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Accounting, Tax, IRS & Marijuana

Internal Control Practices for Cash Businesses


Many of the marijuana businesses in Colorado deal with large amounts of cash while not maintaining proper internal control policies.

In general, a sound internal control policy has segregation of duties. That includes separating the accountability, authorization and approval functions in the cash process. If there are enough people in the organization, then it's very possible to have further separation.


For instance, it can be best practice to have different people:

  • Receive and deposit cash
  • Record cash payments to receivable records (three way matching)
  • Reconcile cash receipts to deposits and the general ledger
  • Invoicing for goods and services
  • Collection activities of returned checks
  • Distribute payroll or other checks

Note: The key to effective cash control while separating duties is to minimize the number of people who actually handle cash before it's deposited.


Potential consequences if cash process and duties are not separated:

  • Concealed errors or irregularities going uncovered
  • Lost or stolen cash receipts
  • Inaccurate application of cash receipts 

 

Cash accountability ensures that cash is accounted for, properly documented and secured, and traceable to specific cash handlers.

  • When proper cash accountability exists, you can answer the four W's during a process:

    • Who has access to cash
    • Why they have access to cash
    • Where cash is at all times
    • What has occurred from the transaction's beginning to end

  • Best practices:

    • Record cash receipts when received.
    • Keep funds secured.
    • Document transfers.
    • Give receipts to each customer.
    • Don’t share passwords.
    • Give each cashier a separate cash drawer.
    • Supervisors verify cash deposits.
    • Supervisors approve all voided refunded transactions.

  • Potential consequences if accountability does not exist:

    • Lost or stolen cash receipts
    • Inaccurate application of cash receipts to departmental accounts
    • Improper use of company's assets

Review and reconciliation

Your reconciliation activities confirm that you've recorded transactions correctly. Perform monthly reconciliations of cash receipts and bank account statements to provide good checks and balances.

  • Best practices:

    • Compare receipts to deposit records.
    • Record cash receipts when received.
    • Count and balance cash receipts daily.
    • Perform periodic surprise cash counts.

  • Potential consequences if review and reconciliation activities are not performed:

    • Errors, discrepancies, or irregularities not detected
    • Lost or stolen cash receipts
    • Inaccurate application of cash receipts

 

If you need help implementing internal control policies and best practices please contact us.