When determining risk management and security policies for your organization, establishing internal controls is a crucial part of the process. Internal control procedures help protect your organization from risks related to finances, strategy, and overall reputation. Controls serve as a kind of check-up to ensure your business is running with effective and efficient operations.

Internal controls relating to finance help your organization maintain regulatory compliance required by industry standards. The U.S. government’s Sarbanes-Oxley Act of 2002 (SOX) requires proof that companies are accurately reporting their financials to protect investors.

Creating a set of controls for business financing and cash handling will help uphold business continuity and safeguard your finances.

What are cash controls in business financing?

Cash controls refer to all cash management policies and procedures within your organization. By establishing procedures that maintain control over cash receipts and cash disbursements, your organization will be able to mitigate many of the financial risks associated with running a business, including inaccurate payments, theft, and fraud. 

Internal cash control systems can include your organization’s governance, all company policies, and segregation of duties within your company. Other controls necessary for financial security include requiring authorized approvals for purchases, requiring signature authority, and reconciling all payments and bank account activity.

What are the best practices for internal controls of cash receipts?

When your company receives incoming cash from a business transaction, it’s considered a cash receipt. Any asset sales of investment or property or equipment also fall under the cash receipt category.

To control cash transactions, organizations should adopt some of the following practices: Require background checks for employees, establish segregation of duties, safeguard all cash and assets in secure locations, and use a lockbox to accept cash payments from customers.

Other helpful cash receipt controls include making daily bank deposits, reconciling accounts and reviewing bank statements at least monthly, and keeping vigilant records of cash in accounts receivable. Establish procedures for conducting petty cash fund review and having supervisors approve all voided transactions and returns. 

What are the best cash controls for disbursements?

Disbursements, or payments, should also have a standardized management procedure. Segregation of duties helps internal cash controls for disbursements, both between the employees handling cash receipts and those making payments or disbursements. Organizations should follow policies around spending and approval limits and authorized approvers.

Another way to safeguard company disbursements is by requiring multiple approvals for significant transactions from the CEO and board of directors. Aim to use sequential payment numbers to help prevent missing transactions and run a bank reconciliation regularly.

Other internal controls for managing cash disbursements include the following:

  • Keep a secure petty cash drawer and cash register in an official point-of-sale system
  • Maintain an updated list of all vendors and validate vendors online to help reduce scams
  • Secure all financial IT software with passwords and two-step validation
  • Establish ongoing cybersecurity monitoring for phishing, phone, and mail fraud
  • Schedule an annual financial audit by a CPA firm to help establish any gaps in your accounting system

Best practices for cash flow management

Safeguarding your organization’s cash flow could make or break your financial gains each year. Establish procedures that help your company better handle cash flow to help identify increased earning potential and reduce unnecessary or superfluous spending.

Your cash management control should help you plan the timing of cash coming in and flowing out through detailed accounting records. By planning this in detail, your organization will be able to identify when financing is needed to sustain your business and grow your operations.

Your cash management plan should include all extensive project approvals and budget allocations based on your company’s current value on an operational level. By creating a cash management plan, you’ll identify various spending areas such as operating costs and investments.