Exam Procedures

When reviewing cash operations, examiners should determine whether:

  • Adequate policies, practices, procedures, and internal controls exist for all phases of cash operations
  • Officials and employees operate within established guidelines which address cash operations
  • Adequate security measures and surety bond coverage exist for cash operations including cash storage, replenishment, deposit activities, and transportation of cash and cash-like items

Examiners should review and assess controls over cash operations, and evaluate a credit union’s compliance with internal policies and procedures. The NCUA has established specific review procedures for each of the following components of cash accounts:

ATM Change Fund

Credit unions that own (or rent) ATM machines must replenish the cash in the machine(s) regularly. If the machine is located on credit union property, credit union staff may replenish the cash themselves. If the ATM is off-site, such as in a mall or grocery store, a credit union will generally contract with a bonded third-party (for example, an armored car service) to replenish the machine.

When a credit union replenishes the ATM, it will “pull” tape totals on the amount in the machine before and after replenishment. The credit union’s accounting staff should prepare a written reconcilement between the ATM cash replenishment tapes and the GL balance.

When reviewing the ATM change fund, examiners should:

  • Confirm that the credit union balances its ATM change fund daily
    • Management cannot balance the ATM change fund until it reconciles the remaining cash, deposits, and withdrawals to machine output reports
  • Review ATM audit tape totals (printout of ATM transactions from the defined period of reconciliation) to validate that they have been adjusted for reconciling items, and balance to the GL ATM change fund balance
  • Verify that a test of randomly selected individual items reconcile to source documentation (ATM detail tape or GL detail)
  • Verify that management maintains dual control (process requiring two individuals to perform a function) for opening, counting, replenishing, and balancing ATM cash
  • Review the credit union’s internal controls over the ATM change fund
  • Confirm that the credit union has agreements in place with any bonded third parties contracted in association with the ATM change fund (armored car services, servicing contractors, etc.). Refer to the Third Party Relationships Job Aid for more information.
    • Confirm that the supervisory committee periodically audits and verifies the ATM change fund cash reserves do not exceed bond coverage limits

Petty Cash

Credit union staff should prepare a monthly written reconciliation that includes documented cash count and receipts for any purchases made using petty cash.

When reviewing the petty cash fund, examiner should determine that:

  • The balance does not exceed the amount authorized in credit union policy
  • The authorized balance is reasonable
  • Management has physically segregated petty cash from other cash funds and limits employee access to petty cash
  • Petty cash disbursements are supported by valid receipts, and the sum of the cash in the fund, receipts, and vouchers equal the authorized amount
  • Management replenishes the petty cash fund in a timely manner and records receipts in the proper expense categories at least monthly
  • Management approves any changes in the petty cash fund’s balance
  • The supervisory committee or other independent party periodically verifies the fund

Teller Change Fund

At the beginning and end of each day, individual tellers will count the cash in their drawers and complete teller balancing sheets to document the actual cash in the drawer matches the cash assigned to their teller ID (each teller should have their own unique ID to maintain an audit trail) on the credit union’s data processing system. If the cash in their drawer does not balance, the teller will generally post the difference to an expense account (for example, Cash Over & Short). Daily, the credit union’s accounting staff should prepare a written reconciliation between the individual teller cash balancing sheets and the GL balance.

Examiners’ review of teller change fund operations may include a review of the following materials:

  • Master log maintained by the head teller or operations manager
  • At least two days of individual, signed, end-of-day teller cash counts including related daily work transaction vouchers
    • If a teller is off work the day of the verification, examiners should obtain the prior working day’s end-of-day teller cash count and related transaction vouchers.
  • At least two days of system-generated individual teller summary transaction activity reports that reflect the system’s beginning and ending cash balances, check transactions, and cash transactions
  • Teller change fund GL detail
  • Log of bait money, including denominations and serial numbers, assigned to each teller

Bait money is used to aid the tracing of bank robbers. Bait bills are bills whose serial number is recorded by the credit union either by making a copy or by listing in a log book. During a robbery, if robber has taken the bait money, details of this can be passed on to the police.

Examiners review the teller change fund by confirming that:

  • Entries on the Master Log balance to the teller cash counts
    • Individual teller cash counts should balance to the ending cash balance on the system-generated teller summary reports.
    • The total ending cash balances for all tellers should balance to the amount of the overall change fund in the GL.

    The Master Log is a list of end-of-day teller cash balances maintained by the head teller or operations manager.

  • Teller cash counts balance with the next day’s beginning cash on the system-generated teller summary reports
    • Some data processing systems allow manual input of beginning cash balances, which can disguise or postpone recognition of an out-of-balance condition or shortage.
  • Tellers sell their excess teller drawer cash to the vault change fund when cash exceeds their teller limits
  • Credit union has procedures in place to immediately remove terminated tellers’ access to cash operations and to audit tellers’ drawers on their last work day before they leave for vacation
  • Tellers lock their drawers when away from their stations and secure their funds in the vault or designated secure location overnight
  • Credit union clears checks daily and prohibits tellers from holding cash items (checks, IOU’s, drafts, etc.) as part of their change fund balance
  • Debit or credit memos, signed by both parties, document cash purchases from and cash sales to the vault change fund
    • Credit unions should prohibit cash purchases and sales between tellers.
  • Credit union maintains a clear audit trail by promptly and accurately recording all cash activity to the GL, including teller differences
    • Supervisory personnel should regularly review the cash transactions records.
  • Credit union provides transaction receipts to members for all transactions
  • Credit union does not have a slush fund (a reserve created by accumulated unreconciled cash overages) built over time by overages (a staff member could use this fund to conceal shortages)
  • Credit union adequately segregates bait money to prevent teller usage
  • Amounts in tellers’ drawers do not exceed bond limits, if the bond specifies limits
  • Credit union has implemented appropriate internal controls over teller cash

If examiners encounter significant weaknesses as a result of the cash review, they may request and observe a teller drawer count.

Vault Change Fund

Because of the volume and fluctuation of cash, credit unions should balance the vault change fund daily. Examiners should review the following when examining the vault change fund:

  • Master log that lists end-of-day vault cash balances, maintained by head teller or operations manager
  • End-of-day vault change fund counts signed by head teller or operations manager
  • Vault change fund GL detail
  • Reasonableness of the amount maintained in the fund (including the teller change fund) for the needs of the credit union
  • Maintenance of a clear audit trail by promptly and accurately recording all vault change fund activity to the GL
    • The credit union should record and promptly resolve any cash differences.
  • The credit union’s internal controls over vault cash

Money Orders and Traveler’s Checks

When reviewing money orders and traveler’s checks, which are generally off-balance-sheet consignment items, Examiners determine whether:

  • The credit union has adequate policies, procedures, and controls to safeguard money orders and travelers checks over the reserve supply and working supply
  • The supervisory committee or other appropriate personnel (for example, internal audit, independent staff) periodically reconciles the money orders and traveler’s checks
  • Management maintains the inventory of money orders and travelers checks at reasonable levels as governed by membership demand and in compliance with any surety limits outlined in the bond
  • The credit union opens, counts, and records shipments of money orders and traveler’s checks under dual control
  • The credit union maintains records of serial numbers of money orders and traveler’s checks
  • The credit union stores the money orders and travelers checks in a secure location during nonbusiness hours
  • The credit union posts sales fees to the appropriate income accounts daily
  • The credit union sends sales remittances to the issuer promptly
  • The credit union destroys money orders and traveler’s checks, if necessary, under dual control and appropriately logs this activity on a destruction log signed by both parties

If the review of money orders or traveler’s checks discloses significant procedural deficiencies, or if staff have not completed current reconcilements, the examiner observes staff performing an inventory during the examination.

As part of this inventory procedure, the examiner should ask the credit union to request from the issuer a listing of money orders and traveler’s checks issued, but not yet paid. The examiner’s inventory should balance with issuer’s inventory. The examiner should request the credit union explain any discrepancies between the two inventories.

Other Negotiable Items

Examiners review other negotiable items if there are concerns of irregularities on cash balances, procedures, and weak internal controls.

If examiners review other negotiable items, they should verify that the credit union has implemented internal control procedures, such as limited access and inventory controls.

Bank Accounts

Examiners must review bank reconcilements for a credit union’s main (primary) transactional accounts and their associated settlement or clearing accounts. For more information, see NCUA Instruction 5000.20, Examination Scope.

Bank Reconcilements

To review the reconcilement, an examiner requests:

  • Most recent three months of original bank or corporate account statements, including canceled checks, check carbons, or archived (or other electronic) check images
    • Examiners may also request one randomly selected month to verify outstanding items and adjustments
    • If an examiner does not have the current month’s bank statement and unusual activity is noted, they may order a cut-off bank statement (a specific “as of” date)
  • Completed, detailed reconciliations, prepared by either the credit union or a third party
  • GL download or original GL account detail history for the period in review and month after
  • Check register (with copies of checks in paper or electronic format) and a list of outstanding checks from the credit union’s data processing system that corresponds with the bank reconciliation dates being reviewed.
  • Source documents for deposits, bank debits, and credit memos (deposit slips, transaction reports, etc.) that correspond with the reconcilements chosen for verification and review
  • File maintenance report showing backdated items
  • A list of authorized signers on bank accounts (trace list of signers to board authorizations)

To verify the credit union’s reconcilement of the bank/corporate statements with the GL balance, examiners will:

  • Confirm that the bank/corporate opening balance on the reconciliation matches the ending balance on the bank/corporate statement
  • Confirm that the GL opening balance on the reconciliation matches the ending balance in the GL
  • Verify the GL balance includes all accounts on the bank/corporate statement (including loan and share certificate accounts)
  • Scan the GL for credits and debits that have cleared
    • Look for items that appear to be duplicates, unusual amounts, or illogical
    • Tie a sample of credits and debits to source documents (invoices, deposit slips, canceled checks, etc.)
  • Validate reconciling items that have been deducted by the credit union, but have not yet been entered by the bank (this generally includes outstanding checks and other credits to the GL that should subsequently be debits on the bank/corporate statement)
    • Tie the list of outstanding checks on the reconciliation to the credit union’s system-generated outstanding check report
    • Trace a sample of outstanding checks to the check register to compare check number and amount
    • Verify that outstanding checks clear the following month and for the same dollar amount
    • Follow up with credit union staff on checks that have been outstanding greater than 90 days
    • Verify large batch posting items by examining entries on the subsequent account statement
    • Trace a sample of items to source documents (wire transfer receipts, invoices, etc.)
  • Validate the reconciliation items that have been added by the credit union, but have not yet been entered by the bank (this generally includes income, returns, or other deposits-in-transit that are debits to the GL that should subsequently be credits on the bank/corporate statement)
    • Verify the items are posted on the following month’s bank/corporate statement. Staff should not clear deposits-in-transit to another receivable-type GL account.
    • Follow up with the credit union on any items that have not posted to the bank/corporate statement within 30 days
    • Trace a sample of items to source documents (deposit slips, etc.)
  • Validate the reconcilement items that have been added by the bank, but not yet posted to the GL (this generally includes dividends or returns that appear as credits on the bank/corporate statement that should subsequently be debits on the GL)
    • Verify the items are posted on the following month’s GL
    • Trace a sample of items to source documents (dividend statements, return log, etc.)
  • Validate the reconcilement items that have been deducted by the bank, but not yet posted to the GL (this generally includes payments and other debits on the bank/corporate statement that should subsequently be credits on the GL)
    • Verify the items are posted on the following month’s GL
    • Trace a sample of items to source documents (invoices, wire transfers, etc.)
  • Verify that the reconciliation's ending GL balance matches the reconciled statement balance
  • Check the mathematical accuracy of the reconciliation (including totaling the outstanding check list)

To review a credit union’s internal controls over deposits and the bank reconcilement process, examiners will:

  • Verify return items by comparing to the subsequent statement and returns log
  • Select a sample of canceled checks and verify that the amount of the check is the amount shown on the bank/corporate statement and in the GL
  • Review a sample of canceled checks to provide reasonable assurance that the payments are authorized and for a legitimate purpose. Examiners should look for unusual payees, endorsements, and dollar amounts, and unauthorized signatures
  • Review file maintenance reports for items posted where the date is out of transaction number sequence
  • Have the person who created a reconciliation explain anything that merits additional attention or seems confusing
  • Review aging of reconciling items, NSF items, and outstanding checks
    • Generally, credit unions should appropriately clear items older than 90 days unless staff is researching them or settling a dispute. Staff should not clear such aged items to another suspense-type GL account rather than resolving the problem. This can be confirmed by tracing the reconciling item to the GL account where the item cleared.
  • Review management’s aging report that details suspense-type GL accounts to ensure proper monitoring and clearing
  • Review the origin and destination of a random sample of wire transfers provided on the bank statements and verify that the credit union posted the wire transfers to the GL
  • Determine whether the credit union adequately controls non-FEDWIRE transfers (sound controls require that the originating bank or institution confirm a transfer with appropriate personnel not responsible for initiating the transfer)
  • Verify that staff properly marks voided checks “VOID”, and crosses or cuts out the signature portion of the voided check or punches the MICR line
  • Determine the reasonableness of the volume of bank account activity and average bank account balance in relation to the credit union’s asset size, volume and amount of member transactions, and compensating balance requirements
  • Determine that the supervisory committee, internal audit department, or other appropriate personnel periodically audits bank account reconcilements
  • Bank reconciliation findings noted by the supervisory committee or internal audit department should be tracked and resolved by management.
  • Verify that bank account reconciliation policies, practices, procedures, and controls provide for prompt reconcilements, adequate safeguards over the bank account, and accountability
    • Credit unions should complete reconcilements by the due date of the financial statements as specified in the FCU Bylaws
Addressing Issues with Reconcilements

If a credit union’s bank or corporate account reconcilements are incomplete or are more than 60 days in arrears, examiners will follow the procedures outlined in the NSPM.

Credit Bank Account Balance

If a credit union frequently overdraws its account, with or without a written agreement with the bank or corporate credit union, examiners should determine why, and analyze the effect of the overdraw(s) on the credit union’s liquidity and operating costs. Frequent overdraws could indicate liquidity risk, transaction risk, and reputation risk.

Sweep Accounts

Examiners should review a sweep account if it is a new arrangement or if the examiner finds missing contracts, lack of policy, concerns with segregation of duties, or record keeping issues.

If examiners determine sweep account arrangements warrant a review, they should determine that:

  • A written agreement (contract) exists between the bank and credit union
  • The agreement coincides with the credit union’s investment policies and practices
  • The bank records the sweep transactions in the credit union’s name
  • The bank sweeps the credit union’s cash into investment securities permissible for credit unions

Drafts

Credit union drafts include cashier’s checks and on-us share draft accounts.

Cashier’s Checks

When reviewing a credit union’s cashier’s check program, examiners should confirm that:

  • Cashier’s checks are sequentially accounted for, with no unexplained breaks in check numbers or duplicate check numbers
  • Voided checks are retained and accounted for
  • Cashier’s checks are properly approved (in some instances, different authorizations may be necessary, based on dollar amounts)
  • Cashier’s checks are monitored to ensure checks clear in a timely manner
  • The GL account(s) that funds are transacted on are reconciled
  • Reconciliations are reviewed by a second, independent person

On-Us Share Draft Accounts

Examiners should determine that the credit union appropriately accounts for and controls on-us share draft accounts, and that it closes any remaining balance in these accounts to the related liability account before finalizing month-end financial statements.

When reviewing the on-us share draft account, examiners should confirm that:

  • Procedures are adequate to safeguard check stock and dual controls exist where appropriate
  • Checks are sequential, with no unexplained breaks in check numbers or duplicate check numbers
  • Voided checks are retained and accounted for
  • Checks are properly approved (in some instances, different authorizations may be necessary, based on dollar amounts)
  • Checks are monitored to ensure they clear in a timely manner
  • Accounts are reconciled, with no stale dated checks or unexplained variances
  • Reconciliations are reviewed by a second, independent person

Night Deposit Box

Many credit unions offer a secure method to deposit funds after hours through a small vault accessible outside of the credit union. Members may deposit a variety of receipts to include cash and checks. Prudent credit unions institute dual control procedures to access the night deposit box and log, and process transactions on a daily basis.

Last updated on December 18, 2020