What Is the Weakness in Internal Control Over Cash Disbursements?

Cash disbursements are how an organization, such as a business or government agency, governs its use of funds. Disbursements are made to different areas of the business or different accounts set up for employee benefits and other uses. Organizations develop internal controls, or self-created rules and regulations, for disbursing money this way. Such internal controls are typically required for the organization to operate, but they come with inherent weaknesses that the leaders of the organization should note.

Internal controls are created and decided upon by the business, typically by a board of directors for a corporation but by leaders in all types of organizations. These decisions are not always appropriate. Controls can be too lax in some areas, causing security concerns, and too strict in others, leading to time-consuming and inappropriate funding delays. This is one reason organizations may decide to audit specifically for internal controls, to get an outside opinion.

If internal controls are not regulated by an outside authority, there is also a chance that some necessary controls may be skipped. For example, an organization may have detailed controls for cash disbursements for normal business projects, but may be at a loss when it comes to disbursements for a new grant program simply because rules have not been created for that circumstance. Such blind spots can lead to future problems with inadequate controls.

Accountability refers the security of the internal controls and their ability to withstand misconduct and misuse. When dealing with large cash disbursements, embezzlement and other types of theft or fraud are possibilities. Internal controls that have faulty tracking systems (such as an absence of log-ins to the system) or other issues have poor accountability functions. They create gaps that may cause a company to lose money through unscrupulous behavior.

Cash disbursements are rarely made in the same way for the entire life of an organization. Systems and processes of approval change with the shape of the organization and with the development of new technology. Security measures can change the channels through which cash moves. New government regulations can add more steps. But internal controls may not change as quickly, leaving an organization lagging behind as it tries to meet the new requirements with outdated strategies.