INVENTORYCONTROLSANDFINANCIALPERFORMANCE OF PEDN MBALE

BRANCH UNDER USAID

MAKAYIHASSAN

REG.S18/MUC/BBA/400

ARESEARCHDISSERTATIONSUBMITTEDTOTHEDEPARTMENTOFBUSINESS
AND ADMINISTRATIONINPARTIAL FULFILLMENT
OF THEREQUIREMENTSFORTHE AWARD OFTHE
BACHELORS IN BUSINESS ADMINISTRATION OF
UGANDA CHRISTIANUNIVERSITY

JANUARY, 2022
 DECLARATION
IMakayi Hassan dohereby declarethatthisdissertationtitled,Effectofinventory controland
financial performance of PEDN Mbale branch,Ugandahasbeendoneasaresultofmy own
effortsexceptinstanceswherescholarly literaturehascitedandhasneverbeensubmittedto
anyotherInstitution ofLearningforanyaward

Signed…………………………………. Date…………………………………….

Makayi Hassan
 APPROVAL
ThisDissertationtitled,“EffectofInventory controlonfinancial performance of PEDN
Mbale branch,Ugandahasbeensubmittedforexamination withmyapprovalas
universitysupervisor.

Signed…………………………………. Date…………………………………….

Mr. Kuka Phinehas

University supervisor

3
 DEDICATION

Thisworkisdedicatedtomyentirefamilywhogavemeinvaluablemoralsupport
throughouttheperiod.

4
 ACKNOWLEDGEMENTS

Igreatlyappreciatetheadviceandguidancefrommysupervisor,Mr.Kuka Phinehasforhis
richqualitytimeandguidanceonhowtoconductthe researchproposal.

Ialsogreatlyappreciatemyfamilyforthesupportandsacrificethroughoutthe
durationofthecourse.

5
 TABLE OF CONTENTS

DECLARATION.......................................................Error!Bookmarknotdefined.

DEDICATION...........................................................Error!Bookmarknotdefined.

ACKNOWLEDGEMENT....................................................................................iv

LIST OF TABLES..............................................................................................viii

LIST OF FIGURES..............................................................................................ix

OPERATIONAL DEFINITIONOF TERMS......................................................x

LIST OF ABBREVIATIONSANDACRONYMS.............................................xii

ABSTRACT........................................................................................................xiii

CHAPTERONE:INTRODUCTION...................................................................1

1.1Backgroundofthe Study.................................................................................1

1.1.1InventoryControlofCountyGovernmentsinKenya.................................2

1.1.2FinancialPerformance.............................................................................3

1.1.3CountyGovernmentPerformanceinKenya.............................................4

1.2StatementoftheProblem................................................................................5

1.3Objectives ofthe Study..................................................................................6

1.3.1SpecificObjectives..................................................................................6

1.4ResearchQuestions........................................................................................6

1.6Significanceofthe Study................................................................................7

1.7ScopeoftheStudy.........................................................................................7

CHAPTERTWO:LITERATURE REVIEW......................................................8

2.1Introduction....................................................................................................8

2.2 TheoreticalLiterature.....................................................................................8

2.2.1AgencyTheory........................................................................................8
6
 2.2.2ContingencyTheory................................................................................9

2.2.3CompetencyTheory..............................................................................10

2.3 EmpiricalLiterature.....................................................................................11

2.3.1InventoryRecordingonFinancialPerformance.....................................11

2.3.2StockAuditonFinancialPerformance...................................................12

2.3.3E-ProcurementonFinancialPerformance............................................13

2.3.4InventoryManagementTrainingonFinancialPerformance...................16

2.4. SummaryandGaps tobefilledbytheStudy...............................................17

2.5ConceptualFramework................................................................................18

CHAPTERTHREE:RESEARCHMETHODOLOGY.....................................20

3.1Introduction..................................................................................................20

3.2ResearchDesign...........................................................................................20

3.3 TargetPopulation.........................................................................................20

3.4SampleSizeandSampling Technique..........................................................21

3.5DataCollectionInstruments.........................................................................22

3.6DataCollectionProcedures..........................................................................22

3.7InstrumentReliabilityandValidity...............................................................23

3.8DataProcessingandAnalysis.......................................................................24

3.9OperationalizationandMeasurementofstudyvariables...............................25

3.10EthicalConsiderations................................................................................25

CHAPTERFOUR:RESEARCHFINDINGSANDDISCUSSIONS................27

4.0Introduction..................................................................................................27

4.1ResponseRate..............................................................................................27

4.2Reliability....................................................................................................27

4.3BiodataAnalysis.........................................................................................28

4.3.1GenderoftheRespondents....................................................................28

7
 4.3.2AgeoftheRespondents.........................................................................28

4.3.3 LevelofEducation................................................................................29

4.3.4Years Worked........................................................................................30

4.4Descriptive Statistics....................................................................................30

4.4.1InventoryRecordingandFinancialPerformance....................................30

4.4.2StockAuditingandFinancialPerformance............................................32

4.4.3E-ProcurementandFinancialPerformance..........................................33

4.4.4InventoryManagementTrainingandFinancialPerformance .................34

4.4.5FinancialPerformance...........................................................................35

4.5InferentialStatistics......................................................................................38

4.5.1CorrelationAnalysis..............................................................................38

4.5.2RegressionAnalysis..............................................................................39

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND

RECOMMENDATIONS.....................................................................................42

5.1Introduction..................................................................................................42

5.2Summary......................................................................................................42

5.3Conclusions..................................................................................................42

5.4Recommendations........................................................................................43

5.5Limitationofthe Study.................................................................................43

5.6ContributiontoKnowledge..........................................................................44

5.7AreasforFurtherStudies..............................................................................44

REFERENCES....................................................................................................45

APPENDICES......................................................................................................50

AppendixI:LetterofIntroduction......................................................................50

AppendixII:Questionnaire................................................................................51

AppendixIII:SecondaryDataTemplate ............................................................56

vii
 LIST OF TABLES

Table1.1:RevenueCollectedinGarissaCounty......................................................5

Table3.1:Population.............................................................................................20

Table3.2:SampleSize...........................................................................................22

Table4.1:ResponseRate.......................................................................................26

Table4.2:Reliability .............................................................................................26

Table4.3:InventoryRecordingandFinancialPerformance...................................30

Table4.4:StockTakingandFinancialPerformance...............................................31

Table4.5:StockTakingandFinancialPerformance...............................................32

Table4.6:InventoryManagementTrainingandFinancialPerformance.................33

Table4.7:FinancialPerformance...........................................................................35

Table4.8:Surplus/Deficit......................................................................................36

Table4.9:CorrelationalAnalysis...........................................................................37

Table4.10:ModelFitness......................................................................................38

Table4.11:Analysis ofVariance...........................................................................38

Table4.12:RegressionofCoefficients...................................................................39

88
 LIST OF FIGURES

Figure2.1:ConceptualFramework........................................................................19

Figure4.1:GenderoftheRespondents...................................................................27

Figure4.2:AgeoftheRespondents........................................................................28

Figure4.3:LevelofEducation...............................................................................28

Figure4.4:Years Worked......................................................................................29

Figure4.5:RateofPerformance.............................................................................35

9
10
 LIST OF ABBREVIATIONS AND ACRONYMS

ANOVA :Analysis ofVariance

CAATs :Computer–AssistedAuditTechniques
FD :FiscalDecentralization
HHES :Homehealtheducation service
ICPA(U) :InstituteofCertifiedPublicAccountants ofUganda
IRS :InternalRevenue Service
NGO :Non-GovernmentalOrganization
PFM :Public FinancialManagement
SPSS :StatisticalPackageforSocialScience
WRMA :WaterResourceManagementAuthority

xii
 ABSTRACT

GoodperformanceofPEDNiscriticalduetotheimportantrolethatmanagementplays.
Thestudy assessedtheeffectofinventory controlonfinancial performance in PEDN Mbale branch.
Thespecificobjectivesweretoestablishtheeffectofinventory
recordingonfinancialperformanceofPEDN Mbale,todeterminethe effectofstockauditonfinancial
performanceofPEDN Mbaleandtoexaminethe effectofinventory management training on
financial performanceofPEDN Mbale.Thestudyadoptedadescriptiveresearch
design.Thetargetpopulationof thestudywas85employeesinPEDN Mbale. Thesamplesizewas70
employees in PEDN Mbalewhowereselectedusingstratifiedrandom
sampling.Primarydatawascollected through
theadministrationofthequestionnaires.Afterquantitativedataw as obtainedthrough
questionnaires,itwaspreparedin readinessforanalysisby editing,handlingblank responses,
coding,categorizing andkeyedintostatistical packageforsocial sciences(SPSS)computer
softwareforanalysis.Thestatisticsgeneratedincludeddescriptiveandinferential statistics.
Thestudyfoundthatinventoryrecordinghasapositiveandasignificanteffectonfinancial
performance.Thestudyfound thatstock takinghaveapositive andasignificanteffecton financial
performance.Thestudyfoundthatinventory managementtraininghasa
positiveandasignificanteffecton financial performance. Thestudy concludedthathighly
automatedorganizationsperformbetterthanan
organizationthatstillusesmanualsystems.Thestudyrecommendsthatthereshouldbetransparencyinst
ockauditin PEDN Mbale.Inaddition,allactivitiesshouldbeautomatedsoasto improveperformance
of PEDN.

12
 CHAPTERONE

INTRODUCTION

1.0 Introduction
Thechapter comprisesofanintroduction,backgroundtothe study,statement ofproblem,and
purposeof the study,objectives, research questions, significance aswellas, scopeof thestudy,
conceptual frameworkandfinallydefinition ofkeyconceptsor variables.

1.1 Background of thestudy

Thebackgroundtothestudy entailsthehistorical,theoretical,conceptualandcontextual backgrounds
asexplainedin thesub sections below.
1.1.1Historical Background

In the earlier years, Inventory Control was treated as a cost Centre, since Purchasing Department

was spending money on inventory while Stores was holding huge stock of inventory, blocking

money and space, Ramakrishna (2005). However, with the process of liberation and opening up of

global economy, there has been a drastic change in the business environment, resulting in

manufacturing organizations exposed to intense competition in the market place hence leading to

decline.

Service companies’ worldwide has been working out various strategies to face the challenges and

to cut down manufacturing costs to remain competitive (Blomqvist, 2006). Supply chain control is

the process of efficiently integrating suppliers, manufacturers, warehouses and stores so that

merchandise is produced and distributed in right quantities, to the right locations, and at the right

time in order to minimize system wide costs while satisfying service-level requirements . In the

retail environment, this process is well known and has been in use for a long time (Fawcett et al,

2009).

Despite the fact that USAID unde PEDN has tried to streamline their supply chain

networks to become industry leaders, cases of poor stock control such as erratic deliveries in the

13
firm, late deliveries, inflexibility and stock discrepancies continues to crop up leading to poor

performance.

Recent studies have shown that tremendous cost savings and potential revenue can be generated

with the enhanced control of distribution and inventory. It was estimated that a company could

reduce its total expenses by at least two percent through better inventory control and distribution

of finished goods. But in attempt to achieve this most of the firms have always failed to control

their inventory hence poor performance is realized. Therefore it is upon this background that the

study seeks to investigate on the impact of stock control policies on the performance of an

organisation. mbale branch has failed to realize its operations objectives as it was planned and this

1.1.2 Conceptual background

1.1.2.1Inventory Control
Inventoriesarethecurrentassetswhichareexpectedtobeconvertedwithinayearinthe
formofcashoraccountsreceivables.Thus,it isasignificantpartoftheassetsforthe
businessfirms.AccordingtoHossain(2015)bettermanagementof theinventorieswould
releasecapitalproductively.Inventory Controlistheoperationsmanagement,logisticsand supply
chainmanagement,thetechnological system and theprogrammedsoftwarenecessary
formanaginginventory.Inventory controlimpliesthecoordination ofmaterialscontrolling,
utilizationandpurchasing.Ithasalsothepurposeofgettingtherightinventory attheright
placeintherighttimewithrightquantitybecauseitis directlyconnectedwiththeproduction.
Thisimplies thattheprofitabilityofthefirmis directlyorindirectlyaffectedbytheinventory
management.

Inaddition,inventorycontrolisimportantbecausefirms willensureassets andstockarewell

managedandaccurate demandforecastingismaintainedtoavoidunplannedprocurement
processes.Thiswill assistthefirminexecutingsuccessfulprocurementprocessesthatmatch
demandandsupplyforces(Brigham&Gapenski,2013).AgusandNoor(2010)pointsout that
demandforecastinghelpstheorganization to minimizeoperational costs,
increasedefficiencyandontimedeliveryofgoodsandservices.Thisenablestheorganizationtoplanfor

14
thefuturedemandbymeetingthegrowingneedsofcustomers.Thishighly contributesto
improvedcustomersatisfactionduetoqualityofgoods andservices offered.

Ininventory control,auditofinventoryisrequired.Auditofinventoryisimportantinmany
organizations asmisstatementaffectreported profit:misstatementofinventorybalanceshasa
directeffect on reportedprofitasinadequateorinappropriateinventory heldcanfailtomeet
thedemandsofsalesandproductionrequirements;highinventorylevelsresultinginpoor cashflow
andfinancialloss;inaccurateorincompleterecord ofinventory movements
resultinginlackofawarenessoftheactualinventory positionanddifficultiesinmeeting
customerneeds;lackofsecurityoverinventoryresultinginloss,theftormisappropriation and
obsoleteinventory held orincorrectly supplied tocustomers,resultsinfinancial lossand
damagetoreputation(Bedard&Wright,2000).

InadditionEprocurementisalsoveryimportantininventory control.Thisisbecauseitreduces
inventorylevels, improvesauditing and financialcontrol, eliminatespaperwork, enhancestaff
efficiencyandshortendeliverytime.Anautomatedinventoryandprocurement
solutionalsosavestimeby streamliningpurchasingandinventory control.Tasksthatonce
tookhoursorevendayscanbeperformedwithafewclicksofamouse.Staffnolonger
wastestimematchingreceiptswithdeliveries,figuringout overly complexinvoicesand
keyinginredundantinformation.Anautomatedinventoryandprocurementsolutionincreases
accuracy.Becausestaffisnolongerrequiredtore-enterdatafrom paperdocuments,clerical errors
aredramaticallyreduced.Mistakesinorderingarealsominimized(Presutti,2003).

PEDN Mbale branchhas theopportunityofmanaginginventoryintransparent

andefficientway.However,lackofinventory control systemsinthesecountygovernments
createsanavenueforcorruption(Mugambi&Theuri,2014).Thestudy thereforesoughtto
examineinventorycontrolandfinancialperformanceofPEDN Mbale branch.
1.1.2.2 FinancialPerformance
Financial performanceisabroadconceptdescribingalocal government’sfinancialhealth (Groves,
Godsey& Shulman, 2003). The term financialperformance hasbeen used
indiscussionsofUSstateandlocal government’sfinancialhealthformanyyears(Kamnikar,
Kamnikar&Deal,2006).Morespecificallyfinancialperformancecanbebroadlydefinedas
acountygovernment’sabilitytofinanceitsservices onacontinuingbasis;abilitytomeetits obligations
as they falldue;andabilitytofinancetheservicesits constituents require.
Oneof themostcommonlyusedways of obtainingameasurementof performanceincounty
governmentisthrough theuseofbudgetary,economicandfinancialinformation thatisthe financial
15
performance.CarmeliandTishler(2004)derivedindicatorsinfinancial termsin
ordertodeterminethefinancialhealth oflocalgovernmentbodies.Theseauthorsoptedfora
traditionalapproach,basedonindicatorsofthebudgetary processandtheiruseindecision-
making,beingof theopinionthatthisprovidesaglobalviewpointastowhetheran
organizationismanagingits resources wellornot.

ForGrovesetal.(2003)thefinancialconditionofalocalauthority canbeassessedby measures

ofcashsolvency, budgetary solvency, long-run solvencyandservice-level
solvency.Cashsolvencyis understoodtobetheentity’s abilitytogeneratesufficientliquidity
tomeetitsshort-term obligations.Budgetsolvencyisitsability tomobilizesufficient budgetary
income withoutenteringintodeficit.Long-run solvency concernsagovernment’s ability
torespondadequately toallitslong-term obligations,whileservice-levelsolvencyis defined as
expressing the entity’s capacityto provide the level and qualityofservices
necessaryforthewell-beingof thecommunityinquestion.Thesefourconceptsof solvency
embracewhattheaboveauthorshavetermedthefinancialfactor.However,for thesetobe
correctlyevaluated,Grovesetal.(2003)haveobservedthattheenvironmentalfactormustbe
takenintoaccount. Theenvironmental factorisconsideredtobetheprincipal external
constraintaffectingfinancial performance.AccordingtoGreenbergandHillier(2005),the
financialconditionof anorganizationcanbemeasuredbymeansof aseriesofindicators relatedtoits
sustainability,flexibilityandvulnerability.
1.1.3 Theoretical background

1.1.4Contextual background

Agency theory wasinitiatedbyJensenandMeckling(1976).Itdescribesfirmsasnecessary

structurestomaintaincontracts,andthroughfirms,itispossibletoexercisecontrol which
minimizesopportunisticbehaviorof agents.Inordertoharmonizetheinterestsof theagent
andtheprincipal,acomprehensivecontractiswrittentoaddress theinterestofboththeagent
andtheprincipal.Therelationshipisfurtherstrengthenedbytheprincipalemployingan
experttomonitortheagent(Barlie&Means,1932).Thispositionisalsosupportedby Coarse
(1937)whomaintainsthatthe contractprovidesforconflictresolutionbetweenthe
agentandprincipal,theprincipaldetermines theworkandagentundertakes thework.
Thetheory recognizestheincompleteinformationabouttherelationship,interestsorwork
performanceoftheagentdescribedasadverseselection andmoralhazard.Moral hazardand
adverseselectionaffectstheoutputoftheagentintwoways;notdoingexactlywhatthe agentis
appointedtodo,andnotpossessingthe requisiteknowledgeaboutwhatshouldbe
16
 done.Thisaffectstheoverall performanceoftherelationshipaswellasthebenefitsofthe
principalintheformofcashresidual.
Financialcontrolis oneofmanymechanisms usedinbusiness toaddresstheagencyproblem.
Othersincludefinancialreporting,budgeting,auditcommitteesandexternalaudits.Studieshaveshow
nthatinternalcontrolreduces agencycosts withsomeevenarguingthatfirmshave an
economicincentivetoreport on internalcontrol.Itisalsoargued thatproviding
thisadditionalinformationtotheprincipal(shareholder)aboutthebehavior of theagent
(management)mayreducetheinformationasymmetry andlowerinvestorriskandtherefore,
thecostof equitycapital.Otherresearchhasfoundthatweaknessesininternalcontrolsare
associatedwithincreasedlevels of
earningsmanagement(Chanetal.,2008;Ashbaughetal.,2008).Thistheorywasapplicabletoourstudy
becausewhentheproblemof agencyis
minimized,internalcontrolisfostered;accountabilityisimprovedthatimproves thefinancial
performanceofPEDN Mbale Branch under USAID.

1.2StatementoftheProblem

The inventory control leads to a reduction in cost, resulting in a significant saving. thus Usaid in

pedn in mbale branch has put n place soc management methods like FFO LFO. However despite

of the above effort. Pedn is faced with problems of wrong forecasting due to an unavailability of

enough inventory control information. In 2019 in Usaid in pedn mbale branch branch was

affected by poor inventory control related cases leading to low performance (Annual report

2019 /2020). This caused erratic deliveries in the firm, late deliveries and inflexibility hence

affecting customer satisfaction within region. Usaid in pedn was attributed to stock control

policies.

It is even clear that it is poor inventory management control leading to this poor performance or

any other factors. Therefore, this has motivated the study to assess on the effect of inventory

management control policy on the performance of a firm taking a case study of Usaid in pedn

mbale branch.

1.3Purpose oftheStudy

17
 The general objective of the study was to examine inventory controls and financial
performanceofPEDN Mbale Branch under USAID.

1.4SpecificObjectives oftheStudy
ThespecificObjectives ofthestudywere;
i. ToestablishtheeffectofinventoryrecordingonfinancialperformanceofPEDN Mbale Branch
under USAID
ii. TodeterminetheeffectofstockauditingonfinancialperformanceofPEDN Mbale Branch under
USAID
iii. ToexaminetheeffectofinventorymanagementtrainingonfinancialperformanceofPEDN
Mbale Branch under USAID.

1.4ResearchQuestions
i. WhatistheeffectofinventoryrecordingonfinancialperformanceofPEDN Mbale Branch
under USAID?
ii. What istheeffect ofstock auditing on financialperformanceofPEDN Mbale Branch under
USAID?
iii. What istheeffectofinventorymanagementtrainingonfinancialperformanceof PEDN
Mbale Branch under USAID?
1.5Significanceofthe Study
Thestudymay beimportanttoPEDN Mbale Branch under USAIDinformulatingsoundinventory
auditcontrol policiesinfinancial
performance.Itmayalsobeimportanttothegovernmentinordertoadoptpolicies toenforce financial
disciplineamonggovernmentagencies.Thisstudy
mayalsoguidethegovernmentofficialsinensuringexcellenceinstockmanagement.

Thestudy may alsobenefitresearcherswhomaywishtodevelopthestudyfurtherthrough

subsequentresearchesandalsotheacademicianswishing toenrich theirknowledgein the
conceptofinventory auditandthefinancialperformance ofPEDN Mbale Branch under
USAID.The study
mayalsobenefitresearchersandotherscholarsasabackgroundforreferenceinfuture studies
andcontributetotheexistingknowledgeofliterature.

1.7ScopeoftheStudy
Thestudy soughttoexamineinventory controlsandthefinancialperformance ofPEDN Mbale
Branch under USAID.ThisstudywascarriedoutinPEDN Mbale Branch under USAID. PEDN
18
 Mbale Branch under USAID was selectedsinceitwasreportedtobeoneof
thepoorperformingentities.

1.8ConceptualFramework
Smith etal.(2004)definedaconceptual frameworkasahypothesizedmodelidentifyingthe
modelunderstudyandtherelationshipbetweenthedependentandindependentvariables.
Theconceptualframework isaresearchtoolintended to assistaresearcher todevelopawareness
andunderstandingofthevariables underscrutiny.Forthepurposeofthis research, a conceptual
framework has been developed showing the influence of the
independentanddependentvariables. In thisstudy,
financialperformanceisthedependentvariablewhileinventoryrecording,stockauditsandinventory
managementtrainingaretheindependentvariables
Figure 1: Presents
aconceptualframeworkshowingtherelationshipbetweeninventory
controls andfinancial performance
INDEPENDENT VARIABLE DEPENDENT VARIABLE

Inventory controls Financial performance

 Stock recording  Surplus/ Deficits
 Stock Audits  Ability to meet recurrent
 Inventory management expenditures
training  Ability to meet loan repayments

Source: AdoptedfromOkello(2014) and modified bythe researcher

1.9 Definition of key terms

FinancialPerformance: theprocess ofquantifyingtheefficiencyoftheentityintermsof
deficitandsurplusof the income.
Inventoryaudits: Anaccountingproceduredesignedtokeeptrackofa company's products
andmerchandise.
Inventorytraining: Is alearningactivitydirectedtowardstheacquisition ofinventory
knowledgeandskillsforthepurposeof thecountyjob
InventoryRecording:Manualorcomputer-basedrecordofthequantityand kindof inventory.
InventoryControl:Itis operationsmanagement,logistics
andsupplychainmanagement,thetechnologicalsystem andthe programmedsoftwarenecessary
formanaging inventory.

19
 CHAPTERTWO
LITERATURE REVIEW

2.0Introduction
Thischapterpresentedareview ofrelatedliteratureon thesubjectunderstudy presentby
variousresearchers,scholars,analystandauthors. Theresearch drewmaterialsfrom several
sourceswhichwerecloselyrelatedtothethemeandtheobjectivesof thestudy.Empirical
literaturesbythewriterswereusedtoillustrate thevarioussubtopicsmentionedinthe objectives of
thestudy.Generally,thissectioncoveredthetheoretical,empiricalreviewand conceptualframework.

2.1TheoreticalLiterature
A theoreticalframeworkisacollection ofinterrelatedconcepts.Itguidesresearch to determinewhat
thingsto measure, and what statisticalrelationshipsto look for (Defee,
Randal,Thomas&Williams,2010). Thisstudywasbuilt ontheunderpinningtheories,
includingtheagencytheory,contingencytheoryandcompetencytheory.
2.1.1AgencyTheory
Agency theory wasinitiatedbyJensenandMeckling(1976).Itdescribesfirmsasnecessary
structurestomaintaincontracts,andthroughfirms,itispossibletoexercisecontrol which
minimizesopportunisticbehaviorof agents.Inordertoharmonizetheinterestsof theagent
andtheprincipal,acomprehensivecontractiswrittentoaddress theinterestofboththeagent
andtheprincipal.Therelationshipisfurtherstrengthenedbytheprincipalemployingan
experttomonitortheagent(Barlie&Means,1932).Thispositionisalsosupportedby Coarse
(1937)whomaintainsthatthe contractprovidesforconflictresolutionbetweenthe
agentandprincipal,theprincipaldetermines theworkandagentundertakes thework.
Thetheory recognizestheincompleteinformationabouttherelationship,interestsorwork
performanceoftheagentdescribedasadverseselection andmoralhazard.Moral hazardand
adverseselectionaffectstheoutputoftheagentintwoways;notdoingexactlywhatthe agentis
appointedtodo,andnotpossessingthe requisiteknowledgeaboutwhatshouldbe
done.Thisaffectstheoverall performanceoftherelationshipaswellasthebenefitsofthe
principalintheformofcashresidual.
Financialcontrolis oneofmanymechanisms usedinbusiness toaddresstheagencyproblem.
Othersincludefinancialreporting,budgeting,auditcommitteesandexternalaudits.Studieshaveshow
nthatinternalcontrolreduces agencycosts withsomeevenarguingthatfirmshave an
economicincentivetoreport on internalcontrol.Itisalsoargued thatproviding
thisadditionalinformationtotheprincipal(shareholder)aboutthebehavior of theagent
20
(management)mayreducetheinformationasymmetry andlowerinvestorriskandtherefore,
thecostof equitycapital.Otherresearchhasfoundthatweaknessesininternalcontrolsare
associatedwithincreasedlevels of
earningsmanagement(Chanetal.,2008;Ashbaughetal.,2008).Thistheorywasapplicabletoourstudy
becausewhentheproblemof agencyis
minimized,internalcontrolisfostered;accountabilityisimprovedthatimproves thefinancial
performanceofPEDN Mbale Branch under USAID.

2.2Empirical Literature
2.2.1InventoryRecordingonFinancialPerformance
Amaka(2012)conductedastudy on therelationshipbetweeninternalmeasurestoproper
accountingrecords.Asurveyresearchdesignwasadoptedforthisresearchstudyanda
samplesizewasselectedusingYaroYamanesamplingtechniqueas datausedwereobtained fromboth
primary andsecondary sources.Fourresearch questionswereformulatedoutof which
threehypothesiswereformulatedusingregression co-efficientanalysismethodat5%
levelofsignificanceandtheZtablewasalsousedforcomparisonbetweencalculatedvalue
ofsignificanceB andtablevalue.Thefindingfromtheanalysisindicates thatinternalcontrol
measuremanagementperformanceandisnecessaryforthegrowth andeffectivenessof the
organization.

Wambua,Okibo, Nyang’auandOndieki(2015)investigatedtheeffects ofthemanagementof

warehousinginventory systemsonSeventhdayAdventistinstitution’sfinancialperformance
inKenya.Themainobjectiveistoevaluatetheeffectsofinventory warehousingsystemson
SeventhDayAdventistInstitution’sfinancialperformance.Thespecificobjectivethatguided
thisresearchwastoassesstheeffectof Inventory warehousingsystemson thefinancial
performanceofAdventistBookCenters.Theresearcheruseddescriptiveresearch designin
undertaking thisstudy.Thetargetpopulation was216employeesatHHESwhilesamplesize was
30%ofthetargetpopulationtotalingto64employees.Thesamplingdesignadoptedwas
bestratifiedrandomsamplingbecausepopulationisheterogeneous.Datawasanalyzedby
useofstatisticalpackageforsocialscience(SPSS)regression andcorrelation.Datawasthen
presented usingtables and figures. The empiricalresults revealed
apositivesignificantrelationshipbetweenfinancialperformanceandInventorywarehousing system

MukopiandIravo(2015)examinedtheeffectofinventorymanagementonperformanceof
theprocurementfunctionof sugarmanufacturingcompaniesinthewesternsugarbelt.
Descriptiveresearch design,specifically asurveystudy wasemployedincarrying out the
21
research.Thetargetpopulationofthestudyconsistedofasampleofprocurementpersonnel of
MumiasSugarCompany,WestKenyaSugarCompany,NzoiaSugarCompany and
ButaliSugarMillswhichwas30procurementpersonneloutofthetotaltargetpopulationthat was
100procurementpersonnel.The researchinstrumentwas structuredquestionnaires that wereself-
administeredtotherespondents.Data was analyzedusingSPSSandpresentedin tablesand charts.
The ANOVAresult for all variables indicated that there is a strongrelationship between the
four variables; lean inventory systems, strategic supplier partnerships,information
technology,legal policiesandthe effectofinventorymanagement
onperformanceoftheprocurementfunctionofsugarmanufacturingcompanies.

Duru,OkpeandUdeji(2014) examinedtheimpactofinventorymanagementpractices onthe

financialperformanceofengineering firmsinNigeria. Because ofthe
hugeinventoriesmaintainedbymostfirms,aconsiderablesumofanorganization'sfundis
beingcommittedto them.Thusitbecomes absolutelyimperativetomanageinventories
efficientlysoastoavoid thecostsofchangingproductionrates,overtime,sub-
contracting,unnecessary costofsales
andbackorderpenaltiesduringperiodsofpeakdemand.Theresearchsurveywasconducted
inallthefiveselectedengineeringfirmsfromtheperiod2009-2014.Secondary datawas
obtainedfromAnnualReportsofthecompaniesunderstudy.Correlationanalysiswasused
todeterminethenatureandmagnitudeof therelationshipamonginventorymanagement variables.
Theresults indicatethat thereexistsapositivecorrelation between
inventorymanagementandReturnonAssetandalsowithReturnonEquity which werefoundtobe
statisticallysignificant.

Lwikietal.(2013)examined theimpactofinventory managementpracticeson thefinancial

performanceof sugarmanufacturingfirmsinKenya,byanalyzingtheextenttowhichlean inventory
system,strategicsupplierpartnershipandtechnology arebeingappliedin these
firms.Theresearchsurveywasconductedinalltheeightoperatingsugarmanufacturing
firmsfromtheperiod2002-2007.Theprimary datawascollectedusingstructuredandsemi-
structuredquestionnaires administeredtokeyinformantsintheorganizations.Secondarydata
wasobtainedfrom annualfinancialperformancestatementsavailableintheyearBooksugar
statistics.Descriptivestatistics was usedtotesttheimpactofinventorymanagementpractices
andCorrelationanalysiswasusedtodeterminethenatureandmagnitudeof therelationship among
inventorymanagement variables.Theresultsindicatethat thereexistsapositive correlation
betweeninventory managementandReturn on Salesand alsowith Return on Equity.

22
2.2.2StockAudit onFinancialPerformance
Ziaee(2014)conductedastudy on theeffectofauditquality on theperformance oflisted
companiesinTehranStockExchange.Accordingtothisstudy afirmengagesinopinion
shoppingbyinfluencingorevenmanipulatingitsauditor’s decisionincertainwaystoobtain an
opinion that is more favorable that that warranted by the quality of its
accountinginformation.If suchbehavior exists, thenitwouldleadtoahigherdegreeofinformation
asymmetrybetweenmanagersandinvestors andweakenauditingprotectiveeffecton
investors.Manyresearchershavebeendonetoimprovetheunderstandingofauditqualityto
abetterunderstanding.Thisconceptcanbeachievedandtherelationshipbetweenaudit quality
andotherparameterstobedetermined. Thestudy concludedthatthereisapositive
significantrelationshipbetweenauditqualityandauditorsize.

Okello (2014) conductedastudy onaninvestigationoftheeffectsofauditplanning on inventory

audit; asurveyofselectedauditfirmsinNairobiCounty.Theresearchstudy used
descriptiveresearchdesignincollectingthedatafromrespondents. Accordingtothestudy
87.3%,76.1%,81.7%,77.5% of therespondentsstatedthat,auditstrategy,allocationof
resources,scopeofauditandpriority riskareasrespectivelyinfluenceinventory audit.The study
establishedthatauditplanningfacilitatestheauditortodevelopauditstrategy soasto
determineingeneral termshowtheinventory auditistobecarried;processofauditscope
helpstheauditor determinethe resourcesnecessaryto performthe inventoryaudit
andestablishesthedepth oftheinventory audit;givingpriority toriskareasandfacilitatesthe
auditors tofactorvariousrisksassociatedwithinventoryauditintotheplanningprocess.The study
recommendedthattheauditorobtainstheunderstandingoftheaccountingandinternal control
systemsintheorganization;considerthecomplexityoftheentity'ssystemsand controls
andthemannerinwhichtheyareused.

Kibe(2014)conductedastudy onimplementation ofeffectivestrategicauditplanningin

selectedpublicinstitutions.Thestudy adoptedanexploratory researchdesign.Thestudy revealed
thatmostrespondentsareconcerned thatprofessionalexcellenceatboth personal level
andorganizationallevelisimportantinstrategicauditplanninginthepublicsector to
attainandmaintainthereputationof publicauditorsasprofessionalswithanametoprotect
anddelivertotheexpectationofthegeneralpublic.Thestudyconcludedthat effective
implementationofstrategicauditplanninginpublicinstitutionshasnotbeensuccessfuldue

23
tovariousgapstherespondentsenumeratedin thequestionnaireswhichhasresulted tolittle
improvedauditpracticesinthecountry.

2.2.3InventoryManagementTrainingonFinancialPerformance
Trainingprovidesemployeeswith specificskillsorhelpstocorrectdeficienciesin their
performances,whiledevelopmentisanefforttoprovide employeeswith abilitiesthe organization
willneedinthefuture(Chew,2004).According(Cole,2002),trainingisa
learningactivitydirectedtowardstheacquisitionof specificknowledgeandskillsforthe
purposeofanoccupationortask.Inaddition,traininghelpsinoptimizingtheutilizationnof human
resource thatfurtherhelpstheemployeetoachieve the organizationalgoals aswellas
theirindividualgoals (Adeniji, Osibanjo&Abiodun,2013).

Chen,Hsu,&Huang(2013)conductedastudyonlaggedeffects of trainingonfinancial performance:

evidencefromlongitudinal data.Thispaperexaminedthelaggedassociation between training
andfinancial performance ofauditfirms. The paperfoundthatboth
partners’andassistants’traininghavesignificantlypositiveeffectsonfinancialperformance
withtheformeroccurringinthecurrentandone-year-laggedperiodsandthelatteroccurring in theone-
year-laggedand two-year-laggedperiods.Positive andsignificantassociation between
trainingandfinancial performanceinformspractitionersthattrainingcontributesto
auditfirmsandjustifiesthecontinuouseducation requirementin thepublicaccounting
profession.Theevidenceof one-year-delayeffectofassistants’ trainingonperformance
conveyedmanagerialimplicationtothepractitioners intheir employee recruitmentpolicy.

EvansandAnnuziata,(2012)argues thatinnovations promisetobringgreaterspeedand

efficiencytoindustriesasdiverseasaviation,railtransportation,powergeneration,oiland
gasdevelopment,andhealth caredelivery.Italsoholdsthepromiseofstrongereconomic growth,
throughimprovedrevenuecollectionandhighperformanceofgovernments.

Lucey (2005)demonstrated that,businessprocessautomation solutionsprovidethetools,

technologies,andinfrastructuretoautomatecomplexbusinessprocessesendtoendinordertohelpincr
easecompetitiveadvantage anddelivertremendousvalueandvisibility toyour
business,customers,andtradingpartners.Thisenablesincreasedpersonal andorganizational
productivityby automatingbusinesspoliciesandbestpractices,removingmanual tasks,and
eliminatingerror-prone reentryofinformation.

24
 Themissionof collectingtax andrevenueinaccordancewiththeapplicablelegislationisa complex
taskbecauseofthemassiveamountoftaxpayersandthedifferentrulesthatare applied
foreachcase(Davenport, 2013). To perform the alludedduty, many
differentsystemsexistwith theintentionofassistingtheIRSpersonnel tocarry outtheirjob.
Nevertheless,withtheamountofdatagrowthandtheconstantadvancementoftechnology,a
permanentrational sustainableinnovationpracticemaybenecessarytokeepthe IRSbusiness
processes runningadequately(Davenport,2013).

2.3SummaryandGapstobefilledbytheStudy
Amaka (2012);thefindingfromtheanalysis indicatesthatinternal control measure management
performanceandis necessary forthegrowth and effectivenessof the organization.
Asurveyresearchdesignwas adopted for this research study thuspresentinga methodological
gap.The current study used descriptive researchdesign.

Wambua, O k i b o , N y a n g ’ a u andOndieki(2015); theempirical results revealed a positive

significant relationship between financial performance and Inventory warehousing system. This
study focused onSeventh day Adventist institution’s thus presentinga scopegap. Thecurrentstudy
focusedon PED Mbale branch under USAID.

Okello(2014);thestudy found thataudit planningpositively affects inventoryaudit. Thestudy

wasconductedin Nairobi thuspresentinga geographical gap. The currentstudy wasconducted
inPED Mbale branch under USAID.

Kibe (2014); thestudy found thataudit planningpositively affects financialperformance. Thisstudy

focusedon only oneformofinventorycontrol thus presentingaconceptual gap. The current
studyfocused on other forms which include inventory record keeping, computerization
and inventory management training.

MukopiandIravo(2015); thestudy found that inventory management positively affects

performanceof the procurement function ofsugar manufacturing companiesin thewestern
sugarbelt.Thisstudy focused onsugar manufacturing companiesthus presentingascopegap.
Thecurrentstudy focused on PED Mbale branch under USAID.

25
 CHAPTERTHREE

RESEARCHMETHODOLOGY

3.0Introduction
Thischapterdiscussedtheresearchmethodology thatwasused,inan attempttoachievethe
objectives of thestudy.Attentionfocusedonresearchdesign,targetpopulation,samplesize
andsampling techniques,datacollectioninstruments,datacollection procedureanddata
processingandanalysis.Lastlyitfocusedonethicalconsiderations.

3.1ResearchDesign
Thestudy adopteddescriptiveresearchdesign.AccordingtoCooper&Emory (1995),the
objective of the descriptive study is to describe phenomena as it exists at present. A
descriptivedesignwas appropriateforthisstudyasitenabledthe researchertoinvestigatethe
inventorycontrolstrategiesonthe financialperformance ofPEDN Mbale branch under
USAID.MugendaandMugenda (2009).Ontheotherhand,givethepurposeofdescriptive
researchas determiningandreportingtheway thingsare.Thestudy adoptedbothqualitativeand
quantitative researchapproaches.

3.2TargetPopulation

Apopulationhasbeendefinedasthetotalcollectionof elementsaboutwhichinferencesare
madeandreferstoallpossiblecaseswhichareofinterestforastudy (Sekaran,2008).Other
scholarslikeSmith(2011)viewpopulationasthelargecollectionof allsubjectsfromwhere
asampleisdrawn.Thethetargetpopulationofthestudy was85employeesinPEDN Mbale branch
under USAID.Theemployeesintheprocurement departmentwereselectedforstudyas
theywouldprovide reliable responseneededforanalysis.

Table3.1:Population

SubDepartment Population
Finance &Accounting Department 10
Budgetingdepartment 14
InternalAudit 8
ProcurementDepartment 53
Total 85
Source:PEDN Mbale branch(2022) Human Resource Department

26
3.3Sample SizeandSamplingTechnique

Asampleis asubsetofapopulation(Kothari,2004).Thesample size for thestudywas

determinedusing Krejcie& Morgan(1970)Table(seeAppendices)ascitedinAmin
(2015:454)anda population of 85 asample sizeof 70 respondents.
Therefore,thesamplesizewas70employeeswasselectedusingstratifiedrandomsampling.Thest
ratawere thedepartments.Thismethod was usedbecausethesamples
representedthetargetpopulationandeliminatesamplingbias.

Table3.2:Sample Size

SubDepartment Population Sample

Finance and Accounting Department 10 10
Budgetingdepartment 14 12
InternalAudit 8 8
ProcurementDepartment 53 40
Total 85 70
Source:PEDN Mbale branch(2022) Human Resource Department
anddeterminedusingKrejcie&Morgan (1970) as cited in Amin (2015)

3.4DataCollectionInstruments
BurnsandGrove (2003)definedatacollectionas theprecise,systematicgatheringof
information relevantto theresearch sub-problems,usingmethodssuch asinterviews,
participantobservations,focusgroupdiscussion,narrativesandcasehistories.Thisstudy
usedbothprimarydataandsecondary data.Primarydatawascollected through the
administrationof questionnaires.Aquestionnaireisapre-formulatedwrittensetof questions
towhich therespondentsrecord the answersusuallywithinrathercloselydelineated
alternatives(Newing,2011).Likertscaleof5to1(5=stronglyagree,4=agree,3=Neutral,2=disagr
eeand1=stronglydisagree)wasused. For thepurposesofinterpretationof the study
results,5and4(stronglyagreeandagree)weregroupedtogetherasagree,2and1
(disagreeandstronglydisagree)weregroupedasdisagreewhile3wasneutral.themean
scoreoftheresponseswasusedtodeterminewhethertherespondentsagreedordisagreed
withthestatements.Theuseof questionnairewaslimitedbyrespondent’sunwillingnessto
respondtothequestionsduringnormalworkingtime. Toovercomethese,theresearcher
soughtandavailedhimselfatthemostconvenienttimeaspreferredandsoughtforrelated
dataandestimatesfromthecounty government.Theresearcheralsoensuredanonymityto
encouragetherespondentstosharetheirrecords forresearchpurposes only.Thesecondary
dataforthis was collectedfromtheannualfinancialstatements ofPEDN Mbale.
27
 3.5DataCollectionProcedures
KomboandTromp(2009)statesthatdatacollectionisimportant inresearchbecauseit
allowsfordissemination ofaccurateinformation and developmentofmeaningful
programmes. The questionnaireswereself-administered. Theresearcher
informedtherespondentsthat theinstrumentsbeingadministeredwereforresearch
purposeonlyand theresponsefromthe respondents
willbekeptconfidential.Theresearcherobtainedanintroductoryletterfrom
theUniversityinordertocollectdatafrom
thefieldandthenpersonallydeliveredthequestionnairestotherespondentsandtheyfilledinandth
encollectthequestionnaireslater.Thedropandpicklatermethodwere
usedinthestudy.Thequestionnaireswere
senttotherespondentsunderaquestionnaireforwardingletter.Followupsweremadeand
thefullycompletedquestionnaireswerepickedfromtherespondentslaterby use ofare-
searchassistantorthroughemail.

3.6InstrumentValidity and Reliability

3.6.1Validity
Validity refers to whether a questionnaire is measuring what it purports to measure
(Bryman&Cramer1997).Itdescribesvalidityasthedegreeof congruencebetweenthe
explanationsof thephenomenaandtherealitiesof theworld.Whileabsolutevalidityis
difficulttoestablish,demonstrating thevalidity
ofadeveloping.Toensurecontentvalidity,thequestionnaire
wassubjectedtothoroughexaminationbytworandomlyselectedresearchexperts.They
wereaskedtoevaluatethestatementsinthequestionnaireforrelevanceandwhetherthey
weremeaningful, clear andloadedofoffensive. Onthebasis oftheevaluation,theinstrument
wasadjustedappropriatelybeforesubjectingittothefinaldatacollection exercise.Their
reviewcommentswereusedtoensurethatcontentvalidityisenhanced. Thevaliditywas
alsoenhancedbypre-tidyingofthequestionnaireanduseofexperts,whowereadvisedon the
relevantquestions toincludeinthequestionnaire.
3.6.2 Reliability
Reliabilityreferstotherepeatability,stabilityorinternalconsistencyofaquestionnaire(Jack&Clar
ke,1998).Cronbach’salphawasusedto test thereliability ofthemeasuresinthe
questionnaire(Cronbach,1995).In thisstudy,datacollectioninstrumentwhichisa
questionnairewas testedon10%ofthesampleofthequestionnaires andthis ensuredthatitis
relevantandeffective.Reliabilitywas
28
testedusingquestionnairedulycompletedbyseven(7)randomly selected respondents. These
respondentswerenotincludedinthefinal studysampleinordertocontrol
forresponsebiasness.Thequestionnaireresponseswereinputinto statistical packageforsocial
sciences(SPSS)andCronbach’salphacoefficientgenerated to assess
reliability.ThecloserCronbach’s alphacoefficientis to1, thehighertheinternal
consistencyreliability(Sekaran,2006).Acoefficientof 0.7isrecommendedforanewly
developedquestionnaire.
Table3.2:Reliabilit
y

Variable Noofitems Respondents α=Alpha Comment

Inventory 6 7 0.7543 Reliable
Recording
StockAudit 6 7 0.7987 Reliable
Inventory 6 7 0.8211 Reliable
Management
Financial 5 7 0.7342 Reliable
Performance
TheCronbachalphahasbeencomputedforthepurposeofmeasuringthereliabilityof the
administeredquestionnaire.This was achievedthroughthesubjectionofsevenquestionnaires
toarandomlyselectedsevenemployeesPEDN Mbale. Theconclusionreached isthatall
thevariablescouldberelieduponastheCronbach alphaachievedwasabove0.7 which is what has
been used as the hurdle rate ofreliability for the study.

3.7Data ProcessingandAnalysis
Burns andgrove (2003)definedataanalysis as amechanismforreducingandorganizingdata
toproducefindingsthatrequireinterpretationby theresearcher.AccordingtoHyndman
(2008)dataprocessinginvolvestranslatingtheanswersonaquestionnaireintoaformthat can
bemanipulated to producestatistics. This involvescoding, editing, dataentry,
andmonitoringthewholedataprocessingprocedure.Afterquantitativedatais obtainedthrough
questionnaires,itwaspreparedin readinessforanalysisby editing,handlingblank responses,
coding,categorizing andkeyedintostatistical packageforsocial sciences(SPSS)computer
softwareforanalysis.Thestatisticsgeneratedincludeddescriptiveandinferential statistics.
Microsoftexcelwas usedtocomplementSPSSespeciallyinproductionofcharts andtables.

Theparticulardescriptivestatisticsincludedfrequencies andpercentages whiletheparticular

inferential statisticsincludedcorrelation analysisandregression.Correlation analysis
establishedtheassociationbetweenthevariableswhileamultiplelinearregressionmodel was used
to test the significance of the influence of the independent variables on the
29
dependentvariable.Thechoiceandjustificationofusingamultiplelinearregressionmodelis
thatitisuseful intestingthecausal/effectrelationshipbetweeninternal control strategiesand
financialperformance.

In ordertotestforcausal relationshipbetweenthedependentandindependentvariables,
2
R statistic,Fstatistic,regression/betacoefficients was evaluatedforsignificanceusingp
values.Thecriticalpvaluewassetat0.05.Theresultswerepresentedinformoftablesand piechart.

3.8Ethicalconsiderations
Ethicsisacodeof conductwhichtheresearcherissupposedtoobeywhenconductingthe study
(Mugenda&Mugenda,2003).Ethicalconsiderationsrelatetothemoralstandardsthat
theresearchershouldconsiderinallresearchmethodsinallstagesoftheresearchdesign
(Polit&Beck,2003).Duecarewasgiventostrictadherenceof researchprocedures
particularlythoseinvolvinghumansubjects.Sincethestudyinvolvedhumanparticipants, carewas
takentoensurethattheyarenotaffectednegativelyinanywayandthe researchwas
notundertakenforpersonalgain(Mugenda& Mugenda,2003).Inaddition,a researchpermit
wassoughtbeforetheresearchstudybegins.Thereforeapproval wassoughtfromPEDN
Mbalebeforeundertakingtheactualresearch.The other ethical issues that were observed
throughout the research process
included:confidentialityandanonymity,voluntaryparticipationandfairnessontherespondents.Thi
smeantthatanyrespondentwhofeltuncomfortabletocontinueonthe researchwasallowedto step
down. Theresearcher alsoensured that thedatacollected was treated withutmost
confidentialityandwas usedforpurposesofthe researchonly.

30
 CHAPTERFOUR
PRESENTATION, ANAYLSISAND INTEPRETATIONOFRESULTS

4.0Introduction
Thischaptercomprisedofdataanalysis,findingsandinterpretation.Resultswerepresented
intables anddiagrams.Theanalyzeddatawasarrangedunderthemes thatreflectedthe
researchobjectives.

4.1ResponseRate
70 questionnairesthatwereadministeredtotheemployeesinPEDN Mbale
branch.Table4.1shows theresults

Table4.1:ResponseRate

Response Frequency Percent

Returned 62 88.53%
Unreturned 8 11.37%
Total 70 100%
Source:SurveyData(2022)
Atotal of62questionnaireswereproperlyfilledandreturned.Thisrepresentedanoverall
successfulresponserateof88.53%asshownonTable4.1. AccordingtoMugendaand
Mugenda(2003)andalsoKothari(2004)aresponserateof above50%isadequatefora
descriptivestudy.Babbie(2004)alsoassertedthatreturnratesofabove50%areacceptable
toanalyzeandpublish,60%isgood,70%isverygoodwhileabove80%isexcellent.Based
ontheseassertionsfromrenownedscholars,88.53%response rateis excellentforthestudy.

4.2BiodataAnalysis

This sectionconsistedofinformationthatdescribes basiccharacteristics suchas genderofthe

respondent,numberofyears worked.

4.2.1GenderoftheRespondents

Therespondentswereaskedtoindicatetheirgender.Theresultswerepresentedinfigure4.1 below.

31
Figure4.1:GenderoftheRespondents
Source:SurveyData(2022)

Theresultsindicatedthatmajorityoftherespondentswhowere68%weremaleswhileonly
32% w e r e f e m a l e . This i m p l i e s t h a t m o s t e m p l o y e e s i n P E D N weremen.
4.2.2AgeoftheRespondents
Therespondentswereaskedtoindicatetheirage.Theresultswereindicatedinfigure4.2 below.

Figure4.2:AgeoftheRespondents
Source:SurveyData(2022)

Majorityoftherespondentswhowere42%were26–35years,40%oftherespondentswere36–
45years,10%oftherespondentswereless
than25yearswhileonly8%wereabove45years.ThisimpliedthatmostoftheemployeesinPEDN
Mbale weremiddleagedpeople.

4.2.3LevelofEducation

Therespondentswereaskedtoindicatetheirlevelof education.Theresultswereindicatedin
figure4.3below.

32
Figure4.3:LevelofEducation
Source:SurveyData(2022)
Majorityoftherespondentswhowere47%hadbachelor’sdegree,34%oftherespondents
hadpostgraduatedegree,13%ofthe respondents haddiplomawhileonly6%hadcertificate.
ThisimpliedthatmostoftheemployeesinPEDNwere educatedpeople.
4.3.4Years Worked

Therespondentswerealsoaskedtoindicatetheyearsworkedinthecountytreasury.The results
wereshowninfigure4.4below.

Figure4.4:Years Worked

Source:SurveyData(2022)

Majority oftherespondentswhowere55%indicatedthattheyhadworkedin thecounty

treasurydepartmentfor1–2years,26%oftherespondentsindicatedthattheyhadworked for3–
4years,14%indicated that they hadworkedforlessthan 1yearwhileonly 5%had
workedforabove4years.

33
4.3DescriptiveStatistics

4.3.1InventoryRecordingandFinancialPerformance

Thefirstobjectiveofthestudywas toestablishtheeffectofinventoryrecordingonfinancial
performanceofPEDN Mbale branch.Theresultswerepresentedintable4.3 below.
Table4.3:InventoryRecordingandFinancialPerformance

Statements SD D N A SA Mean Std

Dev
Receiving documents are matchedto 6.50 17.7 14.50 45.20 16.10 3.47 1.16
purchaseorders andinvoices % 0% % % %
Inventoryrecords aremaintained 4.80 14.5 6.50 50.00 24.20 3.74 1.13
basedonperiodic physicalcounts or % 0% % % %
aperpetualsystem
PEDN Mbalekeep accurateinventory 4.80 16.1 12.90 46.80 19.40 3.71 1.21
records % 0% % % %
Thereare inventory warehousing
systemsinPEDN Mbale 8.10 9.70 4.80 51.60 25.80 3.77 1.18
% % % % %
Inventory recordingaffects 3.20 16.1 1.60 41.90 37.10 3.94 1.16
performanceof PEDN Mbale % 0% % % %
Average 3.73 1.17
Source:SurveyData(202
2)

Theresultsintable4.3revealedthatmajorityoftherespondentswhowere61.3%(45.2%
+16.1%)agreedwith thestatementthatreceivingdocumentsarematchedtopurchaseorders
andinvoices.Thesefindingsagreedwith that ofWambua,Okibo,Nyang’auandOndieki
(2015)whose results revealedapositivesignificantrelationshipbetweenfinancial
performanceandInventorywarehousing system.

The resultsfurtherrevealedthatmajorityoftherespondents whowere74.2%agreedwiththe

statement thatinventoryrecordsare maintainedbased on periodic physical countsor a
perpetualsystem.Theresultsfurtherrevealedthatmajorityoftherespondentswhowere66.2%a
greedwith thestatementthatPEDN Mbalekeepaccurateinventory
records.Theresultsfurtherrevealedthatmajorityoftherespondentswhowere77.4%agreedwit
h the statement that there are inventorywarehousing systems in PEDN
Mbale.Theresultsfurthershowedthatmajorityof therespondentswhowere79.0%
agreedwiththestatementthatinventory recordingaffectsperformanceofPEDN Mbale.

34
Therespondentswerefurtheraskedtoindicateothereffectinventory recordinghaveon
financialperformanceof thecounty.Majorityoftherespondentsindicatedthatinventory
recordingaffects returnonassetsofthecompany
4.3.2StockAuditingandFinancialPerformance

Thesecondobjective ofthestudy wastodeterminetheeffectofstock takingonfinancial

performanceofPEDN Mbale.Theresultswerepresentedintable4.4 below.
Table4.4:StockAuditingandFinancialPerformance
Statements SD D N A SA Mean Std
Dev
Thenumberof locations thatneed 8.10% 8.10 33.90 46.80 3.20 3.29 0.96
tobeauditedin PEDN thataffects % % % %
thefinancial performance
Thereis transparencyin
stockauditinPEDN 6.50% 3.20 11.30 56.50 22.60 3.85 1.02
% % % %
Thetotalcountof stockthatis available
in PEDNaffects the financial 3.20% 3.20 9.70 61.30 22.60 3.97 0.87
performance % % % %
Thereis professional
excellenceamong theauditteamin 4.80% 16.10 14.50 50.00 14.50 3.53 1.08
stockauditing % % % %
Stockauditaffects financial
performanceofPEDN 3.20% 12.90 4.80 51.60 27.40 3.87 1.06
% % % %
Average 3.70 1.00

Source:SurveyData(2022)
Theresults revealedthatmajorityofthe respondents whowere50.0%(46.8%+3.2%)agreed
withthestatementthatthenumberoflocationsthatneedtobeauditedinthecountyaffects
thefinancialperformance.

Theresultsalsorevealedthatmajorityoftherespondentswho were79.1%agreedwith
thestatementthatthereistransparencyinstockauditin PEDN.

Theresultsfurthershowedthatmajorityoftherespondentswhowere83.9%agreedwiththe
statementthatthetotal countofstock thatisavailableinthecounty affectsthefinancial
performance.Theresultsalsoshowedthat majorityoftherespondentswhowere64.5% agreedwith
thestatementthat thereisprofessional excellence among theaudit team in stock
auditing.Theresultsalsoshowedthatmajority oftherespondentswhowere79.0%agreed
withthestatementthatstockauditaffects financialperformanceofthecounty.
35
Onafivepointscale,theaveragemeanoftheresponseswas3.70whichmeanthatmajority of
therespondentswereagreeingwithmostof thestatements;howevertheanswerswere
variedas shownbyastandarddeviationof1.00.The respondents
werefurtheraskedtoratetheprocess ofstockauditintheircounty.Majority ofthe
respondentsindicatedthatitwas fairlygood.

4.3.4InventoryManagementTrainingandFinancialPerformance

Thefourthobjectiveofthestudywas toexaminetheeffectofinventorymanagementtraining
onfinancialperformanceofPEDN Mbale branch.Theresultswerepresented intable4.6below.

Table4.6:InventoryManagementTrainingandFinancialPerformance

Statements SD D N A SA Mean Std

Dev
Allemployeesinthe training
department undergoinventory 4.80% 4.80 17.70 46.80 25.80 3.84 1.03
training % % % %
Thereareseminars on
inventorycontrols 9.70% 1.60 11.30 50.00 27.40 3.84 1.15
% % % %
Thereis coachingand
mentorshipprogram 4.80% 6.50 12.90 46.80 29.00 3.89 1.06
oninventorycontrol % % % %

Thereexists career 11.30% 6.50 12.90 53.20 16.10 3.56 1.18

progression/pathof employeesin % % % %
PEDN
Seniormanagers and supervisors
nominate employeesfortraining 8.10% 8.10 16.10 27.40 40.30 3.84 1.27
% % % %
Average 3.79 1.14
Source:SurveyData(202
2)
Theresultsintable4.6revealedthatmajorityoftherespondentswhowere72.6%(46.8%
+25.8%)agreedwith thestatementthatallemployeesin thetrainingdepartmentundergo
inventorytraining.Theresultsfurthershowedthatmajorityoftherespondentswhowere
77.4%agreedwiththestatementthatthereareseminarsoninventory controls.Theresults
furthershowedthatmajority oftherespondentswhowere75.8%agreedwith thestatement
thatthereiscoachingand mentorshipprogramoninventorycontrol.Theresultsfurther
showedthatmajorityofthe respondents whowere69.3%agreedwiththestatementthatthere
existscareerprogression/pathof

36
 employeesinthecounty.Theresultsfurthershowedthatmajority
oftherespondentswhowere67.7%agreedwith thestatementthatseniormanagers
andsupervisors nominateemployeesfortraining.
Onafivepointscale,theaveragemeanoftheresponseswas3.79whichmeanthatmajority of
therespondentswereagreeingwithmostof thestatements;howevertheanswerswere variedas
shownbyastandarddeviationof1.14.
Therespondentswerefurtheraskedtoindicatethechallengesthey encounterininventory
managementtrainingin thecounty.Majority oftherespondentsindicatedlackoffinancesto
supporttrainingprograms.

4.4InferentialStatistics

Inferential analysis wasconducted to generatemodeloffitness, andanalysis

ofthevarianceandregressioncoefficients.

4.4.1RegressionAnalysis

The results in table 4.7presented the fitness of model of regression model used in
explainingthestudyphenomena.

Table4.7: ModelFitness

Model R R Square Adjusted R Square Std. Error of the Estimate

3 .661a .437 .398 .441

Source:SurveyData(2022)

Inventoryrecording,stockauditingandInventorymanagementtraining werefoundto
besatisfactoryvariablesin financialperformance.Thiswassupportedby
coefficientofdeterminationalsoknownas
theRsquareof43.7%.ThismeantthatIinventoryrecording, stockauditingand Inventory
management trainingexplain43.7%of
thevariationsinthedependentvariablewhichwasfinancialperformance.The
resultsfurthermeantthatthemodel appliedtolinktherelationship ofthevariableswas satisfactory.

Fromtheanalysis, 43.7% variation inthedependent variable(financialperformance)

isexplainedbythemodel.
Instatisticssignificancetesting,thep-valueindicatesthelevelof relationof theindependent
variabletothedependentvariable.Ifthesignificancenumberfoundislessthanthecriticalvalue
alsoknown astheprobabilityvalue(p)whichisstatisticallysetat0.05,then the

37
conclusionwouldbethatthemodelissignificantinexplainingtherelationship;elsethe
modelwouldberegardedasnon-significant.Table4.8providedtheresultsontheanalysis
ofthevariance (ANOVA).

Table4.11:Analysis
ofVariance

SumofSquares df MeanSquare F Sig.

Regression 8.613 4 11.062 22.153 0.000
Residual 11.095 57 0.195
Total 19.708 61
Source:SurveyData(2022)
Theresultsindicatedthattheoverallmodel wasstatisticallysignificant.Further,theresults
impliedthattheindependentvariables aregoodpredictorsoffinancialperformance.Thiswas
supportedbyanFstatisticof22.153andthereportedpvalue (0.000)whichwasless thanthe
conventionalprobabilityof0.05significancelevel.

Table4.9:RegressionofCoefficients

B Std. Error t Sig.

(Constant) -0.649 0.689 -0.942 0.35
Inventoryrecording 0.293 0.132 2.213 0.031
StockAudit 0.314 0.131 2.391 0.020
InventoryTraining 0.355 0.126 2.811 0.007
Source:SurveyData(2022)

Regressionofcoefficients resultsintable4.9revealedthatinventoryrecordingandfinancial
performancearepositivelyandsignificantrelated(r=0.293,p=0.031). Thesefindingsagreed
withthatof Wambua,Okibo, Nyang’auandOndieki(2015) whose resultsrevealedapositive
significantrelationshipbetweenfinancialperformanceandInventoryrecording.

Thetablefurtherindicates thatstockauditandfinancialperformancearepositivelyand
significantrelated(r=0.314,p=0.020). Thesefindingsagreed with that ofZiaee(2014)who
found that there is a positive and significant relationship between stock audit and
performance.

Lastlythestudyestablishedthat inventorytrainingand financialperformancewerealso

positivelyandsignificantly related(r=0.355,p=0.007). Thesefindingsagreedwith thatof
Chen,HsuandHuang(2013)whofound thatboth partners’andassistants’traininghave
significantlypositive effectson financialperformance with the
38
formeroccurringinthecurrentandone-year-laggedperiodsandthelatter occurringintheone-year-
laggedandtwo- year-laggedperiods.

39
 CHAPTER FIVE

SUMMARY,CONCLUSIONSANDRECOMMENDATIONS

5.0Introduction

Thischapteraddressedthesummary ofthefindings,theconclusionsandthe
recommendations.This was doneinlinewiththeobjectives ofthestudy.

5.1Summary

Thissectionprovidedasummaryofthefindingsfromtheanalysis.Thiswasdoneinline
withtheobjectivesofthestudy.Thefirstobjectiveofthestudywastoestablishtheeffectof
inventoryrecordingonfinancialperformanceofPEDN Mbale. The
findingsrevealedthattherewasasignificantassociationbetweeninventory recordingand
financialperformance.

Thesecondobjective ofthestudy wastodeterminetheeffectofstock takingonfinancial

performanceof PEDN Mbale.Thefindingsrevealedthattherewasa
significantassociationbetweenstocktakingandfinancialperformance.

Thethirdobjectiveofthestudywas toexaminetheeffectofinventorymanagementtraining
onfinancial performanceofPEDN Mbale.Thefindingsrevealedthat
therewasasignificantassociationbetweeninventory managementtrainingandfinancial
performance.Thefindingswerealsosupportedby thestatementsin thequestionnaire which
majorityof therespondentsagreed.Thiswasalsosupportedbytheregressionresultswhich
revealedthatinventorymanagementtraininghadapositive andsignificanteffectonfinancial
performance.

5.2Conclusions

Basedonthefindings abovethestudyconcludedthatInventoryrecording,stockauditing
andinventorymanagementtraininghavea positive andasignificanteffecton financial
sustainability.Thestudyconcludedthat effectiveimplementationofstrategicaudit planning
inPEDNhas not been successfuldueand this hasresulted to little improved audit
practicesinthecountryandthusleadingtopoorperformanceinthecounty.

Thestudyconcludedthathighlyautomatedo r g a n i z a t i o n s performbetterthanPEDNthatstill
usesmanualsystems.

40
Thestudy alsoconcludedthato r g a n i z a t i o n s whichconductinventory trainingfrequently
perform betterthano r g a n i z a t i o n s whichlagbehindininventory
training.Inaddition,coachingand mentorshipprogramsfor
employeesleadstobetteremployeeperformance.

5.3Recommendations
Thestudyrecommended that thereshould betransparency in stock audit
inPEDN.Inaddition,allthecounty governmentshouldbeautomatedsoastoimprove
theirperformance.

Thestudy alsorecommendedthattheauditorshouldobtain theunderstandingofthe

accountingandinternalcontrol systemsintheorganization;considerthecomplexityofthe entity's
systems andcontrols andthemannerinwhichtheyareused.

Thestudy alsorecommendsthatthecounty governmentshouldorganizefrequentinventory

trainingsforalltheemployeesintheinventorytrainingdepartments.Thecountygovernment
shouldalsointroducecoachingandmentorshipprogramsoninventory trainingforall the
employeesinthecountygovernment.

5.4Areas forFurtherStudies

Thestudy soughttoexamineinventory
controlsandfinancialperformanceofPEDN.Thisstudy,therefore,focusedonPEDN,thus
areaforfurtherstudiescouldconsiderotherNGOsinUgandaforthepurposeof makingacomparison
ofthefindingswith thoseofthecurrentstudy.Thisstudy considered financial
performance,furtherstudiesshouldalsoconsiderprojectperformanceinUganda.
Also,financialmanagementcontrolsystems shouldbeconsideredinfurtherstudies.

41
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 APPENDICES

Appendix I:LetterofIntroduction

47
 Appendix II:Questionnaire

Iam Makayi Hassanisabachelor’sstudentof businessadministrationatUganda Christian

Universitycarryingoutresearchon“theInventorycontrol andtheFinancialPerformanceof PEDN
Mbale branch.”Thisis,tokindlyrequestforyourtimeandco-operationtotick orfill
inblankspaceswithyourmostsuitable answeror response.Theinformation provided
willbeconfidentialandonlyusedforthepurposeofacademic.

SECTION1:BASICINFORMATION

1.Genderofrespondents
Male

Female

2.Howoldareyou?(Years)

Less than25:

26-35:

36-45:

Above45:

3.Whatisyourlevelofeducation?

Certificate

Diploma

Bachelors

Postgraduate

4.Forhowlonghaveyouworkedwiththis Countygovernment?

Less than1year:

1-2years:

3-4years:

Above4years:

48
SECTION 2: EFFECT OF INVENTORY RECORDING ON FINANCIAL
PERFORMANCE

5. This section attempts to establish the effect of inventory recording on financial

performance.

Usethelikertscale.The responsescaleforthequestionsis as below

5= StronglyAgree,4= Agree,3= Neutral,2= Disagree,1= StronglyDisagree

Strongly Disagree Neutral Agree Strongly

Statement disagree agree
1 2 3 4 5
Receivingdocuments arematched
topurchaseorders andinvoices

Inventory recordsaremaintained
basedonperiodicphysicalcounts
oraperpetualsystem

PEDNkeep
accurateinventoryrecords

Thereareinventory warehousing
systemsinPEDN

Inventory recordingaffects
performanceof thecounty
government

6.Whatothereffects does inventoryrecordinghaveon financialperformanceofPEDN

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………..

SECTION3:EFFECT OF STOCKAUDIT ON FINANCIAL PERFORMANCE

7.This sectionattemptstoestablishtheeffectofstockauditon financialperformance.

Usethelikertscale.The responsescaleforthequestionsis as below

5= StronglyAgree,4= Agree,3= Neutral,2= Disagree,1= StronglyDisagree

49
 Strongly Disagree Neutral Agree Strongly
Statement disagree agree
1 2 3 4 5
Thenumberoflocationsthatneed
tobeauditedin thecounty affects
thefinancialperformance

Thereis transparencyinstockaudit
inthecounty

Thetotal countofstock thatis

availablein thecounty affectsthe
financialperformance

Thereisprofessional excellence
amongtheauditteam instock
auditing

Stock audit affects financial

performanceofthecounty

8.Howwouldyouratetheprocess ofstockauditinPEDN?Explain

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………..

SECTION 5: EFFECT OF INVENTORY MANAGEMENT TRAINING ON

FINANCIAL PERFORMANCE

11. This section attempts to establish the effect of inventory management training on
financialperformance.

Usethelikertscale.The responsescaleforthequestionsis as below

5= StronglyAgree,4= Agree,3= Neutral,1= Disagree,2= StronglyDisagree

Strongly Disagree Neutral Agree Strongly

Statement disagree agree
1 2 3 4 5
All employeesin thetraining
department undergo inventory
training

50
There are seminars on inventory
controls

Thereiscoachingandmentorship
programoninventorycontrol

There exists career

progression/pathof employees in
thecounty

12.Whatarethechallengesyouencounterininventorymanagementtraininginthecounty?

…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………
………………………………………………………………………………………………..

SECTION6:FINANCIAL PERFORMANCE
Strongly Disagree Neutral Agree Strongly
Statement disagree agree
1 2 3 4 5
The county was able to meet
recurrentexpendituresuchasstaff
salaries
The county was able to meet
principalloanrepayments

Thecountywasabletomaintainall its
operations.

Alllevies aredullycorrected

OurCounty’s Accounting system

adequatelyidentifies the receipts
andexpenditureofgrantcontracts

51
 Appendix III: Krejcie& MorganMathematic1970

N S N S N S N S N S

10 10 100 80 280 162 800 260 2800 338

15 14 110 86 290 165 850 265 3000 341

20 19 120 92 300 169 900 269 3500 246

25 24 130 97 320 175 950 274 4000 351

30 28 140 103 340 181 1000 278 4500 351

35 32 150 108 360 186 1100 285 5000 357

40 36 160 113 380 181 1200 291 6000 361

45 40 180 118 400 196 1300 297 7000 364

50 44 190 123 420 201 1400 302 8000 367

55 48 200 127 440 205 1500 306 9000 368

60 52 210 132 460 210 1600 310 10000 373

65 56 220 136 480 214 1700 313 15000 375

70 59 230 140 500 217 1800 317 20000 377

75 63 240 144 550 225 1900 320 30000 379

80 66 250 148 600 234 2000 322 40000 380

85 70 260 152 650 242 2200 327 50000 381

90 73 270 155 700 248 2400 331 75000 382

95 76 270 159 750 256 2600 335 100000 384

N= population

S=Sample size