Internal control and division of duties

Control is a set of ordinary habits

Internal control means the everyday arrangements that make it hard for money or stock to leave a business unnoticed, and quick to spot when it does. It is not a safe with a combination lock and it is not distrust of staff. Good control protects honest employees most of all, because when only one person could possibly have taken something, suspicion falls on that person whether they did it or not.

The main habits at this level:

• Division of duties. The person who handles money should not also be the person who records it and checks it.
• Sequentially numbered documents. Receipts, invoices and vouchers are pre-numbered, so a missing number is a question that must be answered.
• Authorisation. Payments above a set amount need a second signature.
• Physical control. Cash in a locked till or safe, stock in a controlled storeroom, keys held by named people.
• Independent checking. Someone who did not do the work counts the cash, counts the stock and compares the bank statement to the books.
• Rotation and compulsory leave. A scheme that needs daily attention falls over when the person taking leave is replaced for two weeks.

Worked example. Katlego's Bakery in Tembisa has an owner and two employees. At present Neo takes the money over the counter, writes the receipts, takes the cash to the bank and writes up the books. Every step of the cash cycle passes through one pair of hands, so there is nothing to compare anything against. If R600 goes missing, the records will simply be R600 smaller and nothing will look wrong.

The owner splits the cycle:

1. Neo receives cash and issues receipts from a pre-numbered duplicate book.
2. Ayanda banks the cash each afternoon and files the stamped deposit slip.
3. The owner compares the week's receipt total to the week's deposit slips.

In the first week the receipt book totals R4 350 and the deposit slips total R3 750. The R600 difference is now visible on a Friday afternoon instead of being invisible forever. Notice that no new technology was bought. The control is simply that two people touch the same money and a third compares their records.

Core checkpoint: in a controlled cash cycle at least two people are involved, one handling and one recording or checking, and every document that could represent money is numbered in advance. A spoilt receipt is never thrown away. It is marked cancelled and kept in the book, so that the sequence stays complete.