Report on internal controls over cash

To: Mr. Andrews

Date: 5 October 2005

INTRODUCTION
The purpose of this report is to notify Mr Andrews of any deficiencies in his current
office procedures and to make recommendations to improve this system. It will
outline the importance of the asset cash and the need for internal controls to
safeguard it.

Cash is important as it is the most liquid asset owned by a business. Because cash
is easily stolen, adequate controls must be implemented to ensure that people with
dishonest intentions are detected.

For an efficient system of office procedures to operate, good principles of internal

control over cash need to be implemented. While the current system being used by
the business may be seen as adequate, many improvements should be made.

SEPARATION OF DUTIES
Ms Russell opens the mail, handles all cash, records and banks cash. Should be
separation of Duties—employees who receives or handles the cash should not
record these transactions to prevent fraud or theft.

ALL CASH TRANSACTIONS MUST BE EVIDENCED BY

WRITTEN DOCUMENTS
Cash received by mail, is not recorded at time of receipt. At least two people should
be present when Mail is opened—a record must be kept of all money received.
Record in an INWARDS MAIL REGISTER.

No Source Documents made to record receipt of cash. Person who opens the mail
does not record the receipt of cash. When cash is collected and recorded should be
taken to office and cashier issues a receipt.

CASH MUST BE BANKED “INTACT” DAILY

Payments are made out of cash received which should be banked not only banking
when they have time. All cash should be banked”intact”—payments should not be
taken out of the day’s receipt. All payments should be made by cheque.

ALL CASH PAYMENTS MUST BE MADE BY CHEQUE EXCEPT

SMALL EXPENDITURE THROUGH THE PETTY CASH SYSTEM
Some payments are being made out of cash received instead of issuing a cheque.
No petty cash fund in operation. A Petty Cash Fund should be established to pay for
small expense.

ALL CASH KEPT ON PREMISES SHOULD BE KEPT SAFE

Signed cheques left on premises. All cash kept on premises including signed
cheques should be kept in a locked safe.

REGULAR BANK RECONCILIATION SHOULD BE CARRIED OUT

Bank Reconciliation is not carried out regularly. Bank Reconciliation should be
carried out regularly so that the business’s cash records can be checked with
independent records from the bank.

ROTATION OF DUTIES
Rotation of duties not being carried out. Duties should be rotated—allows errors to
be detected during normal course of duties encourages multiskilling of staff.

RECOMMENDATION
Lucy WANG

Accountant