ASSESSMENT AND EVALUATION OF CASH MANAGEMENT

PRACTICE (THE CASE OF OROMIA INTERNATIONAL BANK S.C)

A SENIOR ESSAY IN PARTIAL FULFILLMENT OF BACHELOR OF

ART DEGREE IN ACCOUNTING AND FINANCE

SUBMITTED TO, DEPARTMENT OF ACCOUNTING AND FINANCE

COLLEGE OF BUSINESS AND ECONOMICS

ADDIS ABABA UNIVERSITY

BY:

ZIYAD KEMAL

UNDER THE SUPERVISION OF:

TEFERI GHEBRAY

JUNE, 2015

ADDIS ABABA

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 Acknowledgements

First and for most I would like to thanks the almighty God for giving me the endurance and
courage of going through all ups and downs to reach the stage where I am now.

Next, I highly thanks to my advisor instructor Teferi Ghebray for his critical advice. And also
thanks to my parents for their financial and moral support.

Lasting but not the least, I would like to grateful to all of my friends who contribute their
comments and moral support.

ACRONYMS

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OIB - Oromia International Bank

NBE - National Bank of Ethiopia

IFRS - International Financial Reporting Standards

GAAP - Generally Accepted Accounting Principles

FIFO - First- In First -Out

CBE-Commercial Bank of Ethiopia

DBE-Developmental Bank of Ethiopia

ODA – Oromia Development Association

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 CHAPTER ONE

INTRODUCTION
1.1. Background of the Study

Cash is a medium of exchange that a bank will accept for deposit and immediate credit to the
depositor’s account. It includes; Coins, Currency, personal checks, banks drafts, money order
cards and so on (Planket, 1986).

Cash management is one part of the financial management system. It is the management of
liquidity in order to meet their day-to-day commitment. It is a broad term that covers a
number of functions that help individuals and businesses process receipts and payments in an
organized and efficient manner. Administering cash assets today often makes use of a number
of automated support services offered by banks and other financial institutions. The range of
cash management services varies from balancing check book to investing cash in bonds and
other types of securities to automated software that allows easy cash collection. The result of
poor focus on cash management often means that the financial assets are bound. Instead of
being bound it could be used to invest for example in material.

Cash management is a very broad subject and there are a lot of factors to consider when trying
becoming more efficient. Which factors to consider depends on the company and type of
industry. There are still some main factors that all companies should be aware of and those
factors were discussed in this paper.

This paper was examined and improves the liquidity position for Oromia International Bank
through cash management thinking. Oromia International Bank is a private bank located in
Ethiopia. The elements that would be in focus were; cash management techniques,
investment of idle cash, management of excess cash and cash shortage, liquidity management
and so on.

The researcher believes that this study would fulfill the gap found between the previous study
that researched by different and many researchers within different times. So the gap may exist
because of the following reasons:-

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  The range of time: - the previous researcher depends on the outdated data,
information complex figures in order to represent and analysis the data. Due to this,
now a day there are many changes in companies such as technological change and
structural change which affects the whole activities of the companies.
 The economic development of the Banks: - this implies that when the company’s
economy grows up it changes its structure by adding a number of its branches in the
country which leads to the change in the control and managements of the
organization.
 The political and social factors: - the political factors that affects the activities of the
company is the law and regulations of the government relating to the banks and other
financial institution in Ethiopia and the social factors are the more adaptability of the
society with the use of the bank by saving, investing and crediting the money on such
activities.

Generally, the researcher believes that the above mentioned gap would filled by finding of
new information and modifying the researched one in order to provide a better understanding
of the management of the OIB over its cash.

1.2. Oromia International Bank

Oromia International Bank is a private bank in Ethiopia. It was established in accordance with
the pertinent laws, regulations and the 1960 commercial code of Ethiopia, by the monetary
and banking proclamation No. 83/1994 and by licensing and supervision of Banking
Proclamation No. 592/2008. Accordingly, on September 18, 2008 OIB obtained a banking
business license. At the time of its establishment, OIB’s authorized capital was birr 1.5
billion, whereas it’s subscribed capital was birr 279.2 million, and its paid-up capital is birr
91.2 million. OIB began operation on October 25, 2008 by opening its first branch at the
Dembel city center. More specifically, its branch was named the Bole Branch.

1.3. Statement of the Problem

Management is responsible for controlling and protecting of the business inventory,

receivables, plant assets and cash. Cash management is one part of financial management
system that focuses on internal control and forecasting the future cash requirement.

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Cash is the most important element of banks day-to-day activity. By effective cash
management banks can reduce excess cash at optimum level and ensure customers daily cash
requirements. Cash management involves neither excess cash nor deficient amount of cash on
hand at right time. Proper cash management techniques requires that the bank know how
much cash is need as well as how much it has and where that cash is at times has to be
invested. Cash management also requires knowing the amounts of fund available for
investment and the length of time that can be must (Planket, 1986).

Banks are increasing in becoming innovative and anticipating the needs of corporate towards
standardization, enterprise resources planning integration, reconciliation, real time reporting,
proving an end view as cash management value chain besides offering the ability to reach and
be reached their own customers. The mounting pressure from competition forces the banks to
information technology vendor who offer better solution and serves in cash management.

Even though, cash management receive a priority for financial institution especially banks
little is known on how effectively monitor its disbursement, cash flow, liquidity management,
optimize timing of disbursement and properly secured investment.

Because of these assets are easily spendable and highly subject to theft it requires proper
control and attention by all of the financial institutions specially banks. There is an extra
money to earn by managing this liquidity right way. I have seen an opportunity to work with
this subject and present it for OIB. The reason is because the bank’s liquidity position is
different from time- to- time due to the range of time, the economic development of the bank
and the political and social factors. There was a big opportunity that has seen if the banks
liquidity would be more efficient through cash management thinking.

1.4. Research Questions

This study attempts to get answer for the following basic questions that were entirely to cash
management schemes of private bank through assessing the Oromia international Bank.

1. What technique does the bank use to manage its cash?

2. How does the bank determine the daily cash requirement?
3. How does the bank manage excess cash or cash shortage?
4. Where does the bank invest its idle cash?

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 1.5. Objective of the Study
1.5.1 General Objective

The general objective of the study was to assess and evaluate the cash management practice of
private bank specifically the case of Oromia International Bank, by indicating the strength and
weakness in the area.

1.5.2. Specific Objectives

In addition to the general objective mentioned above the study have the following specific
objectives:-

 To identify the major technique the bank use to manage its cash;
 To assess the methods that the bank use to determine the daily cash requirement;
 To identify how the bank manage its excess cash or cash shortage and
 To identify and assess idle cash investment area of the bank.
1.6. Significance of the Study

Cash is an important asset for day- to-day banking system.

This study would contribute the following:-

 It would provide the bank with some information about its cash management system’s
weakness and strength,
 It would gives value to researcher in case of developing experience,
 It would help to find out some problems of cash management in the organization
under study,
 It would be used for decision-making process on the problems of cash management
by the different levels of the authorities in the organization; and
 It would serve as a corner-stone/stepping- stone for other researchers who try to make
in depth study about the issue under study.
1.7. Limitation of the Study

In conducting this study, the researcher would face with some constraints. Among these, some
of the respondents may not willing to respond, shortage of relevant secondary data, it would

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limit by financial and time constraint and may not willing to give accurate and reliable data
with concerned about the study.

Even if the survey and client response for this study was the appropriate due to the above
mentioned constraint the researcher would collect data by interviewing the main branch head
office manager.

1.8. Scope of the Study

To identify and investigate all the problems that private banks had with regarding to cash
management it would requires extensive or much more time, sufficient information,
knowledge and money. Because of the mentioned constraint this study would be conducted
only on one private bank which was the OIB.

Current time frame is in interest, when calculating key ratio. I would take data from the latest
annual report bulletins of the bank.

The study would take four consecutive years’ annual report (2010-2014) in order to evaluate
the cash management system of OIB, since the four year data explain clearly the banks’
weakness and strength.

After this study there would be the expectation to compare the cash management practice of
OIB with the theoretical aspect of cash management and if there is cash management problem
the study would try to give the possible recommendations.

1.9. Organization of the Study

The paper would contain five separate chapters each with a brief description. Chapter one deal
with an introduction part which includes; background of the study, background of the
organization, statement of the problem, research questions, objective of the study significance
of the study, scope of the study, limitation of the study and organization of the paper.
Chapter two would contain the review of related literature. Research methodology would be
discussed in chapter three and then data presentation, analysis and discussion would be
discussed in chapter four.

Finally, the paper would end up with conclusions and recommendations of the study in the
fifth chapter.

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 CHAPTER TWO
LITERATURE REVIEW
2.1. Definition of Cash

Cash is any medium of exchange that a bank will accept for deposit and immediate credit to
the depositor’s account at face value. Cash includes; currency and coins, personal checks,
bank drafts, money orders, credit card sales drafts and cashiers’ checks, as well as money on
deposit with banks. Items sometimes confused with cash include; postage stamps, postdated
checks and IOUs, postdate checks and IOUs should be classified as receivables ([Link],
1963).

2.1.1. Components of Cash

Cash is not only coins and paper money, but also checks, money orders and traveler’s checks.
Banks also accept drafts signed by customers using bank credit cards such as visa and masters
cards. Near cash assets which can be easily or readily converted into cash also include in cash,
such as marketable securities and banks time deposits.

2.1.2. Nature of Cash

Cash is more susceptible to theft than any other assets and therefore require physical
protection. High value of money in relation to its mass and easily transferability, cash is the
asset most liquid to be diverted and misappropriated by employees.

2.1.3. What is Cash Control?

Due to it’s easily transferability, cash is the asset most likely to be used by employees and
managers. Cash is also vulnerable to theft since many transactions either directly or indirectly
affects the receipt or payments of cash.

The objective of internal control over cash is to be providing accurate information about cash.
To avoid cash shortage and excess (idle) cash and protect cash from theft and misuse.

To control cash receipt the firm should record the cash receipt properly and immediately then
deposit the cash receipt amount.

Cash control is a process that utilized to verify the complete nature and accurate recording of
all cash that is received as well as any disbursements that take place. As a broad principle of

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responsible financial accounting, cash control takes place in any environment where goods
and services are bought and sold. As such, business, non-profit organizations and households
all employ the basic tenets of cash control. To fully understand cash control it is helpful to
understand what is meant by cash, when it comes to financial accounting. Along with
referring to currency and coin, cash is also understood to include forms of financial exchange
like money orders credit cards receipts and checks. Essentially, any type of financial exchange
that that can be immediately negotiated for a fixed value qualifies as cash.

Cash control means completely managing all these types of financial instruments by
maintaining an accurate tracking system that accounts for both receiving and disbursing the
cash. Designing a cash control process in not difficult at all. There are a few basic elements
that will be incorporated into the process regardless of whether the cash control procedure is
used in the home or in an office or business environments.

First, all transactions related to cash must be documented and recorded immediately. With
cash control, there is no use of the accrual method of accounting. Each cash receipt is
recorded up on reception, while each disbursement is entered at the time that the payment is
released. The mode of documentation requires only some basic template that will record the
necessary data. For the home, the checking account can be used to track all cash deposited in
to a common account for the good of the home, with the check book register can serve as the
basic document that keeps track of the inbound and out bound transactions.

Next, solid cash control procedure requires that there be only certain individuals who have
access to the cash. This type of security serves two purposes. First, accountability is
established for the way that the cash is managed. Second, the empowerment of the two people
to oversee cash control helps to ensure that important transactions can take place at any given
time, even if one individual is unavailable for some reason. Last, cash control demands that
the documents related to the task are kept separated from physical location of the cash. In
other words, the accounting book that is used to record the cash transactions should not be
kept in the safe with the currency, money orders and checks. This simple precaution helps to
ensure that the task of altering the physical evidence related to cash in hand is more difficult
and thus minimizes the chances for theft to occur (Malcolm Tatum, 2015).

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2.2. Definition of Management

Management is a process of setting, organizing and achieving of a given management basic

functions which are planning, organizing, controlling and directing that utilize human,
financial and material resources. Management is a process by which under taken by one or
more persons to achieve the stated goals (Planket, 1986).

2.3. Definition of Cash Management

Cash management means the management of cash balances of an enterprise in such a fashion
as to maximize the availability of cash and of investment income on cash not invested in fixed
assets or investors and also so as to avoid that risk of insolvency (Prof. [Link], 2006)

Cash management is a strategy by which a company administers and invests its cash. It is
concerned with the managing of cash balances held by the bank for liquidity purpose and
investing its idle cash. It is managing the cash properly to maintain the profitability of cash
excess and to minimize cash shortage risk. Cash management generally centered on
forecasting and internal control. It is important for any business enterprise because cash as a
means of acquiring goods and services.

The management of cash is necessary since cash constitute the smallest portion of asset but it
needs considerable time devotions for managing due to its nature of easily misappropriation in
order to solve uncertainty about cash inflows and outflows and also lack of balance between
cash receipt and cash disbursement, the firm should develop appropriate strategies for cash
management.

Some of cash management strategies are the following:-

Cash planning: - cash inflows and outflows should be planning to protect cash surplus or
deficit for each period of time. Cash budget should be prepared for this purpose.

Managing cash flow: - cash flow should be properly managed the cash outflow should be
decelerated and cash inflow relatively increases.

Optimum cash level: - The firm should be deciding about the appropriate level of cash
balances. The excess cash and cash deficit should be matched to determine the optimum level
of cash balances.

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Investing surplus cash: - the surplus cash balances should be properly invested to earn
profits. The firm (bank) should decide about the division of cash balance between alternative
short term investments such as bank deposits market securities (Keiso. etal, 2001).

The primary goal of cash management is to minimize the amount of cash the firm must hold
for conducting its normal business activities while, at the same time maintaining a sufficient
cash reserve to take discount, pay bills promptly and meet any unexpected cash needs
(Birmingham. E.F, 1995).

Efficient cash management process is prerequisites to execute payments collect receivable and
manage liquidity. Managing the channels of collections, payments and accounting
information efficient becomes imperative with growth in business transaction volumes. This
includes enabling greater connectivity to internal corporate systems, expanding the scope of
cash management services to include “fully- cycle” processes (i.e. from purchase order to
reconciliation) via ecommerce, or cash management services targeted at the needs of specific
customers segments. Cost optimization and value- add services are customer demands that
necessitate the creation of a mechanism to service the various customer groups.

Banks are increasingly becoming innovative and anticipating the needs of corporate towards
standardization, reconciliation, real time reporting, providing an end-to-end view of cash
management value chain besides offering the ability to reach and be reached by their own
customers. The mounting pressure from competitors forces the banks to look for an
information technology vendor who can offer batter solutions and services in cash
management and internet banking.

2.3.1. Objective of Cash Management

 To meet cash disbursement needs of the firm on a continuous and regular basis.
 To minimize funds in the form of cash balance which remains idle
 To prevent bankruptcy
 Good relation with bank
 Good relation with trade creditors and suppliers
 To lead strong credit rating
 To meet unexpected cash expenditure

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  To maintain balance level
2.3.2. Importance of Cash Management
 To maintain adequate cash balance
 Helps in identifying surplus cash and investing them in marketable securities.
 Helps in identifying the points of shortfalls and to plan and arrange adequate cash
 Improves the profitability of the firm
 Keeps the bank overdraft limit under control
 Strike a balance between liquidity and profitability
 Make instant cash payments and avail of the facilities of cash discount
 To take advantage of speculative opportunities.
2.4. Cash Budget

Cash budget is a schedule showing projected cash inflows and out flows over some period.
Cash budget is used to predict cash surpluses and cash deficits and it is the primary cash
management planning tool. Firms must forecast their cash flows. If they need additional then
they should line up funds well in advance, yet if they are likely to generate surplus cash then
they should plan for its productive use. The primary forecasting tool is the cash budget.

Monthly Cash Budget

Cash budgets can be of any length, but most companies use a monthly cash budget set up for
twelve months. The monthly cash budget is used for longer range planning, but a daily cash
budget is also prepared at the start of each month to provide a more precise picture of the
daily cash flows for use in scheduling actual payments on day-by-day basis.

The cash budget focuses on cash flows, but it also includes information on forecast sales,
credit policy and inventory management. Since the statement is a forecast and not a report on
historical results, actual results could vary from the figures given.

Therefore, the cash budget is generally set up as expected or base-case forecast but it is
created with a model that makes it easy to generate alternative forecasts, to see what would
under different conditions. When the total forecasted payments are subtracted from the
forecasted conditions, the result is expected not cash receipt or loss for each month. This gain

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or loss is added to or subtracted from the excess cash on hand at the start of the forecast
(which we assume was zero) and the result- the cumulative net cash flow-is the amount of the
cash the firm would have on hand at the end of the month if is neither borrowed nor invested.
By subtracting the target cash balance from the cumulative cash flow, we determine the loan
needed for surplus cash. A negative number indicates that the bank needs a loan, whereas a
positive number indicates that we forecast surplus cash that is available for investment or
other uses. The main focus of the cash budget is to forecast the firm’s liquidity position, not
its profitability (Birmingham, 1995).

2.5. Investments of Idle Cash

Investment is the alternative means in order to manage properly the idle or surplus cash.
Banks are financial institutions which hold surplus of cash for short of time and wish to earn
at least some return on temporarily idle cash. The primary function of a bank is to act as a
depository for its customers.

The excess amount of cash hold by the firm to meet is variable cash requirement and future
contingencies should be temporarily sales in a national bank up sources of liquidity to meet
these uncertainty flows.

Investing idle cash has two primary functions. First it is a major source of getting, earning and
the other function is to provide for the banks liquidity need that is expected or unexpected a
cash needs. Investment of temporarily idle cash is selected type of marketable securities is a
key element of good financial management. Example of short term money market instruments
are like treasury bills, commercial paper and certificate of deposit (Rose Stephen, 1998).

2.6. Managing Excess Cash or Cash Shortage

Firms (Banks) have to necessarily keep cash or invest cash on marketable securities in order
to manage excess cash or cash shortage. As a result, they will be in a position to meet
obligation when they become due. If the bank do not maintain sufficient amount of cash its
liquidity position decreases then the banks credit -worthines is damaged which resulted in
high risk and profitability decrease and resulted in bankruptcy. So, for proper cash

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management excess cash should be invested and cash shortage should be managed properly
by making legal reserve.

2.7. Managing Cash Receipt and Payment

Cash receipt and cash payment management is to assure all cash receipt and payment of the
company properly managed.

2.7.1. Internal Control over Cash Receipt

To assure that all cash receipt by a business organization should be recorded without any
misappropriations. The system control over cash receipt takes place takes place in two ways.
The first one is cash control over counter and cash control by mails from charges.

Internal control of cash receipt over the counter cash register should be used to cash receipt
and the amount written the cash should be visible to customers. There should be pre-
numbered receipt used in sales process. The cash receipt should be deposited immediately. A
person independent of the cashier should count cash and compare it with amount recorded on
the receipt.

Internal control of cash receipt by mails should be locked and the key should be placed on the
hand of responsible person. At least two people should have to present when mail is opened
and list of money received should be kept. A prelisting of cash received should be made in
three copies, one copy for cashier, the second copy for account department and the third copy
by the person that prepare it.

2.7.2. Internal control over cash payment

Cash disbursements are particularly exposed to fraud and embezzlement. To avoid this cash
should be paid only after the precept of specific authorization by documents that establish the
validity amount of the client. Besides to these duties in the purchase of goods and service, and
payments for them should be separated. All payment should be made by checks; the checks
should be authorized and approved by independent individual preparation before payment are
essential.

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Voucher system: - a system of internal control for cash payment that provides documentary
evidences and authorization for each obligation incurred. Voucher is a special form on which
relevant data about a liability to be paid and the details of its payments is recorded (Ahrens
and lobbeck, 2001)

2.8. Motive for Holding Cash

The demand of money (cash) is the demand to hold it. Now the question is why people want
to hold their assets in the form of cash when they can get interested by lending such resource?

The reason to hold ready money arises because of four motives:

1. Transaction motives: - this motive relative to the demand for money by individual and
business houses for conducting their day-to-day transactions. Individuals hold some ready
money in order to bridge the interval between their receipts of income and expenditures.
People receive their incomes weekly or monthly but they spent it between receipts and
payments. Business house also hold some money to meet their expenditure. The amount
so held on this motive performs the function of the medium of exchange.
2. Precautionary motives: - in addition to amount of meeting routing expenditures,
individuals and business house hold some cash balance to meet unforeseen expenditures.
The money so held on this motive performs the function of store of value. It is keep to
provide for the danger of unemployment, sickness, accidents and other more uncertain
perils. The amount of money held in this way will depend on the individual and on
conditions which he lives.
3. Speculative motives: - money held under the speculative motive constitutes a store of
value a liquid asset that the holder intends to use to make speculative gains. The money
held on this motive will be invested bonds and securities at the opportune time if the price
of bond are expected to rise (i.e., in other words the rate of interest is expected to rise)
people sell bonds to avoid losses. The amount of money held under this motives will
depend on the rate of interest is expected to fall people buy bonds in order make profit by
selling them when price rise.
4. Compensation to bank for providing loan and services:-

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Bank make money by lending out funds that have been deposits with it, so the larger its
deposits, the better the bank profit position. In addition, bank is providing service to a
customer to live a minimum balance on deposits to help offset to cost of providing the service
(Fabozzi, 1996 P. 567-571)

2.9. Cash Management Techniques

Cash management is an all inclusive term that relates to the accumulation, concentration and
outlay of cash. Effective cash management techniques are essential to survival of any
businesses. The objective of these techniques is to control the company’s cash balances so as
to maximize the accessibility of cash on hand. The banking industry offers a wide range of
these methods to help large and small businesses simply their cash management process.

2.9.1. Cash management and on hand cash

Although almost every business has the capacity of processing debit and credit card
transactions some firms still deal in checks and cash.

Companies that handle cash and checks must work with their banks to deposits these funds in
their accounts. These businesses may choose to use a secured transport mode, such as an
armored car, to carry large amounts of cash to a bank. This method reduces the security risks
involved in having employ carry cash to the bank office.

2.9.2. Cash Management and disbursement

While the temptation to spend the ready cash on hand may linger for some business owners,
these entrepreneurs must also work on scheduling payments for payroll, vendor invoices,
utilities and rent or mortgage payments. Automated Clearing House is a computerized
network that processes large batches of bank transactions. The Automated Clearing House
network handles direct-deposit payroll and vendor payments for thousands of companies and
it increases the efficiency and reduces the time spend for vital business transactions

2.9.3. Cash Management and Sweep Accounts

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One way to manage a business’s cash flow is to invest a portion of cash on hand in an
interest-bearing account. A “Sweep Account’’ is a method where the funds in a business
checking account above a certain amount are automatically moved from the standard account
into an interest-bearing savings or money market fund account.

The goal of a sweep account is to increase the account holder’s earnings from interest while
maintaining a sufficient balance to cover all withdrawals.

2.9.4. Cash Management and Hard Times

During an economic down turn, businesses rely on sound cash management techniques to
keep the doors open. Banks may tighten their requirements for credit, such as following the
recession of 2008-09, so small business must rely on their on hand cash reserves to see them
through the tough times. Under these conditions, business owners can consult with banks in a
face-to-face meeting to determine a course of action, specially, if the owners can show that
they have a predictable cash flow (Gerald Hanks, 2008).

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 CHAPTER THREE
3. RESEARCH METHODOLOGY
Research methodology is a set of philosophical positions, approaches, theories and methods
that guide the research process; what data to collect, how to analyze and interpret to produce
knowledge. It describes how the researcher under taken including theoretical and
philosophical assumption upon which the research is based (Teferi, 2014).

3.1. Research Design

A descriptive method would be used in carrying out this study because it pictures the current
situation in an organization and also shows accurately the characteristics of a particular
situation. Moreover, the descriptive helps to gather several kinds of data related to the subject
under study and to describe the actual cash management of OIB.

3.2. Philosophical World View

Philosophical world view is a way of viewing the world that reflects researcher beliefs about
knowledge how it is best acquired. Moreover it divided into two part i.e. Ontology and
epistemology. Ontology is a philosophy of the existence and nature of phenomena or nature of
reality. Further, ontology is divided into two objectivism and subjectivism. Objectivism is the
nation that an objective reality exists and can be increasingly known through accumulation of
more complete information. Subjectivism is a doctrine that knowledge merely subjective and
that there is no external and objective truth.

Epistemology is a philosophy of how knowledge is acquired and what counts acceptable

knowledge in a field of study. It has also two parts positivism and interpretivism. Positivism is
an epistemology used in objective or quantitative facts (Teferi, 2014). So in this study the
researcher assumed ontological objectivism and epistemological positivism because the
researcher was independent of the nature of reality.

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3.3. Strategies of Inquiry

For this study, both the qualitative and quantitative data type especially the later one would be
used. Therefore, the researcher would follow the narrative style for the procedure in a
research design.

3.4. Data Needed

The data that would be collected for this study is:

- The data about techniques of cash management in bank,

- The data about daily cash requirement of the bank,

- The data about managing excess cash and cash shortage and

- The data about investment of idle cash.

3.5. Data Measurement

Since most of the data that would be collected for this study is qualitative the researcher uses
nominal scale data measurement for this study.

3.6. Data Sources

The sources of data that would use in this study would collect from both primary and
secondary data source. The primary data was collect to get the first hand information that was
relevant to arrive at proper decision. The primary data would be collected through interview
with concerned representative of the bank that leads the researcher to get relevant
information, which was not document. It was also important to get information that would
improve the quality of the study.

The secondary source of data includes; published materials which were available in the bank
and outside the bank, document, bank’s website, and annual report of OIB (i.e. from 2010-
2014) and other relevant materials that were important to accomplish the study.

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3.7. Target Population

The population of the study was employees and clients of the bank. But, because of the
difficulty to get all the concerning parties and information from all of the population, the
study would conduct by taking sample of them. Sampling becomes the most attractive method
to generate data due to in accessibility, cost, time and various other constructing.

3.8. Sample Size

Out of the total population of the bank the researcher would select two employees and the
manager through interview.

3.9. Sampling Techniques

The study would be conducted by interviewing Accounting and Treasury department head;
chief accountant and an international banking head by purposive or judgmental sampling
method because these were the concerned department for cash management. Purposive
sampling technique is a non-probability sampling which is a sample with a purpose in mind.
Purposive sampling is useful in a situation to reach a greater sample quickly. Moreover, non-
probability sampling would used to gather relevant data and to give more concern with those
professionals about the topic selected.

3.10. Data Collection Techniques

In order to collect relevant data for this study, cash management policies, rules and
regulations of the bank would be examined properly. Besides, first hand information would be
gathered through interview department heads and employees. In the case of secondary data
collecting efforts the researcher would gather data from accounting department which
constitute the recent years audited financial statement of the bank. The secondary is also need
to be collected from documents and the internet using document review and web survey of
data collections tools.

21
3.11. Data Presentation and Analysis

Data presentation and analysis was the fourth stage of this study after the proposal, review of
related literature and data collection. The collected data from the sources would be filled,
edited and coded. This would adjust the data to be more suitable for presentation. This
collected and adjusted data would be analyzed, i.e. transformed into meaningful information
to provide conclusion and recommendations through the use of qualitative data tools. In order
to present and analyze the findings, the researcher would use thematic analysis system
because most of data gathered for this study was qualitative. Moreover statistical data would
be analyzed through tabulation and percentage and annual report of the Bank for four years
(2010-2014) would be examined for quantitative type of data.

Finally, both the primary and secondary data would be discussed, interpreted and analyzed.

22
 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

This chapter is concerned with the company background and cash management presentation,
analysis, and interpretation of the data gathered via primary source interviews and secondary
sources collected from the, manuals, published and unpublished books, and annual report of
Oromia International Bank Share Company.

4.1. Company Background

4.1.1 Establishment

Oromia International Bank is a private bank in Ethiopia. It was established in accordance with
the pertinent laws, regulations and the 1960 commercial code of Ethiopia, by the monetary
and banking proclamation No. 83/1994 and by licensing and supervision of Banking
Proclamation No. 592/2008. Accordingly, on September 18, 2008 Oromia International Bank
(OIB) obtained a banking business license. At the time of its establishment, OIB’s authorized
capital was birr 1.5 billion, whereas it’s subscribed capital was birr 279.2 million, and its
paid-up capital is birr 91.2 million. OIB began operation on October 25, 2008 by opening its
first branch at the Dembel city center. More specifically, its branch was named the Bole
Branch.

4.1.2 Vision, Mission and Values of Oromia International Bank

Vision

To become the bank of every one’s choice.

Mission

They are committed in providing full-fledged and best quality commercial banking services
within the pertinent regulatory requirement with due diligence to sustainable business while
empowering the missing middle and discharging social responsibility by engaging highly
qualified, skilled, motivated and disciplined employees and state-of-the-art, information
technology, adding real value to the shareholders interest and win the public trust.

23
 Values

 They value persistence, endurance and tenacity,

 They value customer satisfaction,

 They value transparency, integrity and confidentiality,

 They uphold team spirit and grooming potential successor,

 They value total respect to employees and customers,

 They value competent and motivated human resource with growing skills,

 They promote a learning and innovative organization,

 They value belongingness,

 They uphold corporate citizenship.

4.2. Cash Management Techniques

Cash is managed in the Oromia International Bank share company by different methods as a
general and within branches. According to the interview of accounting and treasury head
officer said that, OIB uses certain techniques to manage its cash. Every branch banks are hold
cash based on cash limited transactions of the branches. The bank assigns cash limit to
branches considering the volume of their cash transaction and their distance from the Head
Office. Cash holding limit is assigned for branches in Addis Ababa and for out laying
branches the holding amount is restricted up to Br 200,000.00.

Branch banks are controlled by the Head Office. If branch banks hold excess cash, it sends it
to the head office. If the branch bank shows cash shortage they take from the head office.
However, if the Head Office holds excess cash it immediately sends to the NBE.

Regional branches will be open current account with OIB to facilitate cash withdrawal and
open deposit accounts in this bank in the event of shortage or excess of cash.

24
The amount of such deposit will be decided by the Head Office finance department. Inter-
bank cash transfers (cash in transits) and cash in premise are insured with the limited amount
by OIB. Also the movement of cash from one place to another should be known to
unauthorized person except the employees concerned.

The bank opens two accounts with the NBE to manage its cash:-

i. Payment and settlement account; used to carry out all day- to- day transaction
requirement purpose for the bank through the NBE.
ii. Reserve account; maintain for reserved balance purpose. It reserves 15% of total deposit
and foreign currency deposit liabilities held in the form of demand (current), saving and time
deposits. In order to handle liquidity problem, the bank borrow from other financial
institutions. Another important technique to guide the bank’s liquidity is adequate
mobilization of deposit.
The bank does not hold idle cash, if the bank has idle cash it is used to invest on treasury bills.
OIB reserve account balance was birr 38.6 million for the year 2013/14 but, after two years
the reserve account balance will be changed into birr 77.2 million.

As a general, the bank uses two methods or techniques to manage its cash. These are:-

1. Cash indemnity method: - is a way of replacement of the exact amount of money lost or
shortage by transferring from the legal reserves of the bank with limitation. Legal reserve is a
statutory reserve to which not less than 25% of the net profit of the bank which is transferred
each year until such reserves equals the capital of the bank and thereafter 10% of the not
profit shall be transferred each year.
2. Denomination methods: - is a way of refinancing funds by selling the short term
instruments or marketable securities of the bank in the money market in order to compensate
the shortage of money faces the bank also investing on the marketable securities such as bond
notes and treasury bills during the overage of cash in the bank.

25
 4.2.1. Control policies and procedures of the bank

OIB has its own control policies and procedures to manage its cash. This control policies and
procedures are called internal control procedure manual. The bank use both accounting
policies and procedures as internal control. Accounting policies are like income, expense,
depreciation, opening of accounts; cash on hand, general rules and regulation governing,
revenue stamps and financial statements.

Accounting procedures are like cash, deposits with domestic banks, deposits with foreign
banks, loans and advances, administrative loans, emergency staff loan, sundry debtors,
unclear effects- local, unclear effects- foreign, loan investment, Head Office and internal
branch accounts and fixed assets.

The bank uses accrual basis of accounting by applying the IFRS after recent years.

Principal Accounting polices

The financial statements are prepared in accordance with GAAP historic cost convention and
the laws and regulation of Commercial Code of Ethiopia 1960, Monetary and Banking
proclamation No83/1994, and supervision of Banking Business proclamation No.592/2008
and the directives of the NBE.

Income policy: - income is recognized in period in which it is earned. However, interest

income on non-performing loans (NPL) is accounted for on cash basis of accounting.

Expense policy: - expense is recognized on accrual basis in the period when it is due.

Depreciation policy: - fixed assets are reported in the balance sheet acquisition cost less
accumulated depreciation. Depreciation is computed on straight line basis at the following
rates per annum:

Building 5%
Office furniture and equipment 20%
Motor vehicles 20%
Computers 20%
Deferred charges 20%

26
 1. Cash on hand policy: - cash is held in two forms such as petty cash and vault cash.
Vault cash is controlled by the main branch and under dual control.
2. Opening accounts policy: - for internal users approved by control department is
mandatory but for external users approved by general managers is mandatory.
3. Financial statement policy: financial statement is prepared year starts on July 1 up to
June 30.
4. Stocks: stocks are valued on FIFO
5. Investment: investment is carried at acquisition cost.
4.3. Determination of Cash Requirements
Oromia International Bank determines the daily cash requirement of each branches of the
bank based on the size of their branches or grades and their environment or business areas
where the bank established. Also the targeted customer the bank served and the economic
position of the area are the most determinants of cash needs for their day- to- day operations
of the bank.

Category of the branch

As stated on the above paragraph briefly the branches of the OIB are categorized into four
grades.

Grade 1:- a types of branch that can hold cash amount not more than one million birr within
one day and maintain its own cash indemnity balance account for the lack of the shortage
faces the teller of the bank with limited amount and provide the services of receiving deposit
and withdrawals service. It does not provide the loan services like other branches.

Grade 2:- is a type of branch that can hold cash amount up to two million birr but not more
than it and it serves more customers than grade one in number as well as in economic
positions, but like grade one, it doesn’t provide loan services and the other short-term
investment rather they refund from the head office and return to them.

Grade 3:- also a type of branch that can hold cash amount up to five million birr within one
day in order to operate its day- to- day activities effectively. In addition to the cash deposit
and withdrawal services provided by the above two grades it provides loan services for the

27
customer according to the credit policies of the bank. It does not provide the investments in
the short term instruments.

Grade 4:- a type of branch established around a high business area and can hold the cash
amount above five million and it provides all activities operated by the commercial bank such
as cash deposit and withdrawal services, loan services, investments in short term instruments
or marketable securities and consultancy services in business area.

4.3.1. Projecting cash needs

On a daily basis, the cash manger typically spends first part of the day developing the cash
position. This exercise identifies shortage and surpluses in time to either borrow funds to
cover the short fall or invest excess funds. The cash manager first confirms the prior day’s
closing balance, typically using on- line or internet bank reporting. Forecasted and scheduled
disbursements, receipts loan repayments and maturing investment proceeds are then added
and subtracted to calculate the day’s cash flow. The cash manager also typically administers
the credit facility borrowing on a day- to- day basis. This daily reconciliation process also
provides an effective method of immediately revealing unauthorized or fraudulent
transactions.

To forecast to the cash position the bank as a general has establishment system namely, a
projected cash flow statement. This cash flow statement is usually prepared to cover a rolling
four year period in advance.

This annual projections is broken down in to a monthly cash flow and the monthly cash flow
is used as the basis for monitoring actual performance. The cash flow projections covers the
projected cash inflows and out flows over the concerned periods and these are based on the
expected sales from both local and export representing the inflows and expected recurring
expenditure representing the out flows. The difference between the two gives an indication of
a cash requirement or the possibility of excess cash, serving as a basis for either seeking for
funding or finding ways of investing the surplus cash. Moreover, on a weekly basis, there
exists a weekly projection of major payment for the subsequent weeks serving as a basis of
sourcing for funding where possible from outside the bank.

28
4.3.2. Projection of Daily deposit inflows and out flows

Management forecasts the magnitude of daily deposit inflows and out flow based on some
factors such as previous period reports, seasonal and environmental identification. For
example during the end of the month (salary payments) the deposit out flows (withdrawal)
increases. Because of most of the salary and wage payments of the public servants made
through the OIB.

4.3.3 Petty cash management

Petty cash is notes and coins used for cashier’s daily use. The petty cash amount of the bank is
birr 620.00. The petty cash funds may be established at the discretion the director of finance
department for small or emergency purchases on the basis of demonstrated need. It is to be
used only for the acquisition of those unanticipated items that require an immediate cash
payment and should not be used as a means to conduct proper purchasing procedure.

Ascertain that petty cash revenue stamps held under different departments, branches and
divisions are replenished at least every month end. Ensure all the time that replenishment is
done before the close of books of accounts (on 29 th of June of every fiscal year). The petty
cash stored in a separate locked container. The cash box must be locked when not in use and
kept in a locked safe or steel cabinet under the control of the custodian.

4.4. Managing Excess Cash and Cash Shortage

Holding excess cash or tool little both has negative impacts. Therefore the bank must be care
of it. In the case of excess cash the bank manage the cash by depositing to other banks to earn
interest income by negotiating within a term like fixed time deposits and reliable investment
and also purchasing treasury bills with interest bearing. In case of cash shortage the bank must
borrow from NBE. Defining the amount of a short- term line of credit requires not only a
reliable cash forecast, but also through understanding of seasonal revenue fluctuations,
timing of major capital expenditures, the intra- period timing of receipts and disbursements
and an appropriate contingency factor to deal with the unexpected.

29
The objectives in establishing borrowing levels are to:

 Ensure adequate funds to meet short- term cash requirements

 Minimize the cost of funds
 Avoid an excessive debt burden or a potential default
 Develop alternative sources of short- term borrowing to maximize flexibility and
responsiveness to sudden market shifts and opportunities.
4.4.1. Liquidity and Reserve Requirement of the Bank

For the purpose of ensuring the bank adequate deposit mobilization and honor its customers
with drawls the NBE regulates the overall banking operations in Ethiopia. As per reserve
requirement divertive every licensed bank is expected to maintain 15% its total deposit
(demand or current saving and timing deposits) in balance held with NBE. However,
deficiencies in reserve balance are subject to penalty. The penalty shall be assessed at a rate
twice the current average of interest fixed on loans and advances charged by bank from time
to time on deficiency in resave to compute over the period covered by the report.

The reserve account of the bank hold in NBE from 2010/011 up to 2013/014 is summarized in
the following table.

Table 1: Trends of Reserve Account Held in NBE

Year Total deposit Required Actual reserve Excess (deficit)

reserve 15% of with OIB
total deposit

2010/011 1,526,318,840 228,947,826 230,000,000 1,052,174

2011/012 2117,296,898 317,594,534.7 210,000,000 (107,594,534.7)

2012/013 3,050,439,303 457,565,895.5 150,000,000 (307,565,895.5)

2013/014 5,003,995,809 750,599,371.4 260,000,000 (490,599,317.4)

Source: balance sheet of bank

30
 From the above table it can be seen that the bank has not meet it requirement reserve in NBE.
The reserve cash balance in OIB has been excess only in year 2011/011. but thee year
2011/012, 2012/013 and 2013/014 the reserve cash balance has been deficit and it shows that
the need of some adjustment and improvement by the bank to be either in excess of the
reserve or in deficit in order to prevent penalty charged by NBE. In the year 2010/011 excess
reserve been invested in some suitable investments like government bonds and treasury bills
they can generate significant earning to the bank.

As clearly observed from the above table and interview made with the bank manager the
bank’s NBE bill has reached Birr 1.1 billion being an opportunity cost to the Bank but
supporting the national development program by the same amount. This is due to branch
expansion salaries and ever increasing cost of capital goods has resulted inflating the banks
total expenses. Therefore, the bank must assess short term and long term investment
opportunities and invest idle cash to maximize wealth of the bank.

With respect to liquidity requirement, the NBE has laid down directive that enforces any bank
in Ethiopia to maintain at least 15% of its total liabilities. From these percentage at least 5%
should be covered by primary reserve (cash on hand and balances held in NBE) and 10% by
secondary reserve (balance in other licensed banks in Ethiopia and Foreign banks, negotiable
instruments that NBE may approve payable within 186 days, treasury notes and bills maturity
within 370 days, other assets that NBE approve).Accordingly, the liquidity of the bank in the
year 2010/011 to 2013/014 is shown in the following table

Table 2: Liquidity of OIB

Year “a” “b” “c” “d” “e” “f” “g”

Total Liability Required Required Actual Actual Actual reserve
Liability Requirement primary secondary primary secondary (e+f)
(15%*a) reserve(5%* reserve reserve reserve
a) (10%*a)

2010/011 1,665,821,673 249,873,251 83,291,084 166,582,167 448,750,421 242,834,085 691,584466

2011/012 2,349,711,532 352,456,730 117,485,577 234,971,153 474,244,782 592,881,687 1,067,126,469

2012/013 3,363,628,089 504,544,213 168,181,405 336,362,809 539,950,100 548,426,254 1,088,376,354

2013/014 5,403,139,124 810,470,869 270,156,956 540,313,912 859,119,473 464,835,015 1,323,954,488

31
Source: Annual Report Bulletins of the Bank

Actual primary reserve (e) = cash on hand +reserve with NBE

Actual secondary reserve (f) =Deposit with CBE +Deposit with Foreign bank +treasury bills.

As can be seen from the above table, the bank has no liquidity problem. That is to say, it is
adequately fulfill the liquidity requirements more than expected in both primary and
secondary reserve requirements. The total actual reserve of the bank is increasing from year to
year. It is clearly observed that, in most of the years the bank hold excess liquid assets in both
primary and secondary reserve. Therefore, the bank has tried to reduce this excess by
adjusting its strategy and invest in some suitable project areas.

4.2.4. Management of Short-Term Securities and Investment of Idle Cash

In order to make the ideal cash productive, the bank has an experience of investing in the
marketable securities such as: government bonds, notes, and treasury bills. These investments
are usually made after fulfilling the liquidity and reserve requirements set by National Bank
of Ethiopia, which is intended to stabilize the operation of the banking services in particular
and to protect the overall economic stability in general. The bank has been investing in
treasury bills and bonds issued by the federal government with regard to short-term
investment. The bank sends its cash to the NBE and earns an interest. While, if it faces
liquidity problem they take their cash from NBE which is the principal cash they send to
NBE.

Investments on Marketable Securities

Marketable securities are securities such as Treasury bills, Stock, Share, Bonds etc that can be
bought and sold on a stock market or stock exchange. A marketable means the ability to be
sold and bought in short period of time. The bank invests its idle cash on the following
securities:
1. Coupon Bonds
Represent non-negotiable 6% secured bonds bought from Development Bank of Ethiopia
(DBE). Interest is to be repaid by DBE semi-annually while the principal is to be repaid over

32
a period of ten years. The Bank has also bought non-negotiable 6% secured bonds from five
regional states and two city governments. Interest is to be repaid semi-annually while the
principal is to be repaid over a period of 10 years from date of issuance.
Both interest and principal have one year grace period.
2. Corporate Bonds
Represent non-negotiable 6% secured bonds worth Birr 600,000,000 bought from Ethiopian
Electric Power Corporation. Interest is to be repaid semi-annually while the principal is to be
repaid over a period of ten years after a grace period of one to three years.
3. Treasury Bills
Represent a type of bill of exchanges which the bank usually invests its idle cash on such
type of marketable securities. By the year 2013/14 it worth about 209,517,000 which reveals
the great change in increase when compared to the previous period.

Besides the above mentioned investment the bank also has an experience of investing its idle

 Oromia Insurance S.C

 Getu Oromia Business S.C

 Elemtu Integrated Diary Industry S.C

 Elemtu Kiltu House Building

 OIB-ODA Real Estate plc

 Ethiopan Swith S.C and

 Tsehay Industry S.C

Out of the above investment the Bank obtained or generating additional income from
Tsehay Industry S.C and Oromiae Insuranc S.C while investment in Elemtu Milk
Integrated, OIB-ODA Real Estate and others are on the verge of generating income.

33
 CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.1. Conclusion

The data which was obtained from interviews indicated that there are good supports of cash
management practice which still need special attention for Credit and Account department.

To conclude this paper, the data which was collected, have been analyzed and interpreted
within the boundary of its constraints. So, the issues addressed in this study are shortly
concluded in the following manner:-

 The main objective of this study is to find out the effect of cash management practice
of private bank specifically the case of OIB, by indicating the strength and weakness
in the area. In doing so, the study tried to present and analyze data that have been
gathered through primary and secondary sources.

 OIB has two techniques of cash management namely indemnity method and
denomination method. If area bank holds excess cash it sends to the Head Office
whereas if the area banks shows cash shortage, it takes from the Head Office.
However, if the Head Office holds excess cash it immediately sends to the NBE and
buy treasury bills.

 Most of the time the bank does not hold idle cash, if the bank has idle cash it used to
invest in treasury bills.

 OIB has its own control policies and procedures. These control policies and
procedures are called internal control procedures manuals. The bank also has
effective accounting policies and procedures in managing its cash. These accounting
policies and procedures were conducted in accordance with the IFRS.

 The bank assigns cash requirement for every branch by undertaking the consideration
of the volume of their cash transactions and distance from Head Office. In doing so,
the bank categorize its branches into four grades namely Grade one branches, that

34
 holds cash amount not more than one million, Grade two branches, which are not
holding cash amount more than two million, Grade three branches, which are holding
cash amount up to five million within one day and Grade four branches, which are
holding cash amount more than five million within one day. So, the bank can able to
determine the daily cash requirement effectively.

 The bank manages the case of excess cash or cash shortage by taking a pre-
requirement plan that helps to balance it. As a result for the case of excess cash the
bank manage its cash by depositing to other banks to earn interest income by
negotiating within terms like fixed time deposits and reliable investment and also
purchasing treasury bills within interest bearing. In case of cash shortage the bank
borrows from NBE. This indicates that the bank has effective contingency plan which
helps to manage its cash in case of excess cash or cash shortage.

 The bank has no liquidity problem because the bank has adequately fulfilled the
requirement of primary and secondary reserves. As far as the liquidity requirement of
the bank is concerned the bank has no problem in fulfilling the minimum requirement
rather the bank’s liquid assets both in the primary and secondary reserve had been
excess in the four consecutive years i.e. from 2010-2014.

 In short-term investment the bank had an experience of investing in treasury bills. Bu

35
 5.2. Recommendation

Based on the conclusions made so far, the researcher forwards the following suggestive
recommendations.

 Even if there are many techniques of cash management in theory the bank apply
only to cash management methods which is indemnity methods and denomination
methods. In doing so, the bank has to take into considerations also the other cash
management techniques in order to manage its cash in an effective and efficient
manner.

 In order to make the bank more effective and efficient, they should look for well
trained and experienced financial manager who can alleviate the opportunity cost
to be incurred.

 The bank has an experience of investing on treasury bills and governments bonds
after fulfilling the reserve and liquidity requirement to make the idle cash
productive. This is what can be encouraged because it helps the bank to know its
liquidity positions and fulfillment of the legal reserve required by the NBE before
an investment.

 The excess cash account in the bank is very high according to table 1 and table 2;
however, the bank is poor in investing idle cash in allowed investment areas like
treasury bills and government bonds. These marketable securities could have
generating significant earnings to the bank. As clearly observed in table 1, the
bank incurred high opportunity cost in failing to invest its idle cash. Therefore,
the bank has to assess short- term and long-term investment opportunities to
invest its idle cash to maximize the wealthy of shareholders.

Generally, the bank’s cash and liquid asset management is good with regard to
increasing earnings from year to year. However, the bank has poor management
in keeping cash idle, which would have been generating significant income from
the bank. Therefore, the bank should focus on this area to achieve more success.

36
 Cost and Time Budget Schedule

• Time table

Months
November December January
Activities

W1
W2
W3
W4
W1
W2
W3
W4
W1
W2
W3
W4
Chapter one
Research
proposal
Chapter Two
Literature
Review
Chapter Three
Methodology
of Paper

Months
March April May June
Activities W W2 W3 W4 W1 W2 W3 W4 W1 W2 W W4 W1 W2 W3 W4
1 3
Chapter Four
data collection
Chapter Four
Data presentation
and analysis
Chapter Five
Conclusion and
Recommendation
Submission of
paper

Where, W is weak

37
 Cost Budget schedule

Item description Quantity Unit cost in birr Total cost in birr

Transport 80
Paper 120 0.25 30
Pen 6 4 24
Flush 1 120 120
Writer 50 pages 3 150
Print 100 pages 0.75 75
Miscellaneous 100
CD copy 1 CD 10
Contingency 50
Total project cost 639

References
38
  Ahrens and Lobbeck, (2001).Auditing Integral Approach 9th edition.

 A.N. Mosich, (1963). Intermediate Accounting 6 th revised edition, University of

Southern California.

 Birmingham F. F, (1995). Fundamental of Financial management 7th edition.

 Fabozzi F. and Modigliani F. (1996). Capital Market institutions and Instrument,

U.S.A: printice-hall.

 Planket, (1986). Fundamentals of Managerial Finance 2nd edition.

 Prof. P. N. Abrol, (2006). Dictionary of Accounting, New Delhi: Anmol Publications

PVT. LTD.

 Ross, Westerfield and Jordan, (1998). Fundamental of Corporate Finance 5th edition.

 Stephen A. Ross, (1998). Fundamentals of Managerial Finance 14 th edition Mc Graw

Hill Co. Inc.

 Weygant, Keiso and Kimmel E.F,(1999).Accounting Principle 5th edition

Interview questions
1. What kind of problem does the bank face in managing its cash?

39
 -What measures have taken to improve those problems?
-How much is remained unsolved? Why?
-What technique does the bank use to manage its cash?
-Which technique is the best one to manage its cash in an effective manner?
-Does the bank utilize its idle cash for investment purpose?
-If so, where does it invest the idle cash?
-How do you rate the profitability of the bank?
-Does the bank use control policies and procedures in managing its cash?
-What kind of control policies and procedures are used?
-Are these control policies and procedures properly implemented in the bank?
-What is the basic purpose of control policies and procedures in your bank and how is it
organized?
2. How does the bank determine the daily cash requirement?
-What mechanisms does the bank use in projecting the cash needs?
-How does the bank predict accurately the timing and magnitude of daily deposit inflows
and outflows?
-What the bank does if there is deposit shortage?
3. How does the bank mange excess cash or cash shortage?
-What is the possible situation that can be happen if the bank does not maintain enough or
balanced cash?
-What will happen if the bank holds excess cash or to little cash?
-Does the bank face liquidity problem during the last few years? Yes/No, if Yes, pleases
explain.
-How does the bank predict the vault cash shortage?
4. What are types of plan Oromia International Bank have to improve from the existing cash
management schemes?

40