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Auditor’s Corner – Cash Receipts Require Special Protection

By Emmet R. Wood, Director, Audits and Investigations 

You may recall from my previous Auditor’s Corner that I defined internal controls for real estate trust accounts as policies and procedures designed to safeguard the assets of the account and provide reasonable assurance that the account’s books and records are reliable.

Special problems are posed when a real estate company accepts cash. For instance, consider the following scenario:  A real estate company that manages rental units for various owners allows tenants to pay their rent and security deposits with personal checks and/or cash. The company has two rental managers who, when they collect cash, give the tenant a receipt from one of the company’s receipt books and then place the money in a cash drawer. At the end of each business day, one of the rental managers counts the cash collected, prepares the deposit ticket, and deposits the money in the bank the next morning.

Since both of the rental managers have access to the cash drawer, what internal controls could the company initiate to minimize the risk of a cash embezzlement?

The first internal control would be to assign a separate receipt book with sequentially-numbered receipts to each rental manager and limit them to writing receipts only from their own books. The second internal control would be to assign each of them their own cash drawer which only they could access. The third would be for the company to require each rental manager to total his or her cash receipts, balance the total to the money in their cash drawer and deposit ticket, and then deposit the money in the bank on a daily basis.

It may be helpful for you to place yourself in the position of those employees in your company who have access to trust funds, think about how you might take trust money if you were them, and then design a system of internal controls to prevent you from taking the funds. If you need further help, consider consulting a CPA.

This article came from the October 2005-Vol36-2 edition of the bulletin.