CHAPTER TWO

REVIEW OF RELATED LITERATURE

Introduction

This chapter will review related literature sources relating to financial management practices and

student organizations. It will focus on connecting the two concepts to give a valid basis of the

study. Literature will be collected from books, journals, theses and relevant websites.

Student Organizations

SLU believes in the promise of youth. Hence, to help Louisians develop their leadership potentials

and life skills, SLU promotes student organizations (Saint Louis University). Student

Organizations and co-curricular affairs student organizations help create a challenging and

supportive environment in which students can realize the full potential of their abilities and come

to understand their responsibility of service to the larger community (Trinity University). Hegedus

and Knight (n.d.) further adds that organizations let students interact in non-formal atmosphere,

and allow students to strengthen their leadership and communications skills. They also said that

organizations are beneficial to college students. They help bring students and faculty together.

Involvement in these is part of college experience and strengthens the ties between students and

their institutions (Correa & Dumas, 2015).

According to Guido-DiBrato and Batchelor (1988), student activities like these are uniquely suited

to the exploration of new roles and behaviors and to the building of the self-esteem so vital to

fostering the leadership potential of students. The greater the students involvement in college, the

greater will be the amount of student learning and personal development (Astin, n.d.). Students

organizations may provide a successful tool in accelerating the development towards aware and
motivated students. Its members may play an active part in the transformation towards a

sustainable society (Ramirez, 2017)

A student organization has its own governing body. According to the SLU Student Handbook

(2015), the officers of each student organization shall be elected by the members thereof, provided,

however, that every election shall be under the supervision of, and subject to regulation by, the

assigned faculty adviser. An organizations governing body is ultimately responsible for the

financial health of the organization (Council on Accreditation, 2017). Clarke (2008) emphasized

that the first and most important aspect of managing a school's finances is to be quite clear who is

responsible for what.

Financial Management

Financial management is important at all levels of human existence because every entity needs to

look after its finances (Jayaraj, n.d.) It is one of the basic functions practice in all organisations. It

is the way forward and represents the future for best practice organisations (Njini, n.d.). Financial

management help provide information designed to assist management in planning and controlling

the activities of the organization (Aringo, 1987). It deals with how to plan, budget for, secure and

maintain financial resources in order to attain the institution's objectives. The aim of financial

management is to ensure that the resources available for education are procured, properly

disbursed, accounted for and regularly monitored to ensure their effective use (Onuselogu, n.d.).

According to Mestry (2006), there is a correlation between sound financial management and

effective and efficient school governing bodies. Sound financial management begins with an

organizations commitment to providing high quality services relative to its mission or purpose.

Leadership creates a culture of honesty and ethics in all areas of organizational practice, including
the management of the organizations finances and the manner in which it conducts financial

affairs (Council on Accreditation, 2017). The relevant institutions and policies are made viable

and effective by finance, and without adequate financial management, even the most viable and

effective institutions and policies are bound to crumble (Onuselogu, n.d.).

Considering these, one can see that financial management practices are most essential to keep a

school organizations effectiveness and efficiency. Four major practices school organizations are

using includes budgeting, cash receipts and cash disbursements management, and record keeping.

Agyei-Mensah (2010) said that the ultimate success of a firms operations depends upon sound

budgeting decision. A financial budget is a formal statement of expected values of the financial

variables of the firm over a future period. There may be a number of separate budgets for the

various activities of the firm showing in detail managements plan for the future (Schall and Haley,

1991). A good proposal contains a sound financial control plan in addition to the objectives of the

project so as to ensure efficient management of resources (Koitaba, 2013). It seeks to quantify

various financial resources available and plan the size and timing of expenditures (Jayaraj, n.d.).

Guthrie et al. (1988) sees budgets to be representing the financial crystallization of an

organizations intentions. It is through budgeting that a school can decide to allocate resources so

as to achieve organizational goals. Clarke (2008) mentioned that preparing the annual budget is

probably the biggest challenge of the school governing body. Evaluating the budget involves a

critical examination of the extent to which the money allocated to the various programmes and

committees managed to achieve (the schools) objectives (Marishane and Botha, 2004).

According to Moyer, McGuigan and Rao (2015), development of a cash budget showing the

forecasted cash receipts and disbursements over the planning horizon of the firm is the frst step in
efficient cash management. The cash budget is prepared in order to forecast the firms future

financial needs. It is also a tool for cash planning and control. Because the cash budget details the

expected cash receipts and disbursements for a designated time period, it helps avoid the problem

of having idle cash on hand or suffering a cash shortage (Shim and Siegel, 1986). Financial

management practices such as budgeting is essential in not only meeting the donor objectives, but

also in building their confidence (Koitaba, 2013).

Cash Receipts and Disbursements Management

Cash management involves cash receipts and disbursements. It refers to monitoring cash flow

(Jayaraj, n.d.). Cash management involves having the optimum, neither excessive nor deficient,

amount of cash on hand at the right time. Proper cash management requires that the company know

how much cash it needs, as well as how much it has and where that cash is at all times (Shim and

Siegel, 1986).

Cash receipts management is a set of institutional arrangements and management procedures used

to receive cash, move cash into the banking system, and obtain accurate and timely information

on cash availability (Hill and Sartoris, 1988).

Disbursement systems include the banks and the delivery mechanisms and procedures used to

facilitate the movement of cash from the firms centralized cash pool to disbursement banks and

then on to suppliers and other payees (Hill and Sartoris, 1988). Cash disbursement management

involve effective expenditure authorisations and the systematic recording and monitoring of

expenditure commitments and actual payments (Uluinaceva, 2005).

Record Keeping

A successful organization relies, not only on solid cash flow, but also on sound record keeping

practices. Without up-to-date records it is impossible to determine the financial condition or

profitability of your business. Without meaningful records of what youve actually done and, more

importantly, whats coming up, you may be facing unexpected trouble and certain costly

consequences (The Marketing Pod Ltd.).

Financial records are formal documents representing the transactions of a business, individual or

other organization. Financial records maintained by most firms include a statement of retained

earnings and cash flow, income statements and the company's balance sheet and tax returns.

Keeping financial records organized is a key element in a successful business (Business

Dictionary). In short, financial records make it easy to see whether an organization is doing well

or badly (FAO, 2001).

Challenges in a Student Organization and the Role of Financial Management Practices

While student organizations provide a wide range of benefits to the participants and the

surrounding community, student organizations are often very fragile. They face challenges of

frequent leadership changes, financial constraints, a continuing need to attract members, and

inexperienced leadership (Wender, 2011). The management of school finances can be one of the

most challenging of principals responsibilities, because for many it is an area in which they have

little or no training or expertise (Clark, 2008).

It was stated by Mestry (2004), there are many school governing body members who lack the

necessary financial knowledge and skills and are placed under tremendous pressure because they

are unable to work out practical solutions to the financial problems at hand.
But through a financial management system that receives, disburses, and accounts for funds

consistent with sound financial practices, positive financial outcomes are achieved. Additionally,

the attention and commitment of the governing body and its audit committee to their fiduciary

responsibilities are essential to ensuring that the organizations financial practices enable it to

achieve operational effectiveness and efficiency, accurate and reliable financial reporting, and

compliance with applicable laws and regulations (Council on Accreditation, 2017).

As emphasized by Wender (2011), as students learn how to make decisions and changes, it can

lead to substantial growth in their own organizations. Whether an organization raises more money,

involves more participants, or increases a sense of awareness, these organizations are evolving as

the students learn. The benefits to the community are not inconsequential.