Which of the following is a standard internal control over cash disbursements?

Everyone has heard a story about a seemingly great employee who has worked in the business for many years, who would never do anything wrong, and who treats the business like his or her own. And yet, that person is discovered using the company’s checkbook to pay personal expenses.

Inhaltsverzeichnis Show

Which of the following is the standard control over cash disbursement?
What internal controls are needed for cash disbursement?
Which of the following is an effective internal control over cash disbursement?
What are the most important controls over cash disbursements?

The common theme in these stories is that the businesses were lacking proper internal controls, designed to both prevent and detect misappropriation of cash through disbursements.

Here are five items to consider when evaluating your internal controls over cash disbursements.

1. Segregate duties.The foundation of a good internal control system is segregation of duties. The duties of authorization (signing a check or releasing a wire transfer), custody (having access to the blank check stock or the ability to establish a wire transfer), and recordkeeping (ability to record the transaction in the accounting system) should be separated so that one individual cannot complete a transaction from start to finish. The concept behind segregation of duties is that in order to misappropriate cash, individuals would have to collude, rather than one individual acting alone.

For many businesses, proper segregation of duties can be difficult to achieve. In these instances, company owners may want to consider the bank statements delivered to them unopened. The owners should then review the bank statements and the check images for any transactions that appear unusual, and follow up on these transactions to obtain an understanding of them. This process alone has uncovered many situations like the one described above.

2. Review authorized signors.Carefully consider who your authorized signors are (authorization of the transaction). Those individuals should not have access to the blank check stock (custody of the asset) nor the ability to enter the transaction into the accounting system (recording of the transaction). The use of a signature stamp, although efficient, may be problematic in that you must have separate controls to ensure that the stamp is not readily available for inappropriate use.

3. Consider requiring dual signatures.Your company may also want to consider the use of dual signatures. A dual signature policy includes the establishment of a dollar threshold over which checks require two signatures. The utilization of dual signatures establishes an element of segregation of duties for disbursements over a specified threshold in that these disbursements require more than one individual to authorize the transaction.

4. Remember the wire transfers.The use of wire transfers has increased significantly over the years, and segregation of duties around wire transfers is paramount. The responsibilities for establishing a wire transfer should be segregated from the responsibility of releasing the wire transfer. If this segregation is not possible, consideration should be given to using a call-back procedure, in which the financial institution will call a specified individual when a wire transfer is initiated. Most important, the call back cannot go to any individual who is able to initiate a wire transfer.

5. Reconcile bank accounts in a timely manner.The bank reconciliation should be completed in a timely manner by someone who is independent of the cash disbursement process. The bank reconciliation should also include a review of the bank statement and the check images that are returned with the bank statement for unusual transactions. Any unusual items should be investigated and evaluated when necessary.

It is never too late to review your internal controls. While processes often vary among companies, implementing the items in this checklist should significantly reduce the likelihood of your business becoming the subject of another one of those stories.

We will be happy to provide further information relating to this subject. For more information, contact Todd E. Crouthamel at or 215.441.4600.

You may also like:

Decoding GIPS
Key drivers of value in asset managers
Beware of the SEC when it comes to claims of GIPS compliance

Since cash is the most liquid of all assets, a business cannot survive and prosper if it does not have adequate control over its cash. Cash is the asset that has the greatest chance of “going missing” and this is why we must ensure that we have strong internal controls build around the cash process. Since many business transactions involve cash, it is a vital factor in the operation of a business. Of all the company’s assets, cash is the most easily mishandled either through theft or carelessness. To control and manage its cash, a company should:

Account for all cash transactions accurately so that correct information is available regarding cash flows and balances.
Make certain that enough cash is available to pay bills as they come due.
Avoid holding too much idle cash because excess cash could be invested to generate income, such as interest.
Prevent loss of cash due to theft or fraud.

The need to control cash is clearly evident and has many aspects. Without the proper timing of cash flows and the protection of idle cash, a business cannot survive.

Companies protect their assets by (1) segregating employee duties, (2) assigning specific duties to each employee, (3) rotating employee job assignments, and (4) using mechanical devices. This video highlights the problems and controls needed when dealing with cash:

When a merchandising company sells its merchandise inventory, it may receive cash immediately or several days or weeks later. A clerk receives the cash immediately over the counter, records it, and places it in a cash register. The presence of the customer as the sale is rung up usually ensures that the cashier enters the correct amount of the sale in the cash register. At the end of each day, stores reconcile the cash in each cash register with the cash register tape or computer printout for that register.

Did you know? The cheapest and easiest internal control test is by involving the public. If a company requires all transactions be entered in the cash register, the company can do a “promotion” that will verify employees are following this. The promotions would be like “If you receipt has a red star on the back, get a free cookie” or “If you do not get a receipt, receive a free drink”. Sound familiar? The public is now looking for a receipt for each transaction and will ask if they don’t receive it. The benefit of finding theft will outweigh the cost of giving away a little free food.

Payments received later are almost always in the form of checks. Stores prepare a record of the checks received as soon as they are received. Some merchandising companies have customers send the payments directly to the bank instead of the company itself. Although businesses vary their specific procedures for controlling cash receipts, they usually observe the following principles:

Prepare a record of all cash receipts as soon as cash is received. Most thefts of cash occur before a record is made of the receipt. Once a record is made, it is easier to trace a theft.
Deposit all cash receipts intact as soon as feasible, preferably on the day they are received or on the next business day. Undeposited cash is more susceptible to misappropriation.
Arrange duties so that the employee who handles cash receipts does not record the receipts in the accounting records. This control feature follows the general principle of segregation of duties given earlier in the chapter, as does the next principle.
Arrange duties so that the employee who receives the cash does not disburse the cash. This control measure is possible in all but the smallest companies.

Companies also need controls over cash disbursements. Since a company spends most of its cash by check, many of the internal controls for cash disbursements deal with checks and authorizations for cash payments. The basic principle of segregation of duties also applies in controlling cash disbursements. Following are some basic control procedures for cash disbursements:

Make all disbursements by check or from petty cash. Obtain proper approval for all disbursements and create a permanent record of each disbursement. Many retail stores make refunds for returned merchandise from the cash register. When this practice is followed, clerks should have refund tickets approved by a supervisor before refunding cash.
Require all checks to be serially numbered and limit access to checks to employees authorized to write checks.
Require two signatures on each check over a material amount so that one person cannot withdraw funds from the bank account.
Arrange duties so that the employee who authorizes payment of a bill does not sign checks. Otherwise, the checks could be written to friends in payment of fictitious invoices.
•equire approved documents to support all checks issued.

Click Image to Enlarge

Instruct the employee authorizing cash disbursements to make certain that payment is for a legitimate purpose is made out for the exact amount and to the proper party.
Stamp the supporting documents paid when liabilities are paid and indicate the date and number of the check issued. These procedures lessen the chance of paying the same debt more than once.
Arrange duties so that those employees who sign checks neither have access to canceled checks nor prepare the bank reconciliation. This policy makes it more difficult for an employee to conceal a theft.
Have an employee who has no other cash duties prepare the bank reconciliation each month, so that errors and shortages can be discovered quickly.
Void all checks incorrectly prepared. Mark these checks void and retain them to prevent unauthorized use.

In the next section, we discuss the bank checking account. If you have a personal checking account, some of this information will be familiar to you.

Click Image to Enlarge

Which of the following is the standard control over cash disbursement?

Which of the following is a standard control over cash disbursements? Checks should be sequentially numbered and the numerical sequence should be accounted for by the person preparing bank reconciliations.

What internal controls are needed for cash disbursement?

What Internal Controls Are Needed for Cash Disbursement?.

Segregation of Duties. Segregation of duties means that no financial transaction is handled by only one person from beginning to end. ... .

Authorization and Processing of Disbursements. ... .

Managing Restricted Funds. ... .

Check Signing. ... .

Internal Accounting Controls Checklist..

Which of the following is an effective internal control over cash disbursement?

Segregation of duties helps internal cash controls for disbursements, both between the employees handling cash receipts and those making payments or disbursements.

What are the most important controls over cash disbursements?

Disburse cash/cash equivalents only for valid business purposes upon proper authorisation. Adhere to the minimum requirements and general procedures for case disbursements. Discourage the use of cash floats at completion of administration set-up.