Question

Drs. Sawyer and Preston operate a medical partnership. An employee has been designated and trained as a cashier, responsible for opening the mail and recording payments received. She also takes payments from patients receiving medical services. At the end of the day, the cashier balances the cash drawer, prepares the daily bank deposit, and drops the deposit into the banks night deposit on her way home. What recommendations would you make to improve internal controls over the cash handling process

Answer 1

One of the most important steps that can be taken to protect cash, is to separate cash handling duties among different people. With proper separation of duties, no single person has control over the entire cash process.

• Best practice is to have different people:
  • Receive and deposit cash
  • Record cash payments to receivable records
  • Reconcile cash receipts to deposits and the general ledger
  • Bill for goods and services
  • Follow up on collection of returned checks
  • Distribute payroll or other checks

  The key to effective cash control while separating duties is to minimize the number of people who actually handle cash before it's deposited.

• Potential consequences if duties are not separated:
  • Concealed errors or irregularities going unchecked
  • Lost or stolen cash receipts
  • Inaccurate application of cash receipts to department accounts