Why Cash Isn’t King- Part Deux

One ongoing theme in our blog is the danger of theft when cash is involved. It’s particularly a problem with charities. I’ve worked as a part-time finance person with several non-profits over the years. I’ve found the employees to be very passionate about what they do, but not necessarily strong business people. This creates an environment in which theft is more likely.
A recent front-page story addressed this issue. A charity had “bought several lots of 50,000 bracelets which were sold quickly”. The bracelets are similar to the “Livestrong” bracelets- they are sold as a fundraising item. The article didn’t specify how many bracelets were sold. Let’s assume just 50,000 sold at $5 each. Since the dollar amount per item was small, let’s further assume that 80% of the bracelets were sold for cash. 80% of $250,000 equals $200,000 cash.
Here’s what allegedly happened: two people, the charity founder and a board member, counted the money collected at the founder’s house in the fall of 2004. They “sorted the cash into bundles, sealed each bundle into a plastic bag and labeled each bag with an amount”. The board member “left…confident that (the founder) would deposit the cash.” She stated in signed statement that the cash totaled about $200,000. “Records show that between 2002 and 2006 just $35,000 in cash was deposited into the foundation’s bracelet account and a total of $45,000 in all foundation accounts”. How do you prove what happened with the rest of the cash? You can’t- there were not sufficient controls in place.
Here’s what should have happened. At least two people, who each initial a form indicating the amount of cash received, count the cash from sales. Bags are sealed and a deposit slip is created. Funds are deposited immediately at a bank teller window or at a lockbox. The deposit receipt is compared with the initialed form to ensure all the cash counted was deposited. Most importantly: the cash should be counted when received- at the fundraising event or the charity’s office.

The Lesson: If you must accept cash, walk through the procedures you use to count and deposit funds.
Your Homework: Have you ever suspected a loss of cash received by your business? If so, what do you believe caused the loss?
(Source: “A charity out of control”, St. Louis Post Dispatch, 6-22-07)