Cash Narrative

7/27/2019 Cash Narrative

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Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for

professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.

Cash Narrative

The Cash process consists of the following activities:

New Bank Account Reconciliation Customer Receipts via Bank Wire/Check Customer Receipts via e-Commerce Transactions Bank Reconciliation Statutory Payments Overdrafts Cash Restrictions Physical Cash Petty Cash

New Bank Account Reconciliation:

New bank accounts are only opened through the direction and approval of management. New bank

accounts require CAO, CFO, or CEO approval. The Controller creates the new general ledger (GL)

account for each bank account prior to posting the journal entry. When new bank accounts are

approved and opened, the general ledger account is created as the A/P Accountant will prepare the

journal entry to record the initial deposit into that account. The Controller reviews and approves the

new general ledger account and journal entry. The review consists of ensuring that the journal entry issupported by bank approval communication, CAO communication, and deposit/bank balance support

(R_CAS_3 | C_CAS_2).

Cash Receipts via Bank Wire/Check:

All payments received by the company via bank wire or check are applied by the Accounts Receivable

clerk to the customer's account as soon as the payments are received and in the case of a check

payment is applied once check is deposited (R_CAS_1). Customer receipts are applied to oldest balance

unless customer specifies which invoices payments are to be applied to (R_CAS_1). Customer receipts

for deposits are applied to the customer deposit account until shipment of goods are made. Then the

deposit is applied to the appropriate invoice.

Customer Receipts via e-Commerce Transactions:

The website of the Company displays a link to the e-commerce activity for customers interested in

procuring products online. The site is managed and hosted by a third-party service provider who is

vested with responsibility of managing and maintaining the contents, update the product rate l ist and

perform periodic checks on the safety and security of the site. Once the order has been placed by the

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buyer by logging on to the companys website, the buyer is directed to choose payment options of

paying vide a direct debit or a credit card. On selecting the option of payment the settlement process isinitiated and completed between the buyer, service provider and the companys bank. On completion of

the payment the website provides a provisional invoice to the buyer, which is later confirmed after the

verification procedure as per the e-commerce policy of the Company. The verification procedure

includes each day, the Senior Finance Officer obtains a daily transaction report from the bank detailing

all the transactions. He or she then forwards the report for review to the Senior Accountant. The Senior

Accountant will ensure that all the transactions have a valid invoice number associated with it, the

amount in daily transaction report plus the service charges ties to amount as per provisional invoice. The

Senior Accountant then applies the receipts against that invoice and records the service charges paid to

the service provider (R_CAS_1| C_CAS_1). Any discrepancies are forwarded to the Sales Representative

for investigation and resolution. In case of sales return, the Sales Representative provides requisite

information to the Senior Accountant and the Senior Finance Officer for recording and payment to the

customer.

Bank Reconciliation:

Each month, Staff Accountant reconciles all bank statements to the GL to ensure that all cash

applications are reflected accurately in the ledger for the appropriate month. Upon completion, the

Controller and/or the Director of Cost Accounting (in cases where the Controller prepares the

reconciliation), review and sign off on the reconciliations. The designated reviewer reviews the bank

reconciliations through performance of the following: (1) ensures that beginning balance agrees to the

bank statement (2) investigates all additive (i.e., deposits in transit) and subtractive (i.e., outstanding

checks) items by obtaining supporting documentation for adjustments and (3) ensures that ending GL

balances per the reconciliation agrees to the bank balance. The designated reviewer will sign the bank

reconciliations as evidence of review(R_CAS_2, R_CAS_4, R_CAS_5, R_CAS_6, C_CAS_1).

Statutory payments:

The Company remits the statutory payments via a wire transfer, access of which is provided to

Controller of Finance and Chief Financial Officer (CFO). The access to transfer funds is restricted toController and the CFO. The Controller receives the statutory payment calculations from the Tax

Manager before the due date. The Controller reviews the calculations with supporting documents for

tax calculation reasonableness and then initiates the wire transfer by preparing a wire transfer request

form. The wire transfer request form is then approved by CFO. On approval the Controller initiates and

completes the transfer. The Controller then obtains the confirmation from the bank and along with the

wire transfer request form sends it to the Senior Accountant for recording journal entries. At the end of

every month, the Director of Cost Accounting or Controller reviews the monthly bank reconciliation (as

prepared by the Staff Accountant). This review includes a review of the recorded journal entries and

supporting documentation (wire request form and the supporting tax calculations to ensure accuracy

and completeness to journal entries recorded) (R_CAS_6, C_CAS_1).

Cash Restrictions:

The Controller reviews the Debt Compliance Report to ensure compliance with reporting requirementsas set forth in the Credit and Security agreements. The Controller will then ensure compliance with loan

covenants through performing a monthly, quarterly, and annual loan covenant calculation and

comparing it to the covenants (Minimum Net Income, Minimum Cash Coverage, and Capital Expenditure

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Covenant) stated in the Credit and Security agreements with the bank. To ensure compliance with loan

covenants, the Chief Accounts Officer will review the monthly, quarterly, and annual loan covenantcalculations that are prepared by the Controller. The review consists of examining the month-end

financial statements and ensuring that the following covenant calculations are properly computed:

Minimum Net Income, Minimum Cash Coverage, and Capital Expenditure Covenant. Further, the Chief

Financial Officer must review and sign a monthly, quarterly, and annual loan covenant compliance letter

stating the amounts used in the covenant calculation. (R_PDI_8| C_PDI_4).The letter of compliance and

the financial statements must then be submitted to the bank within the established timelines as defined

in the agreement.

Physical Cash:

As per the Companys policy the verification of cash is done on an unannounced basis by Controller at

least quarterly. The Controller prepares a Cash Verification Form and verifies the physical cash,

vouchers, deposits, and the postage stamp fund held by the Cashier. The Controller then compares the

ending balance to Cash account in GL. Discrepancies, if any are reconciled and resolved immediately. As

a part of the verification process, the Controller also checks whether custody of cash is safeguarded in

dual control of the Cashier and the Finance Manager. In order to insure physical cash, the Accounting

Manager calculates the average daily cash balance for a 52 week period and provides it to the Finance

Manager for obtaining adequate insurance cover.

Petty Cash:

The Assistant Cashier is responsible for custody of petty cash. The company mainly uses petty cash for

replenishing purchases made in nature of office supplies and local employee travel. The Assistant

Cashier prepares a petty cash voucher for all disbursements made and obtains relevant supportings

(approved bill / invoices). At the end of each day, the Assistant Cashier will compare the total

disbursements with the amount as per petty cash vouchers and supporting (approved bill / invoices).

IPE:

CAS_IPE_1 Daily Transaction Report CAS_IPE_2 Cash Balances Schedule CAS_IPE_3 Statutory Payment Calculations CAS_IPE_4 Wire request form CAS_IPE_5 Debt Compliance Report CAS_IPE_6 Loan covenant compliance letter

Notes:

1. Risk # R_CAS_7 mentioned in the ROMM has not been mapped in this narrative as it pertains torecording and accuracy of debt payments and as per the ROMM, the control activity is

mentioned in Notes Payable and Long Term Debt. Please see the Notes Payable and Long Term

Debt narrative and flowchart for the mapping of this risk.


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2. For Risk # R_CAS_5 and Control # C_CAS_1, the process surrounding this risk and control hasbeen mentioned in the Property, Plant, and Equipment narrative.

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Cash Narrative