Master\'S Thesis Summary PDF

Preview

Summary

this document is a research study conducted for fulfilment of Master of Finance Degree. It emphasises the financial management practices of educational institutions. The research was conducted by Samuel Frimpong...

Description

FINANCIAL MANAGEMENT PRACTICES OF SENIOR HIGH SCHOOLS IN THE ASHANTI REGION: A COMPARATIVE STUDY OF PUBLIC AND PRIVATE SCHOOLS.

SAMUEL FRIMPONG MBA (FINANCE) Kwame Nkrumah University of Science and Technology (KNUST) Kumasi-Ghana Email: [email protected]

ABSTRACT The study specifically explored the sources of income and the application of cash in the senior high schools and how effective the practices have been. The study employed descriptive survey research design and it was a comparative study of private and public senior high schools. The study was undertaken in two schools- one private and one public. Data was collected from 4 respondents comprising of two (2) headmasters and two (2) bursars. Moreover, the study relied mostly on the schools’ financial reports of the currents years for the analysis. The study established that sources of income available to public school which include school fees, Government grants, donations, PTA and HIPC funds are more than the funds available to private school which only comprise of school fees, donations and PTA. Insufficient cash, huge students debt, no support from government to private schools and little or not enough support for public schools and many other challenges are impeding the achievement of efficient and effective practices of financial management. The pattern of the schools’ spending is aided by budgets for the schools however, due to some circumstances, the budget is sometimes neglected

by bursars when spending. In order for the schools to practice efficient financial management, the government should come to the aid of the private schools in the form of grants. Moreover, due to the principle of time value of money, government should release monies on time to public schools so that they can escape price increment of commodities. Qualified personnel should also be employed to control the lapses experience in the schools’ finances. Keywords: Financial Management, Financial management practices, Senior High Schools

BACKGROUND TO THE STUDY In education system throughout the world, financial management has become, and continues to become, of much increased importance. (UNESCO, 1994). Financial management is very important in all types of businesses, including banks and other financial institutions, as well as industrial and retail firms. Financial management is also important in governmental operations, from schools to hospitals to highway department. (Brigham et al, 1999) The opportunities in financial management range from making decisions regarding expansion and choosing what types of securities to issue in financing expansion. Financial decisions involve how much inventory a firm should carry, how much cash to keep on hand and how much of the firms earning to plough back into the business versus payout as dividend. With respect to education, financial management in senior High schools is no easy task. Headmasters go through turbulence to place the school on a pedestal acceptable to all. According to the Auditor-General’s report (2008), the significant findings with respect to senior high school financial management problems included failure to submit financial statements for validation, failure to collect outstanding debts, failure to settle outstanding indebtedness, cash irregularities, procurement irregularities, payroll irregularities and tax irregularities.

Quite recently, there have been recurrent reports on financial management irregularities by headmasters, leading to misappropriation of funds, inadequate provision of buildings to meet the increasing number of students, and many others that need to be probed. The Public Accounts Committee (PAC) of Parliament after considering the AuditorGeneral's Report (for 2005, 2006 and 2007) on pre-university educational institutions decried the huge students' indebtedness to some of the schools. It noted that the huge debt owed by the students to the schools, some dating as far back as a decade, did not augur well for the proper management and administration of national resources. Topping the list of offences, were non-deduction of taxes, purchases from non-VAT entities, unsupported payment vouchers and misapplication of funds. (Ghanaian Times, 2011) Interestingly, these problems were found with Senior High Schools (SHS) owned by the government. One would ask, what about the private Senior High Schools, do not they have financial management problems as well? Just recently on Ghana Television (GTV) News, the Government of Ghana (GoG) through the president himself at a conference held by teachers and other stakeholders in the education sector indicated that ⅓ of the national budget is spent on this sector, yet there are crisis relating to resources management, efficient productivity and so on. (GTV news, 2014)

PROBLEM OF THE RESEARCH In most, if not all, senior high schools in Ghana, headmasters sit on the administration seat and steer the affairs of their schools. Headmasters together with their bursars among other things are responsible for the management of funds in their schools from cash, receivables and inventory management without involving other stakeholders who may have the expertise in contributing to the success of their administration. As stated earlier, the Auditor-General’s report (2008) indicated that significant findings with respect to the senior high school

financial management problems included failure to submit financial statements for validation, failure to collect outstanding debts, failure to settle outstanding indebtedness, cash irregularities, procurement irregularities, payroll irregularities and tax irregularities. This was revealed in 2008 from the investigations conducted by the Public Accounts Committee (PAC) after a critical assessment of the Auditor’s General report. These revelations indicate that the practice of funds management in aspects such as cash generation, cash disbursement and investment are not effective in most Senior High School (SHS) institutions from 2008 up until now. The researcher therefore seeks to find out what goes on in Senior High School management as far as finance is concerned and to probably raise concerns about the challenges they face in their funds management.

RESEARCH FOCUS Whiles most studies have been focused on the sources of income generation, the knowledge of financial managers in senior high schools, little or no study have been done on income and expenditure pattern of the schools. The general objective is to find out how senior high schools manage their funds or resources to achieve their set goals. However, the specific objectives for this study include the identification of the major sources of income for the schools; again to find out the expenditure pattern of the schools or the application of cash and finally to find out problems encountered when managing or administering school funds.

REVIEW OF RELATED LITERATURE Management of school Finances and resources A recent study indicates that high cost of education is the predominant reason for children not attending school. Funding of education by the government and other stakeholders is not

only desirable but also necessary. (Maronga et al, 2013, p.97) However, proper Financial Management Regulations should be observed in order to achieve organizational goals. (EFA, 2003). Financing education has been and continues to be a burden to all countries and, therefore, various sources should be sought to finance education (Oduog 2003, p.97). Managing schools is quite expensive because of the poor management by school administrators. Karan (2005) observed that private schools tend to perform better compared to public schools. He ascribed this to the fact that in private schools, parents are able to pay the fees charged and therefore these schools have enough learning and teaching resources needed. According to Ministry of Education (MoE), heads are supposed to ensure efficient and effective management of school finances to provide and promote educational service. (Olembo 2005, p.97) Maronga et al (2013, p.97) in their investigation found out that underperformance of principals in financial management may result from employing less qualified accounting staff that maintain poor records and who fail to observe accounting procedures. Ngaba (2003, p.67) established that there was a lack of professionalism in some areas as far as management of schools’ finances is concerned and called for qualified personnel in the management of school finances. It is important for school administration to understand that business management goes beyond allocating cash items, but has to look at the school as an investment which would in due time pay dividends to the government (Alomba 2003, p.90). According to UNESCO (2000, p.107) the mismanagement of funds by principals often leads a shortage of critical resources in schools as money is not available for the purchasing of necessary books, equipment etc. they observe that such may result in underperformance of teachers and students.

Motsamai et al (2011, p.108) argue that if quality schooling is to be achieved, among other things the finances of schools should be efficiently and effectively managed. This emphasizes the need for a sound financial system. Reeder (1998) conserved that educational investment should be well handled to ensure maximum production from it and that the little funds available be well expended to ensure careful financial planning, control and administration. Financial management practices according Maronga et al (2013, p.97-98) involves cash management, management of accounts payable, inventory management and management of accounts receivable. They further explained that cash management involves the management of cash flow into and out of the firm; cash flow within the firm; and cash balances held by the firm at a point in time. Panadey (1999, p.98) explained that the school should evolve strategies regarding: cash planning, managing the cash flows, optimum cash level and investing surplus cash. The basic objective in cash management is to keep investment in cash as low as possible while keeping the firm operating efficient. (Maronga et al 2013, p.97) “Managing cash includes the following: management of cash collection which involves over the counter collection of cash, pre-authorized arrangement, on line terminals, lock boxes, and concentration banking. Managing cash disbursement includes: maintaining zero balance accounts and controlled disbursements.” (Oduog 2003, p.97)

School finance: A theoretical frame work There is no single definition for school finance, however, generally, school finance is all about the management of school financial resources; thus the income generation pattern, expenditure pattern of the school, the laid down procedural steps to follow when embarking on projects or investments, etc. School finance is complicated by how to identify and use the

proper mechanisms for resource distribution that will ensure that funds reach students and schools (Emiliana et al 2012, p. 244). Moreover, they asserted that education funding has the potential to improve education quality for all, and therefore school finance remains an area in need of direction for three essential reasons: (1) school finance systems are responsible for providing the necessary resources to implement education policies – all education systems rely on financing to function, (2) governments sometimes struggle to use education resources efficiently, although they should have a strong incentive to do so, and (3) the complex process of school finance involves a diverse set of actors and stakeholders with different perspectives and motivations, but the system is rarely examined holistically. Clarke (2007, p.97) in his Handbook of school management identified planning, organizing, leading and controlling as a major task to perform when managing school finances. Bush (2004) attributed these tasks to the headmasters of schools who are to ensure proper school management. The administration of a school’s finances is an integral part of effective school administration (Mestry 2004, p.). Each of the aforementioned tasks will briefly be considered regarding financial management. Planning is a process consisting of projecting the future consequences of current decisions. (Brealey et al 2001) It is a vital component of effective school financial administration (Motsamai 2011, p.97-98). According to Kruger (2005, p.97), planning of school finances usually starts with the drafting of a budget. In business dictionary, budget is defined as a systematic plan for the expenditure of a usually fixed resource, such as money or time, during a given period or an itemized summary of estimated or intended expenditures for a given period along with proposals for financing

them. According to Bisschoff (1997, p.567), a budget is the mission statement of an organization expressed in monetary terms. Clarke (2007, p.102) argues that budgeting is a forward-looking process that must be guided by the vision of the school for the future and a realistic assessment of the risks. Mckinney (1995, p.100) agrees with Clarke by stating that budgeting is a dynamic and ongoing process. He identified planning, needs assessment and priority settings as the major stages in budgeting. Emiliana et al (2012, p.244) believes that school budget provides school administrators with an opportunity to justify the collection and expenditure of school funds. The purpose of budget was abridged by Bisschoff (1997, p.567) as assisting systematic planning; quantifying objectives and identifying priorities; coordinating activities and communicating plans within the organization; motivating and increasing the accountability of middle management; authorizing expenditure and activities; controlling, monitoring and analyzing expenditure; and evaluating performance. Organizing develops intentional patterns of relationships among staff and other resources in organization (Kurt 2007, p.43). To achieve quality education simply means bring all the inputs of stakeholders (that is staff, students, school board, PTA etc.) together as one unit and ensuring that those input enhance the success of the school. In this respect, organizing of school finances should include aspects such as drawing up a school financial policy; setting up a structure within the school to handle administrative and financial matters; delegating certain functions to clerks, class teachers and the treasurer; and coordinating activities (Kruger 2005, p.56) Organizations provide its managers with legitimate authority to lead, but there is no assurance that they will be able to lead effectively. Organizations need strong leadership and strong management for optimal effectiveness (Lunenburg, 2011). Kurt (2007, p. 48) believes that leading occurs when managers initiate action. According to Bennis et al (1985), leadership is mostly concerned with dealing with people. Leading depends on being able to

direct, motivate, and communicate with the staff for whom one is accountable (Kurt 2007, p. 47). Bisschoff (1997, p.567) believes that leadership in financial administration involves three aspects: sound relationships, communication with all stakeholders and internal as well as external and motivation of all the people concerned with school finances. Niemann (1997, p.374) added that communication is the basis for establishing relationships and for providing motivation. Niemann (1997, p.377-378) again stated that financial activities are dealt with most effectively when both the administrative and academic personnel are involved in the process. Bisschoff (1997, p.568) argues that good communication will ensure that staff members who are involved in school finances would be informed about authorizations for various expenditures are knowledgably about the financial procedure for expending money, and whom the results of the expenditure should be reported. Bisschoff (1997, p.568) again emphasizes that all staff members should feel that they have a role to play in all of the school’s activities, as this will motivate them to work hard and consequently achieve effective and efficient financial administration. The financial planning of school finances and its control are interdependent and closely linked with each other (Kurt 2007, p.47). It can be assumed that there a similar relationship existing between budget and control since a budget is a planning instrument (Bisschoff 1997, p.568). This means that financial planning is about budgeting and in this regard. Ntseto (2001, p.95) argues that a budget is a financial control technique as well as a plan. Kurt (2007, p.48) identified four basic steps in controlling; thus setting standards, measuring performance, comparing actual with expected results, and acting to correct deviation. Control monitors input and output; it also monitors the processes or how work is done. (Kurt 2007, p.47)

METHODOLOGY OF THE RESEARCH Generally, the research is a descriptive survey. According to Saunders et al (2009), the survey strategy allows a researcher to collect quantitative data, which can be analyze quantitatively using descriptive statistics. In addition, the data collected using a survey strategy can be used to suggest possible reasons for particular relationships between variables and to produce models for the relationships. The survey design was further found appropriate for use for this study because it looks at the phenomena under consideration accurately and describes precisely what the researcher seeks or finds out.

Sample size and Sampling Technique Since all headmasters and bursars were involved in the study, the purposive sampling technique was adopted. This is because of the possibility that the researcher will at best be able to address his research questions and meet his objectives (Saunders et al 2009).

Data Analysis The study used both primary and secondary data. Questionnaires were administered to four respondents to solicit for their opinions on some issues. Moreover, the current financial report (2013) of the schools were also used to analyse the income and expenditure patterns. The collected data were anal ysed using Microsoft Excel. To aid in easy and quick interpretation of data, all the responses to the close-ended questions were fed into the MSExcel software for data processing and analysis. The system then presented the analyzed data (output) in the form of frequency tables and figures. The above approach was adopted because of its suitability in appropriately elucidating the findings in order to enable the researcher come out with very concrete and relevant observations, conclusions and recommendations.

ANALYSIS AND DISCUSSION

The presentation and discussion of the findings were focused on the following areas: 

Expenditure pattern or application of funds the school generates and



Challenges faced in managing those funds

The purpose of the study is to find out how spending officers spend cash in the school and identify the pattern of expenditure as well. The study revealed that the total income for

sampled schools was GH¢5,825,183.63; and the ratio of AGASS income to KESDASS is 83%:17%. Likewise, the total expenditure of both schools was GH¢5,725,124.75 and a ratio of AGASS to KESDASS is 84.47%:15.53%. As demonstrated by the analysis, the school with larger income has as well the higher expenditure. This is as a result of the more revenue sources that are available to AGASS. AGASS had government grants and HIPC funds to support their school fess whereas KESDASS only had school fees to run their activities. HIPC fund and government grants formed 2.72% and 52.46% of the total expenditure AGASS made in 2013 respectively. With respect to expenditure, the schools almost have the same items they expend on. Similar expenditure made by the schools include food, utilities, travels, repair and maintenance, allowances and consumables which together is classified as administration. The ratio of administrative expenditure of AGASS to KESDASS 13.33%:8% of the total expenditure both schoo...