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Having control over a large amount of cash is tempting; knowing there is no oversight is inviting. It is fraud in the making. All it needs is a spark.
In all business entities, cash is a high risk asset and vulnerable to fraud. Having controls in place and ensuring their compliance is of top priority.
All cash processes, manual or automated, must meet the objectives (1) to safeguard the asset against risk of loss, and (2) to prevent, deter, and detect errors and fraud.
The key controls are segregation of duties and independent verification.
Separating the custodial duties from the recording duties is the key.
The bank accounts reconciliation is an independent verification control which has been underutilized and underappreciated as a detective and deterrent control.
It has become a mere bookkeeping routine and mathematical exercise to make book balance = bank balance.
The person who performs the bank accounts reconciliation should not be the same person who has access to, and control over, the cash.
Verification procedures must include (1) tracing all cash receipts to the bank record, (2) supporting all bank debits with approved internal records, and (3) examining all cancelled checks for signs of alteration.
The deployment of a two-person team in the cash receipts process is recommended.
The implementation of an independent verification step prior to disbursing cash, or transferring funds, is recommended.
Cash will remain as a high risk area and vulnerable to fraud. Stringent controls must be in place and deployed to mitigate the risk of loss.
For controls to be effective, there must be diligent oversight.
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