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34.3 Cash Controls

Overview​

Cash controls are critical because cash is the most liquid asset and most vulnerable to theft. Effective cash controls protect cash, ensure accurate recording, and prevent fraud. Understanding cash control procedures is essential for all businesses.

Cash Receipt Controls​

Cash Receipt Procedures​

Procedures:

  • Record all cash receipts immediately
  • Issue receipts for all cash received
  • Use pre-numbered receipts
  • Deposit cash daily
  • Reconcile cash receipts to deposits

Physical Controls​

Physical Controls:

  • Secure cash storage (safe, locked drawer)
  • Limited access to cash
  • Cash register controls
  • Daily cash counts
  • Surprise cash counts

Cash Disbursement Controls​

Authorization​

Authorization Procedures:

  • Require approval for payments
  • Set approval limits
  • Owner approval for significant amounts
  • Document approvals
  • Review payment requests

Payment Procedures​

Payment Procedures:

  • Use checks or electronic payments (not cash when possible)
  • Pre-numbered checks
  • Require supporting documentation
  • Match invoices to payments
  • Cancel paid invoices

Bank Reconciliation​

Reconciliation Process​

Monthly Reconciliation:

  1. Compare bank statement to records
  2. Identify differences
  3. Investigate discrepancies
  4. Adjust records
  5. Document reconciliation

Reconciliation Controls​

Controls:

  • Reconcile monthly (minimum)
  • Owner or independent person reconciles
  • Review reconciliation
  • Investigate all discrepancies
  • Document reconciliation

Petty Cash Controls​

Petty Cash Fund​

Petty Cash Procedures:

  • Establish fixed petty cash fund
  • Designate custodian
  • Require receipts for all disbursements
  • Replenish fund periodically
  • Reconcile petty cash regularly

Controls​

Petty Cash Controls:

  • Limit fund size
  • Require receipts
  • Surprise counts
  • Reconcile regularly
  • Review disbursements

Luxembourg Compliance Note​

Important Requirements:

  • Cash handling: Must handle cash securely
  • Record keeping: Must record all cash transactions
  • Reconciliation: Must reconcile bank accounts
  • Documentation: Must maintain documentation
  • Review: Owner should review cash controls

Common Issues:

  • Inadequate controls: Insufficient cash controls
  • No reconciliation: Not reconciling bank accounts
  • Cash theft: Cash vulnerable to theft
  • Recording errors: Errors in cash recording
  • Lack of oversight: Insufficient owner oversight

Think It Through​

Artisan Boulangerie receives cash from customers daily. They also make cash payments for some supplies. What cash controls should they implement?

Concepts in Practice​

Cash Controls Example

Artisan Boulangerie cash controls:

Cash Receipts:

  • All sales recorded in POS system
  • Receipts issued for all sales
  • Cash counted at end of day
  • Cash deposited daily
  • Owner reviews daily sales

Cash Disbursements:

  • Owner approves all payments
  • Checks used for significant payments
  • Invoices required for payments
  • Payments matched to invoices
  • Owner reviews payments monthly

Bank Reconciliation:

  • Owner reconciles bank monthly
  • All discrepancies investigated
  • Reconciliation documented
  • Bank statements reviewed

Petty Cash:

  • €200 petty cash fund
  • Receipts required for all disbursements
  • Replenished monthly
  • Owner reviews petty cash

Result: Effective cash controls, cash protected, accurate recording, fraud prevention.