Cash Controls Payments

What Are Cash Controls for Payments?

One of the important aspects of managing your small business is cash controls, payments as with receipts, need to be subject to a systems of controls to prevent misappropriation.

Cash payments usually consist of three types, cash payments out of your petty cash reserve, by cheque either in person or by mail, and electronically where the funds are deposited straight into the bank account of your creditor or supplier.

Using your Petty Cash Reserve

As funds are taken out of the petty cash reserve, the recipient is required to sign a petty cash voucher or receipt prepared by the custodian of the fund. Pre-printed petty cash vouchers can be purchased from most office supply stores, and have space for details such as the transaction date, the purpose of the payment and the amount paid.

At all times, the total of the vouchers plus the cash balance of the petty cash reserve should equal the amount originally placed in the fund. Once the purchase has been completed the receipt collected from the other party in the transaction is attached to the relevant voucher and kept until the petty cash fund is reimbursed. At this time the vouchers are forwarded to the bookkeeper to enable him or her to prepare the journals necessary to record the transactions in the accounting records.

Paying by Cheque

Paying by cheque is the preferred method of paying accounts as by their very nature, cheques create an audit-able trail of source documents for your accounting records. If you are using cheques, they should be pre-numbered so that all cheques can be accounted for.

All invoices that require payment should be verified and approved form payment before a cheque is drawn. Verification involves ensuring that the goods or services on the invoice were ordered correctly and actually received. In a small business, often the person who verifies the invoice also draws the cheque, but this is not ideal. The employee who is responsible for signing the cheques should not be the person who approves the invoice for payment as this separation of duties works as a check against fraudulently drawn cheques.

Cheques should only be signed when they are accompanied by a properly approved invoice indicating that the payment is justified. Once the cheque is signed the inovice should be marked in some way to indicate that it has been paid so that it is not presented for payment twice.

The approved copy of the invoice is then forwarded to the bookkeeper to enable him or her to create the journal to record the payment in the accounting records.

Paying Electronically

In some ways, payments made electronically are easier to manage than cash transactions as the 'cash' is not handled physically. However, care needs to be taken to limit access to the security information for your bank accounts only to those who are authorized to make payments using this method.

As with payments made by check, electronic payments should not be processed unless the payment request is accompanied by a properly approved invoice. Each transaction is recorded on a payments record sheet, codes are used to identify which transactions are cash or cheques, and which are electronic.

The transaction amounts are entered into the accounting records by the bookkeeper using the payment records and verified each time a bank reconciliation is done.

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