TAKEAWAYS
As society moves towards a cashless future, following a surge in digital payments during the pandemic, some might assume that cash mishandling would become a thing of the past.
Yet, recent headlines tell a different story.
In recent news, an ex-constituency director was jailed for misappropriating over S$12,000 in National Day dinner ticket sales; a police officer pocketed over S$90,000 worth of cash entrusted to him when he was an investigation officer; and a man who was responsible for managing the operations of some Kopitiam outlets embezzled cash totalling S$149,800 to fund his gambling addiction.
In today’s dynamic business landscape, effective internal controls over cash management remain crucial. Cash is the life blood of any organisation, vital for both day-to-day operations and supporting future growth. However, its liquidity also makes it vulnerable to fraud, mismanagement, and error.
The incidents cited above illustrate how mishandling of funds can occur in organisations of any size or industry, often by exploiting loopholes or weak links in the system. Misappropriation of cash occurs when there is a gap in the governance process.
The risk increases during special events, such as sales drives or roadshows, when comprehensive monitoring and oversight may be lacking. These events often demand significant focus on operational and logistical matters, leaving gaps that can be exploited for misconduct.
Technology can help to mitigate the risks associated with physical cash. The use of digital payment helps to reduce human interaction with cash, thus minimising opportunities for theft, error and fraud. By embracing such technological innovation, organisations can further bolster their internal controls and better safeguard their assets.
Such alternative payment methods appear well accepted, as a 2023 survey published by Statista found that Singapore’s adoption rate of cashless payments is 97%.
Where cash transactions are still necessary or even preferred, robust internal controls and processes should be implemented to prevent the misuse of cash and ensure proper handling.
At the core of effective cash management lies the segregation of duties. By dividing responsibilities among different individuals, organisations can significantly mitigate the risk of errors and fraudulent activities. When no single person has control over all aspects of a cash transaction – from receiving to recording to reconciliation – there is less opportunity for unauthorised actions to go undetected.
For example, in the case of the misappropriation of National Day dinner ticket sales, this principle could have prevented the issue. In retrospect, one person should have been designated the role of handling the ticket sales, while another placed in charge of accounting and reconciling the money. This separation of tasks creates a system of checks and balances, making it harder for any fraudulent activity to go unnoticed.
Timely monitoring and reconciliations also allow any discrepancies to be promptly identified and investigated. For instance, last year, a former employee of Yellow Ribbon Industries was discovered to have misappropriated Nets FlashPay cards with a total stored value of more than S$6,000 over a period of more than two years. In response to this incident, Yellow Ribbon Industries has since implemented weekly checks to ensure that the cards are properly issued to residents.
Having such controls in place not only ensures that shortfalls are quickly detected, it serves as a deterrent against cash misappropriation, as one might be less inclined to engage in misconduct knowing that discrepancies will be swiftly uncovered.
Documentation and recordkeeping are also critical components of internal control. Keeping accurate records helps to keep track of money flow and provides evidence that can be reviewed during investigations or audits, helping in the identification of discrepancies.
By ensuring that all transactions are accounted for in a timely and accurate manner, organisations can better detect any potential misuse of funds.
The tone set by leadership is critical in fostering a culture of ethical behaviour and integrity. They must lead by example, demonstrating a commitment to strong ethical principles and transparency.
This includes establishing clear policies and procedures that promote accountability at all levels of the organisation.
Regular training on ethical behaviour and compliance can help reinforce these values and ensure that all employees understand the role they play. Incorporating ethical behaviour as a key performance indicator in performance appraisal exercises also emphasises the organisation’s focus on doing the right thing.
Directors and senior management should also walk the talk by keeping themselves up to date with governance, leadership and risk management best practices. For example, programmes such as the Board of Directors Masterclass Programme, jointly offered by the Institute of Singapore Chartered Accountants (ISCA) and SAC Capital, provide insights into effective governance and risk management.
The ramifications of such incidents are far-reaching, from financial losses and legal repercussions to a potential loss of confidence by internal and external stakeholders.
Effective communication is crucial in rebuilding trust with stakeholders. Organisations should clearly outline the gaps that led to the incident and highlight the steps being taken to address the issue, including any corrective actions and measures to prevent future occurrences.
These can help reassure employees, customers, and investors that the organisation is taking the matter seriously. It also sends a clear signal to employees that there will be repercussions for cash mismanagement. By being open and honest, the organisation can restore confidence, maintain its reputation, and foster a culture of trust and responsibility moving forward.
Until an organisation can phase out physical cash receipts from its processes, it is fundamental for it to maintain robust internal controls over cash management. Effective internal controls can safeguard the organisation from fraud, wilful misconduct and financial mismanagement, ensuring the prudent management of its resources.
Alice Tan is Head of Professional Standards, ISCA. An edited version of this article was first published in The Business Times on 10 October 2024.
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