Internal Control Procedures for Cash
For several years now it has been proven that having fine internal control practices allow organizations to achieve their objectives while at the same time maintaining an environment that centers on accountability and ethics.Creating an ethical environment at all ranks of the organization is one of the most important factors of control and accountability.Efficient internal controls help organization departments: recognize priorities, achieve department objectives, issue consistent reports, meet conformity requirements, and safeguard their assets.
Through an efficient internal control, departments benefit by: preventing and reducing errors, ensuring main concern issues are identified and addressed and also providing proper checks and balances (Charles, 2002).
Segregation of Duties
With appropriate segregation of duties among personnel, no one individual has total control over a transaction. This is one the most significant steps to take in order to safe-guard cash and employees. There are different practices that are suggested so as to safe guard the Internal Control Procedures for Cash and they include having people who: Collect and deposit cash, verify cash payment to receivable records, reconcile cash receivables to receivable documentations, bill for services and goods. The other steps to be taken include; having individuals who follow-up on the compilation of returned cheques and the distribution of payrolls or other monies. There are also several potential consequences such as stolen or lost cash receipts, application of cash receipts to wrong accounts or even hidden errors and other irregularities that might go unchecked due to none segregation of duties(Charles, 2002).
Note: It is vital to try and minimize the number of personnel who handle cash before it is deposited, while still segregating their duties.
General internal control requirements
It is known that no one control model efficiently or effectively fits the needs of all cash handling areas. However, there are several standard control procedures that are anticipated to be in place, unless there is a confirmed and justifiable reason for not doing so. In such instances, there would be an expectation that compensating or alternative control procedures be put in place (Hermanson, 2001).
The usual control procedures generally expected to be established at every cash handling point are as follows:
a) For collections not received via the mail, but somewhat in person, it is expected that appropriate receipting devices, such as cashiering stations or prenumbered receipt forms, be used to receipt cash at the initial collection points and that all clients be provided with a receipt or cash register tape. Money registers should have relevant control features and the operator should not have the skill to reset the totals. It is advised that either the Inspector General’s Office or Controller’s Office be consulted about the control features of every planned cash register acquisition. Only official organization/ company receipt forms obtained from Union Copy Center may be issued unless an exception is approved by the Controller’s Office. New prenumbered receipt forms should be effectively secured and accounted for and the people receipting the cash and issuing the particular receipt forms should sign for the prenumbered receipt forms that they have been assigned to use. If new prenumbered receipt forms are no longer required they should be returned to Union Copy Center. Each receipt must be canceled, or destroyed in front of a representative from the Inspector General’s Office (Hermanson, 2001).
b) Canceled receipts or transactions must be approved by supervisory personnel and all copies of the cancelled receipt form must be retained.
c) Any employee with no money handling responsibilities ie.who does not collect or deposit cash should make sure that all funds receipted for have been well deposited and recorded. This division of duties is vital to an effective cash control process. Generally, the person who provides these checks and balances is someone with the accounting duty/ responsibility.
d) Cash received via the mail should be receipted or registered and restrictively approved at the earliest point in the collection process. These receipts or logs must subsequently be evaluated with the deposit and collections recorded.
e) Individuals with the responsibility of billing and maintaining accounts receivable should not be given the task of collecting payments.
f) Different workers/ employees should not work concurrently out of the same cash drawer and whenever money is transferred among employees responsibility should be set through some receipting system.
g) Cash deposits should generally be made daily and exceptions may be made when the collections of money are under $100 or money orders and checks total is less than $300. h) Cash collections and change funds must be well secured at all times. Cash drawers ought to be locked when a cashier is away from his or her workstation. Also the Safe combinations are supposed to be changed whenever staffing changes occur amid those who know the combination (Hermanson, 2001).
i) Personnel who are assigned with the duty of handling cash should be given clear written procedures concerning their duties with regards to the management and control of cash collections and even change funds. It should be made totally clear to such personnel that individual loans or the cashing of personal/ individual checks from cash collections or change funds is forbidden. At least, the persons managing/ handling cash should be required to read cash handling manuals and sign a copy which acknowledges that they have read and understood the procedures of handling cash in their respective organizations. Also Police background verification should be carried on any new employees, who will have the major cash handling responsibilities (F&A, 2008).
Preparing and Transmitting Deposits
Daily sales statements should be prepared and averages and shortages should be properly noted. Deposits must be made intact and agree with the sum of the daily sales reports. The deposit should then be forwarded to the finance Office or taken directly to the bank and also all departments should make sure that proper security is provided while deposits are passed through different sites within the organization (Charles, 2002).
Lastly accounts review and reconciliation must be done to confirm that all transactions have been recorded correctly. Monthly review and reconciliations of cash records and bank statement provide a proper checks and balances (F&A, 2008).
Charles T. Horngren, W. T. (2002). Accounting. California: Prentice Hall.
Hermanson, E. a. (2001). Accounting Principles. London: Freeload Press, Inc.
Office of the Senior VP for F&A, (2008).Internal Control Procedures for Cash, Retrieved on 6th December, 2008 from http://www.vpfa.fsu.edu/policies/controller/2c-1.html