Deposit Best Practices and the Cash Collection Process

As the saying goes, money makes the world go round. This has been true for centuries. We at times take our cash handling and deposit practices for granted. We have been collecting and depositing for years and there has never been a problem, until there is a problem – right?!?

As cash collections are one of the most liquid assets, we need strong internal controls and practices to account for and safeguard these assets. Let’s outline the collection process along with suggested best practices.

There are four (4) basic components in the overall collection/depositing process. Just like your favorite potato chip, you can’t just have one, several are needed. Strong and consistent procedures will help reduce potential headaches and unwanted “headlines” in the local newspaper that read “school district cash goes missing due to poor controls.” We need to consider the importance of internal controls over cash handling and deposits, along with appropriate separation of duties. The overall collection process and some of their related internal controls and best practices are as follows.

Internal control areas can include the following:

• authorizing the collection amount
• posting or recording of the collection
• reconciling or reviewing the collection
• safeguarding the collections, including the deposit

As a best practice, different individuals would perform each of the functions above.

Authorizing the collection amount

The person authorized to set the amount to be collected should not be the same person who collects cash. As an example, one person would set the price of a beverage sold in the cafeteria. The cashier should not be able to collect $2 for the same beverage.

Posting or recording of the collection, the collection process

Here is an overview of the basic collection process:

• Each cashier should maintain his/her own cash drawer, and keep the cash secured (locked) at all times by that individual.
• Each cashier’s drawer may have a change fund. The change fund should be a nominal amount - $50, $100 or even $200 per cashier’s drawer. The amount should be based on type of collection area. One may expect less for collections at the school cafeterias, but substantially more at the district-operated tax office.
• Upon receipt of funds, the cashier should immediately enter the transaction in the point-of-sale system and funds should be applied to the proper account.
• At the end of each shift, the cash drawer should be counted by both the cashier and his/her supervisor. The funds in the cash drawer for the day should balance to the point-of-sale system collections. Furthermore, the collections and documentation should agree to the deposit. It is best practice for both the cashier and the supervisor or another individual verifying the count to initial or sign the point-of-sale system report. The deposit slip should then agree to the sum of the daily collections submitted by the cashier. Any differences should be investigated and resolved promptly.
• During a normal course of business, refunds and/or voids will occur. These transactions should be supported by supervisor’s approval, or by someone other than the cashier. This will ensure a strong internal control procedure for refunds and voids. The supervisor should also run a refund and/or voids report to make sure all such transactions were authorized.

After completion of the daily reconciliations, the collections are ready for depositing to the bank.

Safeguarding the collections up to the deposit

After the completion of the daily reconciliation, the collection needs to be secured. If the collections are not picked up daily and transported to the bank, then those collections should be stored in a secure location such as a vault or safe, or minimal collections could be stored in a locked file cabinet. Overall, the deposit needs to be placed in a location that has limited access. When considering a designated area where the collections are placed overnight, recognize the amount of collections and overall security of the location. For example, we would expect property tax collections to be secured in a vault/safe. However, smaller amounts considered insignificant could be locked in a file cabinet.

When making a deposit at the bank, using a third-party courier or district police officer would offer a more secure depositing option. The internal controls over the cash handling by these individuals is critical as well.

Reconciling Collections to the General Ledger and the Bank

Part of the monthly reconciliation process includes performing a three-way match, where feasible. That is, reconciling the general ledger accounts to the point-of-sale collection reports and to the bank statements. This will help identify missing deposits. This will make the bank reconciliation process seamless. Experience has shown that the bank reconciliation is one of the most important processes within any operation. They must be done timely. That is, the reconciliations should be completed within 15 days of the subsequent month to provide a stronger detection control over collection versus waiting months.

Conclusion

All procedures should be formally documented and adjusted as deemed necessary by each district’s unique circumstances. Personnel involved in the cash handling procedures should be properly trained in collecting, recording, reconciling, safeguarding, and depositing of funds in accordance with these written procedures.

Bonus pro tip - contemplate performing periodic surprise cash counts. If a cashier knows a cash count can occur at any time, it will deter him/her from any inappropriate activity but will also serve as a detection control. It’s the equivalent of a police car parked on the shoulder of the road to keep motorists from speeding.