An Assessment of Cash Management Practice:

In the case Of Oromia Cooperative Bank

A Research Paper Submitted to the Department of Accounting

and Finance for the Partial Fulfillment of BA Degree in
Accounting and Finance

Prepared By: Abdikeni Muhumed

Advisor: Yoseph Alemayehu

Unity University
College of Business, Economics and Socials Science
Department of Accounting and Finance

Jan. 25, 2016

Addis Ababa
 Table of content

Statement of Certification ...................................................................................................... i

Statement of Declaration ........................................................................................................ ii
Acknowledgment ................................................................................................................... iii
List of tables ............................................................................................................................ vi
List of figures ......................................................................................................................... v
Acronyms ............................................................................................................................... vii

Chapter One
1. Introduction ......................................................................................... 1
1.1 Background of the Study ............................................................... 1
1.2 Statement of the Problem .............................................................. 1
1.3 Objective of Study ......................................................................... 2
1.3.1 General Objectives .............................................................. 2
1.3.2 Specific Objectives ............................................................... 2
1.4 Significance of the Study .............................................................. 3
1.5 Scope of the study ......................................................................... 3
1.6 Limitation of the study ................................................................. 3
1.7 Research Methodology ................................................................... 4
1.7.1 Sources of Data and data collection tools .......................... 4
1.7.2 Methods of Data Analysis ................................................. 4
1.8 Organization of the Study .............................................................. 4

Chapter Two
2. Literature Review ................................................................................. 5
2.1 Cash Management ......................................................................... 5
2.2 Objectives of Cash Management .................................................... 7
2.2.1 Controls Over Cash .................................................................... 8
2.2.2 Cash Planning/budgeting/ ......................................................... 8
2.2.3 Cost of holding cash ................................................................... 9
2.3 Cash budget....................................................................................... 10
2.3.1. Cash Forecasting and Budgeting ............................................... 10
2.3.2 Short-term Cash forecasts .......................................................... 11
2.3.3 Long-term Cash forecasts ........................................................... 11
2.3.4. How to achieve objectives of internal control over cash............... 12
2.4 Advantages of Cash budgeting ............................................................ 12
2.5. Cash Controlling ............................................................................... 13
2.5.1 Segregation of Duties .................................................................. 13
2.5.2 Accountability ............................................................................ 14
2.6 Reasons of holding cash ..................................................................... 15
2.7 Investments of surplus (idle) cash ...................................................... 27
2.8 Managing cash receipt and payment .................................................. 27
2.8.1 Cash collections ......................................................................... 17
2.8.2 Cash Disbursements .................................................................. 17
2.8.3 Internal control over cash receipt ................................................ 18
2.8.4 Internal control over cash payment ............................................. 18
2.9 Basic internal control principles for cash payments ...................... 19
2.10. There are the two systems for control of cash 19
disbursements ............................................................................ 19
2.11. The use of the bank account as a control of cash ........................ 22
2.11.1. Basic bank services ....................................................... 23
Chapter Three
3. Data Presentation, Analysis and Interpretation of Result ................. 26
3.1 Background of the Organization ............................................... 26
3.2 Cash Management Analysis ..................................................... 27
3.2.1 Analysis of the response given by
Oromia Cooperative Bank employees .............................. 27
3.3 Managing cash receipts and payments ..................................... 40
3.4 Internal control of cash receipt.................................................. 40
3.5 Data Presentation Analysis Based on Secondary Data ............. 41
3.6 Liquidity Measurement Ratios: ................................................. 42
Chapter Four
4. Summary of Findings, Conclusion and Recommendation .................... 46
4.1 Summary of Findings ................................................................. 46
4.2 Conclusion ................................................................................. 47
4.3 Recommendation ....................................................................... 48-49
Reference
Annex
 Statement of Declaration

I undersigned declare that this study cash management on Cooperative Bank of Oromia S. Co. is
my original work and has not been submitted in any institution.

I cared out dependently the research work by using the available reference as guideline and
support of the advisor.

This is to the partial fulfillment for the requirement of the BA Degree in Accounting.

Name

Signature

Date of Submission
 Statement of Certification

This thesis has been submitted for examination with my approval as a university advisor.

The topic entitled cash management on Cooperative Bank of Oromia S. Co. for partial
fulfillment of the requirement of BA Degree in Accounting.

Advisor_________________

Signature_________________

Date _________________
 Acknowledgment

First of all I would like to thanks the Allah who helped me from the inception to
this end.

Secondly, I would like to say thanks to my advisor Ato Yoseph Alemeayehu, for
his invaluable contribution in advising me.

Thirdly, my heart felt gratitude goes to Cooperative Bank of Oromia S.Co.

employees and to my family for their financial and unwavering moral support
without their support this paper does not come in to reality.

Finally, I would like to thank all my friends.

 List of Table
Table 3.1 Demographic information of the respondents ........................... 27
Table 3.2 Short term finance in the bank ................................................ 28
Table 3.3 Enough cash of the bank .......................................................... 29
Table 3.4 Cash position of the company ................................................... 29
Table 3.5 The deadline of the payment .................................................... 30
Table 3.6 Idle cash ................................................................................... 30
Table 3.7 Investment Idle cash ................................................................. 31
Table 3.8 Theoretical aspect in to actual cash management ...................... 32
Table 3.9 Response regarding to rate of cash position .............................. 32
Table 3.10 Cash budget ........................................................................... 33
Table 3.11 Cash budget range ................................................................. 34
Table 3.12 Internal over cash receipt ...................................................... 34
Table 3.13 Petty cash ............................................................................ 35
Table 3.14 Response regarding to reasonability of the
bank (employee) ...................................................................... 36
Table 3.15 According system of the bank ................................................ 36
Table 3.16 Cash collection effort ............................................................. 37
Table 3.17 Internal and external control over cash payment ..................... 38
Table 3.18 Cash budget compare with actual ........................................... 38
Table 3.19 Long term policies to manage its cash ..................................... 39
Table 3.20 Cash planning ....................................................................... 39
Table 3.21 Current ratio .......................................................................... 42
Table 3.22 Cash ratio ............................................................................... 44
Table 3.23 Trend analysis ....................................................................... 45
 List of Graph
Graph 3.1 Current ratio .................................................................. 43
Graph 3.2 Cash ratio ...................................................................... 44
Graph 3.4 Trend analysis ............................................................... 45
 Acronyms
BA Bachelor of Art

CBO Cooperative Bank of Oromia

EFT Electronic Funds Transfer

S. Co Share Company
 Abstract

The study would be conducted cash management and practice at Cooperative

Bank of Oromia S.Co. in Addis Ababa.

The study would be an investigation of the assessment of cash management

and practice the objective of the assessment of cash management and practice
and its related to problem in the case of CBO.

The researcher used both primary and secondary source of data in order to
collect the information. Mostly the focuses were given to primary source of data
which is collected by questionnaire method of data collection. After the data
has been gathered, it would be processed analysis and presented.

The data analysis would be carried out on tabulation and percentage and
interpretation method and the data described by descriptive method. Finally
after analysis the stated problem the researcher would be conducted summary
findings, conclusion (strength, weakness) and recommendation.

Ultimately the researcher would be expected to provide reasonable result that

could help the management to take reasonable decision for the future activity.
 Table of content

Statement of Certification ...................................................................................................... i

Statement of Declaration ........................................................................................................ ii
Acknowledgment ................................................................................................................... iii
List of tables ............................................................................................................................ vi
List of figures ......................................................................................................................... v
Acronyms ............................................................................................................................... vii

Chapter One
1. Introduction ......................................................................................... 1
1.1 Background of the Study ............................................................... 1
1.2 Statement of the Problem .............................................................. 1
1.3 Objective of Study ......................................................................... 2
1.3.1 General Objectives .............................................................. 2
1.3.2 Specific Objectives ............................................................... 2
1.4 Significance of the Study .............................................................. 3
1.5 Scope of the study ......................................................................... 3
1.6 Limitation of the study ................................................................. 3
1.7 Research Methodology ................................................................... 4
1.7.1 Sources of Data and data collection tools .......................... 4
1.7.2 Methods of Data Analysis ................................................. 4
1.8 Organization of the Study .............................................................. 4

Chapter Two
2. Literature Review ................................................................................. 5
2.1 Cash Management ......................................................................... 5
2.2 Objectives of Cash Management .................................................... 7
2.2.1 Controls Over Cash .................................................................... 8
2.2.2 Cash Planning/budgeting/ ......................................................... 8
2.2.3 Cost of holding cash ................................................................... 9
2.3 Cash budget....................................................................................... 10
2.3.1. Cash Forecasting and Budgeting ............................................... 10
2.3.2 Short-term Cash forecasts .......................................................... 11
2.3.3 Long-term Cash forecasts ........................................................... 11
2.3.4. How to achieve objectives of internal control over cash............... 12
2.4 Advantages of Cash budgeting ............................................................ 12
2.5. Cash Controlling ............................................................................... 13
2.5.1 Segregation of Duties .................................................................. 13
2.5.2 Accountability ............................................................................ 14
2.6 Reasons of holding cash ..................................................................... 15
2.7 Investments of surplus (idle) cash ...................................................... 27
2.8 Managing cash receipt and payment .................................................. 27
2.8.1 Cash collections ......................................................................... 17
2.8.2 Cash Disbursements .................................................................. 17
2.8.3 Internal control over cash receipt ................................................ 18
2.8.4 Internal control over cash payment ............................................. 18
2.9 Basic internal control principles for cash payments ...................... 19
2.10. There are the two systems for control of cash 19
disbursements ............................................................................ 19
2.11. The use of the bank account as a control of cash ........................ 22
2.11.1. Basic bank services ....................................................... 23
Chapter Three
3. Data Presentation, Analysis and Interpretation of Result ................. 26
3.1 Background of the Organization ............................................... 26
3.2 Cash Management Analysis ..................................................... 27
3.2.1 Analysis of the response given by
Oromia Cooperative Bank employees .............................. 27
3.3 Managing cash receipts and payments ..................................... 40
3.4 Internal control of cash receipt.................................................. 40
3.5 Data Presentation Analysis Based on Secondary Data ............. 41
3.6 Liquidity Measurement Ratios: ................................................. 42
Chapter Four
4. Summary of Findings, Conclusion and Recommendation .................... 46
4.1 Summary of Findings ................................................................. 46
4.2 Conclusion ................................................................................. 47
4.3 Recommendation ....................................................................... 48-49
Reference
Annex
 Chapter One

Introduction
1.1 Background of the Study
Cash is the beginning of a company's operation cycle; it is usually the starting
points for a company's statement of internal control. Cash management is one
part of the financial management system. It is the stewardship or proper use of
an entity's cash resources since banks play a major role in facilitating the way
the financial sector operates the efficiency with which banks utilize. Cash is
important for understanding not only banking behavior but also for the role
that banks play in the transmission mechanism. It serves as the means to keep
the banks functioning by making the best use of cash or liquid resources of the
bank. (Harnyren, Harrison, Bamber, 1999, P.295).

To safeguard cash and to assure the accuracy of the accounting recording for
cash effective internal control over cash is imperative. Cash is consists of coins,
currency, /paper money/checks, money orders and money on hand or on
deposit in a bank or similar depository. The general rule is that if the bank will
accept it for deposit it is cash.

1.2 Statement of the Problem

Cash is an important asset for every company and it must be managed.

Companies also need to carefully control access to cash by employees and
others who are sometimes inclined to take if cash is on hand and controlling
who has access to it. The importance of accounting for cash is highlighted by
the inclusion of a statement of cash flows in a complete set of financial
statement. The statement identifies activities affecting cash.
Cash is clearly the single most important element of banking operations
especially in an environment like Ethiopia were banking technology and ATM
have use to facilitate their customers. (Larson 1999, P. 370).
Although, there is a progress in the investment of banking, some significance
burdens are arising which will back down in to the development of the sector
as well as the country’s fragile economy.
Cash management also require knowing the amounts of fund available for
investment and the length of time that can be must.
By doing so the entire effort of the paper revolves around seeking answers for
the following general and specific questions:

General Question

How is the researcher, evaluates cash management practices of the Cooperative

Bank of Oromia?
Specific Questions

This researcher was addressing the following specific questions.

 What are the sources of short term financing uses by Cooperative Bank of
Oromia?
 How the bank control cash receipt and disbursement?
 Does the bank have idle cash?
 What are cash controlling tools used by the bank?

1.3 Objective of Study

1.3.1 General Objectives
The general objective of the study was focus on the cash management practices
of Cooperative Bank of Oromia.

1.3.2 Specific Objectives

In addition the above mentioned general objective the study would have the
following specific objectives.
 To identify the source of short term finance in the bank.
 To evaluate weather the bank has idle cash.
  To identify cash controlling used by the bank.
 To address cash receipt and disbursement control of the bank.

1.4 Significance of the Study

This study would be the following values.

 Create awareness on managers to manage their cash in an acceptable

manner.
 Point out what the cash management practices of Cooperative Bank of
Oromia is by identifying strong and weak points and give possible
solutions.
 It may serve those researchers who want to further investigate cash
management analysis.

1.5 Scope of the study

The study would try to focus on the assessments of cash management in view
of their annual report for the period indicates. To do this study should try to
address cash management in the Cooperative Bank of Oromia for the last four
years.

1.6 Limitation of the study

During the collection of the study purpose the researcher should face different
limitation, like voluntariness of the concerned people to give the information
and there will also a time constraint.
1.7 Research Methodology

1.7.1 Sources of Data and data collection tools

 Sources of Data

The researcher would use both primary and secondary data.

 Data collection tools

The primary data was collecting by questionnaires is prepare and distribute to

employees working in the CBE bank

The secondary data, on the other hand, would collect from various sources. It
includes internal reports such as , the bank's manuals which are available in
the library, newspaper, experts, magazines, internet, and books.

1.7.2 Methods of Data Analysis

The methods that would apply in the study are, descriptive analysis supported
with tables and percentages is used to quantitatively measure the extent of
cash management.

1.8 Organization of the Study

This research paper has organized into four chapters. The first chapter is about
the introduction (background of the organization, background of the study,
statement of the problem, objective of the study. significance of the study,
scope, and research methodology). The second chapter outlines the review of
related literatures for the subject under study. The third chapter presents the
analysis of the study which diagnosis the data collect and related them to
different aspects, principles and recommendations. Finally the fourth chapter
addresses the summary, of findings conclusion, and recommendation.
 Chapter Two

Literature Review

2.1 Cash Management

Definition of cash: - cash is a medium of exchange that a bank will accept at
face value and liquid, high quality fixed income instruments with an absolute
value) duration of less than one year. It (includes currency and coin on hand,
bank deposit, personal check. Bank draft they order credit card and the like.
That a bank will accept for deposit and immediate credit to the depositor
account. Cash is any medium of exchange that a bank will accept of face value
which includes bank deposits, currency, coins, bank draft and money order.
(Meigs, 1995; p. 324).

Cash is needed to pay for labor and raw materials, to buy fixed assets, to pay
tax to service debit, to pay dividend and so on. The criteria generally used to
define cash is that the item be a "medium of exchange" be available
immediately for the payment of current debts, and be free from any contractual
restriction that would prevent the management of the business enterprise from
using it to pay to creditors. Cash the most liquid asset, is the most important
to the daily operations of business firms. (Pandy, 1999, P.764)

Definition of Management: - Many authors have defined the word

management in different ways. "Management is the process planning,
organizing, staffing, directing and controlling the use of a firm resource to
effectively and economically attain its objectives. Is a process of setting
organizing and achieving of a given management basic functions which as
planning, organizing, controlling and directing that utilize human, financial
and material resources. Management is a process by which under taken by one
or more persons to achieve the stated goal. (Brigham, 1996, P, 725).
Definition of Cash Management- The term cash management refers to
planning, controlling, and accounting for cash transaction and cash balances.
Because cash moves so readily between bank accounts and other financial
assets, cash managements really means the management of all financial
resource Strategy by which a company administers and invest its idle cash.
Cash management is concerned with the managing of cash balance held by the
bank for liquidity purpose and investing idle cash. Cash management is
managing the cash properly to maintain the profitability of cash excess and to
minimize the cash shortage risk. Cash management is generally cantered on
forecasting and internal control. Cash management is importance for any
business’s enterprise because cash a means of acquiring goods and services.
The management of a cash is necessary since cash constitute the smallest
portion of asset but it needs considerable time devotion for managing due to is
nature of easily misappropriates in order to solve uncertainty about cash inflow
and out flow and also lack of balance between cash receipt and disbursement,
the firm should develop appropriate strategies for cash management. Some of
the cash management strategies are the following:- (Brigham, 1996, P, 725).

Cash planning: - Cash inflow and out flow should be planning to protect cash
surplus or deficit for each period of the planning period. Cash beget should be
prepared for this purpose.
Management the cash flow:- the flow cash should be properly managed the
cash out flow should be decelerated and in flow relatively increase.

Optimum cash level: - The firm should be deciding about the appropriate level
of cash balances. The excess cash and cash deficit should be matched to
determine the optimum level of cash balances.

Investing surplus Cash:-The surplus cash balances should be properly

invested to earn profits. The firm (bank) should decide about the division of
cash balance between alternative short term investments such as bank
deposits market securities. The idle cash management should be depend on
the firm product, competition etc.

Cash is the most liquid asset and the standard medium of exchange and the
basic for measuring and accounting for all other items. Cash is important
current asset for operation of a business. It is the basic impute needed to keep
the business running on continuous basic. It also the ultimate output expected
to be realized after a service is delivered. To be reportable as such it must be
readily available for the payments of current obligation and it must be free from
any contractual restrictions that limit its use in satisfying debts. In accounting
cash consists of coin, currency and available found on deposit and the bank
negotiable instruments such as money order, certified cheque personal and
bank draft are also viewed as cash. Saving account usually classified as cash
although the bank has the lead light notice is rarely demanded by banks
saving account are considered as cash. (Brigham, 1996, P, 725).

2.2 Objectives of Cash Management

Cash managements are centered on forecasting and internal controls. The
basic objective of cash management is as follows. (Mykhan Pksain, 2002.
P.18.3- 18.4)

1. Provide accurate accounting for receipts, cash disbursements, and cash

balances. Many business transactions involve the receipt or
disbursement of cash. Also, cash transactions affect every classification
within the financial statements - assets, liabilities, owner's equity,
revenue, and expenses. If financial statements are to be reliable, it is
absolutely essential that cash transactions be recorded correctly.
2. Prevent or minimize losses from theft or fraud. Cash is more susceptible
to theft than nay other assets and. requires physical protection.
3. Anticipate the need for borrowing and assure the availability of adequate
amounts of cash for conducting business operations. Every business
 organization must have sufficient cash to meet its financial obligations as
they come due. Otherwise, its creditors may force the business into
bankruptcy.
4. Prevent unnecessarily large amounts of cash from sitting idle in bank
accounts that produce no revenue. Well-managed companies frequently
review their bank balances for the purpose of transferring any excess
cash in to cash equivalents or other investments that generate revenue.

2.2.1 Controls Over Cash

Due to its easily transferability, cash IS the asset most likely to be used by
employees and manages. Cash is also vulnerable to theft since many
transactions either directly or indirectly affects the receipt or payment of cash.

The objective of internal control over cash is to be providing accurate

information about cash. To avoid cash shortage' and excess idles cash and
protect cash from theft and mis use. To control cash receipt the firm, should
record the cash receipt properly and immediately deposit the cash receipt
amount. (Fess and Warren, 1994, P.180).

2.2.2 Cash Planning/budgeting/

Cash planning is a technique to plan and control the use of cash. It protects
the firm by developing a projected cash management from forces of exacted
cash inflows and outflows for a given period. Cash beget is a planning tool that
helps the management of the business in making important decision.
It is a schedule of expected cash payment and cash receipts. It results the
effect on the cash position at a given level of operations. The forecast may be
based on the present operation or the anticipated future operations. Cash
planning in very import in developing overall operating plant of the firm. The
cash planning (budgeting) may be done on monthly quarterly or yearly basis.
The period and frequency of cash planning generally depend on the size of the
firm and philosophy of management, cash budget is a set of formal (written)
statement of management’s expectation regarding sales expenses production
volume and various financial transactions of the firm for the coming period.
Cash budget consider as a standard at the end of the period and serve as a
control devices to help management measure the firm performance may be
improved. Cash budget helps to identify periods of cash surpluses. It also help
the financial manager to measure the amount and duration of cash shortage
and to prepare repayments schedule and it there is. Cash budget helps to
prepare prepayments schedule and it there is cash shortage to finance with
borrowed funds Cash planning is a technique to plan for and control the use of
cash. It protects the financial condition of the firm by developing a projected
cash statement form a forecast of expected cash inflows for a given period. The
forecasts may be based on the present operations or the anticipated future
operations. Cash plans are very crucial in developing the overall operating
plans of the firm.

Cash planning may be done on daily, weekly or monthly basis. The period and
frequency of cash planning generally depends upon the size of the firm and
philosophy of management. Large firms prepare daily and weekly forecasts.
Medium size firm usually prepare weekly and monthly forecasts. Small firms
may not prepare formal cash forecasts because of the non-availability of
information and un-sophistication of operations. But, if the small firms prepare
cash projections, it is done on monthly basis.

2.2.3 Cost of holding cash

When a firm holds cash in excess of some necessary minimum, it incurs an
opportunity cost. The opportunity cost of excess cash (held in currency or bank
deposits) is the interest income that could be earned in the next best use, such
as investment in marketable securities.
Given the opportunities cost of holding cash, why would a firm hold cash in
excess of its compensating balance requirements? The answer is that a cash
balance must be maintained to provide liquidity necessary for transaction
needs paying bills. If the firm maintains too small a cash balance, it may run
out of cash. If this happens, the firm may have to raise cash on a short-term
basis. This could involve, for example, selling marketable securities or
borrowings. An activity such as selling marketable securities and borrowing
involves costs. As noted above, holding cash has an opportunity cost.

To determine the appropriate cash balance, the firm must weigh the benefits of
holding cash against these costs. To be optimal the banks must use different
method of managing cash, like preparation of cash budget, investing idle cash
in different financial instrument opportunities.

2.3 Cash budget

Cash budget "a forecast of cash receipts and disbursement for this next
planning period" Cash budget is the primary tool in short run financial
planning. It allows financial manager to identify short-term financial needs and
opportunities. An important function of the cash budget is to help the manager
explore the need for short-term borrowing. Cash budget or forecasts are two
types: short -term cash forecasting and long -term cash forecasting: (Pandy,
1999,P.914-916).

2.3.1. Cash Forecasting and Budgeting

Cash budget is the most significant device to plan for and. control cash receipts
and payments. A cash budget is a summary statement of the firm's expected
cash inflows and outflows over a projected time period.

Cash forecasts are needed to prepare cash budgets. Cash forecasting may be
done on short-term or long-term basis. Generally, forecasts covering periods of
one year or less are considered short-term; those extending beyond one year
are considered long-term.

2.3.2 Short-term Cash forecasts

These are cash forecasts that are routinely prepared by a company to
 Plan short-term financing
 Plan purchase of materials
 Estimate cash requirements.
 Develop credit policies and
 Schedule payments in connecting with capital expenditure projects
 Check the accuracy of long-term forecasting
Firm use multiple short-term forecasts of varying length and detail suited to
meet different needs. The commonly used designs for short-term cash forecasts
are:-
 One year divided into quarters or months.
 One quarter divided into months.
 One month divided in to weeks.
The point to be emphasized here is that these multiple formats serve as for
different purposes and should not be regarded as mutually exclusive.

2.3.3 Long-term Cash forecasts

These are forecasts that are generally prepared for a period ranging from two to
five years and serve to provide a rough picture of companies, Financing needs
and availability of invisible surplus in the future long-term cash forecast are
helpful in planning the outlays on capital expenditure project and planning the
raising of long-term funds.

While the receipts and disbursement method can theoretically be used for
preparing the long-term forecasts, the method that is generally used for this
purpose is the adjusted net income method. (Pandy, 1997, P 915-917).
Adjusted Net Income Method
This method of cash forecasting, resembling the funds flow statement, seeks to
estimate the company's need for cash at some future data and indicate where
this can be meet from internal sources or not.

2.3.4. How to achieve objectives of internal control over cash

The method or rule for the achieving internal control over cash objectives is to
understand in detail operating routine of a particular business for efficient
control procedures although there are some universal guidelines for achieving
internal control over cash. These guidelines are:
1. Do not permit any one employee to handle transactions from beginning
to end.
2. Separate cash handling from record keeping
3. Centralize receiving of cash as much as possible
4. Record cash receipt immediately.
5. Encourage customers to obtain receipts and observe cash register totals.
6. Deposit each day's cash receipts intact.
7. Lake all disbursements by check, with exception of small expenditures
from petty cash;
8. Have monthly bank reconciliation prepared by employees not
responsible for the insurance of checks of custody of cash. An
appropriate official should review the completed reconciliation promptly.

2.4 Advantages of Cash budgeting

Cash budget estimates the' occurrence, amount and duration of cost and
payment schedule for any needed financing. Is an important tool for planning
and controlling because forecasted error can be traced to the individual
components of the cash budget.
Important for forecast of occurrence amount and duration of cash level
overhand above the minimum desired end of month cash balances.
Serves as an integrative analytical tool for co operation of the individual
components of that produce cash budget inflows and out flows are brought
together and their overall impact on cash flow can be estimated.

2.5. Cash Controlling

Proper internal control of cash mechanisms provide management with
reasonable assurance that intended safeguard are being practiced consistently.
Due to its easily exposed to theft and misuse special control should be need for
any organization. For the effective of cash control in an organization the
following cash control method can be used as cash control principle and
standards.

2.5.1 Segregation of Duties

Represent for each work different employees in order to create for each
employees responsibilities and assures that one person is not made bias. For
this purpose the following function should be segregated in order to maintain a
proper segregation of duties.

Record Keeping Functions

Creating and maintain department records such as processing and posting
transactions and cash register recording for select transactions manually and
preparing cash receipt backups.

Authorization Function
Reviewing and approving of transaction example approving invoice, refunds
and other correcting entries, approving cash transfers and movement of assets
should be authorized by the management the organization or the responsible
person.
Reconciliation Function
Assurance that transactions are properly taken place. It is present at a
supervisory level or by accounting office. Example comparing funds collected to
the account receivable posting comparing collections to deposits and
comparing departmental records of revenue to the general ledgers.

2.5.2 Accountability
Proper accountability is present when an asset (cash) and all cash handling
activities and accounted for properly documented and traceable to specific cash
handle. The following functions should be performed in order to maintain a
proper accountability structure.

Individual Accountability
Proper delegation of authority and responsibility means that knowing who has
access to an asset and why they access. It represent when transaction are
identified to a person, individual cash drawers areas signed to each handless
and separate password are severed.

Cash accountability
Proper securing means knowing where can asset is at all times it presents
when all funds remain properly secured receipt are · given to each and every
customer and keys and ward are secured.

Process accountability
Proper documentation means knowing what was accrued from beginning of a
process to end of a process it is resent then all transfers are well document and
receipt are properly prepared and secured.
Security monitory
Means that the safety of and transport of assets are taken in it's consideration
and follow up proper protocols and procedures. It's present when tow people
are involved in handling cash, asses one properly and transported.

Transaction recording
Transactions are correct and the appropriate back up is maintained. It is
present when daily receipts are reconciled to the cash register totals and the
receipts collected. Authorization and approval: - means that the proper
supervisor and managing review and approve transaction. It is present when
receipt issued are reconciled and when receipt issued are reconciled and when
surrey cash counts are performed are performed on at least annual basis or
turn over exists.

2.6 Reasons of holding cash

Banks maintain on inventory of currency to satisfy its objectives. Primarily to
meet the daily currency demands of deposition, either at teller windows or
author mated teller machine. It the bank know with certainly the daily flow
currency from deposits and with drawers, the amount of cash required could
be determine clearly. If there were on costs associated with shipments currency
backs should reduce their holding of cash and increase the frequency of
currency shipments. Secondly, regularly agency mandate legal reserve
requirements that can be meet only by holding qualifying cash asset. Thirdly,
bonks serve as a clearing house for nations checks payment system, each
banks must hold sufficient balance at financial institutions so that check
written by its depositors will clear when presented for payments. Finally Banks
use cash balances as to purchase service from correspondent bank.
2.7 Investments of surplus (idle) cash
Investment is the alterative in order to mange properly the idle or surplus cash.
Banks are one financial institution which hold surplus of cash for short of time
and wish to earn at least some return on temporally idle cash. The primary
function of a bank are to act as a depository for its customers. Funds to meet
the credit needs for its services area. The excess amount of cash hold by firm to
meet its variable cash requirements and future contingencies should be,
temporarily sales in a national bank up sources of liquidity to meet these
uncertainty flows.

Investing idle cash has two primary function. First it is a major source of
getting earning and the other function Is to provide for the banks liquidity need
that is expected or unexpected a cash needs. Investment of temporarily idle
cash in selected type of marketable securities is a key element of good financial
management. The following are example short term money market instrument
like treasury bills commercial paper, certificate of deposit.

2.8 Managing cash receipt and payment

Cash receipt and payment management if to assure that all cash receipt and
payment of the company properly managed for the purpose of the company.
The objective sought in the managing cash receipts is to assure that all cash
that is receivable by the business enterprise is collected and recorded with out
loss. The system of managing cash payments should be designed to ensure
that not unauthorized payments are made.

Managing is accomplished by division of responsibility to achieve in dependent

verification of cash transaction with out duplication of effort. Cash is safe
guarded by keeping it in a safe, depositing it in banks, and through use of
special imprest cash funds.
2.8.1 Cash collections
Cash gathering entails the collection of customer remittance and the movement
of these receipts to a femora crop rate commemoration bank the mobilization
and concentration of funds creates an available cash pool for satisfying the
cash requirements of the company, such as funding corporate disbursement
and local payrolls or investing is short term instruments, Cash management
systems that are more centralized have fewer such concentration points.

The major objective in handling cash receipts efficiently is to reduce or

eliminates delays in processing customer, payments and energies them into the
check clearing system collection methods are influenced by the firms industry.
There are several criteria that determine collection method is used. The
collection track depends on the dollar size, volume and location of the
depositions unit some company may have to collect cash through the mailing
of checks but other will arrange a preauthorized garment where the garment
amounts and dates are fixed in advance.
When the date arrives, the amount is automatically transferred from the
customer's bank account to the firm's bank account.

2.8.2 Cash Disbursements

The corporate treasure manager's role in managing the funding of the
disbursement accounts is very important in establishing on efficient cash
management system. Companies offer develop hybrid disbursement systems in
which check writing and account reconciliation are performed at the local level,
but the disbursement banks are chosen payees are assigned to banks, and
disbursement accounts are funded centrally.

Handles cash disbursements is one of the treasury manager's most important

activities because it has offered a valuable financial befits to the company.
Efficient management of disburse nets is major element of total cash
management. A disbursement system should have a low operation cost, provide
accurate management, and extend disbursements float where practical and
reasonable.
Companies need an effective payment process to ensure payments reflect the
nature and urgency of the transaction and are handled III the most efficient
manner at the appropriate cost whether the payment needs are local, up
country locations, urgent or routine monthly transactions, low value or high
value. By using effective funding techniques, each manager can extend
disbursement float. To control disbursements different techniques can be used.

2.8.3 Internal control over cash receipt

To assure that all cash receipt by a business organization should be recorded
without any misappropriation. The system control over cash receipt takes place
in two ways. The first one is cash control over the counter and cash control by
mails from charges.
Internal control of cash receipt over the counter Cash register should be used
to cash receipt and the amount written an the cash resister should be visible to
customers. There should be pre numbered receipt used in sales process. The
cash receipt should be deposited immediately.
A person independent of the cashier should count cash and compare it to the
amount recorded on the receipt. Internal control of cash receipt by mail

The mails should be locked and the key should be placed on the hand of
responsible person. At least two people should have to present when mail is
opened and list of money received should kept. A prelisting of cash received
should made in three copies, one copy for cashier, the second for account
department the third copy kept by preparer. (Fess and Warren, 1994, P.280)

2.8.4 Internal control over cash payment

Cash disbursements are particularly exposed to frond and embezzlement. To
avoid this cash should be paid only after the precept of specific authorization
by documents that establish the validity amount of the client. Besides to these
duties in the purchase of goods and services and payments for them should be
separated. Charles T. Homgren, Walter T, Harrison, Jr Linda Smith, 1998, P.
304-308).

2.9 Basic internal control principles for cash payments

All payment should be made by check, the check should be authorized and
approved by independent individual preparation before payments are essential.
Voucher system: - a system of internal control for cash payment that provides
documentary evidences and authorization for each obligation incurred.
Voucher is a special form on which relevant data about a liability to be paid
and the details of its payments is recorded. It has the following functions.
It is consists of procedures for systematically gathering recording and paying
expenditures.
It provides strong control by separating duties and responsibilities for
authorization of expenditure receipt of goods and services, validation of liability
by examination of invoices from correctness of prices, shipping cash and credit
terms, payments of expenditure etc. (Harrison and Hornggren 1998, P. 192).

2.10. There are the two systems for control of cash

disbursements
1. Voucher system of control
2. Petty cash system of control
1. Voucher system is set of procedure designed to control the incurrence of
obligation and disbursement of cash. A voucher system users
 Vouchers
 A vouchers register
 A file for unpaid voucher
 Check register
  A file for paid vouchers
Vouchers: - vouchers is widely used in accounting in a general sense, it means
any document that services as proof of authority to pay cash, such as an
invoice approved for payment, or as evidence that cash has been paid, such as
a canceled check the voucher is then given to the designed official or officials -
for financial approval. (Fess and Warren, 1994, 202)

Vouchers register: - after approval by the designated official each voucher is

recorded in a journal known; as a voucher register.
A file for unpaid voucher: - after a voucher has been recorded in the voucher
register, it is filled in an unpaid voucher file, where it remains until it is paid.
The amount due on each voucher represents the credit balance of an account
payable.
Check register: the payment of a voucher is recorded in a check register; each
check issued is in payment of a voucher that has previously been recorded as
an account payable in the voucher register.
Paid voucher file: after payment vouchers are usually filed in numerical order
in a paid voucher file. They are then readily available for examination by
employees or an independent auditors needing information about certain
expenditure.

2. Petty cash
In most businesses there is a frequent need for the payment of relatively small
amounts such as for postal due for transportation charges or for the purchase
of urgently needed supplies at nearby retail store. Payment by check in such
cases would result in delay annoyance and excessive expense of maintaining
the records. Yet because these email payments may occur frequently and
therefore amount to a considerable total sum it is desirable to retain close
control over such payments. This may be done by maintaining a special cash
fund called petty cash. (Fess Warren, 1994. P.293)
In establishing a petty cash, fund the first step is to estimate the amount, of
cash needed for disbursements of relatively small amounts during a certain
period much as a week or a month. If the voucher system is used. A voucher is
then prepared for this amount and it is recorded in the voucher register as a
debit to Petty Cash and a credit to Accounts Payable. The check drawn lei pay
the voucher is recorded in the check register as a debit to accounts Payable
and-a credit to Cash in Bank.
The money obtained from cashing the check is placed in the custody of a
specific employee who is authorized to disburse the fund according to
restrictions as to maximum amount and Purpose. Each time a disbursement is
made from the fund the employee records the essential details on a receipt
form, obtains the signature of the payee as proof of the payment and in-tials
the completed form. (Fess Warren, 1994. P.293)

Cash over and short

Sometimes a petty cashier fails to get a receipt for payment .Then, when the
fund is reimbursed; he or she may forget the purpose of the expenditure. This
mistakes causes the fund to be short .if whatever reason the petty cash fund to
be short at reimbursement time, the shortage is recorded as an expense in the
reimbursing entry with a debit to the cash over and short account. This
account is an income statement account that records the income effect of the
cash overage and shortage arising from omitted petty cash recipes and from
errors in making change.

Cash Change Fund

A Change Fund is used to facilitate the collection of cash from customers. The
amount of the change fund is deducted from the total cash (including checks,
money orders, etc.) on hand at the close of business each day to determine the
daily cash collections., The cash should be counted and compared with the
cash register tape daily. In general, change and petty cash funds are combined
with cash on hand and in the bank and are presented as a single amount in
the balance sheet.

Reconciliation of bank balance

The cash balance indicated in a bank statement seldom agrees with the cash
balance indicated by the depositor's ledger account for cash. These two
balances do not agree even though they purport to measure the same quantity,
because there is a Jag between the time that transactions are recorded by the
bank and by the depositor.

For example, the depositor credits the Cash ledger account when a check is
prepared in payment of accounts payable. The bank does not reduce the
depositor’s account until the check is presented for payment by the payee.
Another common difference between the two balances results when the deposit
of cash receipts is made after the bank closes its records for the statement
period. Both of these differences are self correcting over time; the outstanding
checks are presented for payment and the deposit is recorded by the bank
within a few days (Mosich A.N.1989, P. 297).

2.11. The use of the bank account as a control of cash

Banks are used for many different services one of their most important services
is helping companies control cash and cash transactions Keeping cash in a
bank account is an important part of internal control because banks have
established practices for safeguard cash, provide detailed and independent
records of cash transactions, and are a source of cash financiering this section
describes services and documents provided by banking activities that increase
mangers control over cash.
2.11.1. Basic bank services
Basic bank services include the bank account, the bank deposit, and checking
each of these services contributes to either or both the control or safeguarding
of cash.
1. Bank account
2. Electronic fund transfer
3. Signature card
4. Deposit ticket
5. Check
6. Bank statements
7. Bank reconciliation
• Bank account
A bank account is a record set up by a bank for a customer. It permits this
customer to deposit money for safeguarding and check withdrawals. To control
asset to a bank account, all persons authorized to white checks on the account
must sign a signature card. Bank employees use signature cards to verity
signatures cards. This lowers the risk or loss from forgery for both banks and
customers. Many companies have more than one bank account to serve
different needs and handle special transactions such as payroll.

• Electronic Funds Transfer (EFT) the use of electric communication to

transfer cash from one party to another no paper documents are necessary.
Banks simply transfer cash from one account to another with a journal entry.
Companies are increasingly using EFT because of its convince and low cost. It
can cost, for instance, up to a dollar to process a check through the banking
system, whereas EFT cost is near zero we now commonly see items such as
payroll, rent utilizes and interest payments being handled by EFT. The bank
statement list cash withdrawals by EFT with clerks and other deduction cash
recipes by EFT are listed with deposits and other additions. A bank statement
is sometimes a deposition's notice of an EFT. (Pandy, 1997, P 915-917).
• Signature card: banks require each person authorized to transact business
through an account in that bank to sign a signature card. The bank compares
the signatures on documents against the signature card to protect the bank
and the depositor against forgery.
• Deposit Ticket: Each bank deposit is supported by a deposit ticket. A
deposit ticket lists the items such as currency, coins, and checks deposited
and their corresponding birr amounts. The bank gives the customers a copy of
the deposit ticket or a deposit receipts as proof of the deposit. The customer
fills in the dollar amount and the date of deposit. As proof of the transaction,
the customer retains either,
1. A duplicate copy of the deposit ticket,
2. A deposit receipt, depending on the bank's practice
• Check: to draw money from an account, the depositor writes check, which is
a document instructing the bank to pay the designated person or business
expedited amount of money. There are three parties to a check the maker, who
sings the check, the payee, to whom the check is drawn and the bank on which
the check id drawn.

• Bank statement
Most banks send monthly bank statements to their depositors. The statement
shows the account's beginning and ending balance for the period and lists the
month's transaction. Included with the statement are the maker's cancelled
checks, those checks that the bank has paid on behalf of the depositor. The
bank statement also lists any deposits and other changes in the account.
Deposits appear in chronological order and check in a logical order usually by
check serial number of along with the date each check cleared the bank.

• Bank reconciliation
There are two records of a business's cash (1) its cash account on its own
general ledger and (2) the bank statement, which tells the actual amount of
cash the business has in the bank town sure accuracy of the financial records,
the firm's accountant must explain the reasons for the difference between the
firm's records and the bank statement figures on a certain date the result of
this process is a document called the bank reconciliation. (Harrison and
Hornggren 1998, 192).

Here are some common items that caused differences between the bank
balance and the book balance,
1. Items records by the company but not yet recorded by the 'bank
a. Deposits in transept (outstanding deposits). The company has recorded
these deposits, but the bank has not.
b. Outstanding checks. The company has issued these checks and recorded
them on its books, but the bank has not yet.
2. Items recorded by the banks but not yet recorded by company.
a. Bank collection: bank sometimes collect money on behalf of depositors
many businesses are their customers pay directly to the company
bank account.
b. Electronic Funds Transfer: the bank may receive of pay cash on behalf
of the depositor. The bank statement will list the EFTs and may serve
to notify the depositor to record these transactions.
c. Service charge: banks commonly base the service charge on the
account’s balance. The depositor learns the amount of the service
charge from the bank statement.
d. Interest revenue on checking account: bank often pays interest to
depositors who keep a large enough balance of cash in their account.
 3. Errors by either the company or the bank. (WWW All Business
Com/Business Financial Cash Management/2984885-1 HTM-64K)
 Chapter Three
Data Presentation, Analysis and Interpretation of Result

3.1 Background of the Organization

The genesis of Cooperative Bank of Oromia is directly linked to the co-operation
movement in the country. The cooperative movement of the country had
experienced different systemic and socio-economic difficulties in previous
regimes. Lack of capital in the cooperative sub sector and non- availability of
genuine rural and agricultural financing system in general is one of the critical
factors attributed to the failure histories of the cooperative sector.

Cooperative Bank of Oromia (S.c.) was registered commercially On 29th

October, 2004 in accordance with article 304 of Commercial Code of Ethiopia.
It was established-in the with proclamation number 84/1994 with authorized
capital of ETB 300 mill ion. It commenced operation on 8th March 2005; with
paid up share capital of birr 112.

 Our Vision

To be competent, reputable and socially responsible Bank in Africa.

 Our Mission

The mission of CBO is to provide efficient banking services with special

emphasis to cooperatives so as to maximize shareholders' value through use of
state-of-the art technology, competent employees, and visionary leaders. We
believe rooting our foundation in communities would bring our success.

 Core Values
 Customer focused We deliver our promises to customers
 We respond flexibility to new challenges and opportunities
 We are open to constructive feedbacks
3.2 Cash Management Analysis

3.2.1 Analysis of the response given by Oromia Cooperative Bank employees

The following data found through distribution 17 questionnaires to employees

of Oromia Cooperative Bank who have adequate knowledge about cash
management.

Table 3.1 Demographic information of the respondents

Item Response Number Percent

Age 28-24 2 12%

25-35 14 82%

36-46 1 6%

Above 47 - -

Total 17 100%

Male 11 64.7%
Sex
Female 6 35.29%

Total 17 100%

Education Certificate - -

Diploma 1 6%

BA 15 88%

MA 1 6%

PHD - -

Total 17 100%

Experience Below one year 1 6%

1-3 5 29%

4-5 5 29%

6-10 5 29%

10-15 1 29%

Over 15 - -

Total 17 100%

Source: From the questionnaire

As indicate the above table 3.1 that from respondent 2(11.67%) falls in the
range of 18-24 and 14(88.23%) fall in the range of 25-35 and 1(5.88) fall in the
range 35-45 as far as the 17 respondent that indicate the total population of
respondents 11(64.76%) are and 6(35.29) are female and as the educational
background as follow diploma 1(5.88%) and BA are 16(94.12) the majority or
respondent are BSC/BA and the rest they couldn’t mention the work and as an
experience as follow 1-3 year are 5(29.41) and 4-5 year 6(35.29) and 6-10
5(29.41) and 10-15 1(5.88) of the respondent.

Table 3.2 Short term finance in the bank

As we know every company has resource and this company’s resource is the
human people the main resource of this from the customer and its capital
reserve.
The source of Short term Responses Number of Percentage
finance in the bank employee

Customer deposit 11 64.7%

Capital reserve 2 11.76%

Other 4 23.5%

Total 17 100%

Source: From the questionnaire

As it is shown the above table 3.2 the respondent’s response shown that 64%
are the depositor, 11.76% is capital reserve and 23.52% are other. The
researcher conclude that the bank have many customer that deposit service.
Table 3.3 Enough cash of the bank
As the researcher mention above the bank has enough cash to continuous its
work and can make challenge according its cash.
The bank has enough cash Responses Number of Percentage
employee
Yes 15 88.23%

No 2 11.76%

Total 17 100%

Source: From the questionnaire

As it is shown the above table 3.3 15(88.23%) are response the bank have
enough cash and 2(11.76) are say no there is no enough cash. The researcher
conclude that the bank have enough cash.

Table 3.4 Cash position of the company

The position of the company the existing cash position of the company either to
be attractive, competitive, fair medium and as mention above the cash position
of this bank is competitive.

The existing cash position of the Responses Number of Percentage

employee
company
Attractive 4 23.53%

Fair 1 5.88%

Competitive 8 47%

Medium 4 23.53%

Poor - -

Other - -

Total 17 100%

Source: From the questionnaire

From the table 3.4 the researcher clearly know that 4(23.53%) of respondents
that the bank are attractive and 1(5.88%) fair, 8(47%) competitive and
4(23.53%) are medium. The researcher concludes that there is the highest is
competitive and the rest is the same except the fair.

Table 3.5 The deadline of the payment

The deadline of the payment either to be on due date, before due date, and
after due date.
The deadline of the payment Responses Number of Percentage
employee
On the due date 10 58.82%

Before due date 4 23.53%

After due date 3 17.64%

Total 17 100%

Source: From the questionnaire

As it is shown the above table 3.5 that the 10(58.82) are pay the payment on
due date 4(23.53%) are pay the payment on due date 4(23.53%) pay before due
date and the rest 3(17.65%) pay after due date. The researcher conclude it the
bank pay the payment and due date and the bank handle it its payment.

Table 3.6 Idle cash

Idle cash is the surplus of the company because the bank has idle cash.
The bank poses idle cash Responses Number of Percentage
employee
Yes 11 64.7%

No 6 35.29%

Total 17 100%

Source: From the questionnaire

From the table 3.6 11(64.7%) of respondent say yes and 6(35.29%) say No this
showing the bank has excess amount of cash on hand that is not needed for
immediate purpose rather it needed in the future period. Hence, the researcher
understands that the bank has a problem of cash management.

Table 3.7 Investment Idle cash

Investment Idle cash of surplus (idle) cash investment is the alternative in

order to mange properly the idle or surplus cash bank are one financial
institution which hold surplus of cash for short of time and with to earn at
least some return an temporally idle cash.

The criteria the bank consider to Responses Number of Percentage

invest its idle cash employee
Profitability 13 76.47%

Maturity 1 5.88%

Liquidity 3 17.64%

Other - -

Total 17 100%

Source: From the questionnaire

As it is shown the above table 3.7 clearly shows that 13(76.47%) of respondent
select profitability as the criteria that the bank consider to invest its idle cash
and 1(5.88) of respondents select the maturity and 3(17.64) of respondent
select liquidity as criteria. The researcher understand that profitability play a
major role in the investment of idle cash because it measure the income level
and ability to develop and liquidity is the next criteria of the bank in order to
invest idle cash because it is frequently used as the ultimate test or
management operation effectiveness.
Table 3.8 Theoretical aspect in to actual cash management

The bank performs theoretical aspect in to actual cash management in the

organization.

The bank perform theoretical aspect in Responses Number of Percentage

to actual cash management employee
Yes 14 82.35%

No 3 17.64%

Total 17 100%

Source: From the questionnaire

From the table 3.8 14(82.35%) the respondent say the bank perform theoretical
from in to actual management and 3(17.64%) the respondent say No. in this
case the advantage of this to know the bank has effective cash management
procedure and maintaining sufficient cash amount in operational activities.

Table 3.9 Response regarding to rate of cash position

On the operation of the bank the cash management considers the following
items mostly excessive, Optimum, Relatively deficient and Mostly deficient.

The operation of the bank how Responses Number of Percentage

do you rate the cash position employee
Mostly excessive 5 29.41%

Optimum 9 52.94%

Relatively deficient 3 17.65%

Mostly deficient - -

Total 17 100%

Source: From the questionnaire

As it is shown the above table 3.9 the researcher clearly know that 9(52.94%)
of respondents that the rate of the bank cash position was optimum and
5(29.41%) says the rate of cash position was mostly excessive and 3(17.65%)
says that the rate of the cash position was relatively deficient. From this the
researcher concludes that there is optimum cash position in OCB.

Table 3.10 Cash budget

Cash budget is forecast of cash receipt and disbursement for this next
planning period” cash budget is the primary tool in short run financial
planning.

The bank has cash Responses Number of employee Percentage

budget
Yes 17 100%

No - -

Total 17 100%

Source: From the questionnaire

From the above table 3.10 shows clearly the bank has very good cash budget
and the respond says Yes that 17(100%) and there is No response say No in the
bank has sold management according to cash management.
Table 3.11 Cash budget range

The cash budget range: means it’s the period of the budget such as annual,
semi annual, quarterly or monthly and always the company’s use the annual
or the begging of the year.

The range of time Responses Number of Percentage

employee
Monthly 4 23.53%

Quarterly 1 5.88%

Semi-annually 3 17.65%

Annually 9 52.94%

Total 17 100%

Source: From the questionnaire

As it is shown the above table 3.11 clearly shows that the cash budget range
time as follow 9(52.94%) of respondent say annually and 4(23.53%) says
monthly and 3(17.65%) are says semi-annually and rest is 1(5.88%). So the
researcher conclude that the cash budget range is annually and annually is the
best that all the world use that range.

Table 3.12 Internal over cash receipt

To assure that all cash receipt by a business organization should be recorded

without any misappropriation.

The bank has internal over cash Responses Number of Percentage

receipt employee
Yes 12 70.58%

No 3 17.65%

I don’t 2 11.76%

Total 17 100%

Source: From the questionnaire

As it is shown the above table 3.12 shows that the respondent state clearly
12(70.58%) say yes and 3(17.65%) and the rest is unknown because they
couldn’t say yes or No. so the researcher conclude the bank has very good
internal over cash receipt.

Table 3.13 Petty cash

In most business there is small amount that allocate there expense to pay such
for postage, repair and small items of supplies or the charge of the bank.

They pay petty cash Responses Number of employee Percentage

Yes 15 88.23%

No 2 11.76%

Total 17 100%

Source: From the questionnaire

As indicate table 3.13 above 15(88.23%) response reply as the bank pay petty
cash and 2(11.76%) respondent say not pay petty cash but the majority
employee indicate clearly the bank pay petty cash so the company keep a small
amount of cash on hand to pay for such minor amounts. Under patty cash
payment the bank allocate small amount to pay its expenses such books pen,
or pencils, package, and using the tea café.

 What are the polices of the bank in relation to other banks?

The bank has difference polities according to the other and there respondent
and they have own polices organization or system and they say the polices of
the bank is to increase its branch or to open a new branch and use mobile
bank. Hello cash and ATM.
Table 3.14 Response regarding to reasonability of the bank (employee)
Every company has different labors that work or do their activity such
Accountant, casher. Manager and Secretary an other employee.

The responsibility in the bank Responses Number of Percentage

employee
Casher 4 23.35%

Accountant 4 23.35%

Manager 1 5.88%

Secretary - -

Other 8 47%

Total 17 100%

Source: From the questionnaire

As indicate the above table 3.14 respondent as follows 4(23.35%) are cashier
accountant respectively 1(5.88%) are manger and the rest is other mean not
casher accountant, manger secretary so 47% of employee select other and
other get highest cores/point.

Table 3.15 According system of the bank

The company have internal and external control over cash payment to control
its cash disbursement. Besides to these duties in the purchase or to record
every payment.

The auditors in the bank which Responses Number of Percentag

accounting system do you use employee e

Manual 4 23.53%

Computerizing 13 76.47%

Total 17 100%

Source: From the questionnaire

As indicate the above table 3.15 13(76.47%) of respondent are selecting the
computerizing and 4(23.53%) are select manual for as you see the above
information the most of the employee choose computerizing accounting and
manual system it see to ending because as while the technology spread all the
world that why large number of employee select computerize system.

Table 3.16 Cash collection effort

Cash gathering initial the collection of customer remittance and the movement
of these receipt to bank the mobilization and concentration of funds create an
available cash pool for satisfying the cash requirements of the company’s.
On which cash collection system/ Responses Number of Percentage
effort they use employee
Sending better to 9 52.84%
borrower
Making phone 3 17.65%
call to borrowers
Mobile bank 1 5.88%

Other 4 23.53%

Total 17 100%

Source: From the questionnaire

As it is showing the above table 3.16 9(52.94%) are sending a better to

borrowers and making phone call to borrowers is 3(17.65) and mobile bank is
1(5.88%) and the rest is other so as they state the respondent sending a better
to borrow that is the best way they use the bank lenders.
Table 3.17 Internal and external control over cash payment

The companies have Internal and external control over cash payment to control
its cash disbursement. Besides to this due in purchase of goods and service
and payment for them should be separate to record every payment.

The bank has internal and external Responses Number of Percentage

control over cash payment employee
Yes 15 88.2%

No 2 11.76%

Total 17 100%

Source: From the questionnaire

As indicate the above table 3.17 the respondent select 15(88.24%) and
15(88.24% and 2(11.76%) are they no the most of employee of bank say yes
and rest of the works say no that mean the bank has very good works of
internal and external over cash.

Table 3.18 Cash budget compare with actual

Cash forecasting of cash receipt and disbursement for the next period while
actual is the cash the bank has on hand.

Cash budget compare with Responses Number of Percentag

actual employee e

Good 3 17.65%

Very good 7 41.18%

Moderately 7 41.18%

No satisfactory - -

Total 17 100%

Source: From the questionnaire

As indicate the above table 3.18 of respondent 3(17.65%) and good and
7(41.18%) and 2(11.76%) are they no the most of employee of bank say yes and
rest of the works say no that mean the bank has very good works of internal
and external over cash.

Table 3.19 Long term policies to manage its cash

The bank has long term polices to mange its cash, so the company has good
polices according to other banks.

The bank has long term policies Responses Number of Percentage

employee
to manage its cash
Yes 15 88.2%

No 2 11.76%

Total 17 100%

Source: From the questionnaire

As it is shown the above table 3.19 of respondent 15(88.24%) are say yes and
2(11.76%) are say yes. Hence that highest percentage shows that the bank has
good polices because there in no organization working without polices.

Table 3.20 Cash planning

Cash inflow and flow should be planning to protect cash samples or deficit for
each period of planning period. Cash planning is technique to plan and control
the age of cash.

The bank has cash planning Responses Number of Percentage

employee
Yes 15 88.2%

No 2 11.76%

Total 17 100%

Source: From the questionnaire

As indicate the above table 3.20 of respondent 15(88.24%) and 2(11.76%) so
that the researcher conclude bank has good planning management of cash
because the employee show as the result of the planning management.

3.3 Managing cash receipts and payments

Just as cash the beginning of operating cycle, it is often staring point for
company’s system of internal control. Cash is the mere assets that are ready
convertible in to any other type of asset.

The management do to control cash management

The management do its duty with accountants and efficiently effectively is task
to control cash management by meeting each branch.

 By controlling day to day activity of reach branch.

 By using deposit report of each branch
 By using cash disbursement voucher.
 By collecting information date from the all branch to evaluate there task
or duty of cash.
 By using the latest technology to set more customers about the cash.

3.4 Internal control of cash receipt

In order to protect cash from the theft on misuse business control cash
receipts similar to different types of business. As the manager said Oromia
Cooperative Bank control cash receipts in different procedures, the bank
prepare record of all cash receipts as soon as cash is received, because most
theft of cash occurs before record is made. The bank designated cashiers are
authorized to handle cash receipts different individual receive cash record
cash, receipts and deposit and hold the cash.
3.5 Data Presentation Analysis Based on Secondary Data

What is the cash payments procedure of the bank?

 All tellers/cashier should have updated list of cheques on which “stop

payment” instructions are issued by drawers.
 Obtain a cheque, cash withdrawal slip or cash payment voucher
(payment instruments) signed by authorized signatories of the bank and
taken.
 Double check that no “stop payment” instruction is issued by the drawer
on the cheque presented for payment even though it might have already
been checked by counter clerks,. If “stop payment” instruction had been
issued return the cheque to the branch supervisors.
 Check that he taken number written on the payment instrument and the
number on the taken are the same to ensure the payment is made to the
right person.
 Check that the cheque is valid by checking the date of the cheque. Check
that the date, account number and the amount in wards and figures are
correctly and legibly written on the payment instrument and the
signature on the payment instrument is are verified.
 Check adequacy of balance of drawers account and past the payment to
the drawer’s or check whether posting is make to the drawer’s account
before effecting payment.
 Organize cash notes and coins to be paid in denominations required by
the client. Count each denomination carefully. Record the amount to be
paid by donation on the back of the payment instrument and check that
the to a agrees with amounts shown on the face of the payment
instrument.
 Ensure payers signature on the back of the payment instrument and
that the payee is properly identified advice the payee, to account the cash
before leaving the teller’s counts.
3.6 Liquidity Measurement Ratios:
Liquidity ratios attempt to measure a company's ability to payoff its short-term
debt obligations. This is done by comparing a company's most liquid assets (or,
those that can be easily converted to cash), its short-term liabilities.

 Cash Ratio

The cash ratio is the most stringent and conservative of the three short-term
liquidity ratios (current, quick and cash). It only looks at the most liquid short-
term assets of the company, which are those that can be most easily used to
payoff current obligations. It also ignores inventory and receivables, as there
are no assurances that these two accounts can be converted to cash in a timely
matter to meet current liabilities.

Table 3.21 Cash ratio

Cash ratio = Cash and bank balances

Current liabilities

Year 2011 2012 2013 2014

Cash and 1,217,098,512.61 1,086,406,637 3,002,487,824 1,757,443,229
bank
balance
Current 2,254,522,267.50 3,253,174,592 5,841,478,790 6,259,995,680
liability
Current 0.54 0.33 0.57 0.28
ratio
Source: Annual report
As shown in the above table 3.21 in 2012 and 2014 the bank was not in a good
liquidity position its solvency were at risk which could lead to bankruptcy, the
bank it liquidity position was good for 2011 and 2013.

Graph 3.2 Cash ratio

0.6 0.57
0.54

0.5

0.4
0.33 2011

0.3 0.28 2012

2013
0.2
2014

0.1

0
Cash ratio

As shown in the above table 3.21 in 2012 and 2014 the bank was not in a
good liquidity position its solvency were at risk which could lead to
bankruptcy, the ban at liquidity position was good for 2011 and 2013. The
company did not improve in 2014 its liquidity position to perfect level and
ideal ratio ½:1.

 Liquidity Measurement Ratios:

 Current ratio

The current ratio is used extensively in financial reporting. However, wile easy
to understand, it can be misleading in both a positive and negative sense- i.e, a
high current ratio is not necessarily good, and a low current ratio is not
necessarily bad.
Table 3.22 Current ratio
It measures a compositions, ability to meet it’s current obligation as they
become due liquidity ratio assumes that current assets are the principal source
of cash for meeting its current liabilities.
It is calculated by dividing current asset by current liabilities.

Current ratio = Current Asset

Current liability

Year 2011 2012 2013 2014

Current asset 2,182,459,155.75 3,154,216,057 5,726,892,120 6,334,897,561
Current 2,254,522,267.50 3,252,174,592 5,841,478,790 6,259,995,680
liability
Current ratio 0.96 0.96 0.98 1.01
Source: Annual report

As shown the above table 3.22 from ratio that asset from year 2011, 2014 show
normal and solvency financial position of Cooperative Bank Of Oromia, so the
ideal ratio is almost 1:1 but also figure inline will a deal figure.

Graph 3.1 Current ratio

1.02
1.01
1.01
1
0.99
0.98 2011
0.98
2012
0.97
0.96 0.96 2013
0.96 2014
0.95
0.94
0.93
Liquidity ratio
  Trend analysis
Trend analysis also called time series analysis is done to compare operation
performance of different years.

Table 3.23 Trend analysis

Description 2011 2012 2013 2014
Cash ratio 0.54 0.33 0.51 0.28
Current ratio 0.96 0.96 0.98 1.01
Source: Annual report

Graph 3.4 Trend analysis

1.2
0.98 1.01
1 0.96 0.96

0.8
2011

0.6 0.54 0.51 2012

2013
0.4 0.33
0.28 2014
0.2

0
Cash rato current ratio

From the above liquidity ratio line graph observed that the current ratio is
higher then cash ratio that means the operation does has access cash for the
last four years, and it is liquidity ratio is in good position for covering its
current obligation for that amount of access cash.
 Chapter Four

Summary of Findings, Conclusion and Recommendation

4.1 Summary of Findings

The main objective of the study is for assess the cash management practice
in Cooperative Bank of Oromia of Addis Ababa branch based on the analysis
and findings of the previous chapters.
 Most of the employee in Cooperative Bank of Oromia of Addis Ababa
branch their between 25-35 that implies they are well and familiar with
jobs they will assign.
 88% of employee of the CBO they have BA this indicate they are well
qualifies.
 The bank of CBO have enough short term finance for its normal
operation with come from different source like customer deposit and
capital reserve.
 The bank has enough cash to continue its normal operation in the
company years.
 The cash position of the company is normal in a way of competition of
the other banks.
 Investment of idle cash is one of the principle of cash management,
Cooperative Bank of Oromia in Addis Ababa branch have better
investment trend of idle cash in short term market investment by
considering its liquidity and profitability.
 The bank applies theoretical aspect of cash management.
 The bank prepares cash budget and uses in a good way.
 The bank has internal control over cash receipt that applying in a good
way that leading the bank to become the first bank in Ethiopia.
 The bank prepares petty cash to allocate its miscellaneous or impress
fund for purchases and services.
  According to current ratio analysis financial position of Cooperative Bank
Oromai, shows normal and solvency with ideal ratio of 1:1 (current ratio).
 Liquidity position of the bank was good for 2011 and 2013.
 The bank has good polices according to cash management.
 Internal and external over cash payment leads to control its cash from
there and found in a very good way.
 The bank has good managers which planning how to get easy the cash.
 Cash budget compare with actual it facilitating with what you have
know.

4.2 Conclusion
Strength

As it shown the previous chapter many employee of bank their age is between
25-35 that is showing the bank give the chance the young generation. With
respect to accuracy of cash payment, receipts and preparation of balance it can
be conclude that the bank is in a very good position. The bank has a clear way
to payment procedure there is a check and balance way of routine work
procedure. The bank handles the deposits and payment in a very good way.

The bank has excellence cash budgeting for its future. Cash budget also
considering all source and uses of funds. Investment in idle cash is considering
the bank has a capacity to manage its idle cash. The policies of the bank the
very good according to the respondent. Cash planning shows that the bank has
good management. The liquidity position of the bank is good expect in 2014.

Weakness

The gender balance is not proportional because it is only 35% of the total staff
of the bank is female and the rest is men. According to educational background
very view of the staff of the bank has second degree or masters and there is no
BHD holder. So the researcher recommends the bank has to develop
educational status of its staff.

In 2014 the bank was not in a good liquidity position it’s solvency were at risk
which could lead to bankruptcy. According to the other banks some how
Cooperative Bank of Oromia is weak as a competitive. Because of percentage
respondent less than 50%.

4.3 Recommendation
 From the discussion held in chapter three the researchers have
suggested the following for better achievement of its objective of
assessing cash management practice.
 The management of cash receipt and disbursement of the bank trend
and appreciable way which is acceptable in the universal polices, the
bank should continue by this trend in the future operation period.
 The bank should keep developing its way of cash budgeting and cash
forecasting to increase its cash in flow.
 It is very advisable if the bank prepares forecasted financial
statements in each year and all essential consideration of performs
income statements preparation and presentation of performs income
statements preparation and presentation should be taken into
account. The cash budget should be prepared in clear and
consideration of all receipts and payments. Because it is important to
forecast the general future business conditions of the bank.
 The bank should mange it cash more than the current period of
method for the success of bank and satisfaction of customer.
 The bank should give necessary training for their staff, labor for
further success of the bank to save time and cost.
 The bank should use the excess cash for investment purpose in order
to generate target profit rather than putting the money on hand
incurred cost for excess cash.
 The preparation of uniforms manual and procedure for daily operation
of cash is a vital and interest trend of the bank.
 When the progress of the time, organization update their previous
cash management system so, CBO of Addis Ababa branch use
effective and efficient update technology for the improvement of its
cash management is advisable by the researcher.
 The researcher will advise to increase their education employee not
only the BA.
 The researcher will suggests that because of cash is liquid and its is
important to manage it.
 Even though source or short term finance for the bank relatively
sufficient for its normal operation try to find other sources of
financing its short term finance rather restrict on the exiting source
finance.
 The researcher will recommend to the management of the bank to
increase gender equality.
 Reference
 Annual Report of Cooperative Bank of Oromia S.Co.
 Brigham, Eugene F. and Louis C. Gapenski (1996). Financial
Management. 5th ed. USA.
 Fess Warren (1994): Principle of Accounting. 6th edition. Published
McGraw –Hill, INC.
 Fess, Philip E. and Carl S. Warren (1994): Accounting Principle. 16th ed.
 Harrison, Walter T. and Jr. Charles T. Horngren (1998). Financial
Accounting. 3rd ed. USA.
 Meigs, Robert F. and Walter B. Meigs, Mart A. Meigs. (1995): Financial
Accounting. 8th ed. USA McGRAW-HILL, INC.
 Mosich A.N, (1989). Intermediate Accounting. 6th edition published
McGraw –Hill, INC.
 MyKhan, and Pksain (2002). Financial Management. 3rd ed. New Delhi.
 Pandy IM (1999) Financial Management. 8th ed. New Delhi.
 WWW All Business Com/Business Financial Cash
Management/2984885-1 HTM-64K
 Unity University
Collage of Business, Economics and Social Science
Department of Accounting and Finance
The aim of this questionnaire is to gather information in Cash Management Practice of the
Oromia Cooperative Bank for the research topic and to propose the solution for any problem
that the company has seen encountered.

The researcher believes that your genuine response and comments are vital ingredients for the
success of the research and solving your company’s any problem.

I would like to thank you for your kindly cooperation and willingness to fill up the following
questionnaire.

 Your information is uses only for research purpose.

 All your responses are valuable for the study.

N.B: Please write the necessary information on the space provide and put tick () mark in the
box.

Part I. Demographic

1.1. Age 18-24 25-35 36-45 Greater than 45

1.2. Gender Male Female

1.3 What is your education qualification?

Certificate Diploma BSc/BA MSc/MA PHD

1.4 How long have you been working in this company?

1-3 4-5 6-10 10-15 Grater than 20

Part II. Questionnaire
1. What are the sources information short term finance for the bank?

Customer’s deposit Capital reserve Other

2. Does the company has enough cash?

Yes No

3. How do you see the existing cash position of the corporation?

A. Attractive C. Competitive E. Poor
B. Fair D. Medium F. Other
4. When the bank paying the payment?
On the due date Before due date After due date
5. Does the bank poses idle cash?
Yes No
6. If yes where does the bank invest its idle cash?

7. What criteria the bank consider to invest its idle cash?

Profitability Maturity Liquidity Other
8. Does the bank perform the critical aspect in to actual cash management practice?

Yes No

9. In the operation of the bank how do you rate the cash position?
Mostly excessive Optimum
Relatively deficit Mostly deficit
10. Does the bank has cash budget?

Yes No

11. If yes in what range of time?

Monthly Quarterly Semi-annually Annually
12. Does the bank has internal over cash receipt?
Yes No
13. Does the bank has internal over payment?
Yes No
14. Does the bank has petty cash control system?
15. Do they pay petty cash?
Yes No
16. If they pay how they disbursement?

17. What are the polices of the bank managing the cash?

18. What are your responsibility in the bank?

Casher Accountant Manger Secretary Other
19. When the auditor wants checking the cash which accounting system do you use?
A. Manual B. Computerizing
20. If you use computerizes accounting which of the following system do you use?
A. Peachtree B. Book ratio C. Other specify

21. What kind of cash collection effort they use?

A. Sending letter to borrowers B. Making phone calls to borrow
C. Other D. Mobile banking
22. Please specify that if you use other

23. Does the bank perform the critical aspect in to actual cash management practices?
Yes No
24. Does the bank has different policies in relation to cash other banks?
Yes No
25. If ‘yes’ please specify?

26. Does the bank has internal and external control over cash?
Yes No
27. What are the management do to control cash management?
28. How is the cash budget compare with actual?
Good Very good Moderately No satisfactory
29. What method does the bank use to control cash receipt and disbursement?

30. Does the bank has a long term polices to manage its cash?
Yes No
31. Does the bank has cash planning?

Yes No

32. Is there shortage of cash?

Yes No