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Cash Handling Guide



Introduction

This self-assessment guide examines controls over the handling of money within a department. 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 staff members in the Comptroller's Office (4-3066) and the Internal Audit Office (4-3975) 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 department authorized by specific reference or provision (such as department cost recovery fees) in the "Comprehensive Fee Schedule"?
  • 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 University Tax Analyst (4-3786). If sales tax is required, has the tax been collected and properly identified when the deposit was entered into the University's financial system? (See the Comptroller's web site on "Departmental Deposits" and associated “deposit instructions”.)

Cash Receipts

Review cash receipts to ensure that all money received by the department is deposited intact (just as received) with the University Comptroller (or with the Endowment Association or KU Center for Research, if not state funds). NOTE: State Statutes generally require all fees, tuition and charges collected by departments be deposited in state accounts through the University Comptroller. Information on "Departmental Receipts" is available from the Comptroller’s web site.
  • Are cash collections promptly recorded through the use of prenumbered receipts prepared by an individual designated to receive cash? Does the department use the University's receipt vouchers or another form of receipt documentation for all sources of revenue? (NOTE: This type of receipt documentation is not applicable for cash register sales.) If prenumbered receipts are used, check for the following:
    1. Are receipts used in numeric sequence?
    2. Can receipt numbers be traced to specific deposits with the Comptroller's Office (or Endowment/KUCR where authorized)?
    3. When tracing receipts to deposits, are all numbers accounted for to ensure no receipts are missing?
    4. Are all copies of voided receipts retained to help account for all receipt numbers?
    5. 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:
    1. Are receipt books signed out to a specific employee to help fix responsibility for funds collected?
    2. Are receipts prepared in at least two copies (a copy for the customer and one retained by the department)?
    3. 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 department.) When such a separation is not possible because of staffing limitations, then the department's financial reports available from the University's accounting system should be carefully reviewed by the department chair or designated representative on a monthly basis. This review should include whatever steps are necessary to ensure department receipts have been deposited with the Comptroller as discussed below.
  • If funds are transferred between individuals in the department 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 person 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 any payments to associated deposits). Information on "Returned Checks" is available from the Comptroller’s web site.

Deposits

Review deposits to ensure that all funds are being deposited with the Comptroller's Office on a timely basis (or with the Endowment Association or KUCR if not state funds). Deposits should be made daily unless the small amount of funds involved make this impractical. (The Comptroller’s Office has a night depository.) If funds are not deposited daily, a reasonable deposit schedule should be maintained, keeping in mind the need for adequate security procedures. Holding funds over weekends should be discouraged and kept to a minimum.
  • Are the deposit slips verified to the prenumbered receipts to ensure all funds have been deposited? Select one or two deposit slips and verify that the total amount deposited agreed with any supporting documentation such as prenumbered receipts.
  • Are all departmental deposits for the month verified to the University's accounting system to ensure all transactions were received and correctly recorded?
  • Are all deposits for the month verified by comparing the deposit slips to the University’s accounting system to ensure all transactions were received and correctly recorded? (NOTE: Departmental records should be reconciled (compared) monthly to the University’s accounting system. If adequate separation of responsibility cannot be maintained, the person responsible for maintaining departmental accounts should document this monthly reconciliation (comparison) of departmental transactions, and the department chair or designated representative should then review this reconciliation along with reports generated from the University’s accounting system. This reconciliation and review process is discussed in more detail in the review guide on purchasing and disbursements.
  • Additional information on "Departmental Deposits" and “Department Account Reconciliation ” is available from the Comptroller's web site.
  • If funds are collected for deposit with the Endowment Association or KUCR, are procedures clearly specified for maintaining separate accounting records for state, KUCR and endowment funds? (NOTE: Financial reports can be generated through Endowment's IFAS web site. Phone KU Endowment Information Systems Help Desk at 832-7388 for assistance with IFAS. We suggest Endowment reports should be generated on a regular basis, such as quarterly.) Deposits per KUCR and Endowments reports should be verified to the source documentation such as departmental receipts and deposit slips to ensure all receipts have been properly deposited.

Safekeeping Devices and Controls

Verify that adequate security procedures and controls have been established. The overall objective is to be able to determine the amount of funds that each person is accountable for at any point in time, and that person is then responsible for the safekeeping of those funds. These control procedures are in the best interest of both the University and the individual(s) responsible for handling money.
  • Is a separate, lockable containers or compartment available to each person collecting money? Is the money locked up when the person responsible for the funds leaves the area?
  • Are keys to the cash box, file, or desk that contains money restricted to the person responsible for the funds? Extra keys should be sealed in an envelope and given to a supervisor for emergency use. (Both the employee and supervisor should sign over the seal on the envelope.) If a file cabinet is used to secure the funds 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 for emergency use. (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 department 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 department or to cash checks for students or staff? Such transactions should not be allowed. (An authorized petty cash fund for the purchase of small items can be obtained from the Comptroller's Office.)
  • 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? Does a supervisor periodically review the record to detect any trends or consistent errors in either overages or shortages? Are cash overages deposited with the Comptroller's Office and not held in a "slush fund"?
  • If the amount of cash being handled is substantial, a security surveillance system should be considered. The Office of Public Safety (864-5900) should be consulted regarding the need for such a system.
  • An armored car pick-up service for deposits is available for a charge. Contact the Bursar's Office (864-3322) for information regarding this service.

Accounts Receivable

Review transactions classified as accounts receivable. (An accounts receivable occurs when departments bill for goods or services rather than requiring immediate payment.)
  • Have written policies and procedures been approved to control the billing process, 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?
  • 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 departments, more frequent and in-depth supervisory review will be required.
  • If attempts to collect delinquent accounts are unsuccessful, are the accounts reported to the Comptroller's Office for collection? Is future credit refused to those with delinquent accounts?
  • Additional information on "Accounts Receivable" is available from the Comptroller's web site.

Petty Cash and Change Funds

If the department has a petty cash or change fund, review for the following:
  • Does the department have a change fund as a means of making change when receiving payments? Was the change fund established through the Comptroller's Office? Verify that the change fund is on hand.
  • Does the department have a petty cash fund? Was the fund established through the Comptroller's Office? Is the fund replenished as needed through Central Accounting Services in the Comptroller’s Office? Count the petty cash fund.The cash on hand plus any unreplenished receipts should total to the authorized amount of the fund.
  • Are change and petty cash funds safeguarded against theft? Such funds should not be used to make loans or advances, be used to cash personal checks for employees or be commingled with personal funds of an employee.
  • See the Comptroller's web site for Petty Cash Fund and Change Fund policy and procedure information.