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Module 3 CASH COLLECTION Powered By Docstoc
					Module 3: CASH COLLECTION

Module 3: Cash Collection

1.      Introduction

1.1    A high proportion of the revenues collected by councils are still received in cash.
Cash remains highly susceptible to misappropriation.

1.2    In recent years there has been a move away from cash with greater use made of
payments by cheque, standing order and direct debit. However, cash remains the main
source of income at many leisure and catering outlets.

1.3     Most cash frauds tend to be opportunistic and not collusive.

1.4     Consequently, sound central systems and separation of duties are essential.
Auditors need to make themselves aware of all cash streams and should ensure that
internal audit monitor regularly all income. Councils have a wide range of cash
collection points including:

     Central cashiers’ offices

     Outstationed cashiers’ offices

     Housing neighbourhood offices

     Car parks

     Sports centres and leisure facilities

     Parks

     Schools

     Social services establishments.

1.5     This module covers all sources of cash except car parks which are dealt with in
Module 4. Controls over the setting up, varying and writing off of income due (eg rents,
council tax, NNDR, debtors etc) are covered by Module 5. The size of cash frauds can
vary considerably from a few hundred pounds, but where controls are weak or
separation of duties breaks down, the losses can be considerable [Exhibit 1].


An officer in charge of a cash office defrauded £26,000 by stealing cash collections and
substituting them with cheques collected by another council department which had been
handed over to her to bank. She further disguised the theft by altering entries in the
computerised receipting system to reflect the switch from cheques to cash. The fraud lasted
nine months and was discovered when a year end comparison was made between collections
by the other departments and amounts eventually banked by the officer.

2        Types of Fraud

2.1      The main fraud risks are set out in Exhibit 2

Exhibit 2 The main fraud risks

Risk                                      Case Study          Relevant controls checklist

     Theft of takings without                 1,2                 1,2,3,4,10,11,13
      manipulation of records

     Theft of takings                3,4,5,6 and Exhibit 1      As above plus 12,14
      disguised by
      manipulation of records

     Teeming and lading                 7 and Exhibit 1            As above plus 7

     Unauthorised delays in                  9,10            As above and in particular 3
      banking (borrowing)

3.    Case Studies

3.1   Theft of takings without manipulation of records

Case Study 1

An officer was responsible for receiving and banking income from five art galleries. He
was able to steal £10,000 over an 18 month period because there was no regular
independent comparison of cash collections and bankings. The fraud was discovered
when internal audit made such a comparison.

Case Study 2

An administrative officer at a primary school was responsible for recording and banking
all income for both official and unofficial funds. She recorded the income but failed to
bank all of it. An internal audit review identified a shortfall of just over £7,000 over a
three year period.

3.2   Theft of takings disguised by manipulation of records

Case Study 3

A vehicle fleet administrator sold council vehicles at auctions and received the proceeds
in cash. He falsified the fleet records to show that vehicles had been sold for less than
the actual price and over a four year period failed to account for over £36,000. The
fraud was found by internal audit following an anonymous tip-off.

Case Study 4

Inadequate control over the issue and return of receipt books enabled a NNDR recovery
assistant to obtain an official receipt book without it being noted in the financial
stationery record. Cash receipted through this book totalling £12,000 was never
accounted for by the officer. The fraud was discovered when NNDR payers received
statements of account showing them to be in arrears and complained to the council that
they had in fact paid.

Case Study 5

A school secretary stole £35,000 of cash income over a three year period from school
funds. To cover the shortfall of funds at the bank, she delayed sending out cheques to
pay creditors, recorded false information in the cash book, and falsified the audit of the
school fund accounts by presenting an audit certificate on the private accountant’s letter
headed paper which she had stolen.

Case Study 6

A cashier stole £2,300 over a six month period and disguised it by making negative
entries through the cash receipting machine. The fraud was discovered when a
ratepayer, whose money the cashier had stolen, received a summons and complained to
the council.

3.3   Teeming and lading

Case Study 7

Internal audit cashed up all the cash-handling officers in a council’s theatre. The main
cashier had a change float of £1,000 but could produce only £500, claiming that the
balance had been banked a few days earlier as it was no longer necessary. Subsequent
checking revealed that the £500 had been paid in the day after the audit visit. Internal
Audit carried out more detailed investigations and found that the cashier had been
‘teeming and lading’ by substituting cheques received for postal bookings for future
shows against cash from ‘window sales’ which he had misappropriated. He had covered
up his actions by suppressing the ticket sales for future bookings, by not properly
recording postal cheques and delaying the issue of tickets for them. The amount
misappropriated was £750.

Case Study 8

A housing officer, who also acted as a relief cashier, was able to cover up cash extracted
from rent collections totalling nearly £20,000 by substituting cheques. He was also
involved in arrears follow-up and was able to suppress arrears letters for the tenants
whose money he had stolen. The fraud was eventually discovered when internal audit
carried out a bank slip test.

3.4   Unauthorised delays in banking

Case Study 9

A markets superintendent was responsible for collecting cash from market traders and
emptied telephone coin boxes in the market office. He delayed banking the cash and
used it to finance his addiction to gambling. When he won, he paid the money into the
council’s cashier. The cashier failed to report that the superintendent was not paying in
regularly and that some of the payments included personal cheques. The eventual
shortfall identified was over £10,500.

Case Study 10

A secretary was able to misappropriate £3,700 of school meals income because of
inadequate monitoring of bankings. Immediately prior to the fraud being discovered
bankings were five months late without action being taken.

4.       Systems control checklist

Control Objective: adequate controls exist to monitor the activity of all collection
                                                                             Yes       No
1. There are clear, written instructions and procedures for all staff with            
   cash handling duties
2. Supervisors/section heads regularly review and test check work                     
3. There is regular, up-to-date independent monitoring of bankings
   against predetermined limits for:
   amount                                                                             
   frequency                                                                          
4. There is independent comparison of receipts and bankings and                       
   prompt follow up of discrepancies

5. There is a secure system for postal remittances                                    
6. There is an independent review of ‘profit margins’ and ‘trading                    
    account’ performance where relevant (eg bars, catering, sales etc)
7. Each banking is supported by a list of cheques with references to the              
    debts they relate to
8. There is independent control over ‘void’ entries on cash receipting                
9. There is independent monitoring and follow-up of ‘unders’ and                      
    ‘overs’ and prompt follow-up of discrepancies
10. There are surprise visits by internal audit to ‘cash up’ collectors               
11. There are random spot checks on tickets and receipts                              

Control Objective: there is adequate separation of duties in place
                                                                             Yes       No
12. Cash collection staff are not involved in:
         arrears follow-up                                                           
         write-offs                                                                  
     bank reconciliation procedures                                                  
13. Financial stationery is controlled adequately by an independent                   
    person (not internal audit)
14. Periodic statements of account for credit income are sent out                     
    independently of cash collection staff with queries being directed
    back to the sender

5. Cashing Up Procedures

Cashing up should be carried out by a team of two, ideally a nominee of the audited
body’s chief financial officer and an experienced member of the audit team.

The officer should be requested to produce, at one and the same time, all monies for
which he/she is accountable including advances, imprests and voluntary unofficial

The monies produced should be counted by the officer and one of the team and the
composition and total entered on a cashing up statement by the second member of the

The officer should sign a certificate acknowledging the correctness of the amounts
including an assurance that at the time of the cashing up no other monies belonging to
the audited body or any unofficial funds were held. The cashing up statement must be
dated and countersigned by both members of the team. The monies should then be
returned to the officer who should give an acknowledgement of their return.

The cashing up procedure must be completed without a break. Any break may allow the
officer to introduce more cash into the office and claim an inadvertent failure to produce
it when being cashed up.

No opportunity should exist for monies to pass temporarily from another officer to the
officer being cashed up. Should the latter officer leave the scene temporarily, an escort
must be provided by one of the team to prevent the borrowing of money from other

The officer’s accounts should then be ruled off and balanced and the balances entered
on the cashing up statement.

Every instrument of payment (ie cheque) in the officer’s possession must be identified
in the record of collections for that day (audit roll, till roll, computer input etc).

Later it should be ascertained that all monies are banked and that cheques noted during
the cashing up appear on the collecting officer’s paying-in slip. To guard against any of
these cheques being spurious, the bank statements for the next few days should be
examined for ‘Refer to Drawer’ (R/D) cheques.

The officer should be requested to explain any shortage or surplus disclosed.


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