Cash Count in Business

Why is it important and how should we go about it?

Written by Ota Uma Uma B.Sc., ACA, ACTI, CFAN

A Rainy Monday morning!

Port Harcourt, Nigeria 23rd December 2013.

It was a rainy morning and the auditors just arrived at the premises of a medium-scale bakery that supplies fresh bread and donuts to the local communities. The auditors were ushered into the meeting room where they later had their first engagement with the Company’s finance team.

It was a surprise cash count as the cashier was not expecting anyone to come knocking few days to Christmas. She was not prepared for this exercise and besides this is not the approved date for the year-end cash count.

The cashier and the accountant complained that they were not expecting any external auditor. They asked the auditors to hold on until they confirm with the managing director.

The cashier was thrown into confusion.

She quickly ran out of the office and made some phone calls. At about 8:45 am, a young man came to the company reception and asked for the cashier. The strange man handed over a brown envelope to the cashier who made her way back to her office before going back to the meeting room. Unknown to her, one of the auditors went to the restroom and saw her collecting the brown envelope.

The auditor was put on enquiry. This means that the auditor became suspicious and informed his colleague of the need to do a thorough cash count.

The auditors had a brief meeting with the Finance Team including the Cashier and requested to work with the cashier at the location of the cash till.

At exactly 9:30 am the auditors swung into action demanding the following documents:

1. Cashbook

2. Cash payment vouchers

3. Signed and stamped bank statements

4. Bank Reconciliation Statements

5. Evidence of monthly cash count certificates

6. Bank deposit tellers/receipts

7. Cash management policies

At the end of the exercise the auditors observed the following:

1. 70% of the Bakery’s sales were paid for with physical cash over the counter.

2. The cashier was responsible for collecting cash from customers and depositing the cash to the bank.

3. The Bakery did not conduct a periodic cash count.

4. The cashier did not comply with the Bakery’s unwritten cash management policy of taking all physical cash to the bank on a daily basis

5. There was no monthly bank reconciliation statement for seven (7) months

6. Not all physical cash received by the cashier was lodged into the banks

7. Office expenses were paid for from the physical cash received from sales

8. The sales value reported as paid for by physical cash was three million four hundred and sixty Naira (that’s about eight thousand US dollars) higher than the total cash deposited into the banks between January and December 2013.

9. The balance in the cashbook is higher than the physical cash available in the cash till.

10. Not all the expenses paid by cash have been captured in the cashbook and some expenses in the cashbook do not have a payment voucher nor any supporting documents.

The auditors made four quick recommendations during the exit meeting with the Finance Team:

1. Segregation of duties

2. Monthly bank reconciliation statements

3. weekly cash count

4. Installation of CCTV at all cashpoints

5. Increase campaign on cashless transactions

On her way out, the audit team made a phone call to the MD and asked why the bakery accountant was not conducting periodic cash counts. In her opinion “weekly cash count would have saved the bakery this magnitude of loss.” She mentioned that their findings suggest that there is a significant level of cash mismanagement in the bakery. She also stated that the cash count that was conducted only covers from January to December 2013 and suggests that the Company carries out an investigation into previous years to ascertain the level of cash theft.

End of this episode. Story to be continued.

Reflections

The above story is familiar, right? Yes! It happens every day, everywhere.

Take some moments to reflect. Can you make a list of all the things you observed from this short story? Are there things you noticed that you should correct now before it gets too late?

Ok. Let’s move ahead.

The questions we need to ask ourselves are:

1. For how long before January 2013 has this fraud be going on?

2. Could this have been avoided?

Your guess is as good as mine on what will happen to the cashier and accountant but more importantly, this could have been avoided.

The underlying theme in the above story is the need for a periodic/routine cash count in our business. Take this very seriously. No matter the level you are in your business and the volume of transactions every day, there is a need to conduct a period cash count exercise and bank reconciliation. In this newsletter, we shall be focusing on the cash count.

What is cash count?

Cash Count is a process in a business where the physical quantity of currency notes available with the cashier or any other staff handling cash is counted. Cash Count is an internal control process. This process is to ensure that the balance of cash at hand in the cash book is the same as the physical cash available in the office. Physical cash can be kept in a drawer, safe box, or Cash Till.

Why cash count?

Cash count is an essential component of internal control. If there are no control policies for cash then in your business then you should be counting down to the business failure. We shall discuss Internal Control over cash in subsequent editions. It doesn’t matter if it is a large organization or a very small business outfit, Cash count should be conducted periodically.

Cash on Hand

Why cash on hand could mean only the physical notes and coins in the cash drawer that are used for transactions that do not pass through bank transfers, it could also mean the sum total of cash & cash equivalent (CCE). CCE includes physical cash on hand and cash at the bank that is readily available for use.

The focus here when we use the phrase “cash on hand” is on physical cash in the drawer.

Cash on hand here could include the following:

1. Cash from everyday cash sales

2. Petty Cash

3. Change Cash

4. Site Cash

5. Special Project Cash

6. Office expenses ATM Cards

Why is cash count important?

1. To help prevent losses

2. It is a good element of internal control

3. It is part of cash control measures

4. To prevent misappropriation

5. To ensure that the policy on cash & cash handling is strictly followed

6. To ensure that all receipts & disbursements have been properly captured

7. To ensure that the physical balance is what it is

When should you count cash?

This will largely depend on your Cash Management Policy (if you have one). Depending on the nature of your business and operations you can carry out a cash count weekly or even daily if you have large cash sales. On a general note, cash count should be done ALWAYS! You can define how often is ALWAYS!

Types Of Cash Count

1. Periodic Cash Count

2. Year-End Cash Count

3. Surprise Cash Count

4. End of Project Cash count

Conducting A Cash Count

1. Obtain the Cash Register before the cash count day

2. Establish the balance in the Cash Register

3. Carry out a quick Cash register Audit

4. Review all the disbursements/lodgments.

5. Review all the receipts/floats

6. Vet the Voucher numbers and trace to supporting documents where necessary.

7. Count the physical cash using a Cash Count Sheet.

When counting the cash

1. Ensure that you and the Cash Officer sign off on the book balance before the count.

2. Ensure that the Cash officer or cash holder is right there with you during the cash count.

3. Count every note and record in the Cash Count Sheet

4. Record the quantity of each note (5,10,20,50,100,200,500,1000 notes) in the Cash count Sheet.

5. Let the Cash Officer confirm every count and both of you should sign off on the Cash Count Sheet.

Cash Count Sheet

This is a document used to carry out a physical inventory count of cash. It provides a summary of the cash counted by denomination, quantity, and amount. The sheet should be signed and dated by all parties involved in the Cash Count. The Cash Count Sheet is where you compare the amount of physical cash available and the balance in the cash book/register. Cash count sheet can be designed in a Microsoft word document of Exel Template. Download the free cash count excel template.

See Video Tutorial on how to use the Cash Count Sheet.

Take this away from here!

Business Owners:

Don’t leave your cash management to assumption. Ensure there are documented policies on cash handling and make sure your staff follows the procedures to the end. Cash policies must not be too lengthy or very technical. These are just simple rules that you and your employees must follow when it comes to cash.

Accountants:

Don’t leave your cash management to trust. Trust no one! Do not trust and get rubbished by colleagues who do not have integrity. This is not the issue of mistrust but policy. You must ensure that the cash management policy is adhered to. CONDUCT PERIODIC AND SURPRISE CASH COUNTS. This will save you a lot of future embarrassment.

Auditors:

You have no reason not to count cash. No reason! Plan it in our audit program!

Try our 10 steps verification!

Proper cash count must include the following:

1. Knowing the number of goods purchased/produced

2. Knowing the number of goods sold

3. Knowing the number of goods ready for sale but yet to be sold

4. Knowing the value of goods paid for by cash and by transfer

5. Knowing the value of cash lodged into the bank by the cashier

6. Knowing the value of expenses paid for by physical cash.

7. Knowing the value of suppliers yet to be paid

8. Knowing the value of customers who are yet to pay for what they bought from you.

9. Knowing the value of cash withdrawn from the bank

10. Knowing the value of physical cash available with the cashier.