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

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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 is initiated 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 to Controller 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 requirements as 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
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.

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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 covenant calculations 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: Notes: 1. Risk # R_CAS_7 mentioned in the ROMM has not been mapped in this narrative as it pertains to recording 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.
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.

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

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