BORANA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF CASH MANAGMENT PRACTICE IN

COMMERCIAL BANK OF ETHIOPIA
(A CASE STUDY ON YABELLO BRANCH)
A PROPOSAL

SUBMITTED DEPARTMENT OF ACCOUNTING AND FINANCE

IN PARTIAL
FULFILMENT FOR THE REQUIREMENT OF DEGREE OF BACHELOR OF ART
(BA) IN ACCOUNTING AND FINANCE

BY GROUP ID/NO
1 Ado Kadiro Bru/Acc/W/018

2 Gamachu Abduba Bru/Acc/W/ 108

3 Galma Garbole Bru/Acc/W/287

4 Guyo Jaldesa Bru/Acc/W/116

ADVISOR: Talila
Co.

FEB 2025

Yabello, Ethiopia
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ABSTRACT

This research paper seeks to address the cash management practice of CBE yabello branch. It
will have address five basic research questions designed to asses’ cash management
performance of the bank. For the purpose of the study both primary and secondary data were
used, but much focus on primary data in which more information will have obtained by interview
and questionnaires.

After the data has been gathered, it will be analysed and presented. The data analysis will be
carried out based on tabulation and percentage method. Care full interpretation of analysed
information will be carried out to arrive at reasonable generalization.

Ultimately the research will be expected to provide rescannable results that could help the
management to take reseanable decision for their future activity.

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Table of Contents
CHAPTER ONE..............................................................................................................................................1

INTRODUCTION...........................................................................................................................................1

1.1. Background of the Study..............................................................................................................1

1.2 Background of the Organization........................................................................................................1

1.3 Statement of the Problem...............................................................................................................2

1.4. Objective of Study............................................................................................................................3

1.4.1 General Objectives......................................................................................................................3

1.4.2 Specific Objectives......................................................................................................................3

1.5. Significance of the Study.................................................................................................................4

1.6. Scope of the Study...........................................................................................................................4

1.7. Limitation of the Study.....................................................................................................................4

2.1. Cash Management...........................................................................................................................5

2.2. Controls Over Cash...........................................................................................................................6

2.3. Cash Planning/budgeting /...............................................................................................................6

2.4. Cash Controlling...............................................................................................................................7

2.4.1. Segregation of Duties................................................................................................................7

2.4.2. Accountability...........................................................................................................................8

2.5. Reasons of holding cash....................................................................................................................9

2.6. Investments of surplus (idle) cash...................................................................................................9

2.7. managing cash receipt and payment.............................................................................................10

2.7.1. Internal control over cash receipt...........................................................................................10

2.7.2. Internal control over cash payment............................................................................................10

2.8. Basis internal control principles for cash payments........................................................................11

3.1 Area of the Study.............................................................................................................................12

3.2. The Research Design.......................................................................................................................12

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3.3. Data Type and Source.....................................................................................................................12

3.4. Method of Data Collection..............................................................................................................12

3.5. Sample Size and Sampling Technique.............................................................................................13

3.6. Data Analysis and Presentation......................................................................................................13

3.7. Budget............................................................................................................................................13

3.7.1. Time Budget.............................................................................................................................13

3.7.2. Budget Schedule......................................................................................................................14

II
 CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

Cash is a medium of exchange that the bank will accept for deposit and immediate credit to
depositor account that include currency and coins, personal checks, bank drafts, money order
credit cards, select drafts and so on (Planket, 1986).

Cash management is one part of the financial management system. It is a proper use of an
entities cash resource, Since the bank play a major role in facilitating the way of financial sector
operates with banks utilize. Cash is important for understanding not only banking behaviour but
also for the role that the bank play in the transmission mechanism by effective cash management
banks can reduce cash balance at the minimum level and at the same time customers requirement
can be insured banks are business established that safeguard can be insured banks are business
established that safeguard peoples money and use it to loan and investment, cash management
services as the mean to keep the bank functioning by making the best use of cash or liquid
resources of the bank. There fore banks are very much interested in establishing procedure for
increasing the efficiency of their management. Among the procedure carefully prepared cash
forces (short-term and long term) and investment of idle cash is the major ones. (WWW.
Docstoc. Com 2:00 PM).

Commercial Bank of Ethiopia gives various type of service to their customers for example the
mobilization of financial resources and lending the resources to the business community
mobilization of financial resource arise from the fact that the amount of productive investment is
very low. In order to receive financial constraints on investment financial intermediaries are
expected to play a deceive role is brining about efficient way of rising the required level of funds
through application of proper financial management system. There for financial managers how
cash the bank should carry, the specific types of securities to issue and how mach of the firms
earning to Retain versus to pay dividends, (www.com bank eth.com)

1.2 Background of the Organization

The Sate Bank of Ethiopia will have established in 1942 with on objectives the duties of both
commercial and central bank is 1963 established as share company to take over the commercial
banking activities of the state bank of Ethiopia. In the 1974 revolution, commercial Bank of
1
Ethiopia got its strength by emerging with privately own Addis Ababa Bank. Since then if has
been playing significant role in the development end over the country.

The Commercial Bank of Ethiopia which is striving to embark in to world class commercial
bank hindering the state of the art and reliable service to its millions of customers both locally
and abroad. The business strategy of the bank focuses in the stake holders its services.

On April 30, year 2011 the number of branches reached 364 stretches a cross the length breadth
of the country. CBE combines a wide capital base with more than 9700 talented and committed
employees. In 2011 whom it regards as its key asset for employees. In 2011 whom it regards as
its key asses for banking development. The state owned commercial bank of Ethiopia still
dominates the market in terms of asset capital and customer base and Branch Network, deposit
the growing competition from Private Bank over the last 15 years.

This makes it one of the most reliable and strong commercial Bank in the country and the region.
Its strong capital base above 67 years of rich experience in the market and large branch network
through the country enable the bank to accommodate large demand for banking service, Bank
from private and public companies and to increase its overall revenue on sustainable base the
fundamental component of our mission statement includes customers. These are the most
important asset we continuously revise our attitude to wards the customers with the view to
securing.

Maximum customer’s satisfaction in order to optimally meet the need of our customers and
defiantly manage our business we are committed to enhancing long term share holder have, the
other is to get quality customers employees are very important Quality customers service is
possibility only through motivated and skilled employees to this end the bank is highly
concerned for the well being of its employees. It tries to developed a work force that enjoy
working for and prides itself is associated with bank and we believe that our success always
emanates from the effort we continuously expert on securing reliability and public confidence
from the community a large.

1.3 Statement of the Problem

Management is responsible for controlling and protecting of the business like inventory,
receivables, plant assets and cash. Cash management is one part of financial management system
that focus on internal control and forecasting the future cash requirement. (www. Investopedia –
com.6:00 pm).

2
Cash is the most important element of banks day today activity. By effective cash management
banks can reduce the excess cash at optimum level and ensure customers requirements.

Cash management involves neither excess not deficient amounts of cash on hand at right time
proper cash management requires that the bank know how much cash is need as well as how
much it has and where that cash is at all time. Cash management also require knowing the
amounts of fund available for investment and the length of time that can be must. (Planket,
1986).

Banks are increasing becoming innovative and anticipating the needs of corporate to wards
standardization, enterprise resources planning integration, reconciliation, real time reporting,
providing an end view as cash management value chain besides offering the ability to reach and
breached their own customers the mounting pressure from competition forces the banks to look
an information technology vendor who offer better solution and services in cash management
(www. Hcltech. Com. 9:50 am at local)

Even though, cash management receive a priority for financial institution especially Commercial
Banks little is known on how effectively monitor its cash flow, how to accelerate collection
receipt and optimize timing of disbursement, maximizing interest relate collection receipt and
optimize timing of disbursement, maximizing interest earning and properly secured investment.

There for this study tried to investigate a solution for the following basic research questions.

 What are the source of short term financing used by CBE Yabello?
 How the bank control cash receipt and disbursement?
 Does the bank have Idle cash and cash budget?

1.4. Objective of Study

1.4.1 General Objectives

The general objective of the study focus on the cash management practices of CBE in Yabello.

1.4.2 Specific Objectives

In addition, the above mentioned general objective the study has the following specific
objectives.

 To identify the source of short term finance in the bank.

 To asses the internal control of cash receipts and disbursement.

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 To assess the bank’s its cash budget and identify and asses idle cash its investment area.

1.5. Significance of the Study

This study will benefit CBE of Yabello Branch by identifying factors that affect the internal
control over cash and suggesting possible recommendation. It also reflects the researcher cash
management practice of Yabello Branch with its limitation and weakness and give possible
commentive idea or solution as to how the financial manager of the banks of Yabello Branch
should control its cash under the proper management of cash.

1.6. Scope of the Study

Here the researcher knows that the study includes the whole banks cash management practice but
time and financial constraints the researcher forced to focus on the assessment of cash
management practices of CBE Yabello branch. After this study the community would have
expected to compare the cash management practice of CBE with theoretical aspect of cash
management and it there is cash management problem give possible solution (Advices).

1.7. Limitation of the Study

During the collection of data for this study purpose the researcher will be faced different
limitation, like involuntariness of the concerned people to give the information and there will
also a time constraint to do this study.

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 CHAPTER TWO

LITERATURE REVIEW

2.1. Cash Management

Definition of cash: - cash is a medium of exchange that a bank will accept 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 include bank deposits, currency, coins,
bank draft and money order.

Definition of management: - 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 goals (Planket,1986).

Definition of Cash management - Strategy by which a company administer 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 centred on forecasting and internal control. Cash management is
importance for any business 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 in flow 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: -

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.

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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
investment such as bank deposits market securities. The idle cash management should be
depending 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
out put expected to be realized after a services are delivered. To be reportable as such it must be
readily available for the payments of current obligation and it must be free form any contractual
restrictions that limits 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 (keiso. etal,2001)

2.2. 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 are to be
provide accurate information about cash. To avoid cash shortage and excess (idles) cash and
protect cash from theft and miss use. To control cash receipt, the firm, should record the cash
receipt properly and immediately deposit the cash receipt amount.

2.3. 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 for caste 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
6
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 managements 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 device to help management measure the firm
performance may be improved. Cash budget helps to identify periods of cash surpluses. It also
helps 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 (college Accounting, P.230)

Advantages of Cash budgeting

Cash budget estimates the occurrence, amount and duration of cost and payment schedule for
any needed financing.

Is important tools 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 over all impact on cash
flow can be estimated (Navel, e 1985)

2.4. 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.

2.4.1. Segregation of Duties

Represent for each work different employees in order to create for each employee’s
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

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Creating and maintain department records such as processing and posting transactions and cash
register recording for select transactions manually and preparing cash receipt back ups (Craig
1988).

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.

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

Individual Accountability

Proper delegation of authority and responsibility means that knowing who has access to an asset
and why they access. It represents when transaction is identified to a person, individual cash
drawer’s 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 will have 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 (craig, 1988)

Security monitory

8
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 two people are involved in handling cash,
asses one properly and transported.

Transaction recording

Transaction 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.

2.5. 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 (timothy etal. 1995)

2.6. Investments of surplus (idle) cash

Investment is the alterative in order to manage properly the idle or surplus cash. Banks are one
financial institutions 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 is to act as a depository for its
customers. Funds to meet the credit needs for its services area. The excess amount of cash holds
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 tow 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
9
element of good financial management. The following are example short term money market
instrument like treasury bills commercial paper, certificate of deposit bank deposit (rose Stephen,
1995)

2.7. 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.

2.7.1. Internal control over cash receipt

To assure that all cash receipt by a business organization should be recorded with out any
misappropriation. The system control over cash receipt takes place in tow ways. The firs 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 the cash register 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 tow 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.

2.7.2. 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.

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2.8. Basis 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 consisting 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 (arens and lobbecke,
2002)

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CHAPTER THREE

3. Research Methodology and Design

3.1 Area of the Study

The study conducted on the cash management practice of commercial bank of Ethiopia Yabelo
branch, Yabelo is one of the districts in the Oromia regional state of Ethiopia It is located 570km
from capital city Finfinnee, named after its administrative center yabelo part of borena zone, the
2007 national census reported a total population of this woreda were 102,165, of whom 51,418
were men and 50,747 were women; 17,497 or 17.13% of its population were urban dwellers. The
majority of the inhabitants said they practiced traditional beliefs, with 59.8% of the population
reporting they observed these beliefs, while 14.73% of the population were Protestant 14.52%
were Muslim 8.28% practiced Ethiopian Orthodox Christianity and 1.79% were Catholic Afaan
Oromo was spoken as a first language by 92.79%, 4.27% spoke Amharic, and 1.12% spoke
Burji; the remaining 1.85% spoke all other primary languages reported, yabelo is bordered on the
south by Dubuluk,on the west El-waye, on the north by Gomole and east by Arero.

The agro-Ecology of the district is characterized by arid to semi-arid type environment. It has a
bimodal rainfall pattern in which the main rainfall. which accounts for 65% of the annual total is
received in April-June and remaining 35% in October to November. The long dry season runs
from December to March. Rainfall is low and erratic and the area is covered with various species
of acacia, shrubs and savannah grasses.

3.2. The Research Design

For this study descriptive design type of research, will be going to be used. Because, the aim of
the study will to describe the actual cash management practice of yabello branch.

3.3. Data Type and Source

For this study, the researcher proposal will be used both quantitative and qualitative data type
especially the later one. The researcher also uses both primary and secondary source of data.

3.4. Method of Data Collection

For primary method of data collection observation and unstructured interview will be used rather
than other method of data collection because in order to understand the real cash management

12
practice need to observe the activities. The secondary data will have collected by reviewing the
company published and unpublished journals, magazines and reports.

3.5. Sample Size and Sampling Technique.

From a total population of Twenty-five employees of CBE 6 employees were selected as ample
size by using judgmental sampling techniques-Because these 6 employees were especially
engaged in the area of cash management practice.

3.6. Data Analysis and Presentation

After necessary data were collected from the primary source and secondary sources the data
would processing and analyze data processing is an activity which involves interpretation data to
make the data appropriate for analysis. Data analysis will be done both by using qualitative and
quantitative data processing from the data get the data presenting will be descriptive data
presentation by using tables and others.

3.7. Budget

3.7.1. Time Budget

No Activity Dec Jan 2025 Feb 2025
2025

1 Title selection xx

2 Proposal writing xx xx

3 Communication with xx
organization

4 Data collection xx

5 Data Organizing and xx

analysing

6 Draft report writing xx

7 Final report writing xx

8 Defence xx

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3.7.2. Budget Schedule
no Item Unit Quantity Unit price Total price

1 Stationary
cost

Printing paper Pkt 1 500 500

Photo copy Sheet 100 3 300

paper

pen Number 5 20 100

2 Persona cost

Internet Minute 200 5 1000

service

Transportation Km 500
cost

Sub total 2400

Contingency 240
10%

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 REFERENCES

 Arens. Lobeck. 2001. Auditing integral Approach 9th. Edition.

 Bringham.F, 1995. Fundamental of financial Managing 7th edition.
 Dav`s, Dukes, Dychkam. 1995. Intermediate Accounting 3rd edition
 Kieso. Weygadite, war filed.2001. Principle of Auditing 9th edition.
 Kockw, timothy, mach Donald.1995. Bank management 4th edition
 Planket. 1986. Fundamentals of managerial finance 2nd edition.
 Raymond, P. Nevell 1985 fundaments of managerial finance 7th edition.
 Rose Stephen. 1995. Fundamental management and corporate finance 4th edition.

15
Appendix

Borana University
College of Business & Economics
Dear respondent

The purpose of this questionnaire will to collect data for requirement for partial fulfillment of

B.A degree in accounting in borana university your genuine response for the following question

is extremely important for the successful completion of this paper the information provide used

for purpose indicated and will be kept highly confident our group would like to thank you in

advance for your cooperation and scarification of your time.

Part one: - General Information

Education Status

Diploma  degree  Other specify  experience 

Salary 10000-15000  15000-20000  above 20000 

Service 1-2  2-6  above 6 years 

Part 2: questions

1. What are the source of short term finance for the bank

Customer’s deposits  other (specified) 

Capital reserve 

2. When the bank paying the payment?

On the due date  be for due date 

After the due date 

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3 does the bank posses idle cash? If yes where dose the bank invests idle

cash------------------------------------------------------------------------------------

4 what criteria the bank consider to invest its idle cash?

Maturity  profitability

Liquidity  other 

5 does the bank has cash budget

Yes  no 

6. If yes in what terms?

Monthly  semi annually 

Quarterly  annually 

7. Does the Bank perform theoretical aspect in to actual cash management

Practice? Yes  No 

8 In the operation of the bank How do you rate the cash position?

Mostly excessive relatively deficit 

Optimum  mostly deficit 

9. How do you rate the survive quality at the bank

Yes  No 

10. Did the bank manage its cash a payment and cash receipt properly?

Yes  No 

11. What are your responsibility in the bank

Accountant  secretary  other 

Casher  manager 

12. How is the cash budget compared with actual

17
 Good  very good moderately  No satisfy 

13. What method does the bank use to control cash receipted disbursement

18