Regardless of the type of business you run, it’s important to have controls over your various operating processes. And controls over your revenue cycle are vital! From making a sale to depositing the cash, if you don’t have established controls in place, you’re asking for trouble.
There are four main objectives of revenue controls: safeguarding assets, obtaining the proper review and authorization for transactions, correctly recording transactions and segregating duties. The process differs slightly between cash-based and account-based businesses.
Cash-based business controls
In a cash-based business, the tracking process is simpler but risks can be higher as there are opportunities for cash to go missing. Typically, sales start with the cash register. Make sure the starting float for each cash drawer is correct and documented at the start of each shift, that cash collected is counted and reconciled to the till tape and that money (minus the float) is deposited in the bank.
In addition to the cashier, having someone who doesn’t deal with sales (e.g., the floor manager or owner) review the reconciliation and agree with the cash deposited helps reduce the risk of theft or error.
These reconciliations should then be given to the bookkeeper or accounts receivable clerk to enter into the accounting system. Once done, the owner or controller can review to ensure the till tape agrees to both the cash deposited and recorded in the books to further reduce the risk of anything being missed.
Selling to customers on account adds another step to the controls process. Ensuring clients have designated signors for the account and that staff enforces these designations is the first step in avoiding disputes. Providing monthly statements to clients also helps segregate duties, as customers will very often let you know if they’ve been overcharged.
Cash collections for account payments should also be segregated between staff to avoid “kiting” of receivables. Kiting is when a staff member steals cash from a payment and uses a second customer’s payment to pay the first customer’s account; the thief then uses a third customer’s payment to cover the second and so on. To reduce this risk, make sure customer payments aren’t deposited by the same person that records the payments in the system, that customers get timely statements and that receivables accounts are reviewed by the business owner or controller at least monthly.
Revenues, receivables and receipts are other areas of business that really benefit from controls. If you have any questions on your processes and what can be changed to make them more efficient and safer, please get in touch!
Mike Bannerman is a Chartered Professional Accountant and Supervisor with Presley & Partners, CPAs and Business Advisors in Courtenay, BC. He can be reached at 250.338.1394 or firstname.lastname@example.org