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Internal Control for Outflows: Cash Disbursements and Investments Essay

Cash Disbursements

· Budgeting and Supervision

The first step towards any business activity is planning and budgeting. The expenditure that is likely to be incurred for each activity or each department must be estimated and included in a budget for that activity/department. Not only the amount but also the type of expenditure that is applicable to the activity ought to be defined. Once the budget has been formulated and approved by the Board, it must be ensured that the disbursements are used only for those purposes that are defined in the budget. Any expenses outside the budget must require special approval.

· Proper Authorization

The person or persons that are entitled to make authorizations for cash disbursements must be determined beforehand, clearly and unambiguously. It will be wise if one individual from the organization, generally the executive director, or the head of each department possesses this right. Other than these people, no other person should be allowed to sanction cash disbursements.

· Segregation of Duties

Different persons must be responsible for different duties related to cash disbursements. For instance, there should be a different person authorizing the payments, another one signing the check and another person making the entry in the books of accounts. This will reduce chances of fraud.

· Two Signatories for Larger Checks

If the check is for an amount larger than a stipulated one, it should require the signature of two persons, who operate at a higher level in the organization.

· Documentation and Accounting

Bills or receipts supporting each cash disbursement must be present. The cash disbursement must be properly entered in the books of accounts by the book keeper or cash manager.

· Periodical Internal Audit

An internal audit must be conducted periodically to ensure that all accounts relating to cash are accurate, in compliance with the policies and there are no other discrepancies.

Investments

· Investment Policy

The organization should have a proper investment policy containing details of the type and quantum of investments it would like to make during a specified period of time, generally a year. Further the policy should also provide particulars as to the financial instruments/products and financial institutions approved for investment purposes.

· Transfer of Money

The money involved in the sale and/or purchase of investments must be monitored. Wire transfers should be regulated with an appropriate set of regulations and security measures. Banks should be make aware of these regulations and should be required to provide written notifications of wire transfers as well as other investment transactions.

· Segregation of Duties

The persons responsible for approving investments, signing the checks, signing the receipts, supervising the process of investment and documenting the investment must all be different.

· Recording and Documentation

The sanction provided, the process followed and other information in relation to the purchase and/or sale of investments should be accurately recorded and documented by the investment manager.

· Periodical Statements

Reports and statements must be compiled from time to time, preferably annually containing details about the total investments of the organization, the various forms of investments, their market value, interest rates, maturity dates and other important particulars, if any.

· Periodical Internal Audit

An internal audit must be conducted periodically to ensure that all accounts relating to investments are accurate, in compliance with the investment policy and there are no other discrepancies.


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