United States

Implementing cash controls to discourage theft and fraud


Misappropriation of funds through fraud or theft can occur within any government agency that handles cash. Entities ranging from transportation, utilities, courts and public parking garages or administrative offices can be susceptible to fraud through insufficient financial controls. With increased accountability and transparency requirements, state and local government organizations must ensure proper controls are in place to protect against fraudulent activity.

These crimes can be perpetrated by employees, vendors or even former employees who know the environment, and may still have access to systems. Reasons fraud can occur within your organization are many, including:

  • Greed
  • Poor accounting controls within your organization
  • Organizational complacency, such as working with the honor system
  • A lack of defined accountability over the cash handling process

It is difficult to eliminate greed, but the other three issues can be managed through proper oversight and internal controls.

Think like a banker
Any agency that accepts cash, money orders, checks or gift cards is inherently subject to fraud or theft. Opportunities to commit fraud are likely to occur in three critical areas: where internal controls are weak, where there is a lack of segregation of duties and when management can override preventive controls. Cash has the greatest potential for theft if a system of internal controls is not in place and functioning effectively.

Understanding how, when and where cash is collected and the duties performed by each employee are imperative when designing internal controls. Although no system is foolproof, a well-designed set of internal controls can provide reasonable assurance that significant thefts of cash and record-keeping errors will be prevented or mitigated.

Treasury and finance departments manage revenue to meet the needs of agencies and related programs. The timely collection and depositing of cash is an integral element of this process. In order to minimize risk, organizations should think like a banker when implementing and monitoring cash collection procedures. This mindset reduces the opportunities for theft by establishing accountability and limiting the number of location sites that collect cash.

In addition, assigning a separate cash drawer to each employee responsible for collecting cash makes it easier to track a potential perpetrator. Other beneficial cash collection procedures include:

  • Creating an audit trail by using sequentially numbered receipts, and notifying employees that customers have the ability to report not receiving a receipt
  • Limiting unauthorized access to deposits by storing them in a secure facility, or even a vault
  • Ensuring deposits and balances are verified under dual control and not tampered with
  • Endorsing checks immediately after receipt and making timely deposits

Internal controls best practices
You must have a strong set of internal controls for oversight and protection of assets. While controls must be relevant to your unique processes, the following are some common protections implemented by many state and local government organizations:


Best practices

Cash control

  • Cash handling procedures should be routinely audited to ensure they are being followed consistently


  • Provide cash handling training to departmental staff
  • Where applicable, incorporate adherence to cash handling procedures as part of the staff’s annual performance review, recognizing those that follow policies and procedures and holding employees accountable for misconduct

Physical security

  • Individuals handling cash should be seated in an area with camera coverage
  • To ensure that deposits cannot be tampered with once they are in the safe, consider using tamper-proof bags, or install an anchored, in-ground safe with drop slots

Risk assessment and governance

  • Assess the risk of fraud or errors that can occur or go undetected entity-wide
  • Understand the control environment, and determine what recourse or consequences should be taken if cash is stolen
  • Implement a whistle-blower policy

Policies and procedures

  • Finance or treasury should have comprehensive cash handling policies and procedures to ensure cash items are received and deposited in a secure, timely and effective manner

Segregation of duties

  • Cash should be handled in dual custody, and no one person should have control over two or more steps in the process
  • Deposit slips should be signed and dated to evidence review and approval of the individuals preparing and verifying the deposit
  • Cash should be stored in a dual-controlled facility that restricts individual access


These are just some of the controls that can benefit state and local government organizations, depending on your mission and processes. Although the amount of fraud on financial statements may be considered immaterial, over time, the impact could be significant.

If you think fraud is occurring within your organization, you are probably right. The risks associated with theft and fraud do not only include financial risk, but also reputational and operational risks that are potentially damaging. Therefore, you must be proactive and conduct a risk assessment to know where your risks are, define them and ensure that controls fit the needs of your organization.

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