1. Segregation of Duties
Receiving Cash: The employee who initially receives cash (e.g., a cashier) should not be responsible for recording or depositing the cash. This segregation of duties ensures that no single person has control over the entire cash receipt process, reducing the risk of misappropriation.
Recording Cash Receipts: A different employee, such as an accountant or bookkeeper, should be responsible for recording the cash receipts in the organization’s accounting system. This separation helps ensure that the recorded amounts match the actual cash received.
Bank Deposits: Yet another employee should be responsible for preparing and making bank deposits. This further reduces the risk of fraud or errors, as no one individual handles all aspects of the cash receipts.
2. Issuing Receipts
Every time cash is received, whether from sales, payments on accounts, or other sources, a receipt should be issued immediately to the payer. This receipt should be pre-numbered and include details such as the date, amount received, and the purpose of the payment.
Copies of these receipts should be retained and periodically reconciled with the cash records to ensure that all received cash has been recorded.
3. Daily Cash Reconciliation
At the end of each day, the cash received should be counted and reconciled with the records of cash receipts (e.g., cash register tapes, receipt books). Any discrepancies should be investigated immediately.
The daily cash reconciliation process ensures that all cash transactions are accounted for and that any errors or irregularities are detected promptly.
4. Timely Bank Deposits
All cash receipts should be deposited into the bank daily, if possible, or at regular intervals (e.g., weekly) for smaller amounts. This minimizes the amount of cash held on-site, reducing the risk of theft or loss.
The person responsible for making the deposit should not be the same person who received or recorded the cash, ensuring a further check on the accuracy and completeness of the cash receipts.
5. Use of Lockbox Services
For organizations that receive a large volume of cash, using a lockbox service provided by the bank can be an effective control. In a lockbox system, customers send their payments directly to a bank-operated post office box. The bank processes these payments and deposits them directly into the organization’s account, reducing the risk of misappropriation by internal staff.
6. Independent Review
Periodically, an independent party (such as an internal auditor or a supervisor) should review the cash receipts records and bank deposit slips. This review helps ensure that all cash received has been properly recorded and deposited.
The independent reviewer should also verify that the cash receipts have been credited to the appropriate accounts in the organization’s general ledger.
7. Bank Reconciliation
Regular bank reconciliations should be performed to compare the organization’s cash records with the bank statements. Any discrepancies between the bank statement and the cash records should be promptly investigated and resolved.
This reconciliation process is a critical control that helps detect any errors or omissions in the recording of cash receipts or deposits.
8. Surprise Cash Counts
Conducting surprise cash counts, where cash on hand is counted and reconciled without prior notice, can be an effective deterrent against theft or fraud. These surprise counts should be carried out by someone who is independent of the cash handling process.
An effective internal check system for cash receipts is essential for maintaining the integrity of an organization’s financial operations. By implementing robust controls such as segregation of duties, daily reconciliations, and regular independent reviews, organizations can minimize the risk of errors, fraud, and theft related to cash handling. These procedures ensure that all cash received is properly recorded, safeguarded, and deposited, contributing to the overall financial health and reliability of the organization.
