Report On Internal Controls Over Cash To:

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