ADMAS UNIVERSITY

DEPARTMENT OF ACCOUNTING AND FINANCE

TITLE
THE ROLE OF INTERNAL CONTROL SYSTEM ON PROCUREMENT PROCEDURE (CASE
STUDY SAGAL-JET)

By

Osman Mahmoud Ahmed and

&

AbdimalikAbdillahi Hussein

A Research Thesis Submitted to the Department of Accounting, Admas University Collage, in Partial
Fulfillment of the Requirements for the Award of Bachelor Degree in Accounting

Advisor: Mr. Shakib Mohamoud

September, 2020 Hargeisa, Somaliland

I
 Declaration
We, Abdimalik Abidllahi and Osman Mohaoud , hereby declare that this submission is my own work and
that, to best of our knowledge and belief, it contains no material previously published or written by another
student person or material which has been accepted for the award of any other degree or diploma of the
university or institute of higher learning, except where due to acknowledge has been made in the context and
reference list.

Student Name: Abdimalik Abdillahi Hussein Signature Date

Student Name: Osman Mohoud Ahmed Signature Date

This is to certify that this thesis is to bona-fide work of Abdimalik Abidlahi and Osman Mouhamoud ,
carried out under my supervision .

Name of the Advisor: Mr. Shakib Mohamoud signature Date

II
 Dedication
The Research is dedicated to our beloved Parents, Kaltuun Abdi Hajji and Hawa Ali Du’ale

III
 Approval
This is to certify that thesis entitled “The Role of internal control system on procurement procedure in Sagal
jet Company Hargeisa, Somaliland. Admas University toward partial fulfillment of the requirement for the
award of the Bachelor Degree of Arts in Department of Accounting.

Name of the Advisor: Mr. Shakib Mohamoud Arab Signature:

Name of the External Examine Signature

IV
 Acknowledgement

In the name of Allah, the most merciful the most gracious, the researcher thanks, Allah the way he has guided
to him and given the ability, the knowledge and the wealth to write this thesis.

This thesis would not have been possible without the guidance and help of several individuals who in one
way or another contributed and extended their valuable assistance in the preparation and completion of this
study.
First and foremost, my utmost gratitude goes to our dear parents Kaltuun Abdi Hajji( Abdimalik’s mother )
and Hawa Ali Du’ale ( Osman’s mother ) who enable us to attend this level of education and it would not
be possible without them .

Secondly, we wish to express my gratitude goes to our supervisor Mr. Shakib Mohamoud Arab, who
contributed and advised us to accomplish our graduation thesis.

Special gratitude is being given to Dean of ICT at Admas University , Mohamoud Hassan Geeldoon (
Osmam’s uncle ) , who financially helped me throughout the process, and Abdirahman Gahnuug Ahmed (
Abdimalik’s cousin ) who encouraged me as well to reach this stage.

Finally , we are thanking to administration and academic staff of Admas University who have taken party the
realization of our primary goals .

V
Contents
TITLE ............................................................................................................................................... I
Declaration ....................................................................................................................................... II
Dedication ....................................................................................................................................... III
Approval .......................................................................................................................................... IV
Name of the External Examine Signature ........................................................................... IV
Acknowledgement ........................................................................................................................... V
List of Tables ................................................................................................................................... X
ABSTRACTS ...................................................................................................................................... XI
CHAPTER ONE .............................................................................................................................. 1
Introduction ...................................................................................................................................... 1
1.1. Background of the Study ................................................................................................. 1
1.2. Statement of the problem ................................................................................................. 3
1.3. Objectives of the study................................................................................................... 4
1.3.1. General objective ....................................................................................................... 4
1.3.2. Specific objectives ...................................................................................................... 4
1.4. Research questions ......................................................................................................... 4
1.5. Scope of the Study .......................................................................................................... 4
1.6. Significance of the study ................................................................................................ 5
1.7. Definition of key words .................................................................................................. 5
CHAPTER TWO ............................................................................................................................. 6
LITERATURE REVIEW ................................................................................................................ 6
2.1. Introduction ..................................................................................................................... 6
2.1.1. Types of internal control ............................................................................................. 6
2.2. Components of internal controlsystem .......................................................................... 7
2.2.1. Components of internal control system ..................................................................... 7
2.2.2. Control Environment ................................................................................................... 7
2.3. Risk Assessment .............................................................................................................. 7
2.4. Control Activities ............................................................................................................. 8
2.5. Information and Communication ................................................................................... 8
2.6. Monitoring ....................................................................................................................... 9
2.7. Roles and Responsibility of Internal Control .................................................................. 9

VI
 2.8. Internal Control Evaluation ........................................................................................... 10
2.9. Effectiveness of Internal Control .................................................................................. 10
2.9.1. Value for financial control......................................................................................... 11
2.9.2. Limitations of Internal Controls ................................................................................ 11
2.9.3. Internal audit and its role in an organization ........................................................... 11
2.9.3.1. History of Internal Audit ....................................................................................... 13
2.9.3.2. Empirical review .................................................................................................... 14
2.9.4. Procurement .............................................................................................................. 16
2.9.4.1. The Role of Procurement Risk............................................................................... 17
2.9.4.2. Key Steps for Successful Procurement Management .......................................... 17
2.9.4.3. The Importance of Properly Managing Procurement Processes ......................... 18
2.9.4.4. Procurement Vs Purchasing .................................................................................. 19
2.9.4.5. The Procurement Process ..................................................................................... 19
2.9.4.6. The Purchasing Process ......................................................................................... 20
2.9.4.7. Navigating Procurement and Purchasing Processes ............................................ 21
2.9.4.8. Centralized Procurement ...................................................................................... 21
2.9.4.9. Degree of Centralization of Procurements ........................................................... 22
CHAPTER THREE ....................................................................................................................... 24
Research Methodology .................................................................................................................. 24
3.1. Introduction .................................................................................................................. 24
3.2. Research Design ........................................................................................................... 24
3.3. Research Population .................................................................................................... 24
3.4. Sample size.................................................................................................................... 24
Table 1. Sample Framework .................................................................................................. 25
3.5. Sampling Procedure..................................................................................................... 25
3.6. Research instrument .................................................................................................... 25
3.7. Sources of Data............................................................................................................. 26
3.7.1. Primary Data Sources.............................................................................................. 26
3.7.2. Secondary Data ........................................................................................................ 26
3.8. Validity and reliability of the instruments ................................................................. 26
3.9. Data Collection Instruments ....................................................................................... 26
3.10. Data Analysis and Presentation Tools .................................................................... 27

VII
 3.11. Ethical Consideration .............................................................................................. 27
CHAPTER FOUR.......................................................................................................................... 28
ANALYSIS, PRESENTATION AND INTERPRETATION OF THE DATA............................. 28
4. Introduction ...................................................................................................................... 28
4.1. Background Information............................................................................................. 28
4.1.1. Gender....................................................................................................................... 28
4.1.2. Age Group................................................................................................................. 28
4.1.3. Education level ......................................................................................................... 29
4.1.4. Area of Specialization .............................................................................................. 29
4.1.5. Experience in years ( With Sagal Jet only ) ........................................................... 30
4.1.6. Marital Status ............................................................................................................ 30
Section One: opponents of Internal Control.......................................................................... 31
4.2.1. Control Activities ..................................................................................................... 31
4.2.2. Senior managers monitor and review each section’s actual performance against
objectives?................................................................................................................................. 31
4.2.3. Performance reviews are made of specific functions or actives? ......................... 32
4.2.4. The success of all organization services is the degree to which it attains its set
objectives?................................................................................................................................. 32
4.2.5. The attainment of Value for Financial is based on the use of the office resources
in order to achieve its set objectives ....................................................................................... 33
4.2.6. Internal control section carryout regular reviews to ascertain whether the office
achieved value for financial control for all its activities ....................................................... 33
4.2.7. A formal organization-wide objectives are established ........................................ 34
4.2.8. Employees at all levels are represented in establishing the objectives. ............... 34
4.2.9. Planning for future needs is done well in advance of expected needs and
considers various scenarios. .................................................................................................... 35
4.2.10. A process exists to identify and consider the implications of external risk
factors. 35
Section Two: Challenges facing Internal Control System .................................................... 36
Obstacles Facing Internal Control System ............................................................................ 36
4.3.1. Internal control is to help employees have a precise way of doing their job and
to help management easy understanding of what is achieved in the budgeted work so far.
36
4.3.2. A good internal control will further have a positive impact on the shareholders'
confidence on the financial reporting of the company .......................................................... 37

VIII
 4.3.3. The management needs to educate the employees about the importance of this
control and to make it an offense to jump or avoid these controls. ..................................... 37
Section Three: Relationship Between internal control and procurement procedure ........ 38
4.4.1. There is relationship between internal control and procurement procedure ..... 38
4.4.2. Internal control contributes procurement procedure .......................................... 38
4.4.3. Procurement procedure is ineffective without strong internal control ............... 39
4.4.4. Does the internal control mechanism in place to make sure that communicated
procurement system corrections are implemented and effective to attain its objectives? 39
CHAPTER FIVE ........................................................................................................................... 41
5. Findings , Conclusion and Recommendation ........................................................................ 41
5.2. Recommendation.......................................................................................................... 43
References ................................................................................................................................. 44

IX
List of Tables

Table 1: Gender ………………………28

Table 2 : Age Group ………………...28
Table 3: Education ………………….29
Table 4: Specialization……………….29
Table 5: Experience ………………….30
Table 6: Marital status………………..30
Table 7: Control Activities…………….31
Table 8: Monitoring……………………31
Table 9: Performance…………………..32
Table 10: Financial use ……………….....33
Table 11: Financial Control……………..33
Table 12: Organization Objectives………34
Table 13: Employees representation……..34
Table 14: Planning for needs…………….35
Table 15: Process exist …………………..35
Table 16: Internal Control System………36
Table 17: Obstacles……………………….36
Table 18: Budget Work…………………..36
Table 19: Financial Reporting……………37
Table 20: Management needs…………….37
Table 21: Procurement Procedure……….38
Table 22: Internal Control ……………….38
Table 23: Ineffective………………………39
Table 24: Control Mechanism…………….40

X
 ABSTRACTS
Internal control is the most important roots that facilitate the organizations or
institutions to do the daily activities by achieving the basic objectives and goals. The
objective of the study was analyzing how internal control system facilitates on
procurement procedure.
The main objective of this study has been related with the internal control
and procurement procedure system on Sagal jet. Specifically, the study was conducted
to assess the effect of internal control components on procurement procedure on value
for financial control in Sagal jet company, to find out the relationship between internal
control and procurement system in Sagal jet office and to examine challenges facing
internal controls and ways they can be mitigated.
The study employed cross-sectional survey research design.
Pertinent data was gathered using both quantitative and qualitative
approaches through questionnaires and key informant interviews. Questionnaires were
distributed to a sample of randomly selected staff members from the Sagal jet office e.
Key informant interviews were also conducted, by selecting key persons; from the office
itself. The quantitative data was analyzed through descriptive and inferential statistics
by using SPSS results, and presented in tabular form, whereas the qualitative data was
edited and coded.
The analysis and the interpretation were conducted by giving summary,
conclusion and recommendation to the last findings.
Based on its findings, this research recommends that the Sagal jet company should to
develop adequate policies, procedures and manuals, written code of conduct, training
programs, commitment and continuous supervision by management, staff rotations and
external oversight

XI
 CHAPTER ONE

Introduction
1.1. Background of the Study
Internal control is argued to be a complex process with regard to both the public and
private sectors, realized by the management and employees of an organization, and
established for the definition of risks and for obtaining reasonable certainty (Mugo, 2011).

The purpose of the internal control is said to be the fact that it supports an organization in
complying with the relevant laws and regulations; meeting its accounting or reporting
obligations; and the achievement of its strategic goals, which include the protection of the
resources of the entity from losses, improper use and damages.

However, according to the Organization for Economic Co-operation and Development

(OECD, 2011), the public sector needs to uphold integrity, transparency and accountability.
It is, more over, asserted that calls for government transparency and accountability have
been on the rise due to the financial and economic crisis.

Internal control system is one of the vital processes for assuring achievement of an
organization's objectives in operational effectiveness and efficiency, reliable financial
reporting, and compliance with laws, regulations and policies therefore At the
organizational level, Internal control objectives relate to the reliability of financial
reporting, timely feedback on the achievement of operational or strategic goals, and
compliance with laws and regulations (Anderson, 2008).

At the specific transaction level, internal control refers to the actions taken to achieve a
specific objective (e.g., how to ensure the organization's payments to third parties are for
valid services rendered) internal control procedures.

As NCEDC (2012) stated the corporates operate within the USA like Apple, they
establishing and maintaining effective internal control system over financial reporting,
basis for designing their own auditing procedure for the purpose of expressing their
opinions on finical statements.

1
According to developing countries, the Internal Control System is all the methods and
procedures followed by the management in order to ensure, to a great extent, as much
successful cooperation as possible with the director of the company, the insurance of the
capital, the prevention and the detection of fraud, as well as the early preparation of all the
useful financial information (Meigs, 1984; Papadatou, 2005).

Since 1978 all American listed companies are required to have auditing boards with three
to five independent members. (Autissier, 1998, p.4) By that time internal audit function
has also grown to include “operational” orientation that is “control which functions by
examining and evaluating the adequacy and effectiveness of other controls”
(Ramamoorti, 2003, p.6).

Additionally, internal audit’s importance in organizational hierarchy rose as its success

was depending on the relationship between the audit committee and those in charge of the
organization. (Ramamoorti, 2003, p.7)

Reding et al (2013) through 2000’s and the beginning of 2010’s internal auditing evolved
around tightened regulations and increased need for regulatory compliance. It was
focusing more on risk management, improvement of business operations and IT and battle
with corruption. This was mainly due to global economic downturn and many corporate
scandals that resulted in new laws and regulations. Continuous and rapid development of
internal auditing over the years has been fueled by globalization, technological
development, e-commerce and growing complexity of organizational structures.

According to Baily et al. (2005), a procurement fundamental rule states that it is paramount
to think in terms of ownership. This is noted to include not only the purchasing price, but
also time and resources that are to be expended in pursuit of ownership. It is further asserted
that understanding the steps involved with procurement enables the determination of the
real cost involved with procuring any good or service.

In addition, Kenya there are many public and private organizations’procurement activities
which are posited to be riddled with neglect, lack of coordination and direction, lack of
open competition and transparency, corruption, and incompetent procurement staff. It is
further alleged that inflexible and bureaucratic procurement systems are largely to blame
2
for unacceptable contract delays, increased costs, potential for manipulation of contract
awards and lack of fair competition (G. Rotich, 2015 ).

However, as we have found reliable members including both customers and employees in
Sagal jet company, there is no strong clear internal control system compared to other
organizations in Somaliland. Unfortunately, there is a lack of local level studies which
shows how this variables effect each other. Thus, SagalJet will be taken as case study since
it is the first digital printing company in Hargeisa Somaliland. The main branch is located
central of Hargeisa Somaliland. Also, Sagal jet improves the advertising system in
Somaliland and it made it one of the well-known companies (Somaliland current, 2016).

1.2. Statement of the problem

Currently, apart from the problem of scarce resources and constrained budgets, private
organizations face a high risk of fraud, errors, misappropriation of funds and incorrect and
unreliable financial reports which leads to loss of integrity, implementation of accounting
policies inconsistent with applicable legislation and general fall in the operational
performance which ultimately forces the government to achieve less than its target
objectives Therefore, steps are required to minimize, if not eliminate completely, these
risks, by establishing effective internal control systems (Abu Bakr, 2014).

Internal Control System refers to an organized amalgamation of functions and procedures,

within a complete system of controls established by the management and whose purpose
is the successful function of the business (Hamed, 2008).

In addition to that, internal control has defined that a system of internal control extends
beyond those matters which relate directly to the functions of accounting and the financial
statements. In addition, he notes that internal control is a systematic procedure which will
lead to evaluate the degree of correlation between those established criteria and the real
results of the business (Whittington, 2004).

However, it is worth noting that most units and departments in private organizations have
not fully appreciated the role of internal controls as being one to ensure efficient utilization
of the resources of these institutions.

3
 In light of these happening, we as the researchers of this study identified that in Sagal jet
company there is no Internal control system that the company applies and still there is a
lot of complainants about the insufficiency procurement procedure, this information was
provided by on behalf of Sagal Jet during our visit at his office . Thus, the researcher would
answer how Internal control system effects procurement procedure. Therefore, the purpose
of this research is to investigate the relationship between internal control and procurement
procedure case study Sagal jet Hargeisa Somaliland. Finally, when the study solves this
problem and internal control is fixed within Sagal Jet, it will have an opportunity to control
its procurement system as sufficiently and zero complainant related to procurement.

1.3. Objectives of the study

1.3.1. General objective
The general objective of the study is to examine the role of internal control system on
procurement procedure in Sagal jet company.

1.3.2. Specific objectives

 To assess the effect of internal control components on procurement procedure on value for
financial control in Sagal jet company
 To examine the major challenges facing internal control systems in Sagal jet office and
ways they can be mitigated
 To determine the relationship between internal control and procurement system in Sagal
jet office

1.4. Research questions

1. What is the effect of internal control components on procurement procedure on value for
financial control in Sagal jet company?
2. What are the major challenges facing internal control systems in Sagal jet office and ways
they can be mitigated?
3. What is the relationship between internal control and procurement on Sagal jet office?

1.5. Scope of the Study

The spatial scope of this study was confined to the geographical boundaries of Somaliland
to investigate the role of internal control systems on procurement procedures in Sagal jet
Office, where the sample data was collected. In content wise, the study covered internal
4
control systems of the target in Sagal jet offices by examining the nature and type of
systems put in place, its effectiveness, its contribution to achieving its goals, and the major
challenges faced by the offices, its employees. In terms of time, the survey data collections
were limited to March 2020.

1.6. Significance of the study

The end of this study the information provided helps in contributing knowledge in the
department of procurement control in Sagal jet. It will have help the public especially the
business managers to appreciate the need for emphasizing proper internal control over
purchase to achieve targeted of business success Future researchers that may be interested
in the same or related topic are likely to benefit from the findings by borrowing a leaf in
form of related literature. This is so because the study was added on the existing body of
knowledge as far as internal control of business in businesses is concerned.

It helps to build on the researchers’ knowledge and understanding of the study variables. It
also help the researchers to gain more skills of conducting research and this was important
to the researchers while in office or pursuing further studies. It also helps the study to
appreciate the concept of internal control over purchase lastly, the study findings will help
to identify and highlight the weaknesses in internal control system on procurement
procedure of Sagal jet company and how influences business success.

1.7. Definition of key words

Internal control system is procedural policies established to provide reasonable assurance
that specific entity objectives will be achieved.

Procurement involves the process of selecting vendors, establishing payment terms,

strategic based negotiations of contracts.

Strategy is the way in which company achieves its competitive advantage considering with
change. Organization for Economic and Co-operational Development is an international
organization that works to build better policies for financial management institutions.

5
 CHAPTER TWO

LITERATURE REVIEW
2.1. Introduction
Internal control is a widely-used integrated framework which is a process that is affected
by an entity board of directors, management and other personal, designed to provide
reasonable assurance regarding the achievement of objectives in the three categories (a)
Effectiveness and efficiency of operations (b) accuracy and reliability of financial reporting
and (c) compliance with prescribed policies, procedures, laws and regulations (COSO,
1994).
Internal Control objectives are desired goals or conditions for a specific event cycle which,
if achieved, minimize the potential that waste, loss, unauthorized use or misappropriation
will occur. They are conditions which we want the system of internal control to satisfy. For
a control objective to be effective, compliance with it must be measurable and observable.
The control objectives include authorization, completeness, accuracy, validity, physical
safeguards and security, error handling and segregation of duties (Williams, 2000).

2.1.1. Types of internal control

Different writers have come with different types of internal control systems. (Millichamp,
2002) Puts the types of internal controls as; Safeguarding assets, Separation of duties,
supervision, Verification, Approval and authorization, Documentation, Safeguarding
Assets, and Reporting. However, many other authors such as (Hevesi, 2002), the state
university of New York and (DiNapoli, 2007) have agreed that the most important types
of internal controls are detective controls, corrective controls, and preventive controls.
These types are explained below:
 Detective – designed to detect errors that have already occurred. It includes double
checking of calculations and periodic performance reporting with variances

 Corrective – designed to correct errors or irregularities that have been detected. It

includes segregation of duties (deterrent factor) and establishment of suitable
procedures for authorization of transactions.

6
  Preventive – designed to keep errors or irregularities from occurring. It includes
hiring qualified personnel and inventory control systems to predict out-of-stock
items

2.2. Components of internal controlsystem

As defined in the Committee of Sponsoring Organizations of Treadway Commission
(COSO) Report of 1994, Internal Control consists of five interrelated components,
namely monitoring, information & communication, control activities, risk assessment,
and control environment. Each of the elements was discussed as follows.

2.2.1. Components of internal control system

As defined in the Committee of Sponsoring Organizations of Treadway Commission
(COSO) Report of 1994, Internal Control consists of five interrelated components, namely
monitoring, information & communication, control activities, risk assessment, and control
environment. Each of the elements was discussed as follows.

2.2.2. Control Environment

The control environment is the foundation for all other components of internal control,
providing discipline and structure. Leaders of each department, area or activity establish a
local control environment. The elements of the control environment also encompass the
organizational structures which specify responsibility in the performance of financial and
non-financial duties, management operating style, attitude, ethical values, the integrity,
skill and competence of personnel (DiNapoli, 2007).
The control environment includes awareness values, decisions, attitude and actions
regarding control. Hevesi (2005), considered the control environment to be the attitude
toward internal control and control consciousness established and maintained by the
management and employee of an organization. IFAC (2012) concurs that higher level
administrators of an organization are responsible for establishing the appropriate control
environment.

2.3. Risk Assessment

Risk assessment is the process of identifying and analyzing relevant risks to the achievement of the
entity’s objectives and determining the appropriate response (DiNapoli, 2007). It involves risk
identification; risk evaluation; assessment of the risk appetite of the organization; and development
7
of responses. Risk assessment should be performed and should identify; controllable risks and
uncontrollable risks (INTOSAI, 2004).
Risk management should always be systematic and also embedded in company procedures. And
there should be a culture of risk awareness in the organization. As governmental, economic,
industry, regulatory and operating conditions are in constant change, risk assessment should be an
ongoing iterative process.
Managing change requires a constant assessment of risk and the impact on internal controls.
Economic, industry and regulatory environments change and entities' activities evolve.
Mechanisms are needed to identify and react to changing conditions (IFAC, 2012).

2.4. Control Activities

According to Gendron, Cooper and Townley (2001) Control activities are the policies and
procedures that assist in ensuring that management directives are successfully
implemented. They provide the means to address the various risks that may hinder the
achievement of the organization’s objectives, and they are established in response to
perceived risks.
Control activities are the policies and procedures that help ensure management directives
are carried out. They help ensure that necessary actions are taken to address risks to
achievement of the entity's objectives. Control activities occur throughout the organization,
at all levels, and in all functions. They include a range of activities as diverse as approvals,
authorizations, verifications, reconciliations, reviews of operating performance, security of
assets, and segregation of duties (Millichamp, 2002).
According to Guy (1999) Control activities usually involve two elements: a policy
establishing what should be done and procedures to affect the policy. All policies must be
implemented thoughtfully, conscientiously and consistently.

2.5. Information and Communication

Pertinent information must be identified, captured and communicated in a form and time
frame that enables people to carry out their responsibilities. Effective communication must
occur in a broad sense, flowing down, across and up the organization. They must
understand their own role, as well as how individual activities relate to the work of others.
They must have a means of communicating significant information upstream. For the
control system to be effective and efficient there should be relevant and reliable

8
information which should be recorded and communicated to management and other
personnel within the organization (Millichamp, 2002).
ACCA (2005) considers information flow as a process through which the right
organizational members receive the right information at the right time. Here, formal and
informal channels information flows are noted. Formal channels comprises of downward
or top down, upward or bottom up and horizontal or lateral forms. The informal channels
comprises majority grapevine. It is further noted that for information to achieve its intended
purpose, it must be identified, captured, processed and communicated in an authentic,
useful and timely manner. In addition, the information communicated must be reliable,
accurate, complete, specific, understandable, directed to the right people and relevant to
the intended users.

2.6. Monitoring
Internal control systems need to be monitored and assessment of the quality of the system's
performance over time. Ongoing monitoring occurs in the ordinary course of operations,
and includes regular management and supervisory activities, and other actions personnel
take in performing their duties that assess the quality of system performance (Simmons
M.R, 1995).
Managers should promptly evaluate findings from audits and other reviews, including
those showing deficiencies and recommendations reported by auditors and others who
evaluate agencies‟ operations, to determine proper actions in response to findings and
recommendations from audits and reviews (Heald, 2003).
According to Coffin (2003) monitoring entails the activities and procedures designed to
assess the effectiveness of the internal control system in achieving the entity’s financial
reporting objectives. Monitoring activities may be ongoing or may be separate evaluations
and it is important given the complex and dynamic environments faced by most
organizations (Henle, 2005). It seeks to ensure that systems are performing as intended.
However, this is accomplished

2.7. Roles and Responsibility of Internal Control

According to the COSO framework (1994), everyone in the organization has responsibility
for internal control to some extent. Virtually all employees take part and produce

9
information used in the internal control system or take other actions needed to affect
control.

2.8. Internal Control Evaluation

DiNapoli (2007) stated that the purposes of evaluation are to provide management with a
reasonable assurance that; the organization’s systems of internal control are functioning
effectively; and they can identify both risks to the organization and opportunities for
improvement.

The five components of internal control are considered to be the criteria for evaluating a
financial reporting control and the bases for the auditors’ assessment a control risks in term
of; Understanding a client’s financial reporting controls and documenting that
understanding, preliminarily assessing the control risk, and testing the controls, reassessing
control risk, and using that assessment to plan the remainder of the audit work (IFAC,
2012).

2.9. Effectiveness of Internal Control

A judgment as to whether an entity’s internal control is effective is based on considering
the extent to which the components are present and operating effectively. Effective
functioning of all the components provides reasonable assurance as to achievement of one
or more of the three categories of objectives (COSO, 2004).
Internal control may be judged effective for each of the three aforementioned categories of
internal control objectives if the management have reasonable assurance that; they
understand the extent to which they entity’s operations objectives are being achieved;
Published financial statements are being prepared reliably; Applicable laws and regulations
are being complied with. Effectiveness of internal control depends on the presence of all
the components of internal control working together. No two entities are likely to have the
same internal control system (IFAC, 2012).
Internal control system operate at different levels of effectiveness and in determining
whether a particular internal control system is effective a judgment will result from an
assessment of whether the five component Control Environment, Risk assessment, Control
activities, Information and communication and Monitoring are present and functioning
(Douglas, 2011).
10
 2.9.1. Value for financial control
Financial control may be construed as the analysis of a company's actual results,
approached from different perspectives at different times, compared to its short, medium
and long-term objectives and business plans. These analyses require control and
adjustment processes to ensure that business plans are being followed and that they can be
amended in the event of anomalies, irregularities or unforeseen changes (Muresan, 2009)
The success for a private organization is the degree to which it fulfills its set objectives and
mission in terms of being planning, implementing, controlling and adjusting. The Internal
Control Systems are keys in achieving the organizational set mission and objectives; hence
financial control. Value for financial control can be achieved by eradicating waste in
benefits services processes and systems. Value for financial control is not paying more for
a good or service than its quality or availability justifies as well private spending implies a
concern with economy (cost minimization), efficiency (output maximization) and
effectiveness (full attainment of the intended results) (Kaplan, 1992).

2.9.2. Limitations of Internal Controls

According to Millichamp (2002) internal control systems may be limited by the realities of
one or more of the following;
 Judgment – Decisions and judgments that are made by people, often under
pressure and time constraints, based on information at hand.

 Breakdowns – Employees may not understand instructions or may simply make

mistakes. Errors may result from new systems and processes.

 Controls may be Outdated– Waste of time and money.

 Management Override – high level personnel may be able to override prescribed

policies and procedures.

 Collusion – two or more individuals, working together, may be able to circumvent

controls.

2.9.3. Internal audit and its role in an organization

Internal audit is designed to help the organization to reach its objectives. Fulfillment of
organizational objectives defines the company’s achieved success. Business objectives are
11
organizational goals and what the company wants to achieve. If they are coherent and can
be measured, they are in fact evaluation criteria of the organization’s success. The
organization states its objectives in a mission and vision statements. Mission statement
conveys what the organization is and what it wants to achieve today. Vision statement
communicates aspirations to what it intends to achieve in the future. (Reding et.al, 2013)
Business objectives’ categorization is a matter of discussion and believes. COSO
(Committee of Sponsoring Organizations of the Treadway Commission)
categorizes them as follows (Reding et.al, 2013):
 Strategic objectives are about what managements do and plan (strategy) in order to
create value for the organization’s stakeholders
 Operations objectives focuses on organization’s operations in order to increase
effectiveness and efficiency
 Reporting objectives are about reporting internal and external information and the
level of its reliability
 Compliance objectives concentrate on existing laws and regulations and their
implementation in the organization
The main role of internal auditing is to add value to the organization by performing
assurance and consulting activities. They need to be operational, tactical, and strategic and
improve operations. However, the interpretation of this role is wide. Primary duties of
assistance with risk management, control, and governance processes will add a different
value to the organization. In reality, it is depending on the specific needs of organizations
and the sector they are operating. (Reding et.al, 2013)

Pickett (2010, p. 335) notes that examples may be following: for organizations in the
scandal-ridden industry value adding auditing service will be compliance reviews. For
organizations in quickly growing sectors, value adding will be consulting advice on
programs and projects. For organizations in developing countries it may be building
controls and preventing fraud or corruption. For global organizations it may be
management of the risks and logistics of coordinating information with the head office and
so on.

12
Pitt (2014, p.5) provides yet another categorization of internal audit’s role based on the
type of organization (public or corporate sector) rather than organization’s environment as
Pickett suggested it. For public sector, internal audit’s role will be focused on “efficient
and effective expenditure of public money” (Pitt, 2014, p.5). In the corporate setting,
internal audit’s role will be measured by and will be focused on his ability to satisfy
stakeholders and ensure profit
Additionally, it is suggested by Pitt (2014, p. 13) that understanding strategic priorities
will give insight to the internal auditor of where value can be added. Moreover,
the internal auditor should “strive to meet stakeholder expectations by embedding
performance measurement processes focused on the most efficient and effective use of
limited resources” (Pitt, 2014, p.13).

The subservient internal audit is a source of significant risk to the company. It may result
in fraud, monetary loss, devastate reputation and brand or result in the company’s
collapse. Therefore, it is “essential for the internal audit function to have independent
authority and reporting lines and have adequate access to the audit committee. Internal
audit functions should be well funded, staffed, and trained, with appropriate specialized
skills depending on the nature, size, and complexity of the operating environment of an
organization.” (Ohja, 2012) Internal auditing services provide value altogether if they are
maintained in the high quality. Compliance with professional standards of internal auditing
is a way to provide it.

2.9.3.1. History of Internal Audit

The profession of auditing in general, and internal auditing, in particular, is ancient”
(Pickett, 2010, p.8) It was „father of modern internal auditing” Lawrence Sawyer who
said that word auditing comes from ancient Rome. Ancient officials were performing
public and oral verification of records that was called „hearing of accounts”. This event
was later described by the term „audit”. It derived from Latin „auditus” which means „a
hearing”. (Pickett, 2010, p. 8)

13
The roots of internal auditing are long and profound, traced to centuries B.C. However, the
birth of modern day internal auditing is perceived by many to happen with the formation
of The Institute of Internal Auditors (IIA). It was established in 1941 in the United States,
with first 24 members. (Reding et al., 2013) IIA’s fast growth, worldwide expansion,
continuous research, and development fueled growth in internal audit profession.
Internal audit function started mainly as protection against fraud and asset loss.
Organizations grew in size and complexity which led to their decentralization.
Management needed to internally evaluate accounting information that was used for
making decisions. They also needed to control efficiency of work and to ensure that no
deceitful actions took place. (Ramamoorti, 2003, p.3).
First companies that realized the potential of internal auditing beyond audit of financial
statements were railroad, defense, and retail industries. Quickly, internal auditing became
a mean to verify all transactions and to summarize business and its activities. In this way
internal audit provided further insights and ensured integrity and objectivity.
(Ramamoorti, 2003, p.3).
Therefore internal audit’s role changed from typical clerical function to a management
practice. It described internal audit as „the activity which independently applies consistent
procedures and inspection standards in order to assess the relevance and performance of
all or part of the actions within the organization, in reference to standards” (Autissier,
1998, p.3).

By 1990’s internal auditors have been performing financial, operational, management and
compliance audit with risk and control based approach. Moreover, internal auditing
function has become “industry based” with internal auditors working within the industry
that they specialize in. In 1999, to include all these changes and expanding roles and
obligations, The Institute of Internal Auditors implemented a new definition of internal
auditing in the form that is known today (Na.theiia.org, 2017).

2.9.3.2. Empirical review

A study carried out in Nigeria by Owizy (2008) Assessment of Effectiveness of Internal
Control in international organizations: A Case study of Benue State Ministry of Finance.

14
The study tackled the importance of evaluating the effectiveness of internal control system
in government ministries (Units). With particular reference to Benue State ministry of
finance, the study sought to find out the impact of internal control system on the
performance of Benue State ministry of finance. The study found out that Benue State
ministry of finance do prepare annual budget promptly and also have adequate expenditure
tracking to prevent financial recklessness despite the internal challenges experienced like;
poor communication.

Another study conducted by Simiyu (2011) on effectiveness of internal control system in

government institutions in Kenya, clearly indicated that they face quiet a number of
challenges during internal controls in performance like; financial reports are not made
timely, frauds and misuse of institutional resources.
Also a study by Mecha (2010) on the relationship between Internal Control and
Performance of Government Ministries in Kenya observed that effective internal control
practices like communication, and timely reporting contributed to improved performance
of Government ministries.

Similarly, Vijayakumar and Nagaraja (2012) show concerned that governing bodies of
public sector entities need to ensure effective system of internal control because is one of
the several factors that influence the performance of an organization and it plays a vital
role in achieving management intended objectives that would lead to the successful
operations. A study by Ochoge in Uganda (2011) on internal controls and organizational
performance: a case of Medipont industries limited sought to establish a relationship
between internal control and organizational performance of Medipoint Industries Limited.
It was concluded; the study findings indicated that the internal controls used in Medipoint
Industries Limited were ineffective and unsatisfactory, the level of organizational
performance was found to be inadequate and a significant positive relationship between
internal controls and organizational performance was established to exist. (Weili and Sarah,
2005), conducted a qualitative research on the topic of disclosure of material weakness in
internal control after the Sarbanes-Oxley Act (SOX) of 2002.

15
 2.9.4. Procurement
Procurement is one of the key functional areas in an organization. It is a major cost center through
which all materials are been channeled into the company. It is the organizational center that handles
the buying of all materials, exchange of materials with financial resources for further processing.
This process generates additional revenue to the company without compromising the values and
integrity of the company before its customers (Saheed, 2015).

Procurement process has several definitions which are based on the act of buying goods and
services and its preparation and processing based on demand (Saheed, 2015) . Turner (2011)
described procurement as a system or process that supports organization’s total needs for the supply
of goods, services and processes that is required to achieve the goals and task established by the
organization.

Procurement basically includes two inter-related elements: purchasing and supplying of

goods (Heiserich, Helbeig & Ulmann2011) .There are six types of procurement and these
include;

1.Single procurement: this is a type of procurement in which specific customers order

initiates and triggers the supplier’s process of production (Heiserich et al., 2011).

2. Stock procurement: in this procurement type, goods are restocked based on threshold
level. There is a minimum level of stock that must be available in storage after the
completion of a production until the next order is received from customers. This
procurement is beneficial because customers demand can be anticipated. However, its
drawback is that the procurement cost may be higher.(Heiserich et al., 2011.)

3. Vendor managed inventory (VMI): this is a procurement method in which customers or

end users have close network with the supplier, the supplier are responsible for stock
at their customer’s company. This procurement type is beneficial because it create an
avenue for optimized production process, lower costs and it also gives room for flexibility.
(Arnold, 2009.)

16
 2.9.4.1. The Role of Procurement Risk
Procurement risk refers to those events that may affect the realization of the contractual
performance, and whose occurrence cannot be accurately predicted and influenced by
contracting parties. In large and complex acquisitions, such as the construction of a new
tunnel, risk may refer, among other things, to the discovery of a particularly resistant rock
that needs a specifically designed drilling machine. In less complex procurements, such as
the supply of milk to schools, risk may refer to late deliveries caused by bad weather
conditions, or to the sudden increase in fuel price (that raises the actual delivery cost with
respect to the level estimated by the contractor before the tendering process) (MEF,2006)
.Procurement risk affects actual production costs and it can affect the actual quality of the
performance, be it on-time delivery of ink cartridges of laser printers rather than the
brightness of paper for photocopiers. Most importantly, the buyer and the contractors care
about ‘extreme’ events such as the risk of the contractor default that may disrupt the service
altogether. The degree of fear of (procurement) risk, is also called risk aversion
(MEF,2006)

2.9.4.2. Key Steps for Successful Procurement Management

 Specification and planning — Before anything, companies must put together a
cohesive procurement plan and specify what services and goods will be needed,
whether internally and externally. A detailed list should be made, which will help
in establishing a budget. Staying organized from the start is key to ensuring that the
next steps go as smoothly as possible (Thomas, 2019 ).
 Identifying and selecting suppliers — Next, potential suppliers must be
researched and identified. Care should be taken to make sure these suppliers can
meet your company’s needs exactly, and comparisons should be made to analyze
specific supplier advantages and disadvantages. Vendor selection criteria — such
as cost, delivery times, social and environmental responsibility, safety, service and
support, and quality control — should all be analyzed.
 Proposal Requesting, Negotiating, and Contracting — Once potential suppliers
have been narrowed down, you can begin requesting proposals and negotiating as

17
 needed. The negotiation process can shed light on potential suppliers’ dependability
and trustworthiness. Take care during this step to clearly communicate your
requirements — delivery timelines, payment details, and so on. Well-thought-out
delivery schedules should be established as well. When all terms are agreed upon,
a contract can be signed(Thomas, 2019 ) .
 Control and Delivery — After you enter into a contract with a supplier, it’s up to
your purchasing department to properly control all deliveries and payments.
Regular meetings with vendors, careful delivery tracking, and review of all orders
against established specifications and quality standards are necessary for ensuring
smooth procurement processes. Over time, it may become necessary to makes
changes to procurement contracts as your needs shift (Thomas ).
 Measurement and analysis — Finally, the entire procurement process must be
analyzed using an established system of key performance indicators. This will help
in assessing the efficacy, cost efficiency, speed, and overall success of the whole
process. Now is the time to identify any areas for improvement and note any
changes that should be made. This, of course, will help in securing the success of
future projects. Observations should be shared with management or stakeholders
and key findings should be discussed in detail(Thomas,2019)

2.9.4.3. The Importance of Properly Managing Procurement Processes

Maintaining good relationships with your suppliers and staying organized throughout every
step of the procurement process are both crucial to ensure the success of all business
operations, allowing you to meet your specific goals while easily meeting all stakeholder
expectations. In establishing smart procurement processes, companies can avoid costly
downtime while boosting their bottom lines. As technology continues to advance, digital
procurement management techniques are becoming increasingly popular, cutting down on
delays and errors while helping skilled buyers do their jobs more efficiently. Low-cost
computing and data storage systems are reshaping the way companies handle purchasing
and procurement, allowing for more advanced cloud and mobile capabilities, while the

18
Internet of Things (IoT) is rapidly changing the way all company operations are conducted.
For companies looking to stay relevant in today’s shifting landscape, it’s important to stay
abreast of these new technologies and determine the best course of action for your specific
needs (Industry , 2020 )

2.9.4.4. Procurement Vs Purchasing

Although the terms “procurement” and “purchasing” are often used interchangeably, they
actually refer to two different processes, and fully understanding the distinction can have
a huge impact on your bottom line.

Procurement is comprised of a set of strategic processes designed to identify and acquire

goods and services that are vital to a company’s operations, while purchasing processes
deal with the actual transactions that have been established by the aforementioned
procurement efforts (Thomas, 2019 ). By understanding this difference and giving both
processes due diligence, companies can become much more adept at developing actionable
purchasing strategies that bring about consistently favorable outcomes — while also
preventing catastrophic failures caused by foreseeable mistakes.

2.9.4.5. The Procurement Process

According to Industry (2019) Procurement is essentially an umbrella term for the various
processes that are performed to acquire essential goods and services. Rather than being a
simple, straightforward transaction process, procurement involves a wide range of factors
that influence purchasing decisions. It is also deeply connected to many essential aspects
of a business, such as brand identity, long-term goals, and market insights.

Successful procurement strategies are crucial for establishing and cultivating long-term
profit goals, as well as successful partnerships with suppliers and vendors. Some key
procurement processes include:

 Identifying potential suppliers

19
  Distilling company requirements into explicit specifications that can be easily
understood by suppliers
 Market research
 Receiving and assessing quotations and leads
 Contract development and management
 Supplier relationship management

Whether identifying internal business needs, selecting a vendor, negotiating contracts, or

monitoring market supply, successful procurement strategies allow companies to keep their
overall business goals and philosophies top of mind, while more easily managing the many
different elements that influence purchasing decisions.

2.9.4.6. The Purchasing Process

Falling under the umbrella category of procurement, purchasing is generally defined as the
buying of goods and services. This is often the last step in the overarching procurement
process, the culmination of complex decision-making and analyses already completed
during other procurement operations (Industry, 2019 ) .

According to Thomas (2019 ) procurement is quite complex, dealing with the “big picture,”
the purchasing process is acutely focused on the actionable details of buying goods and
services. The various practices involved in purchasing are less involved than those of the
overall procurement process but are equally important. Key purchasing processes include:

 Price negotiation
 Order placement
 Purchase confirmation
 Scheduling of delivery dates
 Shipment notification
 Invoicing
 Vendor payments
 Receiving goods

20
Because the most complex details will have already been worked out by the time you get
to the purchasing stage, it’s important to lay out purchasing processes within a simple,
straightforward, and well-thought-out framework. Unlike procurement, purchasing
processes should not be tailored as situations fluctuate but should follow a standardized
practice.

2.9.4.7. Navigating Procurement and Purchasing Processes

Fully understanding the distinction between procurement and purchasing can mean the
difference between increased revenue and disastrous loss, allowing companies to focus
their efforts on extensive procurement preparation prior to the actual purchasing of
essential goods and services.

By harmonizing procurement processes with purchasing processes, companies can not only
avoid the detrimental effects of unchecked oversights and unforeseen purchasing
complications, but can also help ensure sustainable, long-term success(Industry , 2019 ) .

2.9.4.8. Centralized Procurement

According to Edgars Kanepejs ,(2018 ) one of definitions for centralization is “the degree
to which authority, responsibility and power are concentrated within an organization
or buying unit. Suppose, in one company different organizational units individually
purchase materials directly from different suppliers. The two types of centralization that
are used by the authors of the reviewed articles are centralization of outgoing orders and
centralization regarding number of suppliers.

They can be referred as internal centralization and external centralization. Strangely

enough, none of the articles provided an explanation of which of these types the study is
referred to. Moreover, no one has mentioned such classification. Centralization of outgoing
orders is when all organizational units in the company according to the structure of macro-
level dimensions, mentioned in the previous subsection, place orders for required materials
to their internal procurement departments, which summarize them and then place orders
to material suppliers. Centralization regarding number of suppliers means that most of
21
materials are provided by one supplier and it is responsible for dealing with wholesalers
(Edgars Kanepejs , 2018).

Research works that were dedicated to this type of centralization mostly contained
evaluation of risks that were depending on only one supplier. As another structural
organization oriented option, an assessment of exclusion of the procurement functions is
provided; in other words -outsourcing. Outsourcing in the context of purchasing and supply
management refers to transferring tasks, such as order placement and source selection,
outside the boundaries of the firm . Previous studies provide conflicting opinions about
potential benefits of outsourced material procurement functions. Several researchers used
data that predicted that outsourcing of purchasing and supply management is expected to
grow by near future . However, other studies claimed that the costs of procurement were
lower for integrated systems (Edgars Kanepejs , 2018) .

2.9.4.9. Degree of Centralization of Procurements

Very rarely firms use completely centralized or completely decentralized procurement

systems. Decentralized systems could be more frequently found in new businesses – not
because of choice or decision, but usually because of the lack of experience and
management skills. Centralization is very common in public -procurements. Public
institutions tend to have larger buying centers and use a higher degree of specialization,
formalization and complexity in organizing their purchasing functions(Edgars Kanepejs ,
2018).

That might be caused by legal regulations, which require that public funds have to be spent
transparently and which necessitates a formal and complex public purchasing process. The
service supply chain differs from a manufacturing supply chain to a certain extent because
a quality product (service) requires a careful coordination of all activities [14]. Service
providers cannot store their products –services in warehouse. They must perform when the
customer is present, very similar to just-in-time production(Edgars Kanepejs , 2018).

22
Manufacturing companies and project based companies have a stronger tendency to
decentralize or more often partially decentralize their purchasing activities. Most
companies use a hybrid system that contains elements of both centralized and decentralized
systems. It is an attempt to obtain benefits from both systems at the same time
excluding drawbacks of both systems(Edgars Kanepejs , 2018).

23
 CHAPTER THREE

Research Methodology
3.1. Introduction
Chapter three presents a technique which will be followed in conducting the research. It
deals with the study plan, study populace, the research sample and sampling procedures,
the procedures that will be followed in the data collection, data presentation and
examination of facts.

3.2. Research Design

This study descriptive research design will be used. This is because the study is intended
to obtain an in depth understanding the role of internal control system on procurement
procedure in the case study of Sagal jet printing Company in Hargeisa Somaliland. Also,
in this study, a mixed research approach will be employed because it permits the researcher
to get information from both qualitative and quantitative data for better understanding of
the problem. Besides the existence of shortcomings, the use of both methods ensures that
biases built in either of the methods are neutralized by the strength of the other. Moreover,
using both methods enhances and enriches the research with valuable information needed
from the study respondents. According to (Jerome, 2011) the validity of results can be
strengthened by using mixed research method.

3.3. Research Population

The population of the study will be included the management of Sagal jet company
especially those involve in the company operations such as, top management and the
employees themselves. The study of this population will be consisted of the 100 employees
at the head offices in Hargeisa head quarter of the company.

3.4. Sample size

This refers to the number of items to be selected from the population to constitute a sample.
This major problem before a researcher. The size of the sample should neither be
excessively large, nor too small. It should be optimum. Using the rule of thumb, since the
total target population will be less than 1000, 30% of the target population will be selected
as a sample; 0.3*100 =30. The sample size is 30 respondents of top management and other
staff members of the company.
24
 Table 1. Sample Framework

Departments Total Target Sample size

population
Top management 10 3
Staff members 90 27
Total 100 30

Top managers = 10
100 * 30= 3
Staff members = 40
100 * 30=27

As shown above, the 30 respondents will be selected by using simple random sample
from the 2 different departments of Sagal jet company in Hargeisa Somaliland.
3.5. Sampling Procedure
This study will employ probability and non-probability sampling, in probability sampling
the researcher will use stratified random sampling techniques, under stratified sampling the
population is divided into several subpopulations that are individually more homogeneous
than the total population (the different subpopulations are called ‘strata’) and then the
study will select items from each stratum to constitute a sample. While non-probability
sampling the researcher will be used purposive sampling. In purposive sampling, the
selection of the sample will be based on judgment of the researchers such that will be
selected the key individuals who can give the information required for the study because
of their expert.
3.6. Research instrument
The researcher will employ Questionnaires as an instrument of the study. The
Questionnaires should compose of three parts one for the profile characteristics of the
respondents, another for the IV (Internal Control), and the third for the DV (Procurement
Management)
25
 The reason of selecting this instrument is that the questionnaires are the most reliable
instrument to get the necessary information from the respondents without fear or hesitancy.
It is also less costly as compared to other instruments. Each respondent was provided a
chance to express his or her ideas, options, views freely in a provided space without any
undue influence of the researcher.
3.7. Sources of Data
In this research it will employ both primary and secondary data.
3.7.1. Primary Data Sources
The primary data will be used as the major source of data in this study to describe the role
of internal control systems on procumbent procedures in Sagal jet Office in Somaliland.
Data from primary sources will be collected through a questionnaire that will be distributed
to selected employees of the company. In addition to the questionnaire, in-depth interviews
will conducted from key persons; from the employees of Sagal jet Offices, in order to
triangulate the survey result.
3.7.2. Secondary Data
To get sufficient and absolute data concerning the role of internal control system on
procurement procedure in Sagal jet Company in Hargeisa Somaliland. The secondary data
sources of this study will be gathered from different documents mainly on books, the
internet, different reports, manuals and guidelines of the office.
3.8. Validity and reliability of the instruments
The test-retest technique will be used to determine the reliability of the researcher devised
instruments to ten qualified respondents will not be included in the actual study.
If the test is reliable and the trait being measured is stable, the results will be consistent and
essentially the same in both times. Content Validity Index (CVI) will be used to assure
whether the study was valid or not.

3.9. Data Collection Instruments

The researcher is assuring that the information obtain will be served purely academic
purpose.

26
The researcher shall distribute the questionnaire and interview from the selected
respondents in Sagal jet Company in Hargeisa Somaliland to get more information about
questionnaire and interview.
3.10. Data Analysis and Presentation Tools
In this study, the collection of data will be analyzed using both descriptive and
inferential statistics. In the descriptive statistics, qualitative and quantitative methods
will be used. In the quantitative data, it was presented in tables which was built from
related questions in the sections of the questionnaire.

The analysis software of Excel and SPSS (Statistical Package for Social Sciences) version
20 will be used in this study. On the other hand in the interview part, the qualitative data
will be collected and edited and coded manually. The research findings will organize and
present by use of words, tables, numbers, percentages, charts and graphs.
3.11. Ethical Consideration
To ensure confidentiality of the information provided by the respondents and to ascertain
the practice of ethics in this study, the following activities will be implemented by the
researcher:
 Seek permission to adopt the standardized questionnaire and scheduled interview
on the role of internal control system on procurement procedure in Sagal jet
company in Hargeisa Somaliland.

 Acknowledge the authors quoted in this study and the author of the standardized
instrument through citations and referencing.

 Present the findings in a generalized manner

27
 CHAPTER FOUR

ANALYSIS, PRESENTATION AND INTERPRETATION OF THE DATA

4. Introduction
This chapter presents the data analysis , presents and interpreters the primary data of this
study which was collected throughout question from Sagal Jet employees in Hargeisa
Somaliland , also the study employed 23 question from 30 volunteer respondents .In
addition , it used tables and organized by question.

4.1. Background Information

4.1.1. Gender
Table :4.1

Frequency Percent Valid Percent Cumulative

Percent
Male 17 56.7 56.7 56.7
Valid Female 13 43.3 43.3 43.3
Total 30 100.0 100.0 100.0

This table shows, 56.7% of the respondents were male, while the 43.7% of the
respondents were female , thus based on this information male were the majority
participants of the study, in contrast the least participated population of this study were
female.
4.1.2. Age Group
Table 4.2
Frequency Percent Valid Percent Cumulative
Percent
20-29 Years 26 86.7 86.7 86.7
Valid 30-39 Years 4 13.3 13.3 13.3
Total 30 100.0 100.0 100.0

28
 This table presents, 86.7% of the respondents were the age group of between 20-
29 years, but only 13.3% of the respondents were the age group between 30-39 years , so
this tells that the majority of the population were the age group between 20-29 years , while
the lowest amount of the participants were the age group between 30-9 years .

4.1.3. Education level

Table 4.3
Frequency Percent Valid Percent Cumulative
Percent
Diploma 2 6.7 6.7 6.7
Bachelor Degree 27 90.0 90.0 90.0
Valid
Master or Above 1 3.3 3.3 3.3
Total 30 100.0 100.0 100.0

As this table illustrates, 90% of the respondents were bachelor’s degree level and
they were the majority of the study participants, while 3.3% of the participants were the
master degree level and they were the lowest number of the participants, but 6.7% of the
respondents were diploma level and they were the second highest amount of participants.
There in , based on this information majority of the participants were bachelor level.
4.1.4. Area of Specialization
Table 4.4

Frequency Percent Valid Percent Cumulative

Percent
Accounting 11 36.7 36.7 36.7
Management 13 43.3 43.3 43.3
Valid Economics 2 6.7 6.7 6.7
Others 4 13.3 13.3 13.3
Total 30 100.0 100.0 100.0
As mentioned in this table, 43.3% of the respondents specialized in management or
business management an they were the majority of the participants, while 6.7% of the
29
respondents specialized in economics and they were the lowest number of the participants,
but 36.7% of the respondents specialized in accounting and they were the second highest
number of respondents, in contrast 13.3% of the respondents specialized other field of
university education like ICT or Engineering and they were the second lowest amount of
the participants, so based on this information mainly or above 80% of the respondents
specialized in business and economics.
4.1.5. Experience in years ( With Sagal Jet only )
Table 4.5
Frequency Percent Valid Percent Cumulative
Percent
Less than 1 Year 8 26.7 26.7 26.7
1-5 Years 9 30.0 30.0 30.0
Valid
6-10 Years 13 43.3 43.3 43.3
Total 30 100.0 100.0 100.0

As this table shows, 43% of the respondents have experienced at this organization
between 6-10 years and they were the majority of the study, while 26.7% of the respondents
have experience in less than one years and they were the lowest amount of the respondents,
but 30% of the respondents have experienced around between 1-5 years and they were the
second highest number of the respondents.

4.1.6. Marital Status

Table 4.6

Frequency Percent Valid Percent Cumulative Percent

Single 27 90.0 90.0 90.0

Valid Married 3 10.0 10.0 10.0
Total 30 100.0 100.0 100.0

As the above table states, 90% of the respondents were single or they did not
married and they were the highest number of the respondents , while the rest 10% of the

30
respondents were married , so based on this information number of single respondents were
greater than number of married respondents, but there was zero participant who either
divorced or widowed

Section One: opponents of Internal Control

4.2.1. Control Activities
All staff has available up to date for the organization policies and procedure?
Table 4.7

Frequency Percent Valid Percent Cumulative Percent

SA 19 63.3 63.3 63.3

Valid A 11 36.7 36.7 36.7
Total 30 100.0 100.0 100.0

This table shows, 63.3% of the respondents have strongly agreed and they were
the majority of the respondents, while 36% of the respondents have agreed that 36.7% of
the respondents have agreed and they were the lowest number of the respondents.
Therefore, based on this information all staff of the organization are up to date the policies
and procedure of the organization.

4.2.2. Senior managers monitor and review each section’s actual performance
against objectives?
Table 4.8

Frequency Percent Valid Percent Cumulative Percent

SA 16 53.3 53.3 53.3

A 13 43.3 43.3 43.3
Valid
NS 1 3.3 3.3 3.3
Total 30 100.0 100.0 100.

As this table illustrates, 53.3% of the respondents have strongly agreed this
question and they were the majority number of the respondents, while 3.3% of the
31
respondents have responded not sure and they were the lowest amount of the respondents,
but 43.3% of the respondents have agreed and they were the second highest and lowest
number of the respondents, so based on this information that senior managers of the
organization monitor and review each section’s actual performance against objectives .

4.2.3. Performance reviews are made of specific functions or actives?

Table 4.9
Frequency Percent Valid Percent Cumulative Percent

SA 15 50.0 50.0 50.0

Valid A 15 50.0 50.0 50.0
Total 30 100.0 100.0 100.0

This table shows, 50% of the respondents have strongly agreed this question ,
while the rest 50% of the respondents have agreed as well so there is plateau between the
answer of the respondents who have either agreed or strongly agreed ,also there was no
one either who have either disagreed or had not sure , thereby based on this information
performance reviews are made of specific functions at this organization.

Value for Financial Control

4.2.4. The success of all organization services is the degree to which it attains its
set objectives?
Table 4.10

Frequency Percent Valid Percent Cumulative Percent

SA 25 83.3 83.3 83.3

Valid A 5 16.7 16.7 16.7
Total 30 100.0 100.0 100.0

32
 This table states, 83.3% of the respondents have strongly agreed this question and
they were the majority, while 16.7 % of the respondents have agreed and they were the
lowest number of the respondents, but no respondents have disagreed or had not sure , thus
base on this information the success of all organization services is the degree to which it
attains its set objectives.

4.2.5. The attainment of Value for Financial is based on the use of the office
resources in order to achieve its set objectives
Table 4.11

Frequency Percent Valid Percent Cumulative Percent

SA 2 6.7 6.7 6.7

A 15 50.0 50.0 50.0
Valid NS 10 33.3 33.3 33.3
D 3 10.0 10.0 10.0
Total 30 100.0 100.0 100.0

According to data illustrated in this table, 50% of the respondents have agreed this
questions and they were the majority number of the respondents, while 6.7% of the
respondents have strongly agreed and they were the lowest number the respondents, but
33/3% of the respondents have not sure while they were the second highest amount of the
respondents, in contrast 10% of the respondents have disagreed , thus based on the above
attainment of the value for financial is based on the use of the office resources in order to
achieve its set objectives .
4.2.6. Internal control section carryout regular reviews to ascertain whether the
office achieved value for financial control for all its activities
Table 4.12

Frequency Percent Valid Percent Cumulative Percent

SA 19 63.3 63.3 63.3

A 10 33.3 33.3 33.3
Valid
NS 1 3.3 3.3 3.3
Total 30 100.0 100.0 100.0
33
 As the above table illustrates, 63.3% of the respondents have strongly agreed this
question and they were the highest amount of the respondents, but 3.3.% of the respondents
have not sure and they were the lowest amount of the respondents , while the rest or 33.3%
of the respondents have agreed and they were the second highest and lowest number of
respondents , thus based on this information internal control section carries out regular
reviews to ascertain whether the office achieved value for financial control for all its
activities.
Risk Assessment
4.2.7. A formal organization-wide objectives are established
Table 4.13

Frequency Percent Valid Percent Cumulative Percent

SA 23 76.7 76.7 76.7

Valid A 7 23.3 23.3 23.3
Total 30 100.0 100.0 100.0

The table shows, 76.7 % of the respondents have strongly agreed with this
question and they were the majority number of the respondents, while rest or 23.3% of the
respondents have strongly have agreed and they were the lowest amount of the respondents
, thus based on this information a formal objectives organization wide objectives are
established.

4.2.8. Employees at all levels are represented in establishing the objectives.

Table 4.14

Table 14
Frequency Percent Valid Percent Cumulative Percent

SA 11 36.7 36.7 36.7

A 18 60.0 60.0 60.0
Valid
NS 1 3.3 3.3 3.3
Total 30 100.0 100.0 100.0

34
 This table presents, 60% of the respondents have agreed this question and they
were the highest amount of the respondents, while 3.3% of the respondents have not sure
and they were the lowest number of the respondents, whereas, 36.7% of the respondents
have strongly agreed and they were the second highest number of the respondents,
therefore based on the above information employees at all levels are represented in
establishing the objectives in Sagal Jet organization.
4.2.9. Planning for future needs is done well in advance of expected needs and
considers various scenarios.
Table 4.15

Frequency Percent Valid Percent Cumulative Percent

SA 11 36.7 36.7 36.7

A 18 60.0 60.0 60.0
Valid
NS 1 3.3 3.3 3.3
Total 30 100.0 100.0 100.0

This table shows, 60% of the respondents have agreed and they were the highest
amount of the respondents, but 3.3% of the respondents have not sure and they were the
lowest amount of the respondents, while 36.7% of the respondents have strongly agreed ,
thus based on this information planning for future needs is done well in advance or
expected needs and considers various scenarios.
4.2.10.A process exists to identify and consider the implications of external
risk factors.
Table 4.16
Frequency Percent Valid Percent Cumulative Percent

SA 11 36.7 36.7 36.7

A 12 40.0 40.0 40.0
Valid NS 3 10.0 10.0 10.0
D 4 13.3 13.3 13.3
Total 30 100.0 100.0 100.0

35
 This table mentions, 40% of the respondents have agreed this question and they were
the majority of the respondents, while 10% of the respondents have not sure and they were
the least number of respondents, but 36.7% of the respondents have strongly agreed and
they were the second highest number , whereas, 13.3% of the respondents have disagreed
and they were the second lowest number of the respondents , so based on this information
there is process exists to identify and consider the implications of external risk factors.

Section Two: Challenges facing Internal Control System

Obstacles Facing Internal Control System

4.3.1. Internal control is to help employees have a precise way of doing their job
and to help management easy understanding of what is achieved in the
budgeted work so far.
Table 4.17

Frequency Percent Valid Percent Cumulative Percent

SA 22 73.3 73.3 73.3

Valid A 8 26.7 26.7 26.7
Total 30 100.0 100.0 100.0

This table shows, 73.3% of the respondents have strongly agreed and they were
the highest amount of the respondents, while 26.7 % of the respondents have agreed and
they were the lowest amount of the respondents, thus based on this information internal
control helps employees have a precise way of doing their job and to help management
easy understanding of what is achieved in the budgeted work so far.

36
4.3.2. A good internal control will further have a positive impact on the
shareholders' confidence on the financial reporting of the company
Table 4.18

Frequency Percent Valid Percent Cumulative Percent

SA 17 56.7 56.7 56.7

A 4 13.3 13.3 13.3
Valid
NS 9 30.0 30.0 30.0
Total 30 100.0 100.0 100.0
This table shows, 56.7% of the respondents have agreed this question and they were
the highest amount of the respondents, while 13.3% of the respondents have agreed and
they were the lowest amount of the respondents, but 30% of the respondents have not sure
and they were the second highest and lowest amount of the respondents, thereby based on
this information a good internal control will further have a positive impact on the
shareholders' confidence on the financial reporting of the company

4.3.3. The management needs to educate the employees about the importance of
this control and to make it an offense to jump or avoid these controls.
Table 4.19
Frequency Percent Valid Percent Cumulative Percent

SA 13 43.3 43.3 43.3

A 14 46.7 46.7 46.7
Valid
NS 3 10.0 10.0 10.0
Total 30 100.0 100.0 100.0

This table shows 46.7% of the respondents have agreed this question and they
were the highest amount of the respondents , while 10% of the respondents have not sure
and they were the lowest number of the respondents , while the rest 43% of the respondents
have strongly agreed and they were the second majority number of the respondents, therein
based on this information the management needs to educate the employees about the
importance of this control and to make it an offense to jump or avoid these controls

37
Section Three: Relationship Between internal control and procurement procedure.
.
4.4.1. There is relationship between internal control and procurement procedure
Table 4.21
Frequency Percent Valid Percent Cumulative
Percent
Yes 17 56.7 56.7 56.7
No 10 33.3 33.3 33.3
Valid
Not Sure 3 10.0 10.0 10.0
Total 30 100.0 100.0 100.0

As the table shows, 56.7% of the respondents have responded “yes” and they were
the highest amount of the respondents, while 10% of the respondents have responded “not
sure “ and they were the lowest amount of the respondents , but 33.3% of the respondents
have respondents “no” and they were the second highest amount of the respondents ,
thereby based on this information there is huge relationship between internal control and
procurement procedure
4.4.2. Internal control contributes procurement procedure
Table 4.22

Frequency Percent Valid Percent Cumulative Percent

Yes 29 96.7 96.7 96.7

Valid No 1 3.3 3.3 3.3
Total 30 100.0 100.0 100.0

This table shows, 96.7% of the respondents have responded “yes” and they were
the majority of the respondents, while 3.3% of the respondents have responded “no” and
they were the lowest amount of the respondents, so based on this information internal
control contributes procurement procedure and it can contribute Sagal Jet company’s
procurement procedure.

38
 4.4.3. Procurement procedure is ineffective without strong internal control
Table 4.23

Frequency Percent Valid Percent Cumulative Percent

Valid Yes 30 100.0 100.0 100.0

This table illustrates that 100% of the respondents have responded “yes” , so based
on the above table procurement procedure is ineffective without strong internal control
which means it cannot applied effective procurement without effective internal control.
4.4.4. Does the internal control mechanism in place to make sure that
communicated procurement system corrections are implemented and
effective to attain its objectives?
Table 4.24

Frequency Percent Valid Percent Cumulative

Percent
Yes 29 96.7 96.7 96.7
Valid No 1 3.3 3.3 3.3
Total 30 100.0 100.0 100.0

This table shows, 96.7% of the respondents have responded “yes” and they were
the majority of the respondents, while rest of the respondents or 3.3% have responded “no”
which means there is internal control system n Sagl Jet company, so based on this Sgal jet
has internal control system
A. Ways can be mitigated challenges of Procurement in Sagal jet.
As a result, according to the survey results the following are the major ways
that challenges can be mitigated.
 Developing adequate policies, procedures and manuals pertaining to
internal control should be developed, in order to weaken the
complexities in implementation.

 Written code of conduct, so that all staff members and top management
should be in line with the same requirement when it comes to ethical
39
 discharge of responsibilities.

 Training programs to build the gap in the skill and capacity of staff
members regarding internal control systems.

40
 CHAPTER FIVE

5. Findings , Conclusion and Recommendation

To state again, the broad objective of this study was assessing the role of
internal control system on procurement procedure in Sagal jet company in
Hargeisa, Somaliland and this study involved 30 members of Sagal jet
company both staff and top managers respectively. This broad objective is
systematically broken down to specific research questions presented in the
previous chapters. To answer these research questions the survey method and
the interviews were used. The descriptive statistics and inferential statistics
under the survey method were presented in the previous chapter.
This section discusses the major findings of the study.
Demographically, as the results obtained from the survey depicts, the majority
of the respondents of about 56.7% were males and the other hand according to
the age, the majority of the respondents of about 86.7% were in the most
productive age brackets of their life (20- 29 years of age).
Regarding to the level of education, majority of the respondents (90.0%)
acquired bachelor degree which means that they are adequately qualified
persons academically. Considering the area of specialization almost 36.7% of
the respondents had an Accounting specialty, which shows that staff members
have adequate and related background to understand the concept of internal
control system. In terms of experience, about more than 1/3 of the staff
members (43%) were with an experience of 6-10 years this shows that the
majority were experienced .
On the other hand, based on the data analyzed in this study, the marital status
of the respondents about 90.0 % were single.

 First objective: To assess the effect of internal control components on

procurement procedure on value for financial control in Sagal jet
company.
Regarding the first objective, the study found that all staff members’ available

41
up to date organization policy and procedures, while senior management is
committed to make performance reviews and analysis are performed and in
turn management does follow up on significant deviations in the operating
results and trends. In addition, the performance reviews are made up of to
specify functions or activities. Furthermore, it seemed that the office staff had
strong believe that the success of the organization depends on an achievement
of value for financial and when set objectives are attained and the importance
of proper usage of these resources in order to achieve objectives. The study
also exposed that the internal control section carryout regular reviews to
ascertain whether the office achieved value for financial for all its objectives
and the formal organizations wide objectives are established.

 Second Objective : To examine the major challenges facing internal

control systems in Sagal jet office and ways they can be mitigated
Secondly, regarding the last objective, the study found from responses to
the questionnaire and the key informant interviews that there are inherent
limitations or challenges including but not limited to; competence issue,
collusion, cost constraints and override by management and staff members.
All these can be mitigated through; developing adequate policies, training
programs, commitment and supervision by management, and external
oversight.

 Third objective: To determine the relationship between internal

control and procurement system in Sagal jet office. With regard to the
third objective, from the correlation results of the data used, this study
found that there huge relationship between internal control and
procurement procedure , also it suggest that the internal control
facilitates procurement procedure .

42
 5.2. Recommendation
Based on the findings of the study, the following possible recommendations
are forwarded to improve the internal control system and procurement
procedure in Sagal jet Company:-

 Management should motivate employee to enable them carrying out

their duties diligently and honestly without thinking of ways to steal
the assets and resources of the organization
 Top management of the office should make an environment that staff
members which are the major component of the organization, access
information, understand the policies, procedures and directives and the
whole objectives that the organization is endeavoring to achieve.
 The internal control system and procurement procedure should be
evaluated against clearly established criteria’s and should be reviewed
and monitored continuously.
 To improve the internal control system and procurement procedure,
the Sagal jet company should to develop adequate policies, procedures
and manuals, written code of conduct, training programs,
commitment and continuous supervision by management, staff
rotations and external oversight
 Employees should be monitored closely to ensure that they do not
circumvent certain controls, there by weakening the established
internal control systems and procurement procedures in the
organization.

43
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