systems in an
organization required to safeguard their interests. The management of the non-profit
organizations will be able to look for ways of making Internal audit a completely independent
function from the management, thus making it more effective. By implementing
recommendations given on the internal audit reports, management will be able to develop strong
control systems, policies and streamline processes to prevent financial risks while promoting
growth in the organizations.
1.10 Significance of the study
The study will help management to appreciate the role played by internal audit function in their
organizations and understand the challenges they face in carrying out their roles and help solve
them. It may enable them to know whether their investment in strong internal audit department is
worthwhile. At the same time the legitimacy of internal audit function and its mission should be
understood and supported by senior management of these entities to enhance its effectiveness in
supporting governance, control and risk management systems.

The Financial audit may understand their role in organizations and the challenges they face as
they carry out these roles.

To the academicians and scholars, the study will contribute to the existing literature regarding
the contribution of internal audit function to financial performance. Further, the study will
identify future research areas and that will have advantage for future researchers to conduct
further study in this area.
1.11 Scope of the Study
This comprised of the subject scope, geographical scope and the time scope
1.11.1 Geographical Scope
The study will be carried out at Straight Talk Foundation Uganda located at Plot 4, Acacia
Avenue, Kololo Kampala Uganda.
1.11.2 Content Scope
The study will focus on the effect of internal audit functions on financial performance in NGOs,
a case of Straight Talk Foundation Uganda. The study will be supported by the following
research objectives; to examine the contribution of financial audit on financial performance at

11
Straight Talk Foundation Uganda, to establish the contribution of compliance audit on financial
performance at Straight Talk Foundation Uganda and to explore the contributions of operational
audit on financial performance at Straight Talk Foundation Uganda.
1.11.3 Time Scope
The research study will review the period between 2018 and 2022, a time space the researcher
believes will be adequate to collect information enough to draw credible conclusions. In Straight
Talk Foundation Uganda this period is especially suitable for this research study because
scandals and fraud cases where reported around this time both in logistics and finance
departments.
1.12 Operational definitions
Audit: An independent examination of something. The nature of the audit may be financial,
compliance, operational, or performance (Shafritz, 2004). Financial statement audits are
conducted to provide assurance that financial statement reports are accurate and complete.

Internal Audit: An independent, objective assurance and consulting activity intended to

improve an organization's operations and reduce risk of failing to meet strategic and operational
goals and objectives. It fills this function by examining an organization's risk management,
control, and governance processes and reporting on the results of these audits and reviews to
management and governing boards or stakeholders (The Institute of Financial audit, 2012).

External Audits: Audits generally performed by audit firms (operated by certified public
accountants) that are engaged (or contracted) by the entity. These audits are intended for use by
external stakeholders whereas internal audits are intended for use by management and staff.

Audit finding: An audit finding, or deficiency is a condition where the results of an audit
procedure demonstrates a deviation from the stated objective, standard, or expected condition.

12
 CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
In this chapter the researcher reviews work done by other scholars on of internal audit functions
on financial performance in NGOs, a case of Straight Talk Foundation Uganda. The literature in
this chapter is reviewed under the following sub headings; Theoretical review, Actual Literature
review and summary. The literature reviewed in this section describes and examines the
supporting theories that related to the research objectives outlined in chapter one.
2.2 Theoretical Review
The study will adopt the Agency theory by Spence and Zeckhauser, 1971; Ross, 1973; Jensen
and Meckling, 1976; Harris and Raviv 1976, 1978; Holmstrom, 1979). Basic agency paradigm
was developed in the economics literature during 1960s and 1970s in order to determine the
optimal amount of the risk- sharing among different individuals.
Assumptions of the theory
The theory assumes that Management voluntarily seeks external auditing to provide independent
assurance on financial reports prepared by management for shareholder’s use. Nonetheless, from
an internal audit research perspective, this theory suffers from a key epistemological
shortcoming emanating from the limitations of the theory’s neoclassical economic foundation
(Mihret et al., 2010). That is, the arguments of the theory are based on the notion that
competitive markets underpin the contracts underlying the agency relationship.

This assumption is problematic from internal audit research perspective, because the demand for
internal auditing is not market-driven. Unlike external audit reports which serve to address the
information asymmetry problem in the context of the firm’s relationships with external parties
(Healy & Palepu, 2001), internal audit reports are available neither to the market nor
shareholders. Thus, an alternative perspective is needed that enables understanding the role of
internal auditing by considering a holistic view of the firm’s internal and external accountability
relations.
According to agency theory, the demand for internal auditing arises due to the contractual
principal-agent relationship between owners and management of the firm. Each party in this
relationship takes steps to protect its interests and to signal that the other party’s interests are
promoted. The theory explains that internal auditing (and other internal control mechanisms) as

13
voluntarily introduced by management to signal to shareholders that the former is properly
discharging the goal of maximizing shareholders’ wealth (Jensen & Meckling, 1976).

Agency problems could occur when the board or its audit committee is inefficient, and hence, the
senior management is likely to be a powerful influence over the internal audit. This complex web
creates an inherent dilemma for the internal audit: how can it carry out their monitoring role over
management if it is ineffective itself? Financial audit often are employed by senior management,
but at the same time, they are also agents of the board and audit committee who trust in the
Financial audit’ ability to evaluate senior management’s works. However, financial audit may
have varying motives to act against the board of directors’ interests and its audit committee and
these motives include financial rewards from managers, personal relationships with them, and
the power of senior management in shaping the future position of financial audit and their
salaries.

In addition, an agency operates under the condition of risk and uncertainty. In effect, the basic
agency theory usually assumes that both individuals are risk averse. Under this circumstances,
the amount and content of the produced accounting information and other information sources
would become a significant issue in risk sharing and controlling the agent's actions (Namazi,
1985; Baiman, 1982, 1990).
The preceding basic agency model, however, has also been extended to cases in which there are
multiple agents (Holmstrom, 1979; Antle, 1982; Radner, 1981), private information (Penno,
1984), multiple period performance (Radner, 1981), and multi-objective models (Namazi, 1983).
In addition, the effect of various cultures on the assumptions of the agency theory has also been
investigated (Osterman, 2006; Kren and Tyson, 2009).
Given the agency theory paradigm, and following Alchian and Demsetz (1972), Jensen and
Meckling (1972), and Kaplan (1984), among others, a firm can be characterized as a nexuses of
contractual agreements among different individuals. In this view, contracts are considered as an
appropriate means for resource allocation and revealing the scope of the firm's activities. In
addition, they can be expended as a powerful framework for effective management accounting
control mechanisms. In this context, performance measures, appropriate control variables, and
exogenous and endogenous parameters affecting the control process, can be captured and
specified quantitatively by adapting the "agency theory" framework. Hence, this study draws in

14
the agency paradigms to investigate the role of the agency theory in establishing management's
control.
2.3 Review of related literature
2.3.1 Financial audit and financial performance
Stewart and Subramaniam (2018) auditor independence and objectivity are the cornerstones of
the profession. The assurance services provided by auditors derive their value and credibility
from the fundamental assumptions of independence of mind and independence in appearance, in
more recent years, there has been heightened interest in issues associated with the independence
and objectivity of internal audit. The motivation for research growth in the area is related to the
evolving and expanding role of internal audit as a key corporate governance mechanism as well
as an internal consultancy service and financial performance of organizations. In this regard,
financial audit are in a unique situation as providers of both assurance services within the
organization and consultancy services to managers.

Yang, Ishtiaq and Anwar (2018) assessed the effectiveness of internal audit services unit in
safeguarding public resources in LGAs in Tanzania using Kibaha District Council as a case
study. A sample of 25 respondents was used to provide research data. The study revealed that
Internal Auditor’s reports lack of sound internal control over the council’s resources as a result
of management laxity over instituting, supporting and supervising the internal control is place.
The study also revealed that Internal Audit Unit lack independence in carrying out audit
functions in terms of reporting mechanism and programme of work (Enekwe, 2020). Other
problems facing Internal Audit Units identified by this study was lack of financial and material
support, lack of management support in implementing audit recommendations, lack of essential
expertise, and inadequate knowledge and experience of Financial audit. This study aims at
covering the research gaps.

Kabuye et al (2019) assessed the influence of internal audit independence on the financial
performance of small and medium enterprises: a case of the construction industry in Mombasa
County, Kenya. From the researcher, it was evident that some construction companies within
Mombasa County did not accord the financial audit the independence they deserved to
effectively give their opinion on the financial statements of the organizations. Some records in
some organizations were not accessed by the auditors to enable them perform their work

15
comprehensively. In some companies the auditors were treated as part of the management thus
making it difficult for them to form an independent opinion on the financial statements.
Although the auditors had the required qualifications in some cases, the management of the
organizations did not appreciate that. The auditors had their roles of ensuring that the
management of the firms discharged their responsibilities through giving them the required
advices (ElHaddad, ElHaddad & Alfadhli, 2020).

Anwar and Daryanto (2020) investigated the impact of internal audit control system on financial
performance in Somalia- Mogadishu private organizations. The demographic profile of the
respondents was age, gender, qualification and experience. The main objectives were to assess
the functionality of internal control systems in Mogadishu private organizations and to examine
financial performance of private organizations in Mogadishu. The study was based on 33 target
population especially accountants, finance directors, chief cashiers, Financial audit and managers
of private organizations in Mogadishu Descriptive analysis was used (Horvey et al., 2019). It
administers questionnaire as a research instrument. The findings of this study reveal that majority
of the private organizations in Mogadishu has enough cash to meet its intended goals. Also there
is a clear separation of duties. This study suggests that the financial auditors perform their duties
fast, efficient and reliable.

Etengu & Amony (2016) examined the role of internal auditing control system on the financial
performance of non-governmental organizations in Uganda. The purpose of the study was to
establish the effect of control environment, control activities and monitoring on the financial
performance of non-governmental organizations in Uganda using International Union for
Conservation of Nature as case study. The survey design was adopted for the study and data
were obtained using structured questionnaire and interview; hence, the study was a primary data
study. The findings of the study revealed a significant relationship between each of the measures
of internal control such as availability physical control, system approvals and authorization,
information processing and sharing, assessment of risks, system of verification on bank
reconciliation, control environment, control activities and monitoring financial activities and
financial performance (Shahnia et al., 2020). The studies mentioned above did not focuses on the
aspects of internal audit independence which influences the Financial performance of
organizations where by those aspects are independence of internal audit committee, free minded

16
of internal audit management, internal audit reports, plans of internal audit and organization’s
budget, all studies mentioned failed to discuss positively impacts which contributed by the
aspects of internal audit independence which contributes to Financial performance .
2.3.2 Compliance audit and financial performance
According to Abah and Esq (2019), the compliance review methodology requires improvement
across key phases of the process including planning, fieldwork, reporting, quality assurance and
documentation. The function would also benefit from access to specialist investigative services
to provide capacity and directly relevant expertise for the conduct of compliance investigations.
The existing methodology is focused on detailed checking of the accuracy of all information
already provided by the donor funded organizations in their annual disclosure returns. Rinaldo
and Endri (2020) posits that efficiencies could be gained by testing a smaller sample of
transactions in this manner, and directing the additional time available towards the risk of
understatement to ensure that the information presented is not missing items that require
disclosure in the annual return. Testing of completeness is being performed inconsistently and
there is inadequate evidence or appropriate documentation to support whether these procedures
are being adequately performed. This study aims at covering the research gaps.

PROCASUR Africa Report (2012) stated that poor control systems has led to huge investments
lost through fraud and misuse of assets that are used to generate revenues while members and
institutions have suffered big losses. Inadequate controls have also led to corruption and
collusion of management and external auditors leading to organizations failing to achieve their
set objectives. Technological changes have also brought with them challenges in control systems
and this has necessitated the development of new ways of controlling organizations. The
effectiveness of internal controls on a firm’s financial performance should be a key concern for
most firms (Thanh, 2022). Since internal controls help to prevent and detect fraud in an
organization, donor funded firms in Kenya should give much importance to internal audit which
is generally a feature of large companies. It’s a function provided either by employees of the
entity or it can be sourced from an external organization in order to assist management in
achieving corporate objectives. However, it appears that there are very scanty if any studies that
have been carried out in relation to how risk assessment, risk-based planning, risk management
and internal auditing standards influence organizational financial performance in Uganda and
this study aims at covering the research gaps.
17
The second approach is compliance audit approach where by sampling elements of the human
resource information system, the audit team looks for deviations from the laws and company
policies or procedures. Through their facts finding effort, the team can determine whether there
is compliance with the company policies and legal regulations (Anwar & Daryanto, 2020). The
main objective of the compliance audit approach is to provide principles and guidance for
organizations that are designing, developing, implementing or improving a conformity
programme. The compliance audit covers legal requirement, industry and organizational
standards and codes, the principles of good governance, code of conduct and ethical standards
(Okolocha, 2020). The emphasis is on establishing a compliance audit that will enhance more
principles of commitment for implementation control and measurement for continual
improvement and effective control obligation to meet the critical points of risk of compliance.
2.3.3 Operational audit and financial performance
Performance auditing is described as engagements that provide assurance or conclusions based
on an evaluation of sufficient, appropriate evidence against stated criteria, like specific
requirements, measures or defined business practices (Bajra, & Čadež, 2018). It is further posited
that control systems play a more vital role in private organizations due to their dynamic and
complex environments, which may generate more risks for the firm. As such, Operational audit
ought to be both important and effective in private than in public organizations. Importantly, it is
averred that five standards for internal auditing include interdependence, professional
proficiency, the scope of work, and performance of the audit and management of the internal
audit department. It is asserted that auditors must comply with minimum continuing education
requirements and professional standards published by their relevant professional organizations
and the Institute of Financial audit (IIA, 2018).
According to Carcello, et al., (2018), risk assessment of material misstatement at the financial
statement level and also at the planning stage, clarifies the direction on performing a combined
assessment of inherent and control risk, thus leaving the ability for the auditors to assess other
risk factors in an audit. In their examination of the effects of the role of the board of directors in
assisting in the formulation of corporate strategies on the auditors’ planning judgments, they
established that auditors respond to the role of the board when making judgments with respect to
control risk assessments. (OCED, 2019), in his study on the internal audit control function and its
implication on risk assessment by external auditors, established that the extent of dependence on

18
internal controls were insensitive to the strength of internal audit departments. A study on the
impact of risk-based audit on Financial performance in Kenya’s insurance companies conducted
by Kasiva (2012) among 44 respondents that included finance officers, Financial audit, credit
officers, relationship officers, and accountants found out that risk-based auditing through risk
management should be enhanced to enable the organization concerned to detect risks on time.

Larasati, Ratri, Nasih, and Harymawan (2019) further argue that fraud risk assessment is one
area that deserves significant reliance on internal audit work. In this light, it is reasoned that due
to the fact that operational audit are more privy with the operations of the firm they work for than
external auditors, are particularly suited to carry out fraud risk assessment. In a survey of
Financial audit’ risk management practices in the Kenya’s banking sector, Ado (2020)
investigated bank Financial audit’ risk assessment practices and established that, most
organizations in Kenya were in the process of drafting the ERM process and strategies in line
with risk assessment. Besides credit, liquidity and market, operational risk is the other significant
risk in organizations. These risks are all interconnected to each other, but for the purpose of this
thesis the focus is only on operational risks and how they should be managed. Thus, in case of
the absence of operating loss as the biggest loss, all other types of failures are considerably less
important. Further, many organizations have collapsed and experienced financial problem
because of ineffective risk management system in general and ORM in particular, especially
important this issue became after GFC. Therefore, the need to explore the concept of operational
risk has increased significantly. This study will cover the research gaps.

The purpose of risk management is to allow for organizational leaders and their teams to reduce
operating losses that may occur due to sudden and unexpected events. Risk management also
helps to properly match risk appetite to business strategy and to take advantage of opportunities
(Kong et al., 2018). For Adegbola (2018) risk management aims to reduce the risks associated
with a chosen endeavor at a level acceptable to the organization. Risk management is just the
right thing to do as it helps in identifying the events and issues that could cause an enterprise to
fail to meet its objectives. There is no one universally acceptable format for managing risk. This
is because risks vary and may arise from multiple sources. However, organizations are expected
to develop structured, continuous processes to quickly identify, proactively manage various
kinds of risks. Organizations may accept, control, mitigate, avoid or defers risk based on how the

19
classification of the risk. There are different risk management standards and frameworks that
may be applied to different types of risks (Girangwa et al., 2020).

Enterprise Risk Management (ERM) has become referred because it is a more comprehensive,
transparent, integrated, and strategic approach for identifying and dealing with risks that may
occur in an organization (Horvey, Alale & Karikari, 2019). Enterprise Risk Management
represents a fundamental change in the conception of risks. Unlike the traditional perception of
risk management as an ad-hoc and narrow function, enterprise risk management is continuous
and broad. Enterprise risk management is not limited to only threats and losses as traditional risk
management was, it is a more open-minded approach to risks with the view to harness the
potential opportunities (Girangwa et al., 2020).
2.4 Summary of Literature Review
Several studies (Cohen and Sayag, 2010; Kasiva, 2012) have been carried out relative to the
current study variables (risk assessment, risk-based planning, risk management internal auditing
standards, and financial performance). However, it appears that there are very scanty if any
studies that have been carried out in relation to how risk assessment, risk-based planning, risk
management and internal auditing standards influence organizational financial performance in
Kenya’s insurance companies. This necessitated the current study which sought to bridge the
aforementioned research gap.
Studies have been done such as; Kagashe (2008) assessed the effectiveness of internal audit
services unit in safeguarding public resources in LGAs in Tanzania using Kibaha District
Council as a case study, Harrison (2015) assessed the influence of internal audit independence on
the Financial performance of small and medium enterprises: a case of the construction industry
in Mombasa Count, Kenya, but the studies mentioned above did not focuses on the aspects of
internal audit independence which influences the Financial performance of organizations where
by those aspects are independence of internal audit committee, free minded of internal audit
management, internal audit reports, plans of internal audit and organization’s budget, all studies
mentioned failed to discuss positively impacts which contributed by the aspects of internal audit
independence which contributes to Financial performance .

Mwakimasinde, Odhiambo and Byaruhanga (2014) investigated the effect of internal audit
control systems on the financial performance of sugarcane out grower companies in Kenya and

20
Abdi (2015) investigated the impact of internal audit control system on financial performance in
Somalia- Mogadishu private organizations. Studies mentioned investigated on the effects of
internal audits control system on financial performance, but the studies failed to discuss the
characteristics of internal audit control system such as physical control, control environments,
information processing and sharing, assessment of risks, monitoring financial activities and
system of verification on reconciliations which contributes positively on the financial
performance of organizations.

21
 CHAPTER THREE
METHODOLOGY
3.0 Introduction
This chapter will present the research design, the study population, sample size and sampling
design. It will further discuss the instruments and methods to be used in data collection and
analysis. Detailed description of data collection procedures, data analysis, measurement of
variables and measures undertaken to enhance data validity and reliability will also be discussed.
3.1. Research Design
A research design is the strategy, plan and structure of a research project (Sileyew, 2020). The
study will adopt a cross sectional survey design. This design will be employed to obtain
information from a large group of respondents just one time, in a single session without any
follow-up once the information is obtained (Sileyew, 2020). In supplement, the study will adopt
a triangulation of both quantitative and qualitative data. Quantitative approaches will enable
collection of numerical data in order to explain, describe, understand, relationship. It will enable
the researcher to quantify the views of respondents towards certain variables and draw statistical
conclusions. For this matter, qualitative approaches will be used to capture feelings, opinions and
other subjective variables.
3.2 Study Population
According to Stratton (2021), a population is a complete set of the entire group or individuals
with a common observable characteristic. This study population will be drawn from employees
at Straight Talk Foundation Uganda. The population will constitute heads of departments and
administrative and support staff. The study population will set clear direction on the scope and
objective of the research and data types. It will also help to define the characteristic variables of
the individuals who qualify for the study and provide the scope of the total population or
universe for determining sample size.
3.3 Determination of the Sample Size
According to Mooney (2019), a sample size is defined as a subset of a particular selected
population. A sample size of 27 will be considered for this study using the using statistical tables
of Krejcie & Morgan. The statistical table provides accurate and scientifically proven sample
size for each population hence easy to calculate.

22
Table 3.1: Sample size determination
Category Population Sample size Sampling technique
Heads of departments 6 6 Purposive
Administrative and support staff 27 21 Simple random
Total 33 27
Source: Straight Talk Foundation Uganda Human Resources Records (2023)
3.4 Sample techniques and procedures
The study will employ both simple random and purposive sampling techniques.
3.4.1 Purposive Sampling
Purposive sampling is a non-probability method for obtaining a sample where researchers use
their expertise to choose specific participants that will help the study meet its goals. These
subjects have particular characteristics that the researchers need to evaluate their research
question. In other words, the researchers pick the participants “on purpose” (Rahi, 2017). This
will help the researcher to select significant respondents to provide in depth information which
will be used to analyze and triangulate data collected from the respondents. This technique is
considered since it is less costly and saves time; it will enable the researcher to acquire an in-
depth understanding of the problem and to gain richer, useful and focused information (Thomas,
2020). Purposive sampling will be used to select Heads of department.

The Researcher will use maximum variation sampling to gather the full range of participants,
from the most extreme to the most common. This process collects a small sample that
intentionally covers the full spectrum of possibilities. The target population will include heads of
department from which information will be obtained. Interviews will be conducted with the
determined since they are more informed about the study problem.

3.4.2 Simple Random Sampling

Simple random sampling is a type of probability sampling in which the researcher randomly
selects a subset of participants from a population. Each member of the population has an equal
chance of being selected. Data is then collected from as large a percentage as possible of this

23
random subset (Mugenda & Mugenda, 2003). This sampling technique will be used because it
ensures that every member has an equal chance of being recruited into the sample and also
eliminates bias in data collection (Thomas, 2020). The study will use simple random sampling to
select administrative and support staff. Through use of this technique, administrative and support
staff will be used as study population from which a small sample shall be drawn. To ensure the
validity of the findings, every individual selected will participate in the study through filling the
questionnaires that shall be given to them.
3.5 Data collection methods
The study will be categorized into secondary and primary data collection method. Quantitative
and qualitative methods will be utilized to collect primary data. The study will use both primary
and secondary sources of data collection. Quantitative and qualitative methods will be utilized to
collect primary data (Taylor, 2021).
3.5.1 Questionnaire survey method
According to Muhammad and Kabir (2018), a questionnaire is a method of survey data
collection in which information is gathered through oral or written questionnaires. The
questionnaires will be self-administered to administrative and support staff to obtain required
information for the study. Questionnaires will enable the researcher to collect a large sample of
information in a short time and at a reasonably low cost and give similar or standardized
questions to the subjects making it easier for comparison and generalization. The questionnaires
will be adopted because the response option for a close ended question is exhaustive and
mutually exclusive.
In this case questionnaires (with close ended questions) will be administered to the respondents
with aid of research assistants. This will be used to obtain their views in relation to the study
phenomena (Mutepf, 2019). The questionnaires will also enable the respondents to have ample
time to reflect on answers to avoid hasty responses which will enhance accuracy and validity.
Anonymity will be adhered to create trust among the respondents in order to get silent findings.
3.5.2 Interview method
Interview is a conversation between two or more people where questions are asked by
interviewer to elicit facts or statements from the interviewee. It’s a person-to-person verbal
communication in which one person or a group of persons is interviewed at a time (George,
2022). Interviews will be conducted with the key informants such as Heads of departments who

24
are well informed about the study problem. Interviews will be conducted because they have the
advantage of ensuring probing for more information, clarification and capturing non-verbal
expressions of the interviewees. It gives the researcher time to revisit some of the issues that
have been an oversight in other instruments and yet is deemed vital for the study. Personal
interviews will be conducted with key informants such as Heads of departments where questions
will be asked and responses noted down. This interview technique will enable the scholar to
probe in depth description on the views of the respondents. The interview process will involve a
professional interaction between the researcher and the interviewee with strengthened social
norms, values (Sileyew, 2019).
3.6 Data Collection Instruments
The researcher will adopt a mixed method for data collection whereby self-administered
questionnaires, key informative interview guide and documents review checklist will be utilized
for the process of collecting data as discussed below.
3.6.1 Questionnaire guide
According to Muhammad and Kabir (2018), a questionnaire is a method of survey data collection
in which information is gathered through oral or written questionnaires. The questionnaires will
be self-administered to administrative and support staff to obtain required information for the
study. The questionnaires will be adopted since they are easier to administer, less costly, timely
and they allow the aspect of confidentiality (Budianto, 2020). The researcher will design the
questionnaires in accordance to the study objectives and variables employed in the conceptual
framework. In this case close ended questions will be administered to the respondents with aid of
research assistants. This will be used to obtain their views in relation to the study phenomena
(Mutepf, 2019). The questionnaires will also enable the respondents to have ample time to reflect
on answers to avoid hasty responses which will enhance accuracy and validity. Anonymity will
be adhered to create trust among the respondents in order to get silent findings.
3.6.2 Interview Guide
Interviews guide is an alternative tool of data collection whereby researchers collect data through
direct verbal interaction while recording respondent’s answers using interview guide to
supplement other data collection methods (Budianto, 2020). Interviews will be conducted with
the key informants such as heads of departments who are well informed about the study problem.
This method will be considered since it will enable the researcher to obtain in depth qualitative

25
information on the study phenomenon. This will further enrich this study by providing more
relevant information which might not have been obtained through the questionnaires method as
well as allowing further probing (Wang, 2018). The interview guide will be used by the
researcher to have a face to face professional interaction with the respondents to obtain
comprehensive explanations of their perception this study.
3.7 Data Quality Control
The researcher will pre-test the data collection instruments in order to approve their reliability
and validity as per the acceptable standards for this study.
3.7.1 Validity of instruments
According to Chetwynd (2022) validity is the accuracy or extent of which the scores from a
measure represent the variable they are intended to measure. The content validity index will
enable the researcher to measure the degree to which the questions items reflected in the specific
areas are covered. Content validity is the degree to which a test or assessment instrument
evaluates all aspects of the topic, construct, or behavior that it is designed to measure. Do the
items fully cover the subject? High content validity indicates that the test fully covers the topic
for the target audience. Lower results suggest that the test does not contain relevant facets of the
subject matter (Middleton, 2023). Measuring content validity will involve assessing individual
questions on a test and asking experts whether each one targets characteristics that the instrument
is designed to cover. This process will compare the test against its goals and the theoretical
properties of the construct. The researcher will systematically determine whether each item
contributes, and that no aspect is overlooked.
Face validity is a simple method of assessing whether a test measures what the researchers
intended. Face validity is the most basic test of validity that researchers may apply before they
use more rigorous and robust tests of validity (Bhandari, 2022). To assess face validity, the
researcher will ask other people to review the measurement technique and items and gauge their
suitability for measuring the study variable of interest. The following questions will be; Are the
components of the measure (e.g., questions) relevant to what’s being measured? Does the
measurement method seem useful for measuring the variable? Is the measure seemingly
appropriate for capturing the variable? Good face validity will mean that anyone who reviewed
the measure says that it seems to be measuring what it’s supposed to. With poor face validity;
someone who reviewed the measures may be left confused about what the study is measuring

26
and why this method is being used. According to Chetwynd (2022) any content validity index
(CVI) that is greater than 0.7 means that the instrument is valid for research purposes. The
researcher will employ the following formula for validity test.

CVI = Number of items regarded relevant

Total number of items

3.7.2 Reliability of instruments
Reliability refers to the likelihood of getting the same results over and over again if a measure
will be repeated in the same circumstances (Chetwynd, 2022). Reliability ensures that measures
are free from error so that they gave same results when repeated measurements will be made
under constant conditions. The instruments will be pre-tested by selection of a few staff members
who will review and improve it, to ensure reliability before it will be really applied in the study
(Yusoff, 2019). The researcher will personally administer the questionnaires to the participants
and will be available for consultations and explanations while the participants fill in the data. The
researcher will check the questionnaires to ensure that all the questions are answered
appropriately. The pre-test will contribute to the credibility, dependability and trustworthiness of
the questionnaires. The findings from the test will be coded in the SPSS, a computer package to
test for reliability at the Cronbach’s alpha coefficient so as to assess the internal consistency
above 0.70 (Amirrudin, 2021).
3.8 Procedure of Data Collection
The researcher will obtain an introduction letter from Uganda Management institute (UMI) after
successful proposal defense and present it to the authorities in Straight Talk Foundation Uganda
to obtain approval to carry out the research. The researcher will pilot the questionnaire on a
sample of ten respondents and the interview guide on two respondents. The researcher will then
use the comments from these respondents to improve the questionnaire and interview guide. At
this point, research assistants will be recruited, trained on the ethical considerations. The
researcher will then make contact with relevant authorities in Straight Talk Foundation Uganda
to come up with agreeable schedule so that work is not affected. Appointments as to when the
researcher will go to the organization (Straight Talk Foundation Uganda) to meet the respondents
and collect the data will be set.

27
The researcher will deliver the questionnaires personally to respondents with support from
research assistants after getting permission from Straight Talk Foundation Uganda authorities.
The researcher will then conduct face to face interviews with the key respondents which will
involve a question and answer session. The research instruments will thereafter be collected and
the information will be recorded, coded, interpreted and analyzed.
3.9 Data analysis
Data analysis is the process of bringing order, structure and meaning to the mass of information
gathered. The research will implore both qualitative and quantitative data analysis approaches
before data is analyzed as discussed herein.
3.9.1 Quantitative analysis
According to Borgstede and Scholz (2021) Quantitative data analysis is a form of research that
relies on the methods of natural sciences, which produces numerical data and hard facts.
Quantitative data analysis will involve use of both descriptive and inferential statistics by using
Statistical Package for Social Scientists (SPSS) for analysis. Descriptive statistics will entail
determination of measures of central tendency such as mean, standard deviation; frequency
distributions; and percentages. Data will be processed by editing, coding, entering, and then
presented in comprehensive tables showing the responses of each category of variables.
Inferential Statistics will helps to draw conclusions and make predictions based on a data set. It
is done using regression models showing the relationship between a set of independent variables
and a dependent variable. This statistical method will predict the value of the dependent variable
based on different values of the independent variables (Marsh et al, 2020).
3.9.2 Qualitative analysis
Borgstede and Scholz (2021) defined qualitative data analysis as one which provides insights and
understanding of the problem setting. It is an unstructured, exploratory research method that
studies highly complex phenomena that are impossible to elucidate with the quantitative
research. Qualitative data analysis will involve both thematic and content analysis and will be
based on how the findings will relate to the research questions.
Content analysis is a research method used to identify patterns in recorded communication (Luo,
2022).To conduct content analysis, the researcher will systematically collect data from a set of
texts, which can be written, oral, or visual (Books, newspapers and magazines, Speeches and
interviews). The researcher use content analysis to find out about the purposes, messages, and

28
effects of communication content. Content analysis will be used to quantify the occurrence of
certain words, phrases, subjects or concepts in a set of historical or contemporary texts (Marsh et
al, 2020). Thematic analysis is a method of analyzing qualitative data. The researcher closely
examines the data to identify common themes, topics, ideas and patterns of meaning that come
up repeatedly (Caulfield, 2022). There are various approaches to conducting thematic analysis,
but the most common form follows a six-step process: familiarization, coding, generating
themes, reviewing themes, defining and naming themes, and writing up. Following this process
will help the researcher to avoid confirmation bias when formulating your analysis.
3.10 Measurement of variables
According to Ivy Panda (2020), measurement variable is an unknown attribute that measures a
particular entity and can take one or more values. It is commonly used for scientific research
purposes. Measurement variables are categorized into nominal, ordinal. A nominal variable is a
type of variable that is used to name, label or categorize particular attributes that are being
measured. A nominal variable is one of the 2 types of categorical variables and is the simplest
among all the measurement variables. Some examples of nominal variables include gender,
Name, phone, among others (Bhandari, 2022). The five point Likert type scale (1- strongly
disagree, 2-disagree, 3-not sure, 4- agree and 5-Strongly agree) will be used to measure the
independent variable (Internal audit functions) and the dependent variable (Financial
performance in NGOs). The choice of this scale of measurement is that each point on the scale
carries a numerical score which is used to measure the respondent’s attitude and it is the most
frequently used summated scale in the study of social attitude. The nominal and ordinal
measurement levels will be utilized to compute study variables with undisputable order. The
Likert scale will be used in data collection to measure sentiments and respondents’ perception as
per the formulated variables. Ordinal and Nominal types of measurements will be used to
measure variables on the scale of 1-5, represented by strongly disagree, disagree, not sure, agree
and strongly agree.

3.11 Ethical consideration

Ethics in research refers to the norms that distinguish between acceptable and unacceptable
behavior (Cammaerts, 2020). The researcher will recognize the importance of ethics in this study
whereby integrity, honesty and attribution will be highly taken into account.

29
To ensure privacy, the subjects will be informed upfront that indeed their names will not be
required, that they have the right to leave questions unanswered for which they do not wish to
offer the requisite information, and that the study will not put the respondent under pressure if
this happens.

Informed consent and approval will be sought from all the respondents and associated
stakeholders respectively. The researcher will also be cleared by the Research Committee of
Uganda Management Institute with a letter to the field.

To ensure that there is no plagiarism in this study, all work used in this book will be cited for and
referenced. The study will also go ahead to ensure that originality is ensured while using other
people’s work by testing this work using Turnitin Software from UMI website.

Confidentiality: During and after the study, the researcher is obligated not to disclose
confidential information given by a respondent to another party without the respondent’s
authorization.

30
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Abdullah, M., & Shukor, Z. A. (2017). The comparative moderating effect of risk management
committee and audit committee on the association between voluntary risk management
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