Internal Control Over Cash Disbursement

Описание: In this video, we explain Internal Control Over Cash Disbursement

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0:00 Introduction
Importance of Internal Controls (0:15-1:45): These controls ensure cash payments are authorized, accurately recorded, and only used for legitimate business purposes. This prevents unauthorized payments, errors, and fraud, and maintains the accuracy and integrity of financial records.
Golden Rule: Use Checks (2:45): Always make cash disbursements using checks (or electronic payments) to maintain a record of when, who, how much, and for what purpose the payment was made.
Voucher System (4:48): For larger businesses, implement a voucher system, which involves collecting paperwork to verify, approve, and record the liability for cash payments.
Voucher System Documents (6:38-12:44):
Purchase Requisition: (7:12)request to buy supplies.
Purchase Order: (8:37) Purchasing department sends it to supplier.
Supplier Invoice: (10:22) Office Depot sends invoice to accounting.
Receiving Report: (11:22) Prepared by the receiving department.
Voucher Approval and Payment (13:21): The accounting department compiles all documents, attaches them to a voucher, and sends it for approval. Once approved, payment is submitted.
Multiple choice question (15:52): A voucher system ensures that all payments are properly verified and approved.




Internal Control Over Cash Disbursements
Effective internal control over cash disbursements is essential for safeguarding company funds, ensuring accurate financial records, and preventing fraud or misuse. Disbursements include payments for operational costs, such as supplier payments, wages, and other expenses. Strong controls ensure that cash is disbursed for legitimate purposes and properly recorded.

Purpose of Internal Control Over Cash Disbursements
Key objectives of internal control over cash disbursements include:

Prevent Unauthorized Payments: Ensure only authorized personnel approve and make payments.
Ensure Accurate Recording: Properly document and record all cash disbursements.
Minimize Fraud Risk: Implement checks and balances to reduce opportunities for fraud.
Improve Efficiency: Streamline the payment process, minimizing errors.
Regulatory Compliance: Comply with financial reporting regulations and internal policies.
Key Internal Control Procedures for Cash Disbursements
Segregation of Duties Divide responsibilities so no single person controls all parts of the disbursement process. This reduces the risk of errors and fraud by involving multiple employees in approving, recording, and reconciling transactions.

Example: One employee approves payments, another prepares checks, and a third records the transaction.

Authorization of Payments All disbursements should require proper authorization. Payments above a certain amount should be reviewed and approved by senior management to ensure legitimacy.

Example: Payments over $5,000 require approval from the finance director.

Pre-numbered Checks Using pre-numbered checks ensures every payment is documented in sequence, making it easier to track and detect missing or unauthorized payments.

Example: The finance department uses pre-numbered checks to ensure all disbursements are accounted for.

Vendor Verification and Invoice Approval Payments should be made only to verified vendors, and invoices should be approved before processing. This prevents unauthorized payments or fraud, such as fake invoices.

Example: The accounts payable team verifies vendor details and ensures invoices match purchase orders before payment.

Dual Signatures on Checks For added security, checks above a certain threshold should require two authorized signatures. This ensures multiple levels of review before large payments are made.

Example: Checks over $10,000 require signatures from both the CEO and CFO.

Bank Reconciliation Regularly reconcile bank accounts with disbursement records to detect discrepancies. Reconciliation ensures that all payments are authorized and properly recorded.

Example: The accounting team reconciles the bank statement with internal records at the end of each month.

Electronic Payment Controls As many payments are now made electronically, secure electronic systems with password protection, encryption, and access controls should be used to prevent unauthorized transactions.

Example: Only authorized personnel can access the electronic payment system using secure login credentials.

Internal Audits Conduct regular internal audits to review cash disbursement procedures, identify weaknesses in controls, and detect any improper payments.

Example: The internal audit team reviews cash disbursements quarterly to ensure compliance with company policies.





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