1. Sample Internal Control Activities

ACTIVITIES FOR ALL FUNDS

Cash Receipts

Segregation of duties in the handling of cash is one of the most effective ways to gain control over this asset. No individual is to have complete control in the handling of cash. Specifically, no one individual’s duties should include the actual handling of money, recording receipt of money, and the reconciliation of bank accounts or with the state treasurer. Employees handling cash are to be assigned duties that are complementary to or checked by another employee.

Incoming cash must be made a matter of record as soon as possible.

Two persons should open the mail when they expect cash or checks in the mail. Remittances by mail are listed in duplicate at the time the mail is opened. A person other than the one opening the mail prepares the listing. One copy of the listing is forwarded to the cashier with the receipts. The other copy forms the basis for accounting controls through ledger posting. A third person periodically compares the listing with the deposit.

Amounts of currency contained in each item of mail are verified. Documents enclosed with the currency received are machine date stamped or dated and initialed by the employee opening the mail.

A secure area is needed for the safeguarding and processing of cash received. Access to the secured area is restricted to authorized personnel only. The secured area is locked when not occupied.

Cash is protected by the use of registers, safes, or locks, and kept in areas of limited access.

Collections made over the counter or in the field are documented by the issuance of sequentially pre-numbered official receipts or through cash registers or automated cashiering systems. All such receipts are to be strictly accounted for and the reason for any missing documents determined and documented. Blank form receipts are not used. Receipts indicate mode of payment, such as cash, check, etc. The total dollar amount recorded on cash receipt forms, by mode of payment, is balanced daily to total cash, checks, etc. collected.

The cash receiving function of an agency is centralized to the extent possible.

When cash is received in branch offices, it is to be transmitted to the central office through the banking system. Branch office personnel are restricted to making cash deposits and central office personnel make any cash withdrawals and reconcile bank accounts.

A balance and summary of all cash receipts is prepared daily. Any shortages or overages are carefully investigated and, to the extent possible, corrected.

Receipts are deposited intact on a daily basis. In the handling of cash and making of deposits, security procedures that will best safeguard the cash asset are to be followed.

Authenticated, duplicate deposit slips are retained and compared with amounts recorded in cash receipts records.

A person other than the cashier or receivable bookkeeper makes the bank deposit.

Moneys are picked up or delivered to appropriate authorities on a scheduled basis.

Adequate records are maintained to assure the correct handling and final disposition of items held in suspense. Suspense accounting is eliminated whenever possible by the direct deposit of the item to the correct fund and account. However, deposits are not to be delayed because the account distribution cannot be immediately determined.

Cash receipts retained on the premises overnight are minimized and locked up in a secure place, such as a safe.

Cashiers are prohibited from cashing personal checks or notes of personal indebtedness.

Written procedures on all cashiering and cash control procedures are maintained by each agency.

Petty Cash

Petty cash accounts, other than change accounts, are to be established and maintained as bank checking accounts whenever possible. Only minimal amounts of petty cash are kept on hand.

Petty cash accounts are on an imprest basis.

Responsibility for a petty cash account is vested in only one person.

Original (no photocopies) receipts or vouchers bearing the signature of the payee support all disbursements from petty cash accounts.

Petty cash checking accounts are reconciled monthly by a person other than the custodian.

Surprise counts of petty cash are made periodically by a person other than the custodian.

If a postage meter is used:

• The postage meter book is properly completed and maintained.

• Purchases of postage are made only by check.

• Purchases of postage credited to a meter are regularly confirmed with the Post Office.

• Purchases of postage are compared periodically with usage.

If a postage meter is not used, proper control is to be exercised over postage stamps.

Disbursements - General

The responsibility for disbursement procedures is clearly documented and assigned to specific personnel of the agency.

Disbursements are handled in such a manner as to ensure that the proper funds and accounts are charged; that the disbursement is used only for authorized purposes; and that laws, rules, and regulations governing the disbursement are followed.

Controls are established to assure that all payments are made on a timely basis and in accordance with all purchase orders and contracts.

Controls are established to ensure that duplicate payments are not made.

Original invoices (or authorized facsimiles) totaling the amount of the disbursement are to be attached to each voucher before payment.

Employee duties in the handling of disbursements are separated to the extent possible with regard to:

• The initiation of purchase requisitions and field orders.

• The approval of vouchers, invoices, and warrant registers.

• The preparation of warrants/checks.

• The mailing of warrants/checks.

• The recording of disbursements.

• Each cash disbursement is properly vouched and approved by the proper authorities of the agency before the actual disbursement occurs. This will ensure the proper and regular review of all disbursements.

To the extent possible, employee duties in this area are to be complementary to or checked by another employee.

Disbursements are to be made by warrant/check or journal voucher. Where payments are made by check, counter signatures provide an additional control.

Blank warrants/checks are to be kept in locked storage under the control of a designated, responsible employee. Access to blank warrants/checks is limited to this employee and a designated alternate. When blank warrants/checks are received; the date, quantity, and inclusive serial numbers are recorded and added to the total balance on hand.

When warrants/checks are required from the locked storage, the individual requesting the warrants/checks completes a requisition form. The custodian of the warrants/checks records the date, quantity issued, inclusive serial numbers, and the new balance on hand on the control form.

A separate record is maintained for each warrant/check series issued or voided. The record for voided warrants is to include the date voided, inclusive serial numbers (if more than one warrant in a series is voided), quantity voided, reason for voiding, and initials of individual taking action.

The custodian and a responsible supervisor take a physical inventory of the entire stock of blank warrants/checks on a monthly basis. The quantity and inclusive serial numbers of all warrants/checks on hand at the beginning of the period, and receipts, issues, voids, and warrants/checks on hand at the end of the period are recorded on an appropriate form. Separate forms are completed for each warrant/check series, and furnished to a designated supervisor by the warrant custodian. If the physical inventory agrees with the book inventory, certification of this fact, signed by the custodian and supervisor who assisted in the taking of the physical inventory, will accompany the forms. Any variance between the book or computed quantity of blank warrants/checks and the actual quantity determined by the physical inventory is to be reported to the designated supervisor immediately.

Disbursements - Travel

Written procedures are to be established consistent with the State Administrative and Accounting Manual (Chapter 10).

Formally adopted, written internal policies and procedures are established to control the utilization of meals, coffee, and light refreshments at meetings and formal training sessions.

Authorization of travel is exercised through use of a Travel Authorization Form (A40), or other equally effective means.

Travel Expense Vouchers are signed by the employee and approved by the agency head or authorized designee.

Travel Expense Vouchers of agency heads are to be signed by the chief financial officer certifying that the reimbursement complies with state travel regulations.

The Agency Fiscal Officer reviews travel Expense Vouchers and supporting documentation of agency heads reporting to the governor.

Travel Expense Vouchers and supporting documentation of agency heads not reporting to the governor are submitted for review to the appropriate appointing authority.

Written procedures are established for authorization and payment of official transportation by common carrier.

Air transportation purchases are made in accordance with the Department of General Administration's air travel program; or are made in accordance with the State Administrative and Accounting Manual.

Reimbursement for non air transportation in greater than tourist class or its equivalent are approved in writing in advance by the agency head or authorized designee.

Prior written approval for travel outside the continental USA, or British Columbia, Canada, by employees of agencies reporting to the Governor is provided by the Office of the Governor.

Prior written approval for travel outside the continental USA, or British Columbia, Canada, by employees of agencies not reporting to the Governor is provided by the appropriate appointing authority.

Prior to payment, the agency copy of the Transportation Request is matched to the transportation provider's copy, or the customer copy of the credit card receipt (attached to the Travel Expense Voucher) is matched to the monthly statement from the credit card company, whichever is applicable.

Unused credit cards and blank stock of Transportation Request forms are inventoried and kept under lock.

Persons who authorize commercial transportation are not to receive tickets or use the transportation.

The employee responsible for the choice of locations and facilities is to submit justification in writing to the agency head or authorized designee when a convention, conference, or meeting is held at a non state facility and involves attendance of ten or more state employees.

The agency head or designee must approve in writing prior to an individual authorizing any direct billing and direct payment of travel allowances.

Disbursements - Local Checking Accounts

Bank checks are pre-numbered.

Bank checks are completely filled out before being presented for signature.

Someone maintains physical control of checks other than persons originating disbursement requests.

Spoiled or voided checks are retained and the signature blocks on the checks are removed.

If a check-signing machine is used, the signature plate and use of the check-signing machine is kept under control of the official whose name appears on the signature plate or an authorized designee.

Dual signatures are required on all checks.

Bills or vouchers are presented with checks for signature.

Bills or vouchers are marked "Paid" only at the time checks are signed.

Someone mails checks other than the person preparing the checks.

Someone approves bills for payment other than the persons who sign checks.

Bank statements are reconciled at least monthly by an employee not involved in cash receipt or disbursement procedures.

Purchases

Pre-numbered purchase and field order forms are used and strictly accounted for by number.

Invoices are matched with purchase orders and receiving reports before approval for payment.

Invoice computations and pricing are verified before approval for payment.

Invoices are paid in a timely manner so that discounts may be taken.

Monthly statements are compared with accounts payable balances.

Purchases should be made by competitive solicitation, when applicable.

Payable Subsidiary Ledgers are reconciled to the control accounts monthly.

Copies of the order forms are distributed to receiving and accounting departments.

Claims are filed promptly for goods damaged in shipment.

Investments and Securities

The authority to purchase, exchange, or sell investments and securities is to be clearly defined.

The custody of securities is the responsibility of a person not authorized to purchase, exchange, or sell securities. The securities are kept in a safe deposit box or vault. Access to the securities is to be strictly controlled. No single person is to have complete control of vault combinations or keys. Access to the securities is to require the presence of at least two designated officers.

The accounting department maintains a detailed record of each investment and security. The custodian also maintains a record of securities deposited or withdrawn.

Employees handling and having access to securities are closely supervised or reviewed by other employees.

Periodic checks are made to verify that all income due has been received.

Periodic evaluations of the performance of investment portfolios are to be performed by authorized personnel independent of investment portfolio management activities.

Receivables

There is a segregation of duties with regard to billing, collection, cash receiving, receivables accounting, and the maintenance of general ledger control accounts.

Receivables are made a matter of record promptly upon the completion of the acts which entitle the agency to collect the amounts owed it. Separate accounts are to be maintained for each major category of receivables in order to ensure the clear and full disclosure of the agency's resources in its financial reports. Controls are established so that receivables are reported in the proper funds and accounts.

Records of receivables are strictly guarded. Limited access to these records as well as the physical protection of them is required.

Control accounts are balanced with the detailed ledgers at least monthly.

Officials not involved in the collection activity approve credit adjustments to receivable balances. The use of pre-numbered credit memorandum forms is desirable.

Receivable accounts are reviewed periodically for credit balances.

There is an independent verification of quantities, prices, and clerical accuracy of billing invoices.

Billings are prompt and statements are sent to all customers on a regular basis.

Receivable accounts are aged at least monthly and reviewed by authorized personnel.

Controls are established to ensure the prompt follow-up of past due receivables.

Supply and Merchandise Inventories

Authorized individuals are responsible for receiving and issuing the supplies and merchandise for an agency. These individuals are to be responsible for inspecting all goods received to verify that they conform to specifications. In addition, these persons are responsible for the enforcement of all policies necessary for the internal control of these assets.

Specific central points for receiving and issuing supplies or merchandise are determined. All loading and unloading operations are closely supervised.

Receiving reports and issue reports are prepared for all receipts and issues.

Quantities received are compared to the bill of lading and receiving report.

Effective control procedures are established to ensure that state supplies are used properly and for authorized purposes.

State supplies and merchandise not currently in use are stored in areas where access is limited to authorized personnel only. Storerooms or warehouses where such property is kept are locked when not occupied and during other than normal working hours. Special protective measures are taken for items having a high pilferage rate or a high value.

An actual physical inventory count of all state supplies and merchandise is made periodically in accordance with the State Administrative and Accounting Manual. Causes for differences between quantities determined by physical inspection and those shown on accounting records are investigated and, to the extent possible, improvements in procedures are made to prevent future error or losses. The responsible official brings accounting records into agreement with the physical inventories after authorization.

Physical inventories are taken and certified by personnel acting under written instructions.

Inventories are taken by personnel other than those normally responsible for inventories.

A perpetual or periodic inventory record is maintained to reflect dollar value and quantities of merchandise for resale and significant supplies inventories.

Supplies and merchandise are arranged so that the earliest received or produced will be issued first.

Damaged and obsolete goods are physically segregated.

Supplies and merchandise are kept neat.

Payroll

Responsibilities for supervision and time keeping, personnel, payroll processing, disbursements, and general ledger functions should be assigned to provide segregation of duties.

A person other than the employee’s immediate supervisor distributes payroll warrants.

Personnel other than employees connected with preparation of payroll distribute forms W-2.

Detailed records of hours worked are maintained and approved, as appropriate.

Payroll charges should be reviewed before disbursements are made.

Payroll charges, including fringe benefits, should be recorded and distributed accurately and promptly.

Written procedures are required for authorization, recording, and controlling sick leave, vacations, holidays, overtime, compensatory time, and stand-by time.

Procedures are established to ensure that all attendance reports and payroll reports are verified by supervisory personnel.

Payroll records and reports should be adequately safeguarded.