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How Important Are Cash Policies and Procedures to Your Business?
Small and medium-sized businesses rely on a steady, consistent stream of incoming cash – customers paying for goods and services with cash, checks, and credit cards. Many retail and service businesses have multiple people conducting cash transactions throughout the day. Creating a cash policy and cash procedure for important cash handling processes like cash drawer management, end of day closing, or cash in deposits, can be vital to protecting the life blood of your business.
Cash Management is Vital for Internal Control
Sloppy approaches to cash management can lead to temptation. Employees handling a significant amount of cash carry the greatest opportunity for fraud or abuse. Cash handling procedures are used to minimize cash handling risks. Multiple cash counts by different people make the basis of sound cash controls.
For example, the same person who handles the money should not be the one accounting for it. Cash funds should be counted often and by at least two people. Different people should handle cash, checks and deposits from those who record them in the books.
Cash handling procedures are one area auditors examine. Poor cash management policies and lack of control over cash handling will certainly make a poor impression, and possibly even impact an auditor’s perception of your accounting practices. Good controls using cash policies and procedures that are clearly communicated and regularly audited internally indicate to external auditors that cash controls are working.
Cash Policy and Cash Procedures Set Organizational Tone
Not only do proper cash policies and useful cash procedures send a clear signal to auditors, it also creates the required operating environment for employees. Due diligence and transparency involving regular management activity (including creating and updating cash policy and procedures) sets a tone that professionalism is the standard. Mistakes that are quickly caught and corrected convey a clear message about the importance of proper cash management.
Understanding key elements of your business, setting the proper environment for employees, creating a positive impression for auditors; these are just some examples of how proper cash policies and procedures can help your business. If you don’t feel you have the proper cash management controls in place, it is never too late to start. Begin by understanding your cash processes and identify what is important and what risks you face. Address them by creating cash procedures that incorporates data collection and review as well as the typical controls such as second person reconciliation.
If your business relies on cash flow, as most do, why would you leave cash management to chance?
Related Articles:
- Best Practices for Strategic Business Management
- Your Credit Policy Protects Your Business Cash
- Cash Security Practices are a Key Facet of Internal Control
- Improving Ethics in Your Business
- Effective Policies and Procedures: The Complete Cash to Cash Cycle
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January 11th, 2009 at 4:23 am
Having just left a large company (multibillion revenues) that failed to recognise the importance of internal controls generally, including cash management risk, I I would only add that all the above good advice in the article applies irrespective of the scale of the business itself. It is not limited to “small and medium sized companies”.
The risk takes effect at the level of departments and individual employees, and is no respecter of the size of the P&L or Balance Sheet - if the opportunity to commit fraud, or the likelihood of errors, exists with an individual person then the problem has to be addressed.
Many of the largest corporate disasters arising from operating risk and controls have centred on indviduals: the few men at the top of Enron, one man at Barings Bank, one man at Societe Generale, one man - the top man - in the recent Madoff case.
So look at how your P&P operates at the individual level and visualise the real people involved. Do not just issue P&P in generic terms.