Bank And Cash Cycle

Question 1

What are the physical forms of cash balances?

Answer 1

Physical notes & coins, overdraft, petty cash floats, till floats, unbanked receipts.

Question 2

What are the main categories of controls in the bank and cash cycle?

Answer 2

• Basic controls
• Controls over cash
• Controls over bank account

Question 3

What is the purpose of an internal audit in the bank and cash cycle?

Answer 3

To ensure the control environment supports the control procedures.

Question 4

What documentation is involved in the flow of cash management?

Answer 4

• Cash register reading
• Cash summaries
• Receipts
• Physical cash counts

Question 5

Basic controls

Answer 5

1. Segregation of duties for receipt and recording of money.
2. Different forms of cash should be kept separately and recorded separately. (sales, petty cash, cash loans)
3. Proper stationery control:
   * Receipts, cash sales slips/invoices etc. are numerically recorded;
   * Stationary should be locked away;
   * Recorded in a register (sign for issuing and on receipt).
4. Safeguarding of money:
   * Locked in vault, etc. (key control);
   * Banked as soon as possible (next day/2x per day, etc.).
   *
5. Loans to employees (IOU) should be properly authorised by a senior person.
6. Adequate insurance should be taken out against theft and fraud.

Question 6

Internal controls over cash (1)

Answer 6

Cashier must balance cash on a daily basis and must compare it with the source documents (receipt, cash invoices, cash register totals) and record it on a cash receipt summary:
* Signed by the cashier;
* Independently reviewed by a senior official;
* Counts the money in the cashier’s presence (cashier signs for receipt back of money);
* Compare cash with supporting documentation;
* Shortages should be paid-in by the cashier.

Question 7

Test for controls over cash

Answer 7

Enquire about and observe the controls over cash.

Do a surprise cash count (also attend on a surprise basis the daily balancing of cash):
* In the presence of the cashiers, who signs for receipt back of money;
* Agree the cash with the supporting documentation (receipts, cash invoices, cash register total);
* Follow the float through to the balance in the ledger;

Question 8

Internal controls over cash (2-5)

Answer 8

2. Every cashier should only be responsible for his/her own funds.
3. During lunch, etc. cash/cash register should be locked and proper key control exercised.
4. Every cashier should be responsible for his own float - lock in cash drawer/cash-box.
5. Supervision over cashiers - senior/camera’s, etc.

Question 9

Test of controls over cash (2-5)

Answer 9

2. Observe that each cashier is responsible for their own funds.
3. Observe that they lock away the money during their lunch breaks.
4. Enquire about the policy regarding safekeeping of money during lunch breaks.
5. Observe that there is proper supervision over the cashiers. E.g. A floor manager or cameras.

Question 10

Internal control over cash (6)

Answer 10

Cash must be banked as soon as possible (next day/ twice a day).

Question 11

Test for control over cash (6)

Answer 11

1. Inspect that the cash counted follows through to deposit slip, and:
   * Agree it with the cash counted;
   * Agree payment/cash amounts and beneficiaries;
   * Ensure banked timeously;
   * Follow the total of the deposit slip through to the cash book.

Question 12

Internal controls over petty cash

Answer 12

1. One person should be responsible for the petty cash;
2. Physical safekeeping of petty cash;
3. Limit fund amount in petty cash;
4. Define type of expenditure allowed by petty cash;
5. Payments have to be approved;
6. Reimbursements should be done as per the exact amount of the receipt;
7. Receipts provided for reimbursement should be cancelled.

Question 12

Internal controls over bank (1)

Answer 12

1. The bank account should be reconciled monthly with the cash book:
   * Independent of the person that writes up the cashbook;
   * Reviewed by senior independent official.

Question 12

Test of controls over Bank (2)

Answer 12

1. Select one or two month’s bank reconciliations:
   * Inspect that the recons have been performed;
   * Inspect that the recons have been performed by an independent official;
   * Confirm by inspection of a signature that the reconciliation was reviewed by a senior official.

Question 12

Internal controls over bank (2)

Answer 12

1. Multilevel passwords from two senior employees - must be simultaneously entered (Payment released by 2 senior officials);
2. Access should be limited to one computer;
3. Access controls over the terminal:
   * Shutdown after 3 unsuccessful access attempts;
   * Transfers limited to a specific day.
   * Payroll run 25th each month;
   * Completeness:
   * 10 employees = 10 salaries paid;
   * Effecting the payment:
   * 2 passwords of 2 different senior employees;
4. After the payment:
   * Audit trail;
   * Bank statement;
   * Bank recon;
5. Reconciled by person independent of EFT transaction.

Question 13

Test of controls over bank (2)

Answer 13

1. Enquire about the procedures followed for EFT payments;
2. Observed the process followed during EFT payments to ensure that all controls implemented are followed;
3. Inspect the reconciliation for a signature by independent person.

Question 14

Risks within the cycle

Answer 14

Phishing: Email sent to a user to request that they click on a link. The email will contain some personal information, and entice the reader by stating that there was fraudulent transactions, or updates are required on the account.

Question 15

Risks within the cycle: EFT

Answer 15

• Fake proof of payments;

Question 16

Risks within the cycle: CASH

Answer 16

• Cash is stolen.
• Cash is intentionally overstated to cover up theft.
• Not all cash accounts are on the general ledger.
• Cash is misstated due to errors in the bank reconciliation.
• Cash is misstated due to improper cutoff.
• Unauthorised reimbursement.