Appropriate Management of Receivables, Inventory and Cash
Appropriate Management of Accounts Receivable
These internal controls focus on ensuring the maximum repayments from debtors and limiting bad debt expenses.
Conducting Credit Checks
Credit checks should be conducted on new customers to ensure their ability to repay their debts to the business. Customers with poor credit ratings should be denied credit.
Reminding Debtors of Amounts of Owing
Statements should be sent to debtors on a regular basis to remind them on their amounts owing to the business.
Following Overdue Payments
Debtors who have not paid their amounts owing in time should be followed up and contacted. Only as a last resort should debtors be factored or recorded as a bad debt.
Appropriate Management of Inventory
These internal controls focus on safeguarding and protecting the value of inventory.
Ensuring Security of Inventory
Inventory should be only accessible by authorised employees and should contain necessary safeguards such as locked doors and video surveillance.
Separation of Duties
The role of recording of inventory should be separate from the handling of inventory to reduce the chance of fraud. To further decrease the chance of fraud, the recording of inventory could be outsourced to another business.
Ensuring Appropriate Volumes of Inventory
The business should have enough stock to avoid empty shelves but not too much stock that carries the risk of obsolescence or spoilage as well as additional costs holding large volumes of inventory, such as the renting of more storage space. Items at risk of obsolescence or spoilage should be discounted to avoid larger expenses from the recording of dump stock
Appropriate Management of Cash
Banking Deposits Daily
A business should bank its deposits daily to reduce the amount of cash left on business premises. Cash stored in banks are more secure and electronic funds are easier to manage.
Emptying Tills Multiple Times a Day
Cash registers should be emptied multiple times a day to reduce the losses from theft or fraud. Emptied cash should be kept securely in a safe that is restricted from public access.
Separation of Duties
The role of a cashier should be separate from the role of recording cash to reduce the chance of fraud. If the two roles were done by the same employee, the employee could steal cash from the business and record false accounting entries to cover the theft.