Helpful tips on cash management and controls

August 26, 2011

Helpful tips on cash management and controls and how to apply these tips in accounting practice.

1. Helpful tips on cash management and controls

Cash management practices are set in place to predict and possibly prevent or minimize short term cash flow problems. They are often inexpensive and easy to implement and can not only speed up cash handing process but also reduce cash requirements in different operating areas.

Examples of cash management practices include the following (the list is not exhaustive):

  • Use online banking (e.g., electronic fund transfers, online bank reconciliations on a daily basis)
  • Consolidate bank accounts
  • Implement an automatic cash application system
  • Post checks from photocopies in order to avoid delays in check posting
  • Collect receivables through lockboxes
  • Implement physical cash sweeping (e.g., zero-balance accounts)
  • Verify cash discounts
  • Implement a materials management system (e.g., material requirements planning)
  • Time invoice payments

Cash flow controls are practices set in place to manage cash receipts, cash payments, cash balances, and cash transfers. Cash controls include such practices as manual or computerized cash disbursement controls, cash receipt controls, check handling controls, credit card and lockbox receipt controls, petty cash controls, cash payroll payment controls, etc.

For example, cash disbursement controls are as follows:

  • Segregate duties (e.g., segregate check-signing duties, bank reconciliation duties)
  • Secure the check stock and track check stock numbers
  • Verify that all checks ordered have been received
  • Destroy or perforate canceled checks
  • Perforate voucher packages with the “PAID” stamp
  • Reconcile supplier statements
  • Reconcile bank statements
  • Require authorization and manual signature on large checks exceeding a set limit

Cash receipt controls may include:     

  • Authorize cash refunds
  • Deposit cash daily
  • Reconcile cash to cash register
  • Lock cash

Lockbox receipt controls are as follows:

  • Route checks to the lockbox
  • Reconcile bank statements
  • Reconcile lockbox transactions report to checks
  • Reconcile remittance advices to cash receipts

Petty cash controls include:

  • Minimize on-hand petty cash balance and restrict petty cash reimbursements
  • Require valid expense receipts as well as a signature on every petty cash receipt
  • Lock petty cash
  • Periodically audit petty cash

To assess the efficiency of cash management and control practices, a company can carry out a cash management audit. The company could appoint an external audit consultant, establish an internal audit team, or use a combination of both. Cash management audit includes finding facts, identifying and analyzing weaknesses, developing and evaluating improvement proposals, and implementing recommendations. The key areas analyzed often include bank balances and charges, cash receivables, and cash payables.

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