ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Best Practices for Internal Cash Controls in Business

Updated on June 4, 2013

Proper internal cash control procedures start with designing a multi-step system that moves cash through the accounting process smoothly.

Source

Summary

In business, cash is the one asset most susceptible to fraud. The reasons for this truth are quite simple. Everyone has a need for cash; businesses may not keep close tabs on the asset; there are numerous ways to embezzle funds; and it is easily convertible to other items. With this in mind, business owners must create a strong accounting system and set of internal controls. These two elements should properly restrict access, limit necessary disbursements, and effectively reconcile various cash balances.

Two types of internal cash control points exist in an accounting system: cash receipts controls and cash disbursements controls. These two points have simple definitions, based on their names. Cash receipts controls cover any cash that comes into the business. Cash disbursement controls, on the other hand, dictate how a company handles any cash payments that leave its bank account. Though internal cash controls are somewhat similar for each activity, some differences do exist between the two.

Essential elements to internal cash control systems.

Internal Control
Cash Receipts Application
Cash Disbursements Application
Establish Responsibility
Only authorized personnel handle cash receipts.
Only designated individuals can authorize and /or sign checks.
Segregate Duties
Different individuals receive cash, record cash receipts, or handle deposits.
Different individuals approve and make payments. Check signers do not record cash disbursements.
Use Documents to Record Transactions
Use mail receipts, cash register tapes, and deposits slips.
Use prenumbered checks in sequence. Each check has its own invoice.
Physical Controls
Store cash in banks, or cash vaults, or safes. Limit access cash registers.
Store blank checks in a safe. Use printed checks with specific safety marks.
Independent Internal Verification
Supervisors cannot count daily cash recipts. Accountant reconciles deposits daily.
Compare checks to invoices. Reconcile bank statement monthly.
Human Resources Controls
Bond personnel in cash heavy departments; conduct background checks; require employee vacations.
Bond personnel in cash heavy departments; conduct background checks; require employee vacations.
 
 
 
*Source: Accounting Principles, 10e, Wiley
 
 

Excellent resources to learn about accounting systems and controls; for businesses of any size.

Cash Receipts Controls

Businesses usually collect cash receipts through one of two methods, or both. Over-the-counter cash receipts include sales made at the company’s location, often using a cash register or similar system. Mail receipts include monies collected through catalog sales. In today’s technological world, mail receipts often come through internet sales or other offsite business activities.

A few key points exist with internal cash controls. These include the establishment of responsibility, segregation of duties, proper documentation, physical controls, independent verification, and human resource procedures. Each of these sections has is important. And while they are all necessary, the most important cash control procedures include responsibility, segregation of duties, documentation, and physical controls.

To accomplish this accounting system, business owners should first designate certain workers to handle cash, whether over-the-counter or through external collections. Only these individuals handle the cash at these points. Then, a second employee writes deposit slips and sends the money to the bank (which is the primary physical control here). Documentation includes register receipts; electronic forms showing cash collected; and deposit slips, among other items. These items are part of the company’s accounting system. Qualified or responsible individuals should handle these papers in order to ensure all monies deposited match what the company collects from sales.

Source

Useful tips for preventing fraud in your small business.

Cash Disbursements Controls

The best cash disbursement control systems starts when a company pays by check rather than cash. In fact, a business should always have a checking account and use it to make 95% of its disbursements. By doing this, companies can then implement a voucher system, which is perhaps the strongest cash disbursement internal control system. Smaller cash disbursements can go through a petty cash system; these payments, however, should be for small, non-essential items.

Like the cash receipts control system, cash disbursements should have separate tasks. These include the establishment of responsibility, segregation of duties, proper documentation, physical controls, independent verification, and human resource procedures. However, the tasks in a cash disbursement internal control system are somewhat different. For example, only certain individuals have authorization to sign checks; companies should only use previously approved vendors; check signers do not record disbursements into the accounting system; pre-numbered checks are always in use; blank checks are locked away; and independent verification exists for checks and invoices. Although this internal control system has several steps, they are each necessary to prevent fraud and embezzlement.

Petty cash disbursements require less stringent controls. In many companies, petty cash is a small dollar amount, perhaps $50 or $100. Replenishment occurs at least every month, although some companies may balance and replenish petty cash more frequently. Petty cash controls include limited authorization to spend the cash, documentation to justify the expense, and physical controls, such as a lockbox to prevent free access to the cash.

Always consider the benefits and potential drawbacks to your accounting system and cash controls.

Source

Benefits and Drawbacks

Strong internal cash controls can help create a competitive advantage for businesses. Better accounting records and tight controls often ensure a company retains as much cash as possible. Businesses with high cash balances and/or good cash flow streams may make quicker decisions in a changing economy. For example, production increases, employee hiring, or competitor acquisitions are a few options for businesses with strong cash flow and flawless internal cash controls.

Failing to implement internal cash control procedures can lead organizations to unfavorable cash positions. This may require companies to engage in short-term loans or credit lines from banks. In some cases, less than reputable lenders may be necessary if a company cannot retain credit from standard banks. This kind of outside financing does not always have the most positive results for an organization. For example, interest rates are usually greater on credit lines as well as short-term bank loans. These rates may generate greater higher payments over time as the business continues to draw more funds on the account.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)