Internal Controls for Cash Handling

Eller PDC Clubs & Orgs

Below is a summary for how to implement better financial controls into your student organizations.

Internal controls are critical for businesses to operate well. Risk management greatly depends on internal control, and internal controls further the operating goals of the organizations that implement them. Using strong internal controls represents an opportunity to operate more effectively, and is more than just a compliance requirement.

 Risk

The risks associated with cash handling include stolen cash, club members writing themselves checks, making fraudulent purchases using the club card, etc. To mitigate these risks internal controls should be in place. Internal controls are based on the COSO framework and address these risks.

COSO

The COSO framework is the product of thought leadership for the conduct of ethical business. The majority of Fortune 500 companies use the framework developed by the committee. For Eller clubs, it is necessary to implement a simple variation of this control framework over cash handling, focusing on segregation of duties and authorization measures.

Internal Control

Internal control is the plan of organization and the methods a business uses to safeguard assets, provide accurate and reliable information, promote and improve operational efficiency, and encourage adherence to prescribed managerial policies. Internal controls are risk-based and must be designed/implemented to mitigate the unique risks of your organization.

When designing controls for cash handling, there are several objectives that should be considered. These include:

 

  • Occurrence — the transactions actually took place
  • Completeness — all transactions that should have been recorded have been recorded
  • Accuracy — the transactions were recorded at the appropriate amounts
  • Authorization — all transactions were properly authorized
  • Cutoff — the transactions have been recorded in the correct accounting period
  • Classification — the transactions have been recorded in the proper accounts

Effective segregation of duties (a critical control) prevents any one person from controlling more than one of the following:

 

  1. Authorization (approving transactions and operations)
  2. Custody (Access or control of cash, checks, credit cards, etc.)
  3. Record Keeping (Creating and maintaining accounting records)
  4. Reconciliation (Verifying the recording of transactions)

Implementing Internal Controls

Implementation of internal controls requires a positive attitude towards controls, with a strong “tone at the top” of your organizations. This means that you and your EBoard are responsible for creating a strong control environment and encouraging ethical behavior. Internal control must be a priority to you and your club members.

You should have a discussion with your EBoard evaluating the risks your organization faces and examine how to implement the following controls to directly address your unique risks.

Cash Disbursements

Cash disbursements involve the processes of authorizing payments and purchases, fulfilling the payments and purchases and reconciling affected accounts and receipts. The following are controls to implement over the cash disbursements process:

 

  • Authorize all purchases/payments – This should be the responsibility of an EBoard member other than the check-writer or card holder
  • Maintain itemized receipts for all expenditures – responsibility of personnel making purchases/writing checks
  • Reconcile bank statements/card statements with itemized receipts on a weekly/monthly basis – This should be done by an EBoard member not authorized to handle cash or a faculty member
  • Cancel cards when a new cardholder is appointed

Cash Receipts

Cash receipts involve the process of receiving cash/payments, creating a remittance list for all cash receipts and depositing the cash/payments. The following are controls to implement over the cash receipts process:

 

  • Have two people handle every transaction. One person will handle the cash while the other creates and maintains a remittance list. Restrictively endorse checks.
    • Remittance lists should consist of the item paid for, amount, date, transaction description, etc.
    • Items in inventory must be accounted for to allow a reconciliation after sales are made
    • The remittance list will be given to the treasurer/VP finance, etc. The cash handler will deposit the cash
    • The treasurer/VP finance must agree the remittance list to deposit slips and account statements (as activity is conducted, weekly, monthly)
    • If the treasurer/VP finance makes a deposit, the agreements must be made by another EBoard member or faculty member
    • All cash must be deposited on a timely basis (within days of receipt), with a separate deposit for each transaction event (dues must not be mixed with sales, etc.)

Physical Security

Keep any cash in a lockbox or safe prior to use or deposit.

Summary

These simple procedures require a small amount of time and effort to implement, and prevent significant problems for your organizations. Don’t treat internal controls as a compliance issue. Internal controls further the operating objectives of your organization and their implementation starts with you. These procedures are not comprehensive and represent the minimum that should be done for your organization. Further measures should be taken to mitigate your unique ris