Transcript For Internal Controls For Cash and Cash Equivalents Video

Slide 1 This video will discuss Internal control of cash and cash equivalents.
Slide 2 Cash is something that needs internal control. Because cash is very important for a business, but it
is also something that can disappear. Unfortunately, there are people that would not always follow
the rules and some people that are greedy that wants to enrich themselves. So, cash can be a
problem if you don’t have control over it.
Slide 3 A payment request must be signed of by at least two different employees. When you prepare
that payment request it must be authorised by those two people because if it’s only one person
then that person, himself or herself, can make an unauthorised payment to herself or himself.
If there are two people, the risk of that unauthorised payment going through is so much smaller
except if those two people work together then that is going to be a problem but if they are
individual staff members that must approve the payments then at least you have covered the
risk that there can be an unauthorised payment.
Slide 4 Cash receipts should be recorded in such a way that the actual cash received can be checked
against an independent daily record. What we are saying here is when you receive cash from
customers when they paid for the transaction, they paid cash they did not make use of a credit card,
then that cash laying there in the business can be a risk because if nobody made proper recording
of that cash, that cash can also be taken by somebody. Let say you received a R100 and only R80 is
now recorded that R20 you put in your pocket. But again, if there are more than one person
handling the cash the first person receives it record it in a separate book or a separate record, then
a second person must then take it and do the deposit. So, the whole time there will be control
because at the end what is deposited must be reconciled with what was received because then you
will have two different documents, two different records. The one would have been when the cash
received was recorded as being received on this day from this customer and then the second time
when it was deposited then you will have the deposit slip. So, you can confirm that what was
received was then at the end deposited.
Slide 5 Cash received should be banked daily. If you don’t do that the possibility also becomes much higher
that the money can go missing or if there are people that come to your business, they know you
keep quite a lot of cash with you, they come with their guns, it’s a hold-up and they rob you of your
cash. So, the chance for someone to come and do that becomes so much higher when you don’t go
and deposit all your receipts per day, the next or following day or at the end of the day. You just
create a problem for yourself and increasing the risk that these things can happen.
Slide 6 All payments except petty cash payments should be made by EFT. Like I explained earlier when it’s
done this way there will be your payment advise and then there is also that is prepared by one
person and then the second person will thus approve the payment advise and make the payment.
Again, it is the segregation of duties where there is more than one person involved with the
payment and by doing it with an EFT you have full control that the payment that will then go
through is then the amount that was approved.
Slide 7 The bank statement should be compared with the cash receipts and cash payments journals. The
reason why you will do that is to see that firstly, what was recorded in your cash receipts and cash
payments journals were correctly recorded, because if the deposit that was recorded in the cash
receipts journal differs then from the deposit on the bank statement, it can be that the transaction
was recorded incorrectly in your books of first entry in your cash receipts journal. It’s also to check
and make sure there aren’t errors in your recording in your accounting records and secondly that all
cash that was received was then at the end deposited because that is another control. The same
with your payment. When you compare your cash payments journal with your bank statement you
will also first make sure that the amounts agree, so that there are no errors and also then that all
payments that are reflected on the bank statement are also reflected on your cash payments
journal. Let say there was an unauthorised payment that went through you will then pick it up on
your bank statement, you will see there is a payment on your bank statement that is not reflecting
in your cash payments journal, and you can’t find any payment advise then you will know this was
an unauthorised or it can be that it was just the person that just forgot to go record it. So, it can be
an error or a detection of fraud. So, it does show it is very important to do these comparisons to
make sure that your check. Don’t leave it until the end of the financial year because then it’s too
late. Every month when you receive your bank statement you must do that comparison so that
when there are mistakes you can pick it up quickly and do the corrections or to follow it up with the
bank if the bank made a mistake so that everything can be corrected, and you know that your
balance as per your bank account in the general ledger agrees to the balance in the bank statement.
Slide 8 You should reconcile basically your bank account balance with the bank statement so that you know
that the amount as per your bank account is what is reflected on the bank statement, especially
when you need to make a big payment and according to your records in your general ledger you
have a favorable bank balance and when you want to then make the payment you suddenly find
that the bank balance is not favorable it is unfavorable. That can be because there is one
transaction that you never recorded but not comparing your own bank account balance in the
general ledger with the bank statement you would not have found out that your bank balance was
unfavorable, and you thought it was favorable. You must compare these balances on a monthly
basis so that you know that when you are going to make these payments that there is money in
your bank so definitely that control of confirming your bank balance as per your general ledger with
the bank statement you will know then of any transactions that either was not recorded on your side
or might be an error on the bank statement where the bank must then be advised of that error so
that they can correct it.
Slide 9 Thank you.

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Slide 1 This video will discuss Internal control of cash and cash equivalents.

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