A COMPARATIVE STUDY OF EXPENDITURE CONTROL METHODS USED IN PUBLIC UNIVERSITIES AND PRIVATE UNIVERSITIES IN MALAWI

A COMPARATIVE STUDY OF EXPENDITURE CONTROL METHODS USED IN PUBLIC UNIVERSITIES AND PRIVATE UNIVERSITIES IN MALAWI

By William Moses Mzumara BCOM-ACC/15/01/021

Submitted to:

Faculty of Commerce and Management

In Partial Fulfillment of the Requirement for the Award of:

Bachelors Degree in Commerce: Accounting

Malawi Assemblies of God University

February, 2020

Plagiarism Declaration

I, William M Mzumara, hereby declare that the contents hereof this work is based upon an effortful research that I carried out The research topic, Comparative Study of Expenditure Control Methods Implemented Public Universities and Private Universities is designed by

me Where other people’s work have been copied or referenced to, properly I have cited and included the source of the texts in the reference list I fully understand that Plagiarism is a crime and carries a penalty once committed

Students _Signature

Date

Comparative Study of Expenditure Control Methods for Public and Private Universities in

iii

Dedication

This work is meant for everyone who has contributed enormously to my dreams and all those who have effortlessly shone their light to lighten up my path, in particular my family This work is specifically dedicated to all those following my steps and all those who are mirroring my work in this world I dedicate this work to all those who dream dreams and sleeplessly put in their efforts and sacrifices to see them come true

iv

Acknowledgement

Finishing this research project means a lot to me and could not have been possible with the help of many people But first and for most, God Almighty for the precious gift of life and protection that was provided to me during the period of my study

Secondly, I would like to appreciate the help from my supervisor, Miss Pamela Mubbunu, whom out of her busy schedules gave time to guide me in writing this thesis report Am thankful for the untiring job and patience she exercised throughout this work You were there for me all the time

Thirdly, I would like to thank the respondents of this research study for their

participation and openness that was needed for me to finalize the research study They really helped me in validating the results

I would like to thank my colleagues and administrative staff members at Malawi Assemblies of God University who gave me time and resources so that I should finish my work in time as I was working as a part-time Accounts Assistant

Of course, this acknowledgement would not be complete without thanking my family who supported me through my entire study and encouraged me during my study period My family has given me their unequivocal support throughout as always, for which my mere expression of thanks like does not suffice May God Bless you as you live your lives every day of the earth

Table of Contents

Plagiarism Declaration i

Dedication iii

Acknowledgement iv

List of Tables and Figures viii

Abstract ix

Chapter 1; Introduction 1

Research Background 4

Problem Statement 6

Research Questions 7

Research Objectives 8

Significance of the Study 8

Chapter summary 9

Chapter 2: Literature Review 10

Concept of Expenditure 10

Overview of Expenditure Control 11

Key Stages of Expenditure Control 14

Application of Controls 16

Internal Controls 17

Internal Audit 19

Cost benefit analysis 19

Budgeting as an Expenditure Control Method 20

Empirical Studies 22

Chapter 3: Research Methodology 23

Research approach and design 23

Population of the Study 24

Sampling 24

Research Instrument (s) 26

Data Collection 26

Data Analysis 27

Limitation of the Study 27

Ethical Consideration (s)/Issues 28

Chapter Summary 28

Chapter 4: Data Analysis and Presentations 29

Response report 29

Rate of Respondents 30

Income source 31

Measures Put in Place to Deal with Budget Deficit 31

Capital and Revenue Expenditure percentage 32

Controls Implemented (Adopted) in Public Universities and Private Universities 33

Relevance of control methods 34

Expenditure Control Methods Adopted 35

Effectiveness of Expenditure Control Methods 36

Challenges Faced 36

Suggested Mechanisms to Deal with Challenges 37

Chapter Summary 37

Chapter 5: Conclusion, Discussions and Recommendations 39

Conclusion 39

Sources of Income 39

Income Consumption Satisfaction Rate 40

Expenditure Control Methods Used by Public Universities and Private Universities 41

Relevance of control methods 42

Challenges Faced 42

Recommendations 43

Recommendations for further study 43

Reference List 44

Appendix 47

Appendix 1: Questionnaire 47

Appendix 2: Introduction letter 53

List of Tables and Figures

Figure: 1.0 Response rate……… 32

Figure: 2.0 Income against expenditure comparison……….…….35

Figure: 3.0 Relevance of expenditure control methods……….……37

Figure 4.0 Comparison of Nature of challenges faced……….…… 39

Table: 1.0 Sources of income ……… ……… … 33

Table: 2.0 measures taken when faced with budget deficit……… 34

Table: 3.0 Expenditure controls……… ……36

Table: 4.0 Comparison of Expenditure control methods……… …38

Abstract

This research work on the topic Comparative Study of Expenditure Controls method

in public and private University’s is aimed at studying and analyzing the different methods of expenditure control that is being adopted by these University’s, their practical application and their level of effectiveness It is aimed at carrying out a comparative analysis of public sector and private sector institutions To achieve the aim of this research, primary data had to

dominate the research and secondary data through textbooks and journals were used to

review some of the related literatures Equally, questionnaires which sought to find out facts needed for analyzing were used The questionnaires were analyzed using a Microsoft package which the researcher deemed simple to use

The findings of the analysis indicate among others that the method of expenditure control used by both universities are the same; whilst the expenditure control methods are do differ mostly except for two methods; budgeting and internal controls The different methods

of expenditure control used by the universities are effective for their purposes Both public and private universities do face challenges when they enforce/implement the expenditure control methods, and most challenges are internal than external I recommend among others that both universities should adhere strictly to authorization procedure payments as well as monitoring the control methods heavily from time to time Both public and private

universities should basically implement accounting controls and update the controls from time to time as accounting controls are mostly universal and are frequently updated to deal

with challenges

Chapter 1: Introduction

For any type of an organization to carry on its business operations there must be some factors put in place for the smooth running of operation by the management, man-power, materials, money and machines These need to be well coordinated in order for the success and objectives of the organization to be achieved

Expenditure controls or cost controls, as most commercial entities describes then, are part of management control process which are enacted through policies that the accounts and administration department, in any medium to big sized, organization does enforce To

understand the purpose of the study there is need to first understand the topic bit by bit so as the picture of what the research is about should be clear

Expenditure control has been defined as the process by which managers utilize

effectively and efficiently the scarce resources in the achievement of organizational goal As for expenditure is the total amount spent on the process of trying to achieve a particular goal (Williams, A 1996) In accounting, the word "expenditure" is used to indicate a cost that a company pays to acquire equipment or other assets While as for Control is the fact of making things work in a way they are required It is also the used by either government of official organization to make restrictions on wages increases and credits

Expenditure controls are an important element of budget execution and financial resources management accountability system through which, when effective controls are implemented, corporations/institutions would be able to maintain a high level of fiscal

discipline as well as implementation of planned activities within approved appropriations (Caiden N 2001) Expenditure controls in both private sector corporations and public sector corporations includes elements such as administrative and financial sanctions, ascertaining of available budgets, recording and processing controls which includes delegation and

segregation, verification and finally approvals and disbursing payments (Williams, A 1996, 23)

Despite the difference in expenditure controls implemented in different corporations all have the same purpose which is to ensure that a particular cost incurred is in line with proper use of funds and assets However due to certain factors, such as audit schedules, internal controls, budgeting and income usage, that exist between government and

individual/privately owned corporations, expenditure control methods are assumed to be somehow similar and different to a certain extent (Caiden N 2001) Public owned universities and private owned universities also fall into the common set where their expenditure control methods are similar and different to a certain extent

A private university or institution is controlled and managed by a non-governmental organization, such as a Church, Trade Union or business enterprise, or if it’s Governing Board consists mostly of members not selected by a public agency While a public university

is controlled and managed directly by a public education authority or agency or, is controlled and managed either by a government agency directly or by a governing body (Council, Committee, trustees etc.), most of whose members are appointed by a public authority or elected by public committee’s from parliament

Universities are distinguished between government-dependent and independent These terms refer only to the degree of a private institution's dependence on funding from government sources; they do not refer to the degree of government direction or regulation

A government-dependent private institution is one that receives more than 50 % of its core funding from government agencies Institutions should also be classified as government dependent if their teaching personnel are paid by a government agency (either directly or

through government) (Osborne, David, and Ted G 1992) Tuition fees and other fees paid to institutions by students should not be considered government funds, even if the fees are financed by government scholarships or loans to the students or households

In some instances, however, financial aid to students may be primarily an indirect method of channeling general government support to the institutions An independent private institution is one that receives less than 50 % or none of its core funding from government agencies for running its operations Core funding refers to the funds that support the basic educational services of the institutions It does not include funds provided specifically for research projects, payments for services purchased or contracted by private organizations, or fees and subsidies received for ancillary services, such as lodging and meals (Mtonga,

Lowani February 8 2017)

The research emphasizes to compare the public university expenditure controls and privately university expenditure control because of the environment and the drive/orientation

of their existence This is to mean that a public university do operate in a social environment

so that the needs of education can be provided to the citizens and the politicians in power could implement their policies Private universities do operate mainly to create wealth for the owners while they do provide the quality education

Therefore, in this chapter the researcher presents the background of the study,

problem statement, the main objectives and specific objectives of the study, research

questions, and significance of the study and finally a summary of this whole chapter will be provided at the end To present the lead topic for the research, the focus or purpose of the study is to conduct a comparative study of the expenditure control methods that public universities and private universities adapts to In other words, this research is aimed at

studying and analyzing the different method of expenditure control being adopted by these two types of universities and their practical application

Research Background

Brief Insight on Institutions of higher Learning in Malawi

When Malawi won its independence from British rule in 1964, there was no

university in the country, save for a few missionary teacher training and technical colleges Secondary school education did not start in Malawi until 1941 when the colonial government opened Blantyre Secondary School By the time of independence in 1964, there were just a handful of secondary schools The University of Malawi was established in October 1964, three months after independence (Sharra S May, 2018) It remained the only university in the country for the next quarter century The African Bible College opened in 1989, which is the first Private University in the country, and Mzuzu University would not open until 1998 There are just less than 25 private universities in Malawi, with new one’s opening very often (Sharra S May, 2018)

The number of students who are yearly applying for academic space in public

universities are double than the number or capacity that these public universities are willing

or mandated to take up It’s in this course that the country sees many students who are left out

by the public university selection or who are awaiting for the selection settle for a decision to enrol with the private universities (Nick Hall, and Michael Mambo, July 2015)

Most people apply for public universities enrolment consideration for the fact that these universities are considered to be fair with their fees or in other word comparing with the established private universities, annual fees for public universities are considered to be

affordable by many (Sharra S May, 2018) This is so because the public universities enjoy the government funding and governance hence are not oriented to make profit from the fees charged

Generally speaking, the goal of any university in the private sector is to generate the highest profits possible In this arena, a financial manager always keeps an eye on the bottom line or a minimum level of profitability (Nick Hall, and Michael Mambo, July 2015)

Financial managers working in the private universities are usually given a lot of authority to help them achieve profitability

Alternatively, public universities are usually created to service a specific and pressing need of high education to the citizens across the country at a very affordable fees Because the purposes of these organizations are not profit generation and wealth maximisation, the financial manager needs to make sure he or she is using the public’s money as efficiently as possible (Ike, J 2016)

Expenditure controls in public and private universities

Many researchers have conducted researches and published literatures on reasons companies and organisation lack expenditure control process However, for this study it involves the public university and private university, which is a comparative study of

expenditure control methods of non-profit making organisations and profit making

organisation Non-profit making organizations are known to neither have a conscious profit motive nor is an expectation of earning net income and no profit of any excess of revenue over expenditure distributed to those who contributed support through taxes and voluntary donations (Williams, A 1996)

In profit making organisations, the reverse of these properties is the case, meaning that their primary goal is to maximize profit and excess of revenue over expenditure

Government owned corporations pay more attention to services they render to the public, as their primary goal is to provide services that satisfy Privately owned corporations go out of their way to render good and quality services to the public, they pay more attention to

maximize of profit which is their key objective (Borins S 2014)

Comparative study of expenditure control methods in Government and privately owned universities which is the main research question in this research work has to do with the different ways and methods by which expenditure is being controlled and managed in each of these university’s so that they will not run into cash flow problems and budget deficit

or liquidations The management control concept which gulps the expenditure control are the same both in profit oriented and non-profit oriented organizations, but the impact of these concepts differ in important aspects (Perotti R and Alesina A 2000)

Problem Statement

It is most worrisome to notice that most of governments of Malawi’s ministries, departments and agencies (MDA’s) have been in a tendency to overspend the allocated budget funding This has worried most economic and financial analysts and observers in the country for the fear that the national budget will be funded through accumulation of credit to avoid budget deficits because of this trend (Khunga, S 2019) The Malawi government has

an Integrated Financial Management Information Systems (IFMIS) which is labeled as a main tool that facilitates effectiveness of expenditure controls on the budget of the

government MDA’s But that being the case, it leaves a lot to be undesired as the same tool is being manipulated as personnel in government offices abuse and misuse resources

Until recently, most public universities in the country, of which are under the ministry

of education, science and technology, have had their budgets fully supported with the

government in the annual budget allocations With the move to delink public universities in the country, aiming to create financial and administrative autonomy, public universities are now supposed to be supporting their operations with the money that they earn or collect from students that constitutes as tuition fees so as they cover operational expenses whilst

government and donors would support a certain portion of their budget (Mtonga, L February

8 2017)

Unlike private universities where capital is sourced by private owners of which they use that capital to cover operational cost in the long run, they do not get any funding support from government (s) Even though the student’s loan initiatives have reached the private universities, they still do not account to be a funding top up or donations because they

constitute as tuition fees to allocated student (s)

Even though public universities are getting a portion of funding from government through different initiatives, these institutions have faced difficulties to balance their

expenses with the income, of which in some occasions supporting staff members and

teaching staff member have resolved to strikes as a way out to be heard so as the government could increase funding and meet the demands and the expense per student are higher than tuition fees they receive from each student While the private universities are operating on the earned revenue and, on which the government collects taxes as well, for most of their

activities in some few scenarios donations from well-wishers (Mtonga, L February 8 2017)

It’s in this course of thoughts that the study wants to find out the similarities and differences of the expenditure control methods in public and private universities It’s with great expectation, of the researcher, that the findings will shape a clear path on how best these two forms of institutions can learn from each other and change, where necessary, for the best

Research Questions

Primary Question

What are the similarity and difference that the expenditure control methods in public universities and private universities have?

Secondary Research Questions

1 How is the income sourced in both public and private universities?

2 What is expenditure control method used?

3 What are the challenges that both public universities management team and private universities management team face when/in enforcing the expenditure control

methods?

Research Objectives

Primary Objectives

To compare the expenditure control methods that are used in public universities and private universities

Secondary Research Objectives

1 To find out the source of income/funding for both public universities and private universities

2 To establish the expenditure control methods adopted by both public universities and private universities

3 To investigate the challenges that management face in implementing expenditure control methods

4 To recommend, based on findings, the effective expenditure control methods for both private and public universities

Significance of the Study

Searching through different literatures on expenditure controls, the researcher had come to realize that the primary focus from other researchers have been on the expenditure controls for the public entities than the materials found on the expenditure controls for privately owned entities It’s in this course of thought that the researcher expects that the study will add new knowledge to the literature available on the measures put into place to deal with management of public funds expenditure while at the same time it will shade light

on different measures that the private entities put into place to efficiently manage

expenditures

Scholars from different institutions, especially those studying accounting and

management, will get an in-depth knowledge and understanding on the differences and similarities of the expenditure control methods in both government run universities and privately run universities The management of different institutions, both private and public universities, will learn on the effective ways to control expenditures once they come across this literature as the research findings from this study provides recommendations on the best fit and best practiced methods of expenditure control

Chapter summary

In this first chapter of the study which is a case study on the comparison of

expenditure control methods which are public university and private universities, the

researcher has highlighted the study background on both the Malawian High Education institution and an overview on the expenditure controls for private and public entities Then another section in the chapter details on the research’s problem statement and then the research questions and research objectives follows

Chapter 2: Literature Review

This chapter will explore more on past published literature according to what was studied by other scholars Literature review is an analysis and evaluation of the research finding and reports that other scholars or authors have had written or concluded about the topic under study Literature review is done in order to understand and investigate similar finding to similar research problems This is a critical as it looks at the existing research that

is significant to the work which will be carried out This chapter helps in developing an analytic framework or basis for analyzing data It will highlight the relationship between the past research and the current study

Concept of Expenditure

Expenditure represents a payment made with either cash or credit or exchange of valuable items to secure goods and services for attainment of an organisations economic benefit (Otley, D.T., Hansan, S.C., and Van der stede, W.A 2003, 145) An expenditure, unlike an expense, is allocated at a single point in time which is the time of purchase

Chabotar, K J (1995) is elaborating the meaning of expenditure as a payment of cash or cash equivalent for goods and services or a charge against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher or other such documents (89)

The term expenditure is believed to be an element that is differently crucial in the field of accounting and economics even though in both it hold a similar importance In

accounting expenditure is demarcated to be in two types of which are revenue expenditure and capital expenditure

Revenue Expenditure. Expenditure, which is not for increasing the value of fixed assets, but is for the running the business on a day-to-day basis, is known as revenue expenditure (Kaplan, R S and Cooper, R 2005) The difference can be seen clearly with the total costs of using a motor van for a firm To buy a new motor van is capital expenditure The motor van will be in use for several years and is therefore a fixed asset To pay for petrol

to use in the motor van for the next few days is revenue expenditure This is because the expenditure is used up in a few days and does not add to the value of the fixed asset

Capital Expenditure. Capital expenditure is made when a firm spends money either to buy fixed assets, or add to the value of an existing fixed asset (Kaplan, R S and Cooper, R 2005) Included in such amounts should be those spent on; Acquiring fixed assets; Carriage inwards on an asset bought and/or any other cost needed to get the fixed assets ready for use These costs include installation, freight charges, import duty, landing charges and legal costs

of buying buildings - incidental costs

However, the complexity of the expenditure chain, the precise nature of the controls exercised at each stage, and the degree of application varies considerably across

organizations and is heavily influenced by their respective administrative traditions

Overview of Expenditure Control

How an organization decides to utilize its resources, such that how it generates

revenue, how it saves earning and how it spends it, is perhaps one of the best test of effective management In a bid to find the most prudent means of money management researchers have developed different techniques, which includes inventory management, working capital management and so on, of which all these are encompassed, in one way or other in cost or expenditure control

Financial rules, medium-term budget plans, and annual budgets are meaningless if expenditure cannot be controlled during execution A lack of effective expenditure controls not only threatens performance and financial discipline, but can also call into question the

integrity of the financial management system of an organization and undermine trust in a corporation’s stewardship of resources (Williams, A 1996, 99) While the institutional arrangements for raising revenue are typically quite centralized in most universities, the expenditure of those resources involves a wide array of departments

There is a consensus among authors that, in order to avert business failure, an

enterprise must have a vision of where it wants to be in near future and accordingly draws up

a strategic business plan In order to attain the set business objectives of the enterprise, these long term plan are further broken down into detailed step by step procedures and a series of tasks (Williams, A 1996, 112) The end result of this planning is to minimize cost and maximize profit, which is also a benchmark for judging management performance profit attainment in the short term, which is generally carved out of an agreed or signed-off budget

Sailendra P (2016) is of the view that expenditure control is a service function and that

ensure the income matches operation cost and do not replace management strategies and also observes that control enforcement goes from top down where budget formulation flows from bottom to up

Omolehinwa, E O 1998 agree with Sailendra P 2016 more but noted that

expenditure control is the key to survival in today highly technical and competitive

environment for both public corporations and private corporation and that failure to plan and control results, for many firms in a business failure that might have been avoided

Expenditure controls involves the regulations limitation of expenses which aims to minimize overruns and ensure compliance with the set goals and objectives of the organization (Doe, L., and Pattanayak, S 2008) For any expenditure control method to be effective it must purport to keep the waste, misappropriation, piltering, inefficiency and other expenses under check and it must allow for creation of system of records which would establish

accountability for every money spent and ensure people are charging their duties in line with the set goals and controls

Evaluating the strength of expenditure controls and addressing any weaknesses requires a clear understanding of the key features of an effective expenditure control system

as well as the different approaches to putting them into practice (Pattanayak, S 2016) While expenditure control frameworks differ greatly from institution to institution, it is nonetheless possible to define, in a generic sense: the key stages of the budget execution cycle; the

specific control objectives at each of these stages; and the responsibilities of the relevant actors in enforcing these controls

The main objective of expenditure control is to ensure that resources are spent as intended, within authorized limits, and following sound financial management principles A distinguishing feature of a government’s budget, unlike the budget of a typical business entity, is that it is funded primarily via compulsory taxation of citizens and allocations to different sectors are authorized via an act of Parliament

However, private universities and public universities in Malawi are noted to have a similar element whereby they both eye for tuition fees as their funding for recurrent

expenditures, with an exception that in public universities the payroll is funded by the

government not from the revenue from tuition fees (Nick Hall, and Michael Mambo, July 2015) The role of an expenditure control system is to ensure that the level and allocation of expenditure reflect the will to sustain goals of a department and the objectives and vision of the institution as put in the budget

Expenditure controls should also reflect sound financial management principles, ensuring that public resources are utilized efficiently, incurred obligations are cleared in a timely manner, and abuse/misappropriation of funds is prevented Sailendra Pattanayak (2016), noted that strengthening expenditure control in a particular organization can,

therefore, sometimes require difficult judgments about whether to reinforce traditional

administrative arrangements or seek to modernize them (5)

However, this is a hard long choice for public universities because it’s the usually the politicians who are formulating the policies on how best these institutions are run (Kaul, M 1997) And most administrators and accountants in public universities are bound to

implement traditional arrangements other than to modernize their systems because they stick

to the idea that the institutions are there to just provide a social need not to make profits, which is for the private institutions

Key Stages of Expenditure Control

To ensure these objectives are met, expenditures typically go through several stylized stages between authorization and payment to the final beneficiary who might be the suppliers, members of staff and other parties involved

Authorization of expenditure. A fundamental principle of finance is that expenditure and revenue proposals must be authorized, depended on legal laws for public institutions and organizational structure for private institutions, to ensure accountability The authorization for expenditure is usually given through the budget which defines the time horizon for, limits

on, purpose of, and administrative unit accountable for expenditure To deal with

unanticipated spending pressures, some flexibility in the allocation of expenditure between departments may be allowed subject to clear rules/criteria Budgets are not the only

mechanisms that provide authorization to incur expenditure

Certain sums may be spent under permanent rather than annual policies and strategies that the organization would set For example, there could be standing policies for entitlement programs (such as scholarships, servicing of debt, or payment of subscriptions to either local

or international organizations and companies, which provides permanent authority to incur such expenditure subject to meeting specified parameters or criteria However, even in such cases and in line with the principles of budget comprehensiveness, transparency, and

accountability, such expenditures should be included in the budget documentation, and subjected to the same regularity control

Apportionment of authorization for specific periods and spending units.The purpose

of apportionment is to prevent spending departments from incurring obligations at a rate which would require the authorization of additional funds for the fiscal year in progress Once expenditure authorization is in place, it is apportioned for specific periods and/or

specific spending units The apportionment process is critical to ensuring that expenditure totals are respected and claims on the contingency reserve are reflected in the revised

allocation of appropriations Each request for apportionment or reapportionment should be accompanied by a financial or cash plan from the relevant department or spending agency

supporting the request for ensuring that apportionment and cash management functions are well integrated

Commitment.The commitment stage is the point at which a potential future obligation

to pay is established A commitment occurs when a formal action, such as placing an order or awarding a contract, is taken that renders the institution liable to pay at some time in the future when the order or contract is honored by its counterpart In cases where the

expenditure is subject to a previous ongoing contract (example wages, utilities, rent, and debt service) or an estimate of obligation to pay should be made and treated as a commitment Since commitments usually mature as payments, their control is an essential part of overall expenditure control and prevention of expenditure arrears

Payment order Once checks are made to ensure that all previously stipulated controls have been performed and documented, a payment order is issued A payment order is an authorization for payment, usually against a bill or invoice, made by officials of line

department Before issuing a payment order, the issuing authority will typically check that sufficient funds are available to make the payment Following confirmation that sufficient liquidity is available, a designated official approves the payment and issues a payment order

Payment.Once a payment order has been issued, payments are made through various instruments including checks, electronic fund transfer (EFT), and sometimes cash, in favor of

a supplier or other recipient to discharge the liability In line with internationally accepted good practice, the payment should be made through a single account system Payments by checks are, in most institutions, recorded at the point of their issuance The process of issuing checks should be managed to monitor and minimize check float and ensure that sufficient cash is available when they are presented for encashment

Sometimes, a consolidated check is issued to cover multiple payments by the bank to the respective beneficiaries’ accounts (wages and payroll payments To ensure bank

reconciliation and reliability of expenditure data used for financial reporting, it is important to compare and reconcile the transactions recorded in the cash book (which records the details

of checks issued) with those in the bank statements When the float of unpaid checks is significant, payments should also be reported on the basis of checks encashed/paid It is not a good practice to net payments against revenue due from the same recipient, as it hinders the

transparent reporting of government revenues and expenditures as they pass through the various stages

Application of Controls

The application of controls at various stages of the expenditure cycle may be

centralized within or decentralized In both centralized and decentralized systems, there should be regular bank reconciliation of transactions and reporting of expenditure against authorized allocations by spending agencies (Radev, D., and P Khemani, 2009) Advances in information technology can help to combine the benefits of the two approaches while

minimizing their respective costs and risks

Centralized systems, particularly with centralized commitment and accounting

controls, have the advantage of: reducing the scope for variable interpretation and application

ministries/agencies’ budgets; inefficient decision-making (including superimposed

prioritization) and rigid controls by the ministry of finance when it lacks the detailed

information on the spending requirements of agencies; and presenting opportunities for rent seeking by officials implementing multiple and cumbersome controls

Decentralized frameworks have the advantage of aligning expenditure decision making with the spending priorities of line agencies; minimizing/eliminating redundant controls which in turn improves the efficiency and speed of expenditure execution; and making each department directly accountable for its spending programs

At the same time, they have the disadvantage of: potential disparate application of controls by various agencies and concerned departments particularly when the control criteria are not well defined; increasing the risks of noncompliance and/or collusion (as both the authority to spend and the responsibility to ensure the regularity of transactions is assigned to the same agency) in the absence of strong internal and external audit functions; and

prolonging the preparation of financial reports (as expenditure data has to be collected and complied from multiple sources) required by central position for budget execution

monitoring

Internal Controls

Most employees probably think that they themselves would not indulge into any dishonest or crooked arrangement But as John T (1975) puts it “even a basically honest employee may be attempted occasionally to steal assets or otherwise to take advantage of his

or her position of authority and trust in the company If the opportunity is there and chances

of being caught tend to be minimal the temptation maybe too much to resist (199) Thus a procedure should be put into place to deter and detect unfaithful dealings in respect of assets vulnerable to theft and misappropriation

Guarding unfaithfulness should be of prime concern in controlling expenditure which can be implemented through accounting procedures Astro S.D 1978 emphasizes that loss prevention control and concepts keeping in mind the fact that a company depends on its accounting systems for the information needed to prepare its financial statements and internal management report, the accounts and all their supporting accounting records need to be complete, up to date and accurate an institution should not just assume that its accounting system is gild

In summary, an organization whether profit oriented or non-profit oriented need to design and enforce positive procedures and methods to deter and detect dishonest mistakes in order that it’s accounting system will be highly reliable Therefore the need for an internal control

Responsibility for internal controls

Cooper, J (2011), had attest that the responsibility for establishing and maintaining adequate internal controls rests with an organizations management This attestation is backed

by the Carlitz R (2010) where she states that it is the management which is responsible for safe guarding the assets, ensuring that accounting data is accurate and reliable and promoting operational efficiency and adherence to prescribed policies It is quick to point out that system of internal control should not just be put into place to meet the needs of auditors but should include the controls which management considers necessary in discharging duties

Radev, D., and Khemani, P (2009), Believes that there are two approaches to internal controls classification; internal controls by an organization can be classified through

segregation of duties physical authorization and approval arithmetic and accounting

personnel supervisions and management They can as well be classified by objectives,

jurisdictions, methods and general nature

Internal Controls as a method for expenditure control

Unnecessary loses through employees misuse of resources, embezzlement of funds is abhorred by all employers and management in organizations The government is inclined to minimize the exposure to losses of these natures by enactment of different edicts,

introduction of different financial procedures and establishing different committee’s boards and panel However with the fact that people in different positions go wrong every year and start to misuse funds and wasteful expenditure occurs

Internal controls from the case presented is said to be a good method for expenditure control Nevertheless, no design or frame of internal control is perfect to deter individual to waste or steal funds by either producing fake records or beating the procedures The task of internal control is not to prevent illegal expenditure activities nor to implement perfection of operations but rather to design execution of tasks in a cost effective manner that would help achieve efficiency and reduce embezzlement, fraud, misuse and wasteful expenditure of

resources (Carlitz R 2010) Also a possibility of errors arising from misunderstanding instructions, a mistake of judgment, distraction and carelessness that hinders absolute

effectiveness of internal control

Internal Audit

The internal auditor acts as a control for expenditure in the organization by reviewing charges to the accounts to determine that the expenditures are properly authorized and that they present a justifiable expenditure of funds from the organization and charges are

appropriately accounted for

Usually the internal auditor primary concern in the examination of cost and expenses should be minimization and control of unnecessary expenditure Internal auditor would use cost controls and expenditure control through internal report, the auditor report for reliability

of the information Procedures and policies can only be as strong as those regularity

enforcing them However, without full support of top management, the audit department cannot function as a useful working part of any organization (Radev, D., and P Khemani, 2009) Internal audit as a method of expenditure control moves ahead to the budgeting process The preparation of the budgets figures are usually reviewed by the internal auditors whereby any variance submitted are to be further analyzed

Cost benefit analysis

A cost-benefit analysis is a process businesses use to analyze decisions The business

or analyst sums the benefits of a situation or action and then subtracts the costs associated with taking that action (Radev, D., and P Khemani, 2009) Before erecting a new plant or taking on a new project, prudent managers conduct a cost-benefit analysis to evaluate all the potential costs and revenues a company may be generate if upon completing the project The outcome of the analysis will determine whether the project is financially feasible or if the company should pursue another project

Cost Benefit Analysis as an Expenditure Control Method

Organizations expenditure usually includes direct and indirect costs, intangible costs, opportunity costs, and the cost of potential risks Benefits arising from an undertaking should include all direct and indirect revenues and intangible benefits, such as increased outputs from or increased revenue from customer goodwill The analysis should apply a common unit

of monetary measurement to all items potential for expenditure costs, taking special care not

to underestimate costs or overestimate benefits A conservative approach with a conscious effort to avoid any subjective tendencies when calculating estimates is best suited when assigning a value to both costs and benefits for a cost-benefit analysis (McLaughlin, T A

involve small- to mid-level capital expenditures and are short to intermediate in terms of time

to completion, an in-depth cost-benefit analysis may be sufficient enough to make a informed, rational decision

well-Budgeting as an Expenditure Control Method

In an educational institution, the primary personnel involved in the budgeting process include the cost center managers, the vice president for academic administration, the vice president for financial administration, and the controller The role of the budget committee is

to review the submitted figures and assess their viability in preparation for finalizing the master budget

The process of building an operating budget should be an orderly one It is important

to use one’s best estimate for each component of the budget While it is impossible to know

the future and thus there is always the risk of underestimating or overestimating revenues and expenses, it is still important that one create a budget that is as close to expected reality as possible (Chabotar, K J 1995) In budgeting for operation of a university, the first step financial managers do is to estimate revenues This number is established based on

measurable expectations, although typically the beginning point on revenue will be what happened the previous year, adjusted for expected changes due to the identified external and internal influences

For example, in a school, the estimated revenue is based on the number of students expected multiplied by the tuition rate If more students are expected in the future than are present at the school now, anticipated revenue will go up Alternatively, if there is reason to believe that fewer students will attend in the subsequent year, downward adjustments in expected revenue should be made when the budget is prepared Enrollment projections based

on applications and acceptances may be made by the admissions team in a college or

university to assist the financial manager in making realistic projections

It is essential to understand cost behavior and cost drivers in order to measure the cause and effect of various expenditure decisions that the management will be bound to make All costs are tied to activities within routine operations of an organization The more complex the activity becomes, the greater the expense The importance of tying the cost to the activity was recognized in the manufacturing field in the late 1980s and resulted in the development of activity-based-costing systems (Otley, D.T., Hansan, S.C., and Van der stede, W.A 2003) The basic philosophy behind activity based costing is that since activities

consume resources, the first step is to identify the activities involved in the process and assign the costs to these activities The key question is: What is driving the costs of the

organization? Once the cost driver is established, one then selects the appropriate measure for each activity and determines the cost driver rate

While most not-for-profit organizations have not adopted activity-based-costing, the concept of activities-driving-costs is an important one for all organizations to consider Many times expenses rise in an organization and no one can understand why (McLaughlin, T A 2005) Unless one recognizes the way costs behave and what activities are driving the costs,

it is impossible to control the expenses of the organization

For example, consider in a higher learning institutions An identification of some basic activities which create costs (expenses) might include, academic administration,

teaching contracts, cafeteria, academic records, utilities and collection services Using

academic records as an example, one might expect that with an increase in students, the costs

in academic records are likely to rise In this case, the increase in the cost driver (number of students) creates more costs in the academic records department because of the need for more staff and/or more hours of staff time to keep the records for an increasing number of students (Chabotar, K J 1995)

The primary purpose of the budget is to assist in planning and control of expenditures for the organization, department, or program, although a budget, properly done, also

enhances communication and motivation within the organization (Hope, J and Robin F 2003) The control function of the budget kicks in after the activity has occurred Its purpose

is to determine if what was anticipated is what actually happened

Empirical Studies

Baird (2013:200) carried out a study on the impact of accounting in controlling fraud

in the public sector His objectives were; to determine the extent of fraud in the public sector

in Nigeria and to examine the effect of accounting in control and prevention of fraud in the public sector He used sample survey for this study and found out that; the accounting process involves a detailed correction and reporting of the expenditures and revenues involved in a business or company operation Accounting tracks the financial details of the firm including the funds taken in and money spent by the company and the staff

Akpan, (2009:70) studied the impact of an accountant in the control of public

expenditure His objectives were; to ascertain the roles of an accountant in the control of government expenditure, to identify the challenges militating against accountants’ role in the control of public expenditure He used regression for his analysis and found out that; the role

of accountants in budgeting relates more in the area of forecasting and control Professional