A fuel station collects cash from hundreds of motorists a day. The attendant hands the day's takings to a supervisor who banks them when he can. A month later the station is short by ₦2.3 million. Cash is the asset most likely to be stolen, and the first thing a fraudster tries to reach.
Because management knows it, controls over cash are usually good, and in practice cash may not be a high-risk audit area. The auditor still tests them, because the cost of a failure is high.
This topic covers the risks, control objectives, controls and tests for receipts, banking, cash and cheque payments, and the imprest system for petty cash. The previous topic covered payroll and the next deals with inventory and non-current asset systems.
In 30 seconds
Cash means notes, coins and bank balances. Key assertion for receipts: completeness. Risks: receipts not recorded or banked, cash lost or stolen, unauthorised payments. Controls: segregation, supervised opening of post with a list, date-stamped cheques, tills and till rolls, numbered receipts, daily banking, safe custody of cheque books, no pre-signed cheques, two signatures above a limit, numbered cheques, bank reconciliations. Petty cash: imprest system, locked box, authorised vouchers, surprise checks.
Key terms in plain English
| Term | What it means |
|---|---|
| Cash | Notes, coins and money in a bank account |
| Imprest | A fixed petty cash float topped up in exact amounts |
| Till roll | A printed record of sales on a till |
| Remittance advice | A document from a customer showing what was paid |
| Pre-signed cheque | A cheque signed before it is completed |
| Bank reconciliation | A comparison of the cash book to the bank statement |
Syllabus check
This topic is in syllabus area B, the nature and use of internal control (20% of marks). It covers:
- accounting systems and internal controls in the bank and cash cycle
- the evaluation of internal controls
- tests of controls
CAMA 2020 and the bank and cash system
The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.
| Section | What it says | Link to this topic |
|---|---|---|
| s. 404(2) | The auditor states whether proper books of account were kept | Cash records are part of the books |
| s. 405 | Corporate responsibility for financial reports | Management designs cash controls |
| s. 407(3) | Right of access to books, accounts and vouchers | Access to cash books, cheques and bank records |
The rules in more depth
Risks and control objectives
Bank and cash is often one of the most sensitive audit areas, because it is the asset most likely to be misappropriated. In practice it may not be high audit risk, because the company knows the risk and sets up appropriate controls.
The auditor is particularly interested in establishing that all receipts belonging to the organisation have been recorded, so completeness is a key assertion for cash receipts. "Cash" here means notes and coins and money in a bank account. Many entities reduce the risk by routing receipts and payments through the bank.
Cash payments are also a risk: payments may be made to unauthorised persons, or people may be paid more than they should be.
| Risk | Control objective |
|---|---|
| Cash received not recorded in the accounting records | All money received is recorded |
| Cash received not deposited in the bank | All money received is banked |
| Cheques, notes and coins lost or stolen through poor safeguarding | All money held is properly safeguarded |
| Unauthorised payments made | All payments are properly authorised |
Receipts: controls and tests
| Objective | Controls | Tests of control |
|---|---|---|
| All money received is recorded | Segregation of duties: the people who handle cash are kept separate from the accounting functions | Check that segregation exists |
| Receipts by post | Supervised opening of all mail, a listing of money received, mail and cheques date-stamped | Observe the opening of mail and handling procedures; check amounts recorded as receipts from customers against remittance advices |
| Cash sales | Only a limited number of authorised employees receive cash; tills and till rolls record sales; another person checks cash received to the till roll total; receipts given are sequentially numbered, with a copy retained | Check receipt books, paying-in books and till rolls to the bank statements; check that banking is done daily; look for evidence that till roll totals or receipts are checked by an authorised person |
| All money received is banked | Daily banking if possible; the amount of cash received is recorded and later checked to the amount banked | Check the frequency of banking; check that receipts are in the cash book and that the bank statement matches the cash receipts recorded daily |
Safeguarding: controls and tests
| Area | Controls | Tests of control |
|---|---|---|
| Bank accounts | Established procedures for opening new bank accounts | Confirm that new accounts were opened only under those procedures |
| Cheques | Restrict who may prepare and hold cheques; safe custody of cheque books; in a manual system no pre-signed cheques; in an IT system strong physical control over pre-signed cheques, kept in a safe until the payment run, with batch and control totals over cheque numbers | Observe who is involved with company cheques; ask about custody of cheque books and look for blank pre-signed cheques; in an IT system observe a payment run and see that pre-signed cheques are removed from the safe just before printing and returned just after; omit a cheque from the run and see that the system flags it as missing |
| Cash | Notes and coins in a secure place such as a safe; very few employees have access; receipts and payments of cash recorded | Review the nature of cash payments; observe cash custody procedures |
Payments: controls and tests
| Controls | Tests of control |
|---|---|
| Cheque requisition forms to request payments, backed by supporting documents, which are cancelled once the cheque is prepared | Review paid cheques for payee, date, amount and signature; review the documents supporting requisitions |
| Established authority levels for signing, usually two signatures above a set amount | Agree payments in the cheque book or automated listing to the accounting records, bank statements and supplier statements |
| All cheques numbered in sequence; payments recorded promptly | Review the sequence of cheque numbers |
Electronic payments need similar controls: a limited number of authorised users, separate initiation and approval, a token or one-time code for approval, limits per user and per transaction, and review of the bank's transaction report each day.
Bank reconciliations, prepared regularly by someone who does not handle cash or post the ledger and reviewed by a manager, are a key control for both receipts and payments. The auditor tests them by checking evidence of preparation and review and re-performing a sample.
Petty cash and the imprest system
| Risk | Control objective |
|---|---|
| Petty cash stolen | Avoid or reduce theft |
| Spending not properly authorised | All spending authorised |
| Wrong amounts withdrawn from the bank when topping up | Only the correct amounts withdrawn |
| Spending not recorded, or recorded wrongly | All spending accounted for |
Under the imprest system, petty cash is kept at a fixed float, and spending is reimbursed in exact amounts to restore the float.
| Objective | Controls | Tests of control |
|---|---|---|
| Reduce theft | Cash in a locked box in the safe, or a locked drawer; maximum held about one month's spending; occasional checks by a senior person not responsible for the cash | Observe that cash is physically secure; review journal entries to confirm that top-ups are not above one month's spending; check evidence of how often independent checks occur and whether discrepancies are investigated |
| Authorised spending | All spending authorised in advance by an authorised person, not by the person taking the cash; authorisation by signing and dating the petty cash voucher, kept in the box until the next top-up | Check a sample of vouchers for a signature and date of an appropriate person |
| Correct top-up | The cheque for the top-up is checked to the total of vouchers since the last withdrawal | Observe the withdrawal and the check of cash withdrawn to the total of vouchers |
| All spending accounted for | All withdrawals recorded on numbered vouchers, with receipts attached; regular recording in the petty cash book, with the voucher number in each entry | Check that all or a sample of vouchers have receipts; check numbering and order of issue; check that every entry in the book has a voucher number and was recorded on time |
Why this matters for the substantive tests
If controls over cash are effective, the auditor can place more reliance on the bank reconciliation and confirm the year-end balance with the bank. If they are weak, the auditor may count cash, test cut-off of receipts and payments around the year end, perform a proof of cash for the year and look for unrecorded receipts, such as by testing post-year-end banking and customer confirmations.
Worked examples
Example 1: fuel station. Takings are banked weekly by the supervisor, who also records the sales.
- Weak controls: no daily banking, and no segregation between handling cash and recording it.
- Takings should be banked daily by a different person, and the bank statement agreed to the sales record.
Example 2: pre-signed cheques. The auditor finds a book of blank cheques already signed by the finance director.
- Anyone could fill in a payee and amount.
- Cheques should be signed only when completed, with two signatures above a limit.
Example 3: petty cash. The float is ₦50,000. Vouchers in the box total ₦36,000 and cash is ₦12,000.
- The difference is ₦2,000 and must be investigated.
- An imprest should always equal vouchers plus cash.
Example 4: mail. Cheques from customers are opened by the accounts receivable clerk who also posts to ledger accounts.
- The clerk could divert cheques and post credits to hide the loss.
- Mail should be opened by two people with a list of cheques, which is agreed to the ledger later.
How to score full marks
- Treat receipts, safeguarding, payments and petty cash separately.
- Say that completeness is the key assertion for receipts.
- Link each test to the control.
- Mention daily banking, no pre-signed cheques and the imprest float.
Common mistakes in the exam
- Forgetting segregation between cash handling and records.
- Not mentioning bank reconciliations.
- Confusing petty cash controls with cheque controls.
- Giving only theft controls and forgetting authorisation.
Quick revision
- Receipts: completeness; list of post; till rolls; numbered receipts.
- Banking daily; bank reconciliations.
- Cheques: custody, numbers, two signatures, no pre-signed.
- Petty cash: imprest, vouchers, surprise checks.
Practice questions
Questions 1 to 10 are multiple choice. Questions 11 to 13 are written. Try each before opening the answer.
Question 1. The key assertion for cash receipts is:
- Completeness
- Valuation only
- Presentation
- Classification
Show the answer
A. All receipts must be recorded.
Question 2. A control over mail receipts is:
- A listing of money received
- No record
- Opening by the ledger clerk alone
- Weekly banking
Show the answer
A. Supervised opening and a list.
Question 3. Cash should be banked:
- Daily if possible
- Monthly
- Yearly
- Never
Show the answer
A. Daily banking.
Question 4. Pre-signed cheques:
- Should not exist in manual systems
- Are best practice
- Must be kept in the drawer
- Are required
Show the answer
A. They are a risk.
Question 5. Cheques above a set amount usually need:
- Two signatures
- No signature
- The auditor's signature
- A tax stamp
Show the answer
A. Authority levels.
Question 6. Cheque numbers should be:
- Sequential
- Random
- Hidden
- Unrecorded
Show the answer
A. Gaps can then be seen.
Question 7. An imprest petty cash system:
- Keeps a fixed float topped up to the same amount
- Has no float
- Allows unlimited spending
- Needs no vouchers
Show the answer
A. Fixed float.
Question 8. A top-up of petty cash should agree to:
- The total of vouchers
- The bank balance
- Sales
- The payroll
Show the answer
A. Check cheque to vouchers.
Question 9. Petty cash vouchers should be:
- Numbered and authorised
- Blank
- Pre-signed
- Destroyed
Show the answer
A. To account for spending.
Question 10. A key control for both receipts and payments is the:
- Bank reconciliation
- Stock count
- Payroll
- Budget
Show the answer
A. Prepared by someone independent.
Question 11 (10 marks). Describe controls over cash receipts and tests of controls. (8 marks)
Question 12 (10 marks). Explain controls over cheque payments and tests the auditor would carry out. (6 marks)
Question 13 (10 marks). Describe how an imprest petty cash system works and the controls and tests that apply. (6 marks)
Model answers
Show the model answer to Question 11
Segregation of cash handling from accounting; supervised mail opening with a list; date-stamped cheques; authorised cash handlers, tills and till rolls, checked by another; numbered receipts; daily banking; recorded receipts checked to banking. (4) Tests: check segregation; observe mail; agree remittance advices to receipts; check receipt books and till rolls to the bank statements; check frequency of banking and evidence of checks. (4)
Show the model answer to Question 12
Controls: requisitions with supporting documents, cancelled; authority levels with two signatures; numbered cheques; no pre-signed cheques; custody of cheque books. (3) Tests: review paid cheques; agree payments to records and statements; check the sequence; observe custody and the payment run. (3)
Show the model answer to Question 13
A fixed float is reimbursed by the exact total of vouchers. (1) Controls: locked box; limit of one month of spending; surprise checks by a senior person; authorised numbered vouchers with receipts; top-up checked to vouchers; petty cash book with voucher numbers. (3) Tests: observe security; review journals; check vouchers, numbering and the book. (2)
Pathfinder on The bank and cash system: controls over receipts, payments and petty cash
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Revise first: Receipts: controls and tests
Source: ICAN Pathfinder, Audit, Assurance and Forensics. Diets covered: May 2026 and November 2025.
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