Internal Check - Cash Transactions
of all cash transactions should be given utmost importance because employees
tend to involve in fraudulent activities by misappropriating cash and
manipulating accounts in an organistion. Hence, the auditor should verify the
system of internal check in operation with regard to cash receipts and cash
payments, which in detail is explained below –
should be proper system of internal check as regarding cash transactions as the
employee tend to misappropriate cash in an organisation. Cash receipts can be
misappropriate in the following manner:
Cash receipts may not be entered in the cash
Cash received may be understated by preparing
duplicate receipts for amount less than what is actually received.
Cash sales may be treated as credit sales.
following system of internal check may be adopted as regards cash receipts.
inward remittances should be opened by the cashier in the presence of a
receipt of cash or cheque, it should be immediately entered in cash book or
cheque received notebook.
remittances (draft, cheque) must be crossed as ‘account payee only’.
and cheques received should be deposited immediately.
pay-in-slips should be prepared by a separate person, who is not entrusted with
the work of depositing cash in the bank.
received after the banking hours should be kept in the locker of the business.
The locker should be opened by the cashier in the presence of a responsible
Printed receipts should be issued for all remittances signed by the cashier and
Unused receipt book should be kept under lock and key under the custody of the
or spoilt receipts should not be detached from the receipt book.
balance should be physically verified by a responsible official by surprise
check at frequent intervals.
should be an effective system of internal check with regard to all payments
made by the concern in the form of cash or cheque or bank transfers. Cash
payments can be misappropriated in the following ways:
Payments may be made against fictitious
Payments may be made against inflated vouchers.
Payments may be made without receipt of goods.
Revenue expenses maybe treated as capital
proper system of internal check is necessary. The following system of internal
check should be adopted as regards cash payments.
person in charge of making cash payments should not have any connection with
the person responsible for receiving cash.
person responsible for making cash payments should not have access to the books
the payments should be paid by way of crossed cheque.
making payment against a particular bill or invoice, the voucher and the
supporting bill or invoices should be stamped as ‘paid’ so that the same
voucher is not again passed for payment.
and cancelled vouchers and cheque books should be kept under the custody of a
Person who is responsible for preparing the cheque should be clearly specified.
passing a bill for payment, it should be ensured that the goods have been
7. The bill for which payment
is to be made should be sanctioned by the responsible official.
Confirmation balances from the creditors should be made through direct
Proper sanction should be obtained by Directors from higher officials to make payment of transactions of special nature.
10. Bank reconciliation statement should be
prepared to reconcile cash and bank balances from time to time.