Best Practices: Cash Controls, Cash Outflows

Cash Outflow

I’ve previously written about the importance of keeping strict controls over a company’s liquid assets such as cash. In prior blogs I discussed controls over petty cash and cash inflows. As important as it is to track customer receipts, it is just as important to keep strict controls over cash outflows and checks to vendors.

There should be just as many, if not more, controls over the cash outflows as the inflows. While it is easy to lose checks as they come in the door, it is much easier to lose cash through the check writing process. Checks are vulnerable to theft in a company as there are loose checks in an office and possibilities for forgery so both the checks themselves and the process of check signing need to be controlled.

Most companies have boxes of check stock in the office. This check stock should be kept in a secure place so only authorized employees have access to the checks. There are two types of check stock: pre-numbered and blank stock. Both have their own control advantages and disadvantages. Pre-numbered check stock is easy to track to make sure all checks are accounted for. It is important to account for both executed and voided checks to ensure none are missing. Blank check stock, on the other hand, makes it harder to issue unauthorized checks. All checks need to be printed from an accounting system that prints the header, account number, and check number on the check when it’s completed in the accounting system. Blank checks don’t have an account number on them so someone cannot take the number to use it. But at the same time, the actual check stock paper is much harder to track as the individual pieces are not numbered. Either way, the check stock needs to be kept separate and secure.

As for the actual cash outflow, all checks out should go through an approval process. There must be segregation of duties between personnel who write or issue checks and those who approve the check issuance. The same person that writes the checks should not also be approving them or signing them. This places too much control over cash in the hands of one person. As a best practice, the approver should only sign checks that have appropriate and sufficient backup documentation with them. There should be no random checks issued without backup, typically in the form of an invoice or statement from a vendor. There must also be controls on who can issue checks in the first place. Too many people with access to the check stock and access to issuing checks can cause duplicates, lost checks, or unrecorded checks. It is critical that the approvals and all cash outflows are monitored closely.

Written by:
Ashley Peth
TGG Accounting

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