posted July 24, 2015

Internal Controls for Cash Handling

by Neil S. Galassi, Audit Manager

     There are many instances where governments must collect cash pursuant to their operations.Common instances of governmental cash collection can involve payments for the provision of services, constituent participation fees, or assessment payments.The management of any entity has responsibility for implementing a system of internal control as necessary and cost effective to prevent mishandling of funds and help safeguard against loss. Accordingly, there is an expected responsibility of management personnel to develop cash handling procedures to ensure proper internal controls, segregation of duties, and adequate safeguarding of assets.Segregation of duties is essential to prevent one individual from having complete responsibility and influence over all aspects of the process.

     For cash handling, the main aspects involve collecting, depositing and reconciling.Therefore, internal controls and procedures should be developed with segregation of these aspects in mind.This can be accomplished by segregating and defining roles for the collection of funds, depositing of funds, and reconciling of funds.Once segregated, controls and procedures for each aspect should be detailed to demonstrate responsibilities and courses of action so that persons not familiar with the process can follow them to perform the duties when necessary. Procedures also should indicate where review by management or an immediate supervisor is necessary.Some common controls over the collection of funds can involve the following:

  • Defining the method and manner of accepted payments;
  • Using canned forms to document transactions;
  • Ensuring completeness where a cash register may not be cost effective; and
  • Ensuring that cash storage locations are logically secure and limited to necessary individuals.

     The deposit of funds ideally should be handled by individuals not involved in the collection or reconciliation of funds.Policies and procedures over the deposit of funds should:

  • Identifying and requiring completion of necessary deposit documents
  • Defining timing and frequency of transport of funds to the bank; and
  • Addressing overages and shortages.

     Reconciling of funds between the financial records and bank deposits is most effective when performed by individuals separate from the collection and depositing processes.Common controls and procedures over the reconciling of funds involve:

  • Defining responsibilities for reconciling cash
  • Defining the frequency (daily, weekly, or monthly), and
  • Utilizing canned forms and spreadsheet to facilitate and document the process.

    In addition, policies requiring job duty rotations and mandatory vacations can be utilized in all aspects of cash handing to improve segregation and accountability.There is no perfect system of internal control that can mitigate every potential instance of loss.However, strong internal controls and procedures can help to protect the governments and employees from inappropriate accusations or charges of mishandling funds, and facilitate complete and maximum collection of funds.

The content of these pages is for general information purposes only and does not constitute advice. Heinfeld, Meech & Co., P.C. tries to provide content that is true and accurate as of the date of writing; however, we give no assurance or warranty regarding the accuracy, timeliness, or applicability of any of the contents.