Cash may be disbursed in a number of ways and for a number of reasons. For example, a business may pay wages or rent, repay borrowings owing to the bank or purchase non-current assets. Generally, internal controls over cash payments are more effective when the payment is made by cheque or electronic transfer, rather than by cash. The following controls over cash payments are recommended:
- Establish a business cheque account to enable all major payments to be made by cheque or electronic transfer
- Establish a petty cash fund to cover small incidental cash payments
- Ensure that only designated personnel are authorsied to sign the cheques (ie the owner)
- Where possible, ensure that at least two signatories are required for each cheque drawn
- Never leave cheque books lying around
- Never sign blank cheques
- Wherever possible, ensure that different individuals are responsible for approving and making payments and recording transactions into the accounting system
- Ensure that only appropriate people have access ot the internet banking account passwords and access codes (or devices)
- Ensure that all payments are made with a properly approved invoice or tax invoice attached
- For all petty cash reimbursements, ensure that a ‘petty cash voucher’ slip is completed with the receipt or invoice stapled to the voucher
- Once paid, the invoice should be stamped “paid” and the cheque number should be written underneath the stamp to prevent the possibility of the invoice being paid twice
- Perform bank reconciliations for all bank accounts regularly.
One of the best ways to create controls around the cash processes in your business is to outsource your bookkeeping – but NEVER allow your bookkeeper the ability to authorise transactions in your bank account. For this reason, many of our bookkeeping engagements will involve the recording of invoices, and creating the payment (batch) file, but the authorisation of the payment is always with the business owner so that they can check that the bank details match those of the invoices they are paying.