cash and cash equivalent proposal

7/27/2019 Cash and Cash Equivalent Proposal

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Table of Contents Page

1. Introduction ................................................................................................................................ 22. Statement of the Problem ........................................................................................................... 43. Objective of the Study ................................................................................................................ 54. Significance of the study ............................................................................................................ 55. Research Methodology ............................................................................................................... 56. Scope of the Study ...................................................................................................................... 67. Limitation of Study .................................................................................................................... 68. Organization of Study ................................................................................................................ 6Time Schedule ................................................................................................................................ 7Budget plan ................................................................................................................................... 30


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1.Introduction1.1Back ground of the StudyLiquid assets are the financial assets of any organization, which include cash in hand, cash at

bank and cash invested in various instruments to earn income when not immediately required for

the organizations operations. They are essential to the running of any organization and they

underpin the computation of liquidity indicator which, among others, is used to monitor the

financial health of organization.

Good liquid assets management enable us to determine the minimum amount of liquid assets you

wish to maintain for the purposes of making routine expenditures, maintaining an emergency

fund for unforeseen contingencies and saving for the future. Most importantly, maintaining

sufficient liquid resources from time to time ensures funds are available to meet all planned and

unplanned cash requirements and it help to maximize interest income by investing in approved

investments of all available funds not immediately required for its purpose, subject to any trusts

affecting the same.

Also consider the potential of the liquid assets to hold onto their value for as long as you plan on

maintaining them in your portfolio. This is important, since you do want to generate some typeof return or dividends while holding the assets. In addition, liquid assets that hold their value are

in an ideal position to respond favorably to varying market conditions and possibly command a

higher sale price when you choose to trade them in the marketplace. (Source: Intermediate

Accounting 6th edition, by Mosich.)


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1.2 Background of the Organization

Cooperative Bank of Oromia (CBO) was established by cooperatives in the Oromia region,

development organizations, individuals, and private companies with a paid-up capital of Birr

113.3 million. The cooperatives in the region owned the lions share of paid up share capital of

the bank. It was registered on 29 October 2004, in accordance with Article 304 of the

commercial code of Ethiopia and was licensed by National Bank of Ethiopia as per proclamation

No. 84/1994. The bank commenced operation on 8th March 2005. CBO is the first bank of its

kind in the country and the first private Bank established with large paid up capital.

CBO started operation with 7 branches in 2005. Since then it has been working dedicatedly to

provide its services to all customers all over the country. Currently 38 branches are in operation

to provide all banking service and products including: Appropriate credit facilities, efficient

money transfer, LC facilities, reliable foreign remittance service, and saving for interest bearing

and non interest bearing

Vision Statement

CBOs vision is, to be competent, reputable and socially responsible bank in Africa.

Mission Statement

The mission of CBO is to provide full-fledged and customer responsive banking services for

cooperative societies, other entities, and individuals with special emphasis to agricultural and

agro-based businesses financing, and to maximize shareholders value through use of competent

and disciplined employees, visionary leaders, and modern banking technologies.

Principles and values

These are statements about the core values and principles of CBO, which represent the

framework; within which all business involvement of the bank operate. Respect to socio-cultural attributes of the people, Integrity, honesty and loyalty, Valuing customers comment, Accountability and social responsibility; and Professionalism,


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2.Statement of the ProblemLiquid assets are among the most basic form of financial resources used by consumers, suppliers,

and investors. Essentially, a liquid asset is cash or any type of negotiable asset that can be

converted quickly and easily into cash. Cash creates management control problems because of

the ease with which it can be converted to uses outside the firm. It also generates problems in

terms of how much cash should the firm have on hand.

Generally, the paper tried to shade light all possible cash and cash equivalent management

problems of Cooperative Bank of Oromia through addressing the following research question:

How cash and cash equivalent is managed? How minimum amount of liquid assets are determined? How the Bank protect its liquid asset against loss? How the Bank maintain adequate liquidity position for day to day operation?


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3.Objective of the Study3.1. General Objectives

The general objective of this study is to assess cash and cash equivalent practice in the

Cooperative Bank of Oromia

3.2. Specific Objectives

The specific objectives of the study are to identify the key processes and models in cash and cash

equivalent management; examine the impact of poor cash and cash equivalent management on

the overallbanks performance.

4.Significance of the studyGenerally, the research would assess the effectiveness of cash and cash equivalent management

practice of Cooperative Bank of Oromia. This will have significant contribution to appraise the

effective control practice in place and identify areas of poor cash and cash equivalent

management practice to replace as per recommendation given. In addition, it provides

invaluable information on the subject matter and can serve as reference material for external and

internal users who want to conduct further studies on the topic.

5.Research Methodology5.1. Source of Data

The source of data for the study will be both primary and secondary sources.

Primary Data

The source for primary data will be gathered through self administered questionnaires preparedand distributed to all Accountants and Finance Managers in the organization.

Secondary Data

This will be datas from the written documents that were found in the organization as well as by

referring different manuals and reports which related to the topic.


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5.2. Method of Data Analysis

The data will be collect in the form of the instrument of questionnaire will be analyzed through

percentage, table, and chart. This analysis is carried out by relating respondents answers.

6.Scope of the StudyThe research is assumed to be conducted in Cooperative Bank of Oromia targeting on assessing

cash and cash equivalent management practice within these respective setting. It only takes into

account the practice of cash and cash equivalent management in the bank to address areas where

unacceptable practice prevail and promote effective systems being practicing by the bank.

7.Limitation of StudyThere are some factors which would limit the writer of this paper. This limitation includes:

Lack of experience in research activity and Scarcity of up-to-date source of document is some of

short coming of the research.

8.Organization of StudyThis research will cover for major chapters. Chapter one takes the research proposal, chapter two

reviews related literatures, and chapter three deals with empirical analysis and chapter four cover

research findings, conclusion.


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CHAPTER TWO

2. REVIEW OF LITERATURE2.1. Cash

Cash is a medium of exchange that a bank will accept for deposit and immediately credit to the

depositor account. Cash includes currency and coin, personal checks, banks draft, money order,

credit card, and cashier checks as well as money on deposit with banks. Items sometimes

confused with cash includes: postage stamps, postdated check and IOUs. Postage should be

classified as a short term prepayment postdated checks and IOUs should be classified as

receivables. Deposit with a trustee for example a bond sinking fund that is not under the control

of management of a business enterprise should not be included in cash. As another example

many air line companies have million of dollar in cash deposit with manufacturer for the

acquisition of flight equipment such deposit do not qualify as current asset because they are not

available for payment of current liability.

Certificates of deposit generally are classified as short term investment rather than as cashbecause they are not available for immediate withdrawal. Strictly speaking saving deposit also

may not be withdrawn without prior notice to the bank but banks seldom enforce this

requirement. Consequently saving deposit usually are viewed as cash. Petty cash funds and

change funds are minor element of cash under the control of management even though these

funds generally are intended to be used for specific purpose. The limitation placed on the use of

theses funds do not remove them from the category of cash but simply aid in the control of cash

on hand.

In summary the criteria generally used to define cash are that the item be a medium of exchange,

be available immediately for the payment of current debts, and be free from any contractualrestriction that would prevent management of business enterprise from using the item to pay its

creditors.


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2.2. Cash Equivalents

Cash equivalents are short term, highly liquid investments that are readily convertible to known

amount of cash and which are subject to insignificant risk of change in value. Cash

equivalents arise when companies place their cash in very short-term interest-earning financial

instruments that are deemed to be highly secure and will convert back into cash within 90 days.

Many short-term government-issued securities (e.g. treasury bills) meet these conditions. In

addition, active markets exist for such securities, and these financial instruments are usually very

marketable in the event the company needs access to funds in advance of maturity. Cash

management strategies dictate that large amounts of cash not be held in "unproductive" accounts

that do not generate interest income. As a result, surplus cash is often invested in these

instruments. Because of their unique nature, they are considered to be cash equivalents, and areoften reported with cash on the balance sheet.

2.3. Types of Cash Equivalents

While all cash equivalent investments are similar in providing liquidity and price stability, there

are some important differences among the four major types of investments in this category:

certificates of deposit (CDs), Treasury bills (T-bills), bank money market accounts, and money

market mutual funds. Some cash equivalents, such as money market accounts and money market

funds, offer greater liquidity or access to your money while others, such as CDs, offer less

liquidity but may pay higher rates of interest. And some cash investments are insured while

others aren't. The advantage of insurance is that you can be confident that your money is safe.

But the drawback is that insured accounts typically pay a lower rate of interest than uninsured

accounts. Some experts also consider short-term bond funds as cash equivalent investments since

they are highly liquid and their value is fairly stable. But unlike any other cash equivalents, you

can realize capital gains or capital losses when you sell these funds.

Cash equivalents and alternatives are typically more secure and convenient than cash, and

incorporating them into your daily processes can increase your effectiveness.


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Certificates of Deposit

Certificates of deposit (CDs), also known as time deposits, pay interest for a fixed term, usually

at a fixed rate. The shortest CD term is usually three months and the longest is five years. In

general, the longer the term is, the higher the rate the CD pays. That's to compensate you for

tying up your money for a longer period. You can always withdraw money from a CD before its

maturity date, but you may forfeit some or all of the interest you expected to earn.

Treasury bill

Is a government security that matures in one year or less? They are zero-coupon bonds that are

sold at a discount of the par value to create a positive yield to maturity. Treasury bills are

considered by many the most risk free investment. Treasury Bills are commonly issued with

maturity dates of 91 days, 6 months, or 1 year.

Money Market Investments

Money market accounts and money market funds, offered by banks and mutual funds

respectively, resemble checking accounts in that they offer the highest degree of liquidity. For

example, you can write checks against your account, withdraw cash, or have the money

transferred between accounts the same business day. But money market accounts and funds pay

higher interest rates than interest-bearing checking accounts or regular savings accounts because

they typically require higher minimum deposits. Money market accounts are available at most

local, national, and online banks. Most accounts have check-writing privileges, though there's

often a limit on the number of checks you may write per month without incurring a fee. Each

check may have to be written for a minimum amount set by the bank. And you may be charged a

fee or lose some interest if your account balance falls below the bank's minimum.

Money market funds are available from most mutual fund companies, either as taxable or tax-

free accounts. All money market funds make very short-term investments to maintain their value

at $1 a share. Taxable funds buy various types of corporate and government debt, while tax-free

funds buy municipal debt.


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Debit Cards

Using a debit card is more convenient than going to the bank for cash, especially if your banks

hours, location, or volume limits dont meet your immediate need. Add in the lost time and

gasoline expense of running to the bank, and these cards really become a smart alternative.

Theyre one great way to reduce the amount of cash you keep on hand.

Gift Cards

Merchant gift cards are great for rewards or incentives, but some caution should be heeded when

using these. If the card is lost, its possible that the value placed on the card is also lost. Some

gift cards can be registered with the merchant that issued it. Check the terms and conditions

associated with the card and register it if the option is available.

Cashiers Checks

Cashiers checks are often used when a customer and merchant do not know each other, or when

immediate availability of funds is required. A great example for when to use a cashiers check is

paying an out-of-state vendor, such as a construction company working on a building project.

Do you still need to keep cash on hand? Yes, but maybe less than you think. Creative alternatives

can reduce the amount of cash you keep on hand and have to manage. And reducing cash on

hand makes your financial operations more secure. Less cash means less risk or temptation

people cant lose what isnt there and greater peace of mind.

Here are some other alternatives to cash.

Credit Cards

Credit cards are a good alternative to cash when used for purchases, but not for getting cash.

When credit cards are used for cash, finance charges and fees apply, and the finance charge

clock starts ticking immediately. A reputable practice is to use credit cards for convenience

only, paying off the balances each month.

Prepaid Cards

Another cash alternative is general-purpose reloadable prepaid cards. These can be used as per

diem expense cards for traveling employees, or in lieu of cash on mission trips. They can even


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replace much of the actual cash that resides in your petty cash box. Prepaid cards can also be

used to manage your budget by controlling specific expenses. For example, you can give a staff

member a card that is preloaded with their budgeted monthly expenses. If the budgeted amount is

exceeded, he or she will need to request approval for more funds.

2.4. Cash Management

Cash is the oil that lubricates the wheels of the business. Without adequate oil, machines grind to

act and business will in adequate cash do likewise. Cash is needed to pay for labor and raw

materials, fixed assets, tax, dividend and etc. it is a medium of exchange. Cash is generally

referred to as the life blood of business enterprises. Management is defined as the Process of

setting and achieving goals through the execution of five basic management functions such as

planning, organizing, staffing, directing and controlling that utilize human, financial and material

resources.

Cash is important current assets for the operation of the business which is the basic inputs needed

to keep the business running on a continuous basis: It is also the ultimate output expected to be

realized by selling the service or product manufactured by the firm. The firm should keep

sufficient cash, neither more nor less. Cash shortage will disrupt the firm's manufacturing

operations while excessive cash will simply remain idle, without contributing anything toward

the firm's profitability. Thus, a major function of the financial manager is to maintain a sound

cash position.

2.5. Facets of Cash Management

Cash management is concerned with the managing of:

Cash flows in to and out of the firmCash flows within the firmCash balances held by the firm at a point of time by financing deficit or investing surplus

cash.

The surplus cash has to be invested while deficit has to be borrowed. Cash management seeks to

accomplish this cycle at a minimum cost. At the same time, it also seeks to achieve liquidity and


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control. Cash management assumes more importance than other current assets, because cash is

the most significant and the least productive asset that a firm holds. Unlike fixed assets or

inventories, it does not produce goods for sale. Therefore, the aim of cash management is to

maintain adequate control over cash position to keep the firm sufficiently liquid and to use

excess cash in some profitable way. The management of cash also important because it is

difficult to predict cash flows accurately, particularly the inflows, and there is no perfect

coincidence between the inflows and outflows of cash. During some periods, cash outflows will

exceed cash inflows, because payments for taxes, dividends, or seasonal inventory buildup. At

other times, cash inflows will be more than cash payments because there may be large cash sales

and debtors many be realized in large sums promptly. Cash management is also important

because cash constitutes the smallest portion of the total current assets, yet management's

considerable time is devoted in managing it. An obvious aim of the firm now-a-days is to

manage its cash affairs in such away as to keep cash balance at minimum level and to invest the

surplus can in profitable investment opportunities. In order to solve the uncertainly about cash

flow prediction and lack of synchronization between cash receipts and payments, the firm should

develop appropriate strategies for cash management. The firm should involve strategies

regarding the following four facets of cash management.

2.6. Cash PlanningCash inflows and out flows should be planned to project cash surplus or deficit for each period of

the planning period. Cash flows are in separable parts of the business operations of firms. A firm

needs cash to invest in inventory, receivable and fixed assets and to make payment for operating

expenses in order to maintained growth in sales and earnings. It is possible that firm may be

making adequate profits, but may suffer from the shorter of cash as its growing needs are

planned in advance. At times, a firm can have excess cash with it if its cash inflows exceed cash

out flows. Such excess cash may remain idle. Again, such excess cash flows can be anticipated

and properly invested if cash planning is restored to. Thus, cash planning can help to anticipate

the future cash flows and needs of the firm and reduced the possibility of idle cash balance(

Which lower firm's Profitability) and cash deficits (which can causes the firm's failure).


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Cash planning is a technique to plan and control the use of cash. It protects the financial

Condition of the firm by developing a projected cash statement from a forecast of expected cash

inflows and outflows for a given period. 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 up on the size of the firm and

philosophy of management. Large firms prepare daily and weekly forecasts. Medium size firms

usually prepared weekly monthly forecasts: small firms may not prepare formal cash forecasts

because of the non-availability of information and small scale operations. But, if the small firms

prepare cash projections, it is done on monthly basis as a firm growth and business operation

becomes complex, cash planning becomes inevitable for its continuing success. (Financial

accounting & manual)

2.7. Managing the Cash Flows

The flow of cash should be properly managed. The cash inflows should be accelerated while, as

far as possible, the cash out flow should be decelerated.

Investing Surplus Cash

The surplus cash balance should be properly invested to earn Profits. The firm should decide

about the division of such cash balance between alternative short-term investment opportunities

such as bank deposits, marketable securities, or inter operate lending.

Optimum Cash Level

The firm should decide about the appropriate level of cash balances. The cost of excess cash and

danger of cash deficiency should be matched to determine the optimum level of cash balances.

Motives for Holding Cash

The firm's need to hold cash may be attributed to the following three motives:

Transaction Motives

Transaction motives require a firm to hold cash to conduct its business in the ordinary course.

The firm needs cash primarily to make payments for purchases, wages and salaries, other


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operating expenses, taxes, dividends etc. The need to hold cash would not arise if there were

perfect synchronization between cash receipts and cash payments, i.e. enough cash is received,

when the payment has to be made. But cash receipts and payments are not perfectly

synchronized. For those periods, when cash payments exceed cash receipts, the firm should

maintain some cash balance to be able to make required payments. For transactions purpose, a

firm may invest its cash in marketable securities. Notice that the transactions motives mainly

refer to holding cash to meet anticipated payments whose timing is not perfectly matched with

cash receipts.

Precauti onary motive

Precautionary motive is the need to hold cash to meet contingencies in the future. It provides a

cushion to with stand some unexpected emergency. The precautionary amount of cash depends

upon the predictability of cash flows. If cash flows can be predicated with accuracy, less cash

will be maintained for an emergency. The amount of Precautionary cash is also influenced by the

firm's ability to borrow at short notice when the need arises. Stronger the ability of the firm to

borrow at short notice less need for Precautionary balance. The Precautionary balance may be

kept in cash and marketable securities.

Speculative motive

Speculative motive related to the hold of cash for investing in profit making opportunities and

when they arise. The opportunity to make profit may arise when the security prices change. The

firm will hold the cash, when it is expected that interest rates will risk and security prices will

fall. Securities can be purchased when the interest rate is expected to fall; the will benefited by

the subsequent fall in interest rates and increase in security prices. The firm may also speculate

on materials price. If it is expected that materials' price will fall, the firm can postpone materials'

purchasing and make purchases in future when price actually falls. The primary motives to hold

cash and marketable securities are the transaction and the Precautionary motives.

Safeguarding and Reporting Cash

As we know, cash is defined as money and instrument that banks will accept for deposit and

immediate credit to the depositors account, Such as a check money order or bank draft. Cash


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Decentralized Collection

A large firm operating over wide geographical area can speed up its Collections by following a

decentralized collections Procedure. A decentralized collection produce, called concentration

banking, is a system of operating through a number of collection centers instead of a single

collection center centralized at the firm's head office.

The basic purpose of the decentralized collection is to minimize the lag between the mailing time

from customers to the firm and the time when the firm can make use of the funds. Under

decentralized collections the firm will have a large number of bank accounts Operated in the

areas where the firm has its branches. The selection of the collection centers will be required to

collect cheques from customers and deposit in their local bank accounts. The collection center

will transfer funds above some predetermined minimum to central or concentration bank

account, generally at the firm's head office, each day. Decentralized collection procedure is ,

these useful may to reduce float.

Lock-box system

Another technique of speeding up the mailing, Processing and collection time is lock-box

system. Lock-box system helps the firm to eliminate the time between the receipt of cheques and

their deposit in the bank. In a lock-box system, the firm establishes a number of collection

centers, considering customers locations and volume of remittances.

The two main advantage of the lock-box system are: First, the bank handles the remittances

period to deposit at a lower cost. Second, the cheques are deposited immediately up on receipt of

remittance and their collection process starts sooner than, if the firm would have processed them

for internal accounting purposes prior to their deposit. Thus, lock-box system eliminates the

period between the time cheques are received by the firm and the time they are deposited in the

bank for collection.

Clearing

The instruments of exchange (e.g, cheques, draft, etc) are used to receive or pay claims. Before

the amount is credited or debited to any account, it has to pass through the clearing system. The

clearing process refers to the exhange of instruments by banks down on them through a clearing

house. Instruments like cheques, demand draft. Interest and dividends warrants and refund orders


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can go through clearing. Documentary bills or promissory notice do not go through clearing. The

clearing process has been highly automated in a number of countries. Electronic data is used

instead of paper.

Controlling Disbursements

The effective control of disbursement can also help the firm in conserving cash and reducing the

financial requirements. Disbursements arise due to trade credit which is a source of funds. The

firm should make payments using credit terms to the fullest extent.

There is no advantage in paying sooner than agreed. By delaying payments as much as possible,

the firm makes maximum use of trade credit as a source of funds- a source which is interest fee.

Delaying disbursement results in maximum availability of funds.

However, the firm that delays in making payments may endanger its credit standing. This can put

the firm in difficulties in obtaining enough trade credit.

2.9. Determining the Optimum Cash Balance

One of the primary responsibilities of the financial manager is to maintain a sound liquidity

position of the firm so that the dues are settled in time. The firm needs cash to purchase raw

materials and pay wages and other expenses as well as for paying dividend, interest and taxes.

The test of liquidity is the availability of cash to meet the firm's obligations when they become

due. A firm maintains the operating cash balance for transaction purposes.

If the firm maintains small cash balance, its liquidity position weakness, but its profitability

improves, as the released funds can be, invested in profitable opportunities (marketable

securities). When the firm needs cash, it can sell its marketable securities (or borrow). On the

other hand, if the firm keeps high cash balance, it will have a strong.

Liquidity positions but its profitability will be low. The firm should maintain optimum just

enough, neither too much nor too little cash balance.


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2.10.Internal Control of CashInternal control refers to policies and procedures that are designed to properly account for and

safeguard all of the assets of the enterprise. Internal control Procedures should extend to all

assets cash receivable, investment, operational assets, and so on.

Because cash is the asset most vulnerable to theft and fraud, a significant number of internal

control procedures should focus on cash.

Effective internal control of cash should include:

Segregation of duties: Cash is generally received at cash registers or through the mail. The

employee who receives cash should be different from the employee who records cash receipts,

and a third employee should be responsible for making cash deposits at the bank. Having

different employees perform these tasks helps minimize the potential for theft.

Proper authorization: Only certain people should be authorized to handle cash or make cash

transactions on behalf of the company. In addition, all cash expenses should be authorized by

responsible managers.

Adequate documents and records: Company managers and others who are responsible for

safeguarding a company's cash assets must have confidence in the accuracy and legitimacy of

source documents that involve cash. Important documents such as cheque, are renumbered in

sequential order to help managers ascertain the disposition of each document. This helps prevent

transactions from being recorded twice or from not being recorded at all. In addition, documents

should be forwarded to the accounting department soon after their creation so that recordkeeping

can be handled professionally and efficiently. Allowing documents that describe cash

transactions to go unrecorded for an unnecessarily long period of time increases the likelihood

that fraudulent or inaccurate records will pass undetected through the accounting department.

Physical controls: Cash on hand must be physically secure. This is accomplished in a variety of

ways. Cash registers should contain only enough cash to handle customer transactions. When a

cashier finishes a shift perhaps more frequently excess cash should be moved from cash registers

to a safe or another location that provides additional security. In addition, daily bank deposits are

made so that excess cash does not remain on the premises. Blank checks, which can be used for

forgery, are stored in locked, fireproof files.

Independent checks on performance: Employees who handle cash or who record cash

transactions must be prepared for independent checks on their performance. These checks should


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be done periodically and may be done without fore-warning. Having a supervisor verify the

accuracy of a cashier's drawer on a daily basis is an example of this type of control.

Other cash controls: Most companies bond individuals that handle cash. A company bonds an

employee by paying a bonding company for insurance against theft by the employee. If the

employee then steals, the bonding company reimburses the company. Companies may also rotate

employees from one task to another. Embezzlement or serious mistakes may be uncovered when

a new employee takes over a task. Although specific cash controls vary from one company to the

next, all companies must implement effective cash controls.


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CHAPTER THREE

3. DATA ANALYSIS AND PRESENTATIONFifteen questioners were distributed to CBOs Finance Department including head of the

departments out of which 10 were collected for further analysis and interpretation to be

considered in the following part of the research.

3.1. Employers Background

Description No. Resp. %

Sex

Male 7 70%

Female 3 30%

Total 10 100%

Age

18 - 25 2 20%

26-39 6 60%

40 and above 2 20%

Education Level

12t Complete - -

Total 10 100%

Collage Certificate - -

College Diploma 2 20%

1st

Degree 7 70%

Masters and above 1 10%

Total 10 100%

Position

Clerical 7 70%

Professionals 1 10%

Managerial 2 20%

Other - -

Total 10 100%Table 1: Employers background

As depicted on the above table, sex distribution of the respondents reveals 70% males and 30 %

females. Regarding the age distribution, most of the respondents fall between 26-39 age

accounting 60% and 20% of the respondents fall between 18-25 age categories while the

remaining 20% fall in age category of 40 and above. Majority of the respondents (70%) are


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degree holders and 20% college diploma holders while master holders accounted the remaining

10% of total respondents. The table also reveals the position levels of the respondents, 70%

clericals, 10% professionals and 20% managerial level.

3.2. Policy and Procedures

No Respondents Percentage

1 Does the company have well articulated financial policy and procedure which

ensures proper cash handling, accountability and internal controls?

Agree 2 20%

Strongly Agree 8 80%

Disagree - -

Strongly Disagree - -Undecided - -

Total 10 100%

2 If you agree with the above question what is the main target of cash and cash

equivalent policy in the bank?

Protecting against Loss - -

Ensuring Adequate - -

Liquidity for Day to Day Operation - -

Investing Surplus cash Profitably - -Others - -

Total 10 100%

3 Does the company make periodic revision on policy and procedure regarding cash

management?

Agree 7 70%


Disagree - -

Strongly Disagree - -

Undecided - -

Total

Table 2: policy and procedure

As illustrated in the above table, 80% of the respondents strongly agreed that the company have

well articulated financial policy and procedure which ensures proper cash handling,


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accountability and internal controls while the rest 20% agreed. Regarding the Banks main target

of cash and cash equivalent policy, all respondents fully indicates that the policy stands to protect

against losses, ensure adequate liquidity for day to day operation, Invest surplus cash profitably

and other contingency plans.Besides, the majority of respondents 70% agreed that the company

makes periodic revision on policy and procedures regarding cash management while the

remaining 30% strongly agree.

3.3. Internal Control

No Respondents Percentage (%)

1 Does the company have adequate controls to prevent theft or other misuses of cash and cash

equivalent?

Agree 10 100%

Strongly Agree - -

Disagree - -


Undecided - -

Total 10 100%

2 If you agree with the above question which of the following controlling mechanisms are in

place with the company?

Segregation of duties - -

Proper authorization - -

Adequate documents and record - -

Physical controls - -

Independent checks on performance - -

Total 10 100%

3 What mechanism is in place to deter cash and cash equivalent against fraud?

Surprise cash and cash equivalent counts 3 30%

Dual control procedure 2 20%

Review mandatory vacation policy - -

Review teller cash overage /shortage account 5 50%

Other mechanism(pocket less uniform, camera) - -

Total 10 100%


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No Respondents Percentage (%)

4 Does the company have clear authority limits (Payment channels?)

Agree 2 20%


Disagree - -


Total 10 100%

5 Does the company have periodic review of cash policy and procedures?

Agree 7 70

Strongly Agree 3 30

Disagree - -


Undecided - -

Total 10 100%

6 If you agree with the above question how often the bank reviews its policy and procedure?Annually - -

Once in two years - -

Every five years - -

When fraud detected 10 100%

Total 10 100%

7 Does the company have banks reconciliation practice?

Agree - -


Disagree - -


Total 10 100%

8 Does the company have petty cash fund?

Agree - -


Disagree - -


Undecided - -

Total 10 100%

Table 3: Internal control

As we can observe from the above table, 100% of the respondents agreed that the company has

established adequate control mechanisms to prevent theft or other misuses of cash and cash

equivalents. Consequently, the results collected on the specific controlling mechanism of cash

and cash equivalent of the company indicates: segregation of duties, proper authorization,


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adequate documents and record, and Physical controls & independent checks on performances as

parts of the banks cash and cash equivalents controlling mechanisms. In addition, the

respondents response on specific mechanism that the banks use to deter cash and cash

equivalent against fraud reveals that, 30% surprise cash and cash equivalent counts, 20% dual

control procedure, and 50% reviews of teller cash overage /shortage account. Majority of the

respondents 80% strongly agreed that the company has clear authority limit (payment channels?)

while the remaining 20% agreed. Data collected from respondents regarding whether the

company have periodic review of cash policy and procedure indicates that 70% agreed and 30%

strongly agree. In addition, all respondents agreed that the company only reviews its cash and

cash equivalent policy and procedures when fraud is detected. As we can observe from the

above table, 100% of the respondents strongly agree that the bank has bank reconciliation

practice and petty cash fund.

Reviews of respondents answer to cash equivalent alternatives used by CBO indicates that there

is different kinds of cash equivalent used by the bank. These include; Treasury bill, checks, CPO,

draft, and other bank deposits.

Regarding cash collection mechanisms of the bank, the respondents stated that the company

collects cash through central branches, different outlaying branches and mobile banking facility.

The summary of respondents answer to actions taken by the bank when cash fraud is detected

signify that the company takes different disciplinary measures as per the banks policy and

procedure and when the management of the bank found that the fraud is tactical and sever the

case will be taken to the court for further investigation.

Regarding CBOs excess/idle cash and cash deficit management the responder outlined their

response for both questions as follows. Excess/idle cash is invested on short term investment like

treasury bills, fixed time deposit (usually for one year), and long term investment such as

profitable share, bonds, real estate and other investments depending on their ROE and associated

risks. In another way, cash deficit is financed through promotions of cash collections by fosteringoutstanding customers, attracting potential customers to deposit, borrowing from different

sources, limit loan funds and other available sources which we believe switch the banks cash

problems. Besides, the company has liquidity management and compliance management which

are executed daily, weekly, monthly, quarterly, and annually to regularly confirm the existence

of adequate cash for day to day operations of the bank.


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3.4. Personnel

No Respondents Percentage

1 Of the following criteria what is the banks practice to employee individual who has or will

have access to cash resources?

Back ground check 2 20%

Demonstrated reliability in previous setting 8 80%

Evidence of cash handling training - -

Provision of insurance - -

Total 10 100%

2 Does the company provide sufficient cross training for identified personnel?

Agree 10 100%

Strongly Agree - -

Disagree - -


Undecided - -

Total 10 100%

Table 4: personnel

As depicted in the above table, majority of respondents 80% say the company hire individuals

who has or will have access to cash resources on the basis of demonstrated reliability in previous

setting while the remaining 20% confirmed that the company use background checks to hire

employees. All respondents agreed that the company provides sufficient cross training for

identified personnel.


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CHAPTER FOUR

4. CONCLUSIONS AND RECOMMENDATIONS

4.1. CONCLUSIONS

The overall finding of the study shows the following major results on cash and cash equivalent of

cooperative bank of Oromia (CBO).

The combination of the respondents from different age category, educational levels and

professional experiences enable us to get clear view about the subject matter of the study.

Besides, it was useful to track common understanding of the subject among CBO s top and

bottom line employees.

The study revealed that CBO have well articulated cash and cash equivalent financial policy and

procedure which ensures proper cash handling, accountability and internal controls that Protect

the Banks cash and cash equivalents against loss, Ensure adequate liquidity for day to day

operation, and outline strategies to invest surplus cash profitably. The policy and procedure are

periodically revised to cope with different changes to its financial activities.

The internal control of the bank ensures preventions of theft or other misuses of cash and cash

equivalent through segregation of duties, Proper authorization, adequate documents and record,

Physical control and Independent checks on performance. Furthermore, the experiences of the

bank to deter cash and cash equivalent against fraud mostly done by surprise cash and cash

equivalent counts, dual control procedure, and review of teller cash overage/ shortage. On the

other hand, the bank has established clear authority limit or payments of channels to lessen

misuses of cash and cash equivalent. However, when cash fraud is detected, the company takes

different disciplinary measures as per the banks policy and procedure and when the

management of the bank found that the fraud is tactical and sever the case will be taken to the

court for further investigation.

Excess/idle cash is invested on short term investment like treasury bills, fixed time deposit

(usually for one year), and long term investment such as profitable share, bonds, real estate and

other investments depending on their ROE and associated risks. In another way, cash deficit is


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financed through promotions of cash collections by fostering outstanding customers, attracting

potential customers to deposit, limit loan funds, borrowing from different sources, and other

available sources which we believe switch the banks cash problems. Besides, the company has

liquidity management and compliance management which are executed daily, weekly, monthly,

quarterly, and annually to regularly confirm the existence of adequate cash for day to day

operations of the bank.

The company has placed different procedures including background checks, demonstration of

reliability in previous settings to hire individuals who has or will have access to cash resources.

4.2. RECOMMENDATION

Based on the study findings we would like to recommend the following points to further enhance

cash and cash equivalent practices of Cooperative Bank of Oromia.

Even though, CBO have adequate cash policy and procedure, they review the policy and

procedure only when frauds are detected. However, it is advisable to make periodic reviews of

cash policy and procedure to cope with in financial activity change and to have up to date policy

and procedure.

Beside cash controlling mechanisms in place by the company (Surprise cash and cash equivalentcounts, dual control procedure, and review of teller cash overage /shortage), it is recommended

to set out mandatory vacation policy and other mechanisms by providing pocket less uniform,

installing cameras inside vault and cash areas.

The company should facilitate advanced cash collection mechanisms (mobile banking, internet

banking, and door to door servicing) and should place close work relations with different micro

finances, post office and other organizations that have broader base of customer outreach in

order to maintain its competitive age.

In addition to the companys criteria to hire individuals who has or will have access to cash

resources and existing effort to capacitate them, its advisable to have insurance provision since

cash is sensitive by nature


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References

Daniel G.short and Glenna A. Welsh, Fundamental of Financial Accounting University ofTaxes at Austria plc 1930

Intermediate Accounting 6th Edition by Mosich A.N Eugene F Brigham and Joel F.Houston Fundamental of Financial Management 8th

edition, Harcourt Collage Publisher.

I .M Panadey Profession of Management 8th edition ,Vikas Publishing House .pvt ltd Rao,Sb Financial Management 2nd edition Vikas Publishing House plc 1994 Hampton. John J financial Accounting 4th edition, prention hall of indid, pnikate ltd, 2003 James kanm Norne Financial Management and policy 12th edition, new dath 1998 Brigham, ehgene, F. Fundamental Financial Management 7th editor published in USA

Harcoum Branch College 1995

Davar, Rustom S (1996) modern nonentity management 7 th editor, universal bookstall,new delhi


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Time Schedule

No DescriptionTimes

RemarksWeeks Days

1 Literature Review 2 11

2 Data Collection 3 353 Data Processing 2 8

4 Data Analysis 2 4

5 Organizing 1 3

6 Editing 3

7 Review 2

Total 10 68

Budget plan

No Description UnitEstimated Costs

In birr Cents Remarks


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1 Transport 300 00

2 Photo copy 50 00

3 Stationeries

PaperPenPencilBinder

Packet

Piece

6 piece

Piece

100

118

60

150

00

00

00

00

4 Printing expense 100 00

5 Miscellaneous

expense

100 00

6 Reserve 200 00

Total 1,278 00

cash and cash equivalent proposal

Documents