a.

The check signing must be vested in persons at appropriately high levels in the
organization.
b. Check issued must be payable to specific entities (company or person) and
must not be made payable to “Cash”.
c. Bank statements and canceled checks received must be reconciled by a person
independent of the authorization and check signing function.

To see to it that all deposit and disbursement are properly made and recorded, a
bank reconciliation must be made, at least once a month. The reconciliation also monitors
the correctness of the bank’s record of deposits received and checks paid.

2.4 Audit Procedure

The auditor has to trace the opening balance of cash to prior year’s financial statements,
or for repeat engagement, prior year’s working papers. For first time audit, the auditor
may need to obtain copies of the bank reconciliations at the close of the prior year.
Reconciling items listed should be traced to bank statements for the subsequent months.
The auditor’s tests of control of cash receipts help determine that cash payment intended
for the company are received, are properly and promptly recorded, and are promptly and
properly deposited in the company’s bank account. Test of controls related to cash receipts
include

a. Footing cash receipts records;

b. Testing the postings of cash receipts to ledgers;
c. Comparing recorded receipts with bank statements;
d. Comparing deposit slips with recorded receipts; and
e. Comparing recorded receipts with the details in the official receipts.

Details in the official receipts for cash collections from customers must be matched with
the credit postings to the customers’ subsidiary ledgers. Such detailed tracing may uncover
lapping, a fraud referring to misappropriation of collections from customers, delaying its
recording and posting the subsequent collections to the account of the customer who
previously made the payment. (example: Collection from customer A is misappropriation
by the cashier, subsequent collection from customer B is posted to Customer A, and part or
full collection from customer C is credited to the account of Customer B, and so on.)