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Internal control report Marlene Enterprises. This report focuses on the internal control over cash, which ultimately assists in the managing and the keeping track of cash.

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Internal control report

Marlene Enterprises

25 October 2007

INTRODUCTION

Internal controls are essential to ensure efficiency in a business as they prevent thefts or frauds and detect errors. Control over cash is one of the important aspects in safeguarding the assets of the business, since all transactions involve receipts and payments of cash. Cash, however, is untraceable once lost, unlike source documents, so that it has to be tightly controlled and monitored. This report focuses on the internal control over cash, which ultimately assists in the managing and the keeping track of cash.

GOOD CONTROL OVER CASH

All cash received should generate a source document.

The present procedure of writing receipts for any cheques received from the mail profitably assists in the safeguarding of cash. However, receipts with errors should not be destroyed. They should be marked with ‘cancelled’ and to be kept for auditing and other purposes. The cancelled receipts should be filed in numerical order since that all receipts, or source documents in general, should be able to be traced. Entries should be recorded in a cash remittance book when cash is received through mail.

No cash should be taken from the cash register to pay for other expenses.

Cash in the cash register should match the tape recording the daily cash sales. This, again, ensures cash to be safely guarded and minimises frauds or dishonest activities. Small items, such as coffee and stamps (mentioned in the current system of features of the business), are often expected to be paid in cash; therefore the business should introduce a petty cash system to paid for these small amounts of money.

The division of duties between handling and recording cash should be created.

Cash in the cash register at the end of each day should not simply be ‘proved’- showing the amount of cash in the register to a different person. The tape in the register should be taken out and record on cash receipts documents. Since the duties of handling and recording cash are clearly separated, they act as verification to each other.

Daily cash sales should be banked daily and not to be left in the cash register.

Without doing so heightens the risk of loss of a large sum of money if the business is robbed during closed hours. The cashier should be responsible with the daily banking so that there is only one employee who is handling the cash.

Cheques should be signed by at least two authorised people within the business.

The use of cheques is to prevent any misuse of cash and the cheque butts act as documentary evidences for auditing. Leaving signed cheques for any payments of bill during the week entirely undermines the purpose of cheques. When a cheque is written, it should be checked and signed by a different personnel, so that there are at least two people within the business who acknowledge the cheque. It is, therefore, recommended that cheques are only to be made when the owner is present, or to allow another employee to have the authorisation to verify and sign the cheques.

ROTATION OF DUTIES

Duties should be rotated periodically amongst the employees. This benefits both the business and the employees. Employees are discouraged in committing frauds when they comprehend that another person will soon be checking and identify any discrepancies in the accounting records. It guards the business from any frauds and detects errors. The rotation of duties also makes work more interesting for the employees; therefore it should minimise mistakes and build a peaceful atmosphere in the workplace. Employees profit through multi-skilling, since they are presented with many opportunities to different areas in the business.

BANK RECONCILIATION

The bank and the business retain separate sets of cash records. The bank has control over physical cash; therefore it is necessary for the records to agree with each other. When a bank statement is received at the end of each month, rather filing it away for further references, a bank reconciliation statement should be prepared by the business to explain the differences between the books and identify any possible errors made. This process offers further control over cash and ensures accuracy of the business’s financial records.

RECOMMENDATIONS

To improve the cash control procedures of the business, it is recommended that:

  • No receipts, or source documents in general, are destroyed but kept in accounting files;
  • A cash remittance book is exercised to record cash received through mail;
  • No cash is taken from cash register and a petty cash system is to be established;
  • The division of duties of handling and recording cash is clearly separated;
  • Daily cash sales is to be banked daily and
  • Cheques are to be signed by at least two authorised people within the business.

CONCLUSION

Deficiencies in the cash control system of the business are evaluated and discussed throughout the report. Recommendations are listed that they should increase the business’s efficiency and ultimately results in a favourable management over cash.

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