Phantom BOM in NAVJanuary 12, 2017
What is Internal Control?
Internal control is a combination of procedures and systems designed to ensure that all employees perform their duties ethically and honestly.
Internal Control of Cash:
Control of cash is one of the most important aspects of an internal accounting control system. Cash internal controls is a system used to promote accuracy, prevent theft, and ensure a business has enough cash to pay its debts. Controlling of Cash is needed as cash is a valuable commodity and is vulnerable to fraudulent activity. Since cash is the most liquid asset and the easiest for people to convert for their own needs, it is often the easiest thing to steal or misreport.
Goals for Internal Cash Controls:
- To check whether the business’s actual i.e. physical cash balance equal what is recorded in its financial records.
- To ensure that there is enough cash available to pay all bills as they come due.
- To prevent the business from having too much idle cash. Idle cash can be invested to generate a higher return.
- To prevent theft or fraud.
How to create Internal Control Procedure:
- Before establishing any control in the organization you should consider the business’s managementphilosophy, the integrity of the employees, and the legal requirements established by the state and federal government.
- You should consider how a business’s cash is at risk. Are large amounts of cash kept where employees have access to it? Who is responsible for receiving and depositing cash? Who is responsible for giving cash to settle debts? These are the types of questions that address what possible risks a business may face when it comes to cash.
- Control activities are steps that a business takes to minimize risks. Examples of control activities include having different employees being responsible for different parts of the transaction. The person who is withdrawing the cash should be different from the one who is spending it and who is checking the transaction of both the formers.
- Control activities must be designed and then executed by relying on information to be communicated between the people who control different aspects of the transaction. To minimize errors and fraud, the correct information must flow to the right people in a timely manner.
- The entire process must be reviewed by upper level management to ensure that every person is complying with their responsibilities. It is also generally required that the business audits its books and review its internal controls at least annually.