Any business that manages cash needs to have a robust system of internal controls in place to ensure that money isn’t walking out the door. As much as we trust our partners and employees it is important to put safeguards in place to prevent fraud. You can point to hundreds of cases where a high level of trust was given to employees who were able to take advantage of the lack of controls and embezzle funds. These are some of the key internal controls you should consider putting into place:
Segregation of Duties
- Separate responsibilities for receiving, recording, and reconciling cash transactions. No employee should have custody over cash and also be able to adjust accounting records.
- For bank deposits, make sure someone that doesn’t make the deposit reconciles the cash count to deposit slips.
- Ensure no single person has control over the entire cash-handling process.
Cash Receipts Controls
- Use pre-numbered receipts or electronic systems for tracking cash inflows.
- Limit access to the cash register or cash receipt systems. Only one person should be logged into a till at any one time to ensure accountability over funds.
- Implement immediate recording of all cash receipts.
Bank Reconciliations
- Perform monthly reconciliations of bank accounts by someone independent of cash-handling responsibilities.
- Investigate and resolve any discrepancies promptly.
Authorization Controls
- Require dual approval for significant cash disbursements.
- Use pre-approved vendor lists and purchase orders.
Physical Security
- Secure cash in locked drawers, safes, or vaults.
- Restrict access to authorized personnel only.
- Deposit cash in the bank daily to minimize on-premises cash.
Periodic Cash Counts
- Conduct surprise cash counts to verify physical cash matches recorded balances.
- Rotate personnel involved in counting.
Monitoring and Reporting
- Implement regular management review of cash-related reports (e.g., cash flow statements, deposits).
- Establish key performance indicators (KPIs) for cash management, such as collection timelines and cash handling discrepancies.
Use of Technology
- Implement automated systems for recording cash transactions to reduce errors.
- Use encryption and secure passwords for online banking and electronic payments.
Access Controls for Bank Accounts
- Restrict online banking access to authorized users.
- Use multi-factor authentication for electronic transfers and payments.
Policies and Training
- Develop and distribute clear cash handling policies.
- Train employees on proper procedures and fraud prevention techniques.
Fraud Detection Mechanisms
- Implement systems to monitor for unusual or unauthorized cash transactions.
- Encourage whistleblowing through anonymous reporting channels.
Audit Trails
- Maintain detailed documentation of all cash transactions.
- Regularly review and archive records for audit purposes.
Putting these systems in place won’t prevent all cash fraud, but it will make it significantly harder for money to walk away without being noticed.
If you aren’t sure if your cash controls are up to snuff, feel free to reach out to us anytime at https://highimpactcpa.org or BOOK A CALL HERE!
