Cash

Cash is the most liquid and accessible asset to many credit union employees. Cash accounts pose elevated risk due to the high volume of cash transactions and ease of manipulation. Credit union management safeguards cash by establishing internal controls over cash accounts to prevent personal use, fraud, or theft.

Examiners review internal controls over cash operations to verify controls are in place to monitor cash accounts, including proper recording of transactions and reconciliation of each account.

To review internal controls over cash operations, examiners perform the appropriate procedures based on the nature of each credit union’s operations and cash accounts.

Cash on Deposit

To review controls over cash-on-deposit, examiners:

• Review written polices and/or procedures for bank account reconcilements, if applicable

  The accounting department is typically responsible for account reconcilements. Separate policies or procedures for bank account reconcilements may not exist.

• Determine which employees are responsible for completing and reviewing bank account reconciliations.

  The completion and review of bank reconcilements is best handled by separate employees. If separation does not exist, the board of directors, supervisory committee, or other designated third party reviews reconcilements.

• Verify that employees complete reconciliations in a timely manner

• Determine the composition of the accounting department and if there has been any turnover

• Verify the credit union has established job rotation or cross-training.

• Confirm that the employees performing the reconciliations do not also have transaction permissions on cash accounts

  This control may not exist at small credit unions with limited staff. Appropriate supervisory committee and board of directors’ oversight is important in credit unions with limited staff.

• Identify and follow-up on any red flags

• Verify that the supervisory committee reviews bank reconcilements periodically to detect potential cash shortages by performing the following activities:

  • Reconciles the amount that is represented as being the balance for the bank to the actual bank statement

  • Reconciles the amount that is represented as being the balance for the books to the balance shown on the financial statement

  • Examines reconciling items to ensure they are legitimate—for example, verify that amounts represented as deposits are actually clearing the following month

  • Reviews outstanding checks to ensure checks carried over 90 days are transferred to an accounts payable account

  • Reviews a sample of canceled checks to ensure payments are made for legitimate reasons; checks may also be tied to vendors’ bills

Vault Cash (Change Fund)

To review vault cash (change fund) controls, examiners:

• Review written policies and/or procedures for vault cash, including, but not limited to, vault access controls and cash shipment replenishments, and determine if vault counts are adequate and current

• Verify the amount of on-premises cash, including vault and ATM, complies with the credit union’s policy limit and bond coverage limit

• Determine if the credit union has implemented vault access controls, including limiting access to appropriate personnel and physical access controls have been established and implemented

• Verify that controls over vault cash comply with board-approved policies or procedures

• Confirm that staff who have access to vault cash are subject to proper restriction of data processing system access levels

• Verify that the credit union requires dual control for opening and counting vault change fund replenishments

  • Review signed debit memos evidencing the replenishments

  • Confirm that management maintains a cash shipment log and varies the timing of cash shipments to reduce recognition of an identifiable pattern

• Determine if the supervisory committee, internal audit department, or appropriate personnel are performing periodic, surprise vault cash counts

• Validate that two-part debit or credit memos, signed by both parties, are available to document cash purchases from and cash sales to the vault change fund

• Verify procedures are in place to prevent employees from commingling vault cash and teller cash

• Identify and follow-up on any red flags

Teller Operations

To review teller operations controls, examiners:

• Review written policies and/or procedures for teller operations, including, but not limited to, daily balancing procedures, cash over/short, transaction override controls, and surprise cash counts

• Perform a walk-through of the teller area to observe teller behavior inconsistent with sound internal controls. Such behaviors could include shared cash drawers or unlocked teller stations when the teller steps away

• Determine if the amount in teller cash drawers complies with the credit union’s policy limits

• Validate that each teller has his or her own code that identifies each of their transactions in the data processing system

• Determine if management instructs employees to keep their teller log-in credentials confidential and to periodically change IDs and passwords

• Verify that computer systems have an activated time-out feature that requires tellers who are away from their stations for prolonged periods of time to sign-on again

• Validate controls over teller operations comply with board-approved policies or procedures

• Verify that policy and system access controls restrict tellers from processing transactions on their own accounts, accounts of family members, or related accounts

• Review debit or credit memos, signed by both parties, that document cash purchases from and cash sales to the vault change fund

• Verify that cash purchases and sales between tellers are prohibited

• Determine if management, the supervisory committee, or other designated third-party is performing periodic, surprise teller cash counts

• Identify and follow-up on any red flags

• Verify each teller has adequate controls over their cash drawer, including proper controls over duplicate drawer keys

ATM Cash

To review ATM cash procedure controls, examiners:

• Review written polices and/or procedures for ATM cash, including, but not limited to, balancing procedures, cash loading, cash over/short, and surprise cash counts

• Determine if the amount of ATM cash complies with the credit union’s policy limits

• Verify that proper segregation of duties is in place related to balancing individual ATMs and system totals

• Determine if the credit union requires dual control for opening, counting, replenishing, and balancing ATM cash and deposits

  • If applicable, determine the process the third-party vendor uses to validate the balance and replenish the ATM cash

• Verify that management has established systems to segregate PINs from credit union personnel

• Validate that there are dual controls over captured ATM cards (cards retained in the ATM due to user error or failure to remove the card from the ATM)

• Validate controls over ATM cash in compliance with board-approved policies or procedures

• Determine if the supervisory committee, internal audit department, or other designated third party has performed periodic, surprise ATM cash counts

• Identify and follow-up on red flags

Cash-like Instruments

Cash-like instruments include money orders, travelers’ checks, postage stamps, theatre/amusement park tickets, and gift cards sold by the credit union. Some credit unions sell these items as a service to members. These items are considered negotiable instruments and may not be recorded on the general ledger or reflected on the statement of financial condition until sold.

Examiners can review cash-like instrument operations to determine if procedures are in place to safeguard these items. To review internal controls over cash-like instruments, examiners:

• Determine which types of cash-like instruments the credit union offers

• Determine if adequate policies, practices, and controls exist over the inventory of cash-like instruments, both in unprocessed form (blank) and after processing

• Verify that management monitors and restricts access to cash-like instruments and maintains a precise record of issued and unissued items

  Typically, money orders, cashier’s checks, and traveler’s checks are pre-numbered, allowing for quick identification of missing items or sequences of items.

• Review inventory procedures to verify existence and implementation of dual controls

• Review controls if management uses signature writers (devices that automatically sign negotiable instruments as they are printed)

  According to best practice, management secures the signature plates under dual control when not in use.

• Verify that the supervisory committee or other designated personnel reconciles the balance of cash-like items periodically

• Identify and follow-up on red flags

Refer to the Cash Operations section of the Examiner’s Guide for additional exam procedures for cash-like instruments.

Last Updated on October 14, 2021