FACULTY OF BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE
RESEARCH PROPOSAL PAPER ON
ASSESSMENT OF INTERNAL CONTROL OVER
CASH (IN A CASE OF ADDIS ABABA WATER
SUPPLY SERVICE)
Prepared By:- 1. Yewubdar adugna 0776/16
3. Tsedalech Abera 0840/16
4. Rahel Assefa 0839/16
5. Mahlet Sebsibe 0973/16
Advisor:- MR. TESFAHUN.K
May, 2019
Addis Ababa, Ethiopia
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Table of contents
Contents page No
1.1Background of the study...................................................................................................................1
1.2Background of the organaization ...............................................2
1.3 Statement of the Problem.............................................................................................................2
1.4. Objectives of the Study...................................................................................................................3
1.4.1 General objective..................................................................................................................3
1.4.2 Specific objective..................................................................................................................3
1.5 Significance of the Study.................................................................................................................3
1.6. Research Design and Methodology................................................................................................4
1.6.1Data Type, Sources and Collection Methods.........................................................................4
1.6.2 Sampling Size and Technique...............................................................................................4
1.7 Methods of Data Analysis...............................................................................................................4
1.8 Scope and Delimitation of the Study...............................................................................................4
1.9 Organization of the Study................................................................................................................4
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CHAPTER ONE
INTRODUCTION
1.1Background of the study
Cash is important current asset for the operations of the business and is the basic input to keep
the business running on continues basis. 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 cash
neither more or less. Cash shortage will interrupt the continuity of the firms operation while
excess cash will simply remain idle, without contributing anything towards the firms
profitability.(pandey;p,911)
Cash management is concerned with the managing of;1)cash flows into and outflow of the firm
2)cash flows within the firm, and 3)cash balance held by financing deficit or investing surplus
cash. Sales generate cash which has to be distributed out. The surplus cash has to be invested
while deficit has to be borrowed. Cash management seeks to accomplish this cycle at a minimum
cost. Cash management assumes more important than other current asset because cash is the
most significant and least significant asset that affirm holds.(pandey,1999;p,912)
Cash flows of a firm (out flow) as it pay for the goods and services it purchase from others. Cash
flows in to a firm as customers pay for the goods and services they purchase and services they
take. When refer to cash, we mean the amount of cash like assets-currency, coin and bank
balances.(financial management and analysis;page630)
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Addis Ababa water supply bureau holds some of its assets in the form of cash for several
reasons. It needs cash to its day to day operations. Referred to as transaction balance, the amount
of cash needed for the accomplishment of their purpose differ from one officer to another.
Companies do not keep their cash in little tin box; they keep it in a bank deposit. To understand
how they can make best use of that deposit, you need to understand what happens when
companies withdraw money from their account or pay money in to it. Suppose that the united
carbon company has $1million in a demand deposit (checking account) with its bank. It now
pays one of its supplier by writing and mailing check for $200,000.The company records are
immediately adjusted to show cash balance of$800,000.thus the company is said to have a ledger
balance of $800,000.(fundamentals of corporate finance third edition; page 202)
Sarbanes-Oxley Act of 2002(sox) requires all publically traded us corporations to maintain an
adequate systems of internal controls. Sox impose more responsibly on corporate executives and
boards of directors to ensure that companies internal controls are reliable and effective.
(http./www.smced.edu.cloccounts).
In every well-organized concern there exists a large number of ways and means where a check is
imposes on the accuracy of excusive works. In this research how Addis Ababa water supply
service (AAWSS) collects cash will discuss. In additions the cash payment procedure i.e. reason
for cash payment procedures and document use will discuss. Finally petty cash establishment and
replenishment practice and payment of petty cash will discuss.
Other Researchers on this topic addresses how companies and service render organizations
including Addis Ababa water supply service provider (AAWSS) control their inflow of cash.
They does not deal their out flow of cash. Additionally they mainly focus on financial statements
regarding cash. By standing from this study; my research will try to address internal control over
cash on both inflow and out flow by seeing financial statements and different sources; among
other sources, receipts and records are best example.
Background of the Organization
In our country Ethiopia clear water supply was started during the regime of emperor Minilik
Addis Ababa city acquired clear water pipe line which is constructed to the place and hospitals in
1949 EC. The growth in both population sizes of the city itself together with the improved living
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condition of the community increased the demand for clean water supply. In this result the need
for an organ which fills the increased demand clear water. An organ had been established under
Addis Ababa city municipality which had served only 2715 customers for 30 until1974years.
In 1979 Addis Ababa water and sewerage authority has been established. In 1995 the organ was
re-established under proclamation no 69/95. However, it failed to give service for lack of
enabling regulation. In 1999 the agency was newly established under proclamation no 122/99
with the name Addis Ababa city water supply service. Today, the agency increases the number
of customers which were around 29941 in the year 2011. The authority had only 67 employees
until 1984. However the number of employees has been increased day to day and reached 262 in
the year 2012. On the basis of five year transformation strategy, the authority was created on
employment opportunities for 6 micro finance enterprises and more than 60 workers and
contractors.
Vision of the Organization
To have standardized city, which can be an exemplary having adequate water accessibility and
living standard, which can be exemplary.
Mission of the Organization
To create the attitude of speedy and transparency public service by introducing modern
technologies and formations more ever to have financial self-independent institution by
introducing rational tariff system this is based on the communities living standard.
1.2. Statement of the Problem
The management of cash is important in any business enterprise because cash is means of
acquiring goods and services. The risk of theft is directly related to the ability of individuals to
access the accounting system and obtain custody of cash. Firm’s address their problem through
internal control system. AAWSS is a governmental organization which gives water utility
service in the country. The complexities of of its operation makes its short term and long term
assets susceptible to risks emanating both intentional and unintentional acts with the aim of
preventing those acts, AAWSS utilizes internal control system. So in this study the researcher
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attempts to assess whether or not the cash control system is designed in conformity with
generally accepted accounting principles (GAAP) and legal requirements.
The current problem of AAWSS is uncertainty of cash collection from the customer. Here are
some areas where the management of AAWSS needs to give a high emphasis in making
decision. Such areas are;
Source of cash collection and method of cash collection.
The cash deposit pattern to be follow.
Reasons for cash payment and their procedure.
Decisions regarding petty cash.
Cash controlling mechanism.
Decision about check payment.
To follow up weather cash collection is in case of conducting properly or not.
To check weather cash payment is reasonable or not.
Cash an asset that is most susceptible to theft and misappropriation.
In the context of the problems we discusses above this research will design to find answers for
the following research questions;
1. What type of techniques does AAWSS uses to control its cash?
2. How does AAWSS manage its cash payment and cash receipt?
3. Does AAWSS have procedures for controlling its cash?
What type of procedures they use to establish and replenish petty cash
1.3. Objectives of the Study
1.3.1 General objective
To access internal control over cash that will design in conformity with general accepted
accounting principle (GAAP) and legal requirements in AAWSS.
1.3.2 Specific objective
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The specific objectives of the study were,
1. To examine how management procedure is effective with regard to cash receipt
2. To evaluate the cash control techniques placed by the firm
3. to access effectiveness cash controlling procedures by observing their financial statement
4. To assess the appropriateness of the firms petty cash establishment and replenishment.
1.4 Significance of the Study
This proposal will give information for individuals who want to work further research regarding
internal control over cash. By reading this proposal anybody can get knowledge about how cash
control system takes place. In addition students who are studying about internal control
theoretically in the classroom will be able to see its application in the real world by reading this
proposal. The research will also pin point problem areas of controlling cash management and
suggest solution for consideration by the Addis Ababa water and sewerage authority.
1.5. Research Design and Methodology
1.5.1Data Type, Sources and Collection Methods
The study issue both primary and secondary types data. Primary data is collecting through
personal observation and in questionnaires. Secondary is also collect through reviewing
companies operational, companies financial statements and written documents such as books and
articles.
1.5.2 sample size and Technique
The sample size for the study was 15.These samples were taken one from general manager, five
from different department managers and the remaining nine were from employees including
cashiers, storekeeper, accountant and others. The sampling technique for the study was random
sampling.
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1.6 Methods of Data Analysis
After the information has been collected, the researcher proposes and analyses it by using tables
and descriptive approaches and data collected from primary and secondary data type is interpret.
The researcher use descriptive approaches; tables and statements.
1.7 Scope and Delimitation of the Study
Internal control is a comprehensive term that exists in each and every where there is an
importance of management. But the scope of this study is delaminate to internal control over
cash in AAWSA.
1.8 Organization of the Study
The paper was organized in to four chapters. Chapter one includes background of the study,
background of the organization, statement of the problem, objective of the study, scope and
delimitation of the study, significance of the study, methodology and organization of the paper.
The second chapter would deal with theoretical and empherical literature review. The third
chapter would also concentrates on the result analysis and discussion. Finally, the conclusion and
recommendation parts of the study have been included in the fourth chapter.
