Follow Chad Linkedin
Email Chad Email
Financial
Dec 1, 2016

Small Business Internal Controls Over Cash

Sponsored Content provided by Chad Wouters - Partner, Earney & Company, LLP

This Insights was contributed by Sandy Crumrine, CPA, CIA, an audit partner at Earney & Company, L.L.P.

Cash is a small business owner’s most valuable asset, but small businesses are more likely to suffer embezzlement and/or misappropriation of cash assets for the following reasons:

  • Limited number of employees, prohibiting effective segregation of duties.
  • Owners tend to trust employees more – especially long-term employees – and become slack about monitoring or reviewing their work.
Well-designed, effective internal controls will safeguard cash assets by limiting the opportunity for theft or the likelihood of error.

When designing internal controls over cash, think, “Could someone…” instead of, “Would someone….” This removes any question of trust.

Start the process of designing effective internal controls over cash by answering the following questions:
  • Who has access to cash and why?
  • Where is cash held at all times?
  • What is the process flow from beginning to end for cash receipts and disbursements?
  • Where do opportunities exist for theft or error?
The most important internal control over cash is the segregation of cash-handling duties among employees.

With proper segregation of duties, no single person will have control over a cash transaction from beginning to end. Segregating duties provides for checks and balances and limits the opportunity for theft and the likelihood of error. Even the smallest business (two to three people) can achieve adequate segregation of duties by ensuring that different people:
  • Receive and deposit cash.
  • Write and sign checks.
  • Reconcile bank statements and review bank reconciliations.
  • Bill for goods and services and maintain the approved customer list.
  • Process payroll, distribute payroll checks, and review payroll reports.
  • Authorize invoices for payment and process vendor payments.
Other internal controls over cash include the following:       
  • Mandatory vacations, especially bookkeepers and all cash handlers.
  • When cash is held onsite, secure it in a locked location such as a safe. Limit access to authorized personnel. Change combinations or other access codes periodically or when someone leaves.
  • Limit bank account signature authority and online access to authorized personnel. Update signature cards and immediately block access when an authorized person leaves the business.
  • Make frequent bank deposits to minimize the amount of cash held at the business location overnight.
  • Use a buddy system when moving cash from one location to another.
  • Count cash in the presence of two people and in a non-public area not easily visible to others.
  • Require two-person reviews and approvals for all disbursements – payroll, operating expenses and reimbursements.
  • Prohibit cash withdrawals or personal charges of any kind on the company credit cards. Require original receipts and reasons for business-related credit card purchases and set appropriate per transaction dollar limits.
  • Perform timely reconciliations of bank and credit card statements to subsidiary and general ledgers and require they be independently reviewed.
  • Pay particular attention to all unusual purchases, review supporting documentation and ask a lot of questions.
No system of internal control is 100 percent foolproof but when thoughtfully designed and periodically reviewed for effectiveness, internal controls over cash will safeguard a small business’ most valuable asset.

Chad Wouters, CPA joined Earney & Company in December 2006 and became the tax partner in November 2013.  With an emphasis on strategy and planning, Chad works with his clients all year to ensure the most efficient tax strategies are put into place.  Earney & Company, L.L.P.  is a CPA firm that handles tax compliance, consulting and planning as well as audit and other assurance services.  For more information please visit www.earneynet.com or call (910) 256-9995.  Chad can also be reached at [email protected].
 

Ecolarge
Ico insights

INSIGHTS

SPONSORS' CONTENT
Christy2

Roof Maxx is a Roofing Disrupter

Christy West - Roof Rescue of Wilmington LLC/Roof Maxx
Sherrip2019 insights profile

That’s Who We Are

Sherri Pridgen - Cape Fear REALTORS®
Leath 683x10242

How to Avoid A Nightmare Holiday Party

Lisa Leath - Leath HR Group

Trending News

Downtown Office Building Changes Hands In $3.7M Deal

Cece Nunn - Nov 18, 2019

Bankruptcy Filing: Vertex Railcar Owes More Than $45M

Cece Nunn - Nov 19, 2019

2019 Health Care Heroes Award Winners Announced

Staff Reports - Nov 18, 2019

Beach & Barn Raises $230K

Johanna Cano - Nov 19, 2019

County Votes Against Additional Funding For Wave Transit

Christina Haley O'Neal - Nov 18, 2019

In The Current Issue

MADE: Mounting An Expansion

Grunt Tough is a software and traditional manufacturing company; products are made and distributed out of its Wilmington facility....


Habitat Chief Leads The Way Home

Steve Spain has spent much of his professional life combating homelessness. Heading into his seventh year as executive director of Cape Fear...


Digital Human Helps Hearts

Hanna is the work of Marie Johnson, managing director at Centre for Digital Business in Australia, Chris Hillier, New Hanover Regional Medic...

Book On Business

The 2019 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

August 26, 2019 Power Breakfast: A Healthy Sale?
WILMA's Leadership Accelerator
2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`