(1) Cash and Bank System

Good system of CLIENT. (WHAT are controls?)

CASH

 Nature of petty cash expense should be defined.

 Petty cash expense should be limited as per the use of the company.

 Segregation of duties between the one who authorizes the payment and paid the cash and
another member should do accounting.

 Supervision on the opening of mail box or any cash received from customers.

 There should be documentary evidence that payments received from customers should be
stamped and receipt should be given to customers, and maintaining the copy of it.

 Separate place (preferably fixtures) should be there to place the money, with restricted
access.

 All petty cash expense vouchers should be maintained (with date, company logo,
sequentially pre-numbering) supported with evidence of expense.

 Proper maintenance of IOUs with name and signature of employees taking the money from
petty cash.

 Imprest system, night safes and CCTV should be there in cash area.

 Cash should be banked on daily basis.

BANK

 Cheque books to be locked with restricted access.

 Multiple signatories on cheques for large payments, with copy of it.

 Pin codes and passwords restriction for online banking.

 Bank statements should be regularly reviewed by responsible official.

 Bank reconciliations statements should be produced and senior member should review
those reconciliations.

CASH/BANK SYSTEM (WHY are controls?) – Control Objectives

Cash and Bank System 1 By:- Haris Hanif

Matalas Company (DEC – 2007)
Matalas Co sells cars, car parts and petrol from 25 different locations in one country. Following
information is available for its petty cash system:-

1) The average petty cash balance at each branch is Rs 5,000. Average monthly expenditure is
$1,500, with amounts ranging from $10 to $500.
2) Petty cash is kept in a lockable box on a bookcase in the accounts office.
3) Vouchers for expenditure are signed by the person incurring that expenditure to confirm
they have received re-imbursement from petty cash.
4) Vouchers are recorded in the petty cash book by the accounts clerk; each voucher records
the date, reason for the expenditure, amount of expenditure and person incurring that
expenditure.
5) Petty cash is counted every month by the accounts clerk, who is in charge of the cash. The
petty cash balance is then reimbursed using the ‘imprest’ system and the journal entry
produced to record expenditure in the general ledger.
6) The cheque to reimburse petty cash is signed by the accountant at the branch at the same
time as the journal entry to the general ledger is reviewed.

Required:-

In respect of the petty cash system above:

(i) Identify and explain SIX deficiencies in the cash system above
(ii) Provide recommendations to address each deficiency

(12 marks)

Cash and Bank System 2 By:- Haris Hanif