Internal Control Measures for Cash Management

The assignment details discuss the internal control measures for cash management, including maintaining proper records, segregation of duties, physical control on cash, detection, prevention, management policies, and liquidity. It also references relevant studies that support these measures in preventing misappropriation, theft, or fraud.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and financial management
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Table of Contents
Answer 1 – Internal control measures for cash..........................................................................2
Answer 2 – Requirement of internal control on cash.................................................................3
Reference....................................................................................................................................4

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Answer 1 – Internal control measures for cash
Internal control process for cash receipt assists the small business to prevent the loss
owing to accounting errors and employee frauds. The controls are expected to limit the cash
access to particular employees and verify that all the receipts, transfers and refunds are
correctly documented in appropriate time. Internal control measures that can be implemented
with regard to handling of cash for managing the misappropriation are as follows –
 Maintaining proper records – maintenance of all the records associated with the cash
transactions and regular reconciliation will help in keeping tracks of all the
transactions. The reconciliation may include cash drawing reconciliation at the end of
the day or before deposits in the bank. Involvement of the management in the
reconciliation will send the signal to all the employees engaged with handling of cash
and treat cash as top priority item for security (Abiola & Oyewole, 2013).
 Segregation of duties – proper segregation of duties is an important technique that
will discourage the unethical practices of cash and will enhance the cash security. The
main objective of segregation of duty is that the same person is not involved in all
cash related activities. For instance, the person engaged with the responsibility of
daily cash deposits will not conduct the reconciliation of bank statement.
 Physical control on cash management – physical control on cash is the way in which
the cash is handled and stored. Less amount of physical cash in the office means lees
chances of misappropriation, embezzlement or theft. Therefore, the cash shall be
deposited in bank frequently. Apart from physical control, the records related to cash
shall be kept in separate place from the location where cash is kept. It will discourage
misappropriation or will discover it, if taken place (Gao & Jia, 2016).

3ACCOUNTING AND FINANCIAL MANAGEMENT
Answer 2 – Requirement of internal control on cash
Internal control system for cash is established t minimize risk of misappropriation,
fraud or theft. Need for internal controls on cash are as follows –
 Detection – cash by its nature only leaves a trail with regard to theft, fraud or
misappropriation. Observation is crucial for identifying the suspicious circumstances
or behaviour on part of the cashier. Policy violations or the voided sales may lead to
significant losses. Therefore, these issues shall be detected or observed through
maintenance of various registers (Feng et al., 2014).
 Prevention – different preventive methods helps to have control over the
misappropriation. Allocating the employees with personal cash drawer and identifying
the records associated with cash will enable internal control over operation.
 Management policies – internal control on cash assists in enhancing the reliability and
accuracy of cash books and related accounts. Further, it will assist the management to
implement and prepare the effective plant through providing fact and correct
information. It will further protect the cash from theft, misuse and misappropriation
(Lam, 2014).
 Liquidity – as cash is the major short-term asset to meet the short-term obligation of
the company, internal control over cash will assist in maintaining the liquidity of the
company.

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Reference
Abiola, I., & Oyewole, A. T. (2013). Internal control system on fraud detection: Nigeria
experience. Journal of Accounting and Finance, 13(5), 137.
Feng, M., Li, C., McVay, S. E., & Skaife, H. (2014). Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory
management. The Accounting Review, 90(2), 529-557.
Gao, X., & Jia, Y. (2016). Internal control over financial reporting and the safeguarding of
corporate resources: Evidence from the value of cash holdings. Contemporary
Accounting Research, 33(2), 783-814.
Lam, J. (2014). Enterprise risk management: from incentives to controls. John Wiley & Sons.