7.2 cash controls Flashcards
why do cash transaction errors happen so much?
because there is a large volume of cash transactions that occur
what is cash
coins, currency (paper money), cheques, and money orders
where cna cash be held
in the company (registers, safe, or other secure place) or be on deposit with a financial institution
what is the rule for what make something cash
if the bank will accept it for deposit, it is cash
what does cash not include
POSTDATED CHEQUES (cheques payable in the future)
STALE DATED CHEQUES (cheques that will not be honoured because they are more than 6 mos old)
RETURNED CHEQUES (cheques recievd from customers but returned ny the bank bc customer acc doesnt have enough funds)
what are three common types of cash receipts
1) over the counter receipts
2) electronic recipets
3) cheque reciepts
over the counter recipets
these are recipts generated with cash,card, or debit card over the counter purchases
how are control activites implemented in over the counter reciepts?
1) all cash registers have their own float (amount of cash so they can make change for customers) (Assignment of resp + physical control)
2) all sales are entered through POS, through scanning (documentation control)
3) AT END OF SHIFT all employees must ensure cash in THEIR own register= float +cash sales -> supervisor will double check (Review and reconciliation)
4)reciepts for sales made by debit or credit cards match the sales recorded with this payment type
what happesn if a business doesnt use POS tech
possibility of error/fraud increases
how is control over cash reciepts most effective?
when cash reciepts are deposited intact into the bank account daily
how are control activtiies exerted over ELECTRONIC RECIEPTS
-> you dont need as much because physical cash is not handled
-> opportunities for fraud still occur
EXAMPLE: if there is not proper AOR or SOD, employees can redirect electronic collections ot their own bank accs
WHAT is eft
electronic funds transfer (Transferring money electronically from one bank acc to anoter)
ex: debit or credit transactions
how are control actitviies exerted over CHEQUE RECIEPTS
Cheques received in the mail are usually accompanied by a remittance advice, which is the detachable part of the invoice that customers are asked to send back with their cheque.Mailroom clerks will send the remittance advices to the accountants responsible for recording cash receipts and send the cheques to another employee, who will deposit them at the bank (segregation of duties).The employee making the bank deposit should have no record-keeping duties (segregation of duties) so that they are prevented from stealing the cash and covering up the theft by understating the value of cash receipt journal entries.The employee making the bank deposit will receive a bank-stamped deposit slip. Each day, an independent employee can then compare the amount of cash deposited per the deposit slip with the amount of cash receipts recorded that day to ensure that funds deposited were also recorded (review and reconciliation).
If duties are segregated this way, no one employee would be able to steal cheques while covering up the theft by being able to record their receipt. The review and reconciliation of the deposit slips further strengthens the controls over cheque receipts.
WHAT is the most common way for ocmpany to recieve fund
electronic funds transfer
1 AOR
visual: how are control activtiies exerted over cash reciepts
cash recipets are only handled by designated personnel
2 SOD
visual: how are control activtiies exerted over cash reciepts
have diff individuals recording cash reciepts and handling cash
3 documentation
visual: how are control activtiies exerted over cash reciepts
use remittance advices, cash register tapes, POS system reports, and deposit slips for confirmation
4 Physical controls
visual: how are control activtiies exerted over cash reciepts
store cash in safes w limited access, use cash registers, deposit all cash in bank daily
5 Review and reocnociliaton
visual: how are control activtiies exerted over cash reciepts
have supervisors count cash recipets daily, have an accountant compare total reciepts with bank deposits daily
when are control actitvies over cash payments most effective
when payment is made by cheque or eft, rather than cash
what are control activities over ELECTRONIC payments?
AOR, SOD, R&R, PC, DOC
1) specific employees authorized to approve EFT payments( AOR)
2) MFA or biometric authentication (PC)
3) EFT pay is intiiated by one employee and approved by another (SOD)
4) both employees review supporting doc before intiative or approving EFT pay (doc & R&r)
5) total authorized EFT should be reconicled w payments processed from bank account daily (R&R)
what are control activities over CHEQUE payments?
AOR, SOD, R&R, PC, DOC
1) cheques should be singed by at least 2 authorized employees to ensure payment is appropriate (AOR)
2) cheque signers should review supporting docs before signing (R&R)
3) cheque signers should not be recording payment transactions (SOD)
4) Cheques should be prenumbered and accounted for in process (DOC & R&r)
5) cheques should NEVER BE PRE-SIGNED (AOR)
6)Access to blank cheques and digital signing software should be minimized (PC)
VISUAL: what are the 5 control activities over cash payments
AOR: specific employees hsould be authorized to approve EFT payments
SOD: diff employees prepare, approve, and record EFT payments
DOC: EFT payments must be supported by and approved invoice
PC: require MGS ot log into the EFT system
R&R: reconcile total authorized EFT apy with actual payments processed from the bank account daily
