Internal Audit Checklist: Performance Management (Short-Term Cash Management)

Performance Management

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 second 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:

In this post, we’ll focus on the General Control Activities for Performance Management of the STCM cycle.

Setting of Goals and Targets-Measurement of Performance

Management should set a formal functional direction (the mission and vision of cash management function that is in line with strategic plan) and set clear performance goals and targets. The performance targets must be realistic, support the strategic business objective and be tied to KPI’s. The following should be included in any audit:

  • Verify that available funds are sufficient to meet entity needs.
  • Validate that short term cash position is accurately forecast.
  • Confirm the import of bank statements (recording of cash receipts and payments) is performed by authorized personnel.
  • Make sure that cash receipts and disbursements are recorded and processed in the proper period.
  • Assure that check books are stored in a safe place and access to them is restricted.
  • Verify that the electronic banking system rights are in line with the authority schedule, and appropriate dual authorization is required to process payments (or 3 people are involved where cash available for payment is deemed sufficiently significant).
  • Validate that cut-off of recorded cash is accurately accounted for.
  • Confirm that recorded cash amounts at periods end are correct

Performance Monitoring and Remedial Actions

Businesses should have a Performance Monitoring and Remedial Actions activity to ensure that performance against targets is regularly measured and evaluated. The following should be included in any audit:

  • Verify that the development of the forecast cash flow and cash position is regularly monitored by appropriate level management.
  • Confirm that the ability to record cash receipts is restricted to authorized personnel.
  • Make sure the ability to perform and record cash disbursements is restricted to authorized personnel.
  • Validate that the responsible manager regularly reviews the list of personnel authorized to enter cash receipts and disbursement.
  • Make sure the responsible manager regularly reviews the listing of outstanding receivables and follows up on significant and past-due accounts (this control also monitors unallocated checks received).
  • Verify that the bank statements and cash register are regularly reconciled to the general ledger and properly reviewed.
  • Confirm that the responsible manager monitors if all bank accounts, cash accounts, and received checks are recorded.
  • Assure that bank reconciliations and reconciliations from sub-ledger to the general ledger are performed regularly by individuals who are independent of the cash receipts and disbursements process, and these reconciliations are properly reviewed.
  • Validate that any differences are reviewed and resolved in a timely manner.

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.