An Assessment of Cash Management Practices (The Case of National Oil Company-NOC)

Abstract

The study is conducted with the main objective of assessing the quality of cash management practice at National Oil Company (NOC). Accordingly, an attempt is made to see the company’s cash forecasting technique, management of cash shortage and overages, and its collection and payments systems. Besides, internal control related issues (such as approval system and segregation of duties), as well as transaction processing and documentation are dealt with. To this end, primary data is collected from 15-employees by questionnaire, which also supplemented by personal observations. Secondary data is collected by reviewing company documents and other sources. After data is a summarized using table, simple descriptive statistical tool (i.e. percentage) used in presenting and analyzing the results. Generally, the study found that the company’s cash management practice is satisfactory. There is effective forecasting technique, and the management of cash shortage and overage is good. Moreover, the company’s systems of cash collection (by checks, via bank deposited); and system of cash payments (by checks and cash) are efficient and convenient for the company and its customers. However, the collection system has some inherent deficiencies of routine nature such as occurrence of large numbers of bounced checks from customers, improper handling of deposit slips, and use of non-sequential collection receipts and untimely encoding of such receipts (in some cases), inadequate listing of specific invoices for each collected receipts, lack of minimum coupon sales thresholds, and other related problems. Similarly, the payment system has problems such as using payments vouchers with out supporting documents(in some cases), delay in receiving of clearing invoices from clearing agents, delay in recording of insurance and other similar payments, and improper handling of letter of credits among other things. Some aspect of control process (such authorization system) is also appropriate, though segregation of duties over some cash related transactions is not adequate. However, there are problems of varying degree in the areas of data recording, processing and documentation of financial files. Some of the problems identified are delay and inadequacy of data recording and posting, inefficient bank reconciliation process (partly manual), inadequate protection and follow-up of financial documents among other things. As the result of the study shows, most of the aforementioned problems are routine in nature, which occur due to reasons such as stressful working condition, lack of adequate segregation duties(in some cases),lack of adequate communication, limited awareness creation on the part of customers, and lack of job related trainings for employees among others. Hence, to realize competitive cash management systems in line with prevailing competitive business environment, the company should react to the existing problems in a proper manner.