How Do Internal Cash Controls Work?

Twenty-dollar bills are often stored in a locked deposit box.

Internal cash controls monitor employee cash spending and make sure that it is authorized by the employer. Internal cash control mechanisms include deposit boxes, cash drawer counts, petty cash, segregation of duties, and checks and credit card receipts.

Deposit Box

A deposit box is one form of internal cash control. At many cash registers, if an employee receives a twenty-dollar bill or a larger bill from a customer, this bill is deposited in a locked box. This prevents the cashier from stealing large bills, and is also useful during robberies since the cashier cannot open the locked box. Only the store manager has the key to open the deposit box.

Frequent Counts

Cash is normally counted several times a day at a register. When an employee is assigned a register when he starts work, it contains a specific amount of cash, such as ten five-dollar bills, five ten-dollar bills and so on. This allows the manager to check receipts against the amount of cash that should be present in the register. If there is a difference when the manager compares the receipts, it is recorded in an adjustment account called cash over- and under-allowances.

Petty Cash

Internal cash controls also govern an account called petty cash. Managers are busy and don't want to have to approve minor purchases individually, so they provide a box of bills as a petty cash account. The petty cash account allows employees to make minor purchases that are necessary to keep the store running, such as walking down the street to pick up napkins or paper towels. Receipts are added to the petty cash account, and the manager can check these receipts against the count of the bills in the petty cash box to keep track of the overall spending. The petty cash account is separate from the cash stored in the register.

Segregation of Duties

Segregation of duties is important in internal cash controls. For example, if the bookkeeper is handling the cash register, she has an opportunity to not record a purchase and pocket the cash. It's a good idea to have a separate employee to record transactions and a separate employee to receive cash from customer purchases. Cashiers should also be responsible for their own cash drawer, and during a shift cash in the drawer should be taken out and counted by the manager or a bookkeeper.

Checks and Credit Card Receipts

Internal cash controls also cover items such as checks and credit card receipts. Since these items can be traded for cash quickly, they are recorded as cash in the company's records. Checks and credit card receipts are not used by the cashier to break a customer's change, so they should also be placed in a locked box after the cashier finishes a transaction and checked with cash register records at the end of the cashier's shift.

References

• University of Nevada Las Vegas: Cash Control Guidelines
• University of Chicago: Cash Control
• University of Washington: Internal Controls to Minimize Risk Over Cash Receipts