What is Cash Control?

Cash is a reliable payment method in business. It offers convenience when paying for purchases or expenses, as transactions are instantaneous. However, such assets have some drawbacks. Paper money is subject to fraudulent activity. Firms should adopt cash control measures to ensure that not a single dollar is wasted. The blog post explains the most effective ways to handle this type of finances.

What is Cash Control in Business?

Cash control procedures involve establishing and maintaining internal controls to save finances from misuse, scams, and mistakes.

Even small businesses with multitasking owners need accurate cash tracking for several reasons.

• Fraud risk reduction. Structured controls, including having one specialist open the mail and another record payments, provide the necessary checks and balances to prevent theft.
• Error prevention. Controls ensure proper documentation of transactions. It prevents minor discrepancies from escalating into major accounting problems.
• Accurate records. Continuous monitoring ensures all income and expenditures are recorded to form an audit trail. Cash control and cash management are interrelated concepts. The monitoring aims to protect assets from loss and ensure accurate accounting.

Cash flow management, on the other hand, aims to optimize the movement of money and maximize their efficient allocation.

Principles of Effective Cash Control

Such monitoring is a fundamental element of effective financial management. Let’s analyze the protection of such a vulnerable firm asset.

• Distribution of duties to avoid fraud. No single specialist should have complete control over all stages of a financial transaction. The administration may distribute the responsibilities among different individuals to form a system of checks and balances.
• Authorization and verification during transactions. Every transaction, whether incoming or outgoing, must be formally approved by an authorized person. It is essential to provide documentary evidence of the transaction’s legitimacy and compliance with firm policy.
• Accurate and timely recordkeeping. All cash movements must be accurately recorded in the accounting software. Timeliness is critical, as delays create opportunities for errors and concealment.
• Regular reconciliation of accounts. You can compare the company’s balance in the accounting books with the balance reflected in the bank reports at least once a month. If you find any discrepancies, you must resolve them promptly.

Management should ensure cash control to handle liquidity, anticipate needs, and define unusual trends.

Cash Handling Procedures

When handling paper money, use a point-of-sale (POS) solution or pre-numbered manual checkbooks to record each transaction immediately upon receipt. The document should clearly state the sum, date, purpose, and the identity of the person receiving it. Specialists should undergo training to confirm the authenticity of large bills (e.g., $50 or $100) utilizing counterfeit detectors or ultraviolet light.

Physical security measures are crucial to safeguarding assets when not in use. Let’s consider the most popular options.

• Safes to deal with overnight and bulk cash. You may utilize a sturdy safe securely anchored to the floor or wall to prevent theft.
• Lockboxes are optimal for providing daily and petty cash. They should be kept out of sight inside a locked desk drawer or file cabinet.
• Access control. A written log must be maintained to track access to the safe combination or keys.

The management may periodically review access logs to ensure all standards are satisfied.

Internal Controls for Cash

Internal cash controls are the procedures a company establishes to protect its assets, including cash sales, accounts receivable (AR) collection, and funds from credit card payments, etc. Most successful firms adopt the following measures:

• Employee responsibilities and accountability. Access to finances and accounting records should be restricted to authorized staff. To perform high-risk transactions, such as preparing large deposits or accessing a safe deposit box, two authorized employees must be present.
• Regular audits and random cash counts. Internal audit teams should periodically review the entire cash movement cycle from sales records to bank reconciliations. An independent manager or auditor may conduct unscheduled recounts of finances.
• Approval hierarchies to deal with payments and reimbursements. The payment approval matrix determines who can approve payments based on the amount and type of cash disbursements. All payment requests must be supported by original certified documents. The expense report approver must verify the financial purpose and compliance with the company’s travel expense policy.

Software to deal with bulk payments and accounts payable (AP) management offers AP automation and decreases the risk of scams. AP automation enhances cash disbursement monitoring and offers payment reconciliation.

Best Practices for Maintaining Cash Control

The Committee of Sponsoring Organizations (COSO) presented an overarching algorithm for operational tracking and financial risk mitigation. All leading American accounting associations support this organization. Let’s discuss a few popular recommendations.

• Establish clear policies and operations. Written documentation is the foundation of any control system, ensuring consistency and eliminating subjective interpretation. Create a comprehensive, easily accessible manual detailing every stage of the cash flow, from receipt to deposit.
• Train employees on paper money handling protocols. All new employees responsible for cash accounting must undergo formal training on the company’s monitoring procedures. Conduct regular refresher courses.
• Perform regular reconciliations and the audit of petty cash fund. Scheduled audits serve as a monitoring mechanism to provide the timely detection and correction of inaccuracies or violations. The outcomes of independent cash counts in registers should be reconciled daily with sales data or documentation.

Cash controlling is not static. It evolves with the company’s development, technological advancements, and risks. Review the paper money handling manual and operations management tasks at least annually.

Bottom Line

Finances are among a company’s most vulnerable assets, making cash an easy target for scams and theft. Effective cash control is a key component of accounting that ensures proper tax compliance and financial transparency. Poorly managed cash flow or understated profits can increase the risk of audits and damage a company’s credibility.

You can use BooksTime services to handle cash flow, bookkeeping, payment processing, and internal monitoring efficiently. Implementing advanced control procedures ensures that all money is tracked and every operation is recorded.