The Seven Deadly Sins: Controls Over Cash Handling – Part 4

In my experience as a CPA serving local governments for 30 years, there are seven “deadly sins” related to cash collections. If the local government commits one of these sins, it is risking the ultimate penalty. This series of blog posts will describe each of the seven deadly sins of cash collections. If your government is currently sinning, repent and you can be saved.

I have deadly sin #6 and #7 for you below...

Read Part 1, Part 2, & Part 3 if you missed them.

Deadly Sin #6 - No Immediate Restrictive Endorsement of Checks.

All locations receiving cash should have restrictive endorsement stamps, and every check should be immediately endorsed to make it non-transferable. 
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Some people believe that if a check is stolen, it is difficult to be cashed. However, I learned otherwise on a fraud case for a state agency in San Francisco. The agency rents out the bottom floor of their building to retail tenants. The agency’s rental manager stole over $100,000 of rent checks that were made payable to the agency by simply writing a three-letter acronym just after the government's name on the payee line of the checks. She deposited via ATM into the account of a non-profit organization for which she served as volunteer treasurer. She accessed the cash from the non-profit account for her personal use.

Deadly Sin #7 -
No Segregation of Billing Duties.

Multiple recent embezzlements were a result of a government employee taking cash receipts and hiding the theft by manipulating the bills (the initial accounting record, in this case). It is critical that the same employee not be able to both prepare or revise bills for revenues (e.g., rents and leases, fees, dues) and handle the related cash or checks collected. The employees who negotiate and bill revenues frequently have significant authority to determine amounts or make concessions to keep tenants, customers, and members happy. This authority can easily be abused. It is important that invoices be prepared centrally and that the invoices clearly state that payment should be mailed only to a central location. It is also important for accounting to verify that billings and collections are in expected amounts and frequencies.
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I worked with a client that had a Japanese film crew request to film at their County hospital.  Having no policy on filming, the public relations manager negotiated a $10,000 fee. When it was received, he stole it. Since no bill had been prepared and sent to Accounting, they had no way of knowing such funds were expected.

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As highlighted in this series, these 7 "deadly sins" expose your organization to liabilities and can be devastating to efficiency and integrity. But none of these "sins" are without remedy.

My firm specializes in assessing and assisting in placement of cash handling controls. Please don't hesitate to contact me if you feel one (or more) of these "sins" are being committed in your organization. You can email me directly at: [email protected] I look forward to hearing from you and working together on eliminating these "sins"!

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