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Cash Managment Practice in Commercial Bank of Ethiopia
Cash Managment Practice in Commercial Bank of Ethiopia
DILLA UNIVERSITY
MAY, 2017
Dilla,
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LETTER OF CERTIFICATION
DILLA UNIVERSITY
Examiner_________________Signature__________________________Date________
Advisor_________________Signature__________________________Date________
DECLARATION
I
I, EWUNETU AYELE, the undersigned, hereby declare that the senior essay work entitled “Cash
Management practice of the Commercial Bank of Ethiopia. In case of Michele Branch in Dilla Town”
submitted by me for the requirements of BA degree in Accounting and Finance from Dilla University, is
my original work and it has not been submitted for the award of any other similar purpose for any
university or institutions.
Signature____________________
Date____________________
ABSTRACT
II
This research paper seeks to address the cash management practice of commercial bank of Michele branch. It was address three (3) basic
research questions designed to asses cash management performance of the bank. For the purpose of the study both primary and
secondary data were used, but much focus on primary data in which more information was obtained by unstructured interview and
questionnaires. After the data has been gathered, it would be analysed and presented using tables and percentage.
ACKNOWLEDGEMENT
III
First of all I would like to tanks you Almighty God forgive me the strength and
the completions of this paper. Next, I would like to tanks my special my Advisor
Solomon Mitku for this generous and unreserved assistance to carry out the
research paper. Next, I thank for Dilla University especially, the colleges of
Business and economics for designing such program through which student’s
development their knowledge. Finally I would like to thank for all my friends
and my families for their supporting me all aspect of doing this paper.
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TABLE OF CONTENTS
Title Page
Abstract.............................................................................................. .I
Acknowledgment.................................................................................. II
Table of Content.................................................................................. III
CHAPTER ONE
1. Introduction ……………………………………………………………….…… 1
1.1 Background of the Study ......................................................... 1
1.2 Statement of the Problem........................................................... 2
1.3 Research Question..................................................................... 2
1.4 Objectives the Study ……............................................................ 3
1.4.1 General Objective ………………………………………………… 3
1.4.2 Specific Objectives ………………………………………………. 3
1.5 Significance of the Study ............................................................ 3
1.6 Scope of the Study ..................................................................... 3
1.7 Limitation of the Study ------------------------------------------------- 4
1.8 Organization of the
study..........................................................................4
CHAPTER TWO
2. Literature Review ………………………………..…………………….………. 5
2.1 Definition of Cash Management...............
………………………………………………….……… 7
2.2 Control Over Cash ………………………………………………………… 9
2.3 Cash Planning (Budgeting)………..……………………………….……. 9
2.4 Cash Controlling ……………………………………………………………….10
2.4.1 Segregation of duties …………………………………………… 11
2.4.2 Accountability …………………………………………………… 12
2.5 Reason for holding cash ………………………………………………… 13
2.6 Managing cash receipt and payment ………………………………... 14
2.6.1 Internal control over cash receipt …………………………. 15
2.6.2 Internal control Over cash payment ………………………. 15
2.7 Basic internal control principles of cash payment …………………. 16
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CHAPTER THREE
3. Research methodology .................. …………………………………………..17
3.1 The Research design … .…………………………………………………….17
3.2 Data type and source……… ………………………………………………..17
3.3 Method of Data collection…………………………………………………..17
3.4 Target population ..........................................................................17
3.5 Sample Size and Sampling Technique….…………………….…………..17
3.6 Data Analysis.............................……………………………………………19
CHAPTER FOUR
4. Data analysis, interpretation and presentation ………………………………19
4.1 Cash management practice ………………………………………………………22
4.2 Managing cash receipt and payment ………………………………
……….. 26
4.2.1 Internal control of cash receipt ……………………………… ……… 26
4.2.2 Control over cash payments ……………………………………………26
CHAPTER FIVE
5 Conclusions and Recommendation
5.1 Conclusion ………………………………………………………………………..30
5.2 Recommendation ……………………………………………………………….. 31
Reference ………...................……………….............................................32
Appendix ………………………………………………………..………...............33
VI
CHAPTER ONE
1. Introduction
1.1. Background of the study
Cash is a medium of exchange that the bank will accept for deposit and
immediate credit to depositor account that include currency and coins,
personal checks, bank drafts, money order credit cards, select drafts and so on
(Planket,1986).
Cash is the most important element of banks day today activity. By effective
cash management banks can reduce the excess cash at optimum level and
ensure customers requirements. Cash management involves neither excess not
deficiency amount of cash on hand at right time proper cash management
requires that the bank know how much cash is need as well as how much it
has and where that cash is at all time. Cash management also require
knowing the amounts of fund available for investment and the length of time
that can be must. (Planket1986).
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How the banks control cash receipt and disbursement?
The general objective of the study focus on the cash management practices of
CBE in Michele branch.
In addition the above mentioned general objective the study would have the
following specific objectives.
This study will benefit CBE of Michele Branch by identifying factors that affect
the internal control over cash and suggesting possible recommendation. Create
awareness to the bank about cash management practices and help for the
other researchers who conduct their research on the same title and the
manager of the bank should control its cash under the proper management of
cash in the bank. For the researcher it serves as additional academic
knowledge in the area and useful inputs for future professional development.
Here the researcher knows that the study includes the whole banks cash
management practice but, due to the financial constraints the researcher
forced to focus on the cash management practices of CBE in Michele branch.
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During the collection of data for this study the researcher would faced different
limitation, like lack of finance, lack of internet access and lack of computer
accessories to write the final draft.
CHAPTER TWO
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2. LITERATURE REVIEW
Cash is a medium of exchange that a bank will accept for deposit and
immediate credit to the depositor account. Cash is any medium of exchange
that a bank will accept of face value which includes bank deposits, currency,
coins, bank draft and money order.
Cash is the most liquid asset and the standard medium of exchange and the
basic for measuring and accounting for all other items. Cash is important
current asset for operation of a business. It is the basic impute needed to keep
the business running on continuous basic. It also the ultimate output
expected to be realized after the service is delivered. To be reportable as such it
must be readily available for the payments of current obligation and it must be
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free from any contractual restrictions that limit its use in satisfying debts. In
accounting cash consist of coin, currency and available found on deposit and
the bank negotiable instruments such as money order, certified cheque
personal
And bank draft are also viewed as cash .Saving account usually classified as
cash although the bank has the lead light notice is rarely demanded by banks
saving account are considered as cash (keiso.etal,2001)
Due to it’s easily transferability, cash is the asset most likely to be used by
employees and manages. Cash is also vulnerable to theft since many
transactions either directly or indirectly affects the receipt or payment of cash.
The objective of internal control over cash are to be provide accurate
information about cash .To avoid cash shortage and excess (idles) cash and
protect cash from theft and misuse. To control cash receipt the firm, should
record the cash receipt properly and immediately deposit the cash receipt
amount. (Ibid)
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control devices to help management measure the firm performance may be
improved. Cash budget helps to identify periods of cash surpluses. It also
help the financial manager to measure the amount and duration of cash
shortage and to prepare repayments schedule and it there is. Cash budget
helps to prepare prepayments schedule and it there is cash shortage to finance
with borrowed funds. (Rose Stepen,1995)
Cash budget estimates the occurrence, amount and duration of cost and
payment schedule for any needed financing.
Is an important tool for planning and controlling because forecasted error can
be traced to the individual components of the cash budget.
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Represent for each work different employees in order to create for each
employees responsibilities and assures that one person is not made bias. For
this purpose the following function should be segregated in order to maintain a
proper segregation of duties.
Authorization function
Reconciliation function
2.4.2 Accountability
Proper accountability is present when an asset (cash) and all cash handling
activities and accounted for properly documented and traceable to specific cash
handle. The following functions should be performed in order to maintain a
proper accountability structure.
Individual Accountability
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Proper delegation of authority and responsibility means that knowing who has
access to an asset and why they access. It represent when transaction are
identified to a person, individual cash drawers areas signed to each handless
and separate password are severed.
Cash accountability
Proper securing means knowing where asset can is at all times it presents
when all funds remain properly secured receipt are given to each and every
customer and keys and ward are secured.
Process accountability
Security monitory
Means that the safety of and transport of assets are taken in its consideration
and follow up proper protocols and procedures. It’s present when tow people
are involved in handling cash, asses one properly and transported.
Transaction recording
Authorization and approval: - means that the proper supervisor and managing
review and approve transaction. It is present when receipt issued are
reconciled and when receipt issued are reconciled and when surrey cash
counts are performed are performed on at least annual basis or turn over
exists (Craig, 1988).
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Banks maintain on inventory of currency to satisfy its objectives. Primarily to
meet the daily currency demands of deposition, either at teller windows or
author mated teller machine. It the bank know with certainly the daily flow
currency from deposits and with drawers, the amount of cash required could
be determine clearly. If there were on costs associated with shipments currency
backs should reduce their holding of cash and increase the frequency of
currency shipments. Secondly, regularly agency mandate legal reserve
requirements that can be meet only by holding qualifying cash asset. Thirdly,
bonks serve as a
Clearing house for nation’s checks payment system, each banks must hold
sufficient balance at financial institutions so that check written by its
depositors will clear when presented for payments. Finally, Banks use cash
balances as to purchase service from correspondent bank (timothy etal, 1995).
Cash receipt and payment management if to assure that all cash receipt and
payment of the company properly managed for the purpose of the company.
Internal control of cash receipt over the counter Cash register should be used
to cash receipt and the amount written the cash resister should be visible to
customers. There should be pre numbered receipt used in sales process. The
cash receipt should be deposited immediately.
A person independent of the cashier should count cash and compare it to the
amount recorded on the receipt. Internal control of cash receipt by mail .The
mails should be locked and the key should be placed on the hand of
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responsible person. At least two people should have to present when mail is
opened and list of money received should kept.
A prelisting of cash received should made in three copies, one copy for
Cashier, the second for account department the third copy kept by preparer
(Ibid).
2.7.2 Internal control over cash payment
All payment should be made by check; the check should be authorized and
approved by independent individual preparation before payments are essential.
Voucher system:-a system of internal control for cash payment that provides
documentary evidences and authorization for each obligation incurred.
Voucher is a special form on which relevant data about a liability to be paid
and the details of its payments is recorded. It has the following functions.
CHAPTER THREE
3. Research methodology
3.1 The research design
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For this study descriptive design type of research, would be used. Because,
descriptive studies were non- experimental researches that describe the
characteristics of particular individual or group. So the aim of the study was to
describe the actual cash management practice of Commercial bank of Ethiopia,
Michele branch.
For this study, the researcher also used both primary and secondary data type
and source. The primary data source of this study includes the employees and
manager of the bank and also secondary data source include books, magazine,
documents, reports and manual scripts.
The target population the study was managers, cashers, and accountants
which made the total population of 22 employees working for the branch.
CHAPTER FOUR
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This study was designed to know the cash management practice of in
commercial bank of Ethiopia Michele branch. The results obtained based on
the data collected from respondents are presented and discussed in this
chapter. It shows general characteristics of the respondents the response rate
and finding of the study about the cash management practice in Commercial
Bank of Ethiopia. The analysis and interpretation of this paper is based on
primary data by using judgmental sampling method. Primary data analysis
collected from the bank employees on the basis of structure questionnaire and
unstructured interview data. The questionnaire was distributed for 8
employees the cashier, accountant, and branch manager. The bank’s managers
were also selected to evaluate the cash management practice of commercial
bank of Michele branch. However secondary data are also used as a base for
evaluation.
Male 6 75%
Female 2 25%
Total 8 100%
1 Degree 7 87.5%
2 Master 1 12.5%
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3 Other 0 -
4 Total 8 100%
From the above table the researcher understand that in commercial bank of
Ethiopia in Michele branch there was educated employees. Therefore the bank
can serve its customer on time because of educated employees give their
Service to the customers when they need. This implies that the customers are
initiated to deposit their cash in this branch. As a result the bank get efficient
amount of cash to serve its customer.
1 Cashier 4 50 %
2 Accountant 1 12.5%
3 Manager 3 37.5%
4 Total 8 100%
Source:-Questionnaire, 2017
In the table above 50% of the respondents are from cashier, 12.5% of the
respondents are from the accountant, 37.5% from the manager. From the
percentage shared by looking the number of respondents one can conclude
that, there is segregation of duties in the commercial bank of Ethiopia Michele
branch by segregating duties, that is, by avoiding putting of employees in
position of excessive trust and responsibility. By voiding giving of one person
control over all stage of process the bank manage cash effectively.
Working
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No Service year No of Respondents Percentage %
1 1 -3 year 1 12.5%
2 3 -5 year 6 75.5%
4 Total 8 100%
Customer 5 62.5 %
deposit
Capital 2 25%
reserve
Other 1 12.5%
Total 8 100
Source:-Questionnaire, 2017
From the above table’ 4.5 clearly shows that 62.5% of respondents are select
customer deposit as the source of short-term finance and 25% of each
respondents select capital reserve and12.5% of each respondent for other
source finance in the bank. From these the researcher conclude that the bank
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have many customer that use deposit service. This indicates there is high cash
flow.
Yes 8 100
No - -
Total 8 100
As shown in the above table, the respondent show that all respondents of all of
them said that the bank have cash budget. In this case on e can conclude that
the advantage to know the bank have effective cash management procedure
and maintaining sufficient cash amount in operational activities.
Quarterly 1 12.5%
Annually 1 12.5%
Total 8 100%
As it shown in the above table, the response of the respondent show that
62.5% monthly, and 12.5% each for semi-annually, quarterly and annually
each. One can conclude that this shows the bank have effective cash
management practice within timely.
Cash management does not involve having the optimum or that means neither
excess nor deficit amount of cash on hand at the right time. In order to manage
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the cash of the company or the bank knows how much cash is needed in the
operation to mange cash appropriately the commercial bank of Ethiopia
generally and Michele branch particularly set primary goal.
Optimum 1 16.3%
Relatively Deficient 0 0%
Total 6 100%
From table 4.8 the researcher clearly identified that 62.5% of respondents that
the rate of the bank cash position was optimum and 37.5% says that the rate
of cash position was mostly excessive. From this the researcher concludes that
there is optimum cash position in commercial bank of Ethiopia in Michele
branch.
Just as cash the beginning of operating cycle. It is often starting point for
company’s system of internal control. Cash is the mere assets that are ready
convertible in to any other type of asset.
In order to protect cash from the theft on misuse business control cash
receipts similar to different types of business. As the managers of Michele bank
control cash receipts in different procedures, the bank prepares record of all
cash receipts as soon as cash is received, because most theft of cash occurs
before record is made. The bank designated cashiers are authorized to handle
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cash receipts different individual receive cash record cash, receipts and deposit
and hold the cash.
Cash is paid for several reasons, such as to pay expense and liabilities or the
purchase asset. As the managers of Michele bank the paying teller is only
responsibility for making payment and required to check that the signature
and the cheque are verified. That the amount bear signature verified machine
operator and internal auditors report when every a paying teller requests for
additional cash. The morning cash cheques and vouchers are journalized and
be compared with the total submitted by paying teller cash on hand at the end
of the payment from the blotter must agree with the total amount of cash
withdrawn from the chief casher.
The chief cushier checks the correctness and balancing of the cash by verifying
the cash pocket and counting the lose notes.
N0 - -
Total 8 100%
As it is observed from the above table, the response of the respondents shows
that all of the respondents said yes. According to the above table the bank
arrange it cash receipts and payments properly. Adequate system of internal
control provides protection of cash balance and procedure for the management
of cash payments to accomplish these objectives. Each day’s receipts and all
cash payment made by cheque.
From these the researcher understand that the bank have its cash
management system and apply giving quality service to practical.
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CHAPTER FIVE
The main objective of the study is to assess the cash management practice in
commercial bank of Michele branch. Based on the analysis and findings of the
previous chapter the following has been concluded.
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The bank used cash budget as one of the financial principal method of
forecasting the finance needs of venture and forecasts the combined effects
of planned operation on the company’s cash flow.
5.2 RECOMMENDATION
From the discussion held in chapter four the researcher suggests the
following points for better achievement of its objective of cash management
practice.
The bank should give necessary training for their employee for further
success of the bank and to save time and cost.
The bank should manage it cash more than the current method for
the success of bank and satisfaction of customers.
Commercial Bank of Michele branch use effective and efficient
updated technology such as U.S debit card and third party draft
because it reduce cashier liability, provide timely payments, reduce
the risk of theft and fraud for the improvement of internal control
cash management practice is Advisable by the researcher.
Although source of short finance for the bank relatively sufficient for
its normal operation try to find other sources of financing its short
term finance rather restricted on the existing source finance.
The management of cash receipt and disbursement of the bank trend
and appreciable way which is acceptable in the universal policies, the
bank shall continue by this trend in the future operation period.
Finally, the researcher suggests that because of cash is liquid it is
important to manage it. Therefore the collection disbursement, and
failure to collect note receivable should be given special attention for
cash management because cash is the blood of an organization, it is
unthinkable to operate any activity without cash.
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REFERENCES
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Appendix
DILL UNIVERSITY
Questionnaires
College of Business and Economics
Department of Accounting and Finance
Dear respondent
The purpose of this questionnaire is prepared to gather pertinent data from the
response for the following question is extremely important for the successful
completion of this paper the information provide used for only academic
General direction
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Please don’t write your name
Give your answer for open ended question in the blank space
3. Educational Qualification
1. What are the sources of short term finance for the bank?
Capital reserve
Yes no
Quarterly annually
4. In the operation of the bank how do you rate the cash position?
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Mostly excessive relatively deficit
5. Did the bank manage its cash payment and cash receipt properly?
Yes No
Casher manager
7. What method does the bank use to control cash receipted disbursement
______________________________________________________________________________
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