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info@pyc.net |
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Cash Controls September 2005 The owner/manager not only needs to be familiar with processes that
may be susceptible to errors or manipulation of funds but also needs to identify specific
weaknesses that need to be improved. Direct involvement through review and approvals at
key junctures can help reduce the risk of losses through error or misappropriation. Here are some simple procedures an owner/ manager can put in place to
make the business less vulnerable to cash losses through error or misappropriation. Cheques Limit the dollar amount of cheques, transfers and bank drafts that one signing officer has authority to issue. For example, if most transactions are between $2,000 and $3,000, establish a policy whereby cheques over $3,000 must be signed by a second individual, preferably the owner/manager. Review all cheques issued each month to ensure you are familiar with payment patterns. Question cheques to the same company that squeak under the two-signature requirement. It may be that two cheques are being used to avoid detection of disbursements in excess of the level of authority. Set policies that all cheques to be signed must have the supporting documents attached as verification of the amount payable. Once a cheque is signed, the supporting documentation should be marked "paid" to prevent duplication. Cheques should not be signed if the amount, date and the payee are not completed or the supporting documentation is not attached. Never sign cheques made out to cash. Ensure all cheques are prenumbered and controlled. Know the sequence of numbers used on preprinted cheques and regularly ask for an accounting of all cheques issued to those individuals responsible for payment of invoices. Cheques, whether issued or returned from the bank, should be locked up at all times. Cheques that are ruined should be clearly marked void. Ensure bank accounts are reconciled on a regular basis. With online access, bank reconciliations could be completed as frequently as on a daily basis. Review and approve the reconciliations with a signature. This procedure allows the owner/manager to keep on top of the company's cash position as well as be alert to unusual items. Pay special attention to automatic withdrawals by maintaining a list of approved debits to assist in the review of bank transactions. Rather than using a bank draft that may still be negotiable if lost, consider online transfers. Regularly review all bank statements to ensure that all transactions are properly recorded and traceable. This is especially important if you are using different accounts to segregate payroll, foreign currency transactions and capital. Bank statements should be continuously reviewed for large or unusual deposits that may indicate cash infusion from the redemption of investments or the issue of shareholder or bank loans. Review transfers between all accounts on a regular basis to ensure inter-bank transactions such as charge card accounts, payroll transfers or loans or repayments are not diverted to cover up shortages in other accounts. Carefully monitor short-term investments or loans that are automatically accessed or repaid based upon operating bank balances. For all deposits made at bank machines, ensure the cheque number, the payee and the amount are recorded in a deposit book. Attach the transaction slip to the deposit book page to track customer payments to specific deposits and accounts receivables. Regularly review the accounts receivable and payments received. A regular review will ensure that the appropriate customers are receiving credit for payments that they have made. Unscrupulous employees could withhold payments from one customer and apply subsequent payments from another customer to make up for the shortfall, a process called "lapping". Regularly review accounts payable to reduce the possibility of payments being made to suppliers that do not exist. Segregate functions and duties to provide control. For instance, the person preparing the cheques to pay for payroll, purchases or accounts payable should not be the one that signs the cheques. In a similar note, the individual that enters accounts receivable transactions, whether the sales transactions or the payments received, should not be the one that makes up the deposit book and makes the deposit. Have someone other than the bookkeeper open the mail and list all payment receipts. In addition to these "hard" internal controls, ensure you have "soft" controls in place such as training programs, performance evaluations and established policies, procedures, and standards of conduct. Establish a formal process for periodic reviews of the adequacy of these controls. Embezzlement starts with a breach of internal controls. Establishing basic and consistent controls, monitoring compliance and paying particular attention to potential areas of vulnerability can help reduce the risk of financial losses through error or fraud. Your chartered accountant can help you review your internal controls and advise on enhancements for improving efficiencies and security.
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