RESARCH PROPOSAL SUBMITTED TO ACCOUNTING DEPARTMENT IN

PARTIAL FULIFILLMENT OF THE REQUIREMENTS FOR BACHELOR OF

DEGREE IN ACCOUNTING

INTERNAL CONTROL OVER CASH OF WEGAGEN BANk

(A Case Study on cmc Branch)

SUBMITTED BY: - Tmirat bireda

Fuad sisay

Tarekeg

ADVISOR: Goytom
Name of the principal investigator Tamirat bireda

Fuad sisay

Tarekege

Name of the Supervisor

Name of co- Supervisor

The full title of thesis research INTERNAL CONTROL OVER CASH OF

WEGAGEN BANk

(A Case Study on cmc Branch)

Duration of thesis research

Study area Addis Ababa, Ethiopia,

The total cost of the project 8800 Birr

Address of the investigator Email:-

Cell phone:-
 TABLE OF CONTENT
ABSTRACT.....................................................................................................................................i
TABLE OF CONTENT..................................................................................................................ii
CHAPTER ONE..............................................................................................................................1
INTRODUCTION...........................................................................................................................1
1.1. Background of the Study.......................................................................................................1
1.2. Background of the Organization...........................................................................................2
1.3. Statement of the Problem......................................................................................................2
1.4. Research Questions...............................................................................................................3
1.4. Objective of the Study...........................................................................................................3
1.5. Significance of the Study......................................................................................................3
1.6. Scope of the Study................................................................................................................4
1.7. Organization of the Study.....................................................................................................4
CHAPTER TWO.............................................................................................................................5
LITERATURE REVIEW................................................................................................................5
2.1 Definition of internal control.................................................................................................5
2.2. Internal Control.....................................................................................................................6
2.3. Objectives of internal control over cash...............................................................................6
2.4. Internal control over cash receipts........................................................................................6
2.4. Internal Control Components................................................................................................8
2.5. Cash Disbursements..............................................................................................................9
2.6. Internal control of petty cash funds.....................................................................................10
2.7. Internal Control over Cash on Deposit...............................................................................10

CHAPTER THREE.......................................................................................................................11
RESEARCH DESIGN AND METHODOLOGY.........................................................................11
3.1. The Research Design..........................................................................................................11
3.2. Data Source.........................................................................................................................11
3.3. Data collection Methods.....................................................................................................11
3.4. Sample Size and Sampling Technique................................................................................12
3.5. Method of Data Analysis....................................................................................................12

BUDGET AND TIME SCHEDULE.............................................................................................13

4.1. Budget schedule..................................................................................................................13
4.2 Time Schedule......................................................................................................................14
5 .REFERENCES..........................................................................................................................15
 CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

In accounting, the term cash means checks, money orders and funds on deposit in a bank,
currency and coins. A very large number of cash transactions in modern businesses involve
checks. The paper handling and recording of cash receipts and cash payments are a vital concern
in all types of business, services business, merchandizing business and manufacturing business.
Cash is an essential asset for every firm, but it is also the asset that is most easily stolen lost or
mishandled. Thus a well managed business has careful procedures to control cash and to record
cash transactions.

Every business should have a system of internal control over cash that is specifically worked to
its needs. The accountant plays a vital role in designing such a system and works with
management to establish and monitor the system. In developing internal control over cash
procedures for cash receipts and cash payments of a business, accountants follow certain basic
principles. This study will be conducted to assess the cash control system of Wegagen Bank cmc
Branch.

1.2. Background of the Organization

Wegagen Bank is a share Company; it is established in June 11, 1997. It is registered as a public
share holding company in accordance with licensing and supervision of banking business
proclamation No. 84/1994 and the commercial code of Ethiopia. It started with 60 million paid
up capital and 30 – million subscribed capital. When it is established, the number of share
holders was 16. After nine years of operation, Wegagen raised the paid up capital to 111 million
and number of share to 116,091.

Wegagen’s mission is to attract potential customers, create and sustain market leadership by
establishing net working of high performing work units, and also to generate high amount of
profit.
Wegagen is committed for achieving its objectives by following core business principles the
bank stated at establishment, with loyal and committed staff members. These principles are
outstanding customer service, business integrity, prudent lending policy, and strict control
discipline.

Up to the year 2009/10 the bank has 55 branches of which 27 are located in Addis Ababa and 28
are in different regional towns of the country. The study area of the research is in cmc branch. It
has already implemented the first of its kind in Ethiopia. Integrated computer wide area net work
as of July 2000. It has networked the head office, city branches and outlining branches.
The Major Services of Wegagen are:-
 Accept different types of deposits
 Grant variety of loans
 Offer full – fledged international banking service.
 Renders local and international money transfer services.

1.3. Statement of the Problem

The study tries to investigate the internal control over cash of Wegagen bank cmc
Branch. The organization has many goals, in order to achieve the objectives of the bank
, it has to control resources particularly its cash. Because cash is the most liquid asset easily
mishandled or susceptible to theft. Those cash related activities will be difficult to the
organization to be profitable in order to solve the problem that arises due to effective control
system over cashes. To evaluate an internal control over cash system performance the following
related questions are raised.

1. Is Wegage bank control its cash efficiently?

2. Is Wegagen bank build strong internal control system over cash?
3. Is Wegagen bank free from frauds and error that comes from weak internal control over
cash system?
4. Is the staff of the bank give more attention or focus on internal control over cash system?
1.4. Research questions
1. What are the internal cash control system designed and implemented in the Wegagen bank
cmc ?
2. How cmc branch evaluate the internal cash control over cash receipt?

3. Is the cmc branch built strong internal cash control system over cash payment?

4. What recommendations would be suggested on the cash receipt and cash payment
Procedures of the bank?

1.4. Objective of the Study

1.4.1. General Objective
The general objective is to assess internal control over cash in case of Wegagen bank in cmc
branch.
The specific objectives of the study are:
1. To study the cash control system designed and implemented in the bank.
2. To evaluate the internal cash control over cash receipt.
3. To assess the internal cash control over cash payment.
4. To give some recommendation on the cash receipt and cash payment procedures of the
company.
1.5. Significance of the Study
Under this study the researcher identify its weakness and their strength for further improvements
on internal control system over cash by selecting Wegagen Bank with the expectation of
resulting in general view of internal policies and procedures and their practical world application.
The reader can identify the weakness and strength of the internal control cash performance of
Wegagen bank of cmc branch.

1.6. Scope of the Study

Since internal control has many factors like internal control over plant asset, inventory, non cash
payment, and non cash receipts etc .The research will be focused only on the internal control
over cash that cash receipts and cash payments for the Wegagen bank cmc branch.

1.7. Organization of the Study

The paper contains three separate chapters. The first chapter is the introductory
part which includes background of the study, background of the organization,
statement of the problem, objective of the study, significance of the study, scope
of the study, limitation of the study, organization of the paper. The second
chapter is literature review which is the general explanation and reference
relating with the topic. Chapter three is about the methodology that will used to
do the research
 CHAPTER TWO
2. LITERATURE REVIEW
As cash is the most liquid of all assets it is always attracted auditors attention for many good
reason. The ease with which money can be transactions directly or indirectly affect cash and the
diverse nature of the process involved that is billings, collections, deposited and disbursement
implementing internal control in the area of cash management very difficult. It is the most likely
to be diverted and improperly used or purloined by employees. (O. ray Whittington and, kurt pay
2001)

Cash consists of coins, currency (Paper money) checks, money on hand or on deposit in a bank
or similar depository. The general rule is that if the bank will accept it for deposit is cash. Just as
cash is the beginning of a company’s operating cycle, it is usually the starting point for
company’s system of internal control. Cash is the one asset that is readily convertible in to any
other type of asset (Weygant, Kaiso and Kimmel; 1999).

2.1. Internal Control

Internal Control consists of the plan of organization and all the related methods and measures
adopted with in a business to safeguard its assets from employee theft, robbery and unauthorized
use. Enhance the accuracy and reliability of its accounting records by reducing the risk of errors
(unintentional mistakes) and irregularities (intentional mistakes and misrepresentations) in the
accounting process. (Weygent, Kaiso and Kimmel; 1999, p. 280)

Internal control is comprehensive in that it addresses the achievement of objectives in the area of
financial reporting, operating, and compliance with laws and regulations. Many people
interpreted the term internal control as the steps taken by a business to prevent fraud both
misappropriation of assets and fraudulent financial reporting (O.Ray whittingron andkurt pany;
2001, p. 241).

2.2. Objectives of internal control over cash?

The objectives of internal control over cash is to make sure whether the organization is
safeguarding and reporting cash in the appropriate manner. As cash has highest risk and is
difficult to control it needs extensive and tight and effective internal control procedures.
According to meigs and others the method or rule for the achieving internal control over cash
objectives understands in detail operation routine of a particular business for efficient control
procedures.

Objectives of examining cash transactions, cash funds and cash balances in banks is to establish
the validity and propriety of the cash transactions and to properly state the cash and hand for
purposes of financial statement presentation. Cash is no more valuable than any other asset of
equal current market price. The examination of cash and cash transaction is important because
cash is a favorite item for theft: the majority of all business transactions involves a cash count or
terminates in it. Error in any account can result in errors in cash accounts, and errors in cash
accounts indicate probable errors in other account principally account payable debit sand account
receivable credits (Arthur W. Homes: 1966).

2.3. Internal control over cash receipts

Cash receipts are the main part of the revenue generating cycle and with a high possibility of
misappropriation. The accuracy of the recorded receipt as well as the omissions of some receipts
before recording must be the area where the auditor has to concentrate and give a high priority.
(Arthur W. Homes: 1966)

Cash receipts may result from a variety of source: cash sales, collections on account from
customers; the receipt of interest, rents and dividends, investments by owners bank loans; and
proceeds from the sales of noncurrent assets. (John W. Cook year : 1980)

2.3.1. Cash Sales

Control over cash sales is strongest when two or more employees (usually) sales clerk and a
cashiers participate in cash transaction with a customer Restaurants and cafeterias often use a
centrally located cashier. 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 in this situation dishonesty may be discouraged by proper use of cash
registers electronic point of sales system. (O. Ray Whittington and Kurt pany; 2001 P. 386)
2.3.2. Electronic Points of Sale
Many retail stores use various types of electronic cash registers, including online computer
terminals. The sales person need only scan the code for the register to record the sales at the
products price which is stored in computer. Thus, the risk of a sales person recording sales
person recording sales at erroneous price is substantially reduced. Besides providing strong
control over cash sales, electronic registers often may be programmed to perform numerous of
the control function (O. Ray Whittington and kurt pany 2001,p.386).

2.3.3. Collection from credit Customers

In many manufacturing and whole sales companies, cash receipts include many checks received
through the mail. This situation poses little threat of defalcation unless one employee is
permitted to receive and deposit these checks and also to record the credits to the customer’s
accounts. (O. Ray Whittington and kurt pany 2001, p. 286)

The control system must allow the incoming mail to be opened in the mail to be opened in the
mail room where the employee prepares a control listing of the incoming cash receipts which
shows the amount received and identify the customers by name and account number. One copy
of the control listing will be forwarded to the controller another copy to the cashier and the
remittance advices and control list will be given to the employee who is responsible for the
customers accounts. (O. Ray Whittington, and Kurt Pany 2001, p. 289)

2.4. Cash Disbursements

Cash may be disbursed for a variety of reasons such as to pay expenses and liabilities, or to
purchase assets. Generally, internal control over cash disbursements in more effective when
payments are made by check, rather than by cash, excepts for incidental amounts that are paid
out of petty cash. Payment by check generally occurs only after specified control procedures
have been followed in addition, the “paid’ check provides proof of payment. (Weygant, Kaiso
and Kimmel 1999 ,p. 290)

Cash disbursements are the out flow of money from the organization for the services or goods
received in verifying the cash disbursement records, all items are not selected. Some individual
items will be selected for sampling and using the sampling techniques the records will be tested.
The items will include check register, vender’s invoices, contracts and agreements. (Kaiso,
Weggant and Kimmel 1999, p. 290)

2.4.1. Control of a voucher system

Most medium and large companies use a voucher system as a part of their internal control over
cash disbursements. A voucher system is an extensive network of approvals by authorized
individuals acting independently to ensure that all disbursements by check are proper.

The system begins with the authorization to incur the cost or expense and ends with the issuance
of a check for the liability incurred. A voucher is an authorization form prepared for each
expenditure in a voucher system. Vouchers are required for all types of cash disbursements
except those petty cash. The voucher is prepare din the account payable department. (Kaiso,
Waygent, Kimmel; 1999,p.290)

2.4.2. Electronic Funds Transfer System

Electronic funds transfer is a disbursement system that uses wire, telephone, telegraph, or
computer to transfer cash from one location to another. Use of electronic funds transfer is quit
common. For example the authors receive no formal payroll checks from their universities.
Which simply send magnetic tapes to the appropriate banks for deposit. Regular payments such
as these for house, car or utilities are frequently made by electronic funds transfer. (Kaiso,
Weggant and Kimmel: 1999 p. 290)

Financial institutions have developed electronic fund transfer system that process funds related
from sections for customers as an alternative to paying by checks increasingly, electronic data
interchange systems, which always the interchange of data from one company’s computer to
another’s are electronically transferring funds between companies bank account. (Kaiso,
Waygent and kimmel; 1999, p. 292)

2.5. Internal control of petty cash funds

Internal control over payments from an imprest petty cash fund is achieved at the time the fund is
replenished to its fixed balance rather than at the time small amounts of cash are handed out.
When the custodian of a petty cash fund requests replenishment of the fund, the documents
supporting each disbursement should be reviewed for completeness and authenticity, and defaced
or perorated to prevent rouse. Audit tests of petty cash emphasize transactions rather than the
year – end balance. (O. Ray Whittington and Kurt Pany 2001 ,p. 392)

The auditors may test one or more replenishment transactions by examining petty cash vouchers
and verifying their numerical sequence. Petty cash funds are sometimes kept in the form of
separate bank accounts. The bank should be instructed in writing not to accept for deposit is such
an account any checks payable to the company. The deposit will be limited to checks to
replenish the fund and drown payable to the company. The deposits will be limited ot checks to
replenish the fund and drawn payable to the bank or to the custodian of the fund. The prohibition
against deposit of checks payable to the company is designed to prevent the routing of cash
receipts into petty cash since this would violate the basic assumption of limited disbursements
and review at time of replenishing the fund. (O. Ray Whittington and Kurt Pany; 2001, p. 392)

2.6. Internal Control Over Cash on Deposit

The verification of cash on deposit starts at the verification day of cash on hand. For verifying
cash on deposit cut off data is needed which records all cash receipts and disbursements
preceding the verification date. The bank reconciliation will be greed with the totals of the cash
receipts total in the working paper, which have the dated, number and amount of the last
checques written.

The controller must verify all the reconciling items that is the balance in the general ledger and
on the bank statement. The most common reconciling items are: deposit in transit, outstanding
cheques and other reconciling items. (John W. Cook 1980)
 CHAPTER THREE
R ESEARCH DESIGN AND METHODOLOGY
this chapter describes the research methodology of the study that will help to achieve the
Objective of the study. Research methodology is the procedural plan that will adopt by the
Researcher to validly, objectively, economically and accurately answer the research questions.

for the overall success and effectiveness of the study objective, descriptive research will apply to
do the research. Because descriptive research will aim at answering what, when, who and how
Type of question about the research.

3.1. T HE RESEARCH DESIGN

For this study descriptive design type of research, will going to be used. Because, the aim of
theStudy will describes the internal control over cash of wegagen bank in cmc branch.

3.2. DATA SOURCE

3.2.1. P RIMARY SOURCE

The primary source will be used to gather data by using the interview and questionnaire
from
Internal audit committee, managements, and other financial staff members of wegagen
bank cmc branch

3.2.2. S ECONDARY SOURCE OF DATA

The secondary source that the researcher will use are reference books, related written
materials that support to the research and organizations manual.

3.3. DATA COLLECTION METHODS

This study will use questionnaire which is a widely used and useful instrument for
collecting Survey information. The questionnaire will develop in two sections. The first one
will contain General aspect of the respondent and the second one will develop based on
standard of internal control over cash. The first section will plan to evaluate whether the
status and experience of the respondents has an effect on internal control system. The
second section will aim evaluate the effect of the standards of the controls are in those
samples of wegagen bank cmc branch

The researcher will use primary and secondary data collection methods. The researcher
will also collect data by interviewing key responsible officers to get more detailed
information about the issues related with this research.

3.4. SAMPLE SIZE AND SAMPLING TECHNIQUE.

From a total population of twenty five employees of wegagen bank cmc branch the
population for this study includes all level of manager and employees working in indicate
department that organization to conduct the study sample of employees will be taken as
sample from the whole. The total number of employees within the organization is 24
employees. However, the researchers select 21 populations (87%).

3.5. METHOD OF DATA ANALYSIS

The researcher uses percentage to analyze the responses of the respondents and it
presents in the form of tables and graphs to provide comprehensive listing and discussions
of the internal Control over cash in the wegagen bank cmc branch

BUDGET AND TIME SCHEDULE

 4.1. Budget schedule
S/NO Items Quantity Cost per unit (birr) Total cost (birr)

1 Stationary (-paper pen flash) 0.5 pad ,7bic , 1 100 , 3,50 ,160 1000 Birr

2 Telephone expense 60 minite 0.07 100

3 Printing 40 page 10

4 Transportation 10 time 100

5 Other cost _ 600

Total

Grand total 8800 Birr

Table 1. Budget schedule

S/NO Activities Time Frame

Phase One Oct- DEC - Feb- Apr- June July Remark

Nov Jan Mar May

1 Title submission

Phase Two

1 Date of Proposal
development

2 First Advisor Comment

3 Second Advisor
Comment

4 Last proposal
submission date

5 Proposal defense

Phase Three

1 Data collection period

2 Data analysis,
Interpretation and
Writing

3 Final Draft paper to

advisor

4 Second Thesis Draft

Report to advisor
5 Third Thesis Draft to
advisor

6 Final research paper

submission (with soft
and hard copy)

7 Final research paper

presentation(Final
Defense)

8 Last final paper

submission

MANAGEMENT ACCOUNTING &FINANCE

 DEPARTMENT OF ACCOUNTING AND FINANCE

Dear Respondents!
The objective of this questionnaire is to collect relevant data on internal cash control in your
organization. Your response will be used only for conducting research for the completion of BA
Degree in accounting your response will be kept confidentially and will not be used for any other
purpose. Therefore, you are kindly requested to respond by putting “” mark on the box and
give additional explanation of required. I would like to thank you in advance for your
cooperation in filling this questionnaire.

I. General Questions
1. Gender 2 Male 3 Female

2. Age of the respondent 10 – 25 26 – 35 above 35

3. Income Level
Birr 650 – 1000
Birr 1001 – 1500
Birr 1501 – 3000
Above Birr 3000

4. Your position in the bank _______________________________________________________

________________________________________________________________________

5. Educational Status
Diploma/TVET
First degree
Above first degree

6. Employeement
Permanent Temporary

7. Experience
1 – 3 years 7 – 10 years
4 – 6 years above 10 years

II. Control over cash general

8. Is there a cash control manual /Regulation/ procedure in the branch?
Yes No

9. If yes to what extent you understand the manual /Regulation of the branch
Very well
Fair
I did not read

10. Do you think there is a proper system over internal control over cash?
Yes No

11. Is there any training organized over internal control over cash procedure of the bank?
Yes No

III. Internal Control over Cash Collection

12. What are sources of cash collection in the bank?

Customers deposit
Local transfer
Service charge
Any other __________________________________________________

13. In which method did you collect the cash receipts?

__________________________________________________________________

14. Does the organization get some difficulties in collecting in cash?

Yes No

15. If yes what manare did it take?

__________________________________________________________________

16. How many times do you count the cash?

One times Three times
Two times More than three times

17. Did you use any instrument in counting cash?

Yes No

18. If yes which instrument _________________________________________________

19. Do you make dally reconciliation of cash collected?

Yes No
IV. Control over cash payment

20. What are the possible causes of cash payment?

Customers withdraw
Bank loan
Transfer
Any other _____________________________________________________

21. In which method did you use to cash payment?

____________________________________________________________________
22. How many times do you count the cash before you give to the payee?
One time Two times Three times Four times

23. Do you make daily reconciliation of cash payment with supporting document?
Yes No

24. How do you rectify payment for cheque?

___________________________________________________________________
V. Control over cash on hand
25. Do you think there is proper security over cash on hand?
Yes No
26. If no, what are the possible reasons?
____________________________________________________________________
27. What is the major procedure that made for the control over petty cash?
____________________________________________________________________

28. Where do you put excess cash?

National bank
Head office
Other branch
Other ________________________________________________________

29. Is there any information you can provide me that I fail to ask, but
necessary to know?
___________________________________________________________________