Controller's Guide to Planning and Controlling Operations

8

PLANNING AND CONTROL OF CASH AND SHORT-TERM INVESTMENTS

INTRODUCTION

Most business executives have long been aware of the need for cash. Supplier bills must be paid by cash. Payrolls must be met with cash. The ability of an entity to generate adequate cash has assumed more importance. Witness the attention given cash flow in leveraged buyouts (LBOs) or other proposed mergers or acquisitions. Or consider the standard issued by the Financial Accounting Standards Board (FASB) for cash flow reporting—FAS No. 95, Statement of Cash Flows.

In any event, sound cash management is a basic financial function. While it is usually the responsibility of the senior financial officer, the controller has an important role to play. This chapter reviews the phases that the controller either handles or has a direct interest in:

• Cash planning, with emphasis on the annual plan
• Some aspects of cash control, including internal control
• Limited comments on temporary investments, given their close relationship to cash

OBJECTIVES OF CASH PLANNING AND CONTROL

Cash is a particularly vulnerable asset because, without proper controls, it is easily concealed and readily negotiable. But it is something every business needs. From an overall viewpoint, cash management would have these six objectives:

1. Provision of adequate cash for operations—both short and long term
2. Effective utilization of company funds at all times
3. Establishment of accountability for cash receipts and provision of adequate safeguards until ...