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Posted: August 29, 2014

Keep your eye on your cash

Safeguard your business with internal controls

Rodney Rice

According to the Association of Certified Fraud Examiners, businesses lose five percent of their revenue each year to fraud. Whether your business is big or small, it is important to be active and vigilant to protect your financial resources. The implementation of internal controls can help you manage resources and make sure your operations are efficient and effective.

To protect your business from potential fraud, there are many aspects of internal controls to consider, including how you manage cash receipts, checks, electronic transfers, and invoices. Your bank or financial institution can help, and there are some strategies that should be considered by you as a business owner and your senior executives. What you say about these controls, and the actions you take, will help to develop and emphasize a company culture that values ethical financial management. Below are additional details to help you review and strengthen internal controls to help minimize the potential for fraud at your business.

Controlling Cash Receipts

  • List and prepare them daily, independent of those with custody and accounts receivable clerk
  • Compare the lists to deposit slips and cash receipts entries
  • Restrictively endorse checks upon receipt
  • Deposit or securely store cash promptly (most companies find that using a lock box significantly strengthens the control environment over cash receipts.)

Disbursement Checks

  • Store blank checks securely and ensure there is limited access to them
  • Checks should be signed by an authorized person and those over a certain amount should require two signatures
    • The check signer should not be the check preparer
    • The check signer should be independent of purchasing, cash receipts and cash disbursement functions
  • After being signed, don’t return checks to the preparer or anyone else with access to the company’s master vendor file or accounts payable modules
  • Cancel and keep checks when they are voided

Electronic Transactions should be:

  • Initiated and approved by separate authorized personnel
  • Reviewed for appropriateness and accuracy
  • Supported by internal documentation
  • Confirmed with financial institutions as necessary

Invoices and Supporting Documents

  • Check them for clerical accuracy before authorizing payment
  • Authorized signers should review and compare to the related disbursement check
  • Cancel invoices when payment is prepared

Banks and Financial Institutions

  • Understand the products they offer that can enhance controls over your cash cycles
  • Evaluate these products on a periodic basis to determine if they are appropriate and feasible for your business
  • Talk with your bank about “positive pay,” a cash management process used by banks to deter check fraud. The process matches checks an organization issues with those that are presented for payment. Any check that might be fraudulent is either flagged for the bank to follow up with the issuer or possibly send back to the issuer for examination.

Business Owners and Senior Executives also have a role in cash control and should regularly:

  • Receive and review bank statements and enclosures before they are delivered to your organization’s accounting department.  If cancelled checks are not returned by your bank, consider online review of the same
  • Maintain or limit authorization over additions to/deletions of and modifications to bank account users and access levels
  • Notify the bank of staffing changes to terminate or modify access and authorization over bank accounts
  • Periodically review cash disbursement listings by vendor, sorted from high to  low dollar disbursements, for propriety

There is a lot that goes into watching your cash, but if you do it right, you’ll minimize opportunities for fraud and help develop a workplace culture that values ethical financial management. Other strategies include protecting the integrity of usernames and passwords, implementing a mandatory vacation policy, educating employees on the risks surrounding your cash cycles, and take out fidelity bond insurance on all of your employees who have access to liquid assets (such as petty cash, cash receipts, bank accounts, credit cards or credit card accounts).

Having cash controls in place can help to reinforce the integrity of internal financial information and the accuracy of financial reports provided to others. Your organization’s approach to internal controls and how much weight you give to them will help foster your employees’ attitudes and actions. What you say and what you do – the actions you take to watch your cash – can help you create a culture of ethical financial management.

Rodney Rice, CPA, CGMA is Partner-in-Charge of RubinBrown’s Denver office Assurance Services Group. His experience includes service to both publicly traded and privately held manufacturing and distribution companies, to governmental and nonprofit organizations and to employee benefit plan entities. He can be reached at 303-952-1233 or Rodney.Rice@rubinbrown.com.

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