If cash is king then controls are divine

As the credit crunch bites and businesses tighten their corporate belts, companies are likely to find that cash becomes increasingly difficult to manage. In a squeeze situation, the minor irritations and peculiarities of ineffective and inefficient control processes can quickly develop into significant issues and show-stoppers. Early warning signs of deficiencies in cash management control processes and related activities might include:

• Deterioration in the sales ledger ageing profile as customers take unapproved, extended credit terms;
• Delayed and selective payments to suppliers;
• Inaccurate cash flow forecasting; and
• Unexpected breaches of covenants

Company boards should also be mindful of the fact that it’s not just businesses that feel the pinch. Pressure on employees to meet increasingly difficult targets in the workplace and the adverse impact economic downturn can have on individuals’ personal finances contribute to increased levels of fraud, both in terms of results manipulation and theft from the business.

Failure to give appropriate consideration to governance and controls over cash and related activities during a period of volatility and distress may put the future success of your business at risk. The threat is even greater if processes and controls cannot be developed and adapted to mitigate the emerging risks of a rapidly changing economic environment.

Even during periods of economic stability, we frequently see examples of organisations which have suffered a controls breakdown, resulting in cash loss, because the speed of change has overtaken the evolution of back-office processes and systems.

As part of a review of internal controls over the cash cycle, management should question whether:

• Cash book reconciliation procedures are sufficiently robust to facilitate accurate reporting of cash balances on timely balances;
• Adequate security controls exist in respect of cash management systems and associated end-user computing;
• Bank mandates are up-to-date, with former employees and currently employees who have transferred to other areas of the business having been removed;
• Segregation of duties and authorisation processes have been established in the payments cycle;
• Credit control continues to vet new customers appropriately and procedures are maintained to ensure that cash is collected on a timely basis;
• Budgeting and forecasting procedures are sufficiently formalised and accurate to enable management to have a short and medium term view of cash flows; and
• Anti-fraud controls, such as Computer Assisted Audit Techniques (“CAATs”) and data interrogation, have been implemented and the output of these control procedures is actively monitored.

There has never been a more pertinent time to challenge the controls over cash and related activities in your business. Can you afford not to?

Contact details
Email: Shaun Willcocks
Tel: +44 (0)7866 688068