Journal of Case Research in Business and Economics

The effectiveness of internal controls in revenue management: A

case study of Zimbabwe Revenue Authority (ZIMRA) (2011-2012)
Wilson Matamande
University of Zimbabwe

Loveness Nyikahadzoi
University of Zimbabwe

Ever Taderera
Midlands State University

Elinah Mandimika
University of Zimbabwe

ABSTRACT

This paper sought to closely look at the effectiveness of internal controls in revenue
management and expenditure management by the Zimbabwe Revenue Authority (ZIMRA).
ZIMRA has continuously upgraded its internal controls systems since the time it was
incorporated in 2001. From that time the organisation strove to provide services efficiently
and effectively to the general public and its main stakeholder, the Government of Zimbabwe
in Revenue Management. This paper was to establish whether these measures of establishing
internal controls produced meaningful results in increased efficiency, increased revenue
inflows as well as minimised revenue leakages. Basic accounting tools were used to gauge
the extent to which these were met. The paper went on to give advice to the Revenue
Authorities as how they could possibly achieve the best results in utilising the established
internal control revenue management systems. The paper also explores how to improve on
existing internal control systems and even the establishment of potential control systems.
The data used was extracted from the following sources:

a) The Rev news (ZIMRA bulletin)

b) Zimbabwe Revenue Authority website
c) ZIMRA annual Plans and year end evaluation Reports for years 2001-2012
d) Ministry of Finance Budget Statement
e) Primary data collected by the researcher
f) Fiscal Policy Statements

Keywords: revenue management, tax base, internal controls, accounting records, segregation
of duties

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journals. Please see the AABRI Copyright Policy at http://www.aabri.com/copyright.html.

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INTRODUCTION

Zimbabwe revenue authority (ZIMRA) was established in January 2001. Initially it

was set up as the department of taxes and customs and excise and it was under the auspices of
the Ministry of finance and home affairs respectively. The organisation was set up after the
th
enactment of the Revenue Authority act on 11 of February 2000 (www.zimra.co.zw).
The formation of ZIMRA was mainly to facilitate the widening of the tax base by
streamlining the tax tax expenditures, minimising revenue leakages and enhancing trade by
expediting smooth and quick clearance of goods and travellers. Cognisance of the fact that
viability will be enhanced with efficient internal controls and proper accounting systems
ZIMRA embarked on huge capital outlay in procuring and establishing accounting software
like SAP, Microsoft Office excel and Asycuda (Automated Systems Customs Data) and
implementing the relevant internal controls to ensure continued viability.(The Rev News-
ZIMRA Bulletin, May 2012). Although the organisation has committed itself to the large
capital expenditure on accounting packages and internal controls there are still widespread
claims and perceptions that there are a lot of leakages through unscrupulous activities within
the organisation. This raises the fundamental question of whether the whole effort on the
investment was in vain. This study therefore seeks to explore the effectiveness of the internal
controls in ZIMRA’s revenue management given the claims and perceptions to the contrary.
The paper therefore aims to verify whether the huge capital outlay on accounting software
and other internal control systems done by ZIMRA has any impact in the revenue collection.
The purpose of the study is to establish whether the instituted internal controls have
contributed to improved revenue management.

LITERATURE REVIEW

Accounting systems

According to Puttick (2001), an accounting system is an array of tasks and records

kept by an organisation by which transactions are processed as a result of maintaining proper
financial records. The process should be able to identify, analyse, calculate, classify, record,
summarise and report transactions and events as they occur.

Internal controls

Internal control systems as Puttick (2001) puts it are a set of organisational policies and
approved internal processes (internal controls) crafted by management of an organisation to
ostensibly achieve management’s primary objective of ensuring that the business operates
flawlessly. He went further to explain that a business is said to be running smoothly if they are
able to stick to the management policies, to protect the organisations assets,set up a system that
would stop and eradicate manipulation of the accounting information.
Internal controls could be all encompassing, covering the accounting systems and the
other operations of the organisation. Accounting systems controls are those that are designed
to ensure that financial reports produce complete financial information and are free from
error and can be relied on. These controls encompass segregation of duties particularly as it
relates to preparation of accounting records and the custody, keeping of assets, safekeeping of
assets and the continuous comparison of assets and internal auditing. (Puttick,2001)

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Revenue management

Revenue Management, sometimes referred to as called yield management refers to

a combination of methods employed to improve the viability of a business. It is a method
that employs various management aspects such as rate management, revenue streams
management, and distribution channel management. It involves a number of disciplines like
marketing, operations, and financial management into a highly successful new approach. A
revenue manager must work as a team with other departments to be able to come up with
successful revenue management strategies.(Holzer and Kimes,2002)
Holzer and Kimes (2002) define revenue management as a method of selling a
product to the right customer at the appropriate time and at an acceptable price. This he
said would ensure that profits are maximised.
Slamet (1995) prefers to define revenue management as an approach which is
systematic, continuous and integrated. The whole aim according to Slamet(1995) is to
maximise revenue by mainly working on price changes in response to the expected
demand. Accordingly it can safely be concluded that revenue management requires a full
understanding of historical patterns in order to predict the future.
According to Slamet(1995) revenue management refers to managing all aspects
that deals with money. This is called the ‘money chain’. Accordingly anything that involves
money is an aspect of revenue management. In accounting processes it would refer to the
time a transaction takes place in a business to the time when cash is actually received.
Inadvertently, revenue management encompasses all the aspects of the ‘money chain’ that
also touches on the management of customers and partners. (Slamet,1995)

Internal controls in Revenue management (ZIMRA)

The primary reason why ZIMRA was formed was to develop improve on revenue
collection measures as well as making sure that all revenue leakages are closed. The other
important reason for the formation of the organisation was to ensure that it expedites trade by
putting in place those measures that allow controlled movement of goods and services.
ZIMRA has put in place measures to reduce the leakages. They invariably include
segregation of duties, custody of assets, strict authorisation procedures, internal audit, the use
of passwords, proper record controls and management supervision. (www.zimra.co.zw)

Segregation of Duties

This principle of internal control states that if certain aspects are performed by one
individual there is a chance that that person can fraudulently convert the assets of the
organisation to own self and also manipulate the accounting records. In accounting for
revenue in ZIMRA the three aspects underlying any revenue transaction which are
authorisation, execution and recording are performed by different individuals. There must be
a clear separation between those initiate records and those who are responsible for the
collection of the money. This does not completely remove the possibility of fraud. This is just
a control measure. Other measures also have to be instituted within the organisation like strict
follow up on people’s backgrounds when hiring. Adequate screening of prospective
employees before hiring them and management supervisory checks should minimise this risk,
or detect collusion if it has indeed occurred. (www.zimra.co.zw- internal control manual)

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Custody of assets

ZIMRA has put in place requisite measures for the protection of company assets. The
measures are meant to ensure that only those authorised have access to the organisation’s
assets.
 In the case of some border posts where there are no banking facilities money is
transported from these ports of entry in fully armoured cash in transit (CIT) vehicles.
The cash is contained in cash boxes which are sealed and locked. The bank keeps
the keys to the cash box.
 In the event that money is not banked within stipulated time (24hrs) due to unforeseen
reasons, the money is kept under lock in a safe in a storeroom. These storerooms and
safes have locking facilities with adequate control over keys. In addition to that they
also have alarm facilities.
 In high cash volumes environment such as toll sites (tollgates) cash in hand is kept to
a minimum by regularly clearing tills during the day and banking the takings
promptly. Again if cash is not banked until the following day their receipts are locked
in a safe overnight.
Apart from the physical controls to protect assets and or revenue, further control is
indirectly introduced by regularly counting assets and comparing quantities with those
recorded. The realisation that any perceived shortages are likely to be thoroughly checked to
establish the cause of the shortage will definitely lessen or prevent misappropriation
(Puttick et al 2008)

Authorization

The obligation to safeguard the revenue of ZIMRA requires that transactions are
entered into the systems (SAP) once they have been authorised by the appropriate
individual and that each transaction conforms to the terms of its authority. Through
interviews the authors managed to establish that if an individual tries to enter unauthorised
transactions in the system, the system would deny access due to lack of authority to execute
the transaction in question.
The use of passwords ensures that no one has the right to enter unauthorised information
which might distort revenue generation. The use of Passwords discourages individuals to
undertake corrupt activities as transactions are continuously monitored online.
(Chartered institute of personnel and development)

Internal Audit

One important aspect of internal control is the internal audit. ZIMRA carries out
internal audits regularly with the final external audit being carried between January and
February every year.
Internal audit is an effective tool in revenue management because internal auditors are
employees by ZIMRA hence they are better placed to understand the accounting systems, the
control procedures and the control environment. It is believed that internal controls induce
discipline in the organisation’s workforce. Risk resulting from failure to safeguard assets
from theft and failure to maintain adequate controls to ensure adequate accounting records
are mitigated or reduced. (Chartered institute of personnel and development)

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Records controls

ZIMRA’s Accounting records are such that all transactions that occur are timeously
recorded and correct usd dollar values and properly accounted for in the accounting
records in SAP. In some purely manual accounting systems such as Sango border post,
accounting records consists of source documents on which details of transactions will be
initially recorded. Transactions are recorded on receipts and PCW (Petty Cash Warranty).
To enhance control, ZIMRA also perform the following tasks:
 The accuracy of information and amounts recorded on source documents are
checked by independent person other than those responsible for their preparation
before recorded in the SAP. These independent persons perform checks and
should sign source documents as evidence of having performed the
task.
There are also frequent (daily) balancing and reconciliation of cash books and the
bank statements to test the accuracy and reliability of the accounting records.
(www.zimra.co.zw- internal control manual)

Management supervision

These are controls over the controls. They involve the following:
 Monitoring that laid-down procedures are operating as they were designed to, and
that delegated responsibility have been properly discharged
 Analysing error detected by internal controls and taking remedial action to prevent
further similar errors and fraud from occurring in the future.
 Considering changes and improvements to internal controls systems where the
weaknesses have been exposed.
 Conducting surprise counts of cash on roadblocks and tollgates comparing amounts
with corresponding records. This helps minimising revenue leakages.
 (www.zimra..co.zw-internal control manual)

Revenue collections

The only factor which bears testimony to the effectiveness of internal controls in
revenue management is the authority’s ability to meet and exceed targets set out by the
Ministry of Finance every year since its inception in 2001 to date. Though there are
perceptions of rampant corruption in the Authority’s activities, the authors feel the ability of
the authority to exceed targets bears testimony to the authority’s efforts to thwart corruption.
In an environment crippled by liquidity crunch as in 2009-2012, had it not been the strict
adherence to internal controls meeting targets would have been a dream.
The Table 1.1 (Appendix 1) and Fig 1.1 (Appendix 2) show revenue collections as a
percentage, which the authority surpassed targets as set by the Ministry of Finance from 2001
to 2012. The only exception is in 2001 which was largely because of the shock associated
with a new order and in 2009 when the authority narrowly missed targets as a result of
liquidity challenges and the shift from the Zimbabwean dollar to the multiple currency
system. In 2010, revenue collections translated into 33% of the country’s Gross Domestic
Product. This meeting of targets can be attributed to various Revenue enhancement measures

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that have been put in place such as internal controls, internal and client audits, border patrols,
authorisation and segregation of duties
However there is still room for improvement by ZIMRA in performing its mandate as
a revenue collector. There are some areas where manual accounting is practised and there is
an urgent need to computerise the areas if revenue leakages are to be minimised.

RECOMMENDATIONS

Although generally the paper acknowledges that ZIMRA has made significant steps in
achieving adequate revenue management the following are recommendations that will help to
continually improve on the situation and continue to reap the benefits of good revenue
management measures.

To the Zimbabwe Revenue Authority

 The researchers recommends that the ICT department should strive to continually
upgrade the systems so as to keep the systems well updated with the growing
capacity of operations and the provision of early attention to any system challenges.
Regularly updating the SAP and ASYCUDA systems will increase speed in data
mining and generation of reports in both packages. There is also need for the
department to ensure that Zimra Website be always available all the time so as to
acquire some online programmes and services being offered by the Authority and also
to get in touch with new developments and products in the world of taxes.
 The researcher further recommend that the organization should keep on with the in-
house training schemes and staff development programmes since they are very
crucial in developing and upgrading the skills and efficiency of the workforce.
 The authority’s decision making should be decentralised; this will improve efficiency
and effectiveness. Since ZIMRA is grouped into various regions, decentralised
decision making will lead to decisions that are tailor made to a specific region
 The researcher further recommends that the ICT department should strive to make
sure that there is interface between the Authority’s major accounting packages that is
the SAP and ASYCUDA+++. Lack of interface could potentially lead to possible
revenue leakages; unfaithful officers could connive together and use the same SAP
number to clear as many customs clearance certificates as possible. Continued lack of
interfaces between these accounting packages make the accounting system
vulnerable to abuse. Many transactions in ASYCUDA have to be first entered in the
SAP, however the ASYCUDA systems cannot authenticate or validate whether the
reference number generated in the SAP is genuine.

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CONCLUSION

Revenue collection is a critical element in Financial Management. Budgeting to a

large extent depends much on how much has been collected. The measures which have been
taken by the Zimbabwe Revenue Authority are sufficient to guarantee a constant inflow of
revenue and curb pilferage. The collections done against targets are a testimony of the good
work done by the organisation.

REFERENCES

Chartered Institute of Personnel and Development Guide; Tackling staff fraud and
dishonesty; managing and mitigating the risks.

Holzer and Kimes (2002) “Digital e-governance Performance” study,

Information Technology Association of America (ITAA) Wikipedia,ICT for Governance &

Revenue Management by Ibrahim H. Dankwambo dated July 2nd 2008 in Abuja Nigeria
Mrs. Ifueko Omoigui Okauru.

Ministry of Finance Revenue Data on Fiscal Policy Statements 2001-2010.

Puttick.V.E,(1998) The principles and practice of Auditing: Creda communications.

Capetown.

Puttick G,Van Eish S(2008) The principles and practice of Auditing: Business and economics

Jaucey S.Mitchell I.and Slamet P.1995 The meaning and management of yield in hotels-
International journal of contemporary hospitality management 1995 volume 17no.pp23-26
Zimbabwe Revenue Authority (2005) – Revnews – Volume 5 No. 1.

Zimbabwe Revenue Authority Magazine

(2001-2010) – Revnews

Zimbabwe Revenue Authority Website www.zimra.co.zw

ZIMRA Annual Reports [2001-10].

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Appendices

Appendix 1
Table 1.1 Revenue collection from 2001-2011 (Revenue news 2011- The ten year journey)
time(in
years) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Collections

(%) 99 119 117 109 133 128 297 1120 94 115 120
Variance
(%) -1 19 17 9 33 28 197 1020 -4 15 20
target% 100 100 100 100 100 100 100 100 100 100 100

Appendix 2

Fig 1.2 Line graph showing revenue collection against targets (Own design from Fig 1.1)

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