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