Hayat Fantaw
Hayat Fantaw
Hayat Fantaw
MARY’S UNIVESITY
BUSINESS FACULTY
DEPARTMENT OF ACCOUNTING
By
HAYAT FANTAW
MESKEREM ABERA
MUHAZEA NESRO
SMU
JUNE 2014
ADDIS ABABA
EFFECT OF INTERNAL CONTROL OVER ACCOUNT
RESCEIVABLE THE CASE OF COMMERCIAL BANK OF
ETHIOPIA HABTE GEORGIS BRANCH
By
HAYAT FANTAW
MESKEREM ABERA
MUHAZEA NESRO
SMU
JUNE 2014
ADDIS ABABA
ST. MARY’S UNIVESITY
By
HAYAT FANTAW
MESKEREM ABERA
MUHAZEA NESRO
BUSINESS FACULTY
DEPARTMENT OF ACCOUNTING
ADVISOR SIGNATURE
First of all we would like to thank and glorify the Almighty God who has been and will be
the source of strength throughout our life.
We would like to acknowledge Accounting department for giving this opportunity for we to
do this research. Our heartfelt thanks goes to Our advisor Mr. Ahmed Mohammed for his
timely comment, advice and support by sacrificing his precious and golden time from
selection of topics till the end of submission of the final research paper. We would also
acknowledge CBE Habtegiyorges branch staffs for their cooperation during data collection.
i
Table of Content page
Acknowledgements .......................................................................................................... i
Table of Content ............................................................................................................ii
List of Tables .................................................................................................................. v
List of Graph .................................................................................................................. vi
List of Abbreviation ...................................................................................................... vii
Abstract ........................................................................................................................viii
CHAPTER ONE ............................................................................................................. 1
INTRODUCTION........................................................................................................... 1
1.1. Background of the Study....................................................................................... 1
1.2. Background of the Organization ........................................................................... 1
1.3. Statement of the Problem ...................................................................................... 2
1.4. Objective of the Study .......................................................................................... 3
1.4.1. General Objective .............................................................................................. 3
1.4.2. Specific Objectives............................................................................................. 4
1.5. Significance of the Study ...................................................................................... 4
1.6. Scope of the Study ................................................................................................ 4
1.7. Research Methodology ......................................................................................... 5
1.7.1. Research Design ............................................................................................ 5
1.7.2. Population and Sampling Techniques............................................................. 5
1.7.3. Types of Data Collected................................................................................. 5
1.7.4. Method of Data Analysis ............................................................................... 5
1.8. Limitation of the Study ......................................................................................... 5
1.9. Organization of the Study ..................................................................................... 6
CHAPTER TWO ............................................................................................................ 7
LITERATURE REVIEW ................................................................................................ 7
2.1. Internal Control .................................................................................................... 7
2.1.1. Nature of Internal Control .............................................................................. 7
2.2. Types of Internal Control ...................................................................................... 8
2.2.1. Administrative Controls ..................................................................................... 8
ii
2.2.2. Accounting Controls .......................................................................................... 8
2.2.3. The Control Environment ................................................................................... 9
2.2.4. The Control Procedures ...................................................................................... 9
2.2.5. Competent Personnel and Rotation of Duties .................................................... 10
2.2.6. Assignment of Responsibility ........................................................................... 10
2.2.7. Separation of Operation and Accounting .......................................................... 10
2.2.8 Proofs and Security Measure ............................................................................. 11
2.2.9. Independent Review ......................................................................................... 11
2.3. Receivable .......................................................................................................... 11
2.3.1. Definition and Classification of Receivables .................................................... 11
2.3.2. Definition and Receivables ............................................................................... 11
2.4. Accounts Receivable........................................................................................... 12
2.5. Controls over Receivable .................................................................................... 12
2.5.1. Monitoring the Receivables Position ................................................................ 13
2.5.2. Aging Schedules .............................................................................................. 14
2.5.3. The Payment Pattern Approach ........................................................................ 14
2.6. Credit Policy ....................................................................................................... 15
2.6.1. The Interview ................................................................................................. 15
2.6.2. Loan Application........................................................................................... 15
2.6.3. Relevant Documents...................................................................................... 15
2.6.4. Financial Statement and Property Estimation ................................................. 16
2.6.5. Credit Information .......................................................................................... 16
2.6.6. Setting the Collection Policy ............................................................................ 16
2.6.7. Legal Considerations ........................................................................................ 17
2.6.8. Customers Response ........................................................................................ 17
2.7. Analyzing Proposed Changes in Credit Policy .................................................... 17
2.7.1. The Income Statement Approach...................................................................... 17
2.7.2. Granting Credit ................................................................................................ 18
2.7.3. Write-Off Procedures ....................................................................................... 18
iii
CHAPTER THREE ....................................................................................................... 19
DATA ANALYSIS AND STUDY FINDINGS ............................................................. 19
3.1. Data Analysis ..................................................................................................... 19
3.2. Credit Activity .................................................................................................... 19
3.2.1. Analysis of Questionnaire............................................................................ 20
3.2.2. Reason’s for Uncollectability ....................................................................... 26
3.2.3. Techniques used by CBE ............................................................................. 26
3.2.4. Account Receivables Turn Over .................................................................. 26
3.2.5. Average Collection Period ........................................................................... 27
3.2.6. Uncollectible Receivables ............................................................................ 28
3.3. Major Findings ................................................................................................... 29
CHAPTER FOUR ......................................................................................................... 31
SUMMARY, CONCLUSION AND RECOMMENDATION ........................................ 31
4.1. Summary ............................................................................................................ 31
4.2. Conclusion.......................................................................................................... 32
4.3. Recommendation ................................................................................................ 33
References
Appendix A
iv
List of Tables
Table – 1: How Do You Evaluate the Internal Control System Over Receivables in
Your Bank? .......................................................................................... 20
Table – 2: Does the Bank have a Collection Department Independently to Follow up
Receivables? ......................................................................................... 21
Table – 3: Does the Bank Communicate or Contact with the Credit Customers by
Phone, Mail or Other Method? .............................................................. 21
Table – 4: How do you Evaluate the Bank giving of Credit Limit to the
Customers?........ ................................................................................... 22
Table – 5: Does the Bank have Specific Credit Term or Agreement? ..................... 22
Table – 6: Is Statement of Account Receivable Strictly Prepare and sent to the Debtors? . 23
Table – 7: Does the Bank Prepare an Account Receivable Aging Report? ........................ 23
Table – 8: How do you Assess the Credit Customers Pay According to their Agreement? 24
Table – 9: Does the Bank take a sort of Action for those who Do Not Pay on Due
Date? .................................................................................................... 24
Table – 10: Does the Bank Change an Account Receivable to Promissory Notes
Receivable? .......................................................................................... 25
Table - 11: Is there a Procedure that Follow-up to Write-off Uncollectible? ............ 25
Table - 12: Account Receivable Ratio (ARTO) ....................................................... 27
Table - 13: Average Collection Period .................................................................... 28
Table – 14: Uncollectible Receivables .................................................................... 29
v
List of Graph
vi
List of Abbreviation
vii
Abstract
Background: the internal control process which historical has been a mechanism for
reducing instance of fraud, misappropriation and errors, has recently become more
extensive, addressing all the various activities faced by organization. it is now recognized
that assumed internal control process is critical to organization’s ability to meet its
established goals and objectives, and to maintain financial viability.
Methods: The study sample was selected based on simple random sampling technique
and also the data was collected from a sample of 10 respondents.
Result: In this study it was found that from a total of 10 respondents, 5(50%) respondents
said that the internal control system over receivable in the bank is good and the rest of the
respondent said that there is fair internal control system over receivable in the bank. From
the total respondents 8(80%) respondents said that the bank have independently
collection departments and the rest of the respondent replied that no collection
departments independently. All the respondents responded that it communicate with
credit customers by phone or remind them the due date of two or three days. From those
total respondents 7(70%) respondents said that it’s giving of credit limit to the customer
are good and the rest said it’s fair. All the respondents said that it has credit term or
agreement on the bank. From the total respondents 9(90%) respondents make known that
statements of account receivable is prepared and sent to customers strictly on the bank
and the rest said not. From the respondents 8(80%) respondents said that the bank prepare
an aging report and the rest said no aging report on the bank.8( 80%) respondents said
credit customer pay their agreement highly and rest respondents said that the credit
customer pay their agreement lowly and very highly. All the respondents said the bank
takes action for those customers who do not pay on due date by forbidding giving of
credit and by taking legal action. As all the respondents said the bank does change an
account receivable to promissory note receivable and also there is a procedure to write-
off uncollectible.
Conclusion: In this research the researcher tries to assess that how the bank treats
receivables, what control mechanisms are followed over receivables, reasons that made
the collection difficult and what sort of action are taken for those customers who do not
pay according to their agreement and due date and also tries to identify the problem that
affects receivables to be outstanding for about more than one year and to solve those
problem by the management and related body.
viii
CHAPTER ONE
INTRODUCTION
1
capital base with more than 12,800 talented and committed employees. Currently the
bank has more than million account holders.(www.cbe.gov.et)
It is the first bank of Ethiopia to introduce Automated teller machine service for local
users. Commercial bank of Ethiopia has reliable and long-standing relationships with
many internationally acclaimed banks throughout the world. Pioneer to introduce western
union money transfer services in Ethiopia, it has strong correspondent relationship with
more than 50 renowned foreign banks and a society for worldwide interbank financial
telecommunication bilateral arrangement with 500 others.(www.cbe.gov.et)
In Ethiopia commercial bank of Ethiopia is one of the financial interline diaries in
universal banking activity, which service as a channel for loanable funds from saver to
borrower. The source of those loanable funds is demand deposit and saving deposits
made by the customers. The bank proceed various types of loan to customers mainly over
draft, short term loan, medium and long term loan, revolving export credit, micro finance
institutions loan. Commercial bank of Ethiopia is required to function efficiently and
effectively to meet the growing demand of credit so as to induce development.
2
is not by itself and indicator of uncollectible. Nevertheless bankruptcy of the debtor,
closing of debtors business, disappearance of the debtor, failure of repeated attempts to
collect are significant indication of partial or complete worthlessness of a receivable.
In most business companies account receivable in various functional areas is not strong
internal control to achieve the desired objective. at the bank absences of accountability,
effectiveness and efficiency of operation, reliability of financial reporting.
From these and that problems stated, researchers will assess the control system of account
receivable in Commercial Bank of Ethiopia by Comparing its actual controlling practice
against the theoretical basis of internal control system over account receivable. In the way
providing of this problem the researcher will seek answer for the following basic question
Does the bank have responsible department for follow up the credit
collections and has proper internal control system over receivables?
Is statement of account receivable strictly prepared and sent or mail to
debtors?
Does all credit customers pay timely according to their agreement?
Does the bank use or prepare an account receivable aging report?
Does the bank use a write off mechanism for all its credit customers?
Does the bank properly evaluate its customer liquidity and business
efficiency?
Does the bank handles documents in orderly manners?
3
1.4.2. Specific Objectives
Specifically this study conducted to:
Appraise whether the company has a well established department that follow-
up account receivable internal control system.
Evaluate that the application of credit policy to the credit customers and its
affiliates.
Assess that the company sent an account receivable statement to the customer
monthly.
Review that whether the company collects timely from its credit customers
according to their agreement.
Assess that the company uses the note to make the loan more formal
enforceable.
Identify a specific accounts receivable is removed from the accounting record
at the time it is finally determined to be uncollectible.
4
1.7. Research Methodology
1.7.1. Research Design
A descriptive approach method had used in carrying out this study because it pictures the
current situation in the company and show accurately the characteristics of a particular
situation. Moreover, the method enabled to examine relationship exit between years and
account receivable.
5
Lack of financial and time constraints.
Lack of experience of the researcher.
6
CHAPTER TWO
LITERATURE REVIEW
7
Provide a standard against which business and other entities can assess their
control system and determine how to improve them.
8
the need for ensuring that the authorized action is actually taken and what results are
achieved. (Mosich, 1989)
9
the accounting system and which apply to all enterprises are briefly discussed in the
following sections. (Yednekachew Tesma,1989)
10
access to the journal or ledger. Separation of the functions reduces the possibilities of
errors and embezzlement. (KIESO,etal 2005)
2.3. Receivable
2.3.1. Definition and Classification of Receivables
2.3.2. Definition and Receivables
The term receivables include all money claims against people, organizations or other
debtors. Receivables are acquired by a business enterprise in various kinds of transactions
the most common being the sale of merchandise or services on a credit basis.
Credit may be granted on open account or on the basis of a formal instrument of credit,
such as a promissory note. A promissory note, frequently referred to as a note is a written
promise to pay a sum of money on demand or at a definite time. Notes are usually used
for credit periods of more than sixty days, as in sales of equipment on the installment
11
plan, and for transactions of relatively large dollar amounts. Notes may also be used in
settlement of an open account and in borrowing lending money.
Customers often owe a company amounts for goods brought or services rendered. A
company may sub classify the trade receivables, usually the most significant item it
possess, into account receivable and note receivable. (Fess Warren ibid,2001)
12
For most businesses, the principle receivables are notes receivable and accounts
receivable. Generally, notes receivable are recorded in a single general ledger account. If
there are a numerous notes, the general ledger account can be supported by a notes
receivable register. The register would contain details of each note, such as the name of
the maker, pace of payment, amount, term interest rate, and due date. Frequent reference
to the due date section directs attention to those notes that are due for payment. In this
way, the maker of the note can be notified when the note is due, and the risk that the
maker will over look the due date can be minimized.
Adequate control over accounts receivable begins with the approval of the sale by a
responsible bank official or the credit department, after the customer’s credit rating has
been reviewed. Likewise, adjustments of accounts should be authorized or reviewed by a
responsible party. Effective collection procedures should also be established to ensure
timely collection of accounts receivable and to minimize losses from uncollectable
accounts. The proper use of the controlling account and the accounts receivable ledger, as
discussed increases the effectiveness of the control over accounts receivable. (Acca text
book ibid, 1995)
13
time the stock price will fall analyzes along the lines suggested in the following section
will detect any such questionable practice as well as any unconscious deterioration in the
quality of accounts receivables. Such early detection could help both investors and
bankers avoid losses. (A.Rose,5th edition ibid,1999)
14
2.6. Credit Policy
Even if the structure of credit operation of commercial bank varies greatly from bank to
bank depending on the size of bank and economic environment in which the bank
operates. Some lending procedures are accepted universally by at most commercial bank.
Some of them are the following:
2.6.1. The Interview
It is the first contract with the borrower and provides an opportunity for the bankers to
explore about application beyond the loan application. It should be friendly discussion in
which the banker tries to see through the loan request .He should touch on points like: the
purpose of loan, the applicant’s commitments elsewhere .the applicant’s deposit account
of other branch or banks. The applicant’s business experience, how he intends to pay of
the loan and the business plan etc… (Takele; 2003)
15
2.6.4. Financial Statement and Property Estimation
The financial statements like balance sheet, income statement, cash flow statements etc.
it should be carefully analyzed to determine the financial soundness of the applicant and
assess the repayment capacity.
Ratio and percentages to measure the liquidity and profitability of the business need
revised carefully to assist in the decision making of the amount and type of loan granted.
(Takele 2003)
16
2.6.7. Legal Considerations
It is illegal under the Robinson Patman act for a bank to charge prices that discriminate
between customers unless these differential prices are cost justified. The same holds true
for credit it is illegal to offer more favorable credit terms to one customer or class of
customers than to another unless the differences are cost justified.(khan, pajain,5th edition
,2004)
17
2.7.2. Granting Credit
Credit may be granted to those receiving the departmental loan service including the
general public, students and staff. Although cash should be collected whenever possible,
credit may be granted when there are not facilities for the collection of cash, or when
non-collection of cash is deemed to be in the best interest of the bank. In these cases,
prudence with respect to the credit risk incurred must be observed at the time of
transaction.
Credit is automatically extended to governmental units and foundations during the time
claims for reimbursement are outstanding. Diligence must be exercised to insure timely
billing and collection efforts and to minimize uncollectible receivables.
Implicit in the granting of credit is the intention that payment will be made in full upon
customer’s receipt of a bill.(Stantly B.Block and Geoffery A.Hirt,Ibid,1992)
18
CHAPTER THREE
DATA ANALYSIS AND STUDY FINDINGS
CBE has given different types of loan and advance to customers looking into distribution
of loans and advances by major end use shows the domestic trade service, foreign trade,
agriculture, manufacturing sector, Building and construction and personal loans.
19
3.2.1. Analysis of Questionnaire
This section of data analysis and presentation part issued to analyze and present the data
obtained through questionnaires distributed to the 10 CBE finance and related department
employees. As mentioned earlier the questionnaire was distributed only at the Habte
Georgis branch of the bank from the respondent point of view the given question’s that
are topics were responded as follows.
Source: Questioner.
For the above question 5(50%) of the respondents said that the internal control system
over receivable in the company is good end the rest of the respondents reply that fair
internal control system over receivables because:
The number of staffs who control the account receivables are more than one, so it may
not be create a gap for fraudulent activity and there is direct participation by the two
middle management of the bank in the activities of the service so the management and
employee should be honest and trust worthy. And also there is strong internal control
structure.
Even though there is a sense of owner shipping of the management the bank should run
its services based on its policy and procedure and should control its receivables.
20
Table – 2: Does the Bank have a Collection Department Independently
to Follow up Receivables?
Nō Description Yes No Total
Source: Questioner.
In the given response for 8(80%) respondents said that the bank have independently
collection departments, and the rest of the respondents replied that the bank does not
have. This happen because of Lack of management attention and there is no independent
body to control with collection of receivables without accountability.
Most of the respondents respond that the bank has a collection department independently.
Since the bank has huge and most of its asset are based on credit that will be good to take
attention on collection department.
Source: Questioner.
The result shows that 10(100%) of the respondents responded that it communicate with
credit customers by phone or remind them the due date of two or three days.
21
Table – 4: How do you Evaluate the Bank giving of Credit Limit to the
Customers?
No Description V. poor Poor Fair Good Total
Source: Questioner.
From the given response 7(70%) respondents said that its giving of credit limit to the
customer are good and the rest of the responders reveals that the bank’s giving of credit
limit is fair .This is because the existing and handling of costumer credit faculty and
procedure is non thoroughly studied and revised timely the bank has a credit limit for
some customers and do not have some parties end sometimes the credit faculty do not
studied well. Since the bank has a structured policy and procedure that related with credit
limit or granting procedure it is well that for all customers to be applied.
Source: Questioner.
From the given responses 10(100%) respondents said that it has credit term or agreement.
22
Table – 6: Is Statement of Account Receivable Strictly Prepare and
sent to the Debtors?
No Description Yes No Total
Source: Questioner.
The answer reveals that 9(90%) respondents make known that statements of account
receivable is prepared and sent to the customers strictly and the rest respondent said that
not strictly send to customers there is a delaines in sending to the customers and it is no
sent regularly to debtor.
The statement of account sent to the debtor for the purpose of reconciliation and
confirmation of their debts but sometimes there is delaines, the dalliance of sending
statement affects not collect on due date.
Source: Questioner.
For the above question 8(80%) of the respondents response that the bank prepare an
aging report.
23
Table – 8: How do you Assess the Credit Customers Pay According to
their Agreement?
No Description V. high low V.low Total
high
Source: Questioner.
From the respondents give answer 8 respondents said that the credit customer pay
according to their agreement is high and the rest 2 respondents said that the credit
customer pay according to their agreements low and very high.
There is a sense of owner shipping of the branch the bank should run it services based on
its policy and procedure and should control its receivables and the owner has to give
attention.
Table – 9: Does the Bank take a sort of Action for those who Do Not
Pay on Due Date?
Nō Description Yes No Total
Source: Questioner.
From the given respondents answer 10 of the respondents said that it takes action for
those customers who do not pay on due date by forbidding giving of credit and by taking
legal action.
24
It is good that the company take a legal action for those customer’s who do not pay on
their due date and also the company should give attention for the follow up of for those
who do not pay on the due date and it is advisable that if the legal action is applicable for
all credit customers.
Source: Questioner.
For the above question all the respondents says that the bank does change an account
receivable to promissory note receivable the bank can exchange an account receivable to
promissory notes receivable because it has clearly stated policy and procedures and
modern management. It is very good mechanism if the company uses a promissory note
properly because it can force the customer to pay since it is legally advisable and it is
more secure than account receivable.
Source: Questioner
25
All of the respondents said that there is procedure to write-off uncollectible, the finance
division transfers to the responsible department to take a legal action for the customer.
Net Loan
r (ARTO) =
Account Receivable
26
Table - 12: Account Receivable Ratio (ARTO)
Description 2008 2009 2010 2011 2012 2013
Loan Disbursement
1,614.1 2,579.4 3,972.2 4,115.9 6,087.4 8,870
(in million birr)
Loan Collection
1,246.7 2,277.6 3,106.6 4,075.8 5,563.5 5,675
(in million birr)
Ratio 1.29 1.13 1.28 1.00 1.1 1.6
Source: Annual report
27
collection period the better it will be. In addition it’s preferable for average collection
period to decrease from time to time. But, this thing is not true in the case of CBE.
Table - 13: Average Collection Period
Description 2008 2009 2010 2011 2012 2013
250 225
200
150
100
50
0
2008 2009 2010 2011 2012 2013
As it can be seen from the presentation the average collection period is increasing from
about 279 days in 2008 to about 225 days 2013. Based on the responses from the Genera
Account Head, there are some accounts which are long outstanding and the bank is trying
all effort to make those credits to be collected.
28
accounts, doubtful accounts or bad debts and it affect negatively the bank by reducing it’s
operating revenue.
Strength
The bank as a structured policy and procedure for internal control of
receivables.
Write off of receivables in done based on legally when the debtor gives
evidence.
The bank have a collection department independently.
Take a legal or other action like by forbidding the debtors give credit base on
other time for those customers who do not pay on their due date and according
to their agreement.
29
Weakness
Sometimes credit is given by the willingness of the management without
detailed study of the customer’s credit faculty.
There is delay in sending statement of account receivable
There is a delay in collection on cash.
30
CHAPTER FOUR
SUMMARY, CONCLUSION AND RECOMMENDATION
4.1. Summary
The overall objective of this study is to address the internal control over receivable
system of Commercial Bank of Ethiopia Habte Georgis Branch and to find out the
problems related with internal control systems of receivables.
The method used to prepare this research is simple random sampling technique to pick
subjects from the population and used primary and secondary data obtained though
questionnaire and document from the company’s annual report and magazines the
method in analyzing and presenting data the researchers used qualitative and quantitative
data analysis methods. From quantitative data analysis method, simple percentage is used
the researcher analysis can be summarized as follows:
From the thirty eight (38) population size, the researchers selected ten (10)
samples from different department.
10(100%) of respondents replied that the bank has a good internal control
system over receivables.
8(80%) of the respondents replied that the bank have independently collection
department and the rest of 2(20%) of respondents said that does not have
All respondents 10(100%) replied that the bank communicate with credit
customers.
7(70%) of respondents replied that its giving of credit limit to the customer
are good and the rest said it is fair.
All the respondents said that the bank has credit term or agreement on the
bank.
9(90%) respondents replied that statements of receivables is prepared and sent
to customers strictly on the bank and the rest said not
From the respondents 8(80%) respondents said that the bank prepare an aging
report and the rest said no aging report on the bank.
31
8(80%) respondents said credit customer pay their agreement highly and the
rest respondents said that the credit customers pay their agreement lowly and
very highly.
All the respondents said that the bank takes action for these customers who do
not pay on due date by forbidding giving of credit and by taking legal action.
As all the respondents said the bank does change an account receivable to
promissory note and also there is a procedure to write-off uncollectible.
4.2. Conclusion
It is obvious that banks are very complex due to different types services they handle even
Is banks handle different types of services, it should be controlled properly. Accordingly
the internal control system over receivables of CBE Habte Georgis branch is concluded
below.
The bank have a credit service is under taken in all branches of the bank. In this
service the payment is made according to the agreement by the two parties based
on the operating sectors credit service polices. Since the bank is Huge it gives
different types of loans to customers. For example domestic trade service foreign
trade agriculture, manufacturing building construction and personal loan.
As mentioned before most of the activity of the bank is to give that the bank treats
as receivable from the credit customers
In CBE receivables are control based on the structured credit policy and
procedures the control mechanisms for the credit debtors are making follow up by
independent collection departments.
Regarding the credit policy the bank gives credit based on the granting policy
credit is automatically expended to customers during the time claims for
reimbursement are outstanding
Concerning contract with the credit customers a bank prior relationship with
customer reveals information about past credit and deposit experience that is use
full in assessing willingness and ability to replay.
32
Regarding the credit limit, the bank giving of credit limit to customers is existing
and handing of customer credit faculty and the procedure is non thoroughly
studied and reused.
Concerning the use of a giving account receivable report, the bank process of
aging account receivable the management should evaluate current financial
statement of major customers to make a better assessment of the probability of
collection.
The bank takes a legal action for those customers who do not pay according to the
agreement and due dates.
Regarding write off requests of write off uncollectible accounts must be
categorized by types of bill and submitted for approach. Supporting document
must be provided to justify write- off of each item and the sources of funds for
financing the write-off must be so indicated.
Even through the bank has well structured policies and procedures of the purpose
of internal control over receivables sometimes those policies and procedures are
not strictly followed by the different sectors of banks and these affects the
receivables not to be collected easily.
4.3. Recommendation
According to the gathered data from both primary and secondary data of the company
and the analysis shown the researcher would like to recommend on the following points
over the internal control of receivables.
Due to absence of strict follow up this receivables policy and procedures and lack
of management attention. Since one of the most activity is give credit for different
types of business sector and individual. so it is preferable that the bank has a
strong collection department which help the bank to collect its receivable
attentively, effectively.
Even though the bank has limit for the giving of credit to the customer’s these is
not applied for all customers and this is done by the willingness of the
management, it is better if the bank uses its credit limit policy equally though the
related branches are under management of the same person.
33
For some division there is no stated credit policy and procedure these should be
taken under consideration because it make the collection difficult.
Sending of statement to the debtors should be made strictly, in this case the bank
send the statement but sometimes there is a delay.
The bank takes action for those customers who do not pay on their due date but
sometimes there is no proper follow up or attention in these case immediate action
has to be taken.
If the bank select those customers which are credit worthy it receivable will be
fully paid. Therefore, it’s better for CBE to undertake an appropriate credit
analysis and give credit only to those customers which are credit worthy.
It is better for this bank to require additional guarantees from its customers
especially for big amount of credit services.
It is advisable if CBE introduces an intrusive schema for its credit customers i.e.
those customers who pay earlier than the used pervious would get some discount
or bonus and CBE will have more cash and secures collection.
34
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Graigs. Beyien Pulisine.
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VAN Hoffmann Press.
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Tata McGraw Hill Publishing.
http://www. West.com/receivables
Appendix A
St. Mary’s University
Department of Accounting
Questionnaire for the Effect of Internal Control Over Receivables (Case
study of Commercial Bank of Ethiopia)
The purpose of this questionnaire is to collect primary data on the title of internal control
over account receivable on CBE. Please, take your time to complete the questionnaire
and return is as soon as possible. Ay of the information you present below will be kept
confidential and it will not be used for any other purpose other than academic.
1. How do you evaluate the internal control system over receivable in your Bank?
Very poor Poor Fair Good Very Good
2. If you answer is “very poor or poor” what should you recommend?
_
6. Doses the bank communicates or contract with the credit customers by phone or
other method?
Yes No
7. If your answer is “No” what should you recommend?
_
8. In your opinion how do you evaluate the bank giving of credit limit to the credit
customer?
Very poor Poor Fair Good Very Good
9. If your answer is “very poor or poor” what should you recommend?
_
14. Does the bank uses prepare an account receivable aging report?
Yes No
15. How do you assess that credit customers pay according to their agreement?
Very High High Low Very Low
16. If your answer is “very low or low” what should you recommend?
_
17. Does the bank take sort actions for those customers who do not pay on due date?
Yes No
18. If your answer is “No” what should you recommend?
_
19. Does the bank change an account receivable to promissory notes receivables?
Yes No
20. If your answer is “No” what should you recommend?
_
We, the undersigned student researchers, declare this research paper entitled “The Effect
of Internal Control over Account Receivable” the case of Commercial Bank of Ethiopia
Habte Georgis Branch” Is our on original work prepared under the guidance of Ato
Ahmed.
Name Signature
Hayat Fentaw __________________________
Meskerem Abera __________________________
Muhareba Nesro _________________________
Advisor Declaration
Name: _____________________________________
Signature: _____________________________________
Date: _____________________________________