CASH MANAGEMENT POLICIES AND PROCEDURES HANDBOOK

# CHAPTER 8. INTERNAL CONTROLS FOR CASH MANAGEMENT

[Section 1.0 General]{.underline}

This chapter examines the requirements, responsibilities, standards, and
objectives for internal controls. Implementing internal controls is
important in the area of cash management because of the diverse nature
of the processes involved, i.e., billings, collections, deposits, and
disbursement processes, as well as the fragmented oversight
responsibilities generally associated with these processes. Some of the
other major factors, which impose a need for a consistent application of
sound internal controls, are:

> a\. The prevalence of a high turnover rate of operating personnel and
> supervisors in cash management functions;
>
> b\. The assignment of cash handling responsibilities to personnel with
> limited fiscal experience or understanding;
>
> c\. The fragmentation of billing and cash handling functions which
> makes monitoring the whole process difficult; and
>
> d\. The inherent risk of loss, or opportunity for personal gain,
> created by the nature of cash transactions.

[Section 2.0 Policy]{.underline}

It is the policy of the Department of Commerce to implement internal
controls in the area of cash management to minimize the cost of the use
of money to the U.S. Government. Organization unit\'s accounting and
administrative controls must also provide reasonable assurance that all
Federal assets, including funds, are safeguarded against waste, loss,
unauthorized use, or misappropriation. While the need for internal
controls may seem burdensome or restrictive, their value should be
obvious. It is the responsibility of financial managers to interpret the
value of internal controls for other managers and employees. They should
also assist in establishing internal controls that may need to be
tailored to specific situations.

However, the costs and benefits of proposed controls for unusual
situations should be carefully evaluated and the costs should not
normally exceed the benefits likely to be derived. On the other hand,
such evaluations should not be mistakenly used as a justification for
relaxing controls, or accepting an increased risk of loss to the Federal
Government, based strictly on cost.

[Section 3.0 Authority]{.underline}

In addition to this chapter the following laws, regulations, and
guidelines are relevant to the organization unit\'s system of internal
control.

> a\. The [Federal Managers\' Financial Integrity Act of
> 1982](http://www.whitehouse.gov/omb/financial/fmfia1982.html) (P.L.
> 97-255) addresses cash management controls in the Federal Government
>
> b\. [OMB Circular
> A-123](http://www.whitehouse.gov/omb/circulars/a123/a123_rev.html),
> "*Internal Control Systems,"* and [DAO
> 216-15](http://dms.osec.doc.gov/cgi-bin/doit.cgi?218:112:1:2)
> "*Internal Management Control Systems."*

[Section 4.0 Responsibilities]{.underline}

Internal controls over cash management are needed at all levels of the
organization that handle cash and/or cash equivalents, i.e., coupons,
credit card slips, etc. Both program managers and financial managers are
accountable for cash under their control. However, the organization unit
finance officers must provide guidance to all employees who have cash
management responsibilities; he/she also bears ultimate responsibility
for internal controls over cash collections, disbursements, and holdings
which are accounted for by his/her operations.

Therefore, responsibilities of cash management officers, cashiers,
certifying officers, and other accountable officers to establish and
maintain controls should be formally delegated by organization unit
finance officers.

[Section 5.0 Internal Control Standards]{.underline}

Cash management internal controls represent an application of common
sense and prudent conduct to the use and proper safeguarding of
Government assets. Proper internal control mechanisms provide management
with a reasonable assurance that intended safeguards are being practiced
consistently. Therefore, the integrity of any cash management activity
depends on the application of internal control principles and standards.
The attainment of these principles and standards in the cash management
area can be achieved by pursuing the following guidelines:

> a\. The time-value-of-money shall be recognized as a part of each cash
> management decision.
>
> b\. Cash related transactions shall occur only after the approval of
> an individual with delegated authority to make approvals.
>
> c\. Cash related transactions shall be fully documented so that an
> undisputable audit trail exists.
>
> d\. Cash related transactions shall be recorded promptly during each
> step of the cash handling function.
>
> e\. Serially numbered forms shall be used to document cash related
> transactions to enhance reconciliation and accountability.
>
> f\. Documents used in cash related transactions shall be safeguarded
> against re-use, tampering, or unauthorized disposal.
>
> g\. Provisions shall be made for the regular review and comparison of
> transaction documentation to detect errors and duplicate payments.
>
> h\. The approval of adjustments to cash related transactions shall be
> administratively controlled.
>
> i\. Supervision of cash management activities shall be strictly and
> continually administered.
>
> j\. Cash related duties, such as maintenance of accounts receivable,
> cashiering, accounting, disbursing, and collecting funds shall be
> segregated.
>
> k\. Cash related accounts shall be frequently reviewed and reconciled
> with subsidiary records.
>
> l\. The accessibility to funds and fund records shall be restricted
> and administratively controlled.
>
> m\. Only properly designated employees shall handle imprest funds,
> disbursement certifications, and collection duties.
>
> n\. Employees assigned cash related duties shall be trained and must
> accept their responsibilities.
>
> o\. Unnecessary clerical routines and handling of cash or cash related
> documentation shall be eliminated to lessen the risk of loss and
> exposure to errors.
>
> p\. Electronic funds transfer and direct deposit shall be used where
> feasible and advantageous.
>
> q\. Computer edit programs shall be used to the maximum extent
> possible to disclose or reduce the incidence of error in cash related
> transactions.
>
> r\. Cash derived from collections and cash used for disbursements
> shall not be commingled.
>
> s\. Cash transactions shall not be used to substitute, or circumvent,
> prescribed procurement approvals and procedures.
>
> t\. Checks received in collections shall be endorsed upon receipt and
> collections shall be safeguarded until deposit is accomplished.
>
> u\. Deposits shall be processed within prescribed intervals and
> reconciled against records of funds received.
>
> v\. Prompt responses shall be made to reviews performed by the Office
> of Inspector General and the Government Accountability Office on cash
> management activities to correct cited deficiencies.
>
> w\. Cash disbursement transactions shall be processed promptly, and
> cash shall be reconciled daily.
>
> x\. Cash held outside the Treasury shall be maintained at the minimum
> amount needed to cover current transactions.
>
> y\. Credit shall be extended only when authorized by a designated
> official who is aware of the Department\'s debt management policies.
>
> z\. Approved price lists shall be published to ensure a control over
> income for goods and services.

This list of guidelines is by no means all-inclusive. Cash handling
techniques and methods change as programs change and as new collection
and disbursement technologies evolve over time. However, similar
economically feasible standards should be established to fit these new
collection and payment processes (see Section 6.0 of this Chapter).

Questions on applying internal controls in cash management should be
submitted to the Director for Financial Management. For additional
guidance on internal controls used in handling cash, refer to the table
of contents to this Handbook.

[Section 6.0 Substitutions of Credit Cards for Cash
Transactions]{.underline}

Organization units shall use the BankCard for small purchases when
economically feasible and will accept personal credit cards for
collections\--in lieu of cash or check\--whenever possible. The use of
the BankCard for small purchases not only reduces the administrative
cost of the procurement transaction, but results in better cash
management with resultant interest savings. Acceptance of personal
credit cards reduces the cost of collection activity, lessens the loss
or possible theft of cash collected, and generally results in faster
deposits to the U.S. Treasury. (See Appendix A, "[*The Department of
Commerce Cash Management Handbook, Smart
Pay*"](http://www.osec.doc.gov/ofm/cash/cover.htm) for details on the
BankCard.)