ADMAS UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICSS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF INTERNAL CONTROL OVER CASH

(CASE OF DEVELOPMENT BANK OF ETHIOPIA)

STUDENT RESEARCH PROPOSAL SUBMITTED IN FULFILLMENT OF

REQUIREMENT FOR RESEARCH METHODLOGY COURSE ACCOMPLISHEMNT

ADVISOR: Muluneh Paulos (S. loan officer in DBE)

PREPARED BY ID.NO
1. ____________
2. ____________
3. ____________
4. ______________
5. _______________

June, 2019

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 ADDIS ABABA ETHIOPIA

Table of Contents
1. INTRODUCTION....................................................................................................................3

1.1. Background of the Study...................................................................................................3

1.2 Background of organization..............................................................................................4

1.3 Statement of the Problem..................................................................................................6

1.4 Research Questions...........................................................................................................7

1.5 Objective of the Study.......................................................................................................7

1.5.1 General Objectives.....................................................................................................7

1.5.2 Specific objectives.....................................................................................................7

1.6 Significance of the Study..................................................................................................8

1.7 Scope of the study.............................................................................................................8

1.8 Limitation of the Study.....................................................................................................8

1.9 Organization of the paper..................................................................................................8

2. LITERATURE REVIEW.........................................................................................................9

2.7.1 Internal Control over Cash Receipts........................................................................12

3. RESEARCH DESIGN AND METHODOLOGY..................................................................14

4. BUDGET AND TIME SCHEDULE.....................................................................................16

4.1. Work plan............................................................................................................................16

4.2 Budget.............................................................................................................................16

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 Abbreviation and Acronyms

DBE………………… Development Bank of Ethiopia

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 CHAPTER ONE

1. INTRODUCTION

1.1. Background of the Study

This study will be conducted in Development Bank of Ethiopia internal control structure consists
of the policies and the procedures established to provide reasonable assurance that the DBE goals
and objectives will be achieved. Depending up on balks of operations internal control or auditor
may have been appropriate to the strength of internal control system bank asset, represent the
cash control. The success of business enterprise depends on effective system of internal control.
Internal control refers to companies plan to:

i. Encourage adherence to company policy and procedure.

ii. Promote operational efficiency
iii. Minimize errors and theft
iv. Enhance the reliability and accuracy of accounting data.

From financial accounting prospective, the focus is on control intended complete the accuracy
and reliability of accounting information and safeguarding company asset. A critical aspect of
internal control system is the separation of duties.

The system of internal control frequency may be improved by physical safeguarding computer
help. The efficiency and accuracy of records keeping, cash function registers, safe are very
helpful in safe guarding cash and established responsibility for its system of internal control is
not designed primary collected error but to reduce opportunities for errors or dishonest to occur .
Since controlling system is division of auditing it is to be divided in to two classes.

i. Internal auditing
ii. External auditing (independent auditing)

These researches are more concern about internal control which is broader than external control.
Internal control helps a management of organization provide objective to be achieved for a
reasonable assurance of:

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 - Effective and efficiency of operations
- Compliance with application law and regulation
- Reliability of financial report

The objective of controlling is to managing policies, procedures, method used to meet mission
and goals for doing supportive performance. External control is aims to insure the weather
accounting procedures of the organization are in accordance with GAAP.

1.2 Background of organization

The development bank of Ethiopia (DBE) is one of the financial institutions engaged in
providing short, medium and long term development credits. DBE’s distinguishes feature is its
“project” based lending tradition. Project financed by the Bank are carefully selected and
prepared through appraised, closely supervised and systematically evaluated.

Since its establishment in 1909, the bank has been playing a significant role in promoting overall
economic development of the country. The history of Development Bank of Ethiopia goes back
to 1909 when the first attempts of its kind known as The Societe Narionale d' Ethiopie Pour le
Development de l' agriculture et de Commerce (The Society for the promotion of Agriculture
and Trade) was established in the Menelik II era. Since then the Bank has taken different names
at different times although its mission and business purpose has not undergone significant
changes except for occasional adjustment that were necessitated by change in economic
development policies of the country. In long years of existence, DBE has established recognition
at national and international levels .Nationally, it is the sole Bank with reputable experience in
long term investment financing .Internationally, and it is recognized as an important on leading
channel for development program financed by bilateral and/or multilateral sources.

The under listed names and periods are its predecessors since initial establishment: -

 Agricultural Bank of Ethiopia from 1945-1949

 Agricultural and Commercial Bank of Ethiopia from 1949-1951
 Development Bank of Ethiopia Share Company from 1951-1970
 Investment Bank of Ethiopia from 1964-1970
 Agricultural and Industrial Development Bank Share Company from 1970-1979
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  Agricultural and Industrial Development Bank from 1979-1994
 Development Bank of Ethiopia from 1994-2003.

Vision

 To become a world class commercial bank by the year 2025

Mission

 The commercial bank of Ethiopia is a specialized financial institution established to

promote the national development agenda through development finance and class
technical priority area of the government mobilizing fund from domestic and foreign
sources while ensuring its sustainability.

Vision of DBE
 “100% Success for All Financed Projects by 2020”

Mission of DBE
“The Development Bank of Ethiopia is a specialized financial institution established to promote
the national development agenda through development finance and close technical support to
viable projects from the priority areas of the government by mobilizing fund from domestic and
foreign sources while ensuring its sustainability.
The Bank earnestly believes that these highly valued objectives can best be served through
continuous capacity building, customer focus and concern to the wider environment”.
Values of DBE
 Commitment to mission
 Customer focus
 Integrity
 Team work
 High value to employees
 Learning organization
 Concern to the environment

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Mandates

DBE, being one of the state owned financial institutions, has clear mission of accelerating the
national economic development. In order to meet its predetermined objectives, the bank has the
following mandates:

2. To provide medium and long term investment credit as well as short term loans to viable
projects,
3. To mobilize funds from sources within or outside the country
4. To mange funds entrusted to it,
5. To participate in equity investments,
6. To provide domestic and foreign banking service to its borrowers,
7. To accept time deposit,
8. To guarantee loans and other financial obligations,
9. To draw, accept, discount, buy and sell bills of exchange, drafts and promissory notes
payable within or outside Ethiopia,
10. To issue and sell bonds,
11. To act as trustee,
12. To provide technique and managerial service,
13. To open and operates bank accounts with banks and banking correspondents in Ethiopia or
abroad,
14. To engage in such other activities as is customary carried out by development banks.

1.3 Statement of the Problem

In organization there are different levels, with in these levels there are different individuals with
their unique responsibilities in relation to internal control structure of cash. If those individuals in
different level are doing their job of the job according to internal control policies, procedures of
system, they become more competitive, productive and achieve their organizational goals.

Internal control involves management of the company’s asset. Among that asset cash is the most
liquid asset that need strong internal control because it is the most liquid asset that are highly

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exposed for theft and misuse. Liquidity of cash makes it required strict accounting and
administrative control. Most of transaction relating to cash handling is the responsibility of the
finance department which includes handling and depositing cash receipt, signing checks,
investing Ideal cash and maintaining custody of cash, marketable security and other negotiable
asset.

Especially for the banking industry the risk of theft and misstatements is high as most of the
activities are related and conducted with cash. Banks will collect and made payment of cash
frequently, in this process the bank should design proper cash control system to properly
safeguard cash. The main purpose of this study was to assess the internal cash control system on
Development Bank of Ethiopia Head office branch.

1.4 Research Questions

1. Does the bank design and implement all the necessary cash control?
2. Does the bank record cash flows (cash inflow and outflow) properly and
accurately?
3. Is there adequate administrative control over cash?
4. How does the bank evaluate internal control over cash receipt and payment?
5. Does the bank have effective separation of duties?

1.5 Objective of the Study

1.5.1 General Objectives

 The main objective of this study is to assess the internal cash control system of
Development Bank of Ethiopia Head office branch.

1.5.2 Specific objectives

 To examine the policy and regulation of the bank over cash control.
 To identify the administrative and accounting control designed for controlling cash.
 To evaluate the internal control over cash receipt and cash payment in the Development
Bank of Ethiopia Head office branch.

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1.6 Significance of the Study

The study on accounting problem of internal control system over cash in bank is one way of
getting solution for the problem. In addition this may help in designing a better systematic form
for internal control system, provide insight for further study and add new ideal to the internal
control system, to give an overview of the bank use of internal factor to external bodies.

1.7 Scope of the study

This study will be limited to investigation of internal control structure of Development Bank of
Ethiopia Head office branch in Addis Ababa The study would specially emphasis on the basis of
accounting financial statement, recording of transactions and assessing of policy and procedures
of the bank.

1.8 Limitation of the Study

There will be some limitation, which may occur while conducting research

- The study was conducted in short period of time and not allows the researcher to search
for more data to strength his work.
- Shortage of data and budget

1.9 Organization of the paper

This paper will consist of several chapters. The first chapter which is an introduction section of
the paper will include background of the organization, background of study, statement of the
problem, objective of the study, significance of the study, scope and limitation of the study. The
second chapter deals with the related literature review. The third chapter deals with the research
design and methodology and the fourth chapter is the final section of the paper which deals about
time schedule and cost identification part of the study.

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 CHAPTER TWO

2. LITERATURE REVIEW
This chapter reviews the literature related to the nature of strong internal control over cash
collection and disbursement.

2.1. Definition of Internal Control

Many people interpret the term internal control as the step taken by the business to prevent
employee’s fraud. In the broadest sense an organization internal controls structure also referred
too and internal control system. Consist of policies, and procedures established to provide
reasonable assurance that organization objectives will be achieved. Internal controls consist of all
measures taken to assurance management that everything is functioning as it should (Meigs
1989)

Internal control includes all control checks and procedures, formally instituted by company
management to maintain the maximum administrative and operational efficiency possible within
the accounting and non accounting functions of the business organizations. However in terms of
financial accounting, the system is mainly concerned with those accounting data and to safe
guard company’s asset. It should include:

i. A well defined descriptions business activity which is to be accounted for the company,
there may be establishing the area of financial accounting to which control is to be
applied.
ii. A formal statement of accounting to be conducted in relation to the (i) above, normally in
the form of an official company accounting manual. This defines the part of data process
over which control should be exercised.
iii. An adequate staff data process out lined(ii) above, with a particular emphasis on the need
to divided accounting duties and responsibilities among the company’s employees in
order to provide the maximum possible security against potential fraud and
errors(Thomas A. Lee 1972).

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 2.2. The needs for internal control

Business decisions of almost every kind are based on at least important on accounting data. This
decision ranges from such minor matters as authorizing over time work and purchasing office
applies to such major issues as a shift from one product to another or making a choice between
leasing and buying a new plant. The internal control structure provides assurance to management
of dependability of the accounting data used in decision making.

Business decision made by management become company policy. To be effective this policy
must be communicated throughout the company and consistently followed. Internal control aids
in securing compliance with company policy. Management also has the direct responsibility of
maintain accounting records and producing financial statement that are adequate and reliable.
Internal control provides assurance this responsibility is being meet (Miegs 1989)

2.3. Classification of Internal Control

According to Alter W. Holm and other internal control broadly classified into two types which
are accounting and administrative control. Accounting internal control directly depends on the
accounting records and financial statement. Accounting control consists of method procedures
and plan of organization that pertain mainly protection of asset and to assure that the accounting
and financial reports are reliable. Administrative internal control mainly depends on the
managerial aspect of control within the organizations.

2.4. Objectives of Internal Control

According to Alive A. Aress there are seven objectives for internal control which must be
applied to every material type of transaction in the control to provide reasonable assurance.

1. Validity: the internal control has to assure that the recorded transaction are to be true or
existed.
2. Authorization: to make sure whether the transaction are authorized to protect from fraud
and west of company’s asset.

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3. Completeness: to show whether all existed transaction has been recorded to prevent
commissions.
4. Valuation: internal control structure has to assure project valuation amounts of the
recorded transactions.
5. Classification: transaction must be properly classified according to chart of account in
order to financial statement to be stated properly.
6. Timing: recording transactions intact will prevent this statement and failing to record.
Transactions should not be recorded before or after the time their occurred.
7. Posting and Summarization: transaction must be included in master files and must
summarized correctly by type in journal form and by accounting in general ledger( Alive
Aress 287)

2.5. Principle of Internal Control

Internal control policies and procedures are varying from company to company. Certain
fundamental internal control principles apply to all companies these principles:

1. Establish responsibility: proper internal control means that responsibility for a task is
clearly established and assigned to one person. When responsibility is not identified,
determining who is at fault is difficult.
2. Maintain adequate records: good record keeping is a part of internal control system. It
helps protect asset and ensures that employees use prescribed procedures.
3. Separate record keeping from custody of asset: This principle reduces the risk of theft
or waste of an asset, because the person with control over it known that another person
keeps its records.
4. Divided responsibility to related transaction: good internal control divides
responsibility for a transaction or a series of related transaction between two or more
individuals or department. This is insure that the work of one act as check on another.
Each employee or department should perform unduplicated effort.
5. Apply technological controls: cash register check, time clocks, and personal
identification scanners are examples of devise that can improve internal control.
Technology often improves effectiveness of internal controls.

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 6. Perform regular and independent review: these reviews are preferably done by
internal auditors not directly involved in the activities. Their important perspective
encourages an evaluation of the efficiency as well as the effectiveness of the internal
control system. (Larson 2002)
2.6. Limitation of Internal Control

Internal control can do much to protect against fraud and assure the reliability of accounting data.
Still it is important to recognize the existence of inherent limitation in any internal control
structure. Errors may be made in the performance of control procedures as result of carelessness,
misunderstanding of instructions or other human factors. Internal control is not an effective
deterrent to fraud by the top management.

Also, those control procedures depend up on separations of duties may be circumnutated by

collection among employees. In addition, the intent of internal controls adopted by a business is
limited by cost considerations.

2.7. Definition of Cash

Cash is the most liquid asset used as a medium of exchange that a bank will accept for deposit
and immediate credit to depositor’s accounting. Cash includes currency and coins, personal
checks, bank drafts, money order, credit cards, sales draft and cashier’s check as money on
deposit with banks. (Mosich 1973)

2.7.1 Internal Control over Cash Receipts

When a company gives its service, it may receive cash immediately or several days or weeks
later. The cash receives immediately over the counter is usually recorded and placed in a cash
register. At end of each day, the cash in each register should be reconciled with cash register tap
or the computer prints out for that registers. When payment is received later, it is almost always
in the form of checks.

2.7.2. Internal Control for Cash Disbursements

Cash disbursements are the out flows of money from the organization for the service or goods,
received.

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 2.7.3. Internal Control over Petty Cash

Internal control over payments from petty cash fund is achieved at a time the fund is replenished
to its fixed balance, rather than at the time of handing out small amount of cash. When the
custodian of a petty cash fund requests replenishment of the fund, the document supporting each
disbursement should be reviewed for completeness and authenticity and preferred to present
revise.

Audits test of petty cash emphasize on transaction rather than the yearend balance. The auditors
may test one or more replenishment transaction by examining petty cash vouchers and verifying
their numerical sequence.

2.8. Bank Statement

A bank statement is statement issued (usually monthly) by the bank describing the activities in a
depositor, checking account during the period. Bank statements include the following.

1. Deposit made to the checking account during the period.

2. Checks paid out of the depositor’s checking account by the bank during the period.
3. Other deduction from the checking account for items such as service charges.
4. Other addition to the checking account for items such as proceeded of a note collected by
the bank for the depositor and interest earned on the account.
2.9. Bank reconciliation

Bank reconciliation, often called a bank reconciliation statement or schedule, is a schedule the
company (depositor) prepares to reconcile or explain the difference between the cash balance
shown on the bank statement and the cash balance on the company’s books. The bank
reconciliation is prepared to determine the company’s actual cash balance.

The bank reconciliation is divided in to two sections. One section begins with the balance shown
on the bank statement. The second section begins with the company’s balance shown on the

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company’s books, adjustments, both adjusted balance should be the same (Herm auson 1992).
The literature reviewed so far emphasized the importance of strong internal control procedures
over cash.

CHAPTER THREE

3. RESEARCH DESIGN AND METHODOLOGY

3.1. Research Design

The study will be conducted on internal control over cash on Development Bank of Ethiopia. For
this purpose qualitative and quantitative, primary and secondary data will be collected.

3.2. Source of Data

Primary data will be collected using structured interview, the questionnaire was both open and
closed ended questionnaire.

Secondary Data will be was collected from published and unpublished document such as manual
annual report, periodic reports (monthly and quarterly) and records prepared on Development
Bank of Ethiopia.

3.3. Data Collection Techniques

The data consumed for the study purpose will be collected from both primary and secondary
sources. Primary data will be collected through interview with Managers and employee of the
Branch. Secondary data will be collected from different document prepared by the Bank like
annual reports, magazine of the Bank, brochures and other records.

3.4. Method of sampling and sample size

The study will be conducted by taking of the total population as a sample purposive sampling.
This sampling technique will be used for the study in order to address the concerned parties and
to acquire reliable data. The questioners will be distributed to all employees whose their duty are
related to cash.

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 3.5. Method of data processing

This collected data would include questionnaires and interviews which will be processed by
using editing, coding, classification, and tabulating of the collected data for the purpose of

- Completeness
- Consistency
- Reliability of data
3.6. Method of data analysis

The researcher will use descriptive types of data analysis. The common form of data analysis is
presenting the collected data in the tabulation, Percentage and data transformation. The analyzed
data will be presented using table and chart which help the researcher to present all the collected
information in simplest form.

3.7. Data presentation

The analyzed data will be presented by the time department scheduled. This major part of finding
and possible recommendation will be more pronounce effectively conducted as much as
possible.

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 CHAPTER FOUR

4. BUDGET AND TIME SCHEDULE

4.1. Work plan

S.N Activities April May June July Aug
1 Gathering data and searching  
literatures related to DBE

2 Writing research proposal draft 

3 Final proposal submission 

4 Reviewing literature 

5 Collecting data 
6 Analyzing data 
7 Writing draft report 
8 Submitting final report 

4.2 Budget
NO Budget category Unit cost Multiplying factor Total cost
Activity participants Days Unit cost
in birr
1 Data collection 1 10 200 2,000.00
2 Advisor 1 3 500 1,500.00
sub total 2 13 700 3,500.00
No Item unit quantity Unit Total price
price
1 Printing paper Ream 1 150 150
2 Note book No 1 25 25
3 Flash disk (4GB) No 1 250 250
4 Stapler No 1 50 50
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 5 stables packet 1 20 20
6 Paper writing page 100 4 400
7 Printing page 100 3 300
8 Per diem day 10 65 650
9 Traveling cost km 50 4 200
sub total 265 571 2045
Total 278 1271 5,545.00

REFERENCES

1. Mosich A. N 1978, internal accounting, 5th edition.

2. Warren, fess and Reeve, 1996 Accounting edition.
3. Meigs, Whittington, peny and Meigs, Principle of Auditing, 9th ed. Irwin Publishing co.
1989 USA.
4. Walter B. Meigs et. Al, principles of Auditing, 9th edition 1989.
5. Alvin A. Arens and et. Al, Auditing an Integrated approach, 5th edition, 1991.

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