Internal Controls
An independent review of a business's accounting practices and procedures in order to decide whether the financial records represent a true and fair statement of the activities.
What is an audit?
A place where cash is stored safely onsite reducing the risk of loss or theft.
What is a safe?
This term refers to the process of verifying financial transactions between the bank statements and accounting records and ensuring they are accurate and complete.
What is a bank reconciliation?
Stopping Maddox from taking $50 from the cash register to buy a ream of paper but shouting himself a cheeky feed at Macca's could have been prevented by using what internal control over cash?
Using the petty cash imprest system
Administrative and accounting procedures that protect the assets of a business
What are internal controls?
This internal control principle requires that duties are divided among different individuals to reduce the risk of errors or fraud.
What is segregation/separation of duties?
These documents provide evidence that a financial transaction has occurred, and detail key elements of the transaction.
What is a source document?
All cash received should generate a source document. True or False?
True
It is wise to have the same person who receives money be the person who entered the details and also banks the money. True or False?
False, division of duties should be implemented to separate those who handle cash from those who record cash AND those who bank the cash. The CASHIER cannot be the ACCOUNTANT and the ACCOUNTANT cannot be the BANKER.
To detect errors, prevent errors, prevent theft and fraud & increase efficiency.
What are the objectives of internal controls?
This describes what should be completed at the end of each business day to ensure that cash from the day's trade is appropriately tracked & protected.
What is banking cash 'intact' daily?
When a business anticipates expected cash receipts and cash payments, they are determining their WHAT budget?
What is a cash budget?
A key purpose of internal controls is to ensure the accuracy and reliability of this financial reporting aspect.
What are financial statements?
A policy where:
1) Employees benefit from multiskilling and the business benefits by having staff who are flexible workers
2) Employees are discouraged from committing fraud if they know that someone will soon be performing their job.
What is the rotation of duties?
Common examples of this includes locks, cameras and mirrors, limited access to and security of keys, passwords and combinations.
What are physical controls?
An acceptable reason for a small business owner not to implement internal controls could be...
There are none!
Business owners are responsible for protecting their cash by implementing appropriate internal controls!
Taking shortcuts, not following double counting of the cash register, or banking the daily takings intact are examples of this being evident in a business.
What is a poor culture of internal controls?
A top-down & bottom-up approach to imbedding internal controls into the fabric of a business.
What is a strong 'culture of controls'?
The term encapsulates an effective system of hiring and training qualified employees with clear and concise job descriptions to perform their jobs responsibly and carefully whilst implementing aspects of the accounting system.
What are personnel policies?
These should be input and authorised by at least two people before being sent.
What are electronic funds transfers/bank transfers?
Is it true that petty cash doesn't need to be locked up during the day? (Its only a small amount of money)
False, all cash sould be safeguarded no matter what the amount. Business may use a safe, vault, register float or a lockable petty cash container.
What is the best way to pay for small items such as staffroom milk, coffee, stamps, etc. You would use this when the items are so small that a writing a cheque would be considered unneccessary.
Petty Cash.
The petty cash is usually kept in a lockable container and consists of small amounts of money that is distributed for small items and must be replaced with receipts. The funds are reimbursed up to several stages within a month and always accounted for at end-of-period reports.