How many times have you seen a local newspaper article with news like the following?
Johnson County’s longtime court clerk admitted today to stealing $120,000 of court funds from 2006 through 2009. Becky Cook, 62, faces up to 10 years in federal prison after pleading guilty to federal tax evasion and bankruptcy fraud.
Usually the causes of such cash thefts are (1) decentralized collection points and (2) a lack of accounting controls.
Decentralized Collection Points
Governments commonly have several collection points. Examples include:
- Recreation department
- Police department
- Development authority
- Water and sewer department
- Airport authority
- Building and code enforcement
Many governments have over a dozen receipting locations. With cash flowing in so many places, it’s no wonder that cash theft is common. Each cash receipt area may have different accounting procedures – some with physical receipt books, some with computerized receipting, and some with no receipting system at all. Often these decentralized cash collections points (e.g., landfill) funnel into a central location (e.g., county administrative office).
A more centralized receipting system reduces the possibility of theft, but many governments may not be able to centralize the receipting function.
- Elected officials, such as tax commissioners, often determine how monies are collected without input from the final receiving government (e.g., county commissioners or school). Consequently each elected official may decide to use a different receipting system.
- Customer convenience (e.g., recreation centers and senior citizen centers) may also drive the location decision.
- Other locations, such as landfills, are purposely placed on the outer boundary of the government’s geographic area.
Result: Widely differing receipting systems. Numerous receipting locations with varying controls leads to a higher risk of theft.
Accounting Controls (for Cash)
If cash collections are not receipted, it’s more likely cash will be stolen. If the transaction is recorded, then the receipt record must be altered, destroyed or hidden to cover up the theft. That’s why it’s critical to capture the transaction as early as possible: it makes theft more difficult.
Additional steps that will enhance your cash controls include the following:
- If possible, provide the government’s administrative office (e.g., county commissioners’ finance department) with electronic viewing rights for the decentralized receipting locations (e.g., landfill).
- Require the transfer of money on a daily basis; the government’s administrative office (e.g., county commissioners’ finance department) should provide a receipt to each transferring location (e.g., landfill).
- Limit the number of bank accounts.
- Deposit funds daily.
- Periodically perform surprise audits of outlying receipting areas.
- Use a centralized receipting location (and eliminate the decentralized cash collection points).
- Persons creating deposit slips and handling cash should not key those receipts into the accounting system.
- The person reconciling the bank statements should not be involved in cash collections.
If segregation of duties is not possible (such as 7. and 8. above), consider having a second person review the activity (either an employee of the government or maybe an outside consultant).
When possible, use an experienced fraud prevention specialist to review your cash collection procedures. Can’t afford to? You can’t afford not to. The average incidence of governmental fraud results in a loss of approximately $100,000.
Finally make sure your government has sufficient fidelity bonding.
How about you? Has your government or a government you provide services to suffered a theft of cash?