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Lesson#29
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TESTING THE CASH SYSTEM-1
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TESTING THE CASH SYSTEM
Controls over Banking of Receipts:
a) Receipts should be banked daily. The receipts should be
banked intact
- for example no cash payments
should be made out of cash receipts. Banking intact allows
control (d) below to operate.
b) Each day's receipts should be recorded promptly in the cash
book.
c) Sales ledger personnel should have no access to the cash or
the preparation of the paying-in slip.
d) Periodically a comparison should be made between the split of
cash and cheques:
i) Received (and recorded in rough cash book)
ii) Banked (and recorded on paying-in slip).
Controls over Cheque Payments:
a) Unused cheques should be held in a secure place.
b) The person who prepares cheques should have no responsibility
over purchase ledger or sales ledger.
c) Cheques should be signed only when evidence of a properly
approved transaction is available. Such
evidence may take the form of invoices, payroll, petty cash book
etc.
d) This control should be evidenced by signing the supporting
documentation.
e) In a large concern those approving the original document
should be independent of those signing
cheques.
f) Cheque signatories should be restricted to the minimum
practical number in order to make the operation
of controls as practical as possible.
g) Two signatories at least should be required except perhaps
for cheques of small amounts.
h) The signing of blank cheques and cheques in favour of the
signatory should be prohibited.
i) Cheques should be crossed 'A/c Payee only', if this is not
pre-printed on the cheque before being signed.
j) Supporting documents should be cancelled as paid to prevent
their use to support further cheque
payments. This cancellation could be done by the cashier before
the cheque is signed (provided the
cancellation identifies the cheque number) or by the cheque
signatory at the time of signing the cheque.
k) Cheques should preferably be dispatched immediately. If not,
they should be held in a safe place.
l) Returned cheques may be obtained from the bank and a sample
checked against cash book entries and
supporting documentation.
Bank reconciliations
a) Bank reconciliations should be prepared on a regular basis,
at least monthly.
b) The person responsible for preparation should be independent
of the receipts and payments function or,
alternatively, an independent person should check the
reconciliation.
c) If the reconciliation is prepared by an independent person
he/she should obtain bank statements directly
from the bank and hold them until the reconciliation is
completed.
d) The preparation should preferably include a check of at least
a sample of receipts and payments against
items on the bank statement.
Controls over Petty Cash
a) The level of and location of cash floats should be laid down
formally.
b) There should be restricted access to the floats.
c) Cash should be securely held e.g. in a locked drawer or a
safe, with restricted access to keys.
d) All expenditure should require a voucher signed by a
responsible official, not the petty cashier.
e) The imprest system should be used to reimburse the float i.e.
at any time the total cash and value of
authorized vouchers not reimbursed equals a set amount, for
example Rs.1,000.
f) Vouchers should be produced before the cheque to top up the
cash float is signed.
g) Vouchers should be cancelled once reimbursement has taken
place.
h) A minimum amount should be placed on a petty cash payment to
discourage normal purchase procedures
being by-passed.
page
100
i) A petty cash book should be maintained by the petty cashier.
Entries should be made promptly.
j) Periodically the petty cash float should be reconciled to the
balance in the petty cash book by an
independent person.
k) Rules should exist preferably preventing the issue of IOU’s
or the cashing of cheques for employees
TESTS OF CONTROL
Cash Receipts
(i) Attend mail opening and ensure procedures are adhered to.
(ii) Test independent check of cash receipts to bank lodgments.
(iii) Test for evidence of a sequence check on any pre-numbered
receipts for cash.
(iv) Test authorization of cash receipts.
(v) Test for evidence of arithmetical check on cash received
records.
Cash Payments
(i) Inspect current cheque books for:
Sequential use of
cheques
Controlled custody of
unused cheques
Any signatures or blank
cheques.
(ii) Test (to avoid double payment) to ensure that paid invoices
are marked 'paid'.
(iii) Test for evidence of arithmetical check on cash payments
records, including cashbook.
(iv) Examine evidence of authority for current standing orders
and direct debits.
Bank Reconciliations
(i) Examine evidence of regular bank reconciliations (usually
one per month).
(ii) Examine evidence of independent check of bank
reconciliations (e.g. a signature).
(iii) Examine evidence of follow-up of outstanding items on bank
reconciliations. Pay particular attention to
old outstanding reconciling items that should be written back
such as old, un-presented cheques.
Petty Cash
(i) Test petty cash vouchers for approval.
(ii) Test cancellation of paid petty cash vouchers.
(iii) Test for evidence of arithmetical check on petty cash
records.
(iv) Examine evidence of independent check of petty cash
balance. |
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