What is an appropriate control to have in place to safeguard cash during the cash disbursement process?

Internal control encompasses the policies and procedures that an organization establishes to ensure that it operates in accordance with management's intentions and that accountability is maintained for all transactions. This includes the methods adopted by the organization to safeguard its assets, to check the accuracy and reliability of its accounting data, to promote operational efficiency, and to encourage adherence to prescribed managerial policies.

This broad definition of internal control includes two different aspects of control: administrative control and accounting control. Administrative (or operational) controls are generally aimed at improving operating efficiencies or otherwise controlling the activities of the organization. These controls are in contrast to internal accounting controls, which are primarily directed at reliable financial reporting (i.e., ensuring the accuracy and reliability of the financial data and safeguarding assets.)

Internal controls are usually developed and put into place to either prevent mistakes or detect them on a timely basis if they occur. For example, College departments use cash transmittal forms to deposit cash with the Business Office. Cashiers in the Business Office check cash transmittal forms to make sure that the deposit equals the amount shown on the form and that accurate account numbers are used. These cashiers are performing controls designed to prevent mistakes from entering the College's accounting system. To detect any mistakes that get through the process, the computer system has been designed do that it will detect (and not accept) out-of-balance transactions and invalid account numbers.

The category (administrative or accounting) into which a specific internal control might fall is not particularly important. Far more relevant are the reasons why internal controls are established and the purpose they serve.

Purpose of Internal Control

Internal controls are put into place largely to allow management to monitor operations, identify business risks, and generate pertinent financial and nonfinancial information. In short, internal controls are designed and implemented so that management can run the organization. Internal controls also ensure that responsibilities are met.

Generally speaking, internal controls are established to provide reasonable assurance that:

1. Transactions are executed in accordance with management's authorization.

2. Transactions are recorded as necessary to permit the preparation of accurate financial statements and to maintain accountability for the organization's assets.

3. Access is restricted to instances authorized by management.

4. Assets are periodically compared with the accounting records, both to determine the accuracy of the records and to account for the assets.

Because cash is negotiable, readily spendable, and easily transported, it is important for proper internal controls to be in place to protect this asset. Accordingly, it is the policy of the College that the following internal controls over cash be implemented throughout the College:

1. Access to cash must be limited. All funds should be kept secure at all times. While in the possession of College departments, administrative offices, and affiliated organizations, funds should be kept in safes or locked boxes. All funds, except for petty cash, must be deposited in accordance with the daily deposit policy.

2. Cash operations must be subject to daily supervisory review. To minimize the potential for mistakes in cash operations and/or misappropriation of cash, cash duties should be separated among employees so that in all instances one person (preferably a supervisor) will check the work performed by another.

3. All cash must be completely and accurately recorded in the financial records of the College. To ensure this, cash transmittal forms should be prepared for all cash receipts indicating that account(s) to which the funds are to be credited.

Separation of Duties

The internal control that most effectively assures the secure handling of cash is separation of duties. Having different people receive cash, prepare the transmittal, and reconcile the ledger sheets attain this. This allows each person to serve as a control over the others, catching mistakes and preventing the misappropriation of funds.

In a small office where separation of duties is difficult, it is imperative that the supervisor review cash operations each day.

Safeguarding of Assets

Cash is prone to theft or misplacement. Accordingly, it is important to have internal controls in place to safeguard these assets so that assets to them is limited to authorized personnel. See section E-2-6 for additional information on security.

Strong internal controls are necessary to prevent mishandling of funds and safeguard assets. They protect both the University and the employees handling the cash.

Safeguarding Cash

• Restrictively endorse checks immediately upon receipt stating “For Deposit Only – Syracuse University”
• Keep cash/checks in a locked and secure area until they can be deposited. Access to the area should be restricted to only designated individuals. If a person with custody responsibilities leaves their position, any keys should be collected or combinations changed. Remember that while cash or checks are in your custody you are responsible for it.
• Make timely deposits. The sooner cash/checks can be deposited, the less exposure to theft or loss of funds. Ideally deposits should be made within 24 hours. If amounts are insignificant (less than $100), then deposits can be made weekly.

Recording Cash Receipts

• All cash receipts should be recorded immediately by use of a cash register, data entry into a computing system, pre-numbered receipt book, or handwritten log. Receipts can be in manual or electronic format and should contain the amount received, the name of the payer, purpose of the payment, and its form (cash/ check/credit card).
• Provide a receipt. Ideally receipts should be pre-numbered and two-part. One copy should be provided to the payer while the other copy is kept on file. Total deposits can be verified independently by another person by accounting for each sequentially numbered receipt.
• Cash receipts should not be used for petty cash disbursements, check cashing, making change, or for any personal reasons.

Reconciliation

• Verify the deposit by agreeing Cash Operations deposit slip to the general ledger on a monthly basis
• Cash registers and credit card machines should be balanced daily. Over/short amounts should be monitored.
• A dated and signed record of the reconciliation should be maintained

Segregation of Duties

No one person should be allowed to collect, handle or transport and deposit checks/currency without some additional control feature to ensure that all funds are accounted for. Examples of such controls are as follows:

• The person collecting and recording the receipt should not be the same as that making the deposit. Additionally, a person independent of recorder and depositor responsibilities should reconcile the deposit to the general ledger. If there are only one or two people in the department, a review by management of the reconciliation can provide a compensating control.
• When cash or checks are received regularly in the mail, if feasible, two persons should be present when the mail is opened. One person should total and record the remittances (log). The other should prepare the deposit slip and forward it with the cash/checks to Cash Operations. The deposit slips should be reconciled by a third person to the general ledger.
• Keep transfers of cash from person to person to a minimum. Accountability is lost when several people handle cash before it is deposited. If transfers must take place be sure to document it. If you are the transferor you should get a receipt, if you are the transferee you should verify what you are receiving before you provide a receipt. Use of a drop-off/pick-up log can be beneficial when transporting deposits.

Gifts/Personal Checks

• If external gifts directed to the University are received, they should be forwarded to Advancement and External Affairs immediately for processing.
• Personal checks should not be cashed.

Related SU policy: Gift Acceptance Policy

Fees and other Revenues

Use an accounts receivable account to process billing and collection for routine revenue activities. If you are unsure if a cash receipt should be recorded as revenue or an offset to an expense, contact General Accounting in the Comptroller’s Office for assistance. Internal controls surrounding this type of activity include:

What are the important controls relating to cash disbursements?

What control techniques could we use to effectively safe guard cash?

What is an effective internal control over cash disbursements?

Which of the following is a standard control over cash disbursements?