Internal Audit Checklist: Cash Forecasting and Receipts

Cash Forecasting

In general, the objective of an internal audit is to assess the risk of material misstatement in financial reporting. Material misstatements can arise from inadequacies in internal controls and from inaccurate management assertions. As such, testing the validity of various implicit managerial assertions is a key objective of an internal auditor.

While this applies to all financial cycles, this article is the next in a series focusing on the General Control Activities for Short Term Cash Management. The most important general control areas for Short Term Cash Management (STCM) include:

  • Organization
  • Performance Management
  • Cash Forecasting
  • Cash Disbursements and Cash Receipts
  • Check Receipts
  • Bank Statement Reconciliation
  • Other Cash Management Activities

In this post, we’ll focus on the General Control Activities for Cash Forecasting and Check Receipts of the Short Term Cash Management cycle.

Cash Forecasting

It is important that there is a process in place to accurately forecast short terms cash needed to ensure that available funds are sufficient to meet the business needs in the short term. The following should be included in any audit:

  • Verify that development of the forecast flows and cash position is regularly monitored by appropriate level management.

Check Receipts

It is critical that all checks received are accurately recorded and accounted for in the proper period. To ensure proper controls it is important to ensure that only authorized personnel receive and record checks. The following should be included in any audit:

  • Validate that the ability to receive and record checks is restricted to authorized personnel.
  • Verify that the list of personnel authorized to receive and record checks is regularly reviewed by an appropriate level of management.
  • Confirm that of outstanding receivables is regularly reviewed by an appropriate level of management and that there is up on significant or past-due accounts (this control also monitors unallocated checks received).

In conclusion, auditing standards require that auditors test basic underlying management assertions implicit in the financial statements. Key objectives to these assertions are; Existence and Completeness, Rights and Obligations, Valuation or Allocation, and Presentation and Disclosure.