TESTING THE CASH SYSTEM Control Objectives The control of cash is clearly of prime importance in any business. Cash is the asset which is most likely to disappear. The central objectives are that:
a) all sums due to the company are received and subsequently accounted for b) no payments are made which should not be made c) all receipts and payments are promptly and accurately recorded.
Beyond this, it is better to consider detailed controls for each area of the business dealing with cash. In reality there is not one 'cash system' in the same way as there is a sales cycle for example; there are a number of systems which have their own considerations as to control due to the specific circumstances of that part of the business. You should appreciate that the cash system also refers to cheque receipts and payments. Businesses should try as much as possible to conduct all their cash transactions by means of cheques or other forms of bank transfers as controls over cheque transactions are easier to establish and maintain than controls over cash, in the form of notes and coins. Controls are set out below for various aspects of the cash receipts and payments system. CONTROL PROCEDURES
(a) Controls over cash receipts by post (b) Controls over cash collected by salesmen and representatives (c) Controls over cash sales (d) Controls over banking of receipts (e) Controls over cheque payments (f) Bank reconciliations (g) Controls over petty cash
Controls over Cash Receipts by post: a) The company should safeguard against possible interceptions between the receipt and opening of the post
e.g. by using a locked mail box and restricting access to the keys. b) The opening of the post should be supervised by a responsible official and where the volume of mail is
significant; at least two persons should be present when the mail is opened. c) All cheques and postal orders should be restrictively crossed 'Account payee only, not negotiable' as soon
as the mail is opened. This may already appear on the documents when they are received; if not, it should be added.
d) A record should be made immediately of: i) Cheques and postal orders received ii) Cash received.
This record may be in the form of a rough cash book, adding machine list or copies of remittance advices. It provides control over the eventual sums banked and entered into the cash book. e) The cashier and sales ledger personnel should not have access to the receipts before this record is made. f) Receipts should be kept in a locked safe or other security area and banked immediately. g) Post should be date stamped. It provides evidence of when remittances are received and can periodically
be checked against the date of banking. This helps to prevent cash received one day being banked as representing different receipts on a later day (a process known as 'teeming and lading').
Controls over cash collected by salesmen and representatives: a) Authority to collect cash should be clearly defined. b) Salesmen and others should be required to remit cash and report sales at regular intervals. c) A responsible official should quickly follow up salesmen who do not submit returns as required. d) Collections should be recorded when received e.g. in a rough cash book or copies of receipts which
should be given to the salesmen or travelers. e) The collector's cash receipts should be reconciled to the eventual banking which should be made as
promptly as possible.
f) Periodically a responsible official should check the salesmen's own receipt books with cash book entries. g) If salesmen hold inventories of goods, an independent reconciliation of inventory with sales and cash
received should be made. Controls over Cash Sales: a) Cash sales should be recorded at the point the sale is made. Usually this is by means of a Cash Till or the
use of cash sale invoices or receipts. b) If cash sale invoices or receipts are used they should be pre-numbered, a register should be maintained of
cash sale books and copies should be retained. c) Cash received should be reconciled daily with either the till roll or the invoice totals. Cash should be
banked promptly d) This reconciliation should be carried out by someone independent of those receiving the cash and
recording the sale. e) Daily banking should be checked against the till roll or invoice total and differences investigated. f) A responsible official should sign cancelled cash sale invoices at the time of cancellation. All such invoices
should be checked periodically for sequential numbering.