4. Cash and cash equivalents control procedures

Checklist

  • Provide cash and cash equivalents faster than usual.
  • Account for all cash.
  • Retain documentation for all items of expenditure.
  • Adhere to general principles for cash control.
  • Implement physical cash limits.
  • Prepare accurate cash budgets.
  • Calculate cash requests by considering the programme implementation needs, operating costs and replenishment of cash floats.
  • Use cash facilitation in situations where CARE cannot open a bank account.
  • Limit cash floats for purchases to a maximum of USD5,000.
  • Follow standard procedures for cash receipts.
  • Refer to the internal control checklist to determine if adequate cash control systems are in place.

 

In an emergency situation, the focus of the finance department should be to provide cash/cash equivalents and other financial resources faster than usual to allow smooth programme implementation when and where needed. Responding effectively in a fast-paced emergency environment involves increased risk due to the flexibility required to quickly become operational on the ground. For example, staff may need to hand-carry cash to project sites, which may pose both personal and financial risks. All these elements indicate that CARE staff should be aware of this elevated level of risk, and take the required precautions to protect the life of staff members and minimise the risk to CARE’s assets.

It is acknowledged that while this greater flexibility in the use of cash should allow staff to carry out project activities faster than usual, it is equally important to be able to account for it. Under any operating scenario, the basic principles of accountability and cost-effectiveness will require emergency managers to demonstrate how CARE assets have been utilised. This involves producing the required documentation for all items of expenditure (receipts and/or statements that indicate why obtaining the receipts was not possible) and to demonstrate that the expenses incurred were reasonable to achieve programme objectives.

The term ‘cash/cash equivalent’ encompasses physical cash as well as cheques and other cash-equivalent documents. This distinction is made because, at many emergency operations, there may not be banking facilities in operation and only cash payments are acceptable. Where banking facilities are available and operational, the use of cash to conduct daily operations must be discouraged and kept to a minimum.

The following guidelines are designed to orientate CARE staff in basic cash/cash equivalent control and management procedures that apply during emergency operations. These minimum requirements should also help to achieve a reasonable level of control while supporting effective programme delivery.

  • Separate custody of cash from accounting-Staff holding custody of cash, either by being responsible for the safekeeping of funds or by being directly responsible for incurring cash expenses, should not have access to recording accounting entries into CARE’s books.
  • Fraud and corruption-Fraud and corruption are unacceptable and should not be considered limited to simple theft or misappropriation. Conflict of interest by favouring certain suppliers or individuals and influencing decision-making are also examples of corruption. Staff should be committed to the ‘Total disclosure’ principle by agreeing to report any allegation or incident of actual or potential fraud through the management line and to the internal audit department, and by showing support and advice on investigations and further actions.
  • Bookkeeping-In instances where Scala/Sun/Serenic is not used at an emergency operations office, all cash transactions must be recorded in transaction ledgers and submitted for booking in Scala/Sun/Serenic to the nearest location at least on a weekly basis. Transaction ledgers maintained on-site must be updated daily and reconciled before submitting records to the nearest location where Scala/Sun/Serenic is available. Cash reconciliations must be prepared at least monthly by someone independent of the cash receiving, processing and recording activities.
  • Safekeeping of cash-All cash and cash equivalents must be kept in a locked box in a safe or cabinet. Petty cash floats must also be stored in a safe or cabinet overnight. An office receipt must be issued, these must be pre-numbered, and the receipt books must be kept under lock and key.
  • Cash counts-As a key control, cash counts are required to take place, and to be reconciled against cash book records, at least once a week and when responsibility for the cash is transferred between staff members. Cash counts need to be countersigned by a non-finance manager (see section 3).

Transfer of cash between offices/sub-offices-In emergency operations where banking services are not available, it may be necessary to physically hand-carry cash from the nearest office to the site where the emergency operation takes place. All cash transfers between sub-offices must be documented, with signature evidence of the transfer of responsibility between staff members. These cash transfers (i.e. by hand) are limited to a normal maximum of USD20,000 or equivalent unless there is additional authorisation as set out in section 4.4 Physical cash limits (hand-carrying cash and transfer between sub-offices). Another (and preferred) alternative to CARE staff hand-carrying cash is using a cash facilitator (see section 4.7 Cash facilitation ) who, for a fee, will perform the required banking duties on behalf of CARE.

The following are some of the key questions to ask when trying to assess if adequate cash control systems are in place:

 Checklist

  • Are the cash receiving, processing, recording and reconciliation functions clearly segregated, i.e. performed by different people?
  • Is cash listed in the transaction ledger immediately when it is received?
  • Are pre-numbered receipts issued? Is adequate control maintained over unused and used numbers?
  • Is the transaction ledger (including receipts/disbursements) sent directly to those responsible for the general ledger, and cash and bank reconciliation?
  • Is the transaction ledger reviewed frequently by someone independent of the receiving and cash processing activities?
  • Are cash reconciliations prepared by someone independent of the cash receiving, processing and recording activities?

Physical cash limits are established to protect CARE’s and individuals’ accountability, and must be implemented according to the size of the emergency operation, security conditions, availability/unavailability of banking facilities, availability of donor funds, and complexity of donor accounting and reporting requirements. The following are the recommended cash limits. Any exceptions to these limits must be approved in writing by the CARE Country Director or designated manager. Amounts vary depending on the type of emergency the Country Office is experiencing along with additional approval as needed

4.4.1 Cash limits

Description Maximum USD/Equivalent amount
Cash floats-Maximum outstanding balance for staff members USD5,000
Cash-Maximum amount allowed to be hand-carried by CARE staff  USD20,000
Petty cash-Maximum amount allowed to be held as a petty cash float USD5,000
Cash-Normal maximum for storage and kept in a safe in secure location 2 x local payroll costs
Cash-Maximum amount to be transferred between sub-offices USD20,000

Disbursement procedures and limitations on the use of these funds are discussed in section 5 Cash disbursement control procedures . In addition, note that these limits represent the maximum amounts and may be lowered but not increased. The actual limits used should be designated in terms of local currency by a person with sufficient authority, and take into account the purchasing power of foreign currencies in the local environment. All changes in the limits must be properly documented and made available for future audit reviews.

Cash budgets are a list of expenses to be disbursed in cash in situ and, as such, it must not be assumed that all line items in a grant, contract or funds allocations will ultimately be disbursed in cash. The total amount available for emergency programming must be calculated before committing funds to third parties. Cash budgets must also identify the funding source(s) that will be used to cover the required expenditures.

To prepare accurate cash budgets, the finance function needs to be designed to support programme delivery and this is achieved by:

  • providing up-to-date and regular budget compliance reports that indicate the fund balances available for programming. These reports should be provided to field-based staff at least twice a month
  • providing estimates for necessary operating costs and outstanding obligations to be disbursed in cash.

Programme staff must estimate cash requirements according to programme objectives, and always considering the cost implications and expense coding structures.

Annex 17.2 Cash Budget Form 

Cash requests should be calculated taking into consideration programme implementation needs, operating costs and replenishment of cash floats as per an agreed cash budget. The transfer amount(s), frequency and method of delivery will vary depending on security conditions, availability/unavailability of banking facilities and availability of funds.

Cash requests, delivery method and frequency are approved considering the availability of funds, justification of the proposed expenditures and identification of the funding source (ERF funds, fund code). The justification of proposed expenditures must reference the specific donor contract line item(s), where applicable. The Annex 17.19 Cash Request Form must be utilised.

In locations where CARE, for any reason, is not authorised to open a bank account or where authorised banking institutions do not exist, cash facilitation is an alternative method to hand-carrying cash and keeping large amounts of cash at the office. The detailed steps for selecting a cash facilitator are explained in Annex 17.6 Cash Facilitator Selection. It is recommended that the rationale for selecting a particular cash facilitator also should be documented in Annex 17.5 Cash Facilitation Procedure, as it will be useful during auditing. In addition, a sample Annex 17.4 Cash Facilitation Agreement is also attached.

Staff members taking cash floats for purchases are limited to a maximum of USD5,000. This limit applies to the total outstanding balance that a staff member can have before additional cash advances are issued. For example, if a staff member presents an acquittal or settlement for USD3,500 and leaves a balance of USD1,500 outstanding, it means that the maximum amount to be issued, should they require another advance, is USD3,500.

In the event that cash has been passed on to another staff member, then this can be accounted for by evidence of ‘transfer of responsibility’, i.e. a written, dated record signed by the staff member that receives the transfer. The maximum amount procedure explained earlier will then apply to the person receiving the transfer. Finance staff in situ must receive a copy of the ‘transfer of responsibility’ and make the corresponding record in Annex 17.12 Cash Float Transactions Register.

The following is the standard procedure to follow when cash or cash equivalents are received-such as a refund of travel advances, unspent project advances, personal telephone calls and receipt of project funds (local receipts):

  • 1. Immediately document such receipts, whether in the form of cash or cheques, and issue to the payee a pre-numbered official receipt.
  • 2. Official receipts should have three copies, one of which is given to the payee, one of which is retained in the receipt book, and one of which is attached to the Cash Receipt Voucher (see step 5).
  • 3. Deposit all amounts received by the CO or sub-office into a bank account, either on the same day (if the receipt is before the close of banking hours) or the next working day (if the receipt is after the close of banking hours).
  • 4. Also record all such receipts in a Transactions Register.
  • 5. Prepare a Cash Receipt Voucher (Annex 17.9) upon receipt. This document provides instructions on which bank accounts and fund codes/account codes will receive the funds. This voucher is serially numbered by the month.