CASH HANDLING REVIEW GUIDE

(Adapted from University of Kansas Controller’s Office Documents)

This self-assessment guide examines controls over the handling of money within a business unit. The guide covers essential procedures for collecting and safeguarding cash and checks, making deposits, handling change or petty cash funds, and maintaining accounts receivable records. Although the guide is targeted for financial activities that require a minimal level of sophisticated controls, the general concepts are valid for any control system. The company's accountant and consultant are available to answer questions about this guide and to assist in improving any cash handling controls.

Types of Revenue

Review the types of sales, fees or charges being collected.

• Are all fees and charges collected by the business unit authorized by specific reference or provision (such as business unit cost recovery fees)?

• Is the cash handling function properly supervised?

• Are sales transactions periodically reviewed by a specified person to ensure that all sales have been authorized, correctly priced, and recorded?

• Has a determination been made as to whether state sales tax must be collected?

• If assistance is needed in making this determination, contact the company’s accountant.

• If required, has sales tax been collected and identified on deposit slips?

Cash Receipts

• Review cash receipts to ensure that all money received by the business unit is deposited

• Are cash collections promptly recorded through the use of prenumbered receipts prepared by an individual designated to receive cash?

• Does the business unit use the company’s receipt vouchers or another form of receipt documentation for all sources of revenue? (Not applicable for cash register sales.)

• If prenumbered receipts are used, check for the following:

  • Are receipts used in numeric sequence?

  • Can receipt numbers be traced to specific deposits?

  • When tracing receipts to deposits, are all numbers accounted for to ensure no receipts are missing?

  • Are all copies of voided receipts retained to help account for all receipt numbers?

  • If a receipt number is missing, is an attempt made to explain why and are procedures then reviewed to ensure all funds are adequately controlled until deposited?

• If receipts are used, select a recent period and determine the following:

  • Are receipt books signed out to a specific employee to help fix responsibility for funds collected?

  • Are receipts prepared in multiple copies (i.e., a copy for the customer, business unit, and one to attach to the deposit slip)?

  • Are receipts completely filled out: showing date, amount, who paid and why, and signed by employee receiving funds?

• Are all checks restrictively endorsed ("For Deposit Only") immediately upon receipt to limit negotiability?

• Is there adequate separation of responsibility in handling funds and keeping the accounting records?

  • No one person should receive/deposit funds and also maintain the accounting records for the business unit. When such a separation is not possible because of staffing limitations, then the business unit's monthly report should be carefully reviewed by the business unit head or designated representative. This review should include whatever steps are necessary to ensure business unit receipts have been deposited as discussed below.

• If funds are transferred between individuals in the business unit prior to deposit, is the transfer documented to help fix responsibility to only one person at any point in time?

• If payments are received by mail, is accountability for cash and checks established immediately upon receipt?

• If the person opening the mail is not usually responsible for handling cash, payments should be recorded in a daily log when received. The log should be used to transfer the funds to the cashier or other personnel responsible for deposits, who would sign the log to acknowledge receipt of funds. The log should include a detailed listing of amounts received, source of funds and reason for payment.

• Are records maintained on returned checks not honored by banks?

  • Do the records adequately document action taken to collect on the checks and account for any funds received?

  • Are these records maintained by someone not usually involved with the collection of cash?

  • If those functions must be combined because of staffing limitations, more frequent and in-depth supervisory review is required (i.e. tracing the disposition of returned checks and comparing payments with deposits credited to the account).

Deposits

Review deposits to ensure that all funds are being deposited on a timely basis. Deposits should be made daily unless the small amount of funds involved make this impractical. In that instance, a reasonable time schedule for deposits should be maintained, keeping in mind the need for adequate security procedures. The holding of funds over weekends should be discouraged and kept to a minimum.

• Are the deposit slips verified by referring to prenumbered receipts to ensure all funds have been included in the deposit?

• Select one or two deposit slips and verify the total dollars deposited by referring to any supporting documentation such as prenumbered receipts.

• Are validated deposit slips returned to the person performing the accounting function for the business unit after the deposit has been made?

• Are all deposits for the month verified by comparing the deposit slips to the monthly accounting report to ensure all transactions were received and correctly recorded?

• Business unit records should be reconciled monthly with bank statements and other reports. If adequate separation of responsibility cannot be maintained, this monthly comparison of business unit transactions should be documented by the person responsible for maintaining business unit accounts. The business unit head or designated representative should then review the monthly report. This reconciliation and review process should be discussed in more detail in the review guide on purchasing and disbursements.

• If funds are collected for special purposes, are procedures clearly specified for maintaining separate accounting records?

Safekeeping Devices and Controls

Verify that adequate security procedures and controls have been established. The overall objective is to fix responsibility for funds with only one person at any point in time. This control is in the best interest of both the company and the individual(s) responsible for handling money.

• Are separate, lockable containers or compartments available to each person collecting money? Is the money locked up when the person responsible for the funds leaves the area?

• Are keys to a cash box, file, or desk that contains money restricted to the person responsible for the funds?

• Extra keys should be controlled in a “key-safe.” Numbered tags should be attached to each unique key (or multiple copies). An index of tag numbers to keys should be maintained. For extra security the index should not be stored with the keys. Keys should not be stored with their function/location labeled on the key.

• If a file cabinet is used and access cannot be restricted, a lock box should be provided for use by the person responsible for the money.

• If a safe is used, is the combination restricted to only essential employees? A sealed envelope containing the combination should be retained by a supervisor. (Both the employee and supervisor should sign over the seal on the envelope.) The combination should be changed whenever a person with access leaves the business unit or changes jobs and no longer requires access to the safe.

• While cash receipts are being held for deposit, is the money ever used to make purchases for the business unit? Such disbursements should never be allowed. An authorized petty cash fund for the purchase of small items should be used exclusively to make small cash purchases.

• The handling of money will normally generate some cash overages and shortages.

  • Is a record of overages and shortages maintained for each person handling cash?

  • Is the record reviewed by a supervisor periodically to detect any trends or consistent errors, either in overages or shortages?

  • Are cash overages deposited and not held in a "slush fund"?

Accounts Receivable

Review transactions that may be classified as accounts receivable. An accounts receivable occurs when business units bill for goods or services rather than requiring immediate payment.

• Have written policies and procedures been approved to control who will be billed, to establish dollar limits on charges, to outline payment requirements, and to summarize action to be taken in case of nonpayment?

• Are the policies being followed?

• Are individual accounts receivable records maintained showing amount charged and payments made?

• Are the total unpaid charges at the end of each month reported and reconciled?

• Is a person not directly involved with the handling of cash responsible for maintaining the accounts receivable records? If this is not possible in small business units, more frequent and in-depth supervisory review will be required. For example, the above reconciliation should be documented by the person maintaining the records then reviewed at least monthly by the head of the business unit or designated representative.

• If attempts to collect delinquent accounts are unsuccessful, are the accounts reported to the business unit head for collection? Is appropriate documentation maintained if the debt is referred to a collection agency or attorney or written off?

• Is future credit refused to those with delinquent accounts?

Petty Cash and Change Funds

If the business unit has a petty cash or change fund, review for the following:

• Does the business unit have a change fund as a means of making change when receiving payments?

• Was the change fund established through the Accounting office?

• Are reconciliations prepared monthly and forwarded to Accounting?

• Does the business unit have a petty cash fund?

• Was the fund established through the Accounting office?

• Is the fund reconciled and replenished monthly through the Accounting office?

• Are change and petty cash funds safeguarded against theft, not commingled with personal funds of an employee and not used to make loans, advances or to cash personal checks for employees?

Please direct any questions to your accountant or consultant.