Handbook on Cash Examination-Chapter 2 58

Chapter 2
PLAN THE CASH
EXAMINATION

Chapter
Overview

Now that you have a good understanding of the cash

management in the agency, you are ready to plan for the cash
examination and see how you shall prepare for it.

In this chapter, we will define cash examination and identify its

objectives. The identification of the objectives is important
because this will guide you in the selection of the techniques
and procedures which you will include in your audit program.
We will discuss the general guidelines in its conduct and what
the auditor should do in preparing for the examination.

Learning Objectives

At the end of the chapter, you will be able to:

* Define cash examination and tell its objectives;

* Enumerate some general guidelines in the conduct of a cash
examination; and
* Tell what the auditor/examiner should do in preparing for the
examination.

Basic Concepts

DEFINITION AND OBJECTIVES OF CASH

EXAMINATION

Cash Examination Defined

Cash examination has been defined as “an audit technique

whereby an authorized examiner of cash and accounts inquire
into the correctness of the balance of cash in the custody of an

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accountable officer, the validity of his/her cash transactions, the

reliability of the cash records and his/her conformance with
prescribed procedures.”

Objectives of Cash Examination

Cash examination generally aims at determining two things: (1)

What the accountable officer has, and (2) What he should have
at the time of examination. Moreover, it specifically aims to:

1. Establish the actual existence of cash in the custody of the

accountable officer as well as the validity of the cash items
presented.
2. Determine whether all monies received had been correctly
recorded and fully accounted for in accordance with laws;
3. Ascertain whether disbursements are duly authorized,
actually paid and properly recorded;
4. Prove the accuracy of the cash balance appearing in the
cashbook and the ledgers; and
5. Determine if accountable forms are duly accounted for.

GENERAL GUIDELINES IN CASH EXAMINATION

The auditors are enjoined to consider the general guidelines on

the following areas:

1. Frequency of cash examination

2. Timing of the examination.
3. Auditor’s audit plan and program.
4. Auditor’s conduct and behavior during the
examination.
5. Need for the accountable officer’s presence.
6. Accountable Officer’s Cashbook and Certificate
7. Sealing of the safe
8. Auditor’s certificate on the cashbook
9. Auditor’s review of transactions
10. Evaluation of internal control
11. Auditor’s working papers
12. Auditor’s report.

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Frequency of Cash Examination

At present the frequency of the cash examination is as follows.

This may change depending on the policy of the Commission.

1. Barangay Treasurers – at least once a year;

2. Bank cahiers and tellers – at least once every quarter;
3. Treasurer of the Philippines, Cashier and assistant
cashier jointly with the paying, receiving and other tellers of
the Bu. Of the Treasury – at least a year;
4. Cashier, collecting officers, disbursing officers (and
their equivalents) of national, local and corporate agencies –
at least once every semester.

Cash examination is mandatory under the following

circumstances:

1. When the accountable officer retires or is separated from

the service.
2. When she/he is transferred to another station or office.
3. When she/he goes on extended leave of absence and
another is designated in his or her place.

Surprise cash examination may also be conducted upon the

order of the Chairman, Cluster Director or at the discretion of
the Auditor, whenever necessary.

Timing of the Examination

As much as possible, the examiners shall maintain the element

of surprise in every examination. The examination shall be
timed so as to complete at least the count of cash and the cash
items at the close of office hours. It is advisable to start the
examination in the morning. For banks, however, the examiners
shall make the count before or after the banking hours so as not
to disrupt the operations. They shall avoid conducting the
examination of cash accountable officers on pay days and tax
payment deadlines.

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Examination Plan and Program

Planning is a basic management process in anticipating and

preparing to meet conditions that may affect the audit process.
For cash examination, the process includes the following:

 Development of an overall plan for the cash examination

taking into consideration the objectives to be accomplished,
the scope and the manpower requirements.

 Preparation of an audit program to estimate the man-hours

needed to conduct the cash examination and schedule it
properly to avoid inconvenience to the agency’s clientele and
cash accountable officers.

Examiner’s Conduct and Behavior

During the examination, the team shall observe the following:

 The auditor shall behave in such a manner as to earn the

respect of the accountable officer and other agency officials
such as properly dressed, complete with identification card,
and an introduction letter from the COA Director to the
Agency Head.

 When the government agency conducted the cash

examination and discovered shortage, the Auditor should,
upon receipt of the management audit report all take
measures as may be deemed necessary pursuant to COA
Circular No. 90-329. (Please refer to Appendix 4 for copy.)

 The Auditor shall monitor the case(s) filed by the

management as authorized under the said COA Circular.

Note: For shortages/overages found by the COA Auditor in

his/her cash examination, please refer to next chapter.

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Accountable Officer’s Presence

During the cash count, the team shall require the accountable
officer to be present at all times. If, at anytime during the cash
count, the accountable officer has to leave the premises, the
team shall stop the count immediately, cause the return of cash
to the safe, have it properly secured. The team shall resume the
count only upon the return of the AO.

Accountable Officer’s Cashbook and Certificate

Before the cash count, the examiners shall require the AO to

update his/her cashbook by recording all unrecorded valid
transaction up to the time of the count, foot, balance and rule the
cashbook in ink. The audit team shall require the AO to write in
ink the following certification immediately below the last entry:

“I hereby certify on my official oath that all cash and

depository transactions had by me in my capacity as
(Designation) . of (Agency Name)
. at the time of examination, showing a
balance of (Amount in words). (P ) have been
correctly and completely recorded in this cashbook.

Date Signature

If, after the count and verification of the entries in the cashbook,
errors or omissions are found, the examiners shall require the
AO to effect the adjusting/correcting entries and then foot,
balance and rule the cashbook again. The certification should
again be written personally and duly signed by the AO after the
last entry is made.

Sealing of Safe

The sealing of safe and other cash receptacles shall be resorted

to only in exceptional cases, such as:

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 In the absence or non-appearance of the AO for the count or

his/her refusal to submit to cash examination.
 In an interruption or the non-completion of the count during
the day or the necessity of controlling cash, cash items and
records; and
 In cases where an officer accountable for government funds
absconds, dies, or becomes incapacitated of his/her duties.
The sealing shall be done by pasting a sheet or sheets of paper
on the appropriate place(s) of the safe or receptacle and sealed
with sealing wax or other appropriate materials. The seal shall
be signed by the member of the committee, who sealed the
safe/storage including the designated witnesses. There shall be
at least two uninterested persons to witness the sealing. The
examiners shall make sure that the safe or receptacle could not
be opened without breaking the seal. Below is a properly
worded sealing paper:

,20
(DATE)

DO NOT BREAK THE SEAL

UNDER PENALTY OF LAW

Signature of the Auditor

Title

Witness to the sealing:

(Signature)

(Signature)

In case of the foregoing, the agency head, or his /her authorized

representative, shall designate a custodian to take charge of the
funds or property until a successor shall have been appointed
and qualified. The agency head may, likewise, create a
committee/team to count the cash items and accountable forms

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of the absconding or defaulting accountable officer in the

presence of a member of his immediate family, to determine the
accountability, responsibility and liability of the officer
involved. A copy of the report of examination and other related
documents duly authenticated shall be filed with the
Commission but the findings thereof, shall not be conclusive
until approved by the Commission or its duly authorized
representative.

Auditor’s Certificate on the Cashbook

The auditor or his/her authorized examiner shall, after the

completion of the cash examination, accomplish the certification
immediately below the certification of the accountable officer.
At no instance shall the auditor’s certification be qualified. This
certification may be worded as follows:

Examined and verified this ___day of

_________,20___and arrived at an audited balance of
P__________, of which the amount of
P____________was actually found on hand, consisting
of P____________ in currency and P____________ in
cash items, thereby showing no difference / shortage /
coverage of P_____________.

Auditor’ Review of Transactions

The Auditor or designated examiner should review the

transaction from the date of last cash examination to the date of
current examination.

The verification of transactions shall be limited to

determining/establishing (1) that disbursement vouchers, as
entered in the cashbook, are properly approved and payments
duly acknowledged; (2) that all cash advances, cash receipts,
remittances/deposits and adjusting entries are properly and
correctly recorded; and (3) that all cash balances as of date of
examination are reconciled with the accounting records.

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However, the auditors/examiners are not precluded from

examining and auditing the transactions while in the process of
verifying the authenticity and validity of the transactions.

Examination shall be thorough and complete in every case.

Mere count of cash and other valid cash items without an in-
depth verification of stock of issued/unissued accountable
forms, records of collections and disbursements, the entries in
the cashbook, is not an examination at all. An examination that
fails to unearth an existing irregularity or manipulation of
accounts serves only to encourage commission of still more
serious irregularities or defalcations.

Where an examination fails to disclose an existing shortage and

there is proof of incomplete examination, and that the prescribed
steps in the examination were not followed, and that due to the
incompleteness and non-observance of regulations, the defaulter
was able to elude discovery of malversation, said failure will be
made the basis of administrative or criminal action against the
examiner, depending upon the circumstance of each case. All
Auditors, therefore, will be held answerable and responsible for
carelessness, incompleteness, or lack of thoroughness in the
examination.

Evaluation of the Internal Control System

Evaluation of the internal control system over cash receipts and

disbursements is an important factor in cash examination as it
will be a basis for the extent of the examination to be made.
However, this need not be done if the internal controls of the
agency are being regularly evaluated. The extent of the
examination to be conducted need not be extensive when the
internal control system is strong. In the evaluation of the
existing internal control system in cash management, the
examiner can be guided by the internal control questionnaire as
shown in Appendix 5.

Please refer also to Handbook on Internal Controls for more

details.

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Cash Examiner’s Working Papers

To come up or arrive at an opinion about the examination, the

cash examiner must select, examine, organize and document
sufficient evidence for drawing logical and verifiable
conclusion.

The following are the qualities of good working papers:

 Completeness – Working paper is considered complete

when it reflects significant and relevant data in the
examinations. The data must be tested, and distinction
between factual statements and matters of judgment must be
made. It should demand that facts are presented in their
proper perspective.

 Accuracy – A working paper is said to be accurate

when it is technically correct and free from computational
errors.

 Clarity – It shall clearly indicate the nature and extent

of audit work done as well as the facts that have been
uncovered and the conclusions reached as a result of the
examination. The form and content of each of the working
papers shall be constructed in such a way that a person
unfamiliar with the audit work will readily understand it.

 Neatness – Although neatness is not at all important, it

is a desired quality. The two contributing main elements for
neatness are legible handwriting and the orderly
preparation/arrangement of documents. Working papers
prepared in a neat and orderly manner show economy in
carrying out the audit assignment and efficiency in its
review.

 Relevance – All items included in the final working

papers shall have a purpose related to the assignment which
shall be clear to the auditor and any reviewers who may have
occasion to examine the papers.

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A general standardized format shall be developed and

established for each working paper to contain the following:

 Name and address of agency audited;

 Name, designation and station of Accountable Officer
being executed;
 Name of Auditor/authorized examiner who prepared
the working paper;
 Name of Auditor who reviewed the working papers;
and
 Audit note/summary of audit findings and
recommendations

Cash Examination Report

Report preparation is an integral part of the examination

undertaken. It contains all the findings that have been arrived at
by implementing the planned procedures and techniques. Report
may also highlight some findings which need to be emphasized.
A good cash examination report must present findings in such a
way that they are easy to understand without violating the
applicable rules and regulations. Each finding must be presented
with a corresponding recommendation. Moreover, report must
also be prepared within the required time frame, otherwise its
usefulness will be decreased or the report will become useless.

Cash examination report is prepared by the examiner within ten

(10) working days after the completion of the regular or special
cash examination whether or not a shortage/overage is
discovered. It is prepared to apprise the agency head and other
officials concerned of how well the accountable officer
discharged the custodial functions.

PREPARE FOR THE CASH EXAMINATION

After the preparation of the audit program, the team shall

prepare for the examination and observe/understand the
following guidelines/procedures:

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 The examiners should know the procedures and

techniques on cash examination and the evaluation of the
agency’s internal control system.

 They should familiarize themselves with the features of

the Report of Cash Examination (GF 74A), Revised
December 20, 1983, refer to Appendix 6, to be able to
accomplish the form accurately and proficiently.

 The team should also acquaint themselves with the

agency, its functions, organizational units, funds, official
depositories, volume of transactions and names of their
accountable officers, availability of vaults/safes and other
receptacles, etc.

 All necessary data regarding the officer’s

accountability should be gathered before making the trip if
the accountable officers to be examined are in the field.

 The Team Supervisor should brief the members of the

audit team of the work to be done, how it will be done, and
how the tasks shall be distributed, among others.

 The team shall that it has the appropriate office order or

the authority to conduct the cash examination, the respective
COA identification cards and the necessary office supplies
needed in the examination.

 Records to be reviewed when preparing for cash

examination.

1. Latest general/subsidiary ledger account balance

2. Latest cash examination report
3. Data regarding the officer’s accountability
4. Approved Application for Bond
5. Appointment/designation

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Summary

So you can properly plan for the cash examination we defined

and gave the objectives of cash examination. We also discussed
the general guidelines which you must remember and the things
you should do in preparing for the examination.

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