JINKA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF THE INTERNAL CONTROL OVER CASH IN FINANCE

AND ECONOMIC DEVELOPMENT OFFICE (CASE STUDY IN JINKA
TOWN)

A RESEARCH REPORT TO BE SUBMITTED TO DEPARTMENT OF

ACCOUNTING AND FINANCE IN PARTIAL FULFILMENT OF (BA)
DEGREE IN ACCOUNTING AND FINANCE

BY: GALGALO GURACHA

ADVISOR: BOGALE SORA (MSc)

JUNE, 2014

JINKA, ETHIOPIA

I
ABSTRACT
This research has been conduct on the assessment of the internal control over cash in
finance and economic development office at Jinka town. The study is attempted to
address the research questions based on the statement of the problem and objective of
the study. In these papers both primary and secondary sources are used and censuses
methods are available for data collection purpose. Also different tables are used for
data analysis. The important findings of this study were summarized that is keeping in
touch of the office. Finally the researcher would like to recommend the following key
points to the office. The office should be able to detect any possible loophole that may
lead to misbehaving action in a regular basis. Train the employee about the principles
of cash control more, review work with bank as weakly or biweekly as possible.

II
ACKNOWLEDGMENT
First and for most, I would like to express my sincere thanks Almighty God, the
merciful who helped me throughout my life. Next my deepest gratitude goes to my
advisor Mr. Bogale Sora for his helpful and critical advice and appreciation in the
preparation of this paper. Finally, I would not forget the valuable moral and financial
support made by my family and to my friends for their appreciation.

III
 ACRONYM

BoFED _ Bureau of Finance and Economic Development

IV
TABLE OF CONTENTS
ABSTRACT.................................................................................................................... II

ACKNOWLEDGMENT ................................................................................................ III

ACRONYM ...................................................................................................................IV

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 ............................................................................... - 3 -

1.4. Objectives of the Study .................................................................................. - 4 -

1.4.1. General Objective .................................................................................... - 4 -

1.4.2. Specific Objectives .................................................................................. - 4 -

1.5. Significance of the Study ............................................................................... - 5 -

1.6. Scope of the Study.......................................................................................... - 5 -

1.7. Limitation of the Study .................................................................................. - 5 -

1.8. Organization of the Study .............................................................................. - 6 -

CHAPTER TWO ...................................................................................................... - 7 -

RELATED LITERATURE REVIEW ...................................................................... - 7 -

2.1. Meaning and Nature of Cash .......................................................................... - 7 -

2.2. Internal Control System ................................................................................. - 8 -

2.3. Internal Control for Cash................................................................................ - 9 -

2.4. Objectives of internal control over cash ....................................................... - 10 -

2.5. Principles of Internal Control ....................................................................... - 10 -

2.6. Cash Management ........................................................................................ - 10 -

2.7. Rational for Holding Cash............................................................................ - 11 -

2.7.1. Transaction motives ............................................................................... - 11 -

2.7.2. Precautionary motives ........................................................................... - 11 -

V
 2.7.3. Speculative motives ............................................................................... - 11 -

2.8. Cash Budget ................................................................................................. - 11 -

2.9. Internal Control over Cash Receipts ............................................................ - 12 -

2.10. Over the Counter Receipts ......................................................................... - 12 -

2.11. Cash short and over .................................................................................... - 13 -

2.12. Internal control over cash disbursement..................................................... - 13 -

2.13. Voucher system .......................................................................................... - 13 -

2.14. Bank Reconciliation ................................................................................... - 14 -

CHAPTER THREE ................................................................................................ - 16 -

RESEARCH DESIGN AND METHODOLOGY .................................................. - 16 -

3.1. Research Design ........................................................................................... - 16 -

3.2. Data type and Source.................................................................................... - 16 -

3.3. Target Population and Method of Data Collection ...................................... - 16 -

3.4. Methods of Data Analysis and Presentation ................................................ - 16 -

CHAPTER FOUR................................................................................................... - 17 -

DATA PRESENTATION AND ANALYSIS ........................................................ - 17 -

CHAPTER FIVE .................................................................................................... - 28 -

CONCLUSION AND RECOMMENDATION...................................................... - 28 -

5.1. Conclusion.................................................................................................... - 28 -

5.2. Recommendation.......................................................................................... - 30 -

REFERENCES ....................................................................................................... - 31 -

APPENDIX I ....................................................................................................... - 32 -

VI
 CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

It is obvious that money is the crucial and backbone of human beings and it is the
main root for social political and economic developments. It is also known that money
is the life blood for profit and non-profit seeking organization without it, raw material,
capital, any short and long term asset no social and economic development is
achieved, because we human beings are immediate users of those listed asset.

Cash is a medium of exchanges that any time negotiable and it have to be free from
any restriction for business propose. It is a basic inputs needed to keep the business
running on continues basis and are the ultimate output expected to realized by selling
the service or product by the firm (Pandey, 2004). Cash items include the paper
money currency and coins, checks, bank draft, cashier checks and money in the
checking account or demand deposit. Cash from its nature are expected to fulfill the
above characteristics and elements.

Natures of cash are considered; it is the most liquid asset, so is more be prone to
embezzlement, theft, fraud and defalcation more than other asset. Cash helps more, it
provides adequate liquidity position to business, individual and even government
must maintain adequate cash for its need to pay an obligations as they come due.
Their for an effective control of cash is very critical business issue.

Internal control is a process designated to ensure that reliable financial reporting,

effective and efficient operation and compliance with applicable low and regulation.
Safeguarding asset against theft and unauthorized use, acquisitions or deposit it also a
part of internal control (www.cliffnotes.com)

The American institute of accountant first defined internal control 1949, followed by
further clarification in 1958 and 1972. In 1977 public held companies come under
legislation to adequately important control to protect their financial information.

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Sarbanes-oxley act of 2002 is one of the most important laws affecting us companies
in recent history. The purpose of Sarbanes-oxley is to restore public confidence and
trust in the financial reporting of companies. It also emphasis on the importance of
effective internal control.

According to Sarbanes-oxley internal control is defined as the procedure and process

used by the company to safeguard its asset, to process information accurately, ensure
companies with law and regulation (Reeve. Warren. etal ---, 2009).

Effective internal control is expected that cash are prevented or at last minimized
from theft, fraud, misuse and personal errors. Also these control mechanism enables
to predict adequate not excessive cash balances.

An internal control over cash procedure varies from company to company and
depends on such factors as the nature of business and its size. However, the principles
of internal control applied are the same to all business companies (Wegandt, Kieso,
etal --- 1990).

With this in mind, the office of finance and economic development at Jinka town
reaches a good performance through good internal control system. So, this office
should be used the technique of internal control over cash to effectively utilize its
liquid asset i.e. cash.

1.2. Background of the Organization

Jinka town finance and economic development office was established under the
provision of proclamation number 65/95 in 1995 E.C. Based on the above
proclamation provision be sure of finances and economic development is newly
established in 1996 E.C. currently the office have 26 male and 22 female employees
and in total 48 employees having a different educational levels starting from grade of
to MA degree serving the community.

Objective of the office

Planning and administering the economic development of the town.

Administering the town resources expenditure payment

Developing and controlling accounting principles.

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Mission

The mission of Jinka town finance and economic development office is “to improve
the standard of living of the people through utilization of the country resources in a
coordinated transparent and efficient way.”

Vision

The vision of Jinka town finance and economic development office is as a leading
institution to manage and guide the economy of the town is “to see the town people
free from absolute poverty where working culture develop and its resource utilized
resources effectively.

1.3. Statement of the Problem

Many nonbusiness and business organization receive or pay a large amount of cash
from their customers and their suppliers and this shows that cash is the most liquid of
all asset that involved directly or indirectly in almost all business transaction. Lack of
effective internal control over cash and inability to convert excessive cash into
earning asset will have a significant bearing on the performance of the organization
under consideration.

According to internal security system Inc (2004) safeguarding internal control and
procedure for financial reporting as well as ensuring the confidentiality, integrity and
availability of information is no longer just a best practice for business or
organization.

An internal control is a set of rules that a department head establish to prevent losses
that may result from fraud, error and technological malfunction (www.ehow.com).

This study would have been conducted to assess the internal control over cash in
addressing the problems (theft, fraud, embezzlement and misappropriation) of cash in
the finances and economic development bureau at Jinka town. This research would
also be conducted to solve the problem of effective internal control over cash in
finances and economic development office.

Resent studies have been undertaken to assess the reliability and soundness of internal
controlling systems in government offices of Ethiopia; most of them have concluded
that the civil service offices have been operating with Loose-Fitting internal control
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systems established with in them. Therefore, the finance and economic development
office at Jinka town, being part of the national civil service office, has been identified
with limited or least internal control over cash established in it. So the investigator
attempted to discover and asses the internal control in BoFED, Jinka town.

These basic research questions are expected to be addressed to give same clue as to
how to solve the problems:

ü What does internal control over cash look likes in finances and economic
development office of Jinka town?

ü What effective internal controls over cash techniques are to be used to achieve
the main aim of cash management?

ü What are the factors that help to facilitate the internal control system of the
office?

ü Does the organization work with bank to strength its control over cash?

ü What are the techniques used to control the cash loss from theft, fraud and
misrepresentation?

1.4. Objectives of the Study

1.4.1. General Objective

The general objective of the study was to assess the internal control over cash in
finance and economic development office (BoFED) of Jinka town.

1.4.2. Specific Objectives

ü To assess the compliances of cash management and controlling system in
finance and economic development office of Jinka town with the established
rules.

ü To describe the technique of internal control over cash used in finance and
economic development office.

ü To assess whether the internal control over cash is efficient and effectiveness
in the office.

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 ü To investigate the role of internal control over cash in controlling theft, fraud
and misappropriation in the office.

ü To investigate different way of internal control over cash procedures used by

the offices.

1.5. Significance of the Study

The researcher believed that the study would contribute much to the satiability of the
organization, studying on the internal control over cash is very important for any
organization.

As such, the outcome of the research would help the finance manager get important
feedback up on the effectiveness of the organizations internal control practice. And
this study would help to prevent cash from theft and misappropriation by applying the
techniques of internal control over cash.

Moreover, the study is expected to serve as a basis for subsequent studies on the topic;
to provide basic data about the problem, and get an important solution for the
variables, to provide useful information about the internal control over cash and
problem of the bureau of finance and economic development in Jinka town.

1.6. Scope of the Study

Even though Ethiopia’s bureau of finance and economic development is at its
unsatisfactory level and have many factors to its slow down development in today
computerized technological development. This research would confine only to finance
and economic development office at Jinka Town.

1.7. Limitation of the Study

A research is a function of sufficient amount of finance and time. As most researcher
faces, this research is not exceptional to encounter these problem as well because the
researcher are full time students. Other limitations that will faces are as follows:

ü Absence of enough documents about internal control over cash in the office.
ü Lack of sufficient information from the bureau
ü Lack of willingness and carelessness of employee in giving information by
some respondents.

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1.8. Organization of the Study
Organization of the study covers five chapter consists of background of the study,
statement of the study and limitation of the study. Chapter two contains, literature
review and chapter three shows the research design and methodology which is include
research design, source of data, data collection techniques, target population and
sampling methods. The fourth chapter presented the data analysis and presentation of
its finding. Finally, the fifth chapter contains all points that are found the paper, draw
conclusion and recommendations are given.

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 CHAPTER TWO

RELATED LITERATURE REVIEW

2.1. Meaning and Nature of Cash

Cash: cash is a medium of exchange that is any time negotiable and a bank will accept
for deposit and immediate credit to all depositor account (Moscih, 1989).

Cash is a medium of exchange that is any time negotiable and it have to be free from
any restriction for business purpose. Cash is the basic input needed to keep the
business running on a continuous basis, it also the ultimate output expected to be
realized by selling the service or product manufactured by the firm (Pandey, 2004).

Cash is the money which a firm can disburse immediately without any restriction
(Pandey, 2004). According to Mosich (1989) cash includes paper currency and cions,
checks, bank drafts postages stamps cashier check, money is the checking account or
current or demand deposit, money in some saving account cannot be with drown on
short notice. Cash is also include medium of exchange that is accepted by any
knowledgeable person in exchange for good and service and deposit by the bank.

Deposit with trustee, for example a bond sinking fund that is no under the control of
management of business enterprise should not include in the cash (Mosich, 1989). In
summary, the general, criteria used to define cash are that the item being a medium of
exchange be available immediate for the payment of current debt and free from
contractual restriction that would prevent management of the business enterprises
from using the item to pay its creditor. For the accounting purpose, the asset cash
represent more than money in the form of paper currency and coines that are used in
every day financial transaction. Cash may appropriately can be explained as:

ü A current asset deposit in bank that can be withdrawn immediately and used
for any purpose.
ü Current asset that a bank will accept for deposit importance of cash.

The reason why cash is so important is that it serve as a medium of exchange in any
economic and involves directly or indirectly in almost all business transaction.

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The other reason why cash is important is that individual, business and even
government must maintain an adequate liquidity position. They must have sufficient
amount of cash on hand to pay as they came due if they remain available in operating
entities and serve measurement of values.

Cash is important it provides individual and families with liquidity. This means that
you are able to pay off your obligation on time. Every organization requires cash in
order to start it business. Cash is the blood vessels of every organization, whether
profit or not for profit organization. In order to run the operation activity smoothly an
efficient control over cash inflow and out flow in is needed. Because these with which
money can be transferred, cash is an asset most lively to be deliver and subjected to
be misused. Cash is transfer to one person to another person without its own
ownership being questioned (financial high way come importance of cash)

2.2. Internal Control System

According to Spicer and Pegler, a famous authority on auditing literature defines the
system of internal controls “internal control is the best regard as the whole system of
controls financial and other wise, establish by the management in the conduct of
business including internal check audit and other form of contro” This definition
implies the following:

Internal control is a system of controls

Controls are financial and non financial area

The mechanism of control may manifest itself in the form of internal checking or
internal audit and other form (Kinfu and Bayou, 2009). Internal control is defined by
American institute of certified accountant (AICPA) is all coordinating method and
measure within an organization or with a system adopted to safeguard asset, check
accurately and reliability of accounting data, promote operational efficiency, and
econcarages adherences to prescribed managerial policy. The purpose of internal
control is to ensure asset belongs to the business enterprise received when tendered
are protected while in the study of administrative and accounting control
administrative control includes but it is not limited to the plan of organization and
procedure and records that are concerned with decision process leading to
management authorizations transaction. Accounting control implies or comprises plan

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of organization and procedure and records that are concerned with the safeguarding
asset and liability of financial records and consequently designated to provide
reasonable assurances (Mosich, 1989).

In accounting and auditing, internal control is defined as a process affected by an

organizational structure work and authority flows people and management
information system designated to help the organization accomplish specific goals or
objectives. It is the means by which an organization resources are directed, monitored,
it plays an important roles in preventing and detecting fraud protecting the
organizational structure, both physical (Machinery and equipment) and intangible e.g
reputation or intellectual proprietary such as trade mark.

2.3. Internal Control for Cash

The need to safeguard cash is a crucial in all most all business. Cash is easy to conceal
and transport carries mark of ownership, and is universal valued. The risk of theft is
directly related to the ability of individual to access the accounting system and obtain
custody of cash firms address this problem through internal control system.

Internal control system is a set of policies and procedures designed to:

ü Protect assets
ü Ensure complains with low and company policy
ü Provide accurate accounting records
ü Evaluate performance

A sound internal control system for cash increase the likely hood that the reported
value for cash and cash equivalent are accurate and may be relied on by financial
statement users.

Internal control for cash should:

ü Separate custody of and according for cash

ü Account for all cash transaction
ü Maintain only the minimum cash balances needed
ü Provide for periodic test counts for cash balances
ü Reconcile ledger and bank cash account balance
ü Physically control cash.

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2.4. Objectives of internal control over cash
The objectives of internal control over cash expressed as:

ü To provide accurate information about cash

ü To avoid cash shortages
ü To avoid excess/idle/ cash
ü To protect cash from theft and misuse (www.csulb.edu2pdf)

2.5. Principles of Internal Control

To safeguard its assets/Weygandt, Kieso. Etal--- 1990). The following principles are
applicable to in most enterprises.

A. Establishment of responsibility; an essential characteristics of internal control

is the assignment of responsibility to specific individual it is also includes the
authorization and approval of transaction.
B. Segregation of duties: this principle also identified as separation of function or
division of work is indispensable in system of internal control.
C. Documentation procedure: provides evidences that transaction and events have
occurred documentation of transaction and should be made when transaction
occur.
D. Physical, mechanical and electronic controls: this is related to primarily to the
safeguard asset. Thus includes:
ü Locked were house for inventories
ü Financing of company properties
E. Independent internal verification: when involves the comparison, and
reconciliation of data prepared by one or several employees.
F. Other control includes:
ü Bonding of employees, rotating employees duties and requiring
employee to take vacation (Wegandt,, Kieso, etal 1990).

2.6. Cash Management

Cash management includes planning, controlling and accounting transaction and cash
balances since cash is the measure of values, it becomes less productive such as
marketable securities and the like (Pandey, 2004).

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2.7. Rational for Holding Cash
Firm holds cash for three primary reasons:

2.7.1. Transaction motives

This motive refers to the demand for many by individual and business houses for
conducting day to day transaction cash balance are necessary to conduct business.

2.7.2. Precautionary motives

Cash inflow and out flows are some what unpredictable with the degree of
predictability varring among firms and industries. Therefore just as firm holds safety
stock of inventories they also need to hold same cost in reserve for a random
unforeseen fluctuation in flow and out flow this amount are defined as precaution
motives.

2.7.3. Speculative motives

Same cash balance may be held to enable the firm to take advantages over speculative
satiation. In general cash management is a board term that covers a number of
function that help individual and business process receipts and payment in an
organized and efficient manner (Pandey, 1999).

2.8. Cash Budget

Cash budget is basically is budget plan for business manager which is made in
relation to get contain target. Therefore, cash budget is planning tools that help the
management of business company in making important decision
(www.essayarcnive.com).

Effective method of internal control over cash

The effectiveness of internal control over cash is varies from one company to another
company, depending on the size, nature and complexity of the company’s most
company usually large firms follow the following general procedures so as to separate
the function of authorization record keeping and custodianship of cash.

ü Limit the number of people who have access to cash.

ü Designate specified people who are responsible for holding cash.
ü Record all cash payment
ü Make payment by check i.e. by receipts

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 ü Physically protect cash on hand by using cash register and safes.
ü Internal control over cash disbursement is more effective when payments are
made by check, rather than by cash, except for incidences amount that are
paid out of petty cash.

2.9. Internal Control over Cash Receipts

Internal control over cash receipt ensures that all cash receipt is properly recorded and
deposited. Cash receipt may result from variety of sources such as cash sales and
collection on account from customer, the receipt of interest rents and dividend
investment by owner bank loans and proceeds from the sale of noncurrent asset.

The application of internal control principles to cash receipt is as follows principles

and the applications to cash receipts.

Establishment of responsibility, only designated persons such as cashier and cashier

department personal should be authorized to handle or access to cash receipts.

Segregation duties: the duties of receiving cash receipts transaction and having
custody of cash should be assigned to different individual.

Documentation procedure: document should include remittance advice for mail

receipt cash register tapes for over the counter receipts.

Physical, mechanical and electronic controls: company safe and bank vault should be
used for storages of cash and access to shortage areas should be limited to authorized
personnel, cash register should be use in executive over the counter receipts.

Independent internal control verification: daily cash counts of register receipts should
be made by cashier department, supervisor, daily comparison of total receipt and
receipt deposits in the bank should be made by the treasury office.

Other controls: all person who handle cash receipts should be handled and be required
to take vacation, cash should be deposited in the bank in total daily (Weygandt, Kieso,
etal --- 1990).

2.10. Over the Counter Receipts

Over the counter receipt is entered on cash registers that are visible to the customer.
When cash sales occur the sale “running up” on cash register with the amount clarity

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visible to the customer. This procedure prevent the cashier from ringing up a lower
amount and pocketing the differences (Weygandt, Kieso, etal 1990).

2.11. Cash short and over

Cash actually received may not agree with the amount record in the cash register or
sales ticket. The cases of cash short and over are either:

ü Error in recording
ü Error in making change fund
ü Theft, misuse of the cash

If there is excess cash the overage is treated as other income if there is shortage of
cash is treated as other expanse.

2.12. Internal control over cash disbursement

Cash disbursement or payments are particularly vulnerable to fraud and
embezzlement. To avoid these fraud and embezzlement cash should be paid only after
the receipt of specific authorization supported by department document. It is generally
that more effective internal control over cash disbursement result when payments are
made by check. Except for individual or incidental amount that are paid out of petty
cash, these check should be authorized prepare and approved by independent
individual and prepare voucher before payment are made.

2.13. Voucher system

The appropriate control procedure for cash disbursement call for use of voucher
system. The voucher is an extensive series of prescribed control procedure designed
to assure that every disbursement by check is proper payment. The internal control
principles are essential to in the voucher system a voucher is an authorization from
prepare for each expenditure in a voucher system (Weygandt, Kieso, etal. 1990).

The voucher system basically presumes principles

A) No payment will be made for any good or service acquired unless receipt or
delivery of the good and service acquired is ensured beforehand.
B) No payment for any obligation except by the check and no settlement made
and negotiate unless terms of agreement have been made.

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2.14. Bank Reconciliation
The bank reconciliation is an important of the system of internal control over cash
because it is the means of comparing recorded cash, as shown by the accounting
records, which the amount of cash reported by the bank.

Bank reconciliation is the process of accounting for the different between the balance
operating on the banks statement and the balance of cash according to the depositor
report or process of creating agreement between cash per bank statement and cash
balances as per depositor. It is good accounting practice to check the accuracy of the
bank statement as soon as collected from the bank. When errors are made in bank
statement the bank should be notified immediately.

Bank reconciliation is prepared to account for the differences between the two
balances.

ü Both the balance per bank statement and the balance per the lager account are
adjusted to the true balance of expendable cash.
ü The document used are the bank statement and any accompanied debit and
credit memorandum returned checks, a list of check issued and a reward of
deposit made.
ü After the reconciliation are be prepared, an adjusting entry is prepared to
record the previous unrecorded item (Warren, 2005).

Apart from the errors made by depositor or the bank, there are different causes by the
time factor. The element obtained in time factor is deposit in transit and check out
standing.

Outstanding check: are checks that have been written and records in the companies
cash account, but have not yet cleared the bank account. Check written in during the
last few days of the month plus a few order check likely to among the outstanding
checks. Therefore, outstanding checks are listed on the bank reconciliation as
decreased in the balance per bank.

Bank service charge: are fees deducted from the bank statement for the bank
processing of the checking account activity (accepting, depositing posting, checks
mailing the bank statement etc) other types of bank service charge include the fee

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charged when a company over draws its checking account and the bank fee for
processing a top management order on a company check.

Non-sufficient fund: Is check that was not honored by the bank of the person or
company writing the check because that account did not have sufficient balances.

Deposit in transit: deposits are that where mail order or taken to the bank but that
were not received in times to be recorded on the bank balances before the preparation
of monthly bank statement (www.accountingcoach.com)

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 CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1. Research Design
The researcher was used descriptive method to conduct this research. The researcher
used descriptive method which describing summarizing, presenting the qualitative
data because of it describes anything as it is.

3.2. Data type and Source

The researcher used both primary and secondary source of data. The primary data is
collected from the respondents and secondary data has been collected from written
documents.

3.3. Target Population and Method of Data Collection

There are 48 employees in finance and economic development office in Jinka town
and the employees have different work status. The researcher used the censuses
methods to increase the accuracy of the information needed for the study. The reason
for using censuses method is the population is manageable.

3.4. Methods of Data Analysis and Presentation

The data collected from primary and secondary sources has been analyzed through
qualitative data analysis techniques that ensure the objective of the study. In this paper
different tables are also expected to be used for data analysis purposes.

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 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

In this chapter, data collected through questionnaires have been analyzed using tolls
like percentages and tables and interpreted accordingly. This data is collected from
respondents by censure methods and analyzed using qualitative data analysis
techniques.

Table 4.1: Educational status or level of employees in BoFED Jinka town

Educational level Number of respondents Percentages

MA/MSc 2 5.202
BA degree 21 55.2632
Diploma 11 29
Certificate 4 10.5
Total 38 100

As shown form table 4.1, 5.2632%, 55.2632%, 29% and 10.5% of the respondents in
BoFED have MSc/MA degree, BA degree, diploma and certificate respectively. From
this majority of the employee in BoFED have BA degree. This indicates that the
internal control system in acceptable, because employees having good educational
level knows much about how cash are collected in an organization. So that the
organization should achieve its control objectives.

Table 4.2: Work Experiences f employees in BoFED Jinka town

Year Number of respondents Percentages

Less than one 3 7.8947
Between one and five 16 24.1
Above five (5) 19 50
Total 38 100

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Table 4.2 shows that 7.8947%, 42.1% and 50% of the employee in BoFED have a
work experience less than one year, between one and five and above five year. This
relates that the internal control over cash system is efficient, because the higher the
work experience of employee have a greater advantages of working tasks efficiently
without any difficulty and in a proper ways.

Table 4.3: Existence of internal control over cash systems in BoFED Jinka town

Response Number of respondents Percentages

Yes 38 100
No -- --
Total 38 100

As clearly shown from table 4.3100% of the respondents repaid that there exists
internal control over cash in BoFED. This indicates that the office has been paying
high attention towards the essences of internal control practice within itself.

To be more specific, the office has realized the relevance of internal control system as
a constructive way for controlling acts as theft and misuse or unauthorized use.
Moreover, the office has trade to establish internal controlling system to ensure the
accuracy of accounting information being produced from within.

Table 4.4: Perceived objective of internal control over cash in BoFED Jinka town

Objective Number of respondents Percentages

To provide accurate report 14 36.8421
To avid cash shortage 4 10.5263
To protect cash from theft and misuse 18 47.3684
Total 38 100

Table 4.4 shows that 36.8421% of the respondents says that objective of internal
control over cash is to provide accurate report, 10.5263% of them say that the
objective of internal control over cash it to avoid cash shortages, and 47.3684 of the
respondent respond that the objective is to protect cash from theft, misuse and other
employee errors. So, the main objective of internal control over cash in BoFED in

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Jinka town is principally revolving aground protecting cash from theft and misuse.
This is an indicative that the office has got some experience about improper
utilization of its cash resource. The lesson that the office learn, in the past included
that cash is prone to embezzlement and/or improper utilization that means, the office
believes that protecting cash from theft and misuse can bring about the
objective/avoidance of cash shortages and to provide accurate report.

Table 4.5: Administrative and accounting control in BoFED Jinka town

Response Number of respondents Percentages

Accounting control -- --
Administrative control -- --
Both accounting and administrative control 38 100
Total 38 100

As shown from table 4.5 all respondents of the office repaid that they apply both
accounting and administrative control in BoFED. The reason for this is that if two
types of control system is applied the accurate recording of different operation and
activity is enabled.

Table 4.6: The reliability of accounting control in BoFED Jinka town

Response Number of respondents Percentages

Poor 1 2.6316
Acceptable 5 13.1579
Good 21 55.2632
Very good 11 29
Total 38 100

Table 4.6 indicated that 20% of the respondents answered that the reliability of
accounting controls is are very good and 55.2632% of the respondent say that the
reliability of accounting control is good in the finance and economic development
office and 13.1579% of them say acceptable, and the remaining 2.6316% of the
respondent respond it is poor. So, the reliability of accounting control in finance and

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economic development office in financial records is good, because it creates good
response in the accounting practice (transaction or records) and also accounting
control is records business type activity so it measured its reliability through
accounting records.

Table 4.7: Strength of internal control system in BoFED Jinka town

Response Number of respondents Percentages

Very poor -- --
Poor 3 7.8947
Medium 16 42.1
Good 9 23.6842
Very good 10 26.3158
Total 38 100

As shown from table 4.7, 26.3158%, 23.6842%, 42.1%, 7.8947% and 0% (no
respondent) of the respondents repaid that the strength of internal controls very good,
good, medium, poor and none of the respondents say very poor respectively. This is
an indicative of the existences of acceptable or medium level of internal control over
cash in the office. However, there are same respondent who have got their doubt in
the internal control system. They attribute this to the lack of knowhow about the
system and/or absence of coordination between the employees.

Table 4.8: Importance of clear organizational policy on internal control over cash in
BoFED Jinka town

Response Number of respondents Percentages

Very important 38 100
Somewhat important -- --
Not important -- --
Total 38 100

As clearly shown from table 4.8 all of the respondents replied that the existence of a
clear organizational policy on internal control is very important. The reason is that a

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clear organizational policy has a great importance on internal control system to
manage assets (equipment, machinery, and cash from misuse, theft, errors by
employee and other forms of defalcation. Moreover, a clear organizational policy
enables the system to provide accurate and relatable information about the operation.

Table 4.9: Frequency of misutilization of cash in BoFED Jinka town

Response Number of respondents Percentages

Always -- --
Sometimes 6 16
Never happen 27 71
Total 33 87

As indicated in table 4.9 71% of the respondents replied that misutilization of cash
has never happened in the office, and 16% of the respondents replied that
misutilization of cash has happened sometimes. So, the minimal misuse of cash and
other assets is an indicative of strong internal control system, and day-today
implementations of internal control activity are applied in the office. However, some
respondents which is around 13% persons or respondents are protected to give
answer.

In addition to this, every activity that takes place has been effectively worked, and it
there is misuse of asset occurs, the employees take responsibility for this because;
every payment is made by a check that supports it truthfulness.

Table 4.10: Adequacy of salary or payment package of employees in BoFED Jinka

town

Response Number of respondents Percentages

Not at all 14 37
Some extent 21 55
Extremely well -- --
Total 35 92

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As it is clearly shown table 4.10 55% of the respondent replied that the salary or
payment package meat their need to some extent, and the remaining 37% of the
respondents replied that the salary or payment to the employees. This implies that the
employees that receive small amount of salary payment do not work effectively
within the office, because they are less satisfied. And if the employee’s personal
interest is not satisfied, then, they don’t work in the organization on their own full
capability.

As a result, the internal control system is shattered to same extent by the carelessness
of less satisfied works. In other words, smaller salary payment will create some
loophole for employees to misbehave.

Table 4.11: Source of fund for BoFED Jinka town

Response Number of respondents Percentages

Government ü
Different source ü
International institution ü
NGO ü
Total 38 100

According to table 4.11 the major sources of fund for the Jinka town finance and
economic development office are government different offices. International
institutions (UNICEF, WHO) and NGOs. At the sometime, the government of
Ethiopia also allocates budget for the budget for the bureau for its day-to day
operations. Therefore, by the office secures it’s from a combination of the above
mentioned sources.

Table 4.12: Collection of accounts receivable in BoFED Jinka town

Response Number of respondents Percentages

Single accountant collects cash and 38 100
records (prepare document)
Single accountant prepares cash receipt in -- --
three and cashier collect cash

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Total 38 100

As shown from table 4.12 all the respondents replied that a single accountant prepares
cash receipts in three copies and the cashier collects cash in the BoEFD at Jinka town.
So this segregation of activity towards accounts receivable accounts between different
individual in the accounting section (department) in three copies, and then cash is
collected by another person (the cashier). Here, the cashier also records the amount of
cash received immediately.

Table 4.13: Working with voucher in the BoFED Jinka town

Response Number of respondents Percentages

Yes 38 100
No -- --
Total 38 100

As shown from table 4.13 all the respondents replied that the office applies voucher
system a voucher system is a system of internal control procedure that provides
documentary evidence and authority for each obligation incurred. A voucher is a
special from in which relevant data about a liability to be paid and the detail of its
payment is recorded.

Voucher is evidence about the payment. So, the BoFED, town of Jinka makes use of
vouchers that in turn, enable to strength its internal control effort typically, voucher
involves several courses of action or procedure before it gets approved for payment.

This gives a favorable controlling endeavor toward the cash payment. Added to this,
voucher gives remarkable proof that each payment by the office are in settlement of
valid obligation (like from other sector in the town whose budgets are being by
BoFED.

Table 4.14: Mode of payment in the BoFED Jinka town

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 Mode of payment Number of respondents Percentages
Direct payment ü
Check payment ü
Suspense payment ü
Total 38 100

As shown from table 4.14 all the respondents replied that direct payment, check
payment and suspense payment apply in the BoFED at Jinka town.

Direct payment is a payment on basis on disbursing cash for the day operation. These
direct payments are made from the cash box of the bureau through the main cashier
usually from the budget that is allocated by the government for different types
purpose, so it strengthens internal control system because it pays cash directly.

Check payment: is a written order on the bank to pay a specified amount of money to
the party designated as payee, the party issuing the check. Every payment must be
made by check in BoFED at Jinka town. Without check internal control over cash will
not effective.

Suspense payment: are payments that are made by the main cashier of the bureau for
employee who need money in advance before salary payment day. In the bureau,
suspense payment are affected only if the amount disbursed in cash is within the
limits and the suspense is likely to be cleared within the prescribed period of time, it
made by the accounting section.

Table 4.15: Check in the BoFED Jinka town

Response Number of respondents Percentages

Yes 38 100
No -- --
Total 38 100

As shown from table 4.15 all the respondents replied that BoFED at Jinka town use
check for different payment of the office. In BoFED at Jinka town, the authorization
to sign a check for the final payments is the responsibility of both finance as well as

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general manager of the bureau and deputy of finance manager of, but the authority to
approve the invoice for payment or to make entries in the accounting records are the
responsibility of both the treasury and accounting section at the office. Check are
applied in the office it means it is the authorization to pay same payment, so check
serve as the evidence to the disbursement, and this it strength internal control system.

Table 4.16: Bank reconciliation in the BoFED Jinka town

Response Number of respondents Percentages

Yes 38 100
No -- --
Total 38 100

As indicated from table 4.16 all respondent replied that the review bank
reconciliation. So, via working with the bank, the office people go periodically for
accounting for difference between the balance appearing on the bank and the balance
cash according to the depositor records. In the BoFED the employees reconcile with
the bank monthly the amount recorded, because it facilitates the balance between
them.

Bank reconciliation is the process of internal control over cash it records (reconcile)
the bank statement and the depositor account so every account i.e. cash properly
records so it strength the internal control system.

Table 4.17: The seat of cashier in the BoFED Jinka town

Response Number of respondents Percentages

It’s separated from other employees 38 100
It’s with other employee -- --
Total 38 100

As shown from the above table 4.17 the cashier has restricted area that is separated
from other employees so the researcher can said that the BoFED Jinka town the

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cashier has its own office this is important for facilitating the function of payment and
receipt of in the bureau and this is important for the effective controlling the asset i.e.
cash from theft or feud, embezzlement and other form of defalcation by other people.

Table 4.18: Payroll transaction in the BoFED Jinka town

Response Number of respondents Percentages

Yes 38 100
No -- --
Total 38 100

As shown from table 4.18 all the respondents replied that they prepare payroll
transaction to record the amount of payment of salary, gross earning, and overtime of
the employees. This leads to the effective control over their salary to avoid any
shortage and/or deficit in the office, as result internal control is strengthen.

Table 4.19: Important principle of internal control over cash in the BoFED Jinka town

Response Number of respondents Percentages

Segregation of duties 25 65.79
Establishment of responsibility 13 34.21
Total 38 100

As shown from table 4.19 65.79% of respondent replied that they apply the principles
of segregation of duties on internal control system in the BoFED Jinka town and
34.21% of the respondents replies that they apply the principle of establishment of
responsibility in the BoFED.

Segregation of duties: the duties of receiving cash recording of cash receipts

transaction, and having the custody of cash should be assigned to different individual.

Establishment of responsibility: only designated personal such as cashier and the

cashier department personnel should be authorized to handle or have access to cash

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receipts in the BoFED. These principles have a great role in the internal control over
cash.

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 CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

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 BoFED
Jinka town.

5.1. Conclusion
Analysis of the internal control over cash practice in the finance and economic
development office of Jinka town has been undertaken so thoroughly and, the
following are the important findings:

ü Internal control over cash is one of the major function of any accounting
system in every organization. The BoFED Jinka town 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.
ü The BoFED Jinka town has the objective of protecting cash from theft or
misuses, avoid excess or idle cash, and provide accurate financial reports.
ü In the office, there is a moderately viable internal control over cash which
enables the office to secure its assets (and cash).
ü The BoFED in Jinka town has a clear organizational policy of internal control
over cash and other assets (equipment, machinery and cash) effectively.
ü Employee salary payment in the office of BoFED, Jinka town meets the need
of employee only to same extents.
ü The sources of fund in the office comes from government, international
institution, non-governmental institution and from different source.
ü In the office, a single accountant prepares cash receipts in the three copies and
cashier collects cash.

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ü The office use voucher system based on the classification for summarizing
cash transaction and three types of payments: direct payment, check payment
and suspense payment.
ü The office 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 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.
ü In the office, there is a review of bank reconciliation statement on
ü As per the office 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 office.
ü The office prepares payroll transaction of the employees.
ü Segregation of duties, establishment of responsibility documentation and
independent control are the principles that are applied in the office of finance
and economic development office at Jinka town to control cash and other
asset.
ü Educational level of the employee is one of the pelior of the organization that
enables the employee to perform their tasks effectively. So employee in
BoFED have good educational background and are expiated to perform there
tasks effectively and solve problem easily in the office.
ü 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 taskes or problems that enables them to solve problem or
operate taskes efficiently. Therefore employees in BoFED have good work

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5.2. Recommendation
Based on the findings of this research paper, which was conducted in the office of
finance and economic development at Jinka town, the following suggestions
(recommendations) concerning internal control over cash are forwarded by the
researcher:

ü Even if the office uses direct payments as one means of cash disbursement
and these kinds of payment need a larger amount of money, there should be a
limited amount of cash that is maintained in the main cashier box (drawer).
Because of the more the amount in the cashier box, the more it will be used
for personal interest.
ü The office should be able to detect any possible loophole that may lead to
misbehaving action in a regular basis:
ü The employee of the office must be trended about the principle of control
over cash more.
ü The office should review work with bank as weekly or biweekly as possible.

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REFERENCES
ü Fees Warren (2005), Accounting Principle 16th edition, Mason North Western
USA
ü JM Pandey, (1999), Financial Management 9th edition kikahouse. India
ü Mosich AN. (1989), Intermediate Accounting 6th edition New York Me Graw-
Hill
ü Weygandt. Kieso and Kell (2008), Accounting Principle 2nd edition, USA.

Internet source

http://www.eliffnotes.com

http://www.ehow.com

http://financialhighway.comimportanceofcash

http://www.accountingcoach.com

http://www.edu/pdf

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 APPENDIX I
Jinka University

College of Business and Economics

Department of Accounting and Finance

Dear Sir/madam:

This questionnaire is prepared to collect information about the assessment of internal

control over cash in finance and economic development office in Jinka town. The
research will be conducted for the particle fulfillment of the requirement for the BA
degree in accounting finance at Jinka University. To succeed in obtaining the
necessarily and accurate information, your honest cooperation is highly appreciated in
answering all the questions. I would like to thank you in advance for your
cooperation’s.

Please fill the following questionnaire by putting “X” sign in box

General customer, information

1. Educational level: MSc/MA BA degree Diploma

Certificate
2. Work experience: less than one year between one and five year
Above five (s) year
3. Does your organization apply internal control? Yes
No
4. If your answer for Q no 6 is ‘yes’, what is/are the objective of the internal
control system in your organization?
To provide accurate financial report
To avoid cash shortage
To protect cash from theft and misuse
If there is any other objective specify it please
_________________________________
5. If your answer to Q no 6 is ‘yes’ which of the following internal control
system prevails in your organization?
Accounting control Administrative control

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 Both accounting and administrative control
6. If your answer for Q no 8 is accounting control, how do you see the reliability
of financial records in your organization?
Poor Acceptable Good Very good
7. How do you discrib the soundness of internal control system established in
your organization?
Very poor Poor Medium Good
Very good
8. How important is to have a clear organizational policy on internal control over
cash?
Very important somewhat important Not
important
9. Since in your employment, how often has improper utilization of cash (like
cheating or fraud) had been observed in your organization?
Always Sometimes Never
10. If your answer to Q no 12 is always or sometimes, please identify the reasons
_______________________________________________________________
_________
11. Does the salary or payment package given to you by the organization meet
your need?
Not at all to same extent extremely well
12. Do you think small payment package give to employees affect an organization
internal control practice over cash?
Yes No I am not sure
13. What are the major sources of fund to your finance and economic
development office in Jimma town?
_______________________________________________________________
_______________________________________________________________
__________________
14. When your office collects account receivable,
Single accountant collect cash and record (prepares document) made
One accountant prepares cash receipts in copies and cashier collects
money
15. Does your organization apply voucher system? Yes No
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16. What are the different types of payment that the organization makes?
Direct payment Suspense payment check
payment
17. Does your organization uses check? Yes No
18. If your organization makes use of check, who is responsible to finally approve
the check for payments?
It is finance manager’s responsibility
Cashier’s responsibility
19. Is there any attempt work with bank in your operational environment?
Yes No
20. If your answer to Q no 22 is ‘yes’ how often does your office reconcile office
accounts with bank accounts?
Weekly Monthly Quarterly
Seminally Yearly
21. Where the seat or place of the cashier in your organization?
The cashier have their own office casher office with employees
22. Doe you office prepare payroll transaction?
Yes No
23. What are the governing principles of internal control systems in your office?
Segregation of duties establishment of responsibility accountability if any
please, specify
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
____________________________________

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