Cash (Paying/Receiving)

June-September 2019

Cash Payments

We may be moving to a cash-less economy, but cash payments are alive and well in some parts of the not-for-profit sector. There are both, accounting and control issues around organisations paying in cash.

Accounting:

• Cash payments are often not recorded, because they are paid out of cash takings. The classic example is the sausage sizzle, where some of the cash takings from the day are used to go and buy extra sausages, bread or onions because of higher than expected demand. When the takings of the day are banked, these purchases are forgotten, and only the banked amount is recorded as income from the fundraiser. This ‘netting out’ is prohibited in accounting.
• Where cash is taken out of the bank account to pay for something, what is often recorded is not what was paid, but what has been taken out of the bank. These two figures are not always the same.

More often than not, a round amount like $500 or so is taken out to pay for miscellaneous things – which will not actually add up to $500. The difference is then not accounted for, or sometimes it is ‘carried over’ into the next such transaction, but without a running list of what these expenditure items actually were. If the organisation is GST-registered, it may be illegally claiming GST on the bank withdrawal.

 

Control:

• Cash is often taken out to pay people in cash. This is common for entertainers at an event, a cash prize of some sort, or a donation towards running an event. Once cash is taken out of a bank account, the organisation has lost control over it. It can no longer prevent the misuse of this money, but it can attempt to detect if it has occurred. This would involve verification from the recipients of the money, that they have been paid.
• Where a treasurer or other financial supervisor does not ask for verification of such cash expenditure, things have a tendency to get extremely relaxed. We do occasionally see cashbooks with frequent large withdrawals of cash, which are usually recorded under the name of an event (such as ‘expenditure for independence day celebration’), and either no receipts at all, or just a signed statement saying something like ‘cash withdrawn for independence day’.