5A 7. Cash Management Risk and Controls Internal Auditing: A Practical Approach

The training process becomes difficult when there’s limited time and resources with high employee turnover. Use centralized documentation to allow for self-guided training when possible. Businesses create forecasts and budgets based off of assumed cash levels, inflows, and outflows. This access should also be reviewed on a regular basis, removing access for anyone who no longer works at the company or no longer requires access.

• A means of estimating and recording the amount of sales that will not be collected in cash is needed.
• If access to the drawer is restricted to oneemployee, that employee is responsible when cash is missing.
• On the date that a cheque is prepared by a company, it is recorded as a reduction of cash in a company’s books.
• Just as your cash controls should be reviewed regularly, so should your documentation to ensure that it’s up-to-date.
• The documents should also be consecutively pre-numbered, to indicate whether there may be missing documents.

Internal controls for cash: Basic procedures & guidelines

Internal controls in accounting are the processes, policies and procedures designed to protect a company’s financial information, ensure the accuracy of accounting records and comply with laws and regulations. These controls help prevent fraud, detect errors and maintain the integrity of financial statements. Examples include reconciling bank accounts, counting cash, restricting access to accounting systems and requiring multiple approvals for large payments. The bank and cash system is a critical area of financial management, requiring robust internal controls to safeguard assets, ensure accurate financial reporting, and prevent fraud.

Daily Bank Deposits

For instance, using a chart of accounts is necessary to ensure transactions are recorded in the appropriate account. As an example, expenses are classified and recorded in applicable expense accounts, then summarized and evaluated against those of a prior year. Internal controls ensure that all of this cashreaches the bank account of the business entity. These cameras are constantly monitored, often offsite at acentral location by personnel who have no relationship with theemployees who handle the cash, and all footage is recorded. In today’s fast-paced business world, maintaining strict cash control procedures is crucial for any organization. Effective cash control not only safeguards your assets but also enhances financial accuracy and accountability within your team.

The Bank Reconciliation

In a small office where separation of duties is adjusting entries difficult, it is imperative that the supervisor review cash operations each day. Cash management includes capital expenditure project approvals and cash budget allocations based on net present value, ROI, or other measures selected by your business. The COSO Internal Control–Integrated Framework illustrates internal control with a cube illustration showing three readable sides. The top of the COSO cube represents the Objectives, the side is Components, and the third side is Organizational Structure. Cash equivalents are assets that can be quickly liquidated into cash; securities, treasury bills or notes and other short-term investments are common cash equivalents you’ll see on the balance sheet.

The CapEx vs OpeEx Debate – Why and How does It Matter to Your Business?

This reconciliation or “closing out” process is often done at the end of every shift. If access to the drawer is restricted to one employee, that employee is responsible when cash is missing. From the perspective of an auditor, well-documented policies and procedures provide a roadmap for evaluating the effectiveness of internal controls.

Internal controls are as important for not-for-profit businessesas they are within the for-profit sector. See this guide fornot-for-profit businesses to set up and maintain proper internalcontrol systems provided by the National Council ofNonprofits. Not-for-profit organizations have an extra category of financesthat need protection, in addition to their assets. For example,many colleges and universities are classified as NFP organizations,and donations are a significant source of revenue. For example,suppose an alumnus of Alpha University wants to make a $1,000,000donation to the business school for undergraduate studentscholarships.

Risk Assessment

• These controls encompass a variety of procedures and policies that govern the handling of cash transactions, from the moment cash enters a company to the moment it is recorded in the financial statements.
• At the end of each day, stores reconcile the cash in each cash register with the cash register tape or computer printout for that register.
• This is done by establishing a contra current asset account called Allowance for Doubtful Accounts (AFDA) in the general ledger to record estimated uncollectible receivables.
• Cash controls are policies and procedures that businesses use to manage, monitor, and protect their cash.

By implementing a combination of these controls, organizations can effectively manage risks, ensure compliance, and maintain operational efficiency. For example, one employee may be responsible for recording transactions, while another is responsible for reconciling bank statements. This way, if one Opening Entry employee makes an error or tries to commit fraud, it is more likely to be detected by the other employee. Different employees should handle authorizing a transaction, registering a transaction, and keeping custody of the linked assets. If different employees perform cash-handling duties, it helps ensure that no one person has complete control over the process.

• Cash controls need to adapt to this growing complexity as what works for a small business may not work for a medium or large corporation.
• The cost ofdeveloping, maintaining, and monitoring internal controls issignificant but important.
• Key examples include ISO for information security management systems (ISMS) and ISO 9001 for quality management.
• As a result, the collection of a notes receivable is added to the unreconciled book balance of cash on the bank reconciliation.
• Schedule a demo to see how ZenGRC can help your organization manage and improve internal controls.

Considering the millions of dollars ofcash that can pass through the hands of employees on any given day,the high cost can be well worth it to protect the flow of cashwithin an organization. A properly designed internal control system assures that atleast two (if not more) people are involved with most transactions.The purpose of separating duties is to ensure that there is a checkand balance in place. One common internal control is to have oneemployee place cash control an inventory order and a different employee receivethe order as it is delivered. For example, assume that an employeeat the Galaxy’s Best Yogurt places an inventory order.