1. Cash as a High-Risk Asset
Cash is the most liquid asset a business owns, making it the most vulnerable to theft, mismanagement, and fraud. To protect this asset, companies use a strict Cash Control Architecture. This system treats the commercial bank account as the primary record-keeping tool and treats internal cash books as secondary tracking tools.
2. Segregation of Duties in Cash Management
To prevent fraud, a company must split cash handling and cash recording among different employees. The employee who receives and deposits physical cash must never be the same person who records cash entries in the ledger or performs monthly bank reconciliations.
3. Banking Mechanisms and Electronic Funds Flows
Modern business relies on several banking mechanisms, each creating its own paper trail or digital record:
- Direct Debits & Standing Orders: Automated cash outflows authorized by the business, where the bank pays recurring bills directly.
- Electronic Funds Transfers (EFT): Direct digital payments made from a customer’s bank account to the business’s account.
- Bank Charges & Interest: Fees or interest added directly to the bank account by the financial institution, which the business only sees when checking its statement