Critical Best Practices in Internal Controls: CASH


Source: Neil Gordan, Senior Controller & Director, Scale Finance LLC

Cold, hard cash—it even sounds good.  Remember when you were a kid: Did you ever play a game where the object was to see who could hold the most coins in one hand? Well, some of your employees may still be playing that game—only this time with your cash.  Protecting your most fungible asset from fraud and errors is a full-time job.  Here are some tips:

Petty Cash

An old advertising campaign said that there was nothing minor about minor league baseball.  You can also say there is nothing petty about petty cash.  Especially if a $500 or $1,000 fund is reimbursed ten or more times a year.

1)      Make sure every voucher is approved by a manager.  Approval is not the job of a petty cash custodian.

2)      Make sure every voucher is backed up by a legitimate receipt.  If there is no receipt, the voucher must explain the reason for the payment.

3)      Make sure a receipt to back up a petty cash payment is not also entered on monthly expense reports via a copy of a credit card bill.  Establish that personal credit card bills are not valid for any type of employee reimbursement.

4)      Make sure that minor payments for stamps and office supplies (if allowed) are not added into the petty cash fund.  Keep them segregated and deposited on a periodic basis.

5)      Make sure the cash is counted by a manager at least once during the year without prior notice to the petty cash custodian.

6)      Make reimbursement checks out to “Jane Doe, Petty Cash Custodian,” not “Petty Cash” or “Jane Doe.”  This makes stolen reimbursement checks much less cashable.

7)      As owner, make sure you follow these rules.  When you steal from petty cash, you are only telling your employees that it is okay to steal from petty cash (and maybe some other areas).

Cash Sales

These tips are directed to the firm with a “city counter” type of set-up.  The assumption is that the cash register, although not computerized, does have an internal cash register tape.

1)      Make sure the cash register is locked at all times when the cashier is away from the counter.

2)      Make sure a non-cashier employee checks and counts the cash float every morning.

3)      As far as practical, keep one employee responsible for the cash register cash drawer.

4)      Use cashier register keys, if available.

5)      Make sure a non-cashier employee reconciles the cash register tape totals to the daily bank deposit slip

6)      Make sure a second, usually older, cash register is not being used for off-the-books sales.  Lock up or destroy unused cash registers, no matter how primitive they may be.

7)      If pre-numbered, manual sales invoices are used, make sure the entire print run is under the control of an accounting manager who is not involved with operations.

8)      Make sure completed manual sales invoices have their numbers reconciled and accounted for by an accounting manager on, at least, a weekly basis.

9)      Make sure returns for refunds must be accompanied by an original cash register receipt (or a manual sales invoice).

Checks

The key is division of duties that extend well beyond the accounting department.

1)      The mail should be picked up from the post office or postal carrier by someone outside of the accounting department.

2)      That person, or another person outside the accounting department, should open the mail and stamp the company’s deposit endorsement on the back of each check.

3)      If practical, that person should also make a copy of the checks for the owner (with the total value of the checks) and any copies needed by accounting.  Reducing the size of the copy can save paper.

4)      An accounting clerk fills out the bank deposit slip.

5)      A person outside the accounting department makes the deposit at the bank, and gives the owner a copy of the stamped deposit slip.  For a reasonable cost, remote check scanners can eliminate trips to the bank.  Ask your bank for details.

6)      Management should check the total of the check copies with the deposit slip total.

Bank

The owner can no longer rely on the old standby method of opening the bank statement envelope and reviewing the cancelled checks before anyone else.  In the age of electronic banking, you are probably not getting your checks back.  In fact, you may not be getting pictures of your checks with the statement.  All you are probably getting is check numbers and dollar amounts.  In the age of online banking, the cows have long left the barn by the time the statement arrives at your door.  There are still some tips worth considering.

1)      Do not allow facsimile signatures.

2)      Limit signatories to employees outside of the accounting department.

3)      Make sure accounting employees can only transfer money between company accounts.

4)      All electronic fund transfers and wires must be authorized by account signatories only, whether they are recurring or one-time only.

5)      Review your bank statement, especially debits. Make sure you have a satisfactory explanation for each debit.  If you did not open the bank statement envelope yourself, make sure you have all the pages.

6)       Ask your personal banker for the details behind your fees (“account analysis”).  It won’t change anything, except putting him/her on notice that you are reviewing the statement.

7)      Bank reconciliations should be done by someone who does not write or sign checks.

8)      Review the bank reconciliations.  Many reconciling items, month in and month out, may be a sign of sloppiness, confusion or worse on the part of someone in accounting.

About Scale Finance

Scale Finance LLC (scalefinance.local) provides professional CFO services, Controller solutions, and support in raising capital, or executing other transactions, to growth companies. The firm specializes in cost-effective financial reporting, budgeting and forecasting, implementing controls, other financial management, etc, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are fast-growing technology, healthcare, business services, consumer, and industrial companies that are at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices in Charlotte, the Triangle, the Triad, and Wilmington, a team of more than 25 professionals, and serves more than 85 companies throughout the region.