Controls over Banking of Receipts:

a) Receipts should be banked daily. The receipts should be banked intact - for example no Cash payments should be made out of cash receipts. Banking intact allows control (d) below to operate.

b) Each day's receipts should be recorded promptly in the cash book.

c) Sales ledger personnel should have no access to the cash or the preparation of the paying-in slip.

d) Periodically a comparison should be made between the split of cash and cheques:

i) Received (and recorded in rough cash book)

ii) Banked (and recorded on paying-in slip).

Controls over Cheque Payments:

a) Unused Cheques should be held in a secure place.

b) The person who prepares cheques should have no responsibility over purchase ledger or sales ledger.

c) Cheques should be signed only when evidence of a properly approved transaction is available. Such evidence may take the form of invoices, payroll, Petty Cash book etc.

d) This control should be evidenced by signing the supporting documentation.

e) In a large concern those approving the original document should be independent of those signing cheques.

f) Cheque signatories should be restricted to the minimum practical number in order to make the operation of controls as practical as possible.

g) Two signatories at least should be required except perhaps for cheques of small amounts.

h) The signing of blank cheques and cheques in favour of the signatory should be prohibited.

i) Cheques should be crossed 'A/c Payee only', if this is not pre-printed on the cheque before being signed.

j) Supporting documents should be cancelled as paid to prevent their use to support further cheque payments. This cancellation could be done by the cashier before the cheque is signed (provided the cancellation identifies the cheque number) or by the cheque signatory at the time of signing the cheque.

k) Cheques should preferably be dispatched immediately. If not, they should be held in a safe place.

l) Returned cheques may be obtained from the bank and a sample checked against cash book entries and supporting documentation.

Bank Reconciliations

a) Bank reconciliations should be prepared on a regular basis, at least monthly.

b) The person responsible for preparation should be independent of the receipts and payments function or, alternatively, an independent person should check the reconciliation.

c) If the reconciliation is prepared by an independent person he/she should obtain bank statements directly from the bank and hold them until the reconciliation is completed.

d) The preparation should preferably include a check of at least a sample of receipts and payments against items on the bank statement.

Controls over Petty Cash

a) The level of and location of cash floats should be laid down formally.

b) There should be restricted access to the floats. restricted access to keys.

c) Cash should be securely held e.g. in a locked drawer or a safe, with restricted access to keys.

d) All expenditure should require a voucher signed by a responsible official, not the petty cashier.

e) The imprest system should be used to reimburse the float i.e. at any time the total cash and value of authorized vouchers not reimbursed equals a set amount, for example Rs.1,000.

f) Vouchers should be produced before the cheque to top up the cash float is signed.

g) Vouchers should be cancelled once reimbursement has taken place.

h) A minimum amount should be placed on a petty cash payment to discourage normal purchase procedures being by-passed.

i) A petty cash book should be maintained by the petty cashier. Entries should be made promptly.

j) Periodically the petty cash float should be reconciled to the balance in the petty cash book by an independent person.

k) Rules should exist preferably preventing the issue of IOU’s or the cashing of cheques for employees

Tests Of Control

- Cash Receipts

(i) Attend mail opening and ensure procedures are adhered to.

(ii) Test independent check of cash receipts to bank lodgments.

(iii) Test for evidence of a sequence check on any pre-numbered receipts for cash.

(iv) Test authorization of cash receipts.

(v) Test for evidence of arithmetical check on cash received records.

- Cash Payments

(i) Inspect current cheque books for:

· Sequential use of cheques

· Controlled custody of unused cheques

· Any signatures or blank cheques.

(ii) Test (to avoid double payment) to ensure that paid invoices are marked 'paid'.

(iii) Test for evidence of arithmetical check on cash payments records, including cashbook.

(iv) Examine evidence of authority for current standing orders and direct debits.

- Bank Reconciliations

(i) Examine evidence of regular bank reconciliations (usually one per month).

(ii) Examine evidence of independent check of bank reconciliations (e.g. a signature).

(iii) Examine evidence of follow-up of outstanding items on bank reconciliations. Pay particular attention to old outstanding reconciling items that should be written back such as old, un-presented cheques.

- Petty Cash

(i) Test petty cash vouchers for approval.

(ii) Test cancellation of paid petty cash vouchers.

(iii) Test for evidence of arithmetical check on petty cash records.

(iv) Examine evidence of independent check of petty cash balance.