When determining your organization’s risk management and security policies, establishing internal controls is a crucial part of the process. Internal control procedures help protect your organization from finances, strategy, and overall reputation risks. Controls serve as a check-up to ensure your business runs effectively and efficiently.
Internal controls relating to finance help your organization maintain regulatory compliance required by industry standards. The U.S. government’s Sarbanes-Oxley Act of 2002 (SOX) requires proof that companies accurately report their financials to protect investors.
Creating a set of controls for business financing and cash handling will help uphold business continuity and safeguard your finances.
What are Cash Controls in Business Financing?
Cash controls refer to all cash management policies and procedures within your organization. By establishing procedures that maintain control over cash receipts and cash disbursements, your organization can mitigate many financial risks associated with running a business, including inaccurate payments, theft, and fraud.
Internal cash control systems can include your organization’s governance, all company policies, and segregation of duties within your company. Other controls necessary for financial security include requiring authorized approvals for purchases, requiring signature authority, and reconciling all payments and bank account activity.
What are the Best Practices for Internal Controls of Cash Receipts?
When your company receives incoming cash from a business transaction, it’s considered a cash receipt. Any asset sales of investment, property, or equipment also fall under the cash receipt category.
To control cash transactions, organizations should adopt some of the following practices: Require background checks for employees, establish segregation of duties, safeguard all cash and assets in secure locations, and use a lockbox to accept cash payments from customers.
Other helpful cash receipt controls include making daily bank deposits, reconciling accounts, reviewing bank statements at least monthly, and keeping vigilant records of cash in accounts receivable.
Establish procedures for conducting petty cash fund reviews and having supervisors approve all voided transactions and returns.
Common Internal Control Measures for Cash
Internal controls are guidelines, processes, and technology protections that preserve a company’s assets by avoiding fraud, mistakes, and other inappropriate behavior. These controls are classified into three types: detective, preventive, and corrective.
Understanding internal controls is essential to protect your company, so it may come in handy to be aware of some internal controls that can be useful for cash handling:
Put the organization’s cash in a secure cabinet or box with limited access (or, better yet, a drop safe). This should be checked to ensure that only authorized personnel can access cash.
For example, petty cash or blank checks should be kept in a locked compartment with limited access, and only authorized workers should have the combination or key.
Segregation of Duties
Different employees should handle authorizing a transaction, registering a transaction, and keeping custody of the linked assets. If different employees perform cash-handling duties, it helps ensure that no one person has complete control over the process.
Ensure all monetary transactions have been approved, accounted for, and adequately documented. Ensuring staff responsibility also helps to limit the risk of lost or stolen cash receipts and erroneous transaction documentation.
You must reconcile every bank account regularly to verify that all transactions are recorded correctly and thoroughly. In addition to bank reconciliations, the business should reconcile its programming systems to its accounting systems and conduct periodic cash-on-hand counts.
An internal control review is essential to ensure control activities are functioning correctly. Management should conduct frequent reviews and monitoring, as well as examine any unexpected activities. This procedure will assist in determining whether a control is malfunctioning or needs to be updated.
What are the Best Cash Controls for Disbursements?
Disbursements, or payments, should also have a standardized management procedure. Segregation of duties helps internal cash controls for disbursements between the employees handling cash receipts and those making payments or disbursements. Organizations should follow policies around spending and approval limits and authorized approvers.
Another way to safeguard company disbursements is by requiring multiple approvals from the CEO and board of directors for significant transactions. Aim to use sequential payment numbers to help prevent missing transactions and run a bank reconciliation regularly.
Other internal controls for managing cash disbursements include the following:
- Keep a secure petty cash drawer and cash register in an official point-of-sale system
- Maintain an updated list of all vendors and validate vendors online to help reduce scams
- Secure all financial IT software with passwords and two-step validation
- Establish ongoing cybersecurity monitoring for phishing, phone, and mail fraud
- Schedule an annual financial audit by a CPA firm to help establish any gaps in your accounting system
Best Practices for Cash Flow Management
Safeguarding your organization’s cash flow could make or break your yearly financial gains. Establish procedures that help your company better handle cash flow to help identify increased earning potential and reduce unnecessary or excessive spending.
Your cash management control should help you plan the timing of cash coming in and flowing out through detailed accounting records. Planning this in detail lets your organization identify when financing is needed to sustain your business and grow your operations.
Your cash management plan should include all extensive project approvals and budget allocations based on your company’s current value on an operational level. By creating a cash management plan, you’ll identify various spending areas, such as operating costs and investments.
Enhance Risk Management with Automation from RiskOptics ROAR
RiskOptics ROAR delivers real-time threat intelligence. Rather than utilizing worksheets to handle your compliance obligations, use Compliance innovations to automate evidence and audit management across all your compliance frameworks. It also functions as a risk and process management program that is simple to use.
It is a single source of truth that guarantees your company is always audit-ready. With the built-in document repository, you can ensure your policies and procedures are easily accessible and revision-controlled.
It also includes workflow management tools for simplified monitoring, automatic reminders, and audit trails, giving your business Insightful data and dashboards highlighting gaps and high-risk areas.
RiskOptics ROAR allows you to deliver due diligence polls, save submitted questionnaires, check status, and give a risk score based on replies. Organizations can also conduct risk assessments, develop business continuity plans, map controls across frameworks, and identify further risk-mitigation measures.
Schedule a demo today to learn more about how the RiskOptics ROAR platform enables companies of all industries.