Function/Importance of Cash
Cash can be defined as “any legal medium of exchange that is immediately negotiable and free of restrictions” (Russell, 2006). Cash includes items such as coins, notes, checks, postal orders, savings deposits and bank deposits. Cash is considered the most liquid (easily converted into cash) of assets and highly portable. Both of these characteristics make it one of the most difficult items to identify as company property. Cash is the lifeblood of every business organism and must be closely watched to create a financially healthy enterprise.
Inherent Risks in Cash
Due to the fact that cash is one of the most highly targeted assets of employee fraud, the inherent risks associated with cash are typically the highest amongst all account groups.   An inherent risk of cash would be its susceptibility to theft or fraud. With cash being one of the highest targeted assets the account or balance levels could be considered inherently risky. Take for example a company that takes in a large amount of cash payments. The risk of theft and fraud is associated with the balance sheet cash account because of the fact that cash is more easily diverted than check and credit card payments. Some other inherent risks associated with cash could simply be the state of the economy, a high turnover rate in the company and period to period misstatements.
Controls to Prevent and Detect Risk
To better safeguard the cash asset(s) a company has, unusually strong controls should be established. A strong control system for cash should consist of a well developed segregation of duties, accountability, authorization and approval, security of assets, and review and reconciliation. Without having a well defined outline of employee responsibilities and a division of work there could be numerous positions that would overlap in responsibilities that could heighten the chance of fraud and embezzlement.   By instilling cash controls of accountability, authorization, and...