ST.

MARY’S UNIVERSITY
BUSINESS FACULTY
DEPARTMENT OF ACCONTING

EVALUATION OF INTERNAL CONTROL SYSTEM

OVER FIXED ASSETS IN THE CASE OF
CADILA PHARMACEUTICALS P.L.C
ETHIOPIA BRANCH.

BY: - TEWODROS ALEMU

SOLOMON ALEMAYEHU
YETIMWORK SHERMOLO

JULY 2014

ADDIS ABABA
 EVALUATION OF INTERNAL CONTROL SYSTEM
OVER FIXED ASSETS IN THE CASE OF
CADILA PHARMACEUTICALS P.L.C
ETHIOPIA BRANCH.

A SENIOR ESSAY SUBMITTED

TO THE DEPARTMENT OF ACCOUNTING
BUSINESS FACULTY
ST. MARY’S UNIVERSITY

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE DEGREE OF BACHELOR OF ARTS IN
ACCOUNTING

BY :-TEWODROS ALEMU
SOLOMON ALEMAYEHU
YETIMWORK SHERMOLO

JULY 2014
ADDIS ABABA
 ST.MARY’S UNIVERSITY

EVALUATION OF INTERNAL CONTROL SYSTEM OVER

FIXED ASSETS IN THE CASE OF
CADILA PHARMACEUTICALS P.L.C
ETHIOPIA BRANCH.

BY:-TEWODROS ALEMU
SOLOMON ALEMAYEHU
YETIMWORK SHERMOLO

FACULTY OF BUSINESS
DEPARTMENT OF ACCOUNTING

APPROVED BY THE COMMITTEE OF EXAMINERS

______________________ ____________________

Department Head Signature

______________________ ____________________

Advisor Signature

______________________ ____________________

Internal Examiner Signature

______________________ ____________________

External Examiner Signature

 Tableof Contents
Acknowledgement …………………………………………………………………….I
1. Introduction .............................................................................................................. 1
1.1. Background of the study...................................................................................... 1
1.2. Background of the company................................................................................ 3
1.3. Statements of the problem ................................................................................... 4
1.4. Research Question ................................................................................................ 5
1.5. Objectives of the study ......................................................................................... 5
1.5.1. General objectives......................................................................................................... 5
1.5.2. Specific objectives ......................................................................................................... 6
1.6. Delimitation/Scope of the Study ........................................................................ 6
1.7. Definition of terms................................................................................................ 6
1.8. Research design and methodology.................................................................................. 7
1.8.1. Research design ............................................................................................................ 7
1.8.2. Samplling Technique.................................................................................................... 7
1.8.3. Population and sampling techniques ......................................................................... 8
1.8.4. Types and sources of data collected............................................................................ 8
1.8.5. Methods of of data collection ...................................................................................... 9
1.8.6. Data analysis method ................................................................................................... 9
1.9. Limitation of the study ................................................................................................... 10
1.10. Organization of the paper ............................................................................................ 10
2. Litreature review .................................................................................................... 11
2.1. Definition of fixed assets .................................................................................... 11
2.2. Accounting for fixed assets ........................................................................................... 11
2.3. Cost of a fixed assets ...................................................................................................... 12
2.4. Disposal of fixed assets .................................................................................................. 13
2.5. Cost subsequent to acquisition .......................................................................................... 14
2.6. Nature of depreciation .................................................................................................. 15
2.7. Accounting for depreciation ........................................................................................ 16
 2.8. Use of depreciation methods ....................................................................................... 17
2.9. Objectives of internal control over system ................................................................... 19
2.10. Scope of internal control over system .......................................................................... 20
2.11. Types of internal control over system .......................................................................... 20
2.12. Internal control strucure ................................................................................................ 21
3. Data presentation and interpretation ................................................................... 26
3.1. Types of internal control system.................................................................................... 26
3.2. Rationale for the adoption of internal control system over fixed asset ...................... 28
3.3. Uses fixed asset ............................................................................................................... 31
3.4. Policy and procedures regarding to fixed asset ........................................................... 34
3.5. Depreciation method ...................................................................................................... 35
3.6. Internal control over fixed asset .................................................................................... 37
3.7. Types of purchase policy ................................................................................................ 40
3.8. Benefits of purchase policy ............................................................................................ 42
3.9. Fixed asset register .......................................................................................................... 44
3.10. Strength and weakness of internal control over fixed asset ..................................... 47
3.11. Resolve the problem of fixed asset ............................................................................. 50
3.12. General working environment .................................................................................... 51

4. Summary, Conclusion and Recommendation ..................................................... 55

4.1. Summary of major findings .......................................................................................... 55
4.2. Conclusions .................................................................................................................... 58
4.3. Recommendations .......................................................................................................... 60

Bibilography
 CHAPTER ONE

1. INTRODUCTION

1.1 Back ground of the study

value occursin fertility of agricultural land because of poor crop rotation,

drought, or soil erosion. They possess physical substance. Property, plant, and
equipment are characterized by physical existence or substance and thus are
differentiated from intangible assets such as patents or good will .unlike raw
material property, plant, and equipment, do not physically become part of a
product held for resale.

(Kieso & Weygandt, Intermediate Accounting, 9th edition)

The terms plant asset; plant and Equipment; property, plant and Equipment;
or fixed assets often are used to describe the tangible assets used by , such as
a loss Almost every business enterprise of any size or activity uses assets of a
durable nature .such assets ,commonly referred to as property, plant, and
equipment ;plant assets; or fixed assets, include land ,building structures (of-
fices ,factories, warehouses),and equipment (machinery furniture, tools).These
terms are used interchangeably. The major characteristics of property, plant,
and equipment are: They are acquired for use in operations and not for sale.
Only assets used in normal business operations should be classified as proper-
ty, plant, and equipment. An idle building is more appropriately

classified separately as an investment; land held by land developers or sub di-

viders is classified as inventory. They are long term in nature and usually sub-
ject to depreciation. Property, plant and equipment yield services over a num-
ber of years .the investment in these assets is assigned to future periods
through periodic depreciation charges. The exception is land, which is not de-
preciated unless material decrease in a business enterprise in its operations.
Use in operations distinguishes these assets from other tangible assets that are
reported it the balance sheet as investments. Plant asset includes in this cate-
gory are properties acquired for use in operations. Examples are Land, Build-
ings and structures of all types, Machinery, Equipment, Furniture Tools, re-
turnable Container and leasehold improvements. Plant asset generally are ac-
quired for use rather than for sale. In yielding services over many accounting
field a plant asset does not change in physical characteristics, that is does not
became physically incorporated in the finished goods of a business enterprise.
(Mosich, Intermediate Accounting, 6th edition)

Fixed asset are long term or relatively permanent assets such as equipment,
machinery, buildings, and land. Other descriptive titles for fixed assets are
plant asset or Property, plant and equipment. Fixed assets have the following
characteristics:

 They exist physically and, thus, are tangible assets.

 They are owned and used by the company in its normal operations.
 They are not offered for the sales as part of normal operations.

An accounting system must provide the information needed by management in

reporting to owners, creditors, and other interested parties. In addition, the
system should aid management in directing operations. The detailed policies
and procedures used to direct operations and provide reasonable assurance
that the entity’s objectives are achieved are called internal controls. (Warren,
Reeve, and Duchac, Financial Accounting)

An enterprise’s internal control structure consists of the policies and proce-

dures established to provide reasonable assurance that the enterprise’s goals
and objectives will be achieved .this internal control structure can be divided
into three elements(1)the control environment ,(2)he control procedures, and
(3)the accounting system. The policies and procedures of an internal control
structure will vary according to the size and type of business enterprise. In a
small business where it is possible for the owner-manager to supervise the em-
ployees personally and direct the affairs of the business, few control policies
and procedures are necessary. As the number of employees and the complexi-
ties of an enterprise increase, it becomes more difficult for management to
maintain control over all phases of operations. As a firm grows, management
needs to delegate authority and to place more reliance on the control structure
in order to achieve adherence to enterprise goals and objectives.

(Warren, Reeve, and Duchac, Financial Accounting)

1.2 Back ground of the company

Cadila Pharmaceuticals (Ethiopia) Plc which is a multinational and one of the

largest pharmaceuticals manufacturing company in the country established in
2007 with a joint venture between Cadila Pharmaceuticals LTD, India and Al-
metaImpex Plc, Ethiopia for Manufacturing of pharmaceuticals products of
Tablets, Capsules and Liquids for local as well as foreign market. The company
manufacturing unit is one of its kinds in Ethiopia and complies with the World
Health Organization (WHO) regulatory requirements of Good Manufacturing
Practices (GMP)

1.3 Statement of the problem

The importance of the internal control system over fixed asset has motivated us
to pursue this study. Internal Control objectives are desired goals or conditions
for a specific event cycle which, if achieved, minimize the potential that waste,
loss, unauthorized use or misappropriation will occur. They are conditions
which we want the system of internal control to satisfy. For a control objective
to be effective, compliance with it must be measurable and observable. These
assets represent tangible asset that are used in the operations of a company
and have a useful life of more than one accounting period. These assets are
major investments for most companies. They make up a large part of assets on
the balance sheet and the yield a depreciation that could be the largest ex-
 penses on the income statement. They also affect the cash flow statement when
cash is spent to acquire them or cash is received from their sale. They
represent a capital expenditure. Capital expenditures are important news be-
cause they impact both short-term and long-term successes of company. Fixed
assets are set apart from other assets by two important features. First, they are
used in operations. This makes them different from assets such as inventory
that is help for sales and not used in operations. Second, fixed assets have use-
ful lives extending over more than one accounting period. This makes them dif-
ferent from current assets such as supplies that are usually consumed in a
short period after they are placed in use. However, the company’s practical ap-
plication on compliance on the company’s internal control system had some
defects. The Company’s fixed asset register didn’t provide full information. This
paper endeavored to find the answer for the effect of internal control system
over Fixed Asset of Cadila Pharmaceuticals (Ethopia) P.L.C, How important the
internal control system over Fixed Asset on the Company is.

1.4 Research Questions

The research team has been tried to assess the internal control over fixed as-
sets by raising the following research questions:

 What types of internal control system adopted by the company?

 What are the reasons to decide the adoption of internal control system over
fixed asset used by the company?
 What kind of policies and procedures has the company implement to adminis-
ter the company’s fixed assets?
 What kind of purchase policy does the company adopted to acquire fixed as-
sets?
 For what purposes do the company fixed assets are used?
 What are the strengths and weakness of the company internal control system
over fixed asset?
 1.5 Objectives of the Study

1.5.1 General Objective

The general objectives of the study was to examine the internal control over
fixed asset and to find out the problems related to internal control over Fixed
Asset in the Cadila Pharmaceuticals (Ethiopia)P.L.C

1.5.2 Specific Objectives

 To evaluate the internal control environment that reflects the overall attitude of
management and board of directors regarding the importance of controls in the
company.
 To evaluate the company’s purchase policies.
 To evaluate the company’s policies and procedures.
 To evaluate the strength and weakness of the internal control system of the
company.
 To evaluate the usage of the company fixed asset.

1.6 Delimitation /Scope of the Study

The study has focused on the internal control System over Fixed Asset during
the year 2013-2014 by using various indicators such as fixed assets schedules,
fixed assets policies and procedures of Cadila Pharmaceuticals (Ethiopia) P.L.C.

1.7 Definitions of Terms

Schedule of fixed asset: A summary of fixed assets with the relevant data like
purchase cost, date of purchase, purchase invoice No, and fixed assets catego-
ry, rate of depreciation and, accumulated depreciation and the like.
1.8 Research Design and Methodology

1.8.1 Research Design

The research team has been used descriptive study that has been used to em-
ploy with an assumption that it can help to generate adequate information
about the major challenges in the internal control system over fixed assets.

1.8.2 Sampling Technique

The research team has been used a stratified sampling technique by taking
samples from each department .Based on the relevant information given by the
department ,we have given a higher percentage for the department who provide
a relevant information about the internal control system over fixed asset.

1.8.3 Populations and sampling techniques

The population of the study will be divided by the departments sections as fol-
lows

Departments/Sections No. of Workers Sample Size

Human Resource 14 4
Finance 10 10
Marketing 3 3
Supply Chain 4 4
Engineering 24 10
Warehouse 18 9
Quality Assurance and Quality 5
Control 27
Production 63 5
Total 163 50
1.8.4 Types and Source of Data Collected

1.8.4.1 Primary Sources of Data

The primary source of data collected through self administered questionnaires

and face to face with Cadila Pharmaceuticals (Ethiopia) P.L.C Employees.

1.8.4.2 Secondary Data Collection

The secondary sources of data collected from written and published materials,
audited financial statements, which expresses fixed asset control report related
policies, procedures, schedule and related reference that serve for internal con-
trol of fixed assets.

1.8.5Method of Data Collection

To conduct this study the researchers collected data from both Primary and
secondary sources of Data. Primary sources of Data collected through ques-
tionnaires distributed to the responsible departments that support the re-
searchers to get relevant information. And secondary data collected from com-
pany’s written and published documents, Manuals Policies and Procedures, Fi-
nancial Statements, which are essential for the completion of the research
study.

1.8.6 Data Analysis Method

The research team applied in the study to analyze the data collected from both
primary and secondary data is analyzed by using a descriptive analysis method
of Percentage and presenting through tables and figures. The data Presented
based on the three components of internal control structure (ICS) (The Control
Environment, The Accounting System, and The Control Procedures.
 1.9 Limitation of the Study

During the study of the research various constraints we face

 We may not get sufficient local research findings relate to the internal control
system over fixed assets.
 Employees may not respond quickly due to different reason.

1.10 Organization of the Paper

The Research has four different chapters. The first chapter includes the back-
ground of the study, the background of the company, statement of the prob-
lem, research questions, and objective of the study, significance of the study,
scope and limitation of the study, research design and methodology which used
to prepare the research paper. Chapter two contains review of related litera-
ture. Chapter three, the main part of the study, deals with presentation and
data analysis .and the last chapter, chapter four, deals with the summary,
concussions and recommendations.
 CHAPTER TWO

2. Review of Related Literature

2.1 Definition of Fixed Assets

The terms plant asset; plant and Equipment; property, plant and Equipment;
or fixed assets often are used to describe the tangible assets used by a busi-
ness enterprise in its operations. Use in operations distinguishes these assets
from other tangible assets that are reported it the balance sheet as invest-
ments. Plant asset includes in this category are properties acquired for use in
operations. Examples are Land, Buildings and structures of all types, Machi-
nery, Equipment, Furniture Tools, returnable Container and leasehold im-
provements. Plant asset generally are acquired for use rather than for sale. In
yielding services over many accounting field a plant asset does not change in
physical characteristics, that is does not became physically incorporated in the
finished goods of a business enterprise. (Mosich, Intermediate Accounting, 6th
edition)

2.2 Accounting for Fixed Assets

A plant asset is a bundle of futures services. The cost of acquiring such an as-
set is a measure of the amount invested in future services that will be provided
by the asset. At the time of acquisition, cost is also an objective measure of the
exchange value of an asset. The market price represents the simultaneous
resolution of two independent opinions (the acquirer’s and the seller’s) as to the
current fair value of the asset changing ownership. There are cases where the
acquirer pays to high a price because of errors in judgment or excessive con-
struction costs, and it is sometimes possible to acquire plant assets at bargain-
ing prices. This, however, are exceptional cases; accountants seldom have reli-
able evidence to support either “unfortunate” or “bargain” acquisitions. Ac-
countants use cost at the bases of recording and reporting plant assets be-
cause it is reliable and because it is a measure of the investment in the future
services. The problem of determining carrying amount (often referred to as car-
rying value or book value) subsequent to acquisition is also important. As a
plant asset is used in operation, a portion of the original bundle of services
(cost) is used up. (Mosich, Intermediate Accounting, 6th edition)

2.3 Cost of a Fixed Asset

The total cost of a plant asset is the cash outlet or its equivalent, made to ac-
quire the asset and place it in operating condition. This is a clear and simple
statement of the principle involved. Until a plant asset is ready to perform the
services for which it was acquired, it is not complete. Some plant assets, such
as a track or a computer, are complete and ready to function at acquisition.
The cost of such assets may be measured by the total of the invoice price (in-
cluding sales tax) and transaction costs. Other assets, for example an auto
mobile assembly line or the missionary for a paper mill, must be assembled,
installed, and tested. All expenditures connected with the assembling, instal-
ling, and testing logically are viewed as a part of cost of the asset. (Mosich, In-
termediate Accounting, 6th edition)

Historical cost is the usual basis for valuing property, plant, and equipment.
Historical cost is measured by the cash or cash equivalent price of obtaining
the asset and bringing it to the location and condition necessary for its in-
tended use. The purchase price, freight costs, sales taxes, and installation
costs of productive asset are considered part of the asset’s cost. These costs are
allocated to future periods depreciation .any related costs incurred after the as-
set’s acquisition, such as additions, improvements, or replacements, are added
to the asset’s cost if they provide future service potential. Otherwise they are
immediately expensed.

Cost should be the basis used at the acquisition date because the cash or cash
equivalent price best measures the asset’s value at that time. Disagreement
does exist concerning differences between historical cost and other valuation
methods (such as replacement cost or fair market value) arising after acquisi-
tion.

(Kieso & Weygandt, Intermediate Accounting, 9th edition)

2.4 Disposal of Fixed Assets

Plant asset may be retired voluntarily or disposed of by sale, exchange, invo-

luntarily conversion, or abandonment. regardless of the time of disposal
,depreciation must be taken up to date of disposition ,and then all accounts
related to the retired asset should be removed .ideally ,the book value of the
specific plant asset would be equal to its disposal value. But this is generally
not the case. As a result, a gain or loss develops. The reason: depreciation is an
estimate of cost allocation and not a process of valuation. The gain or loss is
really a correction of net income for the years during which fixed asset was
used. If it had possible at the time of acquisition to forecast the exact date of
disposal and the amount to be realized at disposition, then a more accurate es-
timate of depreciation could have been recorded and no gain or loss would be
incurred.

Gains or losses on the retirement of plant assets should be shown in the in-
come statement along with other items that arise from customary business ac-
tivities. If, however the “operations of a segment of a business“ are sold
.abandoned, spun off ,or otherwise disposed of, then the results of “continuing
operations “should be reported separately from “discontinued operations.” Any
gain or loss from disposal of a segment of business should be reported with the
related results of discontinued operations and not as an extraordinary item.

(Kieso & Weygandt, Intermediate Accounting, 9th edition)

2.5 Cost Subsequent to Acquisition

Expenditures relating to plant assets normally are made throughout the eco-
nomic life of the assets. Weather these expenditures should be charged against
current revenue (revenue expenditures) or whether they should be capitalized
(capital expenditures) often is a difficult question. The general approach for
dealing with these expenditures may be stated as follows: Expenditures that
result in additional asset services, more valuable asset services, or extension of
economic life are capitalized and allocated to future revenues; expenditures to
maintain plant assets in good operating condition are recognized as expenses.
This approach is consistent with the principle of matching expired costs and
revenue and should be applied to any expenditure of significant amount.

(Mosich , Intermediate Accounting, 9th edition)

After plant assets are installed and ready for use, additional costs are incurred
that range from ordinary repair to significant additions. The major problem is
allocating these costs to the proper time periods. In general, costs incurred to
achieve greater future benefits should be capitalized, where as expenditures
that simply maintains a given level of services should be expenses. In order for
costs to be capitalized, one of three conditions must be present:

 The useful life of the asset must be increased.

 The quantity of units produced from the asset must be increased.
 The quality of the units produced must be enhanced.

Most expenditure below an established arbitrary minimum amount are ex-

pensed rather than capitalized. The distinction between a capital (asset) and
revenue (expense) expenditure is not always clear –cut .determining the proper-
ty unit with which cost should be associated is critical. If a fully equipped
steamship is considered a property unit, then replacement of the engine might
be considered an expense. On the other hand, if the ship’s engine is considered
a property unit, then its replacement would be capitalized. (Kieso & Weygandt,
Intermediate Accounting, 9th edition)

2.6 Nature of Depreciation

As time passes, all plant assets with the exception of land loss their capacity to
yield services. Accordingly, the cost of such assets should be transferred to the
related expense accounts in an orderly manner during their expected useful
life. This periodic cost of expiration is called depreciation. Factors contributed
to a decline in usefulness may be divided into two categories: physical depreci-
ation, which includes wear from use and deterioration from the action of the
elements, and functional depreciation, which includes inadequacy and obso-
lesce. A plant becomes inadequate if its capacity is not sufficient to meet the
demands increased production plant asset is obsolete if the commodity that it
produces is no longer in demand or if a newer machine can produce a com-
modity of better quality or at a great reduction in cost. The continued growth of
technological progress during this century has made obsolesce an increasing
important part of depreciation. Although the several factors comprising depre-
ciation can be defined, it is not feasible to identify them when recording depre-
ciation expense.

2.7 Accounting for Depreciation

If a plant is expected to have no value at the time that it is retired from service,
its entire initial cost should be spread over the expected useful life of the asset
as depreciation expense. Also, if a plant asset’s value at the time of retirement
is expected to be very small in comparison with the cost of the asset, this value
may be ignored and the entire cost spread over the asset’s expected useful life.

If a plant asset is expected to have a significant value at the time that it is re-
tired from service, the difference between its initial cost and this value is the
cost (depreciable cost) that should be spread over the useful life of the asset as
 depreciation expense. The plant asset’s estimated value at the time that it is to
be retired from service is called its residual value, scrap value, salvage value, or
trade- in-value.

In determining the amount of depreciable cost that is to be recognized as peri-

odic depreciation expense, three factors need to be considered: the plant asset’s
(a) initial cost, (b) residual value, and (c) useful life.

2.8 Use of Depreciation Methods

Cost of fixed asset must be charged to the income statement in a manner that
best reflects the pattern of economic use of the asset. Most common methods of
depreciation include Straight Line Method and Reducing Cost Method.

2.8.1 Straight Line Depreciation Method

Straight line method depreciates cost evenly throughout the useful life of the
fixed asset. Straight line depreciation is calculated as follows:

Depreciation per annum = (Cost - Residual Value) / Useful Life Where:

 Cost includes the initial and any subsequent capital expenditure.

 Residual Value is the estimated scrap value at the end of the useful life of the
asset. As the residual value is expected to be recovered at the end of an asset's
useful life, there is no need to charge the portion of cost equaling the residual
value.

 Useful Life is the estimated time period an asset is expected to be used from
the time it is available for use to the time of its disposal or termination of use.
Useful life is normally calculated in units of years but it may be calculated
based on an alternative basis. Useful life of an oil extraction company may for
example be the estimated oil reserves.
 2.8.2 Units of Production Depreciation Method

Units of Production Depreciation Method, also known as Units of Activity and

Units of Usage Method of Depreciation, calculate depreciation on the basis of
expected output or usage.

Depreciation per annum = (Cost - Residual Value) / Useful Life

The Formula for calculation of depreciation under Units of Production Method

is as follows:

Stage of Completion % = Value of Work Certified as complete x 100

Total Expected Production or Usage

Where:

 Cost includes the initial and any subsequent capital expenditure.

 Residual Value is the estimated scrap value at the end of the useful life of the
asset. Since residual value is expected to be recovered at the end of an asset's
useful life, there is no need to charge the portion of asset's cost equaling the
residual value.

(Fees warren, Principles of Accounting, 16th edition)

2.9 Objectives of Internal Control System

The responsibility for establishing an internal control system is that of the

management of an enterprise. As such, the objective of the internal control sys-
tem are determined by the management keeping in view in its specific require-
ments which ,in turn ,depend on the nature of business, volume of operations,
etc. In general, however, an internal control system has the following objec-
tives, among others.

 Adherence to policies and procedures laid down by management. Orderly

and efficient conduct of the business is a major concern of the manage-
ment of any enterprise. To achieve this objective, the management lays
down a variety of policies and procedures.
 Safeguarding of assets. The assets of an enterprise are often susceptible
to loss by theft, accidental destruction, etc. It is, therefore, important to
establish policies and procedures to safeguard the assets.
 Prevention and detection of fraud and error. Prevention and detection of
fraud and error is an important function of an internal control system.
 Accuracy and completeness of records and timely preparation of reliable
information .Management requires various kinds of information as a ba-
sis for a variety of important business decisions. Besides, the manage-
ment is also responsible for preparation of financial statements or other
financial information –in several cases, such responsibilities placed on
the management by the applicable legal requirements. Accuracy and
completeness of records and timely preparation of reliable information is,
therefore, an important function of an internal control system.

2.10 Scope of Internal Control System

The system of internal control includes the plan of organization and various
other methods and procedures. The plan of organization refers to the organiza-
tional structures and the methods of assigning authorities and responsibilities.
A proper plan on an organization is important for effective operation of the en-
tire internal control system. Similarly, proper allocation of authorities and re-
sponsibilities also acts as an internal control.
2.11 Types of Internal Controls

An internal control system has a wide coverage that extends beyond those mat-
ters which relate directly to the functions of the accounting system. From this
angle, internal controls can be classified into two broad categories: Accounting
controls and administrative controls.

Accounting controls are the controls related to the accounting system. They are
concerned with the achieving the following objectives.

 Transactions are executed in accordance with the management’s autho-

rization, that is, in accordance with the laid down policies and proce-
dures.
 Transactions are promptly recorded in a proper manner. The purpose is
to facilitate the timely preparation and communication of reliable finan-
cial information.
 Accountability for assets is maintained and assets are safeguarded from
unauthorized access, use or disposal.

Accounting controls include:

 Proper segregation of duties relating to accounting functions.

 Rotation of duties.
 Periodic reconciliations.
 Checking the arithmetical accuracy of the records.
 Maintenance of control accounts and preparation periodic trial balance.
 Approval and control of accounts.
 Comparison with external sources of information.
 Comparison of the results of physical inspection of fixed assets, cash, in-
vestment and inventories with accounting records.
 Limiting direct physical access to assets and records.
 Comparison actual figures with budgets.
Administrative controls comprise of internal controls other than accounting
controls. It has only an indirect effect on the financial information.

(Kamal Gupta and Ashok Arora, Fundamentals of Auditing)

2.12 Internal Control Structure

An accounting system must provide the information needed by management in

reporting to owners, creditors, and other interested parties. In addition, the
system should aid management in directing operations. The detailed policies
and procedures used to direct operations and provide reasonable assurance
that the entity’s objectives are achieved are called internal controls.

An enterprise’s internal control structure consists of the policies and proce-

dures established to provide reasonable assurance that the enterprise’s goals
and objectives will be achieved .this internal control structure can be divided
into three elements(1)the control environment ,(2)he control procedures, and
(3)the accounting system. The policies and procedures of an internal control
structure will vary according to the size and type of business enterprise. In a
small business where it is possible for the owner-manager to supervise the em-
ployees personally and direct the affairs of the business, few control policies
and procedures are necessary. As the number of employees and the complexi-
ties of an enterprise increase, it becomes more difficult for management to
maintain control over all phases of operations. As a firm grows, management
needs to delegate authority and to place more reliance on the control structure
in order to achieve adherence to enterprise goals and objectives.

 The control environment

The control environment of an enterprise represents an overall attitude towards

and awareness of the importance of controls by both management and other
employees. Factors influencing the control environment of an enterprise in-
clude management’s philosophy and operating style, the organizational struc-
ture of an enterprise, and personnel policies and practices. Management’s phi-
losophy and operating style includes management’s attitude concerning con-
trols. The organizational structure of an enterprise establishes the framework
for planning and controlling operations. Personnel policies and procedures in-
clude the hiring, training, evaluation, promotion, and compensation of em-
ployees to accomplish an enterprise’s goal and objectives. Common personnel
policies that impact on the control environment include the establishment of
codes of ethics for employee conduct and conflict of interest policies.

 The control procedures

Control procedures are those policies and procedures that management has es-
tablished within the control environment in order to provide reasonable assur-
ance that enterprise goals will be achieved. General control procedures which
can be integrated throughout the accounting system and which apply to all en-
terprises are:

Competent personnel and rotation of duties. The successful operation of an

accounting system requires procedures to ensure that people are able to per-
form the duties to which they are assigned .hence, it is necessary that all ac-
counting employees be adequately trained and supervised to perform their jobs.
It is also advisable to rotate clerical personnel periodically from job to job. In
addition to broadening their understanding of the system, the knowledge that
others may in the future perform their jobs tends to discourage deviation from
prescribed procedures. Rotation of duties is also very helpful in disclosing any
irregularities that may have occurred.

Assignment of responsibilities: If employees are to work efficiently, their re-

sponsibilities must be clearly defined. Control procedures should exist to guar-
antee that no overlapping or undefined areas of responsibility exist. Separation
of responsibilities for related operations: to decrease the possibility of ineffi-
ciency .errors and fraud, control procedures should exist to guaranty that re-
sponsibility for a sequence of related operations is divided among two or more
persons.

Separation of operations and accounting: Control procedures should exist to

ensure that responsibility for maintaining the accounting records are separated
from the responsibility for engaging in business transactions and for the custo-
dy of the firm’s assets. By such separation, the accounting records serve as an
independent check on the business operations.

Proofs and security measures: Proofs and measures should be used to safe-
guard business assets and assures reliable accounting data. The use of fidelity
insurance is also an aid to developing an effective internal control structure. It
ensures against losses caused by fraud on the part of employees responsible
for operations.

 The accounting system

The accounting system is an integral part of the internal control structure of an

enterprise. Without the information generated by the accounting system, man-
agement would lack the ability to plan and direct operations in achieving en-
terprise goals. The accounting system includes the entire network of communi-
cation used by a business organization.

Principles of accounting systems:

Because of differences in businesses, in the number of transactions to be

processed, and in the uses made of accounting data, accounting systems will
vary from business to business. However, there are a number of broad prin-
ciples that apply to all system.

Cost effectiveness balance: an accounting system must be tailored to meet

the specific need of each business .since costs must be incurred in meeting
these needs. One of the major considerations in developing an accounting sys-
tem is cost effectiveness.

Flexibility to meet future needs: A characteristic of the modern business en-

vironment is change. Each business must adapt to the constantly changing en-
vironment in which it operates. whether the changes are the result of new go-
vernmental regulations, changes in accounting principles ,organizational
changes necessary to meet practices of competing businesses, changes in data
processing ,changes in data processing technology ,or other factors, the ac-
counting system must be flexible enough to meet the changing demands made
of it.

Adequate internal controls: an accounting system must provide the informa-

tion needed by management in reporting to owners, creditors, and other inter-
ested parties. In addition, the system should aid management in directing op-
erations. The detailed policies and procedures used to direct operations and
provide reasonable assurance that the entity’s objectives are achieved.

Effective reporting: uses of information provided by the accounting system

rely on various reports for relevant information presented in an understandable
manner. When these reports are prepared, the requirements and knowledge of
the user should be recognized.

Adaptation to organizational structure: only by effectively using and adapt-

ing to the human resources of a business can the accounting system meet in-
formation needs at the lowest cost. Since no two businesses are structured
alike, the accounting system must be tailored to the organizational structure of
each business. The lines of authority and responsibility will affect the informa-
tion requirements of each business .In addition; an effective system needs the
approval and support of all levels of management. (Fess Warren, Principle of
Accounting, 16th edition)
 CHAPTER THREE

3. Data Presentation and Interpretation

Overview of this chapter presents the data collected through questionnaires in

attempt of attaining the researcher’s objectives. The data gathered through
such means are then analyzed through a descriptive analysis technique. The
data analyzed and the analyses made are presented here with.

3.1 Type of Internal Control System

As modern business increased in size and techniques the adoption of internal

control system has became inevitable in order to increase efficiency of the
business for preventing errors and frauds as well as to ensure the proper utili-
zation of the company physical and non physical resources. The common in-
ternal Control system is the policy and procedure in addition to those included
components which insure that necessary actions are taken to address risks in
achievement of the entity’s objectives. There are potentially many such control
activities generally related to policy and procedures that pertain to segregation
of duties, information processing, physical controls and performance reviews.
Therefore the need for the development of internal control system has became
essential forever original resource like fixed asset in this respect the researcher
collected the data shown in the table 3.1.1 below
Table 3.1.1 Types of internal control system

What types of internal control system adopted by the company?

Number Percentage
S
No Of Respondents Yes No Yes No
No Particular

1 Segregation of duty 50 22 28 44% 56%

2 Purchase procedure 50 40 10 80% 20%

Existence of fixed 50 48 2 96% 4%

3 asset register
Primary data

Figure: In the percentage to analysis

As it shown in the above table, 44% of the respondents support the existence of
segregation of duty as one type of internal control system in their company,
while 56% of the respondents do not support segregation of duty as one type of
internal control system in their company. If employees are to work efficiently,
their responsibilities and segregation of duty must be clearly defined but in the
company 56% the respondents are lack of understanding segregation of duty
this may be due to the fact that 56% of the respondents have inadequate
awareness in the area of internal control system over fixed asset. This show the
control activities of the company are weak. However; lack of awareness by some
employees indicate that the basic control element i.e., the control environment
is not phases by designed

As it shown in the same table 80% of the respondents support the purchase
procedure used as one type of internal control system in their company system
,while 20% of them do not support the purchase procedures as one type of in-
ternal control system. This is due to lack of awareness about internal control
system over fixed asset .It also shows the control environment is very weak in
their company. Due to this reason the company did not follow similar proce-
dures regarding to fixed asset control activities.

In addition to this 96% of the respondent answered the existence of fixed asset
register as one type of internal control system on their company, while 4% of
them answered that fixed asset register is not used as one type of internal con-
trol. In reality fixed asset register is crucial for identifying the status of every
long lived asset. But because of not using fixed asset register is not type of in-
ternal control system, the company would not able to know the up to date
states of each asset. This shows the control activity of the company on some
extent is not very strong. Among the type of internal control system over fixed
asset the company more uses the existence of fixed asset register of internal
control system which records the acquisition of fixed Assets with the relevant
data like Purchase Cost, Date of Purchase, Purchase Invoice No, and Fixed As-
sets Category, Rate of Depreciation and, Accumulated Depreciation and up-
dates the discarding and disposal of fixed asset of the company.

3.2 Rational for the adoption of internal control system over

fixed asset

The company internal control system consists of policies and procedures estab-
lished to provide reasonable assurance that the company goals and objectives
will be achieved. The rationale behind the internal control system over fixed as-
set is to safeguard the company’s fixed asset and provide reasonable assurance
in which the acquisition and disposal of the company fixed asset is recorded in
the company’s accounts. On the other hand, physical location and the custo-
dian of the company’s fixed asset should account in the fixed asset register.
The necessary data regarding the company’s fixed asset also maintained in the
fixed asset register. Since the company’s fixed asset has acquired with a huge
amount of investment, managing it will have a positive impact towards the suc-
cess of the company.

Another important part of effectiveness and efficiency is safeguarding asset and

records. The physical asset of a company can be stolen, misused, or accidental-
ly destroyed unless they are protected by adequate control. Establish proce-
dure for protecting all fixed asset particularly consideration should be given to
employment of securities and operators restricting access to the assets.

Furthermore safeguarding of accounting records also affects the reliability of

financial reporting. Accordingly the researchers gathered the following data to
assess the rationale behind the internal control system over fixed asset practic-
es of the company and summarized in table number 3.1.2 below
 Table 3.1.2 Rationale for the adoption of internal control system over fixed asset

What are the reasons to adopt the internal control system over fixed asset in your
Company?

Response
S
No Particular Number Percentage

No
of No Some Much Do Not No Some Much Do Not
respon- Impor- Impor- Impor- Know Impor- Impor- Impor- Know
dents tance tance tance tance tance tance

1. Safeguarding of
fixed asset 50 0 4 44 2 0% 8% 88% 4%

2. Ensuring proper
Usage 50 0 6 44 0 0% 12% 88% 0%

Minimizing
3. Wastage and
unnecessary
cost 50 0 6 42 2 0% 12% 84% 4%

Primary data

Figure: In the percentage to analysi

As it shown in the above table 8 % of the respondents indicate safeguarding
fixed asset as some importance reason for adoption of internal control system
in their company, while 88 % of the respondent indicate to the control safe-
guarding fixed asset as much importance for adoption of internal control sys-
tem in their company. And 4% of the respondents indicate to the control of
safeguarding fixed asset as do not know reason for adoption of internal control
system in their company. This may be due to the fact that 4% of the respon-
dent may have inadequate knowledge of the system safeguarding fixed asset
and locating the physical asset as one type of internal control system over fixed
asset. Also shows as the company should place special emphasis for the much
important of safeguarding of physical asset.

As it shown in the above table 12 % of the respondents indicate ensuring prop-

er usage as some importance for adoption of internal control system in their
company ,while 88 % of the respondent indicate ensuring proper usage as
much importance for adoption of internal control system in their company.

In addition to this 88% of the respondent indicated that the high importance of
minimizing wastage and unnecessary costs as one reason for adoption of inter-
nal control system, while 12% of the respondents indicated that minimizing
wastage and unnecessary costs as some importance for adoption of internal
control system in their company .and the remaining 4% of the respondents do
not share their idea.

3.3 Uses of Fixed Assets

Fixed assets are economic resources which cannot be easily liquidated (con-
verted into cash), most notably a company's property, plant and equipment.
These assets are usually listed on a company's balance sheet below current as-
sets. Fixed asset that can be used for a number of financial period in the op-
eration of a business. Fixed asset constitute major chunk of the total asset in
the case of all manufacturing entities .fixed asset are tangible asset that are
used in the operation of a company and have a useful life of more than ac-
counting period.

The essential characteristics of fixed assets include that they acquired for use
in the operation of the company and that their usefulness will extend over a
number of years. In principle once the company acquires the fixed asset it
must be used for the operation activity. The researchers gathered the following
data to assess as summarized in table number 3.1.3 below.

Table 3.1.3 Uses of fixed assets

What are some of purposes carried out by fixed asset of the company?
S Response

No Particular
Number Percentage
No of

Responents Yes No Yes No

1 Office Activity 50 50 0 100% 0%

2 Production Unit Output 50 44 6 88% 12%

3 Conduct Personal

Activity 50 10 40 20% 80%

Primary data

Figure: In the percentage to analysis

As it shown in the above table 100 % of the respondents indicated the compa-
ny’s fixed asset is used for office activity, this show that the company’s fixed
asset is effectively used by the company employees for the designated purpose
.so that the company productivity will increase; this will maximize the company
profits and provide the owners additional wealth.

As it shown in the above table 88 % of the respondents indicate company’s

fixed asset is used for Production unit output, while 12 % the respondents in-
dicate the company’s fixed assets are used for other purposes other than Pro-
duction unit output. This may be due to the fact that 12% of the respondents
are using the company’s fixed asset for other company activity other than pro-
duction unit output.

In addition 20% of the respondents indicated the company’s fixed asset is used
to conduct personal activity of the employees of the company, While 80% res-
pondents indicated the company’s fixed asset do not used for conducting their
personal activities. This may be due to the fact that 20% of the respondents
lack awareness and understanding of purposes of fixed asset in their company.
In principle company’s fixed asset shall not allowed for conducting personal ac-
tivity.

3.4 Policy and Procedures Regarding To Fixed Asset

The organization over all approach and attitude towards designing and imple-
menting policies and procedures that accelerated achievements of management
objectives is an initial factor for wining today’s competitive purpose. The specif-
ic policy and procedure designed and implemented by management regarding
to fixed asset help to minimize the risks, ensure proper usage, maximize effi-
ciency, and safeguard unnecessary wastage of resources. Therefore to meet the
company objective, it is important to apply policy and procedures that govern
fixed asset. In this respect the researchers collect data shows in table number
3.1.4 below
Table 3.1.4 Policies and procedures

Does the company have policy and properly utilize regarding to fixed asset?

S Responses

No Particular No of Number Percentage

Respon-
dents Yes No Yes No

1 Financial/Purchase Manual 50 42 8 84% 16%

Conducting physical count

and process 50
2 48 2 96% 4%

3 Purchase Plan 50 34 16 68% 32%

Primary data

Figure: In the percentage to analysis

As it shown in the above table 84 % of the respondents indicate that the com-
pany designed and implementing the financial manual and the remaining 16%
of the respondents indicate that the company have not designed and imple-
mented the financial manual this may be due to the fact the respondents may
have inadequate knowledge of the internal control system.

As it shown in the above table 96 % of the respondents indicate that the com-
pany is taking periodic physical count of the company fixed asset and the re-
maining 4% of the respondents indicate that the company have not take peri-
odic physical count ,this may be due to the respondents lack of knowledge
about the internal control system.
As it shown in the above table 68 % of the respondents indicate that there is a
purchase plan the company’s fixed asset policies, while 32% of the respondents
indicate that the company doesn't have a purchase plan. This result indicated
that the absence of proper purchase plan as company’s policy and procedures
is very important to minimize costs and maximize revenues. However, the com-
pany has failed to capitalize on purchase plan policies

In general in the above table the majority of the respondents indicated the exis-
tence and use of Purchase/Financial manual and physical count as a fixed as-
set policy and procedures in their company. Even if the company conducts the
physical count once in a year especially at the end of the physical period. It al-
so vital in conducting physical count of fixed asset

3.5 Depreciation Method

Depreciation is defined as “the process of allocating of the cost of a fixed asset

to expense in the accounting period that benefit from its use.”It is the respon-
sibility of management to select the depreciation method regarded as most ap-
propriate to the type of asset and its use in the business.

There are many types of depreciation method for allocating the cost of fixed
asset over the accounting period in its useful life. The most common type of
depreciation methods the straight line method which provides for uniform peri-
odic charge to depreciation expense over the life of asset, The unit of produc-
tion method that provides for periodic charges to depreciation expense that
may vary considerably depending upon the amount of usage of the asset .Both
the declining balance and sum- of- years digit method which provide for a
higher depreciation. Charges in the first year of use of the asset and a gradual-
ly declining periodic charges their after. In this respect the researchers col-
lected the data shown in the

table 3.1.5 below

 Table 3.1.5 Deprecation method

Which depreciation method is basically adopted in your company?

No Response

of Number Percentage
S
Respon-
No Particular dents Yes No Yes No

1. Straight Line Method 50 50 0 100% 0%

2. Units of Production Me-

thod 50 0 50 0% 100%

3. Declining Balance Me- 50 0 50 0% 100%

thod
4. Sum of the years me-
thod 50 0 50 0% 100%

Primary data

Figure: In the percentage to analysis

Even if all deprecation method has their own advantage and disadvantage,
every company has the right to adopt more than one deprecation method for
various assets .In this regard the above table shows that the respondents indi-
cated that the company adopted 100% straight line depreciation method for all
fixed asset of the company. Therefore, this shows that the company’s ineffi-
ciency in choosing the appropriate method for appropriate assets. However, as
per Ethiopian income tax proclamation No 286/2002, the organization is al-
lowed to use pooling method for various fixed assets. For instance the rate to
be applied for building is 5% ,vehicle 20% ,and office equipment 20%
,information and communication related equipment is 25%.in This regard the
company also binded by this regulation for preparation of financial statement
for tax purpose

3.6 Internal Control over Fixed Asset

Internal control over fixed asset relates primary to authorization of expenditure

on acquisition, usage sales or disposal related transaction. The main control
activities related to fixed asset are ensuring the proper valuation, validity of the
record, existence of records in the book of accounts. If the company has not
maintained adequate record properly it would affect on the reliability of overall
finical statements .on other hand control over fixed asset is more useful to
management of the company in discharging their responsibility especially those
controls related to the reliability of financial reporting are important .In this re-
spect the researchers collected the data shown in the table 3.1.6 below
Table 3.1.6 Controls over fixed asset

What do you think of your company’s control over fixed assets?

S
Responses
No
No Number Percentage
Of
Respon-
Particular dents Yes No Yes No
Do you think that the presentation
1. and disclosure of all plant assets
including depreciation method is
adequate 50 18 32 36% 64%
2. Do you think that all fixed asset
are properly valued 50 41 9 82% 18%
3. Do you think that validity is there
when recorded of depreciation 50 42 8 84% 16%
4. Do you think that all fixed assets
are properly recorded
50 40 10 80% 20%

Primary data

Figure: In the percentage to analysis

As it has been shown in the above table 36% of the respondents expressed the
adequacy of the presentation and disclosure of all plant assets including de-
preciation method in the report, While 64% of the respondents expressed they
are inadequate .This is due to the fact that 64% the respondents may not have
adequate understanding of the importance of presentation and disclosure of
any change in depreciation method and related transaction in the financial
statements..
As it has been shown in the same table 82% of the respondents expressed that
all plant assets are properly valued, while 18% of the respondents expressed
that not all plant assets are properly valued in the company As a manufactur-
ing company there are a large number of heavy and light fixed assets used for
production activity .These require proper valuation of every fixed asset. Al-
though the majority of the respondents indicated that the company fixed asset
are valued properly. The slight variation is valuation could result in distorted
financial position and results of operation as fixed assets constitute the largest
pertain of company assets and expenses.

As it has been shown in the same table 84% of the respondents indicated that
there is a validity check before fixed asset are recorded, as one of the internal
control over fixed asset in their company, While 16% of the respondents indi-
cated that there is no validity check when recorded. This result indicated that
there is a slight gap in the fixed asset recording related internal control as
identified by the 16% of the respondents.

In the other request, 80% of the respondents expressed all plant assets are
recorded in the financial documents during acquisition, While 20% of the res-
pondents expressed that not all plant assets recorded in the financial docu-
ments during acquisition. This result indicated that there is a major weakness
in the fixed asset recording process .This is due the fact that the existence of
different understanding about the treatments of fixed asset commencing from
imitating purchase transaction up to disposal. The effect of this could adversely
affect company operation and financial position. From the overall treatment of
fixed asset in the book of account majority of the respondent have no aware-
ness on the importance of maintaining proper accounting record.

3.7 Type of Purchase Policy

Purchase procedure practices of most companies are usually similar. In most

cases many companies use certain purchase policy such as
 Approved capital budget.

 Prepared purchase requisition.

 Collect at least three Performa invoices from three different suppliers

 Analyze and inspect the Performa Invoices with the least Price and high
quality.

 The purchase manager approves the Winner supplier among the col-
lected Performa invoices.

 Prepared purchase order.

 The Purchase is conducting as per the request and the purchased goods
are received by the Store keeper by the Goods Receiving voucher.

 The store keeper passes the relevant documents Purchase request, pur-
chase order along with Goods Receiving voucher to the purchase de-
partment.

 The Purchase department prepares a payment request along with the re-
levant data of the Performa invoices analysis report, Purchase request,
purchase along with Goods Receiving voucher.

 The disbursement accountant checks all the payment requests docu-

ments and prepares a check as per the purchase invoices and passes to
the finance manager for approval.

 The finance manager approves the withdrawal of the check and then
passes to the general manager for the final approval.

 The general manager approves the withdrawal of a check.

 They provide the processing information inputs from outside the depart-
ment to produce output communication needed by individuals in other
 departments to do their jobs in a coordinated and timely manner. In this
respect the researchers collected the data shown in the table 3.1.7 below

Table 3.1.7 Purchase policy

Which of the following purchase policy does the company have adopted?

Response

No Number Percentage
S.
of Respon-
No Particulars dents Yes No Yes No

1 Performa collection 50 48 2 96% 4%

Establishment of purchase
2 committee 50 36 14 72% 28%

3 Post purchase support 50 18 32 36% 64%

Primary data

Figure: In the percentage to analysis

As it has been shown in the table above 96% of the respondent indicated that
Performa collection activity as one of the purchase policy of the internal control
system in the company, while 4% of the respondents expressed as the company
do not collect the Performa invoices as one of the purchase policy of the inter-
nal control system. 4% of the respondents may not have the awareness of the
Performa collection activity as one of the purchase policy of the internal control
system in the company. But, it is very crucial to create the awareness of the
purchase policy among the employees for minimizing unnecessary wastage of
company’s and to take a cost advantage.
As it has been shown in the table above 72% of the respondent indicated that
Establishment of Purchase committee as one of the purchase policy of the in-
ternal control system in the company, while 28% of the respondents expressed
as the company do not establish a purchase committee as one of the purchase
policy of the internal control system.28% of the respondents may not have the
establishment of the purchase committee when selecting a supplier. Since es-
tablishment of a purchase committees very essential to avoid biasness of se-
lecting the supplier.

As it has been shown in the table above 36 % of the respondent indicated that
the use of post-purchase support in the company, while 64% of the respon-
dents indicated that the company do not use post-purchase support in the
company. This is due to lack of knowledge about the company purchase policy
purchase policy of the internal control system. 4% of the respondents may not
have the awareness of the Performa

3.8 Benefits of Purchase Policy

For the achievement of organization goal and objectives, it is mandatory to fol-

low a certain policy and procedure. One of them would be purchase policy. This
may include authorization, Performa invoice collection and established pur-
chase department. This is very important to reduce unnecessary cost, increase
quality, safe time and resource etc.In this respect the researchers collected the
data shown in the table 3.1.8 below
 Table 3.1.8 Benefits of purchase policy

What benefits does your company have attained as a result of adopting pur-
chase policy and procedures?

Response

Number Percentage
S.
No of Res-
No Particular pondents Yes No Yes No

1 Cost reduction 50 45 5 90% 10%

2 Safe Time and Resource 50 36 14 72% 28%

3 Uniform purchase activity 50 28 22 56% 44%

Increase quality and com-

4 patible assets 50 30 20 60% 40%

Primary data

Figure: In the percentage to analysis

As it shown in the above table, 90% of the respondents believe cost reduction
as one of the benefit for the existence of purchase policy and procedures in
their company, while 10 % of the respondents not believe cost reduction as one
of the benefit for the existence of purchase policy and procedures in their com-
pany. This shows there is a room for understanding the benefit of purchase
policy among some employees of the company.

In addition to this, 72% of the respondents believe that purchase policy and
procedures safe time and resource of the company, while 28% of the respon-
dents do not believe that purchase policy and procedures safe time and re-
source of the company. This result shows that the company still required cer-
tain improvement in awareness creation for proper adoption and implementa-
tion of purchase policy and procedures especially to save time and resources.

In the same above table, 56% of the respondents believe that uniform purchase
activity as one benefit of purchase policy and procedures in their company,
while 44% of the respondents do not believe that uniform purchase activity as
one benefit purchase policy and procedures in their company. This result
shows that 44% of the respondents do not accept the benefit of purchase policy
and procedures regarding uniform purchase activity.

In the same above table, 60% of the respondents believe that purchase policy
and procedures increase quality and compatible assets in their company, while
40% of the respondents do not believe that purchase policy and procedures in-
crease quality and compatible assets in their company. This may be due to the
fact that 40% of the respondents don not have enough training in the work
area of the company regarding to benefit of purchase policy and procedures.

If the policy is not adopted uniformly, the company may lose certain resources
and it required a long time to make purchase. In overall, the respondents be-
lieve that the benefit of purchase policy and procedures from cost reduction,
time saving and quality product enhancement point of view.

3.9 Fixed Asset Register

Every enterprise should maintain a detailed fixed asset record in the form of a
register of fixed asset. It should be maintained independently .The balance on
the fixed asset register should be agree with the balance on the controlling
fixed asset ledger and the physically existed fixed assets. The advantage of
maintaining a register of fixed asset include full details of each asset are rec-
orded so as to facilitate physical verification to provide on independent check
on the accuracy of the account recording, to enable the correct depreciation
charge of each year be exactly computed and to insure that fixed asset account
are correctly adjusted to eliminate the cost and accumulated depreciation of
individual asset sold or scrapped. Accordingly the data gathered is presented in
table 3.1.9 below

Table 3.1.9 Fixed asset register

Is a fixed asset register maintained and kept regularly to date, showing for each
asset?

No Response

Of
Number Percentage
S. Respon-
pon-
No Particular dents Yes No Yes No

1 Identification no 50 4 46 8% 92%

2 Physical location 50 6 44 12% 88%

3 Depreciation rate 50 42 8 84% 16%

4 Disposal date and proceeds 50 10 40 20% 80%

5 Acquisition date 50 36 14 72% 28%

Are fixed asset

physically

6 tagged upon receipt? 50 4 46 8% 92%

Is the value of fixed

asset recorded in the

7 general ledger? 50 44 6 88% 12%

Primary data
Figure: In the percentage to analysis

As it shown in the above table, 8% of the respondents indicated that the exis-
tence of identification of each fixed asset in its fixed asset register, while 92 %
of the respondents indicated that there is no existence of identification number
of each fixed asset in its fixed asset register. This shows that, it is very difficult
to identify one fixed asset from the other.

As it shown in the same table above, 12% of the respondents indicated that the
appearance of physical location information of fixed asset in fixed asset regis-
ter, while 88 % of the respondents do not indicated that the appearance of
physical location information of fixed asset in fixed asset register. In fact know-
ing the physical location of the fixed asset in the fixed asset register is very im-
portant to identify the nature and conditions of the fixed assets, to ensure
proper safeguarding of each asset, within a certain period of time. But many of
the respondents never believe the appearance of this information in fixed asset
register. This may be one of the problems with in this company to ensure safe-
guarding fixed assets. The overall results show that the company faces some
problem regarding the maintaining physical location record in the fixed asset
register.

As it shown in the same table above, 84% of the respondents indicated that the
appearance of depreciation rate of fixed asset information in fixed asset regis-
ter, while 16 % of the respondents do not indicated that the appearance of de-
preciation rate of fixed asset information in fixed asset register. This may be
due to the fact that, 16 % of the respondents may be lack of understating of the
fixed asset register.

As it shown in the same table above, 20% of the respondents indicated that the
appearance of disposal date and proceeds information of fixed asset in fixed as-
set register, while 80 % of the respondents do not indicated that the appear-
ance of disposal date and proceeds information of fixed asset in fixed asset reg-
ister. In fact knowing the disposal date and proceeds of the fixed asset in the
fixed asset register is very important to keep adequate record of the fixed asset
in the fixed asset register. But many of the respondents never believe the ap-
pearance of this information in fixed asset register. Due to this reason the
company does not able to know the exact economic life as well as the actual
benefit at the time of disposal.

As it shown in the same table above, 72% of the respondents indicated that the
appearance of Acquisition date of fixed asset information in fixed asset register,
while 28 % of the respondents do not indicated that the appearance of Acquisi-
tion date of fixed asset information in fixed asset register. This may be due to
the fact that, 28 % of the respondents may be lack of understating of the fixed
asset register.

As it shown in the above table, 8% of the respondents believe that physical tag-
ging of fixed asset upon receipt of a fixed asset, while 92 % of the respondents
do not believe that physical tagging of fixed asset upon receipt of a fixed asset.
This shows that, it is very difficult to identify one fixed asset from the other.

As it shown in the same table above, 88% of the respondents indicated that the
value of fixed asset acquired is recorded in the general ledger, while 12 % of the
respondents do not indicated that the value of fixed asset acquired is recorded
in the general ledger. This may be due to the fact that, 12 % of the respondents
may be lack of understating of the fixed asset register.

3.10 Strength and Weakness of Internal Control Over Fixed As-

set

Companies have now working in a very dynamic environment. They are doing
their operation in a very complex economic situation. In this respect companies
have their own strength and weakness of performing their operations. Most
companies have established standard operating procedures in order to manage
 and control the companies operation. Concerning the fixed asset, a company
must established strong internal control over fixed asset. Especially in the case
of Cadilla Pharmaceuticals (Ethiopia) P.L.C, a manufacturing company, which
has a huge amount fixed asset, should establish a strong internal control sys-
tem over its fixed assets. The researchers analyzes the collected data in the fol-
lowing table number 3.1.10 below

Table 3.1.10 Strength and weakness of internal control over fixed

asset

What do you think the overall strength and weakness of the company regarding to inter-
nal control system over fixed asset?

No Response

Of Number Percentage
S
Respon-
No Particular dents Yes No Yes No

To provide training for fixed

50 20 30 40% 60%
asset usage
1

Strong relationship with sup-

2 plier 50 42 8 84% 16%

Usage of fixed asset only for

company activity rather than
3 personal usage 50 50 0 100% 0%

The existence of qualified and

4 competent employee 50 34 16 68% 32%

Supervision of fixed asset

5 usage 50 34 16 68% 32%

Awareness of internal control

6 system over fixed asset 50 36 14 72% 28%

Primary data
Figure: In the percentage to analysis

As it shown in the above table 40 % of the respondents indicated that provid-

ing training for fixed asset usage as one of the strength of the company, While
60 % of the respondents do not indicated that providing training for fixed asset
usage as one of the strength of the company. In fact purchase of fixed asset
should be incorporated with the proper utilization training .If the usage of fixed
asset is not clear, it results damage and leads to disposal before completed its
economic life.

As it shown in the above table 84 % of the respondents indicated that strong

relationship with suppliers as one of the strength of the company, While 16 %
of the respondents do not indicated that strong relationship with suppliers as
one of the strength of the company.

As it shown in the above table 100 % of the respondents indicated the compa-
ny’s fixed asset is only used for company’s activity rather than personal advan-
tage, this show that the company’s fixed asset is effectively used by the compa-
ny employees for the designated purpose .so that the company productivity will
increase; this will maximize the company profits and provide the owners addi-
tional wealth.

As it shown in the same above table 68% of the respondents indicated that the
existence of qualified and competent employee as one strength of internal con-
trol system over fixed asset in their company, while 32% of the respondents in-
dicated that the existence of insufficient qualified and competent employees. As
one weakness of internal control system over fixed asset in their company.

As it shown in the same above table 68% of the respondents indicated that su-
pervision of fixed asset as one strength of internal control system over fixed as-
set in their company, while 32% of the respondents indicated that supervision
of fixed asset as one weakness of internal control system over fixed asset in
 their company. Supervising the usage of fixed asset provide to ensure the prop-
er utilization as well as the current physical condition of the fixed asset.

As it shown in the same above table 72% of the respondents indicated that
awareness of internal control system over fixed asset as one strength of inter-
nal control system over fixed asset in their company, while 28% of the respon-
dents indicated that awareness of internal control system over fixed asset. As
one weakness of internal control system over fixed asset in their company.

3.11 Resolve the Problem Of Fixed Asset

What type of measure the company will take to resolve the problem may be ex-
istence in relation to fixed asset?

Table 3.1.11 Resolve the problem of fixed asset

What type of measure the company will take to resolve the problem may be exis-
tence in relation to fixed asset?
No Response

Of Number Percentage
S
Respon-
No Particular dents Yes No Yes No

Develop proper fixed asset poli-

1 cy and procedure 50 46 4 92% 8%

2 Recruitment of qualified 50 46 4 92% 8%

3 To provide on job training 50 34 16 68% 32%

Primary data

Figure: In the percentage to analysis

As it shown in the same above table 92% of the respondents indicated that de-
velop proper fixed asset policy and procedures as one of the measure to be tak-
en to resolve the problem to the internal control system over fixed asset of the
company, while 8% of the respondents indicated that develop proper fixed asset
policy and procedures do not as one of the measure to be taken to resolve the
problem to the internal control system over fixed asset of the company. This
may be due to the fact that 8% of the respondents lack of understanding the
importance of proper fixed asset policy and procedures.

As it shown in the same above table 92% of the respondents indicated that re-
cruitment of qualified employee as one of the measure to be taken to resolve
the problem to the internal control system over fixed asset of the company,
while 8% of the respondents indicated that recruitment of qualified employee
do not as one of the measure to be taken to resolve the problem to the internal
control system over fixed asset of the company.

As it shown in the same above table 68% of the respondents indicated that
Providing on job training as one of the measure to be taken to resolve the prob-
lem to the internal control system over fixed asset of the company, while 32%
of the respondents indicated that Providing on job training do not as one of the
measure to be taken to resolve the problem to the internal control system over
fixed asset of the company.

3.12 General Working Environments

The company working environment should be transparent to the employees.

Since Company’s policy and procedures should be prepared and communicated
to the employees, it should be documented and readily available to the compa-
ny’s employees for the current and daily consumption. . Every employee within
the company performs its duties as per his/her job description and the compa-
ny’s standard operating procedures. The flow of work between employees
/sections should be written and documented. Each company’s policy and pro-
 cedures should be approved by the level managers or general manger. In this
respect the researchers conduct the following request in table number 3.1.12

Table 3.1.12 General working environment

No Response

Of Number Percentage
S
Respon-
No Particular dents Yes No Yes No

Are there written policies

and internal operating pro-
cedures that have been ap-
proved by the top manage-
1 ment/senior management? 50 46 4 92% 8%

Does the company have a

code of ethical conduct that
has been made available to
2 all employees? 50 42 8 84% 16%

Are procedures documented

kept current and readily
available for daily use by all
3 employees? 50 22 28 44% 56%

Are roles and responsibili-

ties clearly defined in writ-
4 ing and communicated? 50 22 28 44% 56%

Is there an organizational
chart that clearly defines
the lines of management
authority and responsibili-
5 ty? 50 48 2 96% 4%

Has management estab-

lished a backup plan for
sudden or significant
6 changes in personnel? 50 24 26 48% 52%

Primary data
Figure: In the percentage to analysis

As it shown in the above table, 92% of the respondents indicated that the com-
pany written policies and procedures are approved by the top level manag-
ers/General managers, While 8% of the respondents indicated that the compa-
ny written policies and procedures are not approved by the top level manag-
ers/General managers .This may be due to the fact that 8% of the respondents
may have lack of understanding about the company’s written policies and pro-
cedures.

As it shown in the same table, 84% of the respondents indicated that the com-
pany has ethical code of conduct which is available to all employees in the
company, While 16% of the respondents indicated that the company doesn’t
have ethical code of conduct which is available to all employees in the compa-
ny. This may be due to the fact that 16% of the respondents may have lack of
knowing about the company’s ethical conduct available to employees or the
company doesn’t create the awareness of the company’s ethical code of conduct
within the employees in the company.

As it shown in the same table, 44% of the respondents indicated that the do-
cumented procedures kept current and readily available for daily use by all
employees, While 56% of the respondents indicated that the documented pro-
cedures do not kept current and readily available for daily use by all em-
ployees. This shows that the internal control system is weak concerning the
availability of documented procedures for daily use. This will reduce the stan-
dard uniform operating procedures.

As it shown in the same table, 44% of the respondents indicated that roles and
responsibilities clearly defined and communicated in written, While 56% of the
respondents indicated that roles and responsibilities do not clearly defined and
communicated in written. It shows that the efficiency of each employee may
not evaluate and the efficiency of the employee may be decreased, because
their responsibilities not clearly defined. Internal control system procedures
should exist to guarantee that no overlapping or undefined areas of responsi-
bility exist.

As it shown in the above table, 96% of the respondents indicated that there is
an organizational chart that clearly defines the lines of management authority
and responsibility, While 4% of the respondents indicated that there is no an
organizational chart that clearly defines the line of management authority and
responsibility. This shows that 4% of the respondents are lack of awareness
what mean that an organization chart and lines of management authority and
responsibility.

As it shown in the above table, 48% of the respondents indicated that the com-
pany management established a backup plan for sudden or significant changes
in personnel. While 52% of the respondents indicated the company do not es-
tablished a backup plan for sudden or significant changes in personnel. This
will result the company’s productivity may be reduced when the key company’s
personnel resigned, or not available in the work place.
 CHAPTER FOUR

4 .Summary, Conclusion and Recommendation

This chapter includes summary of major findings conclusions and recommen-

dations of the study, based on the research findings.

4.1 Summary of Major Findings

Based on the analysis made the following findings are summarized.

4.1.1Types of Internal Control System over Fixed Asset

Cadila pharmaceuticals (Ethiopia) PLC adopted internal control system to pre-

vent fraud and errors, such as segregation of duty, purchase procedure and
monitoring fixed asset register. Among the types of internal control system over
fixed asset 96% of the respondents indicated that company more uses monitor-
ing fixed asset register internal control system.

4.1.2Reasons of Adopting Internal Control System over Fixed

Asset

Cadila pharmaceuticals (Ethiopia) PLC adopted the internal control system over
fixed asset for the following reasons: for Safeguarding of fixed asset, ensuring
proper usage, and Minimizing Wastage and unnecessary cost. Among the rea-
sons of adopting internal control system over fixed asset 88% of the respon-
dents indicated safeguarding of fixed asset and ensuring proper usage of fixed
asset are the main reason to adopt internal control system in the company.

4.1.3 Uses of Fixed Assets

The company’s fixed asset is used to carry out for various purposes like using
the fixed asset for office activity, for production unit output, and for personal
conduct. 100% of the respondents indicated that the company’s fixed asset is
used to carry out the company activity rather than personal usage.
4.1.4 Policy and Procedures Regarding to Fixed Asset

The company has policy in order to properly utilize the fixed asset. Among the
policies, the majority of the respondents indicated that conducting physical
count of fixed asset taken at the end of the fiscal Period is more appropriate.

4.1.5 Deprecation Method

Among the four basic deprecation methods, straight line method was adopted
by the company for all fixed assets. Though all the respondents respond the
company has been used the straight line method, the Ethiopian revenue and
customs authority disclosed various depreciation methods should be used by
the enterprises as per 286/2002 income tax proclamation.

4.1.6 Internal Control over Fixed Asset

From the internal control point of view, the company emphasis on the proper
valuation, proper record and the validity of fixed asset. But still there is a prob-
lem about understanding the importance of internal control system.

4.1.7 Types of Purchase Policy

The types of purchase policy Adopted by cadila pharmaceuticals (Ethiopia) PLC

are Performa collection, establishment of purchase committee, Post purchase
support. Among the purchase policy the majority of the respondents indicated
that Performa collection is the most adopted purchase policy in the company.

4.1.8 Benefit of policy and procedure

Majority of the respondents indicated the benefits of purchase policy and pro-
cedures from cost reduction, safe time and resource, uniform purchase activity,
and increase quality and compatible assets. Among the benefits of purchase
policy the majority of the respondents indicated that cost reduction is the most
benefit gained from purchase policy.
4.1.9 Strength and Weakness of Internal Control System over
Fixed Asset

100% of the respondents indicated that the Usage of fixed asset only for com-
pany activity rather than personal usage as one strength of internal control
system in the company. The company doesn’t provide training for fixed asset
usage as one weak of the internal control system in the company.
4.2 Conclusion

The internal control system over fixed asset of cadila pharmaceuticals (Ethi-
opia) PLC is doing well with the existence of some problems and it mainly to
prevent both fraud and errors.

In the process of adopting the internal control over fixed asset, the company
does not give more emphasis on segregation of duties. To increase the efficiency
of the employees, duties should be segregated between the employees; this will
reduce overlapping of responsibilities. So that segregation of duties must be a
requirement to increase the productivity of the company.

The fixed asset of cadila pharmaceuticals (Ethiopia) PLC are hundred percent
used for office activity. Due to lack of awareness, there is a possibility using
company’s fixed asset for personal activity, like office equipment and vehicles.
So that the company should implement some controlling methods to manage
company’s fixed asset like implementing vehicles Log Book.

The policy and procedure regarding to fixed asset in cadila pharmaceuticals

(Ethiopia) PLC which was stated in the financial and purchase manual almost
similar with principle of internal control but some problem was reflected during
implementation. The company has also accomplished periodic inventory count
to verity the existence location, and condition of fixed asset through the inven-
tory counting members .They are consists of different departments. But the
counting activity taken place once in a year.

As we have been with the accountant, it has the purchasing committee to ac-
complish the process of purchasing procedure for approval of buying the fixed
assets through the purchase department and mention the advantage of having
purchase committee to see the expected risk on buying of the fixed asset in ad-
vance from different suppliers. Since the purchase committee is organized from
different discipline/subject matter/ of member of personnel. In general terms
the purchase plan of the company is not very strong. This problem was also re-
flected on the other purchase transaction activity like purchase of raw material
and office supplies.

It is true that every company should maintain detailed fixed asset record in the
form of register of fixed assets, which should be maintained independently of
the balance there on the general ledger. It should be periodically agreed with
the relevant control account in the nominal ledger. The advantage of maintain-
ing a register of fixed assets is that full details of each asset are recorded so as
to maintain the whole history of the company’s fixed asset. So that the compa-
ny should maintain a full detail data of the company’s fixed asset to efficiently
manage the fixed assets,

Facilitate physical verification to provide on independent check on the accuracy

of the account recording to enable the correct depreciation charge accumulated
depreciation of individual asset sold or scrapped. This practice also existed in
cadila pharmaceuticals (Ethiopia) PLC but not exercised properly.
4.3 Recommendation

Based on the general finding and conclusion the researcher forwarded the fol-
lowing recommendation:-

1. The company should create awareness within the company employees

about the importance and benefit of internal control system over fixed
asset and the way of application as well as its usage.

2. The company should develop a checking mechanism for the implementa-

tion of its internal control system over fixed asset.

3. The company should create a custodian ship and a liability about the
company’s fixed asset.

4. The company should segregate duties within its employees and provide a
job description for each employee.

5. The company should develop a controlling mechanism for the usage of its
fixed asset.

6. The company should make a strong relationship with the company’s

fixed asset supplier to get post purchase service in addition to pre pur-
chase service.

7. It is advisable to use other deprecation methods in addition to straight

line method as per income tax proclamation 286.2002 for various fixed
asset.

8. The company should maintain the fixed asset register regarding the rele-
vant data about the fixed asset.
 BIBILOGRAPHY

Cadila Pharmaceuticals (Ethiopia),Fixed Asset manual 2013/2014

Carl S.Warren ,etals. (2009),Financial Accounting, Concepts, Methods and applications

south-Western ,Cengage learning India

Donald E.Kieso and Jerry J.Weygandt,(1995) Intermediate Accounting, (3rd) Newyork

John Wiley & sons ,INC

Fees warren (1990), Accounting Principles (16thedition) cincimatii south western

publishing, USA

Kamal Gupta and Ashok Arora (1996),Fundamentals of Auditing, New Delhi, Tata McGraw-
Hill publishing company Ltd

Mosich A.N Intermediate Accounting(1980) , Southern California: McGraw Hill,Inc

 DECLARATION

I, the undersigned, declare that this senior thesis is my original work, prepared under
the guidance of ATO MAHRI H. All sources of material used of the manuscript have
been duly acknowledged.

Name ……………………………….

Signature ………………………….

Place of Submission SMU

Date of submission ________________________

ADVISOR APPROVAL

This paper is submitted for examination with my approval as the university advisor.

Name ……………………………….

Signature ………………………….

Place of Submission SMU

 CHAPTER ONE

1. INTRODUCT

1.1 Back ground of the study

Cash is money which a firm disburses immediately without any restriction. Now a day’s cash
include coins, currencies and cheques held by the firm and the balance in its bank account. The
basic characteristics of neat-cash is they can readily by converted in to cash .Cash is important
current asset for the operation of business firm. It is also the ultimate output expected to be
realized by selling the service or product manufactured by the firm. Any firm should keep
sufficient, neither more nor less. Cash shortage will disrupt the firms manufacturing operation
while excess cash will Simply remain idle without contributing any effort towards the firms
profitability .To improve the performance of business as well as to introduce new business
opportunity in the organization cash is very important, since cash is the most powerful working
capital. And hence study and research in the collection and payment and handling of cash has
paramount importance. Cash management is concerned with the management of cash Flows in
and out of the firm cash flows within the firm, and cash balances held by the firm at point of
time by financing deficit or investing surplus. Cash management assumes more importance
than other current assets because cash is the most significant and the least productive assets that
a firm holds. Cash management is the art of keeping corporate cash balances at the lowest level.
Hence the profitability as well as sustainability of the firm depends on systematic approaches it
follows on the management of this sensitive resource. Bank of Abyssinia as well as other banks
in Ethiopia use the money for credit, investment, premium for share holders, reserve for
national bank, liquid asset based on decisions of general assembly, rules of the bank and
regulations of national bank. Systematic approaches must be taken by Bank of Abyssinia to
wisely allocate this sensitive resource by using cash management techniques such as
forecasting, mobilizing and managing cash flow and maintaining customer relations in order to
maintain the liquidity level at optimum. The most important tool used for liquidity test is current
ratio, hence doing at least past five years liquidity analysis by current ratio should be
done(Pandey;1999).

1
It is known fact that anybody uses cash for day-to-day activities and face cash managing
problems, budgeting, forecasting, raising etc. It is experienced by this study team that un-
programmed cash use by bank of Abyssinia put on conflict with their customers. Hence study
and knowledge on this area will have paramount importance.
1.2 Back Ground of Organization

Abyssinia bank is established on Feb 16 1996 in accordance with the Commercial code of
Ethiopia of 1930 and the licensing and supervision of Banking Business proclamation No
84/1994. The bank came in to existence by obtaining a license from the national bank of Ethiopia
and registered in the bureau of Trade, Industry and Tourism of bureau of Addis Ababa city
Administration. The head office of Abyssinia Bank is in Addis Ababa and located in olompia
Getu commercial building on the way to Africa Avenue. Its main branch, Mahatma Gandhi
branch is also located in the Ghion Hotel area. The bank had been operating with only one
branch, Mahatma Gandhi branch, until the end of June 1996 since then the bank has opened
many branches in Addis Ababa and Outside Addis Ababa. Nowadays, the bank is operating with
78 branches and one agency office, 38 of them are in Addis Ababa and 40 of them are around
and outside of Addis Ababa .The Abyssinia bank was established with an authorized capital of
birr 50 million (Fifty million) out of which 25 million was subscribed and the remaining was
paid up capital in cash by 131 founder share holders. The bank has 315 million subscribed
capitals, 630 million authorized capital 44.74 million is paid up capital. The total number of
shareholders is 1,319, the bank is administered by a board consisting of nine members appointed
by the general meeting of share holders for term of three year, but they are eligible for another
term. The board appoints the president of the bank who carries out the day to day management of
the bank, three vice president and seven department managers with high academic qualification
and long years of professional and banking experience to assist the president. The bank provides
both domestic and international banking service. The domestic banking service includes local
remittance, accepting deposits, granting loans, advances and issuing guarantees and bonds. Also
the international banking services are foreign remittance, Financing import and export, foreign
exchange services, and issuing guarantees.(Annual Report:BOA;2012).

2
 1.3 Statement of the Problem
cash management is concerned with the management of cash Flows in and out of the firm cash
flows within the firm, and cash balances held by the firm at point of time by financing deficit or
investing surplus cash management assumes more importance than other current assets because
cash is the most significant and the least productive assets that BOA holds. Cash management is
the art of keeping corporate cash balances at the lowest level, since cash is a non-productivity
asset, with jeopardizing short term liquidity. Hence the profitability as well as sustainability of
the firm depends on systematic approaches it follows on the management of this sensitive
resource. Research on the cash management of a firm helps to properly allocate its cash on
proper way. Bank of Abyssinia operates and manages its cash in many ways bank of Abyssinia
collects cash form costumers in many ways and documents. Bank of Abyssinia as well as other
banks in Ethiopia use their cash for credit, investment, premium for share holders, reserve for
national bank, liquid asset based on decisions of general assembly, rules of the bank and
regulations of national bank. The systematic approaches taken by bank of Abyssinia to wisely
allocate on this area was decide the profitability of the firm .Therefore, this research was study
and analyze how bank of Abyssinia is managing its cash by using cash management tool,
current ratio analysis for last five years, to see which and how cash management elements are
being used in bank of Abyssinia.

1.4 Research Questions

This study is given answer for the practical analysis of cash management the cash of Abyssinia
Bank .Hence the study will try to the following basic questions

 To what extent the techniques are used by bank of Abyssinia effectively to manage its
cash?
 Where does the current ratio of Bank of Abyssinia lie when compared with the general
allowable boundary?
 How past five years liquidity ratio trend looks like, are they random, or trended to some
target?
 How effective is the cash forecasting process of Bank of Abyssinia?

3
 1.5 Objectives of the Research
1.5.1 General objective

The general objective of the study is to evaluate the cash management practice of Bank of
Abyssinia

1.5.2 Specific objectives

 To evaluate the current asset and liability data of Bank of Abyssinia for last five years
 To assess the last five years current asset and liability forecast data.
 To evaluate the cash forecast in process of Bank of Abyssinia give better
recommendations.
 To assess the liquidity position of the bank by using current ratio recommends
improvement directions.

1.6 SIGNIFICANCE OF THE STUDY

The significance of this study was to find out problem related with cash and as such better
approach to deal with maintaining good cash management level in any organizations. It will be
helpful for administrators of bank of Abyssinia to assess their management style in which intern
had impact on cash their organization finally it may contribute for further research studies under
taken.

1.7 Scope of the study

The scope of this study is highly confined to cash management analysis of Bank of Abyssinia
hade office. It is generally known fact that better compiled data can be found, and hence is the
cash management analysis of the Last five years (2009-2013), we find the audited report in this
consecutive five years. It is somewhat narrow in scope and largely focuses on cash management
analysis of bank of Abyssinia.

1.8 Research Design and Methodology

The study’s design and methodology are discussed in detail in below mentioned sections.

4
 1.8.1 Research Design
The study used descriptive research designed, which is design to obtain information concerning
cash management analysis and to draw conclusion from the fact discovered. Because, the
descriptive research is description of the state of affairs as it exists at present.

1.8.2 Sample size and population

For the purpose of identifying the necessary information about cash management analysis the
bank of Abyssinia total employees are 85.Out of this the researchers selected 26 employees who
are decided that they fit the area of the study. The respondents were selected based on
judgmental sampling method. The reason for using judgmental sampling is to involve the
personnel who have understanding about the topic under the study.

1.8.3 Sampling technique

In order to collect primary data the researchers used the judgmental or purposive sampling.
Because, the researchers uses own judgmental to select people who is familiar with the sampling
frame and have a particular expertise or knowledge which make them suitable and select target
respondent that provide the relevant information.

1.8.4 Types of Data Collection

The data was collected from primary and secondary source. The primary data were collected
through questionnaire. The secondary data were collected from books, magazines, journals,
broachers, annual reports and other related documents.

1.8.5 Methods of Data collection

From various kinds of data collection instruments, the researchers of this study through open
ended and close ended types of question and unstructured interview method used to collect
primary data from cash management department and employers of bank of Abyssinia. Secondary
data was gathered from different source such as books, magazines, annual reports, journals,
broachers and other related document.

5
 1.8.6 Data analysis Methods
The data collected through questionnaire is then analyzed using descriptive analysis techniques.
Descriptive technique is a description of the state of affairs as it exists at present.

1.9 Limitation of the study

There were so many limitations to complete the research

 Time and financial constraints

 Employees unwillingness to provide relevant information
 Over lapping of various assignments.

1.10 Organizational of the study

This study is organized in to four chapters. The first chapter introduction which includes back
ground of the study, statement of problem, research question, objective of the study, significance
of the study, scope of the study, research methodology, limitation of the study and organization
of the study. Chapter two review of related literature. In chapter three, analysis of the research
data with interpretation with related findings are presentation. Chapter four concludes the study
with summary, conclusion and recommendations.

6
 CHAPTER TWO
2. REVIEW OF RELATED LITERATURE

2.1 DEFINITION OF CASH, MANAGEMENT AND CASH MANAGEMENT

According to Johnson Cash is one of the very important current assets for the operations of
organizations. Cash is the basic input needed to keep the business running on a continuous basis;
it is also the ultimate output expected to be realized by selling the services or products
manufactured by the firm. Cash is both the most important and the least productive asset that a
business possesses. On the one hand, it is important because bills must be paid in cash. If cash is
not available in sufficient quantity at the right time, obligations can be met. And the company
becomes insolvent. Possessing value in other assets may be little consolation if they cannot be
turned in to cash when needed or at least as collateral for needed loans.

Cash is the money, which a firm can disburse immediately without any restriction. The term cash
includes coins, currency and cheques held by the Firm and balance in its bank account.
Sometimes near-cash items, such as marketable securities or bank times a deposit of near cash
asset is that they can readily be converted in to cash (Pandey; 1999).

As quoted in Richard pettinger (1997) Henri Fayol defines management as process of

forecasting, planning, organizing commanding coordinating and controlling. "E.E.L Brech called
it is the social processes of planning. Coordination, control and motivation`` Writing in the
1980,s Tom Petters defined it as organizational direction based on sound common sense, pride in
the organization and enthusiasm for its works. It is clear that management is a partly the process
of getting done through people; and partly the creative and energetic combination of the skill and
talent of the individuals concerned with doing things (pettinger, 1997).

Cash management is in general of major importance in business enterprise because cash is a

means of acquiring goods and service. Thus the goal of cash manager is to maximize the amount
of cash the firm must hold for use in conducting it`s normally business activities yet, at the same
time, to have sufficient cash to take trade discount. To maintain its credit rating and also to meet
unexpected cash needs (Pandey;1999).

7
Cash management is the process of maximizing the liquid assets through the acceleration of
receivable and the disciplined control of disbursements.

The amount of cash to be held can be determined by balancing tow kinds cost decisions.

1) Opportunity cost of not investing, which increases as cash balance in crease

2) Information coasts involved in making the decisions to invest, borrow, or repay Loans,
which decrease as the amount of cash balance(Pandey;1999).

Elements of cash management

Cash management is made up of four major elements

1) Forecasting
2) Mobilizing and managing the cash flow
3) Mobilizing banking relation and
4) Investing surplus cash

Forecasting can be defined as the ability calculate, predict, or plan future events or
conditions using current or historical data. A cash budget monitors how much money will be
available for investment, when it will become available and for how long(Pandey;1999).

8
Cash mobilization involves techniques used to assemble funds and make them readily
available for investment. Marinating good relation with banks, saving and loan association,
investment bankers, commercial paper dealers, and security analyst is an important part of cash
management .Bankers prefer compensating balances to fee payments because deposits are the
main source of bank’s lonable funds. A cash budget should provide on estimate of the
organization’s cash requirements for disbursement by months, weeks, or days. The cash
management is generally centered on forecasting and internal controls.

The responsibilities of management with respect to cash are

 To ensure that there is sufficient cash to carry on operations

 To invest any idle cash
 To prevent loss of cash due to theft or to misappropriations.(Pandey;1999)

2.2. Cash balance requirement (motives)

There are four major requirements that must be satisfied if the goal of meeting the
corporation’s cash needs to be attained. The requirements are

 Transaction requirements
 Precautionary requirements
 Speculative requirements
 Compensating balance requirements

Transaction requirement

Precautionary requirements are the amounts of cash needed to meet the forecast out flows
contain in the firms cash budget (Fabozzi 1996; Ross 1998).

9
Precautionary requirement

Precautionary requirements are the amounts of cash needed to meet unanticipated cash
payments. Cash balance held for precautionary requirement reflects the uncertainty of future
cash flows. It is a common practice, however toe keep at least some of the firm’s precautionary
balances invested in marketable securities( Fabozzi 1996;Ross1998).

Speculative requirements

Speculative motives are the cash balance that is held by the business venture to take advantage of
bargain purchase that might arise

Speculative motive: money held under the motive constitutes a store of value a liquid asset that
holder intends to use to make speculative gains (Fabozzi 1996;Ross 1998).

The money held on this motive will be invested in bonds and securities at the opportunities time.
If the price of bond is expected to rise (i.e. in other words the rate or interest is expected to fail
people buy bonds in order to make profit by selling them when price rise. If the price of bonds
are expected for fall (i.e. the rate of interest is expected to rise) people sell bonds to avoid losses.
The amount of money held under this motive will depend on the rate of interest (Fabozzi 1996;
Ross 1998).

2.3. Cash planning

Cash planning is a technique to plan and control the use of cash. It protects the financial
condition of the firm by developing a projected cash statement from a forecast of expected cash
inflows and outflows for a given Period. The forecast may be based on the present operations or
the anticipated future operations. Cash planning may be done on daily, weekly or monthly basis.
The period and frequency or cash planning generally depends up on the size of firm and
philosophy of management. Large firms prepare daily and weekly forecast. Medium size firms
may usually prepare weekly and monthly forecasts. Small size firms may not prepare formal
cash forecasts because of the non-availability of information and small-scale types of operations
(Pandey, 1999).

10
2.3.1. Cash forecasting and budgeting

Cash budget is the most significant device to plan and control receipts and payments. A cash
budget is a summary statement of the Firms expected cash inflows and outflows over the
projected period. Cash forecast are needed to prepare cash budgets. Cash forecasting may be
done on short-term or long term basis. Generally Forecasts covers periods of one year or less are
considered as short-term; those extending beyond one year considered as long term. Forecasting
provides a basis on which to measure the differences between actual events and the plan, so that
the nature and extent of corrective actions can be more clearly defined (Pandey; 1999).

2.3.1.1. Short-Term Cash Forecasts

It is comparatively easily to make short-term forecasts. The important functions of short-term

cash forecasts are

 To determine operating cash requirement

 To anticipate short term Financing
 To manage investment of surplus cash

The short term forecasts helps in determining the cash requirements for a predetermined period
to run business. If the cash requirements are not determined, it would not be possible for the
management to know how much cash balance is to be kept in hand, to what extent bank
financing be depend up on and whether surplus funds would be available to invest in a
marketable security.

One of the significant roles of the short term forecast is to pin point when the money will be
needed when it can be repaid. With such forecasts in hand, it will not be different for the
financial manage to negotiate short-term financing arrangement with banks.

The other function of the short-term forecasts is to help in managing the investment of surplus
cash in marketable securities. A carefully and skill fully designed cash forecasts helps a firm to

I. Selects securities with appropriate maturities and reasonable risk

II. Avoid over and under investing
III. Maximize profits by investing idle money (pandey, 1999)

11
 Short term cash forecasting methods the two most commonly used methods of short
term cash forecasting are.
 To receipt and disbursement method
 The adjusted net income method

Receipts and disbursement method cash flows in and out most companies in a continuous
basis the prime aim of receipts and disbursement forecasts is to summarize these flows during a
predetermined period. In case of those companies where cash item of income and expense
Involves flow of cash. This method is favored to keep a close control over cash

Three broad sources of cash inflows can be identified

I. Operating
II. Non-operating
III. Financially

Cash sales and collection from customers is the most important part of operating cash inflows.
Developing sales forecast is the first step in preparing forecast. All precaution should be taken to
forecast sales as accurately as possible. In case of cash sales, cash is received at the time of sales.
On the other hand, cash is released after sometime if sale is on credit. The time is realizing cash
on credit sales depends up on the firms credit policy reflected in the average collection period.
Non operating cash inflows include sales of old assets and dividend inters income. The
magnitudes of these items are generally small when internally generated cash flows are not
sufficient .the firm resorts to external financial resources financial cash inflows [pandey;1999]

The next step in the preparation of cash budget is estimation of cash knows. Which include the
following?

I. Operating outflows-cash purchases payments of payables, advances to supplies. Wages and

other operating Expenses
II. Capital expenditure it is relatively easy to predict the Expenses of therefore over short run
.Firms usually prepare this budgets ,the before, capital expenditure are predictable for the
purpose of cash budgets.
III. Contractual payments-repayment of loan and interest and tax payments.
IV. Discretionary payments-ordinal preference dividend.
12
 Adjusted Net Income Methods

This method of cash forecasting involves the tracing of working capital flows. It is sometimes
called the sources and uses approach.

Two objectives of adjusted net income approach are

I. To project the company need for cash at further date

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.

In preparing adjusted net income forecasts item such as net income. Depreciation, taxes,
dividends, etc can easily be determined from the company’s annual operating by budget.

The benefits of the adjusted net income method are

 It highlights the movement in the working capital items, and thus helps to keep a
control on a firm’s working capital
 It helps in anticipating a firm’s financially requirement
The major limitation of this method is it fails to trace cash flows, and there for, it is
utility in controlling daily cash operations is limited (Pandey, 1999)
2.3.1.2.Long-term-cash for casting

Long term cash forecasts may be made for two, three or five years. As with the short term
forecasts; company’s practice may differ on the duration of long-term forecasts to suit their
particular needs.

Long-term cash forecasting reflects the impact of growth, expansion or acquisitions; it is also
indicates financing problems arising from these developments (pandey, 1999).

13
The major uses of the long-term cash forecasts are

 It indicates as company’s future financial needs, especially for its waking capital
requirements.
 It helps to evaluate proposed capital projects. It pin points the cash required to finance
these projects as well as the cash to be generated by the company to support them
 It helps to improve cooperative planning Long-term cash forecasts compete each
division to plan for future and to formula project carefully.

Compensating Balance Requirements

Compensating balances are the amounts of cash needed to meet certain landing terms
commercial banks. For example, a corporation applies to a commercial bank for $ 100,000 loan.
As s condition for receiving the loan the borrowing firm agrees to keep an amount equal to 10%
of the loan that is & 10,000 on deposit in a checking account of the lending bank unit the entire
loan is repaid the $ 10,000 is called the compensating balance. Normal transaction and
precautionary balance nay be adequate to meet most or all of the required compensating balance
(NEVEU, 1985).

2.4.Investing idle cash

The primary function of a bank us to act as a depository for its customers. Funds and to meet the
credit need of its service area but deposit. Flow and how demands are subject to high degree of
uncertainty with respect to their direction, magnitude and timing. A commercial bank must have
a back up sources of liquidity to cope with these uncertainty flows. It is to meet its legal and
social responsibilities as a depository and a lender. Investing idle cash has two primary functions.
The first function is that it is a major contributor to earnings. The second function of investing
idle cash is to provide the bank with liquidity to meet expected or unexpected cash needs.
Because the minimum investments required purchasing money market instruments is generally
very large, the market is dominant by commercial banks, is sates and local governments,
financial and non bank institutions and more recently mutual funds. These Large investors
purchase money market instruments to convert temporary cash surpluses in to highly liquid
interest bearing investments (Brick, 1984).

14
The principal, money market instruments are

- Treasury bills
- Negotiable certificates of deposit
- Commercial paper
- Bankers agreement

Investments of temporarily idle cash in selected types of marketable securities are an

element of good financial management.

Such holding are regarded as a secondary cash reserve capable of quick conversion to
cash at any time, although producing a steady rate of return (Meigs ;1989).

1.4.1. Treasury bills

These are the most frequently issued marketable securities. They are sold weekly or monthly
on auction basis and have a maximum maturity of one year. A treasury bill does not carry an
interest coupon; interest rate is the difference between the price paid auction and that
received then sold or received at maturity. Although these are ``Liquid`` because they can
quickly converted in to cash without undue risk of capital loss .

1.4.2. Negotiable Certificate Deposit

In essence of negotiable certificate of deposit is a receipt issued by a bank or savings and

loan association in exchange for deposited or funds. The bank agrees to pay the amount
deposited, plus interest, to the bearer of the receipt on the date specified of the certificate.

1.4.3. Commercial paper

When a well-known corporation with a good credit rating wishes to borrow owner for a short
period of time, it issues a promissory note called commercial paper.

2.4.4.Bankers’ Acceptances

Drafts that a customer has drawn on a bank and which beers the bans promise to pay them at
maturity are called bankers acceptance. The acceptance reflects the obligation of both the bank
and the drawer to pay the face amount
15
 2.4.5 Repurchase Agreement

A purchase agreement is a contract in money market instruments. A borrower who needs funds
for a few days enters in to a contract to sell securities. Usually treasury bills from his inventory
and agrees to purchase them bank later at given price. Often the stated simply as that amount
necessary to provide a certain yield basis to the buyer for the time involved (Brick, 1984) .

2.5. Managing cash receipts and payments

2.5.1. Imp rest System of cash Funds

Immediate cash payments that are too small to made by check may be made from a petty cash
fund under the imp rest system the petty cash fund is created by drawing a cheque to petty cash
for amount of the fund. In recording the establishment of the find, petty cash fund is charged and
cash is credited. The cash is then turned over to the cashier or some person who is to be
responsible for payment made out of the fund (Samons and Karrenbrock;1996).

According to Simons and Karrenbrock the petty cash operation should be maintained from other
cash funds employed for a particular business purpose. Methods other than the imprest system
are sometimes employed in handling petty cash. The imprest system may be employed not only
for petty cash but also for other cash funds in large organizations.

2.5.2. Cash change Fund

According to Fees warrn retail stores and other business that receive cash directly from
customers must maintain a fund of currency and coins in order to make change. Drawing a check
for the required amount, debiting the account cash on hand and crediting cash on bank may
establish the fund. At the end of each business day the total amount of cash received during the
day is deposited and the original amount of the change fund is retained.

16
2.5.3. Cash Gap

It is simple concept that help operating people understands how their actions affect a company’s
cash flow. Although a desirable cash gap varies with the economic sector, geography and season,
the concept can be used to improve cash management at any company, on matter how the
industry, tradition and the nature of business often set the typical cash gap in a given industry.
Some industries are inherently higher cash gaps than other.

Some of the ways to reduce the cash gap are

 Increase the payable period and

 Decrease collection period (Hampton, 1989)

2.6. Statement of cash Flows

The statement of the cash flow explains how a company’s obtained and used cash during some
period. The sources of the area known as cash inflows, and the users are called cash out flows.
The statement classifies cash receipt (i.e. inflows) and payments (i.e. outflows) into three
categories ‘

 Operating activities
 Investing activities
 Financing activities

The following section defines these activities and outlines the types of cash flows that are
normally classified under cash category.

2.6.1.Operating Activates

Operating activities include cash inflows and outflows generated by Running (i.e. operating)
the business. Some of the specific items that are shown under this section are as follows.

1. Cash receipts from sales, commissions fees and receipts from interest and dividend
2. Cash payment for inventories, salaries,

Operating expenses, interests and taxes note that. Gains and losses are not included in this
section. The total cash collected from the sale of assets is included in investing activities section.
17
 2.6.2. Investing Activities

Investing activities include cash flow that are generated through company’s purchase or
sale of long-term operationally assets. Investment in other company’s and its lending
activities some items include in this sections follow

1. Cash receipt from the sale of property, plan, and equipment or of marketable securities
as the collection of loans.
2. Cash receipts from the sale of property. Plant, and equipment or of marketable securities
as well as loans made to other determining cash flow investing activities may also
require an analysis of changes in the beginning and ending account balances income
statement data .
2.6.3. Financing Activities

Financing activities include cash inflows and outflows associated with the company’s own
quality transaction or its borrowing activities. The following are some items a appearing unfer
the financing activities

1. Cash receipts from the issued of stock and borrowed funds.

2. Cash payments for the purchase of treasury stock, repayment of debt and payment of
dividends (Edmonds; 2000).

According to Edmonds Chas flow financing activities can frequently be determined by simply
analyzing the change in the balances of liability’s and stockholders equity accounts.

2.7. Objectives of Cash Audit

1. Establish available cash that is to be there.
2. Prove the cash that ought to be there.
3. Prove whether the cash on hand is needed or not
4. Check independent accountability for cash transaction.
5. Prove disbursement authorization s
6. Prove handling receipt
7. Prove cash protection
8. Establish management reporting methods and timely monitoring

18
 2.8.Internal Control for Cash

Good and desirable internal control measures that ideally may be considered to segregate duties
and functions are

- Handling or sales transaction (for additional details see sales internal control procedures)
- Cash receiving and keeping
- Cash mail receiving
- Depositing of cash
- Comparison of cash receipts and deposits
- General ledger entries and records (summery control records, sales, accounts receivable)
- Preparation of bank reconciliation
- Custody of petty cash fund
- Handling of purchase transaction (for additional detail see purchase internal control
procedures)
- Payment voucher preparation
- Check preparation
- Check signing and issuing (Yohannes Kinfu;1966).
- Check custody
- Voucher register (entries)
- General ledger entries and records (summery controls purchase accounts payable)
- Advances payment-purchase and travel and other advances
- Budgeting
- Payroll
- Inventory control (storing & issuing )
- Pre-numbered forms-casher receipt, checks, vouchers and other receipts review of
internal control would mean reviewing that
- All sources of cash receipts (sources of incomes) are properly established, identified and
authorized at point of operations, which includes examining sales processes.
- All cash received are documented includes assuring properties of forms and mathematical
accuracy.

19
 - All cash received are handled under strict protective custody, which includes physical
protection, daily depositing of cash receipts in fact to bank or central cashier and cashier
integrity.
- All supporting records and evidences of cash received are independently corporate and
maintained. (Yohannes Kinfu;1966).

2.9. The Financial Statement analysis Method

The ratios that are applied for analysis of primary financial statement are

 Liquidity: is ability to pay obligation that are expected to become due to with is the next
year’s operating cycle. You would look very closely at the relationship of its current
assets to current liability
 Working capital:- one measure of liquidity is working capital, which is the excess of
current assets over current liabilities When working capital is positive. There is greater
likely hood that the company will pay its liabilities. When the reverse is true, short term
creditors may not be paid, and the company may ultimately be forced in to bankruptcy
- Solvency: - its ability to pay interest as is comes due and to repay the face of values the
debt at maturity. Solvency rations measure ability of enterprise to survive over a long
period of time. The debt to total assets ratio in one source of information about paying
ability.
- Current cash debt coverage ratio:- cash provided by the operating activities divided by
the average current liabilities. Because cash provided by operating activities evolves the
entire year rather than a balance at one point time is often considered a vetter
representation of liquid on the average day.
- Current cash debt = cash provided by operation
Coverage Average total liabilities

It is due to decide the company’s power to generate sufficient cash provided by operating
activities to meet its current obligation (Bringham, 1995).

20
Cash debt coverage ration:- it is the ration cash provided by operating activities to total debt as
represented by average total liabilities. This ratio indicates a company’s ability to repay its
liability from cash generated from operation

Cash debt coverage ratio = cash provided by operation

Average total liabilities

To sum up the above literature review, the application of cash management is very much useful
for the whole company particularly for BOA the responsibilities of management with respect to
cash are

- To ensure that there is sufficient cash to carry on operations.

- To invest any idle cash and to prevent loss of cash due to theft or misappropriate

Therefore, like any other business organization cash management is useful in BOA. So as to
forecast their cash efficient budgets allocation and to mobilize the idle cash of the bank of
Abyssinia, it is useful to ensure that there is sufficient cash to under take their activities
appropriately.

21
 CHAPTER THREE
3. DATA ANALYSIS INTERPRETATION AND PRESENTATION
This chapter of the research deals with the analysis, presentation, and interpretation of data
gathered from the questionnaire distributed. 26 questionnaires distributed to employees of Bank
of Abyssinia, (87%) of the respondents were able to cooperate in filling the questionnaire while
4(13%) was unable to do so because of unknown inconveniencies. And interview was held with
the manger of accounting department.
3.1. Analysis of the findings
Table 3.1.1. Background information of respondents.

No Item Number of Percentage %

respondents

1 Gender
Male 18 69
Female 8 31
Total 26 100

2 Age
18-30 7 27
31-40 15 58
41-50 4 15
Above 50 0 0
Total 26 100

3 Educational level
Certificate 0 0
Diploma 0 0
BA degree 21 81
Masters 5 19
Total 26 100

22
4 How long have you worked for the
present position?
Less than 2 years 2 7.7
2 – 5 years 9 34.6
6 – 10 years 11 42.3
Above 10 years 4 15.4

Source primary data

Item 1 of table 3.1.1. Shows sex distribution of the respondents, the data indicates that 18 of
them are male and 8 are female. Therefore, this implies that most of the employees are male.
Item 2 of the above table implies age group of the respondents. As per the data, it is indicated
that 15 of the respondents were in the age group between 31-40, 7 were between 18-30, 4 were
between 41-50 and none are above the age of 50, i.e. 0%, from the above information it can be
said that most of the employees of bank of Abyssinia are adults.
Item 3 0f the table shown above implies the education level of the sample respondents which
indicates that 21 are degree holders,5 are master holders and none are certificate and diploma
level. Based on the above data, the majority of the employees of BOA are B.A. degree holders.
This implies that the majority of employees at position professional can be bright up to
succession planning to fill critical positions in order to have sustained contribution and continued
excellence.

3.2. Analysis of data

Table3.1.2. Bank technique to manage its cash
No. Item No of respondents Percentage
(%)
1 The bank employs effective technique in order to
manage its cash appropriately?
Strongly agree 4 15
Agree 7 27
Neutral 15 58
Disagree 0 0
Strongly disagree 0 0
Total 26 100
Source :Own survey
Table 3.1.2 Shows cash management technique efficiency, as per the data 15(58%) of the
respondents are neutral, 7(27%) agreed, 4(15%) strongly agreed about the effectiveness of cash
management technique and from the total numbers of respondents majority of them didn’t give
there response. From the above data the researcher concludes that bank of Abyssinia doesn’t
employ effective technique in order to manage its cash.
23
Table 3.1.3. Counting and balancing of cash
No. Item No of respondents Percentage
(%)
1 How do you rate the extent of counting and balancing
cash on hand regularly?
Excellent 11 42
Very good 8 31
Good 7 27
Low 0 0
Very low 0 0
Total 26 100
Source : Own survey
Table 3.1.3. Shows the regular counting and balancing of cash on hand, the data indicates that
11(42%) of the respondents rated it excellent, 8(31%) rated very good, 7(27%) rated good and
none of the respondents rated low or very low. From the above data one can observe the
existence of regular counting and balancing of cash on hand.
Table 3.1.4. Management control the existence of cash
No. Item No of Percentage
respondents (%)
1 How do you rate the management control on
ascertaining the existence of cash?
Very good 4 15
Good 15 58
Moderate 7 27
Bad 0 0
Very bad 0 0
Total 26 100
Source: Own survey
As indicated in the above table, 4(15%) of the respondents rated the management control on
ascertaining the existence of cash as very good, 15(58%) rated good, the rest 7(27%) of the
respondents rated it as moderate, none of the respondents chose bad or very bad. This shows the
bank’s management control on ascertaining cash existence is good in the mind of the employees.

24
Table 3.1.5. Management control over inflow and outflow of cash
No. Item No of Percentage(%)
respondents
1 How do you rate the managements control over the
inflow and outflow of cash?
Very high 6 23
High 12 46
Medium 8 31
Low 0 0
Very low 0 0
Total 26 100
Source :Own survey
As the above table shows how employees have rated the managements control over the inflows
and outflows of cash. Out of 26 employees, 6(23%) rated it very high, 12(46%) rated high, 8(%)
rated medium. This implies that the management control over the inflows and outflows of cash is
at a good position and this shows the bank didn’t concentrate on the amount of reserve.
3.3 Reserve of requirement
Cash reserve is non interest earning and is based on the value of deposits as adjusted for national
bank of Ethiopia requirements. At June 30 2010 the cash reserve requirement was 15% of the
eligible deposits. These funds are not available to finance the bank’s day to day operations and
we are able to meet the reserve requirements in excess of the required ratio by N.B.E. for the past
years.
Table 3.1.6. Checking timely collection of loans and advance
No. Item No of Percentage
respondents (%)

1 What is the extent of the management effort in checking

timely collection of loans, credit, and advances?
Very high 6 23
High 13 50
Medium 7 27
Low 0 0
Very low 0 0
Total 26 100

Source : Own survey

25
Table 3.1.6. Shows employees response on the extent of the management effort in checking
timely collection of loans, credit and advances, 6(23%) of the respondents chose very high, 7(27)
chose medium and the majority of the respondents, i.e. 13(50%) chose high. This indicates the
management strongly works to ensure the timely collection of loans, credit and advances in order
to maximize the amount of cash on hand.
Table 3.1.7.Safeguarding of cash
No. Item No of respondents Percentage
(%)
1 How do you rate the banks performance with regard
to safeguarding of cash?
Very good 23 88
Good 3 12
Moderate 0 0
Bad 0 0
Very bad 0 0
Total 26 100
Source: Own survey
The above table shows how the employees rated the performance of the bank in safeguarding
cash, 3(12%) of the respondents rated it good, the rest of the respondents, 23(88%) of them rated
very good. Indicating the bank strives to assure the safety of cash and has a strong security
system. This means the bank use different mechanisms to save its cash through investment and
short term loan.

Table 3.1.8. Investments

No. Item No of respondents Percentage
(%)
1 The bank invests its idle cash in different profitable
securities.
Strongly agree 22 85
Agree 4 15
Neutral 0 0
Disagree 0 0
Strongly disagree 0 0
Total 26 100
Source : Own survey
As it is shown in the above table, 4(15%) of the respondents agrees, 22(85%) of the respondents
strongly to the statement that the bank invests its idle cash in different profitable securities.

26
As majority of respondents indicated the bank invests idle cash on treasury bill and short term
loan before investing to assure their profitability which is a good cash management technique.
3.4. Types of bank investment
The bank invests in government bond for long-term investment and Treasury bill for short term
investment.
Table 3.1.9. Authorization
No. Item No of respondents Percentage
(%)
1 Does the bank make every payment after a proper
authorization?
Yes 5 19
Yes 18 69
Neutral 3 12
No 0 0
No 0 0
Total 26 100
Source : Own survey
Table 3.1.9. shows employees level of agreement to the statement of the bank making every
payment after proper authorization, from the total respondents only 3(12%) respondents chose to
be neutral, the rest 18(69%) and 5(19%) yes and yes to the statement respectively. This shows
the bank follows a strict procedure in making every payment. This implies that the bank strictly
manage or minimize the risk of cash payments.
Table 3.1.10. Accessibility of documents.
No. Item No of respondents Percentage
(%)
1 Confidential documents and assets of the bank are
accessible for authorized personnel only?
Strongly agree 8 31
Agree 15 58
Neutral 3 11
Disagree 0 0
Strongly disagree 0 0
Total 26 100
Source :Own survey
As it is shown in the above table, 3.1.10 of the respondents agreed strongly, 15(58%) of the
respondents agreed and 3(11%) chose to be neutral to the statement confidential documents and
assets of the bank are accessible for authorized personnel only. The majority of the respondents,
i.e. 15(58%) agreed to the statement.
27
This indicates that the bank strongly protects its documents and assets which help the bank to
protect not only cash bills but also all other assets from the theft.
Table 3.1.11.Segregation of duty.
No. Item No of respondents Percentage
(%)
1 There is a proper segregation of duties and
responsibilities of employees over the payment
collection and recording of cash?
Very high 12 46
High 9 35
Medium 5 19
Low 0 0
Very low 0 0
Total 26 100
Source :Own survey
The above table shows how the respondents have rated the banks effort in segregating the duties
and responsibilities of employees over the payment, collection and recording of cash.
Accordingly 12(46%) rate it very high, 9(35%) rated high and the rest 5(19%) rated the effort
medium. None of the respondents chose low or very low which indicates the banks
implementation a good controlling system over segregation of duties among employees that
work on payment collection and recording. This implies that every payment collected and
recorded on the time in order to know the current position of the bank.
Table 3.1.12. Storage of recorded documents
No. Item No of respondents Percentage
(%)
1 How do you rate the banks effort in storing recorded
documents in a safe and easily accessible storage?
Very high 3 12
High 4 15
Medium 19 73
Low 0 0
Very low 0 0
Total 26 100
Source :Own survey
As it is indicated in the above table, 3(12%) of the respondents rated the banks effort in storing a
recorded document in a safe and easily accessible storage to be very high, 4(15%) rated it high,
the majority (19 in number, 73 in percent) rated it medium.

28
 This indicates the bank’s effort in keeping recorded documents safely and storing them in an
easily accessible place is medium and needs some improvement. This implies that the bank did
use computerized accounting system in order to attain the reliability of the record.
Table 3.1.13 .evaluating effectiveness of internal control.
Item Number of Percentage
respondents %
How do you rate the performance of evaluating the
effectiveness of internal control on a timely basis?
Very good 5 19
Good 9 35
Moderate 12 46
Bad 0 0
Very bad 0 0
Total 26 100
Source :Own survey
The above table shows how employees rated the banks performance of evaluating the
effectiveness of internal control in a timely basis out of the total respondents 5(19%) rated it as
very good 9 (35%) rated it as moderate the majority (12 in number and 46 in percent) rated the
performance of the bank on internal control at a timely basis as moderate. This implies the banks
performance in evaluating strengths of internal control is educated.
3.5 . effectiveness of internal control over current asset
There is an internal auditor to check the effectiveness of the internal control. It is evaluated by:
 Reconciling cash on hand with recorded amount.
 Pre audit before cash is disbursed to customers or before providing.
 Check the timely collection of loans that are provided to customers
 Post audit that helps as to find out if cash is disbursed to proper customer.
 Check the existence and completeness of current asset.
 Check whether if payments are made after proper authorization or not.
 Check whether every payment and collections are properly recorded or not.

29
Table 3.1.14.Recording transaction.
Item Number of Percentage
respondents %
The bank records every transaction related with payments,
receipt, and cash properly?
Strongly Agree 24 92
Agree 2 8
Neutral 0 0
Disagree 0 0
Strongly disagree 0 0
Total 26 100
Source; Own survey
As it is shown in the above table, 24(92%) of respondents agreed strongly and 2(8%) of
respondents agreed to the statement “The bank records every transactions related with payments,
receipt and cash properly”. The majority of the respondents, that is 24(92%) strongly agreed to
the statements. This indicates that the bank properly keeps a record of payments, receipts, and
cash. This helps the auditors simply checking the reliability of the financial records.
3.6.Meets of cash need
The banks major cash need is meeting by providing different saving services for customers like
 Checking account
 Saving account
 Fixed time period deposit account

The above deposit accounts provide the bank to have large amount of money that the bank needs
to meet its cash need and also invest their money in different profit earning investment.
Table 3.1.15 forecasting possibility of unexpected outflows
Item Number of Percentage %
respondents
How do you evaluate the bank’s ability to forecast and
prevent the possibility of unexpected outflows?
Very good 0 0
Good 6 23
Medium 14 54
bad 6 23
Very bad 0 0
Total 26 100
Source :Own survey

30
As it is indicated in the above table, the bank’s ability in forecasting and preventing the
possibility of unexpected outflow is rated by 6(23%) of respondents as good, 14(54%) as
medium, and 6(23%) as low. The majority of the respondents rated it medium and bad. This
indicates that the bank is not as ready as it should be for the situations of unexpected outflows.
Table 3.1.16. Capacity of the bank to meet its current obligation
Item Number of Percentage
respondents %
How do you measure the capacity of the bank to meet its
current obligation?
Very good 0 0
Good 5 19
Moderate 0 0
Bad 11 41
Very bad 10 40
Total 26 100
Source: Own survey
As it is indicated in the above table 11 (41%) of the respondents rated the banks capacity in
meeting its current obligation as badly, 10 (40%) of them very badly and the rest 5(19%) of
respondent rated it as good. The majority of the respondents rated as badly. This indicates that
the bank didn’t perform the variety of short term finances that allows it to easily fulfill its
current obligation.
3.7. Short term financing sources of bank
Funds are raised mainly from deposits and state capital this enhances funding flexibility limit
dependency on any source of funds and generally lower the cost of funds. Our bank use different
short term financing sources that bear interest and investment that earn interest like:
 Checking account: this are designed for immediate withdrawal the bank does pay interest
but it is a liability for the bank.
 Saving accounts: this deposit account provide higher interest rate than checking account,
they help to manage basic personal finances.
 Certificate of deposit: after higher return is exchange for tiding up invested money for the
duration of the certificates maturity, if the money is removed before maturity it is
subjected to penalty.
 Treasury bills: this is security that can offer modest returns and high liquidity for short
term shortage.

31
 3.7.1. The strategies of the bank used to collect
Short term loans from customers
The bank provide every loans and advances after a proper and in depth investigation of the
organization or individual who wants to borrow from the bank and collects the money monthly,
quarterly or semiannually.
Table 3.1.17. Prediction of future trends
Item Number of Percentage
respondents %
How often does the bank use financial ratio analysis to predict future
trends in a business?
Often 3 12
Usually 16 61
Moderate 7 27
Sometimes 0 0
Rarely 0 0
Total 26 100
Source: own survey
As it is indicated in the above table, 3(12%) of respondents believe that the bank often uses
financial ratio analysis to predict the future trends in a business, 16(61%) of respondents
indicated the bank usually uses financial ratio analysis to predict future trends in a business,
whereas the rest 7(27%) of respondents indicated that the bank usage of financial ratio analysis is
moderate.
Based on the data majority of the respondents implies that the bank use financial ratio analysis to
predict future trends in a business. This implies that the bank can use the out come of the
analysis as an input to design the future action plan.

3.6. Data gathered from secondary source

3.6.1 Financial data (in million birr)

Fiscal years

2009 2010 2011 2012 2013

Cash in hand 612.145 661.575 792.519 811.933 831.143

Cash at bank 15.63 57 193.72 12.6 4.07

Reserve account with NBE 1693.59 1606,706 1,322. 609 650. 017 424. 607

Deposit with foreign banks 374. 93 638 587. 059 812. 485 371. 416

Treasury bills 374. 94 _____ _____ 585.565 448. 965

32
Total loans and advances 2,442. 74 2,919.69 3,205. 208 3,797. 3 4,608. 533

Total asset 5,476. 62 6,279.54 7,278 8,239. 5 10,160

Deposits 4494. 19 5, 139 6, 075 6,771.245 8,496. 148

Source annual audit report of the bank

3.6.2 Financial ratio (the figure is in percentage)

Financial Fiscal years

Ratios
2009 2010 2011 2012 2013

Current ratio 60 57.6 47.7 33.78 24. 48

Liquid ratio 49.2 47.76 39.8 27. 2 25. 25

Quick ratio 60.28 61.36 54.8 56.08 46. 09

As the data indicates that the banks current ratio declining from 60% on the year 2009 to
24% on the year 2013. Based on the data on the year 2009, 2010, 2011, 2012 and 2013 that has
60%, 57.6%, 47.7%, 33.78% and 24.48% of liquid asset for the deposits. This implies that the
bank have had good performance on the year 2009. Similarly on the year 2009 among the total
asset 49. 2% of it was liquid and 60.25% of them were loans but on the other years these become
declining. This implies that the bank have good performance on the year 2009 than others
and the performance becomes declining on the other years.

3.8. Liquidity of current asset

Liquidity risk arise in the general funding of the groups activity and is the management of
positions it included both the risk of binge unable to liquidate on asset at reasonable price and in
an appropriate time from and the risk management group continuously assess liquidity risk by
identifying and monitoring change in funding required to meet business goal and targets set in
terms of the overall bank strategy. In addition the group holds a portfolio of liquid assets as part
of its liquidity risk management strategy.

33
 CHATER FOUR

4. Summary Of Findings, Conclusion And Recommendation

The researchers summarize in the previous chapter the researcher tried to investigate
problems weakness and strength of bank of Abyssinia regarding cash management
analysis. In this chapter findings results, conclusion and recommendation.

4.1 Summary of findings

The study was intended to cash management analysis in the case of bank of Abyssinia. To
conduct these study researchers used both primary data collection method through questionnaire,
unstructured interview and referring of different annual reports and related books.

This section points out and analyzed on chapter three will be summarized briefly.

 According to table3.2.1cash management technique efficiency, as per the data 58% of

respondents are neutral 27% are agreed and 15% strongly agreed about the effectiveness
of cash management technique.
 As the bank records every transactions related with payments, receipt and cash properly.
The majority of the respondents, that is 92% of strongly agreed to the statements. There
is the existence of regular counting and balancing of cash on hand.
 Bank of Abyssinia follows a strict procedure in making every payment.
 The bank properly keeps a record of payments, receipt and cash.
 Management control on ascertaining cash existent is acceptable.
 The bank evaluates the effectiveness of internal control over current asset.
 There is an internal auditor check the effectiveness of the internal control. It is evaluated
by:-
 Reconciling cash on hand with recorded amount.
 Check the timely collection of loans that are provided to customers.
 Post audit that helps as to find out if cash is disbursed to proper customer
 Check the existence and completeness of current asset
 Bank of Abyssinia implements a good controlling system over segregation of
duties.
34
 4.2 Conclusions
The study was undertaken with the intention of cash management analysis in the case of bank of
Abyssinia.

 The management control over the inflows and outflows of cash is at a good position.
 The bank management control on ascertaining cash existence is good in the mind of
the employees.
 The management strongly works to ensure the timey collection of loans, credit and
advances in order to maximize the amount of cash on hand.
 The bank used to different mechanism to save its cash through investment and loan.
 The bank strictly manages or minimize the risk of cash payments.
 The bank has strongly protects its documents and assets which help the bank to
protect not only cash bills but also other assets from the theft.
 When every payment collected and recorded on the time in order to know the current
position of the bank.
 The bank did use computerized accounting system in order to attain the reliability of
the records.
 When we observe performance of the bank in evaluating the internal control in timely
basis in not as expected by employees
 The bank properly keeps are cord of payments, receipts, and cash the auditors simply
checking the ratability of the financial records.
 Bank of Abyssinia use different shot term financing sources that bear interest and
investment that interest like: checking account, saving accounts, certificate of deposit
treasury bills.

35
 4.3. Recommendation

Based on the pervious chapter we would like to give the following recommendation.

 Attention should be given to internal control over cash since it is the corner stone of cash
management.
 Most of the asset of BOA is invested short term loan we recommended them to giving
long term loan and to sell bond to generate additional income.
 A more systematized forecasting should be carried out general funding level for
anticipated and unanticipated expenditures should be determined by looking at post
trends and changes that have occurred that will impact future forecasts.
 The bank should identify and monitored the achievement of cash management objectives
continuously.
 The bank should consider whether the cash management policies and procedure are
clearly communicated, understand and implemented by personnel in cash are.
 Communication-successful cash management requires municipally coordinated. The
includes the need to communicate policies and procedures internally within departments
to promote a clear understanding of what is expected and what the bank wants to achieve.

36
37
 Bibliography

Brick, R. Join (1984). Commercial Banking. U.S.A: Michigan State University System
Publications, Inc.

Bring ham, Fevgene (1995). Fundamentals of Financial Management (7th Edition).U.S.A:

Dryden press.

Fees and Warren (1993). principles of accounting (16thEdition). Cengage: South Western.

Harry Simons and Karrenbrock E. Willbert (1994). Intermediate accounting (4th Edition)
South Western Publishing Co.

Join, J. Hampton (1989). Financial Decision Making (4th Edition) Prentice Mall of India Pvt.
Ltd.

Nevell, P. Paymod (1985). Managerial Finance, South Western Publishing Co.

Pandey I. M. (1999). Financial Management (8th Edition).Vikas Publishing house Pvt. Ltd.

Richard ,Pettinger (1997). Introduction to Principles and Practices of Auditing Dravidian

University, Ibmt.

Ross, A. Stepen, W. Randolph Vesterfiedl and D. Bradford Jordan (1993). Foundations of

Corporate Finance (2nd Edition). U.S.A: Richard Irwin, Inc.

Yohannes, Kinfu (1966). Introduction to Principles and Practices of Auditing. Tribune, Print
Shop.

Frank, J. Fabozzi (1996). Capital Market Institution (2ndEdition) South Florida Publishing Co.

Abyssinia Bank Annual Report (2009-2013).

38
DECLARATION

Advisee’s Declaration

We, the undersigned, that this senior essay is our original work, Prepared under the guidance of
Ato Benyam Aragaw. All source of materials used for the manuscript have been acknowledged

Name:- signature

3. Fatuma Sabir
4. Hawa Alamudin

Place of submission St. Mary’s university

Date of submission

Adviser’s Declaration

The paper has been submitted for examination with my approval as the university adviser.

Name:-

Signature

Date

39
ST. MARY’S UNIVERSIT

FACULTY OF BUSINESS

DEPARTMENT OF ACCOUNTING

CASH MANAGEMENT ANALYSIS

THE CASE OF ABYSSINIA BANK

BY

FATUMA SABIR

HAWA ALAMUDIN

JUNE, 2014

SMU

ADDIS ABABA

40
 CASH MANAGEMENT ANALYSIS

THE CASE OF ABYSSINIA BANK

A SENIOR ESSAY SUBMITTED

TO THE DEPARTEMENT OF ACCOUNTING

BUSINESS FUCALTY

ST.MARY’S UNIVERSITY

IN PARTIAL FULTILLMENT OF THE REQUIREMENTS

FOR THE DEGREE OF ART IN ACCOUNTING

BY

FATUMA SABIR

HAWA ALAMUDIN

JUNE, 2014

SMU

SADISS ABABA

41
 ST.MARY’S UNIVERSITY

CASH MANAGEMENT ANALYSIS

THE CASE OF ABYSSINIA BANK

BY

FATUMA SABIR

HAWA ALAMUDIN

FACULTY OF BUSINESS

Department OF ACCOUNTING

APPROVER BY THE COMMITTEE OF EXAMINERE

DEPARTMENT HEAD SIGNATURE

ADVISOR SIGNATURE

INTERNAL EXAMINER SIGNATURE

EXTERNAL EXAMINER SIGNATURE

42
DECLARATION

Advisee’s Declaration

We, the undersigned, that this senior essay is our original work, Prepared under the guidance of
Ato Benyam Aragaw. All source of materials used for the manuscript have been acknowledged

Name:- signature

2. Fatuma Sabir
3. Hawa Alamudin

Place of submission St. Mary’s university

Date of submission

Adviser’s Declaration

The paper has been submitted for examination with my approval as the university adviser.

Name:-

Signature

Date

43
 ACKNOWLEGEMENT
First and For most we want to express out indebtedness to our advisor Ato Benyam Aragaw, For
genuine assistance in impaling and Correcting many of our defects throughout the
accomplishment of this study.

We could say, we are very much fortunate to be one of his advisees and we are able to benefit a
lot in forms of enriching the content of paper in all of its content.

We want to also use this opportunity to thank Ato Muhammed (Bank of Abyssinia) and
providing the necessary materials for this study.

Finally we would like thank our friends who shared genius and Constructive idea during our time
stay in university.

44
Table of content
Page
Acknowledgment-------------------------------------------------------------------------------------- i
Table of content------------------------------------------------------------------------------------ ii
CHAPTER ONE

1 Introduction--------------------------------------------------------------------------------------------- 1
1.1. Back ground of the study------------------------------------------------------------------------ 1
1.2. Back grounds of the organization------------------------------------------------------------------- 2
1.3. Statement of the problem--------------------------------------------------------------------------- 3
1.4. Research questions---------------------------------------------------------------------------------- 3
1.5. Objectives of research------------------------------------------------------------------------------ 4

1.5.1. General objectives------------------------------------------------------------------------ 4

1.5.2. Specific objectives------------------------------------------------------------------------- 4
1.6. Significance of the study---------------------------------------------------------------------------- 4
1.7. Scope of the study----------------------------------------------------------------------------------- 4
1.8. Research design and methodology----------------------------------------------------------------- 4
1.8.1. Research design---------------------------------------------------------------------------- 5

1.8.2. Sample size and population----------------------------------------------------------- 5

1.8.3. Sampling technique---------------------------------------------------------------------- 5
1.8.4. Types of data collection------------------------------------------------------------------- 5
1.8.5 .Methods of data collection---------------------------------------------------------------- 5
1.8.6. Data analysis methods--------------------------------------------------------------------- 6
1.9. Limitation of the study----------------------------------------------------------------------------- 6

1.10 .Organizational of the study----------------------------------------------------------------------- 6

45
CHAPTER TWO
2. Review of Related literature ----------------------------------------------------------------------- 7
2.1. Definition of cash, Management and cash Management -------------------------------------- 7
2.2. Cash balance requirement (motives) ----------------------------------------------------------- 9
2.3. cash planning----------------------------------------------------------------------------------------- 10
2.3.1. Cash Forecasting and Budgeting -------------------------------------------------------------- 11
2.3.1.1. Short-term cash for casting ------------------------------------------------------------------- 11

2.3.1.2. Long-term cash for casting ------------------------------------------------------------------- 13

2.4. Investing idle cash -------------------------------------------------------------------------------- 14
2.4.1. Treasury bills ---------------------------------------------------------------------------------- 15
2.4.2. Negotiable Certificate Deposit ----------------------------------------------------------------- 15
2.4.3. Commercial paper ------------------------------------------------------------------------------- 15
2.4.4. Bankers Acceptance --------------------------------------------------------------------------- 15

2.4.5. Repurchase Agreement ------------------------------------------------------------------------ 16

2.5. Managing Cash receipts and payments ------------------------------------------------------- 16
2.5.1. Imp rest system of cash fund ----------------------------------------------------------------- 16
2.5.2 Cash change fund ------------------------------------------------------------------------------ 16
2.5.3 Cash gap -------------------------------------------------------------------------------------- 17
2.6 statements of cash flows ---------------------------------------------------------------------- 17

2.6.1 operating activities ------------------------------------------------------------------- 17

2.6.2 Investing activities ------------------------------------------------------------------- 18
2.6.3 Financing activities ------------------------------------------------------------------- 18
2.7 objectives of cash audit ------------------------------------------------------------------------ 18
2.8 internal controls for cash ----------------------------------------------------------------------- 19
2.9 The financial statement analyses method ------------------------------------------------------- 20
46
CHAPTER THREE

3. DATA ANALYSIS INTERPRETATION AND PRESENTATION ---------------------- 22

3.1. Analysis of the finding-------------------------------------------------------------------------- 22

3.2. Analysis of data--------------------------------------------------------------------------------

23

3.3.Reserve of requirement------------------------------------------------------------------------ 25

3.4Types of bank investment------------------------------------------------------------------------- 27

3.5 Effectiveness of internal control over current asset------------------------------------------- 30

3.6. Meets of cash need------------------------------------------------------------------------------ 30

3.7 Short term financing sources of bank----------------------------------------------------------- 31

3.7.1 Strategies of the bank used to collect short term loans from customers------------------- 32

3.8 Data gathered from secondary source ------------------------------------------------------- 32

3.8.1. Financial data------------------------------------------------------------------------------- 32

3.8.2. Financial ratio------------------------------------------------------------------------------- 33

3.8.3. Liquidity of current asset------------------------------------------------------------------ 33

CHAPTER FOUR

4. Summary of findings, Conclusion And Recommendation------------------------------------- 34

4.1. Summary of finding--------------------------------------------------------------------------------- 34

4.2. Conclusion-------------------------------------------------------------------------------------------- 35

4.3. Recommendation----------------------------------------------------------------------------------- 36

Bibliography

47
 List of table
Table 3.1.1. Background information of respondents--------------------------------------- 22

Table3.1.2. Bank technique to manage its cash------------------------------------------------ 23

Table3.1.3. Counting and balancing of cash------------------------------------------------------- 24

Table3.1.4. Management control the existence of cash---------------------------------------- 24

Table3.1.5. Management control over inflow and out flow of cash------------------------ 25

Table3.1.6. Checking timely collection of loans and advance------------------------------- 25

Table3.1.7. Safeguarding of cash------------------------------------------------------------------- 26

Table3.1.8.Invesment---------------------------------------------------------------------------------- 27

Table3.1.9. Authorization---------------------------------------------------------------------------- 27

Table3.1.10. Accessibility of documents--------------------------------------------------------- 27

Table 3.1.11. Segregation of duty--------------------------------------------------------------- 28

Table3.1.12. Storage of recoded documents---------------------------------------------------- 28

Table3.1.13. Evaluating effectiveness of internal control------------------------------------- 29

Table3.1.14. Recording transaction-------------------------------------------------------------- 30

Table3.1.15. Forecasting possibility of unexpected outflows-------------------------------- 30

Table3.1.16. Capacity of the bank to meet its current obligation--------------------------- 31

Table3.1.17. prediction of future trends----------------------------------------------------------- 31

48
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