In: Accounting
What is the internal control system for cash and what are the most effective procedures we use in a good internal control system over cash?
Internal Controls for Cash
Cash is divided into two separate functions. The first is the receipts side of equation. Here all sales and payments on accounts are received and process. So a set of controls is designed to manage this function. The second function is disbursements or cash payments out of the bank account. Again, here a separate set of controls is designed to ensure proper disbursement of cash.
The following are the different tools every business uses to control cash:
Separation of Duties : Separation of duties is the number one tool endorsed by American Institute of Certified Public Accountants, the governing body of CPA’s. The key to this function is that the staff members receiving or managing the collection of money does not get involved in the disbursement of money.
Two Person Rule : Another effective internal control is the two person rule. Ideally two people process the cash receipts together, generate the ledger together and fill out the forms together. Once the total deposit is calculated, the deposit can be made by one person. However, the deposit slip is sent back to the other person for confirmation of the correct deposit amount.
Limited Account Signers : small business should have one signer for the account and a backup to sign checks. As the business grows, it will become necessary to have another signer on the account to fill the void of the owner’s absence. In addition, there are many times when checks have to be cut on the spot or in an emergency. This signer is usually somebody in the accounting department or in upper management. No matter who is assigned this task, the owner should conduct a background check and get that person bonded against potential embezzlement.
Account Review
In addition to the above forms of internal controls, the owner should access his cash account each day online and review all the checks processed including those signed while absent. Modern day online banking allows for the owner to review the checks as they are processed from day to day. This is absolutely the best tool available to the owner to discover misappropriation of funds.