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Internal Control for Inflows

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Internal Control for Inflows
RUNNING HEAD: Internal Control for Inflows

Internal Control for Inflows

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Internal Control for Inflows
Internal controls are important to a business. The internal controls provide a safeguard against errors in the accounting system as well as the detection and prevention of fraud. With the inflows of the company come many risks that need to be considered. The ways in which cash, sales, accounts receivable, inventory, and production are handled within the company are different for each division. The internal controls may vary from department to department, but the end result is to protect the company from the risks that can arise.
Cash
Cash is a company’s most liquid asset and presents the highest inherent risks for fraud. Internal controls over cash are very important. Cash inflows consist of cash payments from customers in the form of both cash receipts and cash collections on customer accounts. Companies may collect cash at the time of sale, as a form of payment on accounts receivables, as electronic funds transfers, or even in a lockbox account (Louwers, Ramsay, Sinason, Strawser, 2007). When processing the payments, it is important to have internal controls to protect the company from errors or fraud. One type of control is to have two or more authorized employees in control of opening the mail and receiving the cash payments. The risk of fraud is lowered by having multiple employees responsible for opening and recording cash payments, but there is still a chance that the employees will participate in collusion.
Another internal control over cash inflows is to require that authorized employees immediately endorse checks and prepare a record of all cash payments. Cash payments should be separated from the company’s bookkeeping documents. The next step is to forward the cash on to the company’s cashier’s office or company treasurer. The company treasurer or cashier writes up the proper paperwork for the deposit and sends the cash deposit to


References: Louwers, T.J., Ramsay, R.J., Sinason, D.H., & Strawser, J.R. (2007). Auditing and assurance services. New York: McGraw-Hill. Reader, C. (2013). Small Business Chron. Retrieved from http://smallbusiness.chron.com/examples-internal-controls-inventory-15209.html
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