Managing internal controls over cash disbursements is an essential element of safeguarding the assets of any business. Even in today’s growing electronic and paperless world, many of our clients’ main method of payment is the issuance of paper checks. With this being such a significant class of transactions, organizations must carefully consider the following before assigning this important task to any employee:
1. Segregation of Duties.
Ideally, the following general procedures should be performed by employees who do not sign checks:
- Adding a new vendor to the accounting system or vendor listing
- Preparing invoices/bills for payment
- Maintaining the accounts payable ledger
- Preparing a bank reconciliation
- Processing of accounts receivable/cash receipts
If the head of your organization’s accounting department – presumably a Chief Financial Officer or Controller – does not perform any of the above procedures, then it is logical for either the CFO and/or the Controller to have check signing authority.
Ensuring the above duties are segregated will help maintain a strong internal control system. But who should sign checks when there aren’t enough employees in the accounting department to segregate the activities noted above?
For many smaller businesses, hiring employees to achieve an improved internal control system is not practical or feasible. In these situations, we often recommend that an owner or CEO be granted check signing authority. This is a practical solution for many privately-owned companies, as owners should have ultimate disbursement authority within their organizations.
However, many organizations have outside ownership or owners who are not actively involved in the day-to-day operations of their business. If this is the case, what should the organization do?
3. Are dual signatures necessary?
If perfect segregation or having an owner or CEO sign all checks is impractical, requiring dual signatures is often a cost effective solution for many organizations.
Organizations can also choose to set a dual signature requirement only for checks over a certain threshold. For example, you may decide that any check over $5,000 must
be signed by two authorized signers. This practice is often more effective and efficient to implement than requiring that all checks have a mandatory second signature.
Companies that choose to have dual signature requirements should be aware that most banks won’t enforce this practice, and that it is solely the organization’s responsibility to monitor compliance with this policy.
It is critical to consider how the above factors pertain to your organization before determining which employees will be given check signing authority. A proper evaluation
will enable you to implement the system that works best for the framework of your business.
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