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Assessment of Cash Management in Dashen
Assessment of Cash Management in Dashen
MARY’S UNIVERSITY
BUSINESS FACULTY
DEPARTMENT OF ACCOUNTING
BY
SEMAN HASSEN
WELDE MARIAM MELIS
WOINSHET ZEBERGA
JUNE 2014
SMU
ADDIS ABABA
AN ASSESSMENT OF CASH MANAGEMENT
IN ST. MARY’S UNIVERSITY
BY
SEMAN HASSEN
WELDE MARIAM MELIS
WOINSHET ZEBERGA
June 2014
SMU
ADDIS ABEBA
ST. MARY’S UNIVERSITY
BY
SEMAN HASSEN
WELDE MARIAM MELIS
WOINSHET ZEBERGA
FACULTY OF BUSINESS
DEPARTMENT OF ACCOUNTING
APPROVED BY THE COMMITTEE OF EXAMINERS
Advisor Signature
First of all, we would like to thank our God for that he made us to reach
to this moment also we would like to thank our Advisor Ato
Gebregziabher Hagos. For the advise and encouragement he gave us for
the accomplishment of this paper. Last but not least we would like to
thank the commercial bank of Ethiopia
i
Table of Content
Acknowledgement ............................................................................................................ i
Table of Content ..............................................................................................................ii
List of Tables ................................................................................................................. iv
Abstract ........................................................................................................................... v
CHAPTER ONE
1. INTRODUCTION ....................................................................................................... 1
1.1. Background of the Study....................................................................................... 1
1.2. Statement of the Problem ...................................................................................... 2
1.3. Research Question ................................................................................................ 3
1.4. Objective of the Study .......................................................................................... 3
1.4.1. General Objective ...................................................................................... 3
1.4.2. Specific Objective ...................................................................................... 3
1.5. Significance of the Study ...................................................................................... 3
1.6. Scope of the Study ................................................................................................ 4
1.7. Research Design and Methodology ....................................................................... 4
1.7.1. Data Type and Sources...................................................................................... 4
1.7.2. Population and Sampling Techniques .............................................................. 4
1.7.3. Methods of Data Collection .............................................................................. 5
1.8. The Limitation of the Study .................................................................................. 5
1.9. Organization of the Study ..................................................................................... 5
CHAPTER TWO
2. REVIEW OF RELATED LITERATURE .................................................................... 6
2.1. What is Cash? ........................................................................................................... 6
2.2. Cash Management .................................................................................................... 6
2.3. Cash Management Techniques .............................................................................. 9
2.3.1. Cash Flow Synchronization .......................................................................... 10
2.3.2. Using Float ..................................................................................................... 10
2.3.3. Acceleration of Receipts ............................................................................... 11
2.3.4. Lock Boxes .................................................................................................... 11
2.4. Reasons for Holding Cash ...................................................................................... 12
2.4.1. Speculative Motive .......................................................................................... 12
2.4.2. Precautionary Motive ...................................................................................... 12
2.4.3. Transaction Motive........................................................................................ 13
2.4.4. Compensation Balance .................................................................................. 13
ii
2.5. The Basic Objective of Cash Management .......................................................... 13
2.6. Facts of Cash Management ................................................................................. 14
2.6.1. Cash Planning ................................................................................................ 15
2.6.2. Investment of Idle Cash ................................................................................ 16
2.6.3. Managing the Cash Flows ............................................................................ 17
2.6.4. Optimum Cash level ...................................................................................... 17
2.7. Cash Budgeting and Forecasting ......................................................................... 17
2.7.1. Cash Budget .................................................................................................. 17
2.7.2. Cash Forecasts ............................................................................................... 18
2.8. Short Term for Casting Methods ......................................................................... 19
2.8.1. Receipts and Disbursement Method............................................................. 19
2.8.2. Adjusted Net Income Method....................................................................... 22
2.9. Long Term Cash Forecasting .............................................................................. 23
2.10. Empirical Literature Review ............................................................................ 24
CHAPTER THREE
3 .DATA ANALYSIS AND INTERPRITATION ......................................................... 25
3.1 Characteristics of the Study Population .................................................................... 25
3.2. Data Presentation Analysis of Questionnaire ........................................................... 26
3.3. Analysis of Interview .......................................................................................... 34
3.3.1. Management Information System ................................................................ 34
3.3.2. Reasons for Holding Cash ............................................................................ 35
3.3.3. Daily Cash Operation .................................................................................... 36
3.3.4. Cash Collection.............................................................................................. 36
3.3.5. Cash Disbursement ........................................................................................ 37
3.4. Uses of Petty Cash Fund ..................................................................................... 39
CHAPTER FOUR
4. SUMMARY, CONCLUSION AND RECOMMENDATION .................................... 40
4.1. Summary of Findings.......................................................................................... 40
4.2. Conclusion.......................................................................................................... 41
4.3. Recommendation ................................................................................................ 42
References
Appendix
iii
List of Tables
Table 1: General Profile of the Respondents .......................................................... 26
Table 2: The Relationship Between Management and Subordinate in the Bank...... 27
Table 3: Evaluation and Discussion to Revise the Cash Management System ........ 28
Table 4: Amount of Cash Collected is Deposited in the Bank ................................ 29
Table 5: Evaluate Cash Management Strategy ....................................................... 29
Table 6: Implementation of Cash Management System.......................................... 30
Table 7: Review the Cash Management System..................................................... 30
Table 8: The Process of Checking the Bill and Amount of Cash Collected............. 31
Table 9: Minimum and Maximum Cash Balance Maintaining ............................... 32
Table 10: Provide Training Program to its Employees ............................................. 32
Table 11: Cash Operation in Accordance With Cash Management .......................... 33
Table 12: Existence Any Fraud or Misuse of Cash................................................... 33
iv
Abstract
v
CHAPTER ONE
1. INTRODUCTION
1.1. Background of the Study
Cash is one of the most important assets in business enterprises, because
it helps them as medium of exchanging or means of acquiring goods and
services. Cash includes currency a coin, personnel checks, bank drafts,
money orders, credit card, sales drafts and cashers checks as well as
money on deposit with banks. Since cash is liquid asset it needs
appropriate management to the organization financial position. In addition
careful security of cash transaction is required because cash may be
readily misappropriated.
How much cash the bank should carry the specific types of securities to
issue and how much of the firms earnings to retain and to pay out
dividends? To manage the cash flow, the financial manager must make
certain that the investment in cash is efficiently used. In order to minimize
cash ‘’leeks‘’ the financial manager should established some sort of central
system over in coming cash. If the receipt of such funds can be broken up
1
in to two or three steps and responsibility for each assigned to different
employee’s the ability to embezzle is greater reduce (Ballad, 2002: 212)
2
1.3. Research Question
How CBE evaluate cash management strategies?
Is there any fraud or misuse of cash?
Does the CBE use cash management system effectively?
What are techniques used to manage cash?
3
1.6. Scope of the Study
The study was tried to investigate cash management practice of
Commercial Bank of Ethiopia at the Head Office only due to the constraints
mentioned in the limitation part below. The study expected to focus on the
manual report which presented to head office of the bank and also use the
data of four consecutive years (2009-2012).
4
1.7.3. Methods of Data Collection
The collected data were present using statement type of presentation and
descriptive method of data analysis technique were applied in this study.
Aim of discipline was to summarize asset of data. This type of information
is extremely help full to investors who wish to make most form their
investments and the results was presented in tables and percentage.
5
CHAPTER TWO
2. REVIEW OF RELATED LITERATURE
2.1. What is Cash?
Cash is the important current asset for the operations of the business cash
is the basic input needed to keep in the business running on continuous
bases it is also defined as ultimate output expected to be realized by saving
the service or product manufactured by the firm The firm should keep
sufficient cash Neither more nor less. (Pan Day, 2005: 640)
6
leading and controlling) directed at an organizations with resources
(human, financial, Physical and information) with the aim of achieving
organizations goals in and efficient and effective manner. The last phrase in
our definition is especially important because it high lights the basis
purpose of management to ensure that as organizations goals are achieved
an efficient and effective manner. We mean using resources wisely and a
cost effective may be effective we mean making the right decisional
successfully implicating them (WG if fine, 2006).
Deposits with a trustee for example, a bond sinking fund that is not under
the control of management of a business enterprise should not be included
in cash. An other example many airlines and companies have millions of
dollars in cash deposits do not qualify as current assets because they are
not available for payment of current liabilities. Certificate of deposits
generally are classified as short-term investments rather than as cash
because they are not available for immediate with drawl strictly speaking
saving deposits also may not be withdrawal with out prior notice to bank,
but banks seldom a force those requirement. Consequently, saving deposits
usually area viewed as cash. Patty cash funds and change funds are minor
elements of cash under the control of management even through those
founds generally are intended to be used for specific purpose. (Mosich,
1989: 294)
In summary, The criteria generally used to define cash are that the item be
a medium of exchange be available immediately for the payment of current
debts and be free from any contractual restriction that would prevent
management of the business enterprise from using the item to pay this
creditor (Mosich, 1989: 294) Cash management is keeping enough cash on
hand to handle the banks cash business plus the cash reserve activated by
the cash policy. Cash on hand plus cash deposited minus cash paid out
equal’s net cash on hand. To ensure that the net cash on hand meets the
7
banks needs , the cash manger must estimate with fair accuracy the
amount of cash to be deposited as well as the future cash demand. Cash is
ordered from the Federal Reserve and excess cash is returned there.
(Mosich, 1989: 294)
Cost optimization and value add services are customer demands that
necessitate the creation of a mechanism to service the various customer
groups.
8
2.3. Cash Management Techniques
Cash management has changed significantly over the last twenty years for
two reasons. First from the early 1970 to the mid 1980.There as an upward
trend in interest rates that increased the opportunity cost of holding cash.
This encouraged financial manger to search for more efficient way of
managing cash. Second, technological developments, particularly,
computerized electronic funds transfer mechanisms. Changed the way cash
in managed most cash management activities are performed jointly by the
firm and its banks. Effective cash management encompasses proper
management of cash inflows and outflows which includes:
Synchronizing cash flows
Using floats
Accelerating collection
Getting available founds to where they are needed and
controlling disbursements
9
to cover net corporate. Short falls and to invest net corporate surpluses
without delay. (Brigham and Hostelry 2004: 581)
If you could arrange to receive income daily and to pay rent tuition, and
other charges on a daily bases, and if you were confident of your forecasted
inflows and out flows, then you could hold a very small average cash
balance. (Brigham Houston, 2004: 581)
Exactly the same situation holds for business by improving their forecasts
and by arranging thing. So that, cash receipts coincide with cash
requirements firms can reduce their transaction balance to a minimum.
Recognizing all this utility companies. All companies credit card companies
and soon arrange to bill customers and to pay their own bills, on regular
“billing cycles” throughout month. This synchronization of cash flows
provides cash when it is needed and thus enables firms to reduced cash
balances decrease bank loans. Lower interest and expense and boost Profit
(Brigham and Houston, 2004: 581)
10
Collection float is the amount of checks that we have received but that,
have not yet been credited to our account. Net float show the differences
between out check book balance and the balance shown on the banks
book. Delay that because float arises because it takes time for checks to
Travel through the mail ( mail float)
Be processed by the receiving firm (processing float)
Clear through the banking system (clearing , or availability , float
Basically, the received and to slow down collection on checks is
written. Efficient firm go to great length to speed up the
processing of income checks, thus putting the funds to work
faster, and they try to stitch their own payments out as long as
possible. (Brigham and Houston, 2001: 582)
11
The bank them provides the firm with daily record of the receipts collected
usually via an electronic data transmission system in a format that permits
on line updating of the firm’s account receivable records. (Brigham and
Houston, 2004)
A lock box system reduces the time required for a firm to receive incoming
checks to deposit them and to get them cleared through the banking
system so the funds are available by two to five days over the regular
system. (Brigham and Houston, 2004: 583).
12
to hold substantial amounts of cash for precautionary, purposes. (Ross,
2000: 587)
13
“According. We discussed ways of accelerating collections and managing
disbursement.
In addition firms must inverts temporary idle cash in the short term
marketable securities can be bought and sold in financial markets. As a
group , they have very little difficult risk and most are highly marketable
There are different types of these so called many market securities. (Ross,
2000: 586)
Sales generate cash which has been to be disbursed out. The surplus has
to be barrowed cash management seeks to achieve liquidity and control ,
Cash management assumes more important than other current asset
because cash is the most significant and least productive asset that affirm
held’s. It is significant because it is used to pay the firms obligations,
However, cash is a productive Unlike fixed assets or inventories. It does not
produce goods for sale. Therefore, the aim of cash management is to
maintain adequate control over cash position to keep the firm sufficiently
liquid and to use excess cash in some profitable way.
14
cash management techniques. An obvious aim of the firm this day is to
manage its cash affairs in such a ways as to keep cash balance at the
minimum level and to invest the surplus cash in profitable investment
opportunities. (Pan Day, 2005: 641)
Cash planning is a technique to plan control the use of cash. It protects the
financial condition of the firm by developing a projected cash statement
form a fore cast of expected cash inflows and outflows for a given period.
The forecasts may be based on the present operations or the anticipated
future operations. Cash planes are Very crucial in developing the overall
operating planes of the firm. (Pan day, 1999)
Cash planning may be done on daily, Weekly or monthly basis. The period
and frequency of cash planning generally depends up on the size of the firm
and philosophy of the management large firm prepares daily and weekly
forecasts. (Pan day, 1999)
15
Medium size firms usually prepare weekly and monthly forecasts, Small
firms may not prepare formal cash forecasts because of the non availability
of information and small scale operation. But if the small firms prepare
cash project. It is done on monthly basis. As a firm grows and business
operations becomes complex. Cash planning becomes inevitable for it
continuing success. (Pan Day, 1999)
The surplus cash balance should be properly invested to earn profits. The
firm should decide about the decision of such cash balance between
annotative short term investment opportunities such as bank deposits
marketable securities, or inter corporate lending. (Pan day, 2005)
The idle cash management system will depend on the firm products
organization structure competition culture and options available. The task
is complex and decision taken can affect important areas of the firm. For
example to improve collections if the credit period is reduced. (Pan day,
2005)
16
May affect sales However , In certain cases , even without fundamental
changes, it is possible to significantly rebuke cost of cash management
system by choosing as right bank and controlling the collections properly
(Pan day, 2005: 641).
The time horizon of cash budget many different from firm to firm A firm
whose business is affected by seasonal variation may prepare monthly cash
budgets. Daily or weekly cash budgets should be prepared for determining
cash requirements of cash flows show extreme fluctuation cash budgets
for a longer intervals may be prepared if cash flows are relatively stable.
(Pan Day 2005: 642)
17
2.7.2. Cash Forecasts
Cash forecasts are needed to prepare cash budget. Cash fore casting may
be done on short or long term basis. Generally forecasts covering periods of
one year or less than considered short …. Those extending beyond one year
considered long term.
The sort term forecast helps in determining the cash requirements for a
predetermined period to run a business, if the cash requirements are not
determined, it would not be possible for the management to know much
cash balance is to be kept in hand to what extent bank financing be
depended up on and whether surplus funds would be available to invest in
marketable securities to know the operating cash requirements, cash flow
projection have to be made by a firm. (Pan day, 2005)
One of significance tools of the short term forecasts is to pinpoint when the
many will be needed and when it can be prepaid with such forecasts in
hand it will not be difficult for the financial manger to negotiate short term
fireman coming arrangement with banks. This in fact convinces bankers
about the ability for the management to run its business. (Pan day, 2005)
The third function of short term cash forecasts is to help in managing the
investment of surplus cash in marketable securities carefully and skillfully
designed cash forecast helps a firm to: (Pan day, 2005)
Select securities with appropriate maturities and reasonable risks
Avoid over and under investing and
18
Minimize profits by investing idle money.
Short – run cash forecasts serve money other purposes For example,
Multidivisional firms use them as a tool to coordinate the flow of funds
between their various divisions as well as to make financing arrangement
for those operations. These forecasts may also be use full in determining
the margins or minimum balances to be maintained with banks. (Pan day,
2005: 642)
The adjusted net income method, on the other hand, is preferred for longer
durations ranging between a few months to a year. Both methods have
their prone and cons the cash flow can be compared with budgeted
income and expense items if the receipt and disbursements approach in
showing a company’s appropriate working capital and future financing
needs. (Pan day, 2005)
19
Three broad sources of cash inflows can be
i. operating
ii. None operating and
iii. Financial
Cash sales and collections obtained from customers and from the most
important parts of the operating inflows. Developing a sales fore cast in the
first step in preparing cash forecast All pre continues should be taken to
forecast sales as quarterly as possible. In case of cash sales cash is
received at the time of sale On the other hand, cash is realized after some
time if sale is on credit.
The time in releasing cash on credit sales depends on the firms credit
policy reflected in the average collection period. (Pan Day, 643)
It can easy be noted that cash receipt from sales will be affected by change
in sales value and the firms credit policy. To develop realistic cash budget
though changes, it should be accounted for. If the demand for the firm
products slackness, sales will fail and the average collection period is likely
to be longer which increases the change of bad debt. In preparing cash
budget account should be taken to sales discounts, returns and allowances
and bad debt as they reduce the amount of cash collection from debts. Non
operating cash inflows include sales of old assets and dividends and
interest income. The magnitude of those items is generally small when
internally generated cash flows and not sufficient. The firm resorts to
external financial sources preparation for a cash budget is the estimated of
cash out flows.
Cash out flows include : I operating out flows such as cash purchases
payments of payables, advance to surpluses wages and salaries and other
operating expenses, ii capital expenditure iii, contractual payments, such
as repayment of loan and interest and tax payments, and iv, Discretionary
20
payments, such as ordinary and preference dividend. In case of credit
purchases a time log will exist for cash payments. This will depend on the
credit terms offered by suppliers.
It is relatively easy to predict the expense of the firm over short run. Firms
usually prepare capital expenditure budget there froe capital expenditure
are predictable for the purpose of budget.
Cash budget helps a firm to mange its cash position. It also helps utilize
ideal funds in better ways On the basis of cash budget the firm can decided
to invest surplus. Cash in marketable security and earn profits.
The virtues of the receipt and payment methods are:-
It gives a complete picture of all the item of expected cash flows
It is a sound tools of managing daily cash operations
Its reliability is reduced because of uncertainty of cash for casts.
For example collection may be delayed, or an anticipated demand
may cause large disbursement
It fills to high light the significant movements in the working
capital. (Pan Day, 2005: 645)
21
2.8.2. Adjusted Net Income Method
This method of cash forecasting is tracing of working capital flows. It is
sometimes called the sources and uses approach to objective of the
adjusted not income approach are:
I) To project the companies need for the cash at a future data and ii. To
show whether the company can generate the required funds internally, and
if not, how much will have to be borrowed or raised in the capital market.
As regards the firm and content of the adjusted net income forecast it
resembles the cash flow statement. It is, in fact a projected cash flow
statement based on Performa financial statements. It generally has three
sections: sources of cash and the adjusted cash balance. This procedure
helps in adjusting estimated earning on UN accrual basis to a cash basis. It
also helps in anticipating the working capital movement. (Pan day, 2005)
Preparing the adjusted net income forecasts items such as net income
depreciation, taxes dividends, etc. Can easily be determined from the
company’s annual operating budget. Normally difficulty is faced in
estimating working capital changes, specially the estimate of accounts
receivable (Debtors) and inventory pose problem, because they are
influenced by factors such as fluctuations in the raw material costs ,
changing demand for the company’s product and possible delays in
collections and error in predicting these items can make the reliability of
forecast doubt fill. One popularly used method of projecting working capital
is the use rations relating accounts receivable and inventory to sales. (Pan
day, 2005)
22
The benefits of the adjusted net income methods are:-
It highlights the movements in the working capital items and thus
helps to keep a control on a firms working capital times.
It helps in anticipating firms financial requirements
It fails to trace cash flows and therefore, it is utility in controlling
daily cash operation is limited. (Pan Day 2005: 646)
23
2.10. Empirical Literature Review
Anchalem Ayalew, Foziya Jabir and Liya Abiyu were worked a researcher
paper in 2013 on the title of” assessment of cash management in Niyal
Insurance Share company.
The object of the paper was to assess the short term and long term
insurance police and procedures to identify the problem that the insurance
company fails during managing cash premium and Clint benefit. Based on
the objectives of researcher to conclude the insurance company had no
problem in fulfillment the minimum requirement and the cash asset had
been increasing over year.
The object of the paper was to identify strength and weakness of Nile
Insurance Company cash budget preparation process provide summary of
ledger finding and forward recommendation.
Conclude that paper line insurance company prepare cash budget for
improving the efficient and effective utilization of cash and had well
development planning and budgeting service department which prepare the
overall plans and budget for the company.
24
CHAPTER THREE
3 .DATA ANALYSIS AND INTERPRITATION
25
3.2. Data Presentation Analysis of Questionnaire
Sex
1 A. Male 9 75
B. Female 3 25
Total 12 100
Age
A. 25 years or below 2 8
2 B. 26-30 year 3 25
C. 36-45 3 25
D. 45 year or above 4 42
Total 12 100
Educational qualification
A. Diploma - -
3 B. Degree 8 66
C. 2nd Degree 4 34
Total 12 100
Work experience
Below 5 2 16
4 5-10 2 16
11-15 4 34
Above 15 4 34
Total 12 100
26
Item 2, it can be simply understand that 2(8%) of the respondents are
between the age of 26-30 year 3(25%) of the respondents are between the
age of 36-45 the rest of respondents 5(42%) are the age of 45 or above.
Shows that majority of the respondents are young and at the age of
productivity. It enables the organization to refer as the performance of work
force as well as the productivity of the organization.
As can be seen from item 4 table 1, 2(16%) of the respondents have below 5
year of work experience, 2(16%) of the respondents have 5-10 years of the
work experiences 4(34%) of the respondents have 11-15 years of work
experience, 4(34%) of the respondent also have above 15 years well
experienced. This implies that experience help the employees to manage
cash effective.
27
From the above table 2, it can be seen that 25% of the respondent said
that, they moderately agree with the good working relationship between
management and subordinates in the bank and 20% of the respondents
said that, they agree with the a good working relationship between
management and subordinates in your bank while 2% of them strongly
agree with the good working relationship between management and
subordinates in your bank.
The data shows, 83% of respondents replied that, Yes evaluation and
discussion to revise the cash management system in the organization and
17% of respondents that, no continues evaluation and discussion to revise
the cash management system this implies that most of the respondent
believes that the cash management system involves on the evaluation and
discussion to revise the cash management. This implies the majority
portion of the response are good evaluation and discussion to revise the
cash management system.
28
Table 4: Amount of Cash Collected is Deposited in the
Bank
Item Frequency Percent (%)
Is the amount of cash collected is deposited
in the bank on the same day?
Yes 9 75
No 3 25
Total 12 100
(Source: Primary data)
The table shows that, 75% of the respondents replied that, the amount of
cash collected is deposited in the bank on the same day but 25% of the
respondents are the amount of cash collected are not deposited in the
bank. The above percentage show that amount of cash collection deposited
in the commercial bank of Ethiopia is well.
Table 5 above indicates that 67% of the respondent replies that, the
evaluation of cash management strategy of commercial bank of Ethiopia is
good and 33% of the respondents replies that, evaluation of cash
management strategy of commercial bank of Ethiopia is excellent. The
29
above percentage show that the evaluation of cash management strategy of
commercial bank of Ethiopia is good.
Table 6 above indicate that 67% of the respondent replies that, it response
are good implementation of cash management system of commercial bank
of Ethiopia while, 25% of the respondent replies that, it response are
excellent implementations of cash management system of commercial bank
of Ethiopia and 8% of the respondent replies that it response are average
the in total respondents. Accordance the respondent’s response to majority
proportion of the responses is good implementation of cash management
system.
30
Table 7 above indicates that 75% of the respondent says excellent while,
25% of the respondents says good management concern to review the cash
management system, according the respondents response majority
proportions of the response are management concern to review the cash
management system this implies that the cash management department
was good management system.
From the above table 8,10(83%)of the respondents response that yes the
cash management officer involved on the process of checking the bill and
amount of cash collected. but, 2(17%) of respondent is say no the cash
management officer involved on the process of checking the bill and
amount of cash collected. this implies that most of the respondent believes
that the cash management officer involved on the process of checking the
bill and amount of cash collected according the respondents response to
majority proper than after response are cash management officer involved
on the process of checking the bill and amount of cash collected this
implies that the cash management department was good process of
checking the bill and amount of cash collected.
31
Table 9: Minimum and Maximum Cash Balance
Maintaining
Item Response Percent (%)
Is there minimum and maximum
cash balance maintaining?
Yes 4 33
No 8 67
Total 12 100
(Source: Primary data, questionnaire)
As it is shown the above table 9(75%) of the respondent replies that the
response are the management provide excellent training program to the
employees while 3(25%) of the respondent that the management provide
good training program to the employees.
32
From the above presentation majority proportion of the response are
excellent management provide training program to the employees.
From the above table 11, 8(67%) of the respondents yes cash operation
accordance with cash management and 4 (33%) of respondents says no the
cash operation in accordance with cash management. this implies that
cash operation accordance with cash management system is good.
33
3.3. Analysis of Interview
3.3.1. Management Information System
Commercial Bank of Ethiopia has several financial commitments: some of
these are depositors withdrawals finance running, expense of business
transaction and maintaining reserve and liquidity equipments set by the
national bank of Ethiopia.
The system is set list such a way that all concerned organizing weekly basis
and sends to home office where they are reveled these reports. In order to
check that they are prepared and reported in accordance with the banks,
policies and procedures to the requirement of supervising authority. The
reports also send to the end users, which are managed through the
application of appropriate technology. With the use of appropriate
technology, the liquidity (cash position) of the bank can be measured.
34
This information helps the bank not to lend a customer that unable to pay
the amount taken from her banks. Integrated information systems also
facilitate the customer service to get payment and send the amount to rest
of other banks. Integrated information system need by bank to identify
check clearing system.
Liquidity planning also help to structure their banks folio to meet the
anticipated needs. On the other hand, the bank can protect liquidity
position during efficiency period by requesting additional budget from head
office, but it is not always successful to overcome these problem in case of
huge withdrawal of a cash from the bank. Most of the time, the bank
meets its obligation by preparing a report about its liquidity base for head
office within 15 days (fifty days) of time. Based on these report the head
office was evaluated their liquidity performance. Bank forecast liquidity,
which not considers investment of idle cash, over a period of time that, is
why commercial bank of Ethiopia can also transferred its idle cash to head
office bank. This is a critical problem for the bank not to invest in
investment profile.
35
3.3.3. Daily Cash Operation
Assistant manager, casher and teller are personally responsible to manage
cash with in Commercial Bank of Ethiopia. According to the interview
made with the assistant manager of the bank, the primary technique used
to manage cash was by establishing volute room to protect cash from
danger and theft. It can achieve through dual control over cash by both
cashier and assistant manager. In the morning when daily cash operation
starts the manager open volute room by entering a code number, after that
the amount of cash taken out of set of box and given by manager for
cashier by approving and recording the balance on sender book.
In order to make payment, the payment teller takes needed cash from
casher to facilitate daily cash operation through recording the amount of
sender book and compute, the transaction made in the day.
36
book the deposit vouchers after stamping them with respective stamps
bearing the proper data.
In the morning vouchers should be journalized and the compared with the
totals submitted by the tellers at all times. The teller who receive a money
carefully record denominations of the stamps and initially the deposit
voucher, retain the copy and hands over the original to the customer.
During cash receipts all notes are sorted out, counted and wrapped with
initially of the counter and verify under restrict supervision of the cashier.
Not only these cashier and receipt teller to be very careful that no
deteriorated notes are mixed with those fight for circulation. During cash
collection, first receiving teller collect the amount and record on sender
book, after daily cash operation would be finished, the balance of cash
collected and recorded on the computer can be checked by the cashier and
debts the amount to banks accounts. After all the process is completed, the
balance of cash collected by payment and receiving teller prepared and
approved by manager of the bank. Then the balance of cash would be taken
to volute room. Even if the bank followed to authorize the transaction is
well, only direct sending is not sufficient to accelerate cash collection
within a short period of time.
37
the formalities with his computer balance and made the payment for
customer.
On the other hand during the payment operation the bank uses
instruments for payment, for instance, check vouchers and cash payment
order. Before reaching paying teller, the instrument in case of saving
withdrawal:
Voucher is properly made out (filled)
Voucher is dated and signed
Signature is verified
Payees name on the voucher match with that of pass-book
withdrawal and could be made in person by the account holder
unless exception are made when other kind of payment voucher
are in valued the paying teller insure that;
Voucher is properly made out
The voucher consists of two authorized signature
The payee is identified
Amounts in words and figures agree
The pay has signed on the back of the voucher
The procedure is approved by the stamp properly.
38
3.4. Uses of Petty Cash Fund
According to the interview made with assistance manager of the bank, the
bank uses petty cash for the payment of relatively small amounts, such as
for transportation charges, or for the purchase of urgently needed supplies
at a nearby rate; store when the amount of petty cash found is fixed in
amount, about (300-500) birr is reduced to the predetermined minimum
amount, and the fund is replenished. The amount of petty cash fund is
always taken from cashier of the bank by managerial secretary and a
stored in the custody. If the requested come from the purchases of the
bank the secretary create payment without approval by other concerning
body recording the amount on the voucher. The process followed by the
bank to pay petty cash found for requested supply by authorizing secretary
of the bank to make transaction from the begging to the end many lead to
way of theft, when agreement is made between purchaser and secretary to
use some amount by them selves.
39
CHAPTER FOUR
4. SUMMARY, CONCLUSION AND
RECOMMENDATION
This study is designed to examine the cash management of commercial
bank Ethiopia and also intended to suggest possible solution to the
problems identified in order to effective cash management system this
chapter, therefore, presents the summary of major findings, conclusions
and the possible recommendation.
40
The management provides training program to its employees is
high.
8 or 67% of the respondents believed that the cash operation in
accordance with cash management is a good.
4.2. Conclusion
To conclude this paper, the data which are collected have been analyzed
and interpreted within the boundary of its constraint. The main objective
of this study is to find out the effect off cash management by making
though assessment of the cash management of commercial bank of
Ethiopia.
41
4.3. Recommendation
Based on the data findings and conclusion made the have for ward the
following recommendation.
General funding for commercial bank for cash liquidity which
not considers investment of idle cash should d be determined
by looking at the past trends and changes that have occurred
that will impact future forecast.
Short term training and workshops for personnel engaged in the
analysis work should be organized regularly and also avail
relevant reading material
For cash management purpose minimum and maximum cash
balance should be increase cash holding limit for branch
• The management of the bank should established and identify
factors that affected the cash management system. As system
changes based on the changing technology and environment
Finally the organization should give special attention to all the above
suggestion and recommendation to strengthen the cash management
receipt and disbursement due to the fact almost all transactions affect
cash account and by its very natural cash is the most liquid and tempted
to theft miss appropriation and embezzlement the organization has to
work on the implementation or cash management receipted and bank
principle.
42
Bibliography
Bhallan, V. K. (2002). Financial Management and Police (4th edition).
New Delhi:India.Vikas Pvt Ltd.
2. Education
Diploma
Degree
2nd degree
3. Work experience
Below 5 years 11-15 years
5-10 Years Above 15 years
This paper has been submitted for examination with my approval as the
university advisor
Name
Signature
Data
Declaration
We the undersigned declare that this senior essay is our original work,
prepared under the guidance of Gebregziabhar Hagos all Sources
materials used for the manuscript have been acknowledged.
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