This section provides basic guidelines and standards for State agencies to establish and maintain controls over cash, (currency, checks, money orders, etc.), both on hand and on deposit in banks. It sets forth general requirements for controls and safeguards to ensure adequate accounting for receipts and disbursements.

     Cash control guidelines are needed for both manual and automated cash processing systems. Managers must ensure the development and use of control systems and safeguards that will meet their particular needs. These guidelines should be incorporated in agency procedures manuals. The general guidelines discussed in this section are directed to manual cash processing systems. However, most of the principles also apply to automated systems.

     Agencies can establish different systems of accounting control to safeguard cash, but such systems should adhere to accepted requirements and basic guidelines. Where it becomes necessary to deviate from basic guidelines, approval of procedures should be obtained from OSC.

BACKGROUND

     Strict controls over cash are essential for the protection of State resources. Adequate procedures are necessary to avoid losses in the handling of cash and to establish practices that will aid in establishing accountability. Past audits by OSC have noted the following misappropriations of State assets.

An agency manager generated 76 fraudulent disbursement transactions and misappropriated more than $244,000 in facility funds maintained at the agency's central office.

 An employee of a municipal traffic court altered cash receipt records and misappropriated $45,300 in fees and fines from the court.

An employee of a health care facility diverted $36,500 in clients' funds.

 An employee of another health care facility altered cash receipts and accountability records and misappropriated $33,400.

A State park employee short changed the State for about $25,000 in one year and was on his way to $32,000 in the next year, before being caught.

     To establish an internal check over the various cash accounts, accounting functions should be divided among several employees so that the work of one employee complements and acts as a check on the work of another. The following illustrates this principle of 'separation of duties'.

Cashiers should not have access to the accounting records. This is a critical separation because without it, funds can be illegally diverted and the records adjusted to cover the misappropriation. Most cash misappropriations uncovered by past audits have involved an employee who handled cash and also had access to the related accounting records.

 Bank accounts should be reconciled by an employee independent of both the cashiering and the bookkeeping functions. The bank reconciliation is an important control procedure, since items such as outstanding checks and transactions-in-transit can be falsified to cover cash shortages. It is vital that the employee performing this task have a thorough understanding of its purpose. One fraud went undetected for a long period of time because the employee who reconciled the account lacked such an understanding and relied on the employee who was misappropriating funds to resolve discrepancies resulting from the misappropriations.

 It is also important for the reconciliation to be made as soon as possible after receiving the bank statement. Timeliness helps in identifying improprieties quickly before they become extensive.

 The receipt of cash should be centralized as much as possible. Employees who open the mail and establish initial accountability for cash receipts should record them immediately and should not have other cash recording duties. This will deter the diversion of unrecorded receipts.

 The inventory of financial stationery (checks, cash receipts, licenses, permits or tickets) should be maintained by personnel independent of related accounting functions.

Disbursements should be approved by designated employees who are independent of payment activities. They should be made with checks signed only on presentation of satisfactory evidence that the disbursement is proper.

     Accountability for cash funds relies on the principle that the custodian of a fund is responsible for the security of the fund and that the discharge of such responsibility is reviewed periodically. The designation of specific responsibilities for cash funds is important and should be done through organization charts, procedure manuals, position duty statements, etc. The appraisal of the related procedures constitutes one of the essential elements of the internal control structure.

FIDELITY BOND COVERAGE

     As stipulated in Section 16.20 of the State Comptroller's Rules and Regulations, adequate fidelity bond coverage should be provided for officers and employees who have access to cash and/or are accountable for property of the State or held by the State in trust for others. The State, through the OGS Bureau of Insurance, provides Fidelity Bond coverage for all employees up to $1,000,000 per occurrence. The coverage, however, is subject to a $100,000 deductible per occurrence. Agencies with lax internal controls could face significant budgetary problems should they have to absorb the $100,000 deductible.

     It should be pointed out that a Blanket Fidelity Bond is not a substitute for adequate, fundamental internal control. Without satisfactory controls, it is probable that losses will go undetected and never be recovered under the bond. Procedures established for providing control over cash should be reviewed periodically to ensure that the system is functioning as planned. Further, the procedures should be revised as needed to meet changing conditions caused by new programs, revisions to existing programs or laws, or accounting mechanization.