Financial Information Systems as a Strategic Financial

FINANCIAL INFORMATION SYSTEMS AS A STRATEGIC FINANCIAL

MANAGEMENT TOOL IN PUBLIC BUSINESS ORGANISATIONS.

BY

MAINGI CATHERINE WANZA

UNITED STATES INTERNATIONAL UNIVERSITY-AFRICA

ii

FALL 2014

FINANCIAL INFORMATION SYSTEMS AS A STRATEGIC FINANCIAL

MANAGEMENT TOOL IN PUBLIC BUSINESS ORGANISATIONS.

BY

MAINGI CATHERINE WANZA


iii

FALL 2014

STUDENT DECLARATION

I, the undersigned, declare that this is my original work and has not been submitted to any

other college, institution or university other than the United States international university

in Nairobi for academic credit.

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

Catherine.W.Maingi (ID 625954)

This project has been presented for examination with my approval as the appointed supervisor

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

John Mirichii

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

Dean School of Business

iv

COPYRIGHT

©

Catherine .W. Maingi

All rights reserved

v

ABSTRACT

The purpose of the study was to examine financial information systems as a strategic

financial management tool in business organizations. The study was guided by three

research questions which include: factors which influence the usage of financial

information systems, challenges facing financial information systems and measures which

can improve financial information systems.

Chapter one discusses the background of the problem, identifies the research problem and

the gaps in the factors that facilitate usage, challenges and measures to improve financial

information systems in business organizations; and identifies the purpose of the study. The

scope of the study was limited to business organizations in Nairobi county. The study was

important to researchers, business organizations, academicians and financial Information

System providers. The definitions of the terms were addressed to enable the reader to

understand the topic been addressed well. Literature review on the research questions was

done in chapter two where each research question was analyzed in detail.

Chapter three describes the methodology applied in carrying out the study. The chapter

describes in detail the research design, population and sampling design, data collection

methods, research procedures and data analysis methods used in the study. The study

applied descriptive research design. The sampling technique used in this study was

stratified sampling. The targeted population in the study was organizations which use

financial information systems. A questionnaire was used as a data collection tool. The

questionnaires were self-administered by the researcher to the respondents and picked upon

agreement. Pearson`s chi square statistical tests and Microsoft excel were used to determine

the significance of the study findings and establish the relationships between the variables.

The data was summarized into percentages and frequency distribution tables to enable easy

understanding. Pie charts, tables and graphs were used to present the data. Statistical

Package for the Social Sciences (SPSS) and Microsoft Excel was used to analyze the data.

Chapter four analyzes the results and findings from the study using tables, graphs,

percentages and whole numbers. Chapter five discusses the findings in chapter four and

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makes conclusions and recommendations for practice and further studies. The main

findings of the study were that Financial Information System enables easy planning,

budgeting, management of financial transactions, smooth operation of activities, and

prevents damage of firm’s resources. In addition, the researcher found that the user-

interface of the FIS was unfriendly and that good business practices cannot create good

reputation for a company, meaning that reputation of the company comes from other factors

other than good business practices.

The researcher recommends further studies to be carried on private companies to establish

the factors influencing the usage, challenges and measures that can be used to improve

financial information systems in those companies. Since the study was on only one type of

information system, the researcher recommends further research be carried out on other

types of information systems such as Transaction Processing System ( TPS ) and Enterprise

Resources System (ERS).

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ACKNOWLEDGEMENT

I thank almighty God for guiding me through my education. I also appreciate my supervisor

John Mirichii for supporting me during the preparation of the project report. Finally I give

special thanks to my parents and my daughter for their continued support and inspiration

all through my studies. God bless them all abundantly.

Catherine Maingi

USIU, Summer 2014

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TABLE OF CONTENTS

STUDENT DECLARATION..................................................................................................iii

COPYRIGHT........................................................................................................................... iv

ABSTRACT.............................................................................................................................. v

ACKNOWLEDGEMENT......................................................................................................vii

LIST OF FIGURES ................................................................................................................. xi

LIST OF TABLES.................................................................................................................xiii

LIST OF ABBREVIATIONS................................................................................................. xv

CHAPTER ONE ..................................................................................................................... 1

1.0 INTRODUCTION............................................................................................................. 1

1.1 Background of the Problem ................................................................................................ 1

1.2 Statement of the Problem.................................................................................................... 4

1.3. Purpose of the Study.......................................................................................................... 5

1.4. Research Objectives.............................................................................................. ............. 5

1.5. Importance of the Study..................................................................................................... 5

1.6 Scope of the Study.............................................................................................................. 6

1.7 Definition of Terms............................................................................................................. 6

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1.8 Chapter Summary ......................................................................................................... ...... 7

CHAPTER TWO .................................................................................................................... 8

2.0 LITERATURE REVIEW ................................................................................................ 8

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

2.2 The Factors Which Influence the Usage of Financial Information Systems ...................... 8

2.3. The Challenges Facing Financial Information Systems .................................................. 12

2.4. The Measures That Can Improve Financial Information Systems .................................. 16

2.5. Chapter Summary ........................................................................................................ .... 20

CHAPTER THREE.............................................................................................................. 21

3.0. RESEARCH METHODOLOGY................................................................................. 21

3.1. Introduction...................................................................................................................... 21

3.2. Research Design............................................................................................................... 21

3.3. Population and Sampling Design..................................................................................... 21

3.4. Data Collection Method................................................................................................... 23

3.5. Research Procedures........................................................................................................ 23

3.6. Data Analysis Methods................................................................................................... . 23

3.7. Chapter Summary ............................................................................................................ 24

CHAPTER FOUR................................................................................................................. 25

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4.0 RESULTS AND FINDINGS.......................................................................................... 25

4.1 Introduction....................................................................................................................... 25

4.2 Demographic Information................................................................................................. 25

4.3 Factors Which Influence the Usage of Financial Information Systems ........................... 28

4.4 Challenges Facing Financial Information Systems........................................................... 41

4.5 Measures That Can Improve Financial Information Systems........................................... 50

4.6 Chapter Summary ............................................................................................................. 60

CHAPTER FIVE .................................................................................................................. 62

5.0 DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS........................... 62

5.1 Introduction....................................................................................................................... 62

5.2 Summary.......................................................................................................... ................. 62

5.3 Discussions ....................................................................................................................... 63

5.4 Conclusions....................................................................................................................... 68

5.5 Recommendations for Practice and Further Studies......................................................... 69

REFERENCES...................................................................................................................... 72

APPENDICES....................................................................................................................... 80

Appendix A: Cover Letter ................................................................... ................................... 80

Appendix B: Questionnaire..................................................................................................... 81

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Appendix C: Specific Objective One Correlation Table ........................................................ 86

Appendix D: Specific Objective Two Correlation Table ....................................................... 87

Appendix E: Specific Objective Three Correlation Table...................................................... 88

LIST OF FIGURES

Figure 4.1 Management level...........................................................................................................25

Figure 4.2: Marital status............................................................................. .....................................27

Figure 4.3: Planning of activities.....................................................................................................28

Figure 4.4: Budgeting of Activities.................................................................................................29

Figure 4.5: Management of Financial Transactions......................................................................30

Figure 4.6: Understanding of Roles and Responsibilities ............................................................32

Figure 4.7 Smooth Operations of Activities...................................................................................33

Figure 4.8: Damage of Organization’s Resources.........................................................................34

Figure 4.9: Fraud Elimination..........................................................................................................34

Figure 4.10: Generation of Useful Financial Reports...................................................................35

Figure 4.11: Easy Decision Making................................................................................................36

Figure 4.12: Timely Generation of Financial Reports..................................................................37

Figure 4.13: Fast Speed Operation..................................................................................................38

Figure 4.14: Generation of Financial Reports at the Right Time................................................39

Figure 4.15: Generation of Accurate Financial Reports...............................................................40

Figure 4.16: Lack of Understanding and Use of System..............................................................42

Figure 4.17: High Cost of Installation ............................................................................................43

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Figure 4.18: Lack of Support and Maintenance from Providers.................................................45

Figure 4.19: Lack of Privacy of Financial Information................................................................46

Figure 4.20: Lack of Adequate Security........................................................................ .................47

Figure 4.21: Lack or Have Little Knowledge about Financial Information System .................48 Figure 4.22: Difficult To Understand..............................................................................................49

Figure 4.23: Need for Further Training ..........................................................................................50

Figure 4.24: Proper Use of the Organizations Resources.............................................................52

Figure 4.25: Internal Controls Creates Good Reputation of the Company................................53

Figure 4.26: Provision of Adequate knowledge and information about FIS .............................55

Figure 4.27: Corporate Staff Involvement......................................................................................56

Figure 4.28: Enabling Employees to Work Properly With Financial Information Systems ...57

Figure 4.29: Leaders Assisting Employees to Accomplish Their Duties...................................59

Figure 4.30: Leader inspiration........................................................................................................60

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LIST OF TABLES

Table 4.1 Gender............................................................................................................................. ...26

Table 4.2 Age.....................................................................................................................................26

Table 4.3 Years Worked In The Organization.............................................................................. .27

Table 4.4 Type of FIS .......................................................................................................................27

Table 4.5 Chi-Square Tests ..............................................................................................................29





Table 4.10 Chi-Square Tests............................................................................................................34






Table 4.16Chi-Square Tests .............................................................................................................40

Table 4.17Unfriendly User Interface ..............................................................................................41

Table 4.18 Chi-Square Tests......................................................................... ...................................41



xiv

Table 4.21 Training of Employees before Installation .................................................................44






Table 4.27Chi-Square Tests .............................................................................................................49

Table 4.28: Implementation of Effective Business Practices ......................................................50




Table 4.32 Provision of Qualified Staff..........................................................................................53




Table 4.36 Chi-Square Tests.................................................................................................. ..........57

Table 4.37 Improved Leader Communications .............................................................................57

Table 4.38 Chi-Square Tests.............................................................................................. ..............58


LIST OF ABBREVIATIONS

FIS - Financial Information Systems

xv

MIS - Management Information Systems

ICT - Information and Communications Technology

HRM - Human Resource Management

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CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Problem

Information System is used by organizations for the purpose of running the business in an

effective way. According to Kenneth and Jane (2000), Information System is a set of

components that collect, process, store and distribute information to support decision

making, coordination and control in an organization. From a business perspective, an

Information System is an organizational and management solution based on the

information technology and a challenge that is posed by the environment (Alaraifi, Molla

& Deng, 2012). Managers must understand the organization as a whole in terms of

technology and management perspectives in order to achieve effective strategies for

improving the organization ( Benson, 2010).

An Information System carries out office work including word processing, electronic mail

systems and scheduling systems which are designed to increase the productivity of data in

the office (Kenneth & Jane, 2000).The system also performs a variety of tasks which

include creating and distributing graphics, sending messages and doing accounting jobs.

The Information System collects, processes, disseminates and stores data from

organization`s basic business transactions (Rainer & Turban, 2009).The basic activities of

business may include deposit or withdrawal of cash from a financial institution. Most of

the Information System processing uses the online transaction processing, such as the

printing of invoices (Teodor, Mathias, Hannes & Muhammad (2011).

Information System also deals with planning for development, management and use of

information technology tools to help people perform all tasks related to information

processing and management (Haag & Cummings, 2009).For example the manager of a

company can use the system to calculate the units of sales that need to be sold so as to

increase the profit of the company. It is also able to generate accurate and timely results

used by the managers to make decisions on a timely basis.

xvii

Various financial information systems exist to serve different purposes. These include

business intelligence systems that evolved from decision support systems and combine

models and data in an attempt to solve semi structured and some unstructured problems

2

with extensive user involvement (Rainer & Turban, 2009). Decision support systems (DSS)

helps managers make decisions such as whether the price of the product should be increased

or decreased to increase demand for a product, or to increase the profits of the company

during a specified period of time. This type of a system uses data from the company or

outside the company. A Financial Information System (FIS) duplicates the work of human

experts by applying reasoning capabilities, knowledge and expertise within a specific

domain (Rainer & Turban, 2009). Even though this system can help management in making

decisions, employees are required to utilize it properly to solve job related problems (Eric

& Michael, 2012).

According to the functions that information systems perform, they can be classified into

four categories. These include: Sales and marketing, which help in the selling of the

organization`s products and services; manufacturing and production systems, which are

used in the actual production of the firm`s products; Finance and accounting systems track

daily financial transactions of the firm which establish long term investment goals for the

firm and provide long term forecasts of the firm’s financial performance ( Kenneth

& Jane, 2000). Human Resource Management systems, helps managers identify potential

employees and maintain complete records of employees such as sick off days and the date

of salary payment.

The five essential components of information systems include hardware, software, data,

procedures and people. Hardware is a set of devices such as processors, monitors,

keyboards and printers. Together, these devices accept data, information, and process and

display them (Turban, Rainer & Potter, 2004) .Software are the computer programs that

govern the operations of the computer (Ralph, 2008).Data are facts that are used by

computer programs to produce useful information. Procedures are the strategies, policies,

methods and rules for using computer based information systems (Ralph, 2008) . Every

computer based Information System needs people to operate. People are either the failure

or success of every Information System in an organization.

Changing technology not only affects the risks and opportunities that financial managers

face each day but, transforms corporate landscape (Brigham & Houston, 2004). Financial

3

information systems accumulate and analyze financial data which is used for the planning

and forecasting decisions and outcomes of the company. For example, IS can be used to

focus on the expected profits of the company in the next five years. Financial information

systems are used together with the decision support system and in the process help the firm

in achieving its financial goals (Arai, Kitada & Oura, 2013). Financial information systems

use the resources of the firm effectively compared to the margin of safety. Most

organizations use it as their financial planner on how they are going to use their finances in

a particular financial year. A good financial Information System must provide both

financial and non financial information. The financial information systems require

qualified and trained personnel to ensure that the company objectives are met in the right

time (Huysman,, Blonk & Edu, 2009) . Financial management is important in all types of

businesses including banks and other institutions, as well as industrial and retail firms

(Brigham & Houston, 2004).

Financial management has become an important activity in every business organization.

Most organizations have realized the importance of using financial information systems in

financial management as compared to the manual management of finances which is

tiresome while chances of errors occurring are high. Although it is expensive to install and

maintain, the advantages of using it are so many such that business organizations don’t

consider the expensive side of it, but consider having accurate and timely prepared financial

statements of the company.

According to Carlos & Wormald (2007), business organizations can be classified into many

different ways. They can be classified in terms of activity and ownership. Using activity

they can be classified on basis of extractive activities, merchandising, service and

manufacturing. In terms of extractive activities business organizations are in mining and

agriculture and are common in South Africa. Merchandising business organizations operate

in wholesale and retail business, either of raw materials or finished goods. These types of

business organizations are very common in Kenya. On the other hand manufacturing

organizations are involved in production of goods using raw materials. Service business

organizations provide services and not products. Good examples of service organizations

include restaurants, consultation firms and hospitals.

4

Based on ownership, business organizations can be classified into sole proprietorship,

partnership and limited liability Company. Sole proprietorship is a type of business

organization which is controlled and managed by one person (Gebru, 2009). For taxation

purposes, the income of this type of business is considered personal. One disadvantage of

this type of a business is that there is no guaranteed existence of the business as all the

decisions are made by one person. Again there is limitation to the access of funds such as

loans because there is no proven existence of the business. This hinders the growth of the

business. In addition if the business fails the owner’s liability is unlimited and therefore his

or her business can be declared insolvent (Featherstone, Park & Weber, 2012). The

partnership business is formed by two or more people who come together to start a business.

A Partnership has more advantages than sole proprietorship because in the event of the

business collapsing, the liability is shared between or among the partners. Additionally, all

the partners contribute capital at the start of the business and all responsibilities are shared

appropriately (Lin & Chou, 2013).

According to Carlos and Wormald (2007), a limited company is a separate legal entity from

the owners and is governed by the companies act, meaning that the company can buy, sell

and transact in its own name. It can also carry out a contract and raise finance in its own

name. The owners of the company are known as shareholders and have limited liability. In

a case the company fails, the creditors cannot claim the personal assets of the shareholders.

Limited liability encourages companies to invest large amount of money and diversify their

investments without any fear (Bendo & Beekary, 2009) . There are two types of limited

companies: private and public companies. A private company includes other names after

its name such as Johns Company limited. On the other hand, a public company will only

have the word ``Limited`` after its name. Public companies can have their shares listed in

stock exchanges such as the Nairobi stock exchange and they have a minimum of two

directors and a maximum of 50 shareholders.

1.2 Statement of the Problem

Financial Information System users often realize that, while they are saving funds

automating their financial processes, there are still gaps in some areas such as planning

which involves budget preparation, analysis and reporting. If these supporting financial

processes are not integrated into the core financial systems, manually transferring the data

5

leads to inaccuracies, inefficiencies and poor decision making (Ramarapu, 1996). One of

the biggest challenges facing many organizations is the use of manual systems which are

prone to errors and inefficient in producing, analyzing and reporting budgetary, financial

and performance information. Many organizations still consolidate information for

reporting and reporting using the processes which are cumbersome (Quick, 2011). These

cumbersome processes make it increasingly difficult for the decision makers to gather and

analyze all the information needed by the business organizations (Ramarapu, 1996).

While there have been studies carried out to determine the role, function and scope of the

financial information systems (McChlery, Alan & Meechan, 2005) and whether Financial

Information Systems are a good innovation, no study that has been carried out on financial

information systems as a strategic financial management tool in public business

organizations. This study was carried out to determine the factors influencing the usage,

challenges and the measures that can improve the financial information systems in public

business organizations.

1.3 . Purpose of the Study


financial management tool in public business organizations.

1.4 . Research Objectives

The specific objectives of the study were:

1.4.1 To determine the factors which influence the usage of financial information systems

1.4.2 To examine the challenges facing financial information systems

1.4.3 To establish the measures that can improve the financial information systems

1.5 . Importance of the Study

1.5.1 Business organizations

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Business organizations will understand the importance of Financial Information Systems

and gain more knowledge about it and seek ways to improve it.

1.5.2 Researchers

The study will also benefit other researchers who wish to explore further the usage of

financial information systems and especially the challenges facing the implementation of

FIS. The researcher will also understand the importance of financial information systems

in business operations.

1.5.3 Financial Information System Providers

Financial Information System providers will acquire knowledge on how to improve

financial information systems to suit the needs of users in the different types of business

organizations.

1.5.4 Management of Business Organizations

The study will be of importance to managers of business organizations as they will use the

findings of the study to improve FIS.

1.6 Scope of the Study

The target population was the public companies located in Nairobi County which included

the headquarters and some of their branches located outside Nairobi. There are 62 public

companies in Nairobi; a sample of 38 organizations was selected using sample formula.

The time span to carry out the study was five months.

The limitations of this study included the false or bias responses from the business

organizations, respondents taking a lot of time to respond to the questionnaires and lack of

cooperation from some of the respondents. These limitations occurred but the researcher

managed to convince the respondents that the information was confidential thus addressing

the challenges to avoid giving out false or biased information. Further, the researcher

explained to respondents that the information was urgently needed so as to convince them

to respond to the questionnaires in time and to make them cooperative. The assumptions

7

made were that the questionnaire was complete and accurate based on the researchers`

knowledge, experience and perception.

1.7 Definition of Terms

1.7.1 Strategy

According to Armstrong and Baron (2004) , strategy is a long term plan of action designed

to achieve a particular goal as differentiated from tactics or immediate action with resources

at hand.

1.7.2 Management

The effective and efficient pursuit of organizational goals by integrating the work of people

through planning, organizing, leading and controlling the organization`s resources (Kinicki

& Williams, 2008).

1.7.3 Information technology

Information technology relates to any computer-based tool that people use to work with

information, support information and information processing needs of the organization

(Rainer & Turban, 2009)

1.7.4 Strategic management

An organization`s ability to determine its long term direction, asses the long term

performance, ensure that the plans are correctly and expertly formulated, monitored and

implemented effectively, carrying out a continuous evaluation of the business and its

performance (Jonathan & Diane, 2004)

1.8 Chapter Summary

This chapter describes the background of the problem and identifies the research problem

and the gaps on the factors, challenges and measures to improve financial information

systems in business organizations. The chapter also identifies the importance of the study

as well as the definitions of specific terms used in the study.

8

Chapter two reviews the literature and gives insight on the factors that influence usage of

financial information systems, challenges facing financial information systems and the

measures to improve the financial information systems in business organizations. Chapter

three describes the research methodology used in the study which includes research design,

population and sampling, while chapter four describes the results and findings of the study.

Chapter five analyzes the discussions, conclusions and recommendations based on the

specific objectives.

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 INTRODUCTION

This chapter presents a review of the literature on financial information system as a strategic

financial management tool in business organizations. The literature discusses the factors

which influence the usage of financial information systems, challenges facing financial

information systems and the measures that can improve financial information systems.

2.2 The Factors Which Influence the Usage of Financial Information Systems

2.2.1 Transaction of Financial Activities

Financial information systems are designed to carry out financial activities of the firm.

Financial activities are very important to any operating business (Brigagliano, Campion,

Katz and Blake, 2012). A Financial Information System captures and records all financial

transactions carried out by the firm on daily basis such as costs and sales of the firm.

Information systems play a key role in producing financial statements, managing customer

databases, detecting frauds, etc (Pramod, Jinghua & Gao, 2012). An effective financial

Information System makes sure that all the costs and revenues of the firm are captured

correctly.

By providing the costs and revenues of the firm, FIS facilitates management to make

decisions. For example, the system enables management to make decisions on the amount

of money or resources needed for the production or manufacture of a certain product. The

management can make decisions on whether to manufacture or buy a certain product based

on information gathered by the financial information system. According to Alampalli

9

(2013), a financial Information System enhances efficiency, scope, and quality of studies

applied to systemic regulation, and facilitates easy decision making for effective regulation.

For the financial Information System to work effectively and efficiently it should be

complete. This means that it should consist of people, hardware, software and data. Without

people, the system cannot work as people are the ones who run the financial information

system.

In terms of planning, financial Information System enables the management to come up

with a budget. The budget is generated based on the financial information generated by the

financial Information System and availed to management. The budget constitutes activities

of the firm for a specified period of time ensuring smooth operations. Financial

management and proper budgeting are important tools for surviving closure in the global

re-organization in higher education (Obura & Bukenya, 2008)

2.2.2 . Good Business Practices

Effective financial information systems are part of good business practices and effective

internal controls in any organization or firm. Effective internal controls in any business

facilitate generation of profits and minimization of expenditures. Internal controls consist

of procedures to be followed by every person in the organization to ensure smooth flow of

operations. A study carried out by Jenny and Kent (2006) in Australian companies revealed

that there was a weak association between the use of internal audit and strong corporate

governance. This means that for the internal controls to be effective there should be good

corporate governance. Good corporate governance includes good business practices and a

management structure establishing good relationship between the managers, board of

directors and the staff.

Research carried out by Aluchna (2009), revealed that complying with corporate

governance best practices in Poland was associated with lower return on investment, but

turned out insignificant when study was done again for the second and third years. The

study was statistically insignificant when only rated companies were included in the

research sample. There is need for supervisors and managers to ensure that firm procedures

are followed effectively. Although small businesses may not be willing to implement

10

internal controls, they should try what they can because without internal controls the

business can face a lot of risks and end up closing (Glandon, 2003).

There is need for financial information systems that lead to effective internal controls.

Internal controls ensure that there is minimization of errors in the financial transactions of

the business. Financial information systems also detect errors in advance and therefore the

finance department is enabled to correct the errors early in advance. As Jianming (2004)

noted, `` it is highly possible to discover problems existing in Management Information

System ( MIS) through the inspection of the information in error state, deduce the state of

systems' operation, predict systematic development, and organize and design development

strategy``.

2.2.3 . Timely and Accurate Generation of Financial Statements

Organizations with effective financial information systems are able to get accurate financial

statements at the right time. A Financial Information System is able to analyze, summarize

and monitor the activities of the firm throughout (Glandon, 2003). This enables the

management of the firm to make good use of the information available and ensure optimal

utilization of the firm`s resources. As a strategic financial management tool, financial

information systems should provide all the information needed for decision making and

planning of the firm activities. According to Epstein and Buhovac (2008), methodology

requirement for active employee involvement in the identification of the critical drivers of

success and the expected outputs of the IT initiative, in particular, substantially facilitates

the IT initiative implementation by increasing the level of understanding and acceptance.

Financial information systems should not only provide accurate and timely financial data

and information but also nonfinancial data which can be used by the managers of a company

to carry out daily activities. For the system to function properly the management should

define when the financial statements are to be generated; this can be daily, weekly, monthly,

quarterly, semi-annually and yearly. Shahwan (2008) showed that the basic objective of

financial statements is provision of useful information for economic decision making and

that information is useful when it shows economic reality of the financial statements.

11

Most organizations use manual systems to generate financial statements of the company. A

manual system is not able to capture all the daily transactions of the business leading to

many businesses making losses without having a clear idea of the cause of the loss. Manual

operating system is prone to errors and the operators are likely to commit fraud to benefit

themselves. The procedures in preparation of financial statements should be simple and

clear. This means that it should be correctly understood by the users. Cheung, Evans and

Wright (2010) argued that meanings of components of financial statements in relation to

financial reporting remain unresolved in spite of their adoption by the Australian

Accounting Standards Board (AASB) Framework (2004) as the qualitative characteristics

of accounting information.

2.2.4 . Efficiency and Speed in Operations

The speed of operation of FIS is measured in terms of Megabit per second and the data

processed is stored in the database. The speed of financial information systems also depend

on employee productivity (Glandon, 2003). This means the employee should be

knowledgeable enough to run the system. If employees don’t have the required

qualifications, the company may end up making losses because accurate information is not

readily available at the right time and chances of making huge errors are also high

(Glandon, 2003). If company employees are not qualified enough to operate the system,

the employers should focus on offering training to the employee. According to Ahlgren and

Engel (2011) employers have a key role to play in driving and investing in employee

training and development but, the current focus of employers on formal educational

opportunities appears narrowly focused on job-specific, in-house training.

When the financial Information System operates efficiently, it improves the company`s

competitiveness in the market (Glandon, 2003). It provides the required information for

development of company`s product early in advance and therefore timely decision making.

Information provided by the financial information systems is more likely to occur and

spread in production lines that have a great cross-correlation with an increasing operating

risk without taking into consideration the external environment (Philippas & Siriopoulos,

2009).The system is able to generate different types of financial reports at the same time.

12

For example, it can process the income statement and balance sheet at the same time which

is very crucial in decision making.

The world has adopted Financial Information Systems because foreign investors are able

to make investment decisions while in their home countries. This is because they are able

to receive financial reports of the company at the right time. In a study carried out by Alattar

and Al-Khater (2007), respondents rated the balance sheet, auditor's report, cash flow

statement, income statement and notes to the accounts as the most important and

understandable sections of the company`s annual reports. Additionally, respondents

considered government publications and newspapers, magazines and journals as very

important sources of up to date, useful and easy-to-access information.

2.3. The Challenges Facing Financial Information Systems

2.3.1 . Unfriendly User Interface

User interface of a Financial Information System determine how the employees will be

motivated to carry out their activities effectively. Database interface is a key determinant

of employee acceptance and usage (Lin & Chou, 2009).Most of the organizations in the

study have implemented Financial Information Systems but are failing because these

systems are not user friendly, resulting to low employee motivation. Low employee

motivation can lead to poor image of the company (Glandon, 2003). This is reflected in the

financial statements in the form of errors and fraud. A good user interface can provide a

skilled professional with an efficient, customized user tool to administer information

systems, leading to improved work performance and efficient navigation between

workspaces (Lif, Olsson & Sandblad, 2009).

The user interface of Financial Information Systems should have simple procedures that

are understood by the operators of the system. This is a main challenge as most

organizations put down too ambiguous procedures to be followed and therefore poor

understanding of the system. Much research has been done on the use and evaluation of

digital libraries. However, few articles have reported on usability of online collections of

cartographic materials similar with that of Aerial Photographs of Colorado (Long, Lage &

Cronin, 2005). This means a lot of research needs to be done concerning the user interface

of financial information systems.

13

Some organizations fail to train their employees on how to operate the system but end up

concluding that the system doesn’t satisfy the needs of the organization. Ahmed (2009),

carried out a study in south Africa on semantic-oriented agent and knowledge-base product

data management and found that the community was facing some challenges, especially in

intelligent Product Data Management development because of the unfriendly graphical

machine interface, unintelligent search and unstandardized-based platform independent

Product Data Management system deployment and deployment framework. This is a major

challenge in most organizations and they need to realize that user interface is very important

in the operation of the financial management system.

All organizations need to realize that Information and Communications Technology (ICT)-

based services involve creative combinations of many technologies, resources and assets

to answer the growing demand for flexible solutions that create sustained added value.

Some crucial service configuration issues, including the need for a sufficient degree of

corporate-wide standardized service components and interfaces to address the growing

demand for agility in competence-driven markets remain under-developed in most

organizations (Mercado, Dedene, Peters & Maes, 2012). Most organizations install

financial Information System and assume that all things are well but finally end up with

poor results. This is because after installation they do not consider any modifications to be

done to satisfy their needs.

2.3.2 . High Cost of Installation

The installation cost of modern computer based financial Information System is very high.

This is the main reason why organizations opt for manual system in managing financial

resources. Evoh (2012) noted that to meet the objectives of an ICT-based training and

employment generation program for underprivileged youth in Africa it requires strong

regulatory frameworks and contributions from the World Bank. The installation costs

include employee training, salaries for the company providing the service, etc. The use

Financial Information Systems technology has been growing slowly due to the costs

associated with it. In contrast, the benefit it provides to the organization exceeds installation

costs.

14

When a new system is installed in an organization, employees need to be trained on how to

operate the system efficiently. This is because without the knowledge of the system, it

becomes difficult to operate and use the system. There is always a significant correlation

between the employee perceived training effectiveness and their commitment, job

satisfaction and motivation (Sahinidis & Bouris, 2008). If employees are trained properly

they are likely to bring out positive results to the company in terms of reputation, profits

and shareholders wealth maximization. According to Ahmed 2009,

training also reduces employee turnover, motivate employees, boost room occupancy and

increase profitability in a highly competitive industry. A study done by Devin, Johnson and

Sutherland (2004), found that training interventions lead to positive outcomes for the

majority of SME employees, particularly those working in organizations with relatively

formalized training practices.

2.3.4. Privacy and Security

Privacy and security is a very serious challenge facing financial information systems in

organizations. When the organization makes its decision based on the information

processed by the system, privacy should be considered. It is important to note that managers

use knowledge of financial information security mainly for financial and strategic matters

which focus more on risk issues than security issues (Nohlberg & Backstrom, 2007). A

study done by Sommestad et al., (2011) found that security flaws are common in industrial

control systems operating critical infrastructure.

Privacy needs to be maintained especially in financial matters of any organization. This is

because all organizations operate with finances. In the western developed countries, the

right to privacy is taken seriously and private information in the financial activities is

protected by law. The fact that financial privacy protection is sparsely stipulated in finance

or administrative laws while the protection of privacy is yet to be systematically written

into law in China is so far inconsistent with the current situations of the financial industry.

China should therefore deal with the relationship between banks and clients, administrative

power and personal rights, and judicial interpretation and legislation from the aspect of

financial practice so as to set up the legal system to protect financial privacy, learning from

the legislation in the USA based on the national conditions (Jianping & Zhongwei, 2009).

15

2.3.5 . Illiteracy in Technology

Illiteracy has largely affected innovation in Information Technology. Culture may influence

the level of illiteracy in information technology and even in other fields such as finance.

For example, in some cultures technology is believed to be evil and meant to destroy the

young and growing generation. Cultural dimensions have a greater influence on takeoff

time in countries with highly developed economies, dense populations and low illiteracy

rates. Cultural dimension of individualism also has a significant context independent

influence on takeoff dynamics, whereas masculinity has no such effect

(Haapaniemi & Makinene,2009).By these authors saying that masculinity has no effect on

illiteracy, it is in contrast to some African communities that also believe that men are supposed to be more educated than women. In fact they believe that educating a girl child

is only waste of money and resources as the girl will finally be married. Kumar, Mitra &

Murayama (2013) revealed that in India the probability of working is higher for a male

child compared to a girl child because girl children are often engaged in household activities and even when they are engaged in income earning jobs they are displayed as

helpers.

Even where the financial management systems operate efficiently in the organization, the

users of financial statements are unable to interpret the results. This leads to the users

making wrong investment decision because they do not understand the terms used in the

financial reports and are unable to interpret the financial results effectively. ``There are

things which cannot be revealed by the official financial reports but the ones released online

can reveal more details. Using the extended collocation networks method, some hidden

facts about a Chinese listed company's financial status could be identified, which were not

reported in the company's officially released financial statements ( Yuanqin, 2006). The

information is very important to the foreign investors in the developing countries and also

people who have no access to the finance managers for interpretation.

Most organizations publish financial statements which are misleading. For example

overstating sales and assets and understating expenses so as to attract more investors in

their company (Zhu & Gao, 2011).This misstatement of financial statements is common in

organizations where the technology illiteracy rate is high. This is because when using

financial information system, every transaction is recorded immediately it occurs and

therefore the chances of misstatements are low. As most organizations look for qualified

16

people to fill different positions in the organization, they must also consider other factors.

These include the ability of leading, motivating, innovating, being independent and

working under pressure. This is the reason why besides seeking academic qualification,

computer literacy and relevant working experience, the majority of potential employers

now require accounting graduates to possess additional qualities such as leadership,

motivation, innovative skills, being independent and able to work under pressure. The

government of Kenya is trying to do away with illiteracy level in women by supporting girl

child education and even encouraging women to innovate by providing youth and women

with funds. The government is also trying to improve technology in the country through

laptop project, where the standard one kids will be provided with laptops.

2.4. The Measures That Can Improve Financial Information Systems

2.4.1 . Implementation of Good Business Practices

Every organization has procedures and rules to be followed by both the management and

staff. For the organization to be successful its internal controls must be effective in

protecting the organization`s assets from loss or damage through accident and fraud.

Internal controls also ensure reliability, accuracy and timeliness of financial information.

Internal controls are further used by the organization to accomplish company`s goals.

Ronald & Houmes (2012) carried out a case study of two universities in Australia and found

out that internal control course increases student understanding of the implications of

internal controls and their impact on the reliability of the financial statements significantly.

Improved internal controls in organizations lead to positive results in improvement of

financial information systems. A good internal control is created by the management

through intense communication and positive attitudes. Onumah, Kuipo, & Obeng (2012)

did a research in hundred Australian companies and found that overall internal control

system had a high level of effectiveness. It means that management should ensure that

internal controls are effective by providing rules, regulations and procedures to be followed

in the organization.

Internal control is used in the identification of risk. It helps identify the departments or

sections of the business which are prone to risk to enable management take effective control

17

of the departments. In regard to corporate governance processes, Leung, Cooper & Perera

(2011) indicated that issues surrounding internal control, risk assessment and management

processes are key factors that contribute to good corporate governance. If an organization

is experiencing low demand of its products an effective internal control can be able to

identify the risk and then find a way of minimizing it.

Ineffective internal controls decrease the earnings of the firm. In terms of expected future

cash flows, companies are likely to report weaknesses experienced by the inability to pay

short-term and long-term debts, low profits, and possessing lower market value than

companies with no weaknesses due to ineffective internal controls (Kuhn, Ahuja and

Mueller, 2013). That is why most organizations usually close down without knowing why

the business is making losses through out. Internal controls also increase the firm`s cost of

capital which in turn affects the market value of the firm. The ineffective internal controls

damage the reputation of the organization`s corporate governance. This is because when

internal controls are ineffective only corporate governance will be blamed as the firm will

be operating in losses (Ross and Crossan, 2012).

2.4.2. Qualified and Competent Workforce

To improve an organization`s financial information systems the organization must have

competent and qualified workforce to operate its system. A study carried out by Nusair &

Parsa (2007) concerning implementation of Human Resource Information System ( HIRS

) in restaurant chains concluded that financial resources, culture, and computer competence

are better predictors of any successful implementation of HRIS in restaurant chains.

Competence in every position is very important as the employee must not only be aware of

his tasks but also how the tasks are handled. Poor or lack of qualifications is associated

with workplace problems, and improving training is likely to reduce problems such as

under-staffing and theft (Poulston, 2008). This means the organization can avoid problems

such as theft and understaffing by enrolling qualified staff or employees.

Unqualified people will be unable to operate the financial Information System properly.

That is why organizations are encouraged to employ qualified personnel, and if not they

should have programs to train them. Since training the unqualified staff is costly,

18

organizations are encouraged to recruit only qualified staff to avoid extra costs. A study

conducted by Mirza and Riaz (2012) to assess the need for training in the banking sector

found that in practice training identifies more than one training need; the training manager,

working with management, prioritizes the training based on urgency, the number of

employees needing training, and the resources required. Most companies adopt the strategy

of outsourcing the operation of financial information systems. Outsourcing of activities is

cheaper as there are no extra costs associated with the training of employees. A survey

carried out by Hassanain and Al-Saadi (2005) indicated that outsourcing is utilized in

almost all functions relating to the management of municipal infrastructure and that the

criterion for selecting a specific contractor for a service is lowest price.

Financial information systems need to be maintained like any other Information System so

as to serve the needs of the organization. If the financial Information System is interfered

with, it means that it may not function as intended or it can generate poor results. The

interference mostly happens when the system is run by the incompetent people who don’t

know the procedures of operating the system.

2.4.3 . Effective Leadership

Effective leadership entails ability to inspire employees to be honest, to be confident, to

encourage team work, to communicate effectively and to make right decisions, and to help

employees achieve goals (Hassanain & Al-Saadi, 2005). People have different perceptions

about leadership and that is why one person can be called a leader by some people while

others regard him or her as a ruler. According to Muchiri, Ray and Cooksey (2011), males

and non-management employees perceive effective leadership as that which emphasizes

fairness, equality and honesty, develops staff, fosters workplace harmony, and is

trustworthy. Female employees see effective leadership as one with ability to communicate,

make decisions and support by the leader. They see it as being important tool of evaluating

how a particular department contributes to achievement of organizational goals. Finally

employees at the management level underscore vision, support by the leader, and see

integrity as important on how a work unit could contribute to organizational leadership

effectiveness (Hassanain & Al-Saadi, 2005).

19

Effective leadership can help improve financial information systems because it increases

employees’ morale and improves the working environment. Hughbank and Horn (2013)

noted that certain leadership approaches are formal, only succeeding in formal settings and

environments while others are dependent upon conditioning of the leader. Regardless of

one’s leadership style and characteristics, it is critical that both leaders and followers define

and understand the variances between failure and success within an organization. This

means that for leadership to be effective the leader and followers need to understand each

other properly, because without it the organization will be full of conflicts. An example is

conflict arising because an employee did not record in the Financial Information System

all the sales made by the organization.

Effective leadership increases the firm`s profit because the firm is able to achieve its goals

as the leaders envision and empower and inspire employees. This in turn motivates

employees and enables them to perform their duties efficiently. Organizations with

recognized leadership brands outperform others in their industry in revenue, net income,

and share price and leadership reputation increases even more significantly in a tough

economy (McLaughlin & Mott, 2010). Development of leadership should be

comprehensive and systematic in order to produce leaders who can face the

organizational changes with confidence (Francis, 2009).

There should be no discrimination of employees in the work place. When some employees

are discriminated against others, they feel isolated leading to demoralization. When a

section of employees are isolated by their managers or supervisors, they can be tempted to

tamper with the financial Information System as a way of revenging against the

organization for the discrimination. According to Appelbaum, Semerjian and Mohan

(2012), transformational and ethical leadership are both very effective tools for managers

to counter workplace bullying and is the means of installing ethical climate in the

workplace as the most effective way of avoiding workplace bullying.

For leadership to be effective management should make efforts of improving

leaderemployee relationship. Improved leadership in turn improves performance of

financial information systems. The managers must have to realize that the tendency for

20

individuals to act selfishly on behalf of their organization is unethical and therefore being

aware of this behavior will provide leaders with a greater ability to build trust and develop

joint strategies which will provide positive outcomes (Meaklim, 2013). Leaders should

therefore understand that working with employees in the right way leads to achievement of

sustainable performance and a deep understanding of complexity and the importance of

systems. In addition conducive working environment for employees creates sensitivity to

the role of the leader in creating conditions of trust and empowerment through their own

behavior and self awareness (Strategic Direction, Vol. 27 Iss: 2). Effective leadership is all

what is needed by most organizations for their financial information systems to function

properly and bring out fantastic results.

2.5 . Chapter Summary

This chapter reviewed the literature based on the factors which influence the usage of

financial information systems, the challenges facing financial information systems and the

measures that can improve the financial information systems. Each research objective was

analyzed in detail. Chapter three describes the research methodology used in the study

while Chapter four analyses the results and findings of the study using SPSS and Microsoft

Excel. Finally, chapter five discusses the findings of the study, makes conclusions and

recommendations.

21

CHAPTER THREE

3.0 . RESEARCH METHODOLOGY

3.1 . Introduction

This chapter presents the research methodology used in the study. It comprises the research

design, population and sampling design, data collection methods, research procedures and

data analysis methods used in the study. The chapter ends with a summary.

3.2 . Research Design

Research design is the blue print for fulfilling objectives and answering questions (Cooper

& Schindler, 2000). The study used descriptive research design to explain the challenges

facing financial information systems, factors influencing the usage of financial information

systems, and the ways of improving the financial information systems. According to Uma

(2003), descriptive studies are often designed to collect data that describe the characteristics

of persons, events or situation. Descriptive research design can be quantitative or

qualitative. Descriptive design was chosen because it would help the researcher to know

more about the characteristics of the population and to understand the aspects in the field

of study and draw accurate conclusions and make recommendations.

A survey in form of standardized questions was conducted on the junior, middle and senior

staff in the selected organizations. The independent variable of the study was the financial

information systems while the dependent variable was the employees. The study was

guided by three variables which included the challenges facing financial information

systems, factors influencing the use of financial information systems and the ways in which

financial information systems can be improved.

3.3 . Population and Sampling Design

3.3.1 . Population

Cooper & Schindler (2003) defined population as the total collection of elements about

which the researcher wishes to make inferences. The target population of the study was 62

public organizations operating in Nairobi County out of which only 38 were used in the

study. Since all the companies are located in Nairobi County it was easy to access them for

22

the purpose of this study. Primary data was collected from respondents who were

employees working in the finance and accounts department.

3.3.2 . Sampling Design

3.3.2.1 . Sampling Frame

Sampling frame is the list of elements from which the sample is actually drawn (Cooper &

Schindler, 2003).The sampling frame should consist of the targeted population. The

sampling frame for this study was the 62 public companies operating in Nairobi.

3.3.2.2 . Sampling Technique

There are various different types of sampling techniques and they include: convenience,

judgment, simple random, stratified and cluster sampling. The sampling technique used in

this study was stratified sampling. Stratified sampling gives every stratum a chance of being

selected to ensure a proportionate representation of population in the sample.

3.3.2.3 . Sample Size

A sample is a group of participants, events or records consisting of a portion of target

population, carefully selected to represent that population (Uma, 2003). The sample size

for this study was determined using sample size formula. As provided by the directory of

public companies in Kenya, there are a total of 62 public companies located in Nairobi

County. The sample consisted of 38 public companies determined by the formula as

follows:

Sample size formula n= N/(1+N(e)^2, where N=the

population n=sample size

e=margin of error, in this case 10%

n=62/ (1+ (62*0.1^2)) =62/1.62

=38

3.4 . Data Collection Method

23

Primary data was used in this study. Primary data is the original data (Cooper & Schindler,

2003). A questionnaire was used as data collection instrument in the study. The

questionnaire was developed by the researcher based on the specific objectives. The

questionnaire included both open and closed ended questions. The questionnaire was used

because the researcher wanted to collect a lot of information where results could be easily

analyzed. The questionnaires had four sections: general information, factors influencing

usage of financial information systems, specific information on challenges facing financial

information systems, and the ways of improving financial information systems in the

organization. The research supervisor was consulted to ensure the validity of the

questionnaire.

3.5 . Research Procedures

Before collecting any information, the researcher requested authority from several of the

companies or organizations to conduct the study from their organizations. The researcher

then conducted a pilot test of the questionnaire using a sample of five respondents randomly

selecting from the sampling frame. The pilot study was used to identify any errors and

unclear or ambiguous items in the questionnaire. Feedback from the pilot study was used

to correct any errors in the questionnaire before the researcher went ahead with data

collection. The researcher booked appointments with the officers in the organizations

involved in the study so as to enable fast collection of data. The questionnaires were

distributed to junior, middle and senior staff in the workplace. To ensure that the researcher

got a high response rate the questionnaire was written in simple and clear terms. The

researcher was available to clarify any issue to the respondents. The researcher gave the

respondents enough time to fill their questionnaires. The questionnaires were accompanied

by cover letter assuring that confidentiality was to be highly observed. The researcher

provided incentive by promising summarized copy of findings to the respondents.

3.6 . Data Analysis Methods

Descriptive analysis was used to analyze the data. Descriptive analysis is used to summarize

large amount of data and uses techniques that can be understood better by the observer or

any other person. The data collected was edited and analyzed using both SPSS and excel

software. The study made use of both the graphical and numerical techniques to summarize

24

the data. The data was then summarized into percentages and frequency distribution tables

to enable more understanding of the results and findings.

The presentation of data was in form of pie charts and graphs for easier interpretation.

3.7 . Chapter Summary

This chapter describes the methodology that was applied in carrying out the study. The

research design applied was descriptive. The population comprised of 62 public companies

located in Nairobi County. As the public companies are many in Nairobi County, it was

appropriate to use the descriptive research design. The chapter describes in details the

research design, population and sampling design, data collection methods, research

procedures and data analysis methods. The next chapter discusses research findings while

chapter five presents a summary of the study and makes conclusions and recommendations

based on the result findings in chapter four.

25

CHAPTER FOUR

4.0 RESULTS AND FINDINGS

4.1 Introduction

The findings based on the three specific objectives are presented in this chapter. The three

specific objectives include the factors influencing the usage of financial information

systems, the challenges facing financial information systems, and how the financial

information systems can be improved. Thirty eight questionnaires were administered to the

public companies located in Nairobi County. All questionnaires were returned, representing

100% which is a good representative of the total population. The first section analyses the

factors influencing the usage of financial information systems, the second section analyses

the challenges facing financial information systems, and the third section analyses the

measures that can be put in place to improve the financial information systems. The first

section analyzes the demographic information of the respondents.

4.2 Demographic Information

The demographic data in the study included the management level, gender, age, marital

status, years worked in the organization and type of financial information system used.

4.2.1 Management level

The data about the management level is presented in figure 4.1 below. The results show

that majority of employees in finance and accounts department are in the middle

management level representing a 66% of the management level.

Figure 4.1 Management level

26

4.2.2 Gender

Table 4.1 Gender

Gender Frequency Percent

Female 10 26

Male 28 74

Total 38 100

As shown in table 4.1 majority of the respondents were male representing 74% while 26 %

were female.

4.2.4 Age

Figure 4.2 and Table 4.2 shows that majority of the respondents representing 39% were

aged between 41 to 50 years of age

Table 4.2 Age

Years Frequency Percent

20-30 years 4 11

31-40 years 12 32

41-50 years 15 39

51 years and above 7 18

Total 38 100

4.2.3 Marital Status

The study indicated that the majority of the respondents were married, representing a total

of 61% of the respondents. The data is presented in figure 4.2 below.

27

Figure 4.2: Marital status

4.2.4 Years Worked in the Organization

It was found that majority of the respondents representing 47% worked in the organization

for 6-9 years. This is presented in table 4.3.

Table 4.3 Years Worked In the Organization

Class Frequency Percent

Less than 2 years 3 8

2-5 years 7 18

6-9 years 18 47

10 years and above 10 26

Total 38 100

4.2.5 Type of Financial Information Systems.

Table 4.4 Type of FIS

Type of FIS Frequency Percent

Custom made 23 61

Off-shelf 15 39

28

Total 38 100

It was found that majority of the public companies use custom made financial information

systems. This was represented by 23 companies (or 61%) out of the 38 companies

included in the study.

4.3 Factors Which Influence the Usage of Financial Information Systems

In this section the study was carried on the factors which influence organizations to use the

financial information systems. The factors are analyzed according to the research findings

in appendix C. A two tailed test was used in the study. The significance level used was both

0.01 and 0.05, and the results were explained using significant level of

0.05.

4.3.1 Planning of Activities

Figure 4.3: Planning of activities

The study intended to examine whether financial information systems enables employees

to plan their activities well. Out of 38 respondents, 54% agreed, 39% strongly agreed and

7% disagreed. The results in the correlation table showed a positive relationship between

planning of activities and the generation of accurate financial reports.

29

Table 4.5 Chi-Square Tests

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 31.365a 6 .000

Likelihood Ratio 22.147 6 .001

Linear-by-Linear

Association

18.847 1 .000

N of Valid Cases 38

.

Table 4.5 shows the significance of the relationships. Chi square test shows that the

relationship between planning of activities and generation of accurate financial reports was

significant because p is less than 0.05.

4.3.2 Budgeting of Activities

Budgeting is important to every business. For this reason, the researcher wanted to know

whether financial information systems help in budgeting the activities of the organization.

As shown in figure 4.4 below, out of the total respondents 11 strongly agreed, 15 agreed, 2

are neutral, 4 disagreed and 1 strongly disagreed that financial information systems help in

budgeting of financial activities. The correlation table shows that there is a positive

relationship of 0.877 between budgeting of activities and generation of accurate financial

reports.

30

Figure 4.4: Budgeting of Activities

Table 4.6Chi-Square Tests




Linear-by-Linear

Association

28.442 1 .000

N of Valid Cases 38

As indicated in Chi square table 4.6, there is a significant relationship between budgeting

of activities and generation of accurate financial reports (p<0.05).

4.3.3 Management of Financial Transactions

Financial transactions take place daily in businesses and therefore the business needs

excellent management of its financial transactions to avoid loss and fraud in the

organization. From the study results in figure 4.5 below 58% of the respondents strongly

agreed,26% agreed and 16% disagreed that financial information systems enables them to

manage financial transactions of the firm. The correlation table shows that there is a

negative correlation of 0.325 between management of financial transactions and generation

of accurate financial reports.

31

Figure 4.5: Management of Financial Transactions





Linear-by-Linear

Association

3.915 1 .048

N of Valid Cases 38

Chi square test shows that there is no significant relationship between management of

financial transactions and generation of accurate financial reports (p>0.05).

4.3.4 Understanding of Roles and Responsibilities

For the operations of the firm to run smoothly, every employee in the organization must

understand his or her roles. The researcher wanted to know if financial information systems

enabled employees to understand well their roles and responsibilities. The results shown in

figure 4.6 indicates that 10 strongly disagreed, 16 disagreed, 0 neutral, 10 agreed and 2

strongly agreed that the financial information systems enable them to understand well their

roles and responsibilities. The correlation table shows that there is positive correlation

between understanding of roles and activities and generation of accurate financial reports

(r=.495)

Figure 4.

32

6: Understanding of Roles and Responsibilities





Linear-by-Linear

Association

9.050 1 .003

N of Valid Cases 38

Chi square test shows that the relationship between understanding of roles and generation

of accurate financial reports is significant (p<0.05).

4.3.5 Smooth Operation of Activities

Smooth operation of activities is the desire of every organization. When the operations in

the firm are not smooth, the organization may suffer from losses and fraud. From the study

results shown in figure 4.7 below,10% strongly disagreed, 11% disagreed, 0 % are neutral,

26% agreed and 53% strongly agreed that good business practices enables

Figure 4.

33

smooth operation of activities in the organization. Correlation table 4.5 shows that there is

a positive correlation between smooth operations and activities and generation of accurate

financial reports (r=.903).

7 Smooth Operations of Activities





Linear-by-Linear

Association

30.189 1 .000

N of Valid Cases 38

Chi square test reveals that the relationship between smooth operation of activities and

generation of accurate financial reports is significance (p<0.05)

4.3.6 Damage of Organization Resources

There is no organization which can be satisfied if its resources are damaged because this

means extra expenses to the organization. For this reason, the researcher wanted to find out

whether good business practices enables the firm to avoid damage of its resources. The

Figure 4.

34

results shown in figure 4.8 shows that 4 of the respondents strongly disagreed,3 disagreed,

2 neutral, 5 agreed and 24 strongly agreed that good business practices ensures that there

is no damage of organization`s resources. Correlation table showed that there was a positive

relationship between damage of organization`s resources and generation of accurate

financial reports (r=.914).

8: Damage of Organization’s Resources





Linear-by-Linear

Association

30.897 1 .000

N of Valid Cases 38

Chi square shows that the relationship between reduced damage of organizational resources

and generation of accurate financial reports was significant (p<0.05).

4.3.7 Fraud Elimination

Figure 4.

35

Every organization works hard so as to eliminate fraud. From the results shown in figure

4.9, 63% of the respondents strongly disagreed, 21% disagreed, 0% neutral, 11% agreed

and 5% strongly agreed. Correlation table revealed that there was a positive relationship

between fraud elimination and generation of accurate financial statements(r=.785)

Figure 4.9: Fraud Elimination

36





Linear-by-Linear

Association

22.827 1 .000

N of Valid Cases 38

Chi square shows that there is significant relationship between fraud elimination and

generation of accurate financial reports (p<0.05).

4.3.8 Generation of Useful Financial Reports

Financial information systems are required in the organization to generate financial reports

that are used as a basis of making sound business decisions. From the results of the study

in figure 4.10, it was found that 2 of the respondents strongly disagreed, 4 disagree, 0

neutral, 4 agreed and 28 strongly agreed that financial information systems help in

generating financial reports that are used in making decisions. Correlation table results

showed that there was a positive relationship between generation of useful financial results

and generation of accurate financial reports (r=.983).

Figure 4.10: Generation of Useful Financial Reports



37



Linear-by-Linear

Association

35.782 1 .000

N of Valid Cases 38

Chi square tests shows that there is a significant relationship between generation of useful

reports and generation of accurate financial reports (p<0.05).

4.3.9 Easy Decision Making

Decision making is needed in any operation undertaken by the organization. The researcher

wanted to know if financial Information System facilitates easy decision making in the

organization. The results in figure 4.11 indicate that 2 of the respondents strongly disagreed,

2 disagreed, 0 neutral, 4 agreed and 30 strongly agreed that financial Information System

enables easy decision making through the generation of financial reports. Correlation table

showed that there was a positive relationship between easy decision making and generation

of accurate financial reports (r=.932).

Figure 4.11: Easy Decision Making



38



Linear-by-Linear

Association

32.166 1 .000

N of Valid Cases 38

Chi square table 4.13 shows that there was significant relationship between easy decision

making and generation of accurate financial reports (r=.932).

4.3.10 Timely Generation of Financial Reports

Timely generation of financial reports is a desire of every business and that’s why the

researcher wanted to know if financial Information System enables timely generation of

financial reports. The results shown in figure 4.12 indicate that 3 strongly disagreed, 4

disagreed, 0 neutral, 3 agreed and 28 strongly agreed that financial information systems

enables timely generation of financial reports. Correlation table revealed that there was a

positive relationship between timely generation of financial reports and generation of

accurate financial reports (r=.953).

Figure 4.12: Timely Generation of Financial Reports




39


Linear-by-Linear

Association

33.582 1 .000

N of Valid Cases 38

Chi square test showed that there was a significant relationship between timely generation

of financial reports and generation of accurate financial reports (p<0.05)

4.3.11 Fast Speed Operation

If the speed of operation of financial Information System is fast, then all other activities are

done at the right time. The findings shown in figure 4.13 were that 26 % strongly disagreed,

26% disagreed, 0% neutral, 8% agreed and 40% strongly agreed that financial Information

System operates in fast speed. Correlation table 4.5 showed that there was a positive

relationship between fast speed of operation and generation of accurate financial reports

(r=.569).

Figure 4.13: Fast Speed Operation





40

Linear-by-Linear

Association

11.986 1 .001

N of Valid Cases 38

Chi square test shows that the relationship between fast speed in operation and generation

of accurate financial reports is significant (p<0.05).

4.3.12 Generation of Financial Reports at the Right Time

The findings from the research in figure 4.14 were that 15 respondents strongly disagreed,

8 disagreed, 0 neutral, 2 agreed and 13 strongly agreed that the financial reports are

generated at the right time by the aid of financial information systems. Correlation table

showed that the relationship between generation of financial reports at the right time and

generation of accurate financial reports was positive (r=.462).

Figure 4.14: Generation of Financial Reports at the Right Time





41

Linear-by-Linear

Association

7.903 1 .005

N of Valid Cases 38

Chi square test showed that there was no significant relationship between generation of

financial reports at the right time and generation of accurate financial reports (p>0.05).

4.3.13 Generation of Accurate Financial Reports

Accuracy of financial reports is very critical in the assessment of performance of the

organization. Inaccurate financial reports lead to poor assessment and then to poor decision

making. The researcher found that 5% strongly disagreed, 11 % disagreed,0% neutral, 5 %

agreed and 79% strongly agreed that financial information systems enable generation of

accurate financial reports.

Figure 4.15: Generation of Accurate Financial Reports

4.4 Challenges Facing Financial Information Systems

This section was intended to examine the challenges which face the financial information

systems whose correlation analysis are shown in appendix D. Analysis of each variable

based on the results follows.

4.4.1 Unfriendly User Interface

User interface of a financial Information System may affect the performance of employees.

That is why the researcher wanted to establish whether the user interface of financial

Information System used is unfriendly. From the results in table 4.17, 5% of the respondents

42

strongly disagreed, 11% disagreed, 0% neutral, 8% agreed and 76% strongly agreed that

the user interface was unfriendly. Correlation table showed that there was a positive

correlation between the unfriendly user interface and need for more training (r=.913).

Table 4.17 Unfriendly User Interface

Responses Frequency Percentage

Strongly disagree 2 5

Disagree 4 11

Neutral 0 0

Agree 3 8

Strongly Agree 29 76

38





Linear-by-Linear

Association

30.849 1 .000

N of Valid Cases 38

The chi-square table 4.18 above shows that there was a significant relationship between the

unfriendly user interface and the need for more training (p=<0.05).

4.4.2 Lack of Understanding and Use of the system

For the employees to do their duties efficiently, they should understand the financial

Information System well so as to avoid making unnecessary errors. The study results

established that 24 respondents strongly disagreed, 3 disagreed, 0 neutral, 4 agreed and 7

strongly agreed that there was lack of understanding and use of system. The correlation

table showed that there was a positive relationship between lack of understanding and use

of the system, and need for more training.

43

Figure 4.16: Lack of Understanding and Use of System





Linear-by-Linear

Association

31.738 1 .000

N of Valid Cases 38

Chi square test shows that there was a significant relationship between lack of

understanding and need for more training (p<0.05).

4.4.3 High Cost of Installation

It is important to analyze the organization`s perception towards the cost of installing the

financial information systems so as to understand why some organizations have failed to

implement the systems. The results from the study (fig 4.17) show that 10% of the

respondents strongly disagreed, 8% disagreed, 0 % neutral, 21% agreed and 61% strongly

agreed that the cost of installing financial Information System is high. Correlation table

indicated a positive relationship between high cost of installation and need for more training

of employees (r=.986).

44

Figure 4.17: High Cost of Installation





Linear-by-Linear

Association

35.972 1 .000

N of Valid Cases 38

Chi square tests shows that there is significant relationship between high cost of installation

and need for training (p<0.05)

4.4.4 Training of Employees before Installation

Before implementing any system in the organization, it is important for management to

carry out a study to find out if employees need training on the system or not. For that reason,

the researcher wanted to find out if installation of a financial Information System requires

training of employees. The study results indicated that 0% of the respondents strongly

disagreed, 5% disagreed, 0% neutral, 18% agreed and 76% strongly agreed. Correlation

table showed that there was a positive relationship between training of employees before

installation of FIS and need for more training (r=.830).

45

Table 4.21 Training of Employees before Installation



Disagree 2 5

Neutral 0 0

Agree 7 18






Linear-by-Linear

Association

25.499 1 .000

N of Valid Cases 38

Chi square tests shows that there is a relationship between training employees before

installation and need for more training (p<0.05).

4.4.5 Lack of Support and Maintenance from System Providers

The researcher needed to investigate if providers of financial information systems give

systems support and maintenance after system`s installation. The findings in figure 4.18

were that 21 respondents strongly disagreed, 4 disagreed,0 neutral,5 agreed and 8 strongly

agreed that the providers of the financial information systems gives systems support and

maintenance. Correlation test showed that there was a positive relationship between lack of

systems support and maintenance, and need for further training (r=.524).

46

Figure 4.18: Lack of Support and Maintenance from Systems Providers





Linear-by-Linear

Association

10.173 1 .001

N of Valid Cases 38

Chi square test shows that there was no significant relationship between lack of systems

support and maintenance by providers and need for further training (p>0.05).

4.4.6 Lack of Privacy of Financial Information

The researcher wanted to know if financial Information System has privacy in terms of

financial information. From the results shown in figure 4.19 five of the respondents strongly

disagreed, 6 disagreed, 7 are neutral, 10 agreed and 10 strongly agreed that there was

privacy of financial information through the use of financial information systems.

Correlation table showed that was a positive relationship between lack of privacy of

financial information and need for further training (r=.855).

Strongly Disagree

Disagree Neutral Agree Strongly Agree

21 4

0

5 8

LACK OF SUPPORT AND

MAINTENANCE

47

Figure 4.19: Lack of Privacy of Financial Information





Linear-by-Linear

Association

27.064 1 .000

N of Valid Cases 38

Chi square test showed that there was a significant relationship between lack of privacy of

financial information and need for further training (P<0.05).

4.4.7 Lack of Adequate Security

Before investing in any project organizations consider security as one of the important

factors. The findings of the study indicate that 13% of the respondents strongly disagreed,

16% disagreed, 0% neutral, 18% agreed and 53% strongly agreed financial Information

System had adequate security. Correlation table showed that there was a positive

relationship between lack of adequate security and need for further training (r=.905).

48

Figure 4.20: Lack of Adequate Security





Linear-by-Linear

Association

30.312 1 .000

N of Valid Cases 38

Chi square tests showed that there was significant relationship between lack of adequate

security and need further training (p<0.05).

4.4.8 Lack of or Little Knowledge about Financial Information System

Knowledge is very important in the operation of financial Information System because

without it employees can make unnecessary errors. Through this study it was found that

none of the respondents strongly disagreed, 6 disagreed, 0 neutral, 7 agreed and 25 strongly

agreed that they lack or have little knowledge about the Financial Information Systems.

Correlation table showed that there was a positive relationship between lack of or

possession of little knowledge about FIS (r=.857).

49

Figure 4.21: Lack of or Little Knowledge about Financial Information System





Linear-by-Linear

Association

32.724 1 .000

N of Valid Cases 38

Chi square tests show that there was a significant relationship between Lack of or

possession of little knowledge about FIS and need for further training (p<0.05).

4.4.9 Difficult to Understand

The financial Information System used by an organization should be easily understood. On

this basis the researcher wanted to find out whether employees understand the system well.

Zero of the respondents strongly disagreed, 1 disagreed, 0 neutral, 7 agreed and 30 strongly

agreed that it is difficult to understand financial information systems. Correlation table

showed that there was a positive relationship between difficulty to understand FIS and need

for further training (r= 0.857).

50

Figure 4.22: Difficult To Understand





Linear-by-Linear

Association

27.203 1 .000

N of Valid Cases 38

Chi square tests showed that there was significant relationship between difficult to

understand and need for further training (p<0.05).

4.4.10 Need for Further Training

If there is no clear understanding of the system, it means more training is needed for

employees. From the study the researcher found that 3% of the respondents Strongly

disagreed, 16% disagreed, 0% neutral, 21% strongly agreed and 60% strongly agreed that

there is need for more training about financial information system.

51

Figure 4.23: Need for Further Training

4.5 Measures That Can Improve Financial Information Systems

This section is intended to find out the measures that could be used to improve the financial

information systems in the organizations. The results of the specific objective three

correlation analysis are in appendix E.

4.5.1 Implementation of Effective Business Practices

Effective business practices can be used to prevent loss of business assets from fraud. The

findings in Table 4.31 indicate that 5% of the respondents strongly disagreed,18%

disagreed,0% neutral,16% agreed and 61% strongly agreed that implementation of effective

business practices could improve FIS. Correlation analysis in Table showed that there is a

positive relationship between implementation of effective business practices and leader

inspiration (r=.461).

Table 4.28: Implementation of Effective Business Practices



Disagree 7 18

Neutral 0 0

52

Agree 6 16






Linear-by-Linear

Association

7.847 1 .005

N of Valid Cases 38

Chi square tests showed that there was no significant relationship between

implementation of effective business practices and leader inspiration (p>0.05).

4.5.2 Proper Use of Organization`s Resources

The researcher wanted to know if implementation of good business practices can ensure

that there is proper use of organizations resources and improve FIS. The results indicate

that 5 of the respondents strongly disagreed, 8 disagreed,0 neutral, 7 agreed and 18 strongly

agreed that implementation of good business practices could improve FIS. Correlation table

showed a positive relationship between proper use of organizational resources and leader

inspiration (r=.585).

Figure 4.24: Proper Use of the Organizations Resources

53





Linear-by-Linear

Association

12.652 1 .000

N of Valid Cases 38

Chi square test showed that the relationship between proper use of organization`s resources

and leader inspiration was significant as the p was greater than 0.05 (p=0.009).

4.5.3 Internal Controls Creates Good Reputation of a Public Company

The researcher found out that 29% of the respondents strongly disagreed, 47 % disagreed,

0%neutral, 13 % agreed and 11% strongly disagreed that good business practices could

create a good reputation of public companies. Correlation table 4.30 showed that the

relationship between good reputation of the company and leader inspiration was positive

(r=.291).

Figure 4.25: Internal Controls Creates Good Reputation of the Company




54


Linear-by-Linear

Association

28.272 1 .000

N of Valid Cases 38

Chi square test shows that there was significant relationship between good reputation of the

company and leader inspiration (p<0.05). 4.5.4 Provision of Qualified Staff

Table 4.32 Provision of Qualified Staff



Disagree 2 5

Neutral 0 0

Agree 6 16


From the research it was found that the financial Information System requires qualified staff

to operate efficiently. This is because 0% strongly disagreed, 5% disagreed, 0% neutral,

16% agreed and 79% strongly agreed that financial Information System could improve if

organization engaged qualified staff. Correlation table showed that there was a positive

relationship between provision of qualified staff and leader inspiration (r=.291).





Linear-by-Linear

Association

3.138 1 .076

N of Valid Cases 38

Chi square tests showed that there was no significant relationship between provision for

qualified staff and leader inspiration (p>0.05).

55

4.5.5 Provide adequate knowledge and information about FIS

Knowledge is very important when it comes to the operation of any system. This is because

without adequate knowledge, employees can destroy the system or make unnecessary

errors. During the study 0 of the respondents strongly disagreed, 5 disagreed, 0 neutral, 5

agreed and 28 strongly disagreed that provision for adequate knowledge and information

about FIS is needed for the operation of financial information system. Correlation results

in Table 4.30 showed that there was positive relationship between provision for adequate

knowledge and information about FIS and leader inspiration (r=.347).

Figure 4.26: Provision of Adequate knowledge and information about FIS


Value df Asymp. Sig.

(2-sided)



Linear-by-Linear

Association

4.463 1 .035

N of Valid Cases 38

Chi square table shows that there was no significant relationship between provision of

adequate knowledge and information about FIS and leader inspiration (p>0.05).

4.5.6 Corporate Staff Involvement

56

Corporate staff involvement is very critical when it comes to implementation of any system

in an organization. The researcher wanted to know if corporate staff was involved in the

implementation of financial Information System in the organization. The researcher found

out that 32% of the respondents strongly disagreed, 39% disagreed, 0% neutral, 16% agreed

and 13% strongly agreed that the involvement of corporate staff would improve the

financial information systems. Correlation table showed that there was a positive

relationship between corporate staff involvement and leader inspiration (r=.944).

Figure 4.27: Corporate Staff Involvement





Linear-by-Linear

Association

33.001 1 .000

N of Valid Cases 38

Chi square tests showed that there was significant relationship between corporate staff

involvement and leader inspiration (p<0.05).

4.5.7 Empowering Employees to Work Properly With Financial Information

57

Systems

The results of the study indicate that 7 respondents strongly disagreed, 10 disagreed, 0

neutral, 16 agreed and 5 strongly agreed that their leaders enabling employees to work

properly with the financial Information System would improve the whole system.

Correlation table showed that there was a positive relationship between leaders empowering

employees and leader inspiration (r=.685).

Figure 4.28: Enabling Employees to Work Properly With Financial Information

Systems





Linear-by-Linear

Association

17.382 1 .000

N of Valid Cases 38

Chi square tests showed that there was significant relationship between leaders empowering

employees and leader inspiration (p<0.05).

4.5.8 Improved Leader Communication

Table 4.37 Improved Leader Communications

58



Disagree 11 29

Neutral 0 0

Agree 5 13


The researcher wanted to know if leaders communicated to employees about the importance

and usage of financial information systems. From the study it was found that 0%

respondents strongly disagreed, 29% disagreed, 0% neutral, 13% agreed and 58% strongly

agreed that improving leaders communicate to them on the importance and the usage of the

financial information systems to the organization would improve the system. Correlation

table 4.30 showed that relationship between improved leader communication and leader

inspiration was positive (r=.510).



(2-sided)



Linear-by-Linear

Association

9.637 1 .002

N of Valid Cases 38

Chi square tests showed that there was no significant relationship between improved leader

communication and leader inspiration (p>0.05).

4.5.9 Leaders Assisting Employees to Accomplish Their Duties

If employees are unable to accomplish their duties, it is the responsibility of their leaders to

show them how to go about it. The researcher found out that 5% of the respondents strongly

disagreed, 66%disagreed, 0% neutral, 16% agreed and 13% strongly agreed that if their

59

leaders helped them to accomplish their duties the FIS would improve. Correlation table

4.30 showed a positive relationship between leaders assisting employees to accomplish

their duties and leader inspiration (r=.960).

Figure 4.29: Leaders Assisting Employees to Accomplish Their Duties



(2-sided)



Linear-by-Linear

Association

34.114 1 .000

N of Valid Cases 38

Chi square tests showed that there was a significant relationship between leader inspiring

employees to accomplish their duties and leader inspiration (p<0.05).

4.5.10 Leader inspiration

From the study 25 respondents strongly disagreed, 2 disagreed, 0 neutral, 8 agreed and three

strongly disagreed that if their leaders inspired them to use financial information systems

the overall system would improve.

60

Figure 4.30: Leader inspiration

4.6 Chapter Summary


financial management tool in business organizations. The key findings in this chapter

established that majority of the employees are in the middle management level, followed

by those at the senior level and lastly the juniors. The study revealed that majority of the

respondents were male. It was found that employees operating financial information

systems in organization were aged between 41-50 years. Additionally, organizations used

custom made financial Information System as opposed to off-shelf FIS.

According to the factors which influence the usage of financial information systems, 54%

of the respondents agreed that financial information systems enable them to plan

organizational activities. In terms of budgeting, 11 of the respondents strongly agreed and

15 agreed that FIS helps them in budgeting organizational activities. It was found that

financial information systems do not help employees in understanding their roles and

responsibilities. This represented by 16 respondents who disagreed and 10 who strongly

disagreed. Further, 63% strongly disagreed that FIS eliminate errors and fraud from the

organization while 79% of the respondents strongly agreed that FIS generates accurate

financial reports.

61

The findings also established that FIS user interface was unfriendly and that the

understanding of the FIS was also very difficult as revealed by 24 of the respondents. In

terms of installation cost, 61% of the respondents strongly agreed that the cost of

installation was very high. This is related to the type of FIS used because majority of the

respondents said that they used custom-made financial system meaning that the system is

relatively expensive compared to the off shelf system. From the study it was revealed that

providers of FIS do not support and maintain the system. Most of the respondents revealed

that they have little knowledge about the FIS in their organizations and that effective

business practices can prevent loss of assets from fraud. Also FIS enables easy decision

making. This was revealed by 30 of the respondents. Further, the majority of the

respondents representing 40% of the total strongly agreed that FIS operates fast.

62

CHAPTER FIVE

5.0 DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This chapter presents a summary of the study, gives an interpretation of the findings,

conclusions and makes recommendations based on findings in chapter four.

5.2 Summary

The main purpose of the study was to examine financial Information System as a strategic

financial management tool in public business organizations.

The specific objectives of the study were:

i. To determine the factors which influence the usage of financial information

systems.

ii. To examine the challenges facing financial information systems. iii. To

establish the measures that can improve financial information systems.

Descriptive research design was used in the study. The targeted population was the public

companies located in Nairobi County. The sample of the study comprised 38 public

companies in the Nairobi County. Stratified sampling technique was used in the study.

Primary data was collected from the sample using questionnaires that were self

administered by the researcher. Excel and SPSS were used for the analysis of data, which

was then presented in form of tables, pie-charts and graphs.

On the factors which influence the usage of financial information systems, it was found that

the system enables easy planning, budgeting, management of financial transactions, smooth

operation of activities, and prevents damage of firm’s resources. However the study found

out that a financial Information System does not eliminate fraud in the organization, it

generates reports at the right time and that its processing speed is fast.

63

On the challenges facing financial information systems, the researcher found that the user-

interface of the FIS was unfriendly, that financial Information System was difficult to

understand with the consequent possibility of employees making unexpected errors. The

cost of installing FIS was found to be another challenge on FIS, followed by its complexity

that made it difficult to understand and use. It was found that there was need for training

employees about FIS to enable them overcome this problem. The research identified the

privacy and security of FIS as a minor challenge facing financial information systems.

On the measures that could improve financial information systems, the study revealed that

implementation of good business practices could enable proper use of organization’s

resources. It was also established that good business practices cannot create good reputation

for a company, meaning that reputation of the company comes from other factors other than

good business practices. The study also identified that qualified staff, adequate knowledge,

and good relationship between the employees and the leaders can improve the financial

information system.

5.3 Discussions

5.3.1 Factors Which Influence the Usage of Financial Information Systems.

The findings of the study established that financial information systems enables employees

of the organization to plan their activities as it facilitates easy budgeting with 20 agreeing

and 1 respondent disagreeing and that enables employees manage financial transactions of

the firm with 58% strongly agreeing and 16% disagreeing. This agrees with the argument

by Obura and Bukenya (2008) that budgeting ensures smooth operations of activities. The

study established that there was a positive relationship between budgeting and decision

making. This is consistent with Alampali (2013) who reported empirical studies that

budgeting and planning facilitates easy decision making for effective regulation. The

financial planning process is regarded as a set of decision making including planning of

income statement, balance sheet and planning of the cash flow statement. A starting point

of planning process is the linkage to the other functional areas of organizational planning,

the structure, independence, and adjustment of elements within an organization. This

provides a good base for decision making of the organization.

64

Further findings revealed that 58% of the respondents strongly agreed and another 26%

agreed that financial information systems enables management of financial transactions.

This agrees with Pramod, Jinghua and Gao (2012) that Information systems play a key role

in producing financial statements, managing customer databases, detecting frauds.

Financial information system captures each transaction and stores it permanently. Financial

transactions include tracking expenses, revenues, assets and liabilities. However, there was

a negative correlation between management of financial transactions and generation of

accurate financial reports. Contrary to the assertion by Glandon (2003) that financial

information system ensures proper understanding of roles and responsibilities; 10 of the

respondents strongly disagreed and 16 disagreed. On the other hand 2 strongly agreed and

10 agreed. The study found out that financial information system facilitates smooth

operation of activities by 53% strongly agreeing and 26 % agreeing. This is consistent with

argument provided by Shahwan (2008) that effective financial information system provides

smooth operations of the firm. The study established that 24 of the respondents strongly

agreed and further 5 agreed that financial information system reduces the damage of

organizational resources. These findings agree with that of Glandon (2003) that the proper

use of information available ensures optimal utilization of the firm’s resources. Fraud has

economic impact on the organization.

Further findings revealed that 63% of the respondents strongly disagreed and another 21%

disagreed that financial information system eliminates fraud in the organization. This

disagrees with Jianming (2008) that the use of financial information system reduces errors

and fraud in the organization. The study found that FIS generates accurate financial reports

with 28 strongly agreeing and 4 agreeing. This agrees with Buhovac (2008) that financial

information system should provide accurate and timely financial reports to enable decision

making. Financial reporting is a critical part of the financial system in every company or

organization. The study also established that FIS enables easy decion making as 30 of the

respondents agreed and another 4 agreed. The findings were in agreement with the ones of

Aluchna (2009) that a proper maintained and functioning FIS facilitates easy decision

making.

The study also established that FIS does not operate in fast speed with 26% strongly

disagreeing and 26% disagreeing. An effective FIS is the one which operates in fast speed

65

and which enables easy decision making. The findings were consistent to that of Glandon

(2003) that the speed of FIS depends on employee productivity. The study found that FIS

did not generate financial reports at the right time with 15 of the respondents disagreeing

and another 8 disagreeing. The findings were supported by the argument of Buhovac (2008)

that timely generation of financial statements is initiated by the employee productivity and

knowledge about the FIS. Likewise 79% of the respondents strongly agreed and another

5% agreed that FIS generates accurate financial statements. These findings were supported

by the argument of Glandon (2003) that if employees have the required qualifications then

the chances of making errors are low and therefore accurate financial statements.

5.3.2 Challenges Facing Financial Information Systems.

Challenges can affect the proper function of any system being implemented in any

organization. It is therefore critical for any organization to analyze possible challenges

which may affect their projects, the extent to which the projects will be affected, and the

possible outcomes. The study revealed that FIS user interface was unfriendly by 76%

strongly agreeing and 24% agreeing. This was supported by the argument of Ahmed (2009)

that the community in South Africa was facing some challenges, especially in intelligent

Product Data Management development because of the unfriendly graphical machine

interface. In addition, 24 strongly disagreed and another 3 disagreed that the FIS was easy

to use and understand. The correlation table showed that there was a positive correlation

between the user interface and ease to use and understand.

Another challenge established in the study was the high cost of installation with 61% of the

respondents agreeing and 21% agreeing. This finding of the study was supported by Evoh

(2012) who argued that the installation cost of modern computer based financial

Information System is very high and that is the main reason why organizations opt for

manual system in managing financial resources. Likewise, 76% and 18 % strongly agreed

and agreed, respectively, that there is need for training before installation of FIS in the

organization. The correlation results also showed that there was a significant relationship

between training of employees before installation and need for more training. This agrees

with Ahmed (2009) that training reduces employee turnover, motivate employees, boost

room occupancy and increase profitability in a highly competitive industry. The study

findings showed that 21 of the respondents agreed that there was lack of support and

66

maintenance from service providers. In contrast, 8 and 5 strongly agreed and agreed

respectively that there was support and maintenance from service providers. The correlation

table showed that there was no significant relationship between lack of support and

maintenance by service providers and need for more training.

Nohlberg and Backstrom (2007) avers that managers should use knowledge of financial

information security mainly for financial and strategic matters which focus more on risk

issues than security issues. The study found out that 10 strongly agreed and 10 agreed that

there was lack of financial information when using FIS as a strategic financial management

tool. The findings on the lack of or little knowledge about FIS established that 25 of the

respondents strongly agreed and 7 agreed. The correlation results showed that there was a

positive relationship between lack of and possession of little knowledge about FIS and need

for further training. Possession of adequate knowledge about FIS enables employees to

work efficient and effectively without many difficulties. Further, the study established that

FIS was difficult to understand by 30 strongly agreeing and 7 agreeing. A good FIS is one

which is easily understandable. Correlation results showed that there was a positive

relationship between difficult to understand and need for further training.

5.3.3 Measures that can help Improve Financial Information Systems

If the system fails to offer what it is supposed to it means that there is need for improvement.

That is why the researcher decided to find out the measures that could improve financial

information systems. The study revealed that implementation of good business practices

could improve FIS with 61% strongly agreeing and 5% strongly disagreeing. This was

supported by Ronald and Houmes (2012) who argued that internal control course increases

student understanding and their impact on the reliability of the financial statements

significantly.

Further the study established that implementation of good business practices could ensure

proper use of organization resources with 18 of the respondents agreeing. This is consistent

with Leung, cooper and Perera (2011) who reported that organizations facing the challenge

of damaged organization`s resources can implement good business practices to deal with

the problem. However the researcher wanted to know if implementation of good business

practices can create good reputation of the organization and the outcome was negative,

reason being that good business practices are not the only factor to consider when it comes

67

to creating good reputation for the company. This was represented by 47% disagreeing and

11% strongly agreeing. The findings were different from the arguments Ross and Crossan

(2012) that ineffective internal controls damage the reputation of the organization`s

corporate

During the recruitment of staff in any organization, the management looks at the

qualifications of the applicants. When the organization employs unqualified staff, all things

run in the wrong direction. The study revealed that FIS requires qualified staff to operate

with 79% of the respondents strongly agreeing and 0% strongly agreeing. The correlation

table showed that there was no positive correlation between qualified staff and leader

inspiration. It was also revealed that adequate knowledge of FIS was very important to the

employees who operate the FIS, with 28 of the respondents strongly agreeing that adequate

knowledge is very important in the operation of FIS and 5 disagreeing. FIS therefore could

be improved by employing qualified staff and equipping the employees with adequate

knowledge of the system. Poulston (2008) supports these findings as he argued that poor or

lack of qualifications is associated with workplace problems, and improving training is

likely to reduce problems such as under-staffing and theft.

Corporate staff involvement is very crucial in the implementation of FIS because more ideas

and decisions are generated. From the study corporate staff involvement in implementation

of FIS was found to be very poor with 32% of the respondents strongly disagreeing and

13% strongly agreeing. The findings were inconsistent with that of Hughbank and Horn

(2013) as they argued that effective leadership can help improve financial information

systems because it increases employees’ morale and improves the working environment

The management of the organization should therefore consider the role of corporate staff

in the implementation of any system in the company. Leadership can determine output by

employees. This is because the relationship between the employees and their leaders matter

a lot. The study established that some leaders in some organizations do not help employees

work properly while other leaders help their employees to work properly on FIS. Out of the

38 respondents in the study, 16 agreed, 10 disagreed and 7 strongly disagreed. The

correlation table also showed that there was a positive relationship between leaders

empowering employees and leader inspiration. It is a clear indication that leaders need to

work more on their relationship with employees.

68

Communication is very important in every aspect of human life. Therefore both employees

and their managers should ensure there is good communication between them.

From this study it was established that in most organizations, majority of leaders

communicate effectively to their employees about the importance and usage of the FIS.

This was presented by 58% of the respondents who strongly agreed and 29% disagreed.

The study findings were supported by Meaklim (2013) that managers must have to realize

that the tendency for individuals to act selfishly on behalf of their organization is unethical

and therefore being aware of this behavior will provide leaders with a greater ability to

build trust and develop joint strategies which will provide positive outcomes. When

employees are stuck at some point in work because they have no idea on how to do a certain

task it should be the responsibility of the leaders to show them how to do it. From the study

66% of the respondents strongly disagreed while 13% strongly agreed that their leaders

help them to accomplish their tasks. In addition, employee inspiration is a motivator to them

and therefore leaders should be able to inspire their employees. In the study it was revealed

that leaders in most cases don’t inspire their employees as 25 of the respondents strongly

disagreed while 3 strongly agreed. This can be used to improve the performance of FIS.

5.4 Conclusions

The conclusions drawn from the study are:

5.4.1 Factors Which Influence the Usage of Financial Information Systems

The study identified various factors which influence the usage of financial information

system, namely: planning of activities, budgeting of activities, management of financial

transactions, smooth operation of activities, reduction of damage to organization`s

resources, generation of useful financial reports, and easy decision-making. The factors

which found not to influence the usage of FIS include: the employees understanding of

roles and responsibilities, fraud elimination in the organization, and the speed of operation

of FIS. An effective financial Information System should be able to operate at a fast speed,

enable employees to understand well their roles and responsibilities and even eliminate or

reduce fraud in the organization. It can be concluded that FIS in organizations do not fulfill

the needs of the organizations and therefore need updating.

5.4.2 Challenges Facing Financial Information Systems

69

There are many challenges which face financial information systems. Some of these include

unfriendly user-interface, high cost of installation, difficulties in understanding the system,

poor training of employees, lack of support and maintenance of financial Information

System from providers, and lack of or little knowledge of the system by part of employees.

It is evident that most of these challenges emerge from the organization because

organizations are supposed to train their employees, equip them with the necessary

knowledge and skills and follow up with providers of FIS to provide support and

maintenance. However most organization relax after the installation of FIS, thinking that

installation is the end of their problems and that is the reason why most FIS don’t meet

organization`s needs. From the study it can be concluded that privacy of financial

information and security are not major challenges facing financial information systems.

The challenges facing financial information systems are identified in the study and

therefore organizations and providers of FIS should come together and discuss the possible

solutions to these challenges.

5.4.3 Measures that can help improve the Financial Information Systems

The study revealed that implementation of good business practices can improve FIS

because it ensures proper use of organization`s resources, although it cannot create good

reputation for the company. Other measures which can improve performance of FIS as

identified from the study include: recruiting qualified staff, equipping employees with

adequate knowledge of the system, corporate staff involvement, and good relationship

between employees and leaders. The study identified lack of assistance to employees from

their leaders to accomplish their tasks when stuck at some point. For any project to succeed,

corporate staff involvement is very important. It is evident that most organizations

implement projects without involving employees. That is why the projects fail within a very

short period of time.

5.5 Recommendations for Practice and Further Studies

The following are the recommendations for practice and for further studies.

5.5.1 Recommendations for Practice

5.5.1.1 Factors Which Influence the Usage of Financial Information Systems

70

A Financial Information System is expected to assist in planning organizational activities,

budgeting of activities, management of financial activities, employee understanding of

roles and responsibilities, smooth operation of activities, reducing damage on organization

resources, eliminating fraud, generating useful financial reports, enabling decision-making,

and enable timely generation of financial reports. When all these activities are performed

well by the financial information systems, the organization needs are fully satisfied. Some

functions of financial Information System that need to be improved include understanding

of roles and responsibilities, fraud elimination and timely generation of reports.

5.5.1.2 Challenges Facing the Financial Information Systems

FIS needs improvements in order to satisfy the needs of organizations. FIS can only offer

full satisfaction to an organization if it possesses the right features. Some financial

information systems have features which have never been used by the organization and are

therefore useless. To address the challenges facing FIS there is need to carry out further

research on these challenges to come up with possible solutions. In this study, the main

challenges facing financial information systems included the unfriendly userinterface, poor

understanding of the system, high cost of installation, poor training of employees, lack of

support and maintenance by providers and lack or little knowledge. It is therefore

recommended that manufacturers improve user-interface of FIS and lower the cost of FIS.

The providers of FIS should also provide support and maintenance after the systems ̀

installation. In addition, organizations should train their employees to acquire the right

skills and equip them with the necessary knowledge of FIS.

5.5.1.3 Measures That Can Improve Financial Information Systems

The study identified that some measures have more impact in improving financial

Information System compared to others. The powerful measures identified include

implementation of effective business practices to enhance proper use of organization`s

resources, recruiting qualified staff, equipping employees with adequate skills, corporate

staff involvement and good relationship between employees and their leaders. It is therefore

recommended that management consider these measures and see if they can work well in

their organizations. Most organizations do not consider measures to improve the system if

it has failed. They need to know that FIS can be improved.

71

5.5.2 Recommendations for Further Study

The research identified some of the factors which influence the usage of FIS and challenges

and measures which can improve the FIS. Since the study focused on the public

organizations in Nairobi County, a study should be carried out on private companies to

establish the factors influencing the usage, challenges and measures that can be used to

improve financial information systems in those companies. Further, since the study was on

only one type of information system, research should be carried out on other information

systems such as Transaction Processing System (TPS) and Enterprise Resources System

(ERS). In addition, further study is recommended on the accessibility of financial

Information System by small business organizations.

72

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.

APPENDICES

APPENDIX A: COVER LETTER

CATHERINE MAINGI


P.O BOX 14634-00800

NAIROBI

Dear Respondent,

I am a student in the United States International University carrying out a research about

the financial information systems based on the factors influencing the use of the financial

information systems, the challenges facing the financial information systems and how the

financial information systems can be improved.

The study will cover the public business organizations based in the Nairobi County and you

have been selected to be one of the respondents. The targeted respondents are the ones

working in the finance and accounts departments in the organization. The findings of the

study will be of importance to all the organization and therefore the management will be

able to make any advancement to meet the objectives or the goals of the organization.

This is an academic research and therefore confidentiality will be highly observed. None of

your personal information will appear in the findings of the study. The researcher will

81

provide the findings of the study to the company as a kind of appreciation. Please take your

time to complete the questionnaire.

Yours faithfully,

Catherine Maingi

Researcher

APPENDIX B: QUESTIONNAIRE

PART 1: GENERAL INFORMATION

Please answer the questions by ticking in the correct box which suits your answer or

write in the provided spaces.

A. Management Level

Junior Management Middle Management Senior Management

B. Your gender Male Female

C. Age

20-30 years 31-40 years 41-50 years 51 years and above

D. Marital Status

Single Married

E. How many years have you been working for the organization?

1) Less than 2

years

2) 2-5 years

82

3) 6-9 years

4) 10 years and

above

6. Which type of financial Information System do you use?

Custom made

Off-shelf

PART 11: FACTORS WHICH INFLUENCE THE USAGE OF FINANCIAL

INFORMATION SYSTEMS

83

Please tick in the appropriate boxes concerning the factors which influence the usage

of the financial information systems,1 Strongly Disagree,2 Disagree,3 PART 111:

84

CHALLENGES FACING THE FINANCIAL INFORMATION SYSTEMS

Please tick in the appropriate boxes concerning The Challenges Facing The Financial

Information Systems,1 Strongly Disagree,2 Disagree,3 Neutral,4 Agree and 5 Strongly

Agree

1) Unfriendly User Interface

1) FIS user interface is unfriendly

2) FIS is easy to use and understand

2) High cost of installation

3) The cost of installing FIS is high

4) FIS installation requires training of employees

85

PART IV: MEASURES THAT CAN IMPROVE THE FINANCIAL

INFORMATION SYSTEMS

Please tick in the appropriate boxes concerning The Measure That Can Improve The

Financial Information Systems,1 Strongly Disagree,2 Disagree,3 Neutral,4 Agree and 5

Strongly Agree

5) Providers of FIS provide

support and

maintenance of FIS

A. Implementation of Good Business Practices

1) Implementation of effective business practices

can prevent assets loss from fraud

2) Implementation of good business practices can

ensure proper use of the organization’s

resources

86

3) Good business practices can create a good

reputation about the organization

B. Qualified and Competent Workforce

87

APPENDIX C: SPECIFIC OBJECTIVE ONE CORRELATION TABLE APPENDIX

88

D: SPECIFIC OBJECTIVE TWO CORRELATION TABLE APPENDIX E:

89

SPECIFIC OBJECTIVE THREE CORRELATION TABLE

Documents

Financial Information Systems as a Strategic Financial