UNIVERISTY OF GONDAR
COLLEGE OF BUSSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
ASSESMENT OF INTERNAL CONTROL OVER CASH IN CASE OF BANK OF ABYSSINIA
akusm BRANCH)
A RESEARCH PAPER SUBMITED TO THE DEPARTMENT OF ACCOUNTING AND FINANCE FOR THE
PARTIAL FULFILLMENT OF THE REQUIREMENT FOR BACHELOR OF ARTS DEGREE IN
ACCOUNTING AND FINANCE
PREPARED BY
ID NO
1. Enatihun Kindu……………………………………………….GUR
1356/2008
2. Alehegn Getnet ………………………………………………GUR
1173 /2008
3. Brukitawit Tibebu……………………………………………GUR
1293 /2008
4. Addisu Alemu
………………………………………………GUR
5. Birike Mihiret……………………………………………………....GUR
1152 /2008
1284/2008
Advisor: - Kedir. E (MSC)
March 2010
GONDAR ETHIOPIA
Declaration
We the researchers Addisu Alemu, Alehegn Getnet, Enatihun kindu, Birike Mihiret and Birukitawit
Tibebu, declared that this senior essay is conducted on the assessment of internal control over cash
in case of bank of Abyssinia. Almost this paper is conducted with the great cooperative with the
advisor and the researchers. All sources of information and idea that are relevant and included in
the research paper are acknowledged.
Prepared by;
Submission
Date 21/10/2010 E.C
Name of student
signature
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Name of advisor
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Name of examiner
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signature
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signature
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Acknowledgement
First of all our gratitude goes to our almighty god and his mother saint Mary for letting us staying in
life to this day and enables us to accomplish this study by passed the complicated three years of
education and going to graduation.
Our sincere gratitude and appreciation goes to our senor essay advisor for Ato kedir endris who has
been very understanding, cooperative and kind enough. We would like to deliver due thanks for his
excellence in forwarding us all the necessary comments, advises and guidance throughout our
study.
Our honor, Great love and enormous thanks go to our best friend Antehunegn denekew for his
constant moral encouragement and giving of the laptop computer to speed up our study.
We are also great full thanks for the employees of Abyssinia bank in the Gondar maraki branch and
branch manager for their great commitment and assistance through the way of the study by fill the
questioners distributed by the researchers.
Finally we are going to say “thank you” for the library workers in the Gondar university maraki
campus, who had great participation and positive response for giving of books as a reference.
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ABSTRACT
The main objective of this study was to assess internal control over cash in bank of Abyssinia. In order
to address the study, a descriptive survey design had employed because the researchers had tried to
describe and present the components of internal control and the relationship between them and
present the data that are taken from primary source. We had used the primary sources of data and
also used both open and close ended questions to conduct the research. The data was gathered
through questionnaires from employees of the bank of Abyssinia in Gondar maraki branch. This study
would have much importance for the employees of the Abyssinia bank as well as many other users by
providing the way and the system of cash control. The study has used qualitative types of research
approach in order to study this research. This study concludes on the some problems in the bank that
is an absence of independent internal auditor, no perfect segregations of duties, and the absence of
more experienced employees in the branch as well as few numbers of female employees in the bank.
Finally the researchers recommended that the bank is better to train the employees of the bank
related to the internal control over cash in the bank for the purpose of controlling activities,
encourage the participation of the females in the bank environment and it is better to recruit the
independent internal auditor in the bank.
Key terms: - Internal control, cash
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ACRONYMS (ABBREVIATIONS)
AICPA…………………………………..
American institute of certified public accountant
COSO: ……. …………………………….. Committee of sponsoring organizations of trade way commissions
EPOS……. ……………………………..
Electronic point of sale
ICAEW………………………………….. Institute of chartered account of England and Wales
BOA…………………………………………..bank of Abyssinia
B.A…………………………………………..bachelor of art
IC………………………………………………internal control
NBE…………………………………………….national bank of Ethiopia
FEDO.......................................................finance and economic development office
CRT…………………………………………….cash receipt ticket
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III TABLE OF CONTENTS
Contents
Acknowledgement……………………………………………………………………………………………………………I
Abstract………………………………………………………………………………………………………………………….II
Acronyms……………………….……………………………………………………………………………………………….III
Table of content……………………………………………………………….……………………………………………….IV
Chapter one……………………………………………………………………………………………………………………1
1. Introduction…………………………………………………………………………………………………………1
1.1 Background of the study………………………………………………………………………………………1
1.2 Statements of the problem……………………………………………………………………………………3
1.3 Objectives of the study…………………………………………………………………………………………4
1.3.1
General objective…………………………………………………………………………………………4
1.3.2
Specific objective………………………………………………………………………………………… 4
1.4 Significance of study………………………………………………………………………………………… ...4
1.5
Scope of the study…………………………………………………………………………………………….5
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1.6
Limitation of the study……………………………………………………………………………………..5
1.7
Organization of the paper…………………………………………………………………………………..5
Chapter two………………………………………………………………………………………………………………….......6
2. Literature Review……………………………………………………………………………………………………........6
2.1 Theoretical framework………………………………………………………………………………………………….6
2.1.1 Definition of cash…………………………………………………………………………………………………….6
2.1.2 Definition of internal control…………………………………………………………………………………..7
2.1.2.1 Internal control over cash………………………………………………………………………………………..8
2.1.2.2 Objectives of internal control…………………………………………………………………………..8
2.1.2.3 Components of internal control………………………………………………………………………..9
2.1.2.4 Principles of good internal control…………………………………………………………………..10
2.1.2.5 Policies and procedures of internal control over cash……………………………………….11
2.1.2.6 The importance of internal control……………………………………………………………………..11
2.1.3 Internal control system over cash………………………………………………………………………………11
2.1.4 Internal control over cash receipts……………………………………………………………………………..12
2.1.5 Internal control over cash payments…………………………………………………………………………13
2.1.6 Change fund……………………………………………………………………………………………………………13
2.1.7 Cash short and over…………………………………………………………………………………………………14
2.1.8 Limitation of internal control over cash…………………………………………………………………….14
2.2 Empirical Literature………………………………………………………………………………………………………15
Chapter three……………………………………………………………………………………………………………………..17
3. Research methodology …………………………………………………………………………………………………….17
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3.1 Research approach …………………………………………………………………………………………………….17
3.2 Research design ………………………………………………………………………………………………………….18
3.2.1 Target population………………………………………………………….…………………………………….18
3.2.2 Sources of data…………………………………………………………………………………………………..18
3.2.3 Methods of data collection………………………………………………………………………………….18
3.2.4 Methods of data analysis and interpretation ……………………………………………………….18
Chapter four…………………………………………………………………………………………………………………….19
4. Data presentation and analyses……………………………………………………………………………………..19
A.
Presentation of data that are collected through questionnaires…………………………………….19
Table 4.1 descriptions of back ground data…………………………………………………………………….19
Table 4.2 the analysis of banks policy and procedure………………………………………………………21
Table 4.3 the banks usage of computerized and the voucher system…………………………………24
Table 4.4 the analyses of the effectives and efficiency of cash control………………………………..26
Table 4.5 analyses of the components of internal control……………………………………………….28
B.
Interpretation of the data collected by interview of branch manager……………………………..30
Chapter five……………………………………………………………………………………………………………………….31
Conclusion………………………………………………………………………………………………………………….........31
Recommendation……………………………………………………………………………………………………………….32
References…………………………………………………………………………………………………………………………33
Appendix..................................................................................................................................................................34
vii
CHAPTER ONE
1.
1.1.
INTRODUCTION
Background of the study
Cash is the medium of exchange, which a firm or an individual can disburse immediately without
any restriction. The term cash includes coins, currency and check held by the firm and balances in
its bank accounts. Sometimes near-cash items, such as marketable securities, bank time deposits
near cash assets that can easily be converted in to cash (Warren F, 1984).
For the accounting purpose the asset cash represent more than money in the form of paper
currency and coins that are used in every day financial transaction. Cash is a current asset deposit
in the bank that can be withdraw immediately and used for any purpose. Or it is a current asset that
a bank will accept for deposit importance of cash. The reason why cash is important is that
individual, business and even government must maintain an adequate liquidity position. The other
reason that why cash is important is that it serve as a medium of exchange in any economic and
involves directly or indirectly in almost all business transaction (warren F, 1984).
Financial institutions are institutions that perform the essential function of channeling funds from
those with surplus funds to those with shortages of funds. The financial sector is mainly consisting
of banking system, insurance companies, micro finance institutions and other financial institutions
operating under public and private sectors which render financial services of the country (Clifford,
2008).
Control would be a basic requirement and it has existed throughout ages in different facets of
human activity. Business as such would be a complex process and has grown even more complex
with technological advancement of the society. The formation of the concept of internal control in
the sphere of business administration would be comparatively a recent phenomenon (Arens, 1997).
Internal control over cash mainly emphasizes on cash collection and recording of all cash receipts
without any loss. Cash collection may be result from various sources such as revenue from different
taxes, grants from government, gifts of foreign Country revenue from selling of obsolete properties
etc. (Arens, 1999).
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Internal control over cash may be strengthened by performing surprise count of the fund to variety
whether the voucher paid and balance in the fund account for the size impressing fund, it is
canceling or mutilating the paid voucher in order to protect international or incidental re
submission of voucher for reimbursement result when payment are made by check, except for
incidental amount that are paid out from petty cash fund. Internal control over cash consists of the
plan of organization related methods and measure adopt in business to safeguard asset from
employee will theft, robbery by reducing risk of error (an international mistakes and irregularities
in the accounting process)( Arens etal,1997).
We try to assess the internal control over cash in the case of Abyssinia bank by selecting one branch
from the total of five branches found in Gondar town. We try to examine the mechanisms used by
the bank in order to control the cash. After completions of the study, there is recommendation that
could be assumed to find out the problems related to cash control in the bank.
Background of the organization
The agreement that reached in 1905 E.C between Emperor Menilik II and Mr.MaGillivery,
representative of the British owned National Bank of Egypt marked the introduction of modern
banking system in Ethiopia. Following the agreement the first bank called Bank of Abyssinia was
inaugurated in Feb 16, 1906 E.C by the Emperor. The bank was totally managed by Egyptian
National (BOA 2006)
Currently BOA has 1309 shareholders. All private individuals or institution are on private sectors.
The bank authorize capital is 630 million. The bank has currently 1,721 employees over 225,660
customers and birr 2.71 billion as outstanding loans and advance with total of over 46 branches
(BOA, 2009).
Bank of Abyssinia has five (5) branches in Gondar town. These are Tewodros branch, fasiledes
branch, Azezo branch, EtegeMintiwab branch and Gondar maraki branch. From those branches we
are going to conduct our research study on the selected branch of Gondar maraki, which has a total
of 15 workers 8 staff workers including manager and 7 guard workers. The branch was opened on
September 13 2010 E.C. with a working capital of around 0.5 million birr (interview of manager).
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1.2
Statement of the problem
Cash is easy to transfer, fraud, cheat and can be used out of its intended target by many peoples, so
it needs safeguard and good internal control mechanism especially in the financial institutions like
bank. Transactions in banks either directly or indirectly affect receipt or payment of cash. (Warren
F, 1984)
Cash is one of the most important assets in the business enterprise, because it helps us a medium of
exchange or means of acquiring goods and services. Cash includes currency , coin, personnel checks,
bank draft, money orders, credit card, sales draft and cashier’s checks and as well as money on
deposit with banks. Since cash is liquid asset it needs appropriate management and internal control
to the organization financial position (warren F, 1984).
Internal control consists of measurements taken by the organization for the purpose of protecting
cash from waste, fraud and in efficiency ensuring accuracy and reliability in accounting and
operating data, securing compliance with policy of organization the policy proceeds and behavior of
administration (Arens, et al, 1997).Therefore internal control over cash needed to be studied. As a
result many researchers had studied related researches in different place and different time to
solve these problems. For example:The study was conducted on the title an assessment of internal control over cash in case of finance
and economic development office in jimma town. The researcher tries to address the procedures
and systems of cash control on the finance and economic development office of jimma town. But we
are going to address this procedures and police y to the bank of Abyssinia. Also the study had
assessed the relationship between internal control system on the bank and FEDO, but we will try to
assess the internal control system on the bank of Abyssinia only (Birihanu A, 2006).
According to Mr Kezinashafi(2004 E.C) the study had studied in the topic of assessment of internal
control over cash on wegagen bank in jimma town in case of cmc branch .she try to address the
controlling system of the bank that is adopted by the wegagen bank. But she did not assess the
components of internal control that should be considered on the study, so we are going to address
that how the bank of Abyssinia can control the environment and other components of internal
control.
Mr Abduselam Misbahu (2007 E.C) had studied on the topic of evaluation of cash management
practices in commercial bank of Ethiopia case study of Edagahamus branch in Adigrat University.
3
He also assesses the practice performed by the commercial bank on the efficient utilization of cash
on hand and cash at the bank, but we are going to assess the internal control system of practice
performed by the bank of Abyssinia. Generally those researches had studied on different place and
different time on the related topics. Also we try to address this research topic to evaluate the
controlling system of the bank policy and procedures on Gondar maraki branch of bank of
Abyssinia. We had studied to address or assess computerized system of control activities. Generally
we had assessed the existing internal control system in the bank and help to strengthen the good
system through the identifications of problem area and suggestions of solutions by try to answer
the following research questions.
1. What are the banks policies and procedures regarding cash control?
2. Does the bank uses the computerized and voucher system to control each cash transaction?
3. How does the bank control and manage its cash effectively and efficiently?
4. How the bank effectively applied the components of internal control?
1.3 Objectives of the study
1.3.1
General objectives
The general objective of this study was to assess the internal control over cash in bank of Abyssinia
(Gondar maraki branch).
1.3.2 Specific objectives
1.
To assess the banks policies and procedures regarding to cash control.
2.
To investigate the computerized and voucher system of cash transaction in the bank..
3.
To assess the effective and efficient management and control of cash.
4.
To investigate the banks practices on the components of internal control.
1.4
Significance of the study
It is known that the impact of cash, especially paper money in an organization like banks is vital. So
as to keep things in a well manner studying the control of cash receipt and disbursement needed in
this regard we will try to investigate the internal control over cash in Gondar maraki branch of bank
of Abyssinia .therefore the significance of the study upon the following fundamental reasons.
4
The study is help to increase the focuses in the area of internal control over cash in BOA. Also the
study has helped to create awareness, among employees, managers and other members of the bank
about the need of internal control over cash. We also hope that the findings of this research can
provide a support to other researchers who are interested to conduct further study on this topic.
1.5
Scope of the study
Research on large population needs much time, fund, human and other resources. We had focused
to study our senior essay by focusing on one branch of Abyssinia bank which is found in Gondar
around
Maraki .we believe that other branches found in Gondar have similar systems and
procedures or more likely the same. The study was focused only on the internal control over cash.
Since internal control has many factors like internal control over plant asset, inventory and other
non-cash assets, this study was focused only on internal control over cash.
1.6 Limitation of the study
The major problems of this proposal were: Lack of enough source documents or manuals as a secondary data in the branch.

Shortage of time to prepare the research proposal.
 Lack of the adequate experience by student researchers on how to study the research.
 Unwillingness of branch manager to give us detailed information about the background of
bank and the financial positions of the bank.
 Luck of finance or shortage of money to conduct this research.
1.7 Organization of the paper
This paper has five main chapters.
The first chapter includes introductory part containing the back ground, statement of the
problem, objective of the study, research question, and significance of the study, scope of the
study, limitation of the study and organization of the study. The second chapter contains
literature review in which the previous researchers thought related to internal control over
cash not only in bank of Abyssinia but also other area of financial institutions and give the
general concepts of internal control over cash and other related terms. The third chapter deals
with the research methodology. Methods of data collection in the study are included in this
chapter. Also the general descriptions of the location and nature of population for the study
area also included. Chapter four contains the analyses of the collected data. The final chapter
includes the recommendation and conclusion of the study set by researchers.
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CHAPTER TWO
2. LITERATURE REVIEW
2.1 THEORETICAL FRAMEWORK
2.1.1
Definition of cash
Cash is the most liquid asset, which uses as a medium of exchange. It is the bases for measuring
accounting for all other items. It is generally classified as current asset. It readily available for the
payment of current obligation, and it must free from any contractual restriction than limit it use in
satisfying debts. Cash consists of coin, currency and available funds on deposit at the bank
negotiable instrument such as money order, certified check, cashier’s check, personal checks and
bank drafts (Mosich, 1989).
Cash management
Cash management is concerned with the managing of:I, Cash flow into and out of the business organizations.
II Cash flow within the firm.
III Cash balances held by the firm at the point of time by financing deficit or investing surplus cash.
Motives for holding cash
The firms need to hold cash may be attributed to the following three motives;
A, The transaction motive
A firm holds cash to conduct its business in the ordinary course. The cash is needed for primarily to
make payment for purchase, wages and salaries. Other operating expenses taxes, dividend etc. the
need to hold cash would not arise if there were perfect synchronization between cash receipts and
cash payment, That means enough cash is received when the payment has to be made. But cash
receipts and payments are not perfectly synchronized for today. When cash payments exceed cash
receipts; the firm should maintain some cash balance to be able to make required payment.
6
B, precautionary motive
The need to hold cash is for contingencies in the future. It provides a cushion or buffer to with
stand some unexpected emergency. The precautionary amount of cash depends upon the
predictability of cash flows. If cash flows can be predicted with accuracy, less cash will be
maintained for an emergency.
C, Speculative motive
Relates to the holding of cash for investing in profit-making opportunities as and when they arise,
opportunity to make profit may arise when the security prices change. The firm will hold cash.
When it is expected that interest rate will rise and security price will fall. Security can be purchased
when the interest rate is expected to fall; the firm may also speculate on material price.
2.1.2 Definition of internal control
Internal control is a process designed by management to provide reasonable assurance to the
institution to achieve its objective. Internal control would be designed to safeguard assets, maintain
accuracy, and encourage adherence to prescribed managerial politics. Internal control is not a
single process but rather a combined of much process that occur as a part of organization activities.
Internal control is reduce, but cannot eliminate the possibility poor judgment in making decision
process being fraudulently violated by employees and other; and the control system therefore
provide reasonable but not absolute assurance that accompany will not be hindered in achieving its
business objective or in orderly and legitimate conduct of its business by circumstance which may
reasonably before seen “Good internal control prevent more defection than good Auditors
find”(Bringhan F, 1995).
Internal control is defined by American Institute of certified public accountant (AICPA) as “the plan
of organization and all the coordinate method and measure adopted with in business to safeguard
its asset, check the accuracy and reliability of its accounting data, promote operational efficiency
and encourage adherence to be prescribed managerial policies. A system of internal control extends
beyond those matters, which related directly to the function of the organization Accounting and
Financial Department”. (Bringhan F, 1995)
According to the institute of chartered accountant of England and Wales (ICAEW), internal control
means not only internal check or internal audit, but also the management in order to carry on the
business of the finance in an orderly manner, safeguard its asset and secure as far as possible
7
accuracy and reliability of its record. From the above two definition it is clear that internal control
is broad term with a wide area of operation. It includes a number of methods and measures which
exercised by management to ensure smooth and economic functioning of business entity (Haward
F, 1982).
2.1.2.1 Internal control over cash
Most of the process relating to cash handling is the responsibilities of the finance department,
under the direction of the treasure. In addition, many transactions affect either directly or
indirectly for the receipt or payment of cash (Dimand S, 200).
A. The Bank Account as a tool for controlling cash
One of the major devices for maintaining control over cash is Bank account. To get the most benefit
from a bank, account all cash received must deposited in the bank and all payments must made by
checks drawn on the Bank or from special cash funds.
B. Bank statement
Bank usually maintains an original and a copy of all checking account transaction. When this is
done, the original become the statement of account that is mailed to the depositor, usually once a
month. The paid or concealed checks are perforated or stamped “paid” together with the date and
payment.
C. Bank Reconciliation
When all cash receipts are deposited in the Bank all payments are made by check, the cash account
may often-called cash in Bank. This account with the depositor in the bank ledger, cash in the bank
in the depositor ledger is an asset with a debit balance and the account with depositor in the banks
ledger is liability with a credit balance.
2.1.2.2 Objectives of internal control
The central objective of internal control over cash is to make sure weather the organization is
safeguarding and reporting cash in the appropriate manner. As cash has the highest risk and
difficult to control; it needs extensive and tight and effective internal control procedure. Other
objectives are effective operations, financial reporting and compliance. Important goals of
operations controls are accurate information for internal decision making and safeguarding of
assets. The physical assets (e.g. Cash), non-physical assets (e.g. accounts receivables), important
8
documents and records (e.g. journals) of a company can be stolen, miss used or accidentally
destroyed unless they are protected by adequate controls. Financial controls are important because
management has a legal and professional responsibility to be sure that information is prepared
fairly in accordance with accounting standards. Organizations are required to follow many laws and
regulations including company law, tax law and environmental protection regulations. Failure to
comply with these laws may mean imprisonment of company officials (Bringhan F, 1995).
2.1.2.3 Components of internal control
Internal control consists of five interrelated components. These are derived from the way
management runs a business, and integrated with the management process. The committee of
sponsoring organizations of trade way commission (COSO) report identifies the following
components (Haward F, 1982).
A. Control environment
The attitude of an organizations management, its management style, corporate culture and values
are the essence of an efficient control. If management believes control is important, others in the
company will observe the control policies and procedures. The control environment has a
pervasive influence on the way business activities are structured, the way objectives are
established and the way risks are assessed. The control environment is influenced by the entity’s
history and culture. It influences the control consciousness of its people. Effectively controlled
companies set a positive ‘tone at the top’ and establish appropriate policies and procedures.
B. Risk Assessment
The management process of identifying and analyzing the risk might prevent the organization from
achieving its objective. Internal control is effective under one set of conditions and may be
ineffective in another condition.
C. Control Activities
The policies and procedures must be established and executed to help and ensure that the action
identified by management as necessary to address the risks for achievement of the entity’s
objective. They may potentially have many control activities, but generally fall in to five categories.
1. Adequate separation of duties
2. Proper authorization of transaction and activities
3. Adequate documents and records
9
4. Physical control of over assess and records
5. Independent checks on performances
D. Information and communication
The fourth component of internal control is information and communication. Information will
needed at all level of organization for making operating decision, for financial reporting and
compliance. It is identified, captured, processed and reported by information system.
Communication is inherent information system. However, communication is beyond the processing
financial data to encompass communication extended internal and external form.
E. Monitoring
The fifth and final component of internal control process is monitoring and modification made by
the organization as necessary. This is accomplished through ongoing monitoring activities. These
internal control component and their linkage are depicted the model, developed by the committee
of sponsoring organizations of trade way commission (COSCO), depicts the dynamism of internal
control system. It involves assessing the design and operation of control and taking corrective
action.
2.1.2.4 Principles of good internal control
1. A well-designed accounting in operation of financial and accounting operation must be
separated.
2. Responsibility for the performance of the job would be clearly stated, so that there is no remain
room for doubt or confusion subsequently.
3. Too much confidence should not be pinned in one individual, nearly all fraud are committed by
“Trusted” official or employee.
4. Rotation principle relating to transfer of an employee from one job to another should be
inflexible guiding rule.
5. Mechanism the work where over feasible or practicable should be restored to mechanical
device such as cash register, recording time clocks and calculated machine should be
introduced.
6. The work should be so arranged that another independent employee could promptly check
work done by one employee.
7. The arrangement of the work should be in such a manner that written record and of the role
played by each employees should be maintained.
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2.1.2.5 Policy and Procedure of internal control over cash
1. Hire competent reliable and ethical people
2. Assign responsibilities in a clear manner and get employees to comply
3. Separation of duties among the employee of the organization
4. Audit-Virtually all corporations are subject to annual external audit, in which an independent
auditor examines the documents, organization and individual transaction, to determine if the
company has performed accounting functions fairly.
5.
Documentation-Virtually every transaction in a business will involve a document of some sort.
A purchase will involve a purchase order, a sale will support the fact that employees performed
work and canceled check prove that expense were paid.
6.
Electronic device: cash register, computer and other device are subject to internal controls.
7. Other controls: Use of a safe for checks and cash, alarm system, security cameras, employee
bonding, job rotation and mandatory employee vacation fall into this category.
2.1.2.6 The importance of internal control
The reason a company establishes a system of control is to help achieve its performance and
profitability goals and prevent loss of resources by fraud and other means. Internal control can help
to ensure reliable financial reporting and compliance with laws and regulations. The entity’s
internal control system consisted many specific policies and procedures designed to provide
management with reasonable assurance that the goals and objectives it believes important to the
company will be met. Professional control is important because management has legal and
professional responsibility to be sure that information is prepared fairly in accordance with
accounting standards (Bringhaum, F 1994).
2.1.3
Features of internal control system over cash
There are five features of internal control over cash
1. Management integrity: is the moral character of persons of authority sets the overall tone for
the organization. It communicated to employee through employee’s handbooks and procedural
manuals.
2.
Competent personal: An organization ability to recruit and retain competent personal
indicates management’s intent to property record accounting transaction. In addition, the
retention of employee increases the comparability of financial record from year to year.
11
3. Segregation of duties: An effective system of internal control separate authoritative,
accounting and custodial functions. For instance, one employee opens incoming mail; a second
employee prepares deposit slip for daily receipts, while a third employee deposit receipt in
bank.
4.
Record maintenance: maintaining appropriate records ensure that proper documentation
exists for each business transaction. Record management involves storing, safeguarding and
eventually destroying tangible or electronic records; also, appropriate back up deters an
employee or management from creating phantom in the underlying accounting records. The
environmental protection agency emphasize that good records management reduces operating
costs, improve efficiency and minimize the risk of litigation.
5.
Safeguard: Safeguard prevents authorized personnel from accessing valuable company’s
assets. These are physical, such as computer software password. Regardless of the method,
safeguards are necessary features of an organizations internal control system. Many business
owners instinctively protect inventory, cash and supply. However, blank check, company
letterhead and signature stamps are items that require safeguarding that are commonly
overlooked.
2.1.4
Internal control over cash receipts
A. Controlling cash received from Cash Sale
Control over cash sale is strongest when two or more employee (usually a sale clerks and cashier)
participate in each transaction with a customer. In many retail establishments the nature of the
business is such that one employee must make over-the-counter sales, deliver the merchandise
receive cash and record the transaction. According to Whittington etal, (2010), the protective
feature of cash registers includes;
a. Visual display of the amount of sale in full view of the customer
b.
A printed receipt, that the customer is argued to take with merchandise
c. Accumulation of a locked-in total of day’s sale
B. Collection from credit customer ( received in a mail)
In many manufacturing and wholesale companies; cash receipt consist principally of checks
received through the mail, this situation pose little threat of dislocation unless one employee’s
permitted to receive and deposit these checks and also to record the credit to the customer account.
12
The remittance advice and copy of the control listing are for awarded to the employee responsible
for the customer account (Whittington, 2010).
2.1.5
Internal control over cash payment
All payment should be made by check, except for payment of minor items form petty cash funds. A
principal advantage is the obtaining or a receipt from the payee in the form of an endorsement on
the check. Dollar amount should be printed on all checks by the computer or a check-protecting
machine. This practice prevents any one from altering a check by raising its amount (Warren et, al
1984).
A. Control Feature of a voucher system
A vouched system is made up of records method and procedure used in providing and recording
liabilities and in making cash payment. A vouched system is one method of achieving strong
internal control over cash payment by providing assurance that all disbursement are properly
authorized reviewed before check is issued.
A vouches in this usage is an authorization sheet that provide space for the initials of the employees
performing various authorization function. Authorization function include procedure as extending
and falling the vender’s invoice, determining the agreement of the invoice purchase order and
receiving are record or expense account and crediting vouchers payable.
B. internal control aspects of petty cash fund
Internal control over payments from an impressed petty cash fund is achieved at the time the fund
is replenished to its fixed balance, rather than at time of handling out small amount of cash.
Petty cash fund are sometimes kept in the form separate bank account. The bank should be
instructed in writing note to accept for deposit in such an account any checks payable to the
company is designed to prevent the routing of cash receipts in to petty cash. Since, this would
violate the basic assumption of limited disbursement and review at time of replenishing the fund
(Warren et al, 2004).
2.1.6
Change fund
Retail store and other business that receive cash directly from customer must maintain a fund of
currency and coin in order to make change. The fund may be established by drawing a check for
make the required amount, debiting the account cash in hand and crediting cash in bank. The
13
desired composition of the fund is maintained by exchanging bills or coins for those of other
domination at bank (Warren etal, 1984).
2.1.7
Cash short and over
The amount of cash actually received during a day often does not agree with the record of cash
receipts. The cash shortage or overage is recorded in an account entitle cash short or over. If there
is a debit it balance in the cash short and over account the end of the fiscal period, it is an expense
and may be included in “Miscellanies administrative expense” on the income statement. If there is a
credit balance it is revenue and may be listed “in the other income” selection.
2.1.8
Limitation of internal control over cash
An internal control system should be designed and operated to provide reasonable assurance that
an entity’s objectives are being achieved. The concept of reasonable assurance recognizes that the
cost of an entity’s internal control system should not exceed the benefits that are expected to be
derived. Balancing the cost of controls with the related benefits requires considerable estimation
and judgment on the part of management. The effectiveness of any internal control system is
subject to certain inherent limitation, including management override of internal control, personnel
errors or mistakes, and collusion (Warren etal, 1995).
Internal control is not simple; it should be complex as it involves division of function and allocation
of responsibilities into many different people and units involving greater paper work leads to
excessive control. In this way many people in fact, think of more control not better control. More
control brings bottleneck therefore; inefficiency, not efficiency, delays, and loss in productivity.
Thus, there is control risk that must be assumed to trade –off to between risk and safeguards to be
implemented. Internal control cannot give the auditor all the reliance needed but can only provide
reasonable assurance but not complete reliance to be placed (Arens, 1997).
14
2.2 EMPIRICAL LITERATURE REVIEW
Different researchers had studied many empirical studies related to the internal control over cash.
They give us a guide note about the meaning of cash and the way that how the business
organizations and banks control their own cash. Among them:
The research paper made by Bethlehem Fikadu (2006 E.C) on university of Gondar by the
topic of internal control over cash on the case study of Addis Ababa water and sewerage
authority finds that the effective internal control over cash is needed and she also try to
assess the effective cash management and documents used for cash collection and cash
management. Finally she concludes that Addis Ababa water and sewerage authority had
established procedures to handle all cash collections from its customers. Since cash is the
most liquid asset for any business, it needs a very tight control as a result she finds that the
organization is using different procedures to control its cash among them the best one is
the organization uses a formal printed cash receipt ticket (CRT). In the same thing she finds
that the majority of the employees in the Addis Ababa water and sewerage authority office
are males. Finally she concludes that the internal control over cash is difficult in such kinds
of office because if the males are dominated in the one place they are going to stolen cash in
different ways, but females cannot do it since they afraid for such activity.

The research made by Paulson Ghebray (2006E.C) on the title of internal control over cash
in case study of Gondar printing enterprise address the good internal control mechanisms
adopted by the enterprise. The cash receipt of the enterprise results from varies sources
such as cash sales, collection from customers, rent and so on. Effective internal control over
cash includes.
 Segregation of duties
 Cash receipts deposited daily
 Use of pre numbered cash receipts and invoices
 Cash on premises should be kept safe custody and
 Specifically assigning duties and responsibility
Generally he asks so many questionnaires’ for employees of the enterprise and he collects different
answers for the question for example he asks that is the bank funds properly recorded?
In the case presented in the above questions all of the respondents (100%) have replied ‘’yes’’ then
accordingly he concluded that the enterprise:15

Bank transfers are properly completed and adequately supported.

The responsible person within the limits set by the management approves bank
transfers.

Confirmed bank advice is collected and an accounting entry is passed to record the
transaction. Hence Mr Paulos conclude that bank fund transfers are properly
controlled.

The research made by Mr Tegegne Wana on the title of assessment of internal control over
cash in 2008 in Aksum town on the case study of finance and economic development office
shows that cash is needed to be safeguard from different thefts and fraud. He tries to
conduct his research by using both primary and secondary sources of data and descriptive
types of research design. This research is conducted by using census because it was
conducted on the small numbers of respondents. He tries to assess whether the policies and
procedures regarding of cash control is very high, high or medium. Around 72.5% of the
total respondents are replied that very high and 27.5% of respondents responds that high in
the organization. And they applied the policies and procedures in each sector office by
hiring a competent skilled man power. Hence an organization by doing so they control their
cash properly and it is not vulnerable to miss use of cash.

The research had studied on the title of cash management practices in commercial bank of
Ethiopia in case of alem bank branch in jimma that address the controlling systems of cash
collection and disbursement which is adopted by the commercial bank( Bahiru, A 2004E.C).
But we are going to address the controlling system of Abyssinia bank.
In general term different researchers concludes that internal control over cash is needed to safe the
cash on hand and cash at the bank and they recommended that
 Any organization or a bank is better to follow the policies and procedures by effectively
and efficient way
 Any institution is better that use computerized accounting system
 To decrease the possibility of fraudulent activity on cash, accountants and auditors
should use record process.
16
CHAPTER THREE
3. RESEARCH METHODOLOGY
Research methodology is a systematic way to solve the research problem and it may be understood
as a science of studying how research is done scientifically. It includes research approach, research
design, sources of data, target population and methods of data analysis.
In other words research methodology refers to overall approaches and prospective to the research
process as a whole and is concerned with the following main issues: Why we collect certain data?
 What data we are going to collect?
 Where we are going to collect the data?
 How we are going to collect the data?
 How we are going to analyze the data?
3.1 Research approach
The research approach is the ways which is used to interpreted and analyzed generalized theories
and models drawn in the research either numerically or non-numerically and it contains qualitative
and quantitative as well as mixed approach. The qualitative type of research is used in the data that
will be collected through questioner and interview which is non-numeric data by observing what
people do and say in the form of word, picture or objects and also it interpret the meanings,
definitions, characteristics, symbols and descriptions of things. For example the components of
internal control which are non-numeric are studied by qualitative types of research. In other words
the data that will be collect from the both secondary and primary sources which are numerical will
be studied by using quantitative types of research in terms of quantity or amount by using tables,
ratios and percentages (Booth, 2006). As a result we had used the qualitative types of research
approach in our study because to provide the best understanding and comprehensive analysis of
the problems, to analyses and interpret non-numerical data about the raised problems.
17
3.2
Research Design
Research design is set of methods and procedures used in collecting and analyzing the measure of
variables specified in the research problem and it is also plan and a blue print or conducting study
within maximum control over factors that may interface with the validity of the findings (Burns and
Grove, 2003). The type of research design that was employed is descriptive, because the researcher
can describe about the component of internal control. It would be intended to describe the state of
internal control over cash only, and can assess the relation between them.
3.2.1. Target population
The target populations of this study are eight (8) employees who work on this branch including one
branch manager in the selected branch of Gondar maraki branch. Among these populations one
(1) of thus is female and seven (7) employees are males. So we try to take as a population study
including manager of the bank. Hence, we were used census, because the total numbers of the
respondents are small.
3.2.2. Sources of data
There are two types of data, primary and secondary. Primary sources of data are used to collect
firsthand information from employees via self-administered questioners, which include both close
and open ended questions and secondary from second hand information that is collected from
annual report of the organization and other supporting materials including published books. Thus,
this study was used only primary sources of data from the interview and questioners of the
respondents.
3.2.3. Methods of data collection
The study was used structured questioners to collect firsthand information for employees of the
bank and we had collected different information through direct interview of the respondents
including the branch manager.
3.3.4 Methods of data analysis and presentation
The data that are obtained from the primary source data was analyzed and presented using
descriptive research tools via tables, percentages and frequencies. This type of data analysis is used
to describe the definition, importance attitude and manner of the components of internal control
18
CHAPTER FOUR
DATA PRESENTATION AND ANALISES
In this chapter, data collected through questionnaires have been analyzed using tools like
percentages and tables and interpreted accordingly. This data is collected from respondents by
censure methods and analyzed using qualitative data analysis techniques. The researcher taken a
total of eight respondents and out of these 8 questioners was distributed to the selected branch of
Gondar maraki branch employees. The total distributed questionnaires were returned. As a result
the researchers try to interpreted and present the collected data from the employees.
A. Interpretation of the data that are collected through questionnaires
Table 4.1 Demographic data interpretation
No
Description
Specific character
No of respondents
Percentage
(%)
1.
Age
18-25
3
37.5
26-45
5
62.5
>45
-
-
Total
2.
3.
Sex
Education level
100%
Male
7
87.5
Female
1
12.5
Total
8
100%
Certificate
-
-
BA degree
8
100
Master and above
-
-
Total
8
100%
19
4.
5.
Position
Years of services
Accountant
1
12.5
Teller
7
87.5
Total
8
100%
<3 years
6
75
3-5 years
1
12.5
6-10years
1
12.5
>10 years
-
-
Total
8
100%
Source; researchers own survey (2018)
As shown from the above table 4.1 no 1 out of the total 8 respondents (37. 5%) are between the age
18-25 and 62.5% are between the ages 26-45. In another words 62.5% (5 employees) have the age
group between 26-45. From this background information the researchers come up with the
conclusion of Abyssinia bank of the Gondar maraki branch is dominated by the adults of the age
group. It indicates that the majority of the employees may have trust for their company. In the
general term ages in this group are not engaged for the fraudulent activities.
While from the total of eight employees in the branch 7(87.5 %) of them are males and one (12.5%)
of them is female. the number of male employees are more dominated in the branch. This indicates
that the bank of Abyssinia does not incorporate the participation of the females in this branch. Most
of the time males are engaged on the illegal activity than females as a result the cash control applied
in such kinds of organizations may be so difficult without effective management.
Based on table 4.1 no 3 all of the respondents (100%) are BA degree in their education level, this
means that they have good expert and knowledge of accounting to deal about the systems of
internal control in the bank. in general the employees who have is the holders of BA degree can give
reliable data .
Out of total respondents 87.5% (7) of the respondents are tellers, 12.5 %( 1) of them is accountant.
It shows that the majority of the respondents are the teller and there is no any internal auditor or
20
the other positions in the branch because the branch is new and have less than one year of services
the required types of positions may not obtained in the branch.
As shown in the above table 4.1 no 5 most of the employees (75%) have less than three years of
experience which indicates that they are recruited with the establishment of the branch soon. It
implies the employee who is new for one organization is loyal to his organization because he wants
to his job and tries to maintain his work on it. As a result in this branch most employees are loyal to
their employers and cannot cheat any physical as well as transaction based cash.
Table 4.2 Analysis of basic variables Related to banks policies and procedures
Basic questions
Answering mode
Q1. Does the bank updates its procedure and
No
of Percentage
respondents
(%)
Yes
8
100%
No
-
-
Yes
8
100%
No
-
-
Quarterly
-
-
Semi annually
3
37.5
Annually
-
-
As per required
5
62.5
Excellent
8
100%
Very good
-
-
Good
-
-
Bad
-
-
manuals regard to cash control?
Q2.
Is there any continuous evaluation to
revise internal policies and procedures?
Q3. If the answer in the above is yes how often
the policy and procedure is evaluated?
Q4. The implementation status of the internal
control system in the bank.
21
Q5. The effects of the small payment package
give to the employee on the internal control
over cash in the bank.
Directly affect
-
-
Indirectly
-
-
affect
Does not affect at 8
100%
all
Q6.
The status or performance of duty
segregation for internal control purpose in the
bank.
Sufficient
6
75%
In sufficient
-
-
2
25%
-
-
Good
Not at all
Source; researchers own survey (2018)
As it shows in the above table 4.2 no 1 all of (100%) of the respondents are responding that the
procedures and manuals are updated in the bank of Abyssinia. This indicates that the bank is
frequently apply the procedures and polices set by the national bank of Ethiopia. So it is easy to
control both the cash on the bank system and physical cash. There is no respondent (0%) who
answers the banks policies and procedures are not update for internal control system, which
implies that the system is effectively applied in the bank of Abyssinia.
And also from the same table 4.2 no2 the total numbers of the employee answer that the bank
policies and procedures have continues evaluation in order to evaluate the performance of the
procedure on the internal control as well as the management of cash. From the total respondents of
employee who answers “yes” in the Q2
3 (37.5%) of them said that the procedures and the
manuals are evaluated its performance twice a year or semi annually but the remains 5 (62.5%)
respondents are said to be this procedures are evaluated some other un specified time. it implies
that the bank evaluates its procedures as per required. In a general term the bank has effective
positions on the internal control system of cash because it gives a comment for the limitations of
the practices made by some employees periodically so it had better to continue such a good activity
of control system.
We can also see from the same table 4.2 no 4 the implementation status of internal control system
on the bank. To the same extent for the above topic all eight (100%) respondents said that the
22
implementation of internal control system is ‘excellent” which mean that the procedure related to
internal control is effective and excellent in the bank and as the respondents view there is no any
intentional fraud and cheat of cash in the bank. This is very good performance of the bank.
In the above table 4.2 no 5 when researchers try to assess the relation between the small payment
package given to the employee and internal control system.
All of the respondents (100%)
answered that there is no both direct and indirect relation between them and they said that small
payment package does not totally affect the internal control system. So whatever the employees get
benefits from the bank it have not any impact on the controlling system.
And finally when we see the same table 4.2 no 6 the performance of the segregations of duties for
the purpose of internal control system 6 employees (75%) say that there is sufficiently enough
segregations of responsibilities and duties in the bank. It implies that the employees are working
for their own work only. Or the cash holding person and the person who recorded the transaction is
all over controlled by the system. As the explanation given by branch manager states that any un
authorized body cannot work on the others work because every employee has their own user
access code in their work. But this does not mean that the bank of Abyssinia duty segregation is
100% sufficient, because 2 employees (25%) replied that the duty segregation is not enough but it
is some extent good. It implies the segregation of duties in the branch is good performance for the
purpose of control cash.
Table 4.3 Analyses of basic variables related to computerize and voucher systems used by
the bank in cash transaction.
Basic questions
Answering mode
No
of Percentage (%)
respondents
Q7. Is there a voucher
system with regard to
cash transaction?
Q8.
Are there any
Yes
8
100%
No
-
-
Total
8
100%
Yes
8
100%
23
strong
control
activities that check
the authorization of
No
-
-
Total
8
100%
Yes
8
100%
No
-
-
Total
8
100%
Computerized
1
12.5%
Manuals
-
-
Accounting
1
12.5%
Administrative
3
37.5%
Mixed of the above
3
37.5%
cash?
Q9. Does the cashier
of the bank provide
the
evidence
transaction
that
and
events are occurred?
Q10.
control
The internal
system
prevails in the bank?
Source; researchers own survey (2018)
As we see from the above table 4.3 Q7 the response of all respondents for the available of the
voucher system in the bank is “yes”. The total numbers of 8 employees or 100% of respondents
answered that there is the voucher system in the bank of Abyssinia. It implies that the each
transaction of the cash is maintained by the accounting transactions of recording in the voucher
system. So internal control system is better in the bank of Abyssinia. In general the cash payment
and receipt by the voucher system are more vital to facilitate the working condition as well as
protect the cash from fraud and theft.
In the same table of table 4.3 Q8 when researchers asked about the question related to the
controlling activity of the authorization of cash, all of respondents(100%) replied that the
controlling system of the authorization of cash in the bank of Abyssinia is strong and everybody
cannot cheat and miss use cash improperly. It implies that the cash authorized duties are given to
the assigned person who has accountable to the any theft of cash in the bank. As a result due to
24
the controlling activity is strong in this bank cheat or fraud of cash may not be expected in the
bank.
In the above table 4.3 Q9 related to the evidence that are printed for the cash transactions all of
the respondents (100%) answered that there is the evidence which the cashier is provided to the
targeted authority in the bank. So intentional mistake may not be easy in the bank due to the
every transactions of the cash payment as well as the cash deposits from customer has evidence
that shows the frequency and amount of the cash transaction in the bank.
In the same table 4.3 Q10 we see the systems of controlling activities adopted by the bank. From
the total respondents 3(37.5%) replied that the Abyssinia bank uses the administrative system
and 1(12.5%) said that computerized system of control is undertake in the bank. Additionally 1
respondent (12.5%) answered that the bank uses accounting system of control. But as a general
term when we see the three members of the respondents (37.5%) they explained that bank of
Abyssinia uses different systems of controlling activities as a mixed of the above. So researchers
concluded that there are different control system are adopted in the bank to strength the
effectiveness of internal control over cash.
Table 4.4 analysis of the data related to the effective and efficiency of cash management
and control of cash.
Basic questions
Q11.
How
internal
system
the
Answering system
No of respondents
Percentage (%)
By internal checking
2
25%
6
75%
Total
8
100%
Yes
6
75%
No
2
25%
8
100%
7
87.5%
control
is
effective By internal audit
and efficient in the
bank?
Q12.
Does the bank
limits the number of
employees who have
access to cash?
Total
Q13.
Is there any
Yes
25
surprise or periodic
cash count in the
bank timely?
Q14.
Where the
No
1
12.5%
Total
8
100%
Have their own seat
7
87.5%
Mixed
1
12.5%
8
100%
Yes
8
100%
No
-
-
seats of the cashier?
place
with
others
Total
Q15.
Does
the
employee effectively
apply
the
policies
bank
and
total
8
100%
procedures?
Source; researchers own survey (2018)
From the above table 4.4 Q11 the systems or the ways of internal control over cash is asked to
the employee and 6 employees (75%) respond that the bank can control the cash by the internal
audit and the remains 2 employees replied that the Abyssinia bank can control the cash by
internal checking. Then the researchers conclude that internal audit is the dominant activity in
the bank to control cash. Internal checking means the checking of the cash balance by their
friends or other nearby employees in the bank, but internal audit is the systematic examinations
of the transaction by independent assigned body( branch manager in this regarded). As the same
thing the internal audit is more reliable than internal checking because employees may go on
agreement for the illegal activities. So the cash control system in the branch is very strict and
difficult to misuse or fraud the cash for the employees.
In the same table 4.4 Q12 researchers asked a question related to the banks practices on the limit
or restrict of personnel who have access to cash. 6 employees (75%) replied that the bank limits
or restricts the number of employees who has direct access to cash. But the remaining 2
respondents (25%) answered that the bank does not restrict the number of personnel who have
26
direct access to cash. As a result researchers concluded that there is a limitation of cash access
employees in the bank. Basically one of the major effective practices of every organization for the
control of cash is limit the cash access personnel. The reason behind this implies when the
numbers of cash holders is decrease the less exposed for fraud, cheat and improper use of it.
Table 4.4 Q13 deals with the periodically count of cash balance made by the bank. Almost 7
employees (87.5%) replied their answer by saying “yes” but one of the total employees (12.5%)
answered that there is no a surprise or unexpected count of cash balance count in the bank. Then
it implies that the bank of Abyssinia check its cash balance by physical counting of birr amount at
every day after working hours. So it is effective measurement to protect cash from fraud, cheat
and theft. As the respondents said that and also branch managers said that auditor have the
responsible person to count the cash every working day per week.
In the table 4.4 Q14
7 employees (87.5%) said that cashers have their own offices to do their
activity but the remaining 1 employee (12.5%) respond that the cashers have no any separate
office rather they work with other employees in the same office. Mostly in the bank of Abyssinia
the cashiers have their own office which indicates that the effective applications of duty
segregation in the bank. As a general term cashers should have their own office to strength the
internal control system in any organization.
When we see in the same table 4.4 Q15 100% of the respondents implied that the policies and
procedures made by the bank are effectively applied by the employees. This indicates that the
bank is effective for its performance related to the internal control over cash, because every
personnel followed the procedure means there may be minimum intentional practices made by
workers. If the employees do not follow the procedures set by the bank they are going to
punishment. This procedure is made always in the bank system to control over cash. Any
personnel in the respondents did not respond that the personnel cannot follow the procedures
and the policies set by the bank.
Table 4.5 analysis of the basic variables related to the components of internal control.
Basic questions
Response method
Q16. Do you think
that the bank of
Abyssinia
has
No of respondents
Percentage (%)
Yes
8
100%
No
-
-
27
general
sound
Total
8
100%
internal
control
Yes
4
50%
No
4
50%
Total
8
100%
Q18. What is/are To provide accurate financial
1
12.5%
To avoid cash shortage
-
-
To protect cash from miss- use
-
-
All of the above
7
87.5%
Total
8
100%
4
50%
over cash?
Q17.
Does the
bank works with
other organization
to
strength
internal control?
the
purpose
of report
internal control in
the bank?
Q19.
The major Customer deposit
sources of short
term
finance
to
avoid the liquidity
risk.
Capital reserve
2
25%
From both sources
2
25%
Total
8
100%
Source; researchers own survey (2018)
From the above table 4.5 Q16 researchers try to get the information about whether the bank of
Abyssinia has a sound general control over cash or not. As a result all 8 employees (100%)
respond that the bank has general control system. It implies that bank of Abyssinia has their own
policy and procedures for internal control over cash in addition to they received control
procedure manuals from the central bank.
In the same table 4.5 Q17 50% of the respondents replied that the bank works with other
28
organizations to share experiences but another 50% of respondents reply “NO” that the bank is
working with other organization. It implies that the bank of Abyssinia in some extent work with
some other organizations to share different internal control mechanisms. For example as the
interview of the manager states that other old branches of Abyssinia bank found in Gondar had a
exchange of experience last two years that how to control and manage cash.
In the Q18 of the same table researchers try to investigate the reasons of internal control over
cash. Then 7 employees (87.5%) of the total respondents replied that internal control is essential
for the purposes of provide accurate financial statements, to avoid the cash shortage in the bank
and to protect cash from fraud, cheat and theft. but one respondents respond that internal
control is necessary for the purpose of accurate financial report only. So researchers concluded
that internal control is used for the preparation of the financial statements, to control cash from
theft and for the purpose of identifying the idle cash balance in the bank (if any) that should be
invested on the short term investment like treasury bill.
Finally in the Q19 of the same table the researchers ask a question about the source of the short
term cash balance for the bank to avoid the liquidity risk. 4 respondents(50%) answered this
question by saying the bank gets its short term finance from the direct deposit of the customer,
25% or 2 employees said that the bank get its short term finance from its capital reserves. But
the remains 25% or two employees said that the bank can get its short term finance not only
from customer deposit and capital reserve or both but also line deposit of customer and the short
term treasury bill made by the bank i.e. short term investment.
B. Interpretation of the interview questions
 The branch manager replied for the bank’s policy and procedure is that when the cash is
inflow and out flow from the bank and to the bank, the basic system of internal control is
dual entry system. This dual entry system controls the personnel who are going to stolen
cash. It implies that the debit and credit system of transaction is the main system of control
in the bank. And also the physical cash is controlled through the dual control system. This
means that if the branch manager and the cash supervisor have key, the physical cash
control is easily. There is also the dual volt system of cash control in the bank. The activity
of the one employee is directly controlled by the branch manager by using the dual volt
system.
29
 When researchers asked an interview question related to how the employees of bank follow
the bank’s policy and procedure, he answered that they are followed properly and apply
each and every procedure set by the banks of Abyssinia. It indicates that there are proper
integrations of workers and effective systems of cash control. If the personnel do not follow
the procedure there is punishment behind the incorrect action. In general there is
punishment behind wrong work means that every personnel cannot cheat the bank because
he may be disqualified from his employment. So they have to be follows properly. The
controlling system is very clear and good in the bank.
 Manager of the bank said that there is a great segregation of duties and responsibility. Each
and every personnel has their own specific work who going to done on time. But he said
that there is no the internal auditor due to this the auditors work is done by the branch
manager for some periods. And he said that in order to separate the activity of one
employee to another, there is user access code in the system. It implies that any persons
cannot open the system without his registered activity in the system. Even if there is the
great segregation of responsibility in the bank, the collapse activity of management and
auditing system is not advisable. So as researchers we find in this replay the bank has not
perfect duty separation.
 In the same system for the above there is no auditor in the bank but work is done by branch
manager and this auditing activity is not independent from the control system. He said that
the activity is dependent on the internal control system but the responsible person is free
from the external influence of others. As he replied us there is the separate policy and
procedure for the auditors only. It implies that the auditor cannot work by their own
systems of procedure. It discarded the auditor to examine the false interpretation.
30
CHAPTER FIVE
CONCLUTION AND RECOMENDATION
This chapter presented the important finding of the research that presented in the analysis part of
the study based on, finding, some possible solution are also given in the recommendation section
which is important to improve the activity of the bank. Based on the data presented, analyzed and
interpreted the researchers come up with the following conclusions and interpretations.
5.1. Conclusion
Analysis of the internal control over cash practice in the bank of Abyssinia has been undertaken so
thoroughly and, the following are the important findings:
 Internal control over cash is one of the major functions of any accounting system in every
organization. The bank of Abyssinia applies an internal control over cash in the office. It is
performed by following all the necessary procedure; it has high contribution s in the
presentation of cash from theft or fraud.
 The bank of Abyssinia has the objective of protecting cash from theft or misuses, to avoid
excess or idle cash, and provide accurate financial reports.
 The numbers of the female employees has small percentage.
 In the bank, there is a moderately viable internal control over cash which enables the office
to secure its cash.
 The bank of Abyssinia has a clear organizational policy of internal control over cash
effectively.
 Employee’s salary payment in the bank does not affect the internal control system over
cash totally.
 The sources of short term fund in the bank come from both the customer deposit and
capital reserve of the bank.
 In the bank, a single accountant prepares cash receipts in the three copies and cashier
collects cash, the original is given to the payer, one copy is given to accountant and one
copy is exists in the pad for the purpose of financial statement preparation.
 The bank use voucher system based on the classification for summarizing cash transaction.
 The bank use check system, smaller payment or other payment by using check. In the
office, the finance as well as general manager has the authorities to sign a check for the
31
final payment and the authorities to approve the invoice for payment or to make in tries in
the accounting records are responsibility of both the treasury and accounting section.
 As per the bank’s policy, the cashiers have restricted area for seating and no one is
authorized to enter this restricted area, and the main cashier is the one who is responsible
for any cash payment in the bank.
 Segregation of duties, establishment of responsibility documentation and independent
control are the principles that are applied in the bank to control cash, but it is not perfectly
effective sine the two duties are done by the single manager.
 Educational level of the employee is one of the factors of the organization that enables the
employee to perform their tasks effectively. So employees in the bank of Abyssinia have
good educational background and are expiated to perform their tasks effectively and solve
problem easily in the bank.
 Work experiences of employee area also one of the most important element to be
considered in any organization that reflects, who many times employees are contacted to
tasks or problems that enables them to solve problem or operate tasks efficiently.
 So researchers conclude that there is appreciable internal control over cash procedure and
the organization appropriate cash management system in the bank and give satisfaction to
the banks environment.
5.2. Recommendation
Based on the findings of this research paper, which was conducted in the bank of Abyssinia, the
following suggestions (recommendations) concerning internal control over cash are forwarded
 The office should be able to detect any possible loophole that may lead to misbehaving
action in a regular basis:
 The employee of the office must be trended about the principle of control over cash more.
 The office should review work with bank as weekly or biweekly as possible.
 The bank is had better to recruit independent auditor to effective examination.
 The bank has a principles regarding to the cash, so should use properly and effectively.
 To decrease the possibility of fraudulent activity of on cash, accountants and auditors had
better use proper record process that generate a flow of time, relevant n and reliable
information.
 Training should be given timely to update the employees by control department. And it is
advisable to conduct the background of the employee before hiring.
32
Reference
Arens E, (2000)” Auditing and integrated approach” 14th edition, Boston Columbus India.
Diamond S, (2000) “financial accounting” 5th edition, south-western Thomson learning.
Bringham F, (1995) “Fundamentals of financial management” 7thedition, USA; dryded press.
Haward F, (1982) “principles of auditing” 2nd edition.USA, Boston: Mcgrow-Hill Inc.
Mosich A, (1989) “Intermediate accounting “3rd edition. Himmalia: publishing house.
Warren F, (1984) “Accounting principle” 16th edition. South western USA.
Meigs and whitnigton(1989) “principles of auditing” 9thedition.USA, Boston; Mcgrow-Hill
Warrens etal, (1985) “Accounting principle” 20th edition, south western publishing.
Whittington etal, (2010) “Principle of auditing and other assurance” 17th edition.
33
APPENDEX
UNIVERSTY OF GONDAR
COLLAGE OF BUSINESS AND ECONOMICES
DEPARTMENT OF ACCOUNTING AND FINANCE
Questionnaire for employees
Dear respondents.
We are conducting a research work on the assessment of internal control system over cash in case
of bank of Abyssinia (Gondar maraki branch), for our partial fulfillment of, BA degree in accounting
and finance. We kindly request your honest cooperation with us to complete this questionnaire and
this would greatly enhance the quality of our research paper.
We assure you that the information that you provide will kept confidential and would only be used
for academic purpose only.
We would like to thank you in advance for your cooperation to fill this question paper.
N.B Do not writes your name in this paper or it is unnecessary
Part I: general back ground information
Instruction I: respond for the following items by putting a tick (/) mark on the box provided.
1. Sex:
A. male ( )
B. female ( )
2. Age 18-25()26-45()>45
3. Education level college diploma ( ) B.A degree ( ) master and above ( )
3. Position:
cashier (
) Accountant (
) Auditor
(
) journal keeper ( ) Teller
( )
4. Year of service: below3 years ( ) below 3-5 years ( ) below 6-10 years ( ) above 10 years
( )
Part II general questions related to internal control over cash.
Instruction II respond by putting a tick (/) mark on the box provided and explain the items that
needs further explanations. You can mark more than one item in the same questions if necessary.
A. To investigate the banks policies and procedures:1. Does bank of Abyssinia or Gondar maraki branch update its work procedures and manuals
in regard to internal cash controlling system?
Yes ( )
No ( )
34
2. Is there any continuous evaluation to revise internal policies and procedures?
Yes
(
)
No
(
)
3. If your answer in Q2 is “yes” how often?
Monthly (
)
Annually (
quarterly ( )
) any other time (
semi-annually ( )
)
4. How do you see the implementation of internal control over cash system in your bank?
Excellent ( ) Very good ( )
Good
( )
bad ( )
very bad ( )
If your answer is “bad” or “very bad” please specify or give
justification…………………………………………………………………………………………………………………………..
5. Do you think that small payment package give to employee set by the bank affect the banks
practices on internal control system?
Directly affect
( )
indirectly affect (
)
does not affect totally (
)
6. How is the duty segregation in the bank in regard to internal control procedures?
Sufficiently enough (
)
To some extent good (
insufficient
)
(
)
No segregation of duty at all (
)
B. To investigate the computerized and voucher system used by the bank in cash
transaction.
7. Is there a voucher system with regard to cash transaction?
Yes
( )
No
(
)
8. Is there a strong control activates that check authorization of cash?
Yes
(
)
No (
)
9. Does the cashier of the bank provide the evidence that transaction and events are occurred?
Yes (
) No (
)
10. Which of the following internal control system prevails in the bank?
Computerized system
Accounting system
(
(
)
)
manual system ( )
administrative system (
35
)
C. To assess the effective and efficient management and control of cash.
11. How the internal control system is effective and efficient in the bank?
By internal checking (
)
by internal audit (
)
Or by any means please specify…………………………………………………….
12.
Does the bank limits the number of the people who have direct access to cash?
Yes
(
)
No
(
)
If your answer is “no” please specify ……………………………………………………………………………………
13. Is there any surprise or periodic cash count for the cash balances?
Yes
(
)
No
(
)
if you say “yes” how often…………………………………….
14. Where is the seat or place of the cashier in the bank?
Have their own separate offices (
)
casher office with other employees (
)
15. does the employee or personnel effectively applied the banks polices and procedure timely?
Yes
( )
No
( )
if you answer is “no” justify…………………………………………………….
D. To investigate how the components of internal control are applied in the bank.
16. Do you think that the bank of Abyssinia has generally a sound internal control over cash?
Yes
( )
No
( )
17. Does the bank work with other organizations to strength its control system?
Yes ( )
No (
example………………………………………….
) if you say “yes” tell us one
18. What is/are the purpose of internal control activity in the bank?
To provide accurate financial report
( )
To avoid any cash shortage in the bank
( )
To protect cash from theft, fraud and misuse ( )
For any other reason specify…………………………………………………………………….
19. What are the major sources of short term finance to avoid the liquidity risk in the bank?
36
Customer’s deposit
(
) capital reserve ( )
any other sources specify…………………………
21. What do you suggest to improve current internal control system that did not include in our
questionnaire in your institution?
……………………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………..
Interview questions for the branch manager
1. What are the banks polices and procedure regarding to cash control?
2. How the bank personnel follow the cash procedures and manuals set by the bank?
3.
What are the practices of the bank on the segregations of duties and responsibility?
4. How the cashier handles their duties?
5. Who approves the cash in transit decision’s in the bank?
6.
If there is internal auditor in the bank, are they independent from the internal control system?
7.
How the bank control and manage cash effectively and efficiently?
8.
How the components of internal control are applied in the bank
37
38