Control Support Of The Monetary Resources Management System

Abstract

Currently, the majority of business processes carried out by an economic organization, including the fulfillment of counterparty settlements, are linked to the movement of cash flows. As a result, the implementation of internal control, which contributes to information and advisory assistance as well as the optimization of the enterprise's financial and economic operations, has become particularly important. Internal cash flow control that is well-organized enables for the prevention of resource loss and the stabilization of accounting and analytical assistance for company activities. The goal of this article is to establish a system of methodological support for the enterprise's internal control of finances. The theoretical foundations for the implementation of control processes are investigated in this article. The fundamental concepts, objectives, and techniques of internal fund control are defined. It is proposed that the created formats of internal control working papers be used to build methodological tools. These documents allow for the systematization of control measures, the evaluation of the efficiency of accounting system organization, the generalization of cash and bank account transaction inspection results, their appropriateness and validity, and the recording of revealed violations by cash and bank account transaction inspection results. The company's management decides to enhance the efficiency of cash consumption by implementing a liquidity management system based on the results of internal control.

Keywords: internal control, cash, cash flow, internal control working paper, analysis

Introduction

In today's environment, cash is one of the main assets that ensure the financial well-being of enterprises that interact with counterparties by carrying out cash and non-cash settlements (Diaw, 2020; Marwick et al., 2020; Begenau & Palazzo, 2021).

If an enterprise lacks the minimum necessary reserve of monetary resources, it means that the enterprise has serious financial problems. At the same time, if the enterprise has excessive cash, it means that there is a probability of their impairment and inflation, and there is a missed opportunity to obtain additional income and to place them profitably (Imhof & Seavey, 2018; Li, 2019; Drobetz et al., 2017).

Cash is a current asset, which has absolute liquidity, that is, it can immediately act as a means of payment for the existing obligations of the enterprise. The volume of cash and the speed of its movement determine liquidity, solvency and affect the efficiency of financial and economic activities of the enterprise (Zakirova et al., 2020; Karpuz et al., 2020; Leontieva et al., 2018).

The cash management system implies optimal planning of their movement so that the enterprise could timely repay its obligations at the expense of cash received from buyers, while maintaining a certain amount of reserve (Sasaki, 2016; Chang et al., 2018; Jankensgård et al., 2020). Thus, enterprises can maintain operational solvency, extract additional profits by investing free cash in business expansion (Chen J. et al., 2020).

In an unstable economic situation, cash is the enterprise's asset, which is a measure of value, a way of exchange and accumulation of capital and ensures the implementation of the strategic goals of the enterprise (Mullins, 2020; B. von Beschwitz, 2018). The absolute liquidity of cash, its susceptibility to accidental and intentional violations causes the need for timely, systematic and continuous internal control of their safety and movement (Chen H. et al., 2020; Huang et al., 2015).

Each economic entity must ensure thorough control of cash on hand and non-cash circulation in bank accounts.

- purposefulness - cash control should be purposeful, the results of control should be provided to specific enterprise management systems;

- objectivity - when control measures should apply methods of verification, which allow to form an objective opinion about the state of funds (Chalmers et al., 2019);

- consistency - control measures should be carried out regularly and should be systematic (Demirakos, 2018);

- timeliness - internal control of funds must be implemented in a timely manner, so that the information is obtained in time to provide the management system to make management decisions (Chang et al., 2019);

- scientific validity - in the process of internal control, general scientific methods of research should be applied, with the help of which a general idea of cash flow at an enterprise is formed (Li, 2018);

- comprehensiveness - during internal control of monetary funds, all aspects of management of financial and economic activity of an enterprise are subject to verification;

- rationality - the costs of implementing internal control of cash flows should be substantially lower than the results of its implementation (Ji et al., 2018).

Problem Statement

The issues surrounding the implementation of internal financial control are one of the most significant aspects of an enterprise's control system, as the information obtained by managers as a consequence of the check encourages adoption of timely and effective administrative choices. Despite the importance of researching problems of fund structure and internal control, contemporary situations need the development of practical features of the check.

Research Questions

The article considers the control procedures and developed forms of working documents of internal control, aimed at improving the internal control of funds and taking into account the peculiarities of financial and economic activities of enterprises.

Purpose of the Study

The purpose of the research is to improve the system of methodological tools for internal control of funds at the enterprise to improve the efficiency of planning, evaluation of the accounting system, control procedures and registration of the results of the audit.

Research Methods

A systematic approach, comparison, technique of data systematization, and generalization of data were used in the study process. Legislative and regulatory acts, publications by international and local experts in the field of internal control development, materials from scientific and practical conferences, and scientific journals served as the work's information foundation.

Findings

Planning is one of the key stages of internal control and allows the development of an overall strategy and detailed approach to conducting effective control procedures. When planning, an internal control program is developed (Table 01). In developing the program, consideration should be given to the resources for internal control, viz:

- the staff that will carry out the audit;

- normative and information support of the audit;

- methodological support of the audit.

Internal Control Working Document (ICWD) «Internal Control Program of Cash Transactions» allows to systematize control measures, to determine the nature of the audit and control procedures applied and, as a result, to increase the quality of working documentation formed by the results of the audit.

At the initial stage of cash flow transactions checking, it is necessary to get full and trustworthy information about the organization of accounting and internal control systems at the enterprise. Using such control methods as testing, observation, inventory control, an internal controller can establish compliance with cash discipline, the degree of organization of control over cash transactions, including currency transactions, the order of payments from the settlement accounts of the enterprise.

We suggest using working document of internal control for testing (table 02).

Using these working documents, the internal controller tests the accounting and internal control systems, assesses the degree of safety of the intended use of funds belonging to the economic entity. In this case areas of accounting activity are revealed, to which it is necessary to pay close attention in the process of internal control.

Internal control of cash operations is carried out in the following sequence:

1. Inventory of the cash register is carried out:

- the cashier provides documents that record the operations of the day preceding the check; available cash and other valuables (securities and monetary documents);

- the results obtained during an inventory of cash and cash documents shall be compared with the accounting data. In the case of identifying surpluses or shortages, the internal controller recommends establishing the reasons for their formation, since surpluses may be formed during the receipt and issuance of cash as a result of intentional and unintentional errors;

2. The availability of an agreement on material responsibility with the cashier, compliance of the cashier's workplace with the established requirements, ensuring the safety of cash in hand;

3. Verification of correctness of documentary registration of operations on cash flow accounting:

- whether cash documents are executed in time. If primary documents are not executed in time, the document flow schedule is violated, accounting errors occur;

- whether documents are executed qualitatively, whether all signatures are available in documents confirming the fact of cash disbursement;

4. The completeness and timeliness of receipt of cash from the bank is checked by mutual reconciliation of identical amounts in bank statements and cash receipt vouchers. Herewith, formal verification of documents is applied. Besides, cash receipts transactions are checked on their merits from the point of view of their legality. This control procedure makes it possible to identify cases of receipt of significant amounts of cash by the cash desk, which by drawing up fictitious documents are appropriated by officials. In addition, it is necessary to check the completeness of the entry of revenue from the sale of products in cash. In this case, the records of cash documents, on the basis of which cash is accepted, with the documents reflecting the sale of products are reconciled;

5. Verification of cash outflow involves formal verification of the correctness of primary documents accounting for cash outflow; normative verification of the validity of cash outflow, depending on the direction of the outflow;

6. Checking the timeliness and accuracy of reflection of cash transactions in the accounts, as it affects the reliability of financial statements, unreasonable veiling of income and reducing the taxable base.

To fix the revealed violations by the results of cash operations audit, we propose to use the following working document (Table 03).

Verification of bank account transactions involves the following procedures:

- establishing the availability of accounts (settlement, currency and special accounts) that the enterprise has with the banks;

- the legality and accuracy of documentation of operations made on bank accounts is checked;

- verification of the timeliness and completeness of the receipt of cash that came to the bank accounts;

- verification of the completeness and in accordance with the submitted invoices paid funds from the settlement accounts of the enterprise;

- whether the taxes to the budget and insurance premiums to non-budgetary funds are paid in time;

- the financial status of the enterprise is analyzed, solvency is evaluated, and causes of arrears in settlements with contractors are determined;

- timeliness of receipt, entry and intended use of funds from the current account to the cash desk is checked;

- the economic expediency and reliability of transactions on current bank accounts are monitored;

- checks whether the data on the movement and availability of cash, which are reflected in the documents;

- correctness of correspondence of accounts on operations on settlement accounts in banks is checked;

- drawing up the results of internal control over banking operations.

When checking bank transactions, each account should be checked separately. In this connection we consider it necessary to use working document «Verification of bank accounts availability» (Table 04).

This document allows you to systematize information about the current accounts of the economic entity, opened in different banks, and to record the identified deviations in the procedure of their opening.

When checking the current account transactions, it is necessary to reconcile the bank statements, accounting and reporting registers. If discrepancies are identified, the reasons should be identified.

Reconciliation of bank statements and the documents attached to them reveal facts when funds are written off without documentation, or are written off for purposes not described in the documents.

The examination of bank documents reveals:

- illegal banking operations carried out without contracts. Thus, an illegal banking operation is an operation in the course of which the debts of an enterprise with which the audited organization has no contractual relationship is repaid; also, it is an illegal banking operation to pay the bills of other companies on cashless transactions;

- whether material assets are received and paid in full and in a timely manner;

- whether the submitted documents for credits and loans to legal entities and individuals are reliable;

- whether the financial condition and sources of financing allow the granting of loans.

In order to improve the checking of current account transactions, we suggest using the working document «Questionnaire for Control over Safekeeping and State of Accounting of Bank Transactions and Purposeful Use of Non-Cash Funds» (Table 05).

Using this working document, the internal controller can objectively assess the safety and state of accounting of bank transactions, the intended use of non-cash funds.

Checking the cash that came to the current accounts, it is necessary to establish the completeness of their enrollment and correctness of accounting. To do this, the proceeds which comes from customers to the account is reconciled with the data on sales and settlement accounts with buyers and customers. In addition, applying the method of cross-checking, you can control the flow of funds from other debtors. In this case, bank statements, attached documents and accounting records in the audited entity and in the organization-counterparty on relevant transactions, according to the requests made by the controller.

Operations on transferring money to repay debts to suppliers, contractors and other creditors should be thoroughly analyzed. In this case it is also advisable to apply reconciliation of interrelated primary documents on homogeneous operations.

To formalize the results of checking cash flow operations on current bank accounts, we propose to use the working document of internal control (Table 06).

ICWD «Verification of cash flow operations on current accounts at the bank» allows to systematize the results of verification of cash flow operations on bank accounts, their appropriateness and validity. This document reflects the revealed deviations associated with abuse, theft and shortage of material assets. In particular, economic entities transfer funds for purchased inventory items that either did not arrive at the enterprise or the documents indicate a different assortment than what was actually received.

In the process of control, the controller establishes validity and correctness of transfer of current and deposited amounts of labor remuneration, deductions under writs of execution, liabilities by verifying transferred amounts with primary accounting documents and by establishing reality of recipients of transfers that are specified in the list of transfer addresses.

At the next stage of internal control of banking operations, operations on special accounts in the bank for settlements by letter of credit, checks, deposit accounts, etc. are checked. Similar to other bank accounts, checking is performed in the following sequence:

- receive information about special accounts, about the availability of contracts for their service;

- the identity of the amounts reflected in the bank statements, accounting and reporting is checked;

- the compliance of primary documents and bank statements is checked;

- the completeness of bank statements is checked;

- the legality, validity and expediency of operations on special accounts in the bank is checked;

- the correctness of reflection in the accounting of transactions on special accounts in the bank is checked;

- the correctness, legality, observance of the terms of validity of letters of credit is checked;

- it is checked whether the documents for transactions that are paid for by checks are correctly drawn up, for transactions related to the movement of targeted funding.

To fix the identified violations based on the results of checking transactions on settlement accounts, we suggest using the following working document (Table 07).

This document summarizes information on the revealed irregularities in certain areas of the audit and recommendations for their elimination, the regulatory framework, sources of information and control procedures used in the course of the audit. Internal Control Working Document (ICWD) «Identified Violations in Accounting of Bank Operations» will allow an internal controller to make an objective report about the results of inspection and form an information base for taking management decisions.

Based on the results of internal control, the company's management makes a decision to improve the efficiency of the use of cash based on the creation of a liquidity management system. The creation of the enterprise liquidity management system includes the following stages:

- implementation of operational cash flow management through the formation of a payment calendar;

- effective use of free cash flows;

- effective management and control of receivables and payables;

- creation of an efficient system for the purchase and storage of inventory;

- creating a system that allows tracking the actual status and availability of material resources, compliance with the schedule of deliveries and payments.

In order to increase the efficiency of the use of monetary resources, in addition to the direct management of cash, it is necessary to manage the sources of the formation of these funds. Before making a decision to increase the efficiency of the use of cash resources, it is necessary to analyze their composition, dynamics, structure to identify problematic issues related to their management (Klychova et al., 2017). For the analysis, it is recommended to use the data of the financial and management reporting for the last five years.

The purpose of the cash flow analysis is to identify the causes of cash shortages or surpluses, determine the sources and uses of cash flows. In addition, in the process of analysis, the financial sustainability and profitability of the enterprise are evaluated.

By analyzing the cash flow, it is possible to characterize the degree of self-financing, financial potential and financial well-being of the enterprise, which largely depend on the receipt of cash that ensures the repayment of its liabilities (Clarkson et al., 2020). Lack of cash leads to financial difficulties that hinder the implementation of production and financial activities. Excessive cash is also a negative factor, since inflationary processes, depreciation of money, missed opportunities for financial investment and the subsequent extraction of income can cause economic losses. In this connection, questions of the analysis of cash flows of the enterprise become especially urgent.

During the analysis, cash flow research is carried out by kinds of activity: basic, investment and financial activity. The main activity is the activity of an economic entity which brings it the main income. The main activity is the main source of profit and cash. Investment activities are closely related to the purchase and sale of property related to long-term assets. As a rule, the investment activity of the enterprise is associated with a cash outflow for a certain period of time (Klychova et al., 2019). Financial activity is the activity on financial support of the functioning of the enterprise, in the course of which the amount and composition of equity and borrowed funds changes. In the course of financial activity, the enterprise receives money from shareholders by issuing securities, pays dividends to shareholders, and takes loans from banks.

Analyzing cash flows, the following conclusions can be made:

- on the amount and sources of cash inflows, directions of their use;

- on the sufficiency of the enterprise's own funds for carrying out investment activities;

- on the enterprise's ability to repay its current liabilities;

- on the sufficiency of profits received for current activity.

Thus, cash flow analysis is of great importance for operational and strategic financial planning of the enterprise.

Conclusion

Thus, each economic entity in the process of financial relationships with counterparties carries out non-cash and cash settlements. For cash settlements, enterprises have a cash desk, for non-cash settlements, settlement accounts are opened in banks, which are also used to store their own funds. Cash is an important and necessary resource for efficient and smooth production and financial activities of enterprises. In this regard, each enterprise should ensure thorough control over the availability and movement of funds.

Internal control is one of the tools to increase the efficiency of the company's operations and contribute to the growth of its investment attractiveness. In modern conditions, as a result of internal control, stakeholders receive information that is necessary to assess the financial condition of the enterprise and subsequent managerial decisions.

For the development of methodological tools of internal control of cash, it is proposed to use the developed forms of working documents of internal control. These documents allow to systematize control measures, to evaluate the efficiency of the accounting system organization, to summarize the results of cash flow operations and bank accounts, their appropriateness and validity; to record the revealed violations by the results of cash flow and bank accounts operations inspection. Based on the results of internal control, the company's management makes a decision to improve the efficiency of cash usage based on the creation of a liquidity management system. Before making a decision on improving the efficiency of cash resources use, their composition, dynamics, and structure should be analyzed to identify problematic issues related to their management. As a result of the analysis of cash flows, the reasons of shortage or surplus of cash are established, the sources of their receipt and directions of use are determined.

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