Cash is one of the most important parts of your business, up there with people and data security. While the subject of controls can be dry, adequate controls around all things to do with your cash are crucial in order to ensure the integrity of your business. It’s equally important cash movements are properly authorised by the right people for the right purposes at the right time. Let’s look at the control tools available around cash.
1. Bank signatories
This is an often overlooked aspect of cash management. If not considered seriously enough, oversights can easily lead to fraud or hold up payments due to the unavailability of one or two people. Neither scenario is desirable, and both impact the credibility and reputation of the entire organisation.
It goes without saying that if only one person has the power to approve and make payments, then this is the ideal condition for fraud. Of course in a single-person business, there is no other option, so we’ll discuss this in the context of a business where there are enough people at a senior enough level to implement these controls.
Number and role of signatories
In an ideal situation, businesses will have a group of signatories, of which two can sign to authorise payments. This will help avoid the situation where payments are held up simply because one person is unavailable. Additional signatories will be responsible for ensuring payments have been correctly prepared, authorised and checked.
Tip: If signatories will be unavailable when payments are due, most online banking facilities will allow payments to be processed in advance of when they need to be paid.
2. Expenditure authority limits
Depending on the size of an organisation, there may be many people with a need to spend the organisation’s money in order to do their job. A classic case is the travelling salesperson who is constantly entertaining potential and existing customers.
Employees need to be given the scope to do their job. In the context of expenditure on entertainment, meals and accommodation, these are part of the role for a lot of people. The organisation’s role here is to make it easy for employees to spend money as needed, and be comfortable in doing so.
Employees need to be able to do their job
There must be a clear policy around amounts and types of expenditure. This policy should leave very little room for ambiguity. If there is any ambiguity, the direction should be to ask a superior about the proposed expenditure before its made.
Ideally, there should be a budget for each person who is authorised to spend in terms of items and amounts.
3. Credit cards
It follows that credit cards will be issued to people authorised to spend the company’s money. With the vast majority of credit card payments being automatically direct debited from an organisation’s operating account after each monthly cycle, it’s easy for this process to be left to itself. There are dangers in this approach though.
The main risk is fraud. Card details can be skimmed and used by other parties. Often fraudsters will make irregular small transactions in a bid to avoid detection. It’s incumbent on both the cardholder and the finance or administration section of the business to review charges to credit cards. Requirements for a timely complete expense report to be submitted will help in the detection of fraudulent charges.
4. Expense reports
These are the bane of just about everyone in an organisation, particularly sales staff who do a lot of transactions. However, they need to be done properly, and in a timely manner in order for expenses to be accounted for correctly and dubious transactions to be investigated.
As part of the policy mentioned above, a timetable should be issued for when reports are to be completed by the cardholder, reviewed by management and processed in the accounting system.
Management needs to set the right example by ensuring they always adhere to expense policy without exception.
5. Petty cash
Given the prevalence of online ordering and the almost universal acceptance of credit and debit cards, the need for petty cash should be just about zero. Where it is used, it should be a last resort only, and subject to strict rules about what it can and can’t be used for. It should be eliminated if at all possible.
6. Reconciliations
It goes without saying that from a cash and accounting perspective, bank account reconciliation is crucial in the cash control arena.
Depending on the transaction volume, all bank accounts should be reconciled daily. In any event, any slightly dubious-looking transaction must be followed up immediately, including those on credit card statements. Given the availability of online banking, with most transactions available for viewing the next business day, there aren’t too many excuses for not being in control of all your cash transactions.
About CashFlowMapper
CashFlowMapper is a powerful online cash flow forecasting tool that makes it easy for anyone to understand their cash flow. Rolling forecasts, scenario mapping, business alerts, and easy-to-use (and understand) reporting help businesses and their advisors make informed decisions based on real-time data.
Our four-step guide to taking control of cash flow can help your clients better understand the importance of cash flow forecasting.
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