Cash Reconciliations and Cash Handling WASBO Accounting Conference March, 2016

Handling Cash  Cash may be the most vulnerable asset in your LEA. How do you safeguard your cash?  Timely reconciliation of your bank account provides a control mechanism to help protect your cash  For a control process to work effectively, segregation of duties is fundamental to reducing the risk of errors or intentional fraud 2

Handling Cash  Whenever possible, an organization must ensure that no one person has control over all aspects of any financial transaction  Segregation between who initiates, authorizes and approves purchases  Segregation between who receives cash, deposits and posts activity to the general ledger  Segregation between who prepares payment request and who approves payment 3

Handling Cash  No one employee should have access to both the cash and the related accounting records or to all phases of a transaction  When resources may not be available to increase staff size, the Board of Education and management should provide oversight and monitor the District’s operations.  Board approves monthly cash disbursements  Board member or management reviews monthly bank reconciliations 4

Segregation of Duties  Is the employee responsible for initiating a PO also responsible for reviewing and authorizing the PO?  Compensating control may be a report listing all PO’s issued is generated and reviewed by an employee not involved in initiating PO’s

Segregation of Duties  Does the same employee who initiates or approves a PO also have authority to modify the vendor master file, record goods as received or record invoices?  Individual who does the purchasing should not be involved in documenting what was received and invoiced or have the authority to modify the vendor master file

Segregation of Duties  Are the employees involved in receiving the goods also able to authorize the purchase; modify vendor master file; record invoices and returns?  Employees responsible for the receipt of goods should not be involved in the purchasing or cash disbursement process. A compensating control may be for an employee independent of the purchasing process check the bills of lading to the receiving reports

Segregation of Duties  Is the employee who matches the PO to the receiving document and invoice also involved in the purchasing or receiving process, vendor master file or recording of purchases, payables or returns?  Employees involved in recording the invoice in the cash disbursement system could perform the match of PO, receiving document and invoice

Segregation of Duties  Does the employee responsible for the Vendor Master File also record invoices, approve invoices, print checks, sign checks, execute wire transfers and authorize wire transfers  Compensating control may be to have someone independent of the disbursement process review a list of the Vendor Master File and any changes.

Segregation of Duties  Do employees responsible for approving invoices and payments also have the ability to record payables?  Compensating controls may be:  Review of cash disbursements by Board of Education  Dual signatures

Segregation of Duties  Do employees responsible for recording vendor invoices also have ability to print or sign checks, execute electronic payments or wire transfers, distribute vendor checks  Sometimes the function of recording vendor invoices and disbursement of the funds cannot be separated. Steps should be taken to ensure that the person authorizing payments is not involved in cash disbursement

Segregation of Duties  Do employees that approve/sign or have access to checks or electronic payments also prepare, review or approve the bank reconciliation  Employees responsible for checks or electronic payments should not be able to do the reconciliation between the payments and the bank statement

Segregation of Duties  Can one person initiate and approve (release) a wire transfer?  Does the person approving (releasing) wire transfers also prepare bank reconciliations, review and approve bank reconciliations, record invoices, modify vendor master file, review and authorize journal entries in the general ledger?  Should be segregated between two employees  The employee that is approving and releasing payment to a vendor should not have responsibility for modifying the vendor master file, recording invoices and journal entries or be involved in the bank reconciliation process

Handling Cash  Bank reconciliations should be prepared by someone who is not involved in the cash receipts or disbursement function if at all possible.  Bank reconciliations should be approved by supervisory level personnel who are not involved in the daily cash activities. 14

Cash Reconciliation  Why is reconciling bank statements essential?  Accounting records are complete and accurate  Ensure all cash transactions during the period have been captured in the accounting records  Accounting records reflect actual activities that occurred during the period  Can detect bank errors  Safeguards assets 15

Cash Reconciliation  What are the risks of not reconciling cash?  Overdraft  Inaccurate financial reports to the Board  Decisions made on inaccurate information  Audit finding  No reconciling cash  DPI monitoring  Undetected fraud 16

Cash Reconciliation  What are the risks of waiting for auditor to reconcile cash at year end?  Overdraft  Inaccurate financial reports to the Board  Decisions made on inaccurate information  Audit findings  Not reconciling cash  Multiple adjustments at year end  DPI or Federal monitoring  Undetected fraud 17

Cash Reconciliation  Mismanagement of Federal funds  Tracking of Federal funds  Timely filing Federal grant claims (cash flow)  Early detection of failing MOE  Budget revisions  Loss of funds  Monitoring 18

Reconciling the bank statement

Basic process

Common Differences between the bank and general ledger  Checks issued but haven’t cleared the bank  Deposits in transit (posted to the g/l but not by the bank)  Wire transfers into the bank but not posted to the general ledger  Wire transfers out not posted to the general ledger, for :  Direct deposit of employee payroll  Payments for payroll tax withholdings  Self funded health plan benefit payments  Retiree stipends  Bank Charges  Investment earnings  Errors in postings to general ledger

Items needed to prepare bank rec  Listing of outstanding checks  Identify the sequences of checks written during the month and compare against the bank statements identifying those that have not yet cleared  Compare the prior month listing of outstanding checks to the bank statement to determine if any are still outstanding; if so, include with current listing of o/s  Identify any deposits posted to the general ledger that have not yet cleared the bank  DPI Aids Register---to identify all grant payments from DPI during the month not yet posted to the G/L

Aids Register snipit

Pooled Cash  A single cash bank account used for several different funds  Bank Rec process remains unchanged  Balance per bank after adjustments must agree to the combined balances of cash in the various funds  Fund 10 + Fund 27 + Fund 99 is commonly pooled  Debt service funds should have their own distinct bank accounts  Construction Fund 49-separate bank account is highly RECOMMENDED

Questions  Kathy Guralski, CPA  Assistant Director, School Management Services  608/   Gene Fornecker, CPA  School Finance Auditor, School Financial Services  608/ 