Methods of Internal Cash Control

by Christian Fisher ; Updated September 26, 2017

Controlling cash in your business involves diligent bookkeeping and security. On the upside, according to the U.S. Small Business Administration cash transactions are less subject to fraud, fees, waiting periods and payment mistakes. On the downside, cash not well controlled can attract greater scrutiny from the IRS and criminal temptation from employees and others. Applying several methods of internal cash control can help minimize risks.

Vetting Employees

Cash control starts with people. Employees handling cash — or cash equivalents including checks and credit card slips — should be thoroughly vetted. Criminal record checks, drug screening and verifying previous employment can be parts of the vetting process. According to a Journal of Management and Marketing Research report on the impact of crime on business, “Background checks should also include a credit history report as some employees may resort to embezzling company funds when financial pressures from drug addiction, adultery, gambling or medical expenses seem insurmountable.”

Documenting Transactions

Keeping receipts of cash transactions enables accurate bookkeeping and satisfies the IRS by creating what the U.S. Department of Commerce calls an “undisputable audit trail.” Numbered, two-part receipts are ideal as they allow you to give one copy of the receipt to your customer and keep the other copy for your records. Regular counting of cash registers can help ensure accuracy. Printing calculators and receipt books can also be useful in documenting cash transactions.

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Segregating Duties

Part of internal cash control is putting more than one person in charge of cash transaction auditing. Yale University’s own rules for segregating duties require that no one person should be solely in charge of handling initial cash transactions, keeping records, reconciling balances, transporting or depositing cash and approving the bookkeeping. According to Yale University, “When these functions cannot be separated, a detailed supervisory review of related activities is required as a compensating control activity.”

Securing Cash

Installing video cameras and using drop safes to store cash are methods of protecting cash at points where transactions take place. Assigning one employee and one supervisor together to manage your business’ safe or make bank deposits is a method that helps protect money before and during its transit. Reconciling cash receipts with bank deposit records on a daily basis and conducting monthly reviews of your company’s overall bookkeeping are ways you can keep watchful eyes on internal cash records and deter problems with the IRS.

IRS Tip

According to the IRS, “If, in a 12-month period, you receive more than $10,000 in cash from one buyer as a result of a transaction in your trade or business, you must report it to the Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN) on Form 8300.” Businesses have 15 days from the date of receipt of a single cash transaction of $10,000 or more to file Form 8300 with the IRS.

About the Author

A writer since 1995, Christian Fisher is an author specializing in personal empowerment and professional success. From 2000 to 2005, he wrote true stories of human triumph for "Woman's World" magazine. Since 2004, he has also helped launch businesses including a music licensing company and a music school.

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