How does a business protect its cash and other assets through internal control, and why is cash the highest-risk asset?
Explain the purpose and principles of internal control, including separation of duties, authorisation and reconciliation, and apply them to safeguarding cash
WACE Year 12 Accounting and Finance Unit 4 on internal control: the purpose and principles of internal control including separation of duties, authorisation, physical controls and reconciliation, applied to safeguarding cash and other assets.
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What this dot point is asking
SCSA wants you to explain why internal control matters, state its principles, and apply them specifically to protecting cash.
What internal control is for
Why cash needs the strongest controls
Cash is portable, anonymous and universally desired, so it carries the highest risk of theft or misappropriation. Both cash receipts and cash payments need controls, from the point money is received through to its recording and banking.
Applying controls to cash
For receipts: issue pre-numbered receipts, bank takings daily and intact, and have someone other than the cashier record and reconcile them. For payments: pay by traceable means, require authorisation and supporting documents, and keep the person who approves payments separate from the person who records them. The bank reconciliation then independently verifies that the cash book agrees with the bank, after adjusting for timing differences such as unpresented cheques and outstanding deposits.