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.
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.”
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.
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.”
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.
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.
- Syracuse University Audit and Management Advisory Services: Internal Controls for Cash Receipt and Revenue; June 2009
- IRS.gov: Reporting Cash Payments of Over $10,000; March 2009
- SBA.gov: Accepting Cash Only
- "Journal of Management and Marketing Research"; The Impact of Crime on Business: A Model for Prevention, Detection & Remedy; Martin S. Bressler
- Yale University: Segregation of Duties; November 2008