Businesses that take in significant amounts of cash are vulnerable to theft, robbery and fraud. Companies establish systems of internal controls to minimize the risk of such incidents. The inherent vulnerability of cash and negotiable instruments such as checks and credit cards require healthy internal controls.

Liquidity

Cash, checks, money orders and credit card numbers are processed daily by cashiers, clerks and other company personnel. Dishonest employees who work in high-volume retail settings may be tempted to convert cash to their own use through use of a variety of schemes. Simply collecting cash and not recording sales offers a simple method taking money while leaving no record that a sale ever took place. Cash leaves no paper trail of its own and can be used immediately. Even if subsequently detected, the proceeds of a cash fraud are not likely be recovered. These factors highlight many of the reasons that controls must be implemented to protect cash and make it difficult for employees circumvent the rules.

Detection

By its nature, the theft of cash seldom leaves a trail. Overcharging or undercharging for sales are both tactics to obtain funds in excess of what appears on cash registers or point of sale terminals. Observation is extremely important to identify suspicious behavior or circumstances on the part of cashiers. Violations of policy on returns of merchandise or voided sales can result in significant losses. These problems must be observed or detected by establishing ranges of register totals and types of sales. Observe closely and audit cashiers whose sales history differs from others.

Prevention

A number of preventive methods assist as controls over employee theft. Assigning employees to an exclusive personal cash drawer and examining sales records assist in the appearance of control over operations. Employees are not blind to the fact that records are reviewed and their activity is observed. When management exhibits a commitment to controls and crime prevention methods, the rate of employee fraud shows a corresponding drop. The commitment and tone set by management has been shown to be one of the finest preventive internal controls.

Fundamentals

Cash handling does not end with cashiers. Funds must be processed in a secured office facility. Money must be counted along with checks and credit and debit card receipts. Sales must correspond and balance with register and credit card receipts. Funds must be prepared for bank deposit. Ideally, each of these steps is carried out by separate employees following the principle of segregation of duties. In other words, employees who count money should not also prepare deposits or secure cash. This makes it difficult to commit fraud without at least two employees agreeing to do so. The liquidity of cash is a continuing vulnerability until it is deposited into financial accounts. Credit card information and numbers also must be protected, as they are easy to exploit by dishonest personnel, exposing the company to additional liability.