illustrated business-style report ASAP (6hrs)

From: Amy Lamere

Date: March 27, 2014

Subject: The importance of strong internal controls of cash

Having strong internal controls within an accounting department is very important. Many of you work in companies that have accounting departments—you know the importance of sound oversight of a company’s financial dealings. Strong internal controls limit errors in entering payments to the wrong account. Internal controls also reduce the chance of employee embezzlement. [Amy seeks to relate her topic to non-accountants.]

I have worked in the accounting field for almost 17 years. I have an Associate’s Degree in Accounting. In addition, I have taken all the accounting classes needed for my Bachelor’s Degree. [Amy’s revealing of her credentials can reassure us that her information in this report will be sound!] I have learned the importance of strong internal controls when dealing with cash (which includes currency, checks, and credit card charges).

Let’s look at ways to improve internal control practices when it comes to cash:

· Separation of duties [Here is Amy’s “blueprint” for her report, a list of

· Accountability the main section headings that organize her information

· Authorization for her readers.]

· Reconciliation

Separation of duties [For optimal visual clarity of the organization of her report, Amy exactly matches the wording of her blueprint items.]

If you want to protect cash within your company, you need to separate cash handling duties. It is best if different people are involved in handling cash. No one person should have entire control of cash activity.

These duties include:

· Opening mail that includes cash [To create a grammatically parallel list, Amy begins each item with the same kind of word, in this case, a verb ending in –ing.]

· Depositing cash

· Recording payments to customer accounts

· Reconciling deposits to general ledger

· Billing customers

· Following up on past due accounts

Allowing one person to complete all of these duties opens your company up for additional risks. These risks can include errors, lost or stolen cash, or incorrect accounts being applied payments.

This example shows how you could separate the cash handling duties in a small office: [Here, Amy explicitly introduces here illustration—she tells us how it supports the idea that financially sensitive duties should be divided among multiple employees.]

Person #2

Person #1

Records Payments & Reconciles to GL

Opens Mail

Verifies Payments Posted to GL & Makes Deposit

Prepares Customer Bills

Follows Up on Past Due Accounts

The blue shows a separation of duties when handling cash in a small office. Having more than one-person handle the cash from when it enters the office until it goes to the bank will help eliminate the chance of employee embezzlement. The green in the example shows separation of accounts receivable duties. Having different people take care of related tasks makes it more difficult for someone to embezzle money. [In this paragraph, Amy follows up on her illustration, walking us through its main parts. She thus relates her illustration clearly to the point she’s making in this section of her report.]

There have been many small businesses where embezzlement has taken place because of lack of separation of duties. If one person is responsible for all of these tasks, they can steal the cash and neglect to apply it to the customer’s account and no one will know. What happens next? They see they can get away with it so they do it more. Eventually they get greedy and rely on the extra money they are taking. This is why it is important for more than one person to be involved in cash handling duties.

Accountability

To be sure your company’s cash is properly accounted for, you should know how cash flows among your staff. Knowing where the cash is from start to finish will ensure good accountability.

To better account for cash, I would recommend these procedures:

· Perform proper background checks on potential cashiers [Here’s another grammatically parallel list. In this one, each item begins with an imperative (order-giving) verb]

· Process payments as soon as possible

· Keep cash locked up

· Give customer receipts for all payments

· Have separate cash drawers or registers for each person collecting money

· Have managers double check deposits

· Have managers approve any credits or refunds

· Have periodic unannounced cash audits

Making staff accountable for cash not only protects them, but also your company. If too many hands are in one bucket of cash, you cannot identify who or how an error occurred. By having individual accountability, it reduces the risk of stolen cash receipts and / or misapplied cash receipts. [Please note that in this section, and throughout her report, Amy uses paragraph breaks to signal slight shifts in sub-topic. For example, here is moving from talking about “making staff accountable” to (in the next paragraph) explaining how manager approvals of cash transactions protect employees.]

I am involved in periodic cash audits at my place of work. When employees ask why we require their manager to approve refunds, I always make sure to stress the importance of doing this. By the manager approving refunds, they are protecting themselves. Untracked refunds are an area where cashiers could be stealing cash.

Authorization

Individuals that are involved in cash handling need proper authorization to complete their job.

Here are some common authorizations needed:

· Access to the cash drawer they are responsible for [This list is “parallel” because each item begins with a noun.]

· Access to the bank deposit slips

· Access to posting payments on accounts

· Access to the locked cash safe

· Access to the bank statements

No one person should be able to access all of these. If they can, you do not have strong controls on cash. This is more difficult in small companies. If you have a small company, you should make sure you are at least reviewing the bank statements. With banks now scanning copies of all checks written off your account, you can easily identify if checks are being written to inappropriate individuals.

If you are the owner of a small business, you should insist that all unopened bank statements go to you for review before being reconciled. You can review the checks written to make sure there are not any made payable to your employee that you are unaware of or any other company that you do not recognize. If you see a check written to Discover yet you do not have a Discover card, there is a good chance you’ve just found fraudulent activity happening in your company.

Only authorized employees should have the passwords or combinations to access cash. For example, if everyone has the password to the safe and money from the safe comes up missing, it is much more difficult to figure out who could have taken it. It is also good practice to change these passwords and combinations if someone leaves.

Reconciliation

Reconciliations should occur daily and monthly. Daily reconciliations should confirm that your payments received for that given day match the payments posted. Monthly reconciliations should tie out any deposits to the bank statement.

Below is some advice for reconciling:

· Record cash receipts as they are received [Parallel list because the first word in each item is an imperative verb.]

· Balance cash receipts daily

· Make daily deposits

· Reconcile monthly bank statements timely

· Perform surprised cash audits

Performing proper reconciliations will reduce the chance of stolen cash receipts, posting errors and inappropriate handling of cash.

Reconciling your daily deposits to the bank statement is important. If a deposit does not show up on the bank statement, it identifies an error with the process. Maybe the person who brings the money to the bank forgot to bring it and it is locked in her desk drawer. On the other hand, maybe she needed some extra money that week so she took it. By verifying the deposits hit the bank, you are able to question whomever brings the money to the bank. If the person who takes care of bringing the money to the bank sees that others are verifying the money made it to the bank, they will not steal the money for fear of being caught.

All of these steps will ensure stronger internal cash controls that will reduce the possibility of employee embezzlement. Several small companies overlook strong internal controls – it’s no wonder there are so many embezzlement cases in the news these days.

Amy Lamere

Accountant [Amy reminds us of the credentials she revealed earlier for reporting to us on this topic.]

[Amy’s readability statistics indicate her use of Plain English. Her percentage of passive voice is below 10%, and her Flesch Reading Ease score is close to 60.]