Cash Losses

SUBJECT: CASH LOSSES NUMBER:
C.3.
DEPARTMENTS & DISTRICTS AFFECTED: ALL AGENCIES, DEPARTMENT, AND DISTRICTS GOVERNED BY THE BOARD OF SUPERVISORS
EFFECTIVE: 1/01/84 REVISED: 5/24/88, 6/99, 6/01, 4/05
 signed_________________________________ David E. Sundstrom, Auditor-Controller
1. POLICY
County officers may be relieved of accountability for a cash loss in any of their accounts pursuant to Government Code Sections 29390 through 29390.1. Officers' accountability for cash losses is to the Board of Supervisors. The Auditor-Controller is authorized to perform the functions of the Board of Supervisors in providing relief of accountability and replenishing losses not exceeding $2,500 in County funds. For losses exceeding $2,500 in County funds, the Auditor-Controller submits applications for replenishment to the Board of Supervisors. All requests for replenishment of cash losses are made in writing to the Auditor-Controller. The Auditor-Controller forwards copies of all reported cash losses to the Internal Audit Department. Upon receipt of cash loss information, the Auditor-Controller reviews the adequacy of the department/agency's request and the circumstances of the loss, and determines whether an investigation is needed. Once appropriate investigative steps have been completed, the Auditor-Controller may provide relief of accountability and replenishment of the loss or may submit a request to the Board.
1.1 Purpose
1.1.1 Cash Loss
The purpose of this procedure is to assist County officers with replenishing and obtaining relief of accountability for a loss in any of their accounts as allowed by Government Code Sections 29390 through 29390.1.
1.1.2 Cash Difference Fund
This procedure does not apply to the establishment, use, replenishment, or discontinuance of cash difference funds, which are used to reimburse cash shortages. For additional information, refer to County Of Orange Accounting Manual Procedure C-2, Cash Difference Fund.
1.2 Authority
1.2.1 Government Code Sections 29390 and 29390.1
California Government Code Sections 29390 and 29390.1 provide for the Board of Supervisors to relieve officers of accountability for cash losses and to delegate the function to the Auditor-Controller.
1.2.2 Board Resolutions
Board of Supervisors Resolutions No. 83-354, dated March 8, 1983, and No. 05-003, dated February 15, 2005, authorize the Auditor-Controller to perform the functions of the Board to replenish cash losses not exceeding $2,500.
1.3 Definitions
1.3.1 Officer
"Officer of the County" includes any elective or appointive officer of the County, and any person in charge of any office, department, service, or institution of the County, or a division or branch thereof, and as enumerated in Section 24000 of the Government Code.
1.3.2 Cash Shortage
Cash shortages are different than cash losses; they are deficits that occur from employee mishandling of cash receipts or disbursements. These deficits may occur during daily operations such as accepting money and making change in over-the-counter transactions. Cash shortages are covered by Procedure C-2, Cash Difference Fund.
1.3.3 Cash Loss
Losses or deficits occurring due to a theft or mysterious disappearance or from an unintentional receipt of counterfeit money.
1.3.4 Reimbursement
As used in this procedure, the term "reimbursement" encompasses the Auditor-Controller recordation of entries to book revenue and offsetting expenditure amounts, and the check payments to replenish cash fund losses (e.g., losses from petty cash).
2. PROCEDURE
2.1 Relief of Accountability for Cash Losses of Less Than $1,000
2.1.1 Immediate Report to Sheriff/Law Enforcement and CEO/Risk Management
Visual or suspected evidence of burglary, theft, or mysterious disappearance of County funds should be immediately reported to the Sheriff or the appropriate law enforcement agency and CEO/Risk Management. Any cash loss, regardless of amount, should be reported to CEO/Risk Management. After notifying the Sheriff (or appropriate police agency), the department/agency must contact CEO/Risk Management. The County purchases a number of commercial insurance policies, and deductibles vary. Additionally, smaller losses at one point in time may develop into larger losses. Therefore, it is important to report the loss to CEO/Risk Management because it may be covered, partially or entirely, by commercial insurance. Comments regarding insurance coverage should be addressed in the department/agency's letter to the Auditor-Controller (see Section 2.1.5).
2.1.2 Counterfeit Bills
Counterfeit bills should be immediately reported and transmitted to the Department of the Treasury/United States Secret Service. It will provide a written receipt for the counterfeit bill(s). The department/agency should contact the County Treasurer's Office for the address of the Department of the Treasury. If a bank identifies counterfeit bills in a County deposit, it forwards them directly to the Secret Service and deducts the amount from the department/agency's deposit.
2.1.3 Employee Fraud or Gross Negligence
If employee fraud or gross negligence is suspected, separate action is required. The department/agency should obtain as much relevant information as possible regarding the incident, and if further investigation is warranted, it should inform the appropriate departments (e.g., District Attorney, Sheriff, local law enforcement agency, Internal Audit Department, CEO/Risk Management, and County Executive Office). At a minimum, it should notify the District Attorney and the Sheriff (or appropriate law enforcement agency). They can suggest additional steps to be taken.
2.1.4 Restitution for Thefts of Funds
Occasionally departments/agencies receive restitution for their cash losses. Even when restitution appears to be available and forthcoming, departments/agencies should submit requests for relief of accountability. They should not postpone their requests until after all restitution payments have been received. Once a loss has been investigated by a department/agency and by other, appropriate agencies, it should promptly submit its request for relief of accountability and reimbursement to the Auditor-Controller (see Section 2.1.5). The amount specified for relief and reimbursement should be the amount of unrecovered loss (i.e., original cash loss minus insurance recoveries and minus restitution payments already received). This amount should disregard and not be reduced for possible future restitution. When the Auditor-Controller prepares final documents for relief of accountability and reimbursement of loss, it will contact the department/agency to obtain an updated amount of unreimbursed loss. After obtaining relief of accountability and reimbursement, departments/ agencies may receive additional restitution payments. If so, they should account for these restitution payments as revenue.
2.1.5 Submittal of Documentation to Auditor-Controller
To obtain relief of accountability and reimbursement for a cash loss, departments/agencies must prepare and submit a letter to the Auditor-Controller's Cost Studies/Mandated Audits Unit describing the circumstances of the loss. The letter must be signed by the department/agency head, or in his/her absence, by the Chief Deputy or Assistant Director. The letter must reference the following:
  1. Management has reviewed circumstances of the loss, and there is no evidence of employee fraud or gross negligence. Or, if there is employee fraud and/or gross negligence, describe the steps taken to recover County funds.
  2. The unit/section in which the loss occurred does not have a history of losses. Or, if it has a history of cash losses, the department/agency has provided employees of the unit/section with additional counseling or training.
  3. The loss did not involve the department's executive personnel.
  4. The loss is not reimbursable by insurance.
  5. Where necessary, procedures have been modified and controls increased to help preclude similar instances from occurring in the future. Specifically describe any new or revised procedures the department has implemented.
2.1.6 Auditor-Controller Action
Upon receipt of a department/agency's written request and cash loss information, the Auditor-Controller reviews its adequacy. The Auditor-Controller provides a copy of the request to the Internal Audit Department.
2.1.7 Relief of Accountability and Replenishment of Loss
Based upon the department/agency's remediation of related control weaknesses, the Auditor-Controller grants relief of accountability to the officer and replenishes the cash loss. For most reimbursements of deposit or revenue losses, a journal voucher is prepared, charging expenditure object 1702, "Cash Losses," of the department/agency that incurred the loss and crediting the deposit account or the revenue source. For most reimbursements of petty cash losses, a check is prepared charging the department/agency's expenditure object 1702 and crediting cash. The Auditor-Controller's General Ledger Unit sends a copy of the relief of accountability statement and of the replenishment document (e.g., journal voucher or request for check) to both the department/agency and the Internal Audit Department. See Procedure B-2, Discharge of Accountability for Collections, for additional information regarding relief of accountability.
2.2 Relief of Accountability for Cash Losses of $1,000 to $2,500
Procedures for handling cash losses of $1,000 to $2,500 correspond to those for relief of accountability for cash losses of less than $1,000 (see Section 2.1), with the following additional requirements:
2.2.1 Submittal of Documentation to Auditor-Controller
In addition to documentation required under section 2.1.5, departments/agencies must provide the Auditor-Controller with copies of any Sheriff or police reports and with other internal department documentation regarding the cash loss.
2.2.2 Request for Investigation by the Internal Audit Department
The Auditor-Controller requests that the Internal Audit Department investigate the incident. The Internal Audit Department reviews documents and correspondence pertaining to the loss and interviews employees and/or department/agency management. Depending on the circumstances and the amount of the loss, the Internal Audit Department may visit the site where the loss occurred. If controls are determined to be inadequate, the Internal Audit Department makes specific recommendations to the department/agency to strengthen controls and provides a copy of the recommendations to the Cost Studies & Mandated Audits Unit. The department/agency provides a letter to the Internal Audit Department, with a copy to the Cost Studies & Mandated Audits Unit, describing its implementation of the recommendations or of satisfactory alternatives to rectify identified control weakness(es).
2.2.3 Internal Audit Department Opinion and Recommendation
The Internal Audit Department provides the Auditor-Controller with an opinion on the adequacy of the department/agency's cash controls in the area where the loss occurred. It also recommends whether the Auditor-Controller should provide relief of accountability and approval for replenishing the loss. If the Internal Audit Department does not recommend relief of accountability and reimbursement of the loss, the department/agency may need to prepare an ASR to the Board of Supervisors.
2.2.4 Auditor-Controller Action
The Auditor-Controller, upon receiving the Internal Audit Department's recommendation, issues a payment or prepares a journal voucher. The Auditor-Controller's General Ledger Unit sends a copy of the relief of accountability statement and of the replenishment document (e.g., journal voucher or request for check) to both the department/agency and the Internal Audit Department.
2.3 Relief of Accountability for Cash Losses in Excess of $2,500
Procedures for handling cash losses in excess of $2,500 correspond to those for relief of accountability for cash losses of $1,000 to $2,500 and (see Section 2.2), with the following additional requirements:
2.3.1 District Attorney Review
The Auditor-Controller submits cash loss documentation to the District Attorney for review and evaluation as to whether the loss resulted from employee fraud or gross negligence. The results of the District Attorney's review are submitted along with other documentation to the Internal Audit Department for its review and recommendation.
2.3.2 Preparation of ASR Approving Relief of Accountability/Loss Reimbursement
Based on the Internal Audit Department recommendation to grant relief, the Auditor-Controller's Cost Studies & Mandated Audits Unit prepares an ASR. The ASR includes a brief description of additional controls established by the department/agency, or a statement regarding adequacy of existing controls, and the following two recommended actions:
  1. Relieve the County officer of accountability for the loss.
  2. Approve reimbursement for the loss and direct the Auditor-Controller to issue a payment or prepare a journal voucher.
If the Internal Audit Department does not recommend relief of accountability and reimbursement of the loss, the department/agency may need to prepare its own ASR to the Board of Supervisors.
2.3.3 Board of Supervisors Meeting
The Cost Studies & Mandated Audits Unit informs the department/agency of the scheduled date for the agenda item. A representative of the department/agency where the loss occurred must be present at the Board of Supervisors meeting to answer any questions regarding the incident.
2.3.4 Board Action
The Board of Supervisors may provide relief of accountability and authorize the Auditor-Controller to reimburse the officer.
2.3.5 Auditor-Controller Action
The Auditor-Controller, on receipt of a certified copy of the Board's action granting relief, issues a payment or prepares a journal voucher. The Auditor-Controller's General Ledger Unit sends a copy of the relief of accountability statement and of the replenishment document (e.g., journal voucher or request for check) to both the department/agency and the Internal Audit Department.
2.4 Auditor-Controller Reporting of Cash Loss Reimbursements
2.4.1 Quarterly Reporting Requirements
After a calendar quarter during which the Auditor-Controller reimburses an individual cash loss that exceeds $1,000, it prepares a written report to the Board of Supervisors giving an account of each cash loss reimbursement that exceeded $1,000.
2.4.2 Annual Reporting Requirements
The Auditor-Controller prepares a written report to the Board of Supervisors giving an account of cash loss reimbursements it made during the fiscal year. This report shall be made after the end of each fiscal year and at such other times as the Board of Supervisors directs or the Auditor-Controller deems necessary.
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